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Wilson So is the Director of Hitachi Consulting Corporation A Round-Up on the SEC’s Proposed Rule for XBRL Adoption
Written by Bob Schneider Posted on May 27, 2008
As Gary Purnhagen reported in his recent post, the SEC voted 3-0 on May 14 to propose a rule that would mandate XBRL for financial reporting. Here is a round-up of some of the interesting commentary and links on the proposal:
Rob Blake live-blogged the announcement for the new (and very promising) Bowne for XBRL blog. I agree with his assessment that the SEC “…closely followed the recommendation of CIFiR” and was a little less aggressive than some observers had predicted. In the view of Rob and others, a particularly noteworthy item was the SEC’s recommendation on notes:
For year one of a registrant’s XBRL filings, the SEC will require the statements to be tagged in detail but the notes/footnotes in “block” or summary tagging only. No surprise here…trying to “ease” companies into the tagging of the narrative information. But year two…wow…they are heating things up a bit. A registrant’s second year (and assumed beyond) XBRL filings will have the notes/footnotes provided in detail tagging, just like the financials. That’s a substantial workload increase for year two of XBRL creation over year one. Technically a company could begin the detailed tagging process during year one and simply choose to only submit the summary tagging for the notes/footnotes to the SEC but still…watch out for year two!!!
Dominic Jones at the IR Web Report generally agrees with this appraisal and attempts to quantify the cost:
The cost and burden of preparing deep-tagged footnotes and schedules in the second year appears to be unknown. I think it could easily be double or triple that of tagging the face of financial statements.
John Turner on his Insight blog also found this part of the announcement interesting and surprising, but he demurs on how onerous it will be:
Some commentators have suggested that [deep-tagged footnotes] will be very burdensome. I happen to think that the next generation of tagging tools, which I expect to be available before too long, will take most of the pain out of the process. I think that the SEC is trying to ensure that XBRL can eventually replace traditional filings, and, in any event, by ensuring that notes are tagged in detail, they are guaranteeing that the markets will get their hands on the structured data that they really want.
Broc Romanek at the TheCorporateCounsel.net, however, is generally skeptical on costs: “Put me down as leery of the SEC’s estimate that the average price for an XBRL conversion will be under $30,000 and require less than 40 hours of work.” He also weighs in on the “furnished” versus “filed” debate:
During the meeting, the SEC was coy about what the proposed liability scheme will be (and who might be on the hook for the tagging). It was mentioned that there would be “limited” liability, but no one mentioned if XBRL data would be considered “furnished” rather than “filed,” as is currently the case under the SEC’s pilot program. This is an issue that likely will be intensely debated during the comment period, regardless of what the SEC actually proposes (and in my opinion, limited liability for the accuracy of the financials is a huge mistake — if investors can’t rely on the numbers tagged in XBRL, what’s the real value of them?).
As for the longer term impact on an XBRL mandate on equity research, this is the take of Integrity Research Associates:
Research processes will also change dramatically. The sell side outsources much of its junior analytic work to teams in India. These requirements will be dramatically reduced once financial data is tagged and easily (and quickly) incorporated in financial models. There are similar implications for information companies such as Bloomberg, Thomson Reuters, Factset, etc, some of which were slow to embrace the changes, but now paying close attention to both the XBRL and RIXML initiatives.
Here are some other useful commentary and primary source links:
• The Motley Fool, one of the leading sites for individual investors, is very enthusiastic.
• Another optimistic appraisal at istockanalyst
• Good summaries of the details are provided at the FEI blog, Financial Week, and AccountingWEB.co.uk
• SEC press release on proposed rule
• Statement of James Lopez, SEC staff member, on specifics of the rule
• The webcast of the meeting (scroll down to the May 14 files)
• XBRL US white paper on the proposed rule
• Pozen Committee Interim Progress Report
As TheCorporateCounsel.net noted, there’s confusion right now about what exactly the SEC is proposing on furnished versus filed statements and the role of assurance. The proposed rule should be published soon; let’s hope it gives us specific answers on what the SEC intends on these key issues.