The SEC’s Mandatory Voluntary Filing Program Extension

June 10, 2008 | General | Bob Schneider

Posted on June 10, 2008 Comments Off

By Neal Hannon Posted on June 10, 2008

Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF). Active in the XBRL community since 2000, he served on the first XBRL US steering committee and has written over 60 articles on XBRL. You can contact him by email.

About a week ago, as I was finishing my post on how an XBRL mandate would help the SEC review more corporate filings, the Commission released details of the proposed rule. Companies with a market float of $5 billion or higher with fiscal years ending after December 15, 2008, will be required to file, in addition to all normal EDGAR filing requirements, a new exhibit containing “certain interactive data” for quarterly reports, annual reports, registration statements, and transition reports. The exhibits would contain interactive data for financial statements, accompanying footnotes, and any applicable financial statement schedules.

A couple of key provisions of the proposed rule, however, are specifically designed to take some of the starch and sting out of the XBRL requirement, thus rendering it simply a mandatory extension of the voluntary filing program. Consider the following passage from page 19 of the “Interactive Data to Improve Financial Reporting” rule:

Data in the interactive data file submitted to us generally would be subject to the Federal securities laws in a manner similar to the voluntary program and, as a result, would be:

• excluded from the officer certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act;

• deemed not filed for purposes of specified liability provisions; and

• protected from liability for failure to comply with the proposed tagging and related requirements if the interactive data file either

• met the requirements; or
• failed to meet those requirements, but the failure occurred despite the issuer’s good faith and reasonable effort, and the issuer corrected the failure as soon as reasonably practicable after becoming aware of it.

The proposed rule contains no officer certification; the exhibits are furnished, not filed; and no additional liability will be assessed to the filer for errors in tags that are applied in “good faith and (with) reasonable effort.”

Additionally, auditors are specifically not invited to the tagging party. Consider Section II. C. 3 of the proposed rule (page 67-68):

As the technology associated with interactive data improves, issuers may integrate interactive data technology into their business information processing. When this integration occurs, the preparation of financial statements may become interdependent with the interactive data tagging process. As this occurs, an issuer and its auditor should evaluate these changes in the context of their reporting on internal control over financial reporting. However, the evaluation would not require an auditor to separately report on an issuer’s interactive data provided as an exhibit to a filer's reports or registration statements.

In this section it seems that the SEC is alerting companies and their auditors to the strong likelihood of XBRL tagging becoming an essential part of the financial control and reporting process. Auditors and the management team may be very interested in the process and the results, but they are not required to separately report their findings to the SEC.

I remember back in my youth when the early morning swimming instructor, coaxing us into the outdoor pool, would say “jump in, the water’s fine.” We all got a nice shock and eventually adjusted to the cold water before settling down to the serious business of learning how to swim. Companies will learn to swim in the interactive data waters during the mandatory voluntary filing program. Let’s hope they learn enough before they face the shock of XBRL filings with full legal liability.

← The Upshot of Japan’s XBRL Voluntary Program — and Why So Many Companies Signed On

An Interview with Walter Hamscher →

The SEC’s Mandatory Voluntary Filing Program Extension

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