Written by Neal Hannon Posted on October 15, 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.
Neal wishes to thank Walter Hamscher for his assistance in preparing this post.
What is the difference between level 1 block tags and level 4 tags as defined in the SEC's proposed rule for XBRL financial reporting? The answer lies in the details of the footnote itself. Footnotes and disclosures contained within footnotes are an essential part of financial statements adding more detail and understanding to the financial condition of a company.
What are the footnote tagging requirements according to the SEC's proposed rule? The SEC's proposed rule identifies four levels of tagging:
- Each complete footnote tagged as a single block of text;
- Each significant accounting policy within the significant accounting policies footnote tagged as a single block of text;
- Each table within each footnote tagged as a separate block of text; and
- Within each footnote, each amount (i.e., monetary value, percentage, and number) separately tagged, and each narrative disclosure required to be disclosed by U.S. GAAP (or IFRS as issued by the IASB, if applicable), and Commission regulations separately tagged.
The image below shows when each type of tagging will be required as proposed in the SEC rule. (As with all the thumbnails in this post, click it to open the image in a new tab or window.)
What is Block Tagging (Level 1)?
According to the SEC proposed rule, Level 1 tagging means tagging each complete footnote as a single block of text. Block tagging may also include the embedding of HTML tags for formatting purposes.
Using block tagging, XBRL tags are placed around an entire block of text and numbers. The simple process of block tagging a note to a financial statement would involve the following steps:
- Select the block of text you wish to tag. This could be the note explaining a company's application of fair value or their disclosure of investment securities.
- Select the text block tag from the XBRL taxonomy and create your text block in your XBRL tagging tool of choice. Most companies will choose: FairValueDisclosuresTextBlock
Here is an abbreviated example of block tagged note number 2 from the Bank of Hawaii's recent form 10-K:
The actual text of the tag is considerably longer than the above sample but illustrative of how a block tag works, including HTML for formatting purposes.
Level 2 Tagging
Level 2 tagging requires that each significant accounting policy within the significant accounting policies footnote be tagged as a single block of text. The tagging methodology for level 2 will be the same as level 1.
Level 3 Tagging
Level 3 tagging should be considered as part of level 4. As written in the proposed rule, each table within each footnote will be tagged as a separate block of text and be combined with all Level 4 requirements as detailed below.
Level 4 Tagging
At level 4, which is applicable to all companies after their initial year of block tagging, the proposed rule requires companies to deeply tag every footnote. Within each note, any monetary value, percentage, or number will need to have an XBRL tag applied; however, it is not necessary for that level of tagging to exactly preserve the original formatting or layout, because it is assumed that if the level 4 tags are available then the level 1 tags are too.
Here again is what the SEC's proposed rule says about level 4 tagging:
(4) Within each footnote, each amount (i.e., monetary value, percentage, and number) separately tagged and each narrative disclosure required to be disclosed by U.S. GAAP (or IFRS as issued by the IASB, if applicable), and Commission regulations separately tagged."
If the company is following IFRS, as issued by the IASB, the IFRS disclosures will also need to be tagged. Companies may also want to expose additional information contained in detailed footnotes that go above and beyond US GAAP requirements.
So level 4 tagging means preparing an XBRL tag for:
1. Each and every number, monetary value, percentage, etc. contained within a footnote;
2. All GAAP required disclosures; and
3. Company-specific disclosures that go beyond GAAP requirements
The third item hasn't been specifically asked for in the proposed rule but preparers may want to include them in their XBRL exhibits.
XBRL Implications for Level 4 Tagging
To capture each and every numerical disclosure included in a footnote, companies will need to use the dimensions capability of XBRL. XBRL software tools with dimension capability such as Fujitsu XWand, Rivet Dragon Tag and UBMatrix Report Writer have the capability to produce the correct XBRL. Clarity FSR also has dimension capability.
To address the need to separately tag each narrative disclosure, accountants will need to identify which lines within the footnote are being driven by US GAAP and Commission regulations. The accountant will need to dissect the narrative to discover the correspondence between what is disclosed and US GAAP. Level 4 tagging requires each narrative GAAP disclosure to be separately tagged.
The US GAAP taxonomy contains thousands of elements specifically created to capture required narrative disclosures. The task of the accountant will be to match the accounting intent in the required disclosure to the correct element in the US GAAP taxonomy. If management's accounting intent as represented by a particular disclosure within a footnote cannot be matched to an existing XBRL element, the company will have to create an extension to the taxonomy.
Here are the steps required for level 4 tagging:
1. Identify and tag each amount of all numerical disclosures (i.e., monetary value, percentage, and number). Multi-dimensional data often found in tables is tagged using the dimension capability of XBRL.
2. Identify and tag all narrative disclosures that are present in the note due to disclosure requirements in US GAAP or SEC regulations.
3. Block tag all remaining textual disclosures that are not driven by US GAAP requirements.
It's likely that companies will want to extend the taxonomy to capture required disclosures that are not currently represented by elements in the US GAAP taxonomy. This need will be driven by the many different interpretations allowable under US GAAP that meet the test of complying with GAAP disclosure requirements. Accountants will make the judgment call concerning whether management's accounting intent in the disclosure under XBRL review is correctly represented by an existing US GAAP taxonomy element or there is a need to create a new extension.
Bank of Hawaii Level 4
Let's take a look at a portion of a footnote tagged to level 4 requirements for Bank of Hawaii.
Here is the table for Gross Gains and Losses from the Sales of Investment Securities as presented in the 10-K. The raw XBRL appears below the table:
Here is a pivot table created by the US GAAP taxonomy team at XBRL US to demonstrate how the above XBRL (tagged with dimensions) data could be displayed in Excel:
Level 4 Required Disclosures
The second type of level 4 tag is for required US GAAP disclosures. Here is an example of a required US GAAP disclosure embedded in the text of a note for Bank of Hawaii from a recent form 10-K:
Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. Trading securities, comprised primarily of mortgage-backed securities, are carried at fair value, with realized and unrealized gains and losses recorded in noninterest income. Held-to-maturity investment securities comprised of debt and mortgage-backed securities, that management has the positive intent and ability to hold to maturity are reported at amortized cost. Available-for-sale investment securities, comprised of debt and mortgage-backed securities are those that may not be held-to-maturity and are reported at fair value, with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. The estimated fair value of a security is determined based on current market quotations. A decline in the fair value of investment securities that is considered other than temporary is recorded as a reduction in noninterest income. Realized gains and losses are recorded in noninterest income using the specific identification method. Interest and dividends on investment securities, including amortization of premiums and accretion of discounts, using the effective interest method over the period to maturity, are included in interest income.
The underlined text is a required US GAAP disclosure. The financial reporting accounting team will be able to identify the sections of text inside a note that are driven by US GAAP requirements and those that are not. It is likely that some companies will elect to separately tag each and every line of text as printed in the footnotes.
Looking at the US GAAP taxonomy, the following element was identified as a proper accounting fit with the above disclosure:
From the US GAAP taxonomy:
Once identified as the proper tag, the next step is to marry the appropriate text to the taxonomy element. The results (without HTML formatting tags) look like this:
The XBRL in the image would be added to the instance document submitted to the SEC to comply with level 4 requirements.
Block tagging simply takes the text and numerical displays from a note to a financial statement and adds a block text tag to the information. The resulting XBRL will be compliant with the SEC's first year notes tagging requirements but will yield little or not additional information. Level 3 tagging, required in the second year of participation, places each table occurring in a Note into a separate element. Level 4 tagging, also required in the second year of participation in the new SEC program, requires detailed tagging of the notes including each amount (i.e., monetary value, percentage, and number) separately tagged and each narrative disclosure required to be disclosed by U.S. GAAP (or IFRS as issued by the IASB, if applicable), and Commission regulations separately tagged.
The financial reporting team will be called upon to not only tag each amount but to also extract from the language inside a note to provide required narrative disclosures driven by US GAAP. The first time this task is completed, the accounting team will need to be deeply involved in the XBRL creation. Only members of the team that created the disclosure will understand the intent of the item and therefore know how to properly match it to the US GAAP taxonomy.