Written by Neal Hannon     Posted on November 21, 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.

The US GAAP taxonomy as published on April 28, 2008, is 13,000-plus elements deep.  The reason the taxonomy is so detailed and deep, according to the SEC’s proposed rule 33-8924, is to promote the uniform use of a common set of tags.  Here is a passage from the proposed rule:

"One of the principal benefits of interactive data is its extensibility—that is, the ability to add to the standard list of tags in order to accommodate unique circumstances in a filer’s particular disclosures. The use of customized tags, however, may also serve to reduce the ability of users to compare similar information across companies. In order to promote comparability across companies, our proposed rules would limit the use of extensions to circumstances where the appropriate financial statement element does not exist in the standard list of tags. We are also proposing that wherever possible, preparers change the label for a financial statement element that exists in the standard list of tags, instead of creating a new customized tag."   (Emphasis added)     

The XBRL US GAAP Preparer’s Guide, published by XBRL US, is very neutral on the subject of extensions.  It recognizes that extensions are likely to be created and gives several methods of extension creation, but also offers this note of caution:

Rule: Use elements from the XBRL US GAAP Taxonomy whenever possible.

Needless to say, companies who are focused on expressing the accounting intent of the management team in XBRL will find a compelling desire to create their own extensions to the taxonomy. To illustrate, let’s look at a company that has been an active supporter of the SEC’s Voluntary Filing Program, EDGAR-Online.  EDGAR-Online’s recent form 10-K and 10-Q filings had the following item on the bottom of the statement of income:

Weighted Average Shares Outstanding

26,011

26,363

25,920

26,321

The numbers represent quarterly ending numbers for 2007 and 2008.  According to the way EDGAR-Online presented the information, finding the proper XBRL element was a challenge.  Two possible candidates exist in the US GAAP taxonomy:

1. WeightedAverageNumberOfSharesOutstandingBasic  and
2. WeightedAverageNumberOfDilutedSharesOutstanding

Neither standard XBRL element by itself fit the unique presentation of terms shown on the EDGAR-Online form 10-K and 10-Q.  The EDGAR-Online team decided they had to create an extension to the taxonomy.  The result was:  

edgr:WeightedAverageNumberBasicDilutedSharesOutstanding

This new element combined the Basic and Diluted shares outstanding concepts into one element that matched their financial statement presentation.

A brief search of the authoritative literature associated with weighted average shares outstanding, Financial Accounting Standards (FAS) 128 paragraphs 8 and 40, found that if companies have a capital structure which dilutes shares outstanding for the purpose of calculating earning per share, the amounts would have to be separately reported on in a footnote disclosure. EDGAR-Online indicated that the number of weighted average shares outstanding basic and diluted were the same on their financial statements. 

The US GAAP taxonomy offers two choices, either basic shares outstanding or diluted shares outstanding.  The wording used in the EDGAR-Online’s financial statements indicates that for EDGAR-Online, the number of basic shares outstanding and the number of diluted shares outstanding is exactly the same.  Therefore, EDGAR-Online chose to create an extension element to report the combination of the two elements into one. 

EDGAR-Online could have chosen one of the US GAAP elements and changed the label.  For example, they could have chosen to alter the label for the following:

Role	Lang	Label
Standard Label	en-US	Weighted Average Number of Shares Outstanding, Basic
Documentation	en-US	Number of basic shares determined by relating the portion of time within a reporting period that common shares have been outstanding to the total time in that period.

If they changed the standard label to read, “Weighted Average Number Basic and Diluted Shares Outstanding” while keeping the presentation linkbase, the reference linkbase, and the calculation linkbase the same as before, the adjusted standard label would have matched the way the company presented the item on their face financial statements.

A quick look at the authoritative references for the “basic” and the “diluted” weighted average shares outstanding indicates that a changed label in this circumstance should not cause any questions to the accounting treatment of the label adjusted element.  

According to the folks at XBRL US, the current stream of XBRL filings in the extension of the SEC’s voluntary filing program will be reviewed for possible inclusion in the next major release of the US GAAP taxonomy, which is due out early next year.  Perhaps we will see the EDGAR-online extension for weighted average shares outstanding make the updated taxonomy in 2009.

Second Thoughts

The people at EDGAR-Online decided to make a change in how this item is presented in their latest quarterly filing.  The November 11, 2008, 10-Q EDGAR-Online filing includes a separate line item for Weighted Average Number of Shares Outstanding, Basic and Weighted Average Number Of Diluted Shares Outstanding.  According to the company, the new presentation will be a clearer representation of the XBRL to analysts. 

Clearly, the choice of XBRL tags is an important decision driven by a multitude of considerations beginning with the accounting treatment and ending with the analyst’s or investor’s view of the chosen tags.  In any case, companies should first choose the correct accounting treatment of an item in their financial statements and accompanying footnotes and then choose the XBRL element that best represents management’s accounting intent.

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This entry was posted on Friday, November 21st, 2008 at 11:29 am and is filed under General, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.