Written by Gary Purnhagen    Published on December 17, 2008

Gary Purnhagen has more than 20 years’ experience in helping firms in diverse industries meet document processing challenges, including SEC disclosure. His past experience has included responding to the SEC’s EDGAR program, use of the Internet and other digital media for information dissemination, and most recently the evolving use of XBRL for financial reporting. He is an independent consultant assisting firms in embracing innovation and responding to the SEC’s XBRL mandate..

With just ten business days left in the year, the SEC’s commissioners have finally voted to require XBRL exhibits by a margin of 4 to 1. Even stalwarts like myself were beginning to worry. [Editor’s note: See Gary’s discerning November 4 prediction.] The pundits speculated that, with the recent criticism leveled at the SEC, Chairman Cox would drop his pet project and slip out of town quietly. He has been curiously quiet about XBRL lately, but that was the best approach for a politician working behind the scenes to see this initiative through to rulemaking.

Congratulations Chairman Cox! I have said it before and I will say it one more time: you have been brilliant in championing this global standard in the U.S. We will all be better off for it.

The SEC adopted the rules for both public companies and investment management companies as proposed. There are a few exceptions, most notably the phase-in schedule:

• The first group — large accelerated filers with more than $5 billion in common equity float and filing under U.S. GAAP — must comply for the first fiscal period on or after June 15, 2009. This effectively means that calendar year-end companies will be required to submit interactive exhibits with their June 30, 2009, 10-Q. This is a change from the proposed rule of an effective date of December 15, 2008.

• All other large accelerated filers will have to comply starting one year later, and the remaining filers will have to comply starting one year after that.

• For investment management firms, the effective date for filing the risk/return summaries for prospectuses was pushed back to January 1, 2011.

For public companies, the Voluntary Filing Program (VFP) will end 60 days after the final rule is published. After that, XBRL filings will fall under the final rule requirements. For investment management firms, the VFP will continue past the effective date of January 1, 2011, for the risk/return portion of prospectuses, with financial statements continuing to be allowed and now expanded to include the portfolio holdings for funds.

Another change from the proposed rule is that a company can choose, but is not required, to tag narrative disclosures.

Most watchers of the SEC’s proposed XBRL rules have focused on the impact on 10-Qs, 10-Ks, and 20-Fs. However, the rules state that any time a company is issuing new or updated financials, an interactive exhibit using XBRL is required. This includes transition reports, 8-Ks and 6-Ks with updated financials, and registration statements providing such financials.

XBRL-formatted data will have the same liability as in the VFP, which excludes officer certification and does not require auditor assurance; however, limited liability will be phased out over two years.

Rules regarding Web site posting of the XBRL exhibits, the fact that XBRL exhibits are supplemental to the HTML or ASCII filing, the phase-in approach to tagging footnotes, and the grace periods for first filings remain as proposed.

The provision for limited liability for the first two years was the reason for the one dissenting vote by Commissioner Aguilar. He felt strongly that the SEC should in no way be loosening the liability provisions for filings in the current climate.

Chairman Cox addressed the current financial crisis by stating that XBRL will allow for better transparency to all disclosure filings and specifically cited testing of tagging Asset Backed Securities with XBRL. It was the opinion of a number of SEC commissioners and staff that XBRL could assist in restoring investor confidence. If XBRL had not been in existence before now, this financial crisis would have demanded its invention.

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