Written by Neal Hannon     Posted on February 13, 2009    

Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF). Prior to joining the FAF, Neal was a member of the accounting departments at the University of Hartford and Bryant University. 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.

When the final rule Interactive Data to Improve Financial Reporting was published in the Federal Register on February 10, 2009, it was pretty much in line with the proposed rule that was published on May 30, 2008. In Part I of this post, I covered many of the outstanding questions, such as how exactly to qualify a company for each of the three mandatory start periods, what levels of tagging are required in the rule, and more specifics on the liability issue. The final rule did, however, contain a few things that surprised me and may catch some companies off guard.

The Shortened Grace Period

The proposed rule asked the question, Would a 30 day grace period be useful to companies filing for the first time? The initial thought was that this grace period would extend for the filer’s entire first year in the program. When the final rule came out, page 6791 of the Federal Register contained the following:

We acknowledge all of these concerns and suggestions, and while we are adopting the grace periods substantially as proposed, we are deferring the start of the phase-in which we believe may help to alleviate potential burdens by giving more time to prepare the initial submission. We also believe that the eventual dropping of the grace period after the initial submissions will help to make the interactive data files more useful and relevant to investors by requiring the submissions at the same time as the related official filing. (emphasis added)

The surprise is that after the first filing of XBRL exhibits, the 30 day grace period goes away. For example, Ford Motor Company will be required to file their second quarter SEC reports with XBRL, assuming their second quarter in 2009 ends right after June 15, 2009. With the first submission, they will have a 30 day grace period in which to submit XBRL matching their 10-Q filing.  In the third quarter of 2009, the grace period will not apply and the XBRL will be due at the same time as the third quarter 10-Q filing. 

Companies that have elected to use an outsource model for creating XBRL exhibits will find themselves in a time crunch, unless the process is well thought out and well tested ahead of that second XBRL filing. With only one filing to practice the coordination between outside vendor and the inside accounting experts before the 30 day grace period evaporates, companies should pay special attention to getting a solid process in place that won’t impact an on-time filing. Remember, late XBRL can cause a company to be considered “late".

I predict that many firms who initially outsourced their XBRL will now begin to take a second look at their decision and consider bringing the whole process back inside the company. 

The New Voluntary Program

Although the SEC is officially ending the Voluntary Filing Program on April 10, 2009, they have elected to accept any company’s XBRL filings associated with required filings ahead of any mandatory requirements. In other words, any company — foreign or domestic, large or small — that is not already mandated to begin filing XBRL after June 15, 2009, can experience the joy of tagging at any time before their mandated time begins. 

From the final rule:

Companies that are not required to provide interactive data until a later time will have the option to do so earlier and may provide interactive data at their discretion until required by the amendments. Such a company may also tag footnotes individually as a block of text until required to tag the detailed quantitative disclosures within the footnotes and schedules, but otherwise must follow the same requirements as those mandated and can only use a grace period for its initial submission and the initial detail-tagged-footnote submission, whether submitted voluntarily or as required by the amendments. Companies may cease voluntary submissions at any time and need not tag their financial data at a pace other than at which the rules otherwise would require. (emphasis added)

We will continue to consider, however, the advisability of permissible optional or required interactive data for disclosures made outside a set of financial statements prepared in accordance with U.S. GAAP or IFRS as issued by the IASB or related financial statement schedules required under Commission rules.

A new voluntary program with rules has been born. Companies can elect to file XBRL schedules early but need to follow all the rules set forth in the final rule, the EDGAR filing manual, and XBRL validations. No more VFP where just about anything filing would be accepted. This time if you elect to file XBRL before your mandatory date, you will be expected to comply with all the filing rules that would be in effect if your participation was mandatory.

This gives companies the ability to be early adopters and participate at the same time as the mandatory 500 first required filers. Companies that take advantage of this option will be able to back out prior to their mandated start time. On the positive side, they will gain both experience and market exposure for their XBRL filings. On the negative side, they will lose their 30 day grace period for filing XBRL schedules once they are required to file. The 30 day grace period for the first time they file detailed footnotes will still apply if, during the pre-mandatory period, they do not file detailed footnotes. Once a company begins to file detailed footnotes, they will only get one 30 day grace period, regardless if they are filing ahead of their mandatory time or not.

Market forces will determine how many of the second- and third-year mandatory participants will elect to begin their XBRL experience early. Bottom line is that every company who is required by law to file with the SEC should be preparing for XBRL submissions as soon as possible.

UPDATE 2/17/09   Neal writes "Several readers have asked for more information regarding the detailed tagging of notes.  This topic will be addressed in detail in a future column."

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