To Outsource, Or Not To Outsource, That Is The Question

With the 2011 taxonomy finally being adopted by the SEC and the remaining public filers preparing to implement interactive data, tensions are running high. Even though the SEC hasn’t given a set date for the 2011 taxonomy to be used, they highly recommend that adoption occur ASAP. With a long list of additions, deletions, and changes, companies face the inevitable: to outsource or not to outsource?

As a financial officer, I know that -- from a company’s standpoint -- the first thought will always be price: how much can we save by NOT outsourcing? Will the hours spent bringing XBRL in-house outweigh the costs of outsourcing? As one recent article noted, considering the price of the Sarbanes-Oxley Act of 2002, the implementation of interactive data seemed quite insignificant. After finding the right outsourcing company for the job, the hard part was to be over. The external reporting department celebrated that they didn’t have to put together the interactive data files. Weight and responsibility were lifted off their shoulders.

Or so they initially thought.

With Phase 1 -- block tagging – it’s easy to get an SEC filing ready and hand it over a week before the filing date to ensure the outsourcing company can prepare their files. Over the next couple of quarters, things are easy breezy. Then comes Phase 2 -- the dreaded detail tagging -- with thousands of additional required tags. The process starts off the same -- with element selection -- but requires more assistance from your team to determine the right elements are selected for all of your numbers. What may seem easy for you may be hard to explain to the outsourced company, which may not be as technically proficient when it comes to accounting. Then comes the inevitable creation of custom elements, dimensions, text blocks, abstracts, etc. This may take a while as well, but, once you have everything done correctly, this will be easy to manage from quarter to quarter because very little will change. Unless there is a new taxonomy published and hundreds of changes are made… but that’s a whole different story.

Now comes the easy part, right? All you need to do now is put together your SEC filing, ship it to the outsourced company, and forget about it. However, what if there is a change that occurs during the reporting period? What if you need to add a few new elements? What if you need to add a few new footnotes? Will your outsourced company be as responsive? Will they be held to the same turnaround you proposed in the beginning of the contract? What happens when the outsourced company has more clients than originally anticipated and don’t have a plan to compensate? What will you do then?

I don’t think outsourcing is a bad choice at all; I’m simply suggesting that forward-thinking financial officers need to consider all scenarios regardless of the path they choose.  It’s worth considering and asking your team or outsourced providers up front to ensure there are no unpleasant surprises down the line.

In my next article, I’ll discuss the review process and getting your executives comfortable with the XBRL process.

by Scott Barta