Believe it or not, a decade has elapsed since June 2009, when the SEC implemented its XBRL-tagging requirement for financial disclosure filings. Three years later, the XBRL mandate was fully phased in for all SEC filers, and it continues to expand. All regulatory compliance teams at SEC reporting companies are now involved in XBRL tagging. SEC rules that took effect in May 2019 now require Inline XBRL for information on the cover of Forms 8-K, 10-Q, 10-K, 20-F, and 40-F.
To mark the anniversary, Dimensions asked six XBRL experts in the securities regulation, financial reporting, or capital markets sectors to comment on the structured-data revolution in SEC reporting: its benefits to investors and companies; the success stories thus far; and the challenges that remain for structured data and the general modernization of disclosure.
• Mike Willis, Assistant Director, SEC Office of Structured Disclosure
• J. Louis Matherne, Chief of Taxonomy Development, FASB
• Campbell Pryde, President and CEO, XBRL US
• Christine Tan, Co-Founder and Chief Research Officer, idaciti
• Pranav Ghai, CEO, Calcbench
• Lou Rohman, Vice President of XBRL Services, Toppan Merrill
NOTE: The views expressed here are solely those of the individual respondents, and they do not necessarily reflect the views of their respective organizations.
In your view, what challenges do issuers still face in preparing SEC filings using XBRL/structured data?
Campbell Pryde, XBRL US: The ongoing challenge for issuers is understanding that the XBRL data they produce is the financial data that will be used for decades to come. A company’s XBRL data becomes a permanent record of the
financial state of the company. It is not a paper document that is buried and forgotten once the quarter passes. Companies need to ensure that the XBRL data they produce is of the highest possible quality.
Christine Tan, idaciti: Keeping up with a taxonomy that changes every year, especially when new disclosures/modeling are introduced.
Pranav Ghai, Calcbench: Consistency of the tagging and the use of extensions (custom tags).
Lou Rohman, Toppan Merrill: The challenge is to understand the mix of components that will ensure the XBRL is right, and then to conquer that challenge … in the same way a company conquers the challenge of getting the
traditional paper-based financials right. It takes a mix of accounting knowledge, familiarity with the applicable taxonomy, understanding of the SEC rules, and knowledge of FASB XBRL guidance. This is very similar to the challenge of getting traditional, paper-based financials right—a mix of accounting, disclosure, SEC rules, and FASB guidance. Yet too often when it comes to XBRL, the financial reporting group lacks the expertise and misses one or more of these components. The result is XBRL errors being submitted to the SEC of which even the filer is unaware.
Data Quality Committee rules have been created that filers can run to detect and correct errors before submission. These rules catch errors that can be detected by automation and have improved quality substantially, yet errors are still occurring that cannot be caught by automation. For those, filers again face the challenge of the right mix of components to get the XBRL right. Filers have come a long way in meeting the challenges of XBRL preparation.
With the increasing use of XBRL, taking the care and effort to resolve the errors that remain in SEC submissions will help realize the enormous benefits structured data can provide.
J. Louis Matherne, FASB: It is my experience that preparers of financial statements have an insufficient understanding of how analysts and investors use their financial statements. This becomes even more challenging when trying to understand how they use the XBRL-tagged data. Something as simple as getting the polarity of an XBRL-tagged fact correct can have a big impact on the consumer of the data. For example, a filer might report an expense on their income statement as a negative value because they want it to “present” as a subtraction against an income item. This is an error and is a big problem for the user because their consuming application will see this as a negative expense. So we now have a data-quality problem.
I get that this is a real challenge for any individual that is exposed to XBRL modeling and tagging at best four times a year. As FASB taxonomists, we have the responsibility and privilege of thinking about these modeling choices on a
daily basis, but preparers responsible for tagging their financial statements simply do not, and staying ahead of this new knowledge requirement is a real challenge. Nonetheless, it is critically important that they come to grips with this,
as data aggregators and investors are using the XBRL-tagged data at an increasing rate.
To help address this knowledge gap, the FASB is publishing guidance in the taxonomy in the form of Taxonomy Implementation Notes, as well as Taxonomy Implementation Guides. Additionally, the XBRL US Center for Data Quality, through its Data Quality Committee (DQC), continues to publish validation rules and guidance—free to service providers and filers—that can help the filer avoid many common errors, including the negative expense value I mentioned earlier. We encourage all filers to avail themselves of this guidance. Where used, we see
a measurable improvement.