On March 20, 2019, the SEC adopted final rule amendments, in connection with the FAST Act, which have expanded the scope of XBRL tagging requirements to the cover page of Forms 8-K, 10-Q, 10-K, 20-F, and 40-F (annual reports) using Inline XBRL. The cover page tagging will be phased-in beginning in July/August 2019.
Legal departments of SEC registrants should be aware that the Form 8-K tagging is unique for two reasons, and these two reasons will draw legal personnel into the XBRL requirement in a way in which they haven’t previously been involved.
Unique nature of tagging Form 8-K
The Form 8-K requirement is unique, compared to the other forms that require cover page tagging, because:
- Previously, the Form 8-K had no XBRL tagging requirement (except when a Form 8-K included restated financials that were originally filed with XBRL). The other four forms mentioned above currently have significant tagging requirements.
- The Form 8-K is the only one of these forms in which a majority of the filings are typically managed by the legal department. A substantial portion of the other forms, especially the XBRL tagging, is managed by other departments in the company.
XBRL comes to the Legal Department
Although previous SEC tagging requirements pertained to areas that were managed primarily by the Finance/Accounting department, this new Form 8-K tagging requirement won’t naturally pass across the desk of the Finance team. As a result, legal departments will be directly brought into the XBRL requirement for the first time, resulting in an introduction to a concept for which they must determine the appropriate filing process.
Managing the filing of a Form 8-K will require the legal department to consider the XBRL tags and the method in which the tags are required to be embedded into the cover page information.
Familiarity with XBRL requirements
While the new rule doesn’t require a significant amount of data to be tagged, there are some data points that are new to the tagging process. And since the phase-in of the Form 8-K tagging requirement will begin in July/August 2019, this requirement is only a few months away for some registrants.
Considering the SEC’s increasing commitment to structured data, including the vision presented by SEC Commissioner Robert Jackson, and the potential for future tagging of information in proxy statements and other Form 8-K data, it makes sense for both in-house and external counsel to become more familiar with the XBRL requirements and understand how XBRL is being used.
Lawyers must recognize the change in how disclosures are reviewed
With the increasing XBRL consumption by users of SEC data, and the benefits derived from it, it is imperative for lawyers to recognize how structured data is impacting the way in which the SEC and the market review company disclosures. The new normal, as presented by Elizabeth Gray, senior litigation partner at Willkie Farr and former Assistant Director of Enforcement at the SEC, is that “prior to the advent of big data, the client had the informational advantage—but now the SEC can observe a company’s public statements against the backdrop of all other public filings. From this vantage point, the SEC may have insight into issues that the client may not, in good faith even be aware of.”
As a consequence, she recommends “counsel should take the time to assess a client’s regulatory, disclosure, and accounting practices, and realize that clients may or may not be aware of the potential issues or vulnerabilities the SEC’s advanced technology may expose.”
Awareness of XBRL tagging requirement
For the legal departments of SEC registrants, it’s important to be aware of the unique situation created by the recent SEC tagging requirement for Form 8-K. It introduces the legal department to XBRL by requiring consideration of the XBRL tags and the process in which the tags are embedded into the Form 8-K cover page information.
For assistance with this new requirement and to learn more, contact Toppan Merrill today.
