The New Inline XBRL Requirements Are Here: Is Your Public Company Ready?
In June 2018, the Securities and Exchange Commission (SEC) adopted a rule requiring public companies to embed interactive data tags into their financial statements directly using a process called the inline eXtensible Business Reporting Language (XBRL). Implementation deadlines are approaching for public companies of various sizes.
Financial analysis: Computerized
In part to solve the problem of tagging errors, the SEC adopted inline XBRL in Release No. 33-10514, Inline XBRL Filing of Tagged Data. These tagging errors stemmed from the current two-step requirement to submit XBRL data as separate exhibits to financial statements. The rule expands the use of XBRL financial information from the SEC’s 2009 rule, Interactive Data to Improve Financial Reporting.
Financial statements tagged in XBRL can be read by computers, which will allow investors and regulators to better analyze and compare companies’ financial information. Investment companies will also be required to provide risk-and-return summaries using inline XBRL.
The SEC has stated that Internet bots can view as much as 85% of the documents viewed on the Electronic Data Gathering and Retrieval (EDGAR) system. Walter Hamscher, Senior IT Program Manager in the Office of Structured Disclosure of the SEC’s Division of Economic and Risk Analysis (DERA), mentioned that “the idea behind inline XBRL was to take advantage of the fact that, ‘ok, you got this embedded understanding in the users of documents of where things are going to be and how they relate to each other. Let’s make that accessible to machines who are increasingly actually the ones reading the documents and making use of the information.’”
Constructive feedback
Hamscher believes that inline XBRL improves efficiency for data users, although it is difficult to gauge exactly how beneficial the rule has been. Recently, he told attendees at a technology conference for the financial services industry, “We’ve gotten really nothing but positive responses both from the users of that type of technology within the SEC, but certainly from the filer community and the vendors once they understand what it is they are doing. Having a single document with both data and presentation is really a win from an efficiency standpoint.”
Although the SEC doesn’t have a way to measure the level of efficiency that interactive data has brought about, Hamscher says people are spending less time reviewing filings because the data in the document is “literally floating above it.”
Approaching deadlines
Large accelerated filers (companies with public floats of more than $700 million) are required to use inline XBRL for fiscal periods ending on or after June 15, 2019. Accelerated filers (companies with public floats between $75 million to $700 million) are required to implement the changes for financial reporting periods that end June 15, 2020, or later.
An extra year to comply is given to smaller companies with public floats of less than $75 million, which would be June 15, 2021. Companies must comply beginning with their first Form 10-Q filed for a fiscal period ending on or after the applicable compliance date.
Operating companies are permitted to adopt the rule ahead of the effective date. Until recently, in March 2019, companies weren’t able to use inline XBRL because the SEC needed to modify the EDGAR system to accommodate the change.
A modern new world
Current financial reporting on paper is designed for humans, not machines. But investors frequently use financial information in digital format and computer-based earning models. Inline XBRL is part of a larger trend of using digital technology to make financial reporting more reader-friendly and to reduce the cost of preparing financial statements and adapting to changes in accounting standards.
If these new rules seem overwhelming, Weaver can help. Contact us to ask questions or request a consultation.
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