Questions for the audit committee to consider
- Has management started preparing to comply with the SEC XBRL mandate at least six months before its first XBRL submission is due?
- Does management have a plan developed that addresses all of the phases of XBRL compliance (e.g., initial submission, detail tagging submission and submission after the limited liability provisions expire)?
- Does management have the appropriate skills to adequately review the XBRL exhibit without assistance (e.g., auditor or other third party)?
XBRL requires that companies digitize and tag the data in their financial reports in order to store and transfer financial reporting data electronically and to facilitate investor analysis and comprehension and improve transparency.
In June 2010, the first Extensible Business Reporting Language (XBRL) phase-in group (Tier 1)1 completed the first year of implementing the US Securities and Exchange Commission’s (SEC) final rule, Interactive Data to Improve Financial Reporting.
First year XBRL observations
Of the approximately 1,500 companies that submitted XBRL exhibits to the SEC during the summer of 2010, nearly 25% provided detailed tags on the financial statement notes and schedules. Using an extensive taxonomy of approximately 14,000 tags, preparers were challenged with selecting appropriate tags, identifying tagging dimensions and the application of rules such as signing values and decimals.
Detail tagging requirements required extensive oversight of internal or third-party exhibit preparation and quality processes.
Observations from XBRL exhibits
- Approximately 90% of the registrants in the XBRL phase-in group used a third party to develop their XBRL exhibits or support the XBRL exhibit preparation.
- The addition of detailed tagging for Form 10-Q increased the number of tags needed beyond the first year requirements threefold. The number of non-standard company tags used was approximately four times higher.
- XBRL exhibits that included detailed tagged amounts in the notes to the financial statements contained more than 10 times the number of member tags2 than exhibits that only required detail tags on the face of the financial statements.
- The time commitment required to submit XBRL exhibits with detail tagging increased significantly over projections.
It is vital that filers understand the requirements to make decisions during the development and review of the XBRL-tagged financials (especially as the limited liability provisions expire after 24 months of submissions).
Considerations for registrants over the next nine months
|Tier 1 ||Tier 2 ||Tier 3 |
- US public companies and FPIs using US GAAP with public float over $5b
- Detailed tagging for periods ending on or after 15 June 2010
- For 2010 Form 10-K, tag additional information likely not in previous Form 10-Qs (e.g., significant accounting policies, detailed amounts in required S-X schedules)
- For 2010 Form 10-K, review XBRL exhibits based on SEC detail tagging comments issued November 2010
- Remaining large accelerated filers using US GAAP
- Block text tagging for periods ending on or after 15 June 2010
- Consider early adoption of the 2011 US GAAP taxonomy for detail tagged XBRL submission to save time and effort of transitioning to taxonomy when required
- Consider indentifying tags for both the 10-Q and 10-K during the first detail tagged submission
- All other filers, including all filers that use IFRS as issued by the IASB
- Block text tagging for periods ending on or after 15 June 2011
- Review Tier 1 and Tier 2 XBRL exhibits for insights for tag selection considerations and leading practices
- The third-party service providers may be overloaded by the volume of work. As a result, Tier 3 customers may not be a priority
Auditor involvement with XBRL
Some companies are choosing to engage their auditors in order to address the risks in complying with the myriad of complex rules and guidance in this area. Furthermore, some audit committees are directing auditor involvement as part of their governance and oversight of financial reporting.
During our webcast Talkin’ Tags – common mistakes and insights, held November 2010, the hosts surveyed approximately 1,000 financial reporting executives about their plans to separately engage the external auditor to perform procedures on their XBRL exhibits.
- 24% of the respondents indicated they have already involved or plan to involve the external auditor.
- 44% had no current plans to involve the external audit team, but may reassess after the limited liability provision expires.
- 32% indicated that they do not plan to involve their auditors at any time, unless auditor involvement becomes required.
What could go wrong?
As more companies prepare to meet the SEC requirements to detail tag financial statements notes and schedules, many registrants will find complying with all SEC requirements challenging. Audit committees should consider the following filing risks:
- SEC validation of documents
- Investor reaction
- Accuracy of exhibits after the limited liability provisions expire
Audit committees should have a thorough understanding as to the steps that management is taking to comply with the XBRL rule, and that it has the appropriate review protocols in place to determine the company is in compliance with the SEC XBRL rules and guidance. Meeting and understanding the SEC requirements, and staying up-to-date with current SEC guidance, are critical to high-quality submissions.
1 US public companies and Foreign Private issuers (FPIs) that (a) file financial statements with the SEC using US GAAP and (b) have worldwide public float over $5 billion.
2 The use of multiple XBRL tags grouped together dimensionally to represent complete financial statement concepts rather than a single tag.