Complying with the SEC Mandate (XBRL)

In This Chapter

Understanding key aspects of the SEC mandate for XBRL use
Weighing your compliance options
Searching for the bright side within the mandate
Discovering how the SEC mandate will indirectly impact non-SEC filers
This chapter focuses on key aspects of the SEC mandate to use the XBRL format for SEC filings, what exactly the mandate calls for, who will be impacted by it, and options for complying. In addition, we look into the future in terms of what the 21st-century disclosure system will look like and how you and your company will be impacted.
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Why the SEC Mandated XBRL

The SEC began collecting financial information from public companies in the early 1930s before copy machines, fax machines, and computers had been invented. People traveled to Washington, D.C., to public reference rooms to gather information they wanted to use for analysis or other purpose and then called key stakeholders about the event from SEC-provided payphones. In those days, you had to have pocket full of quarters if you went digging into SEC filings.
In 1984, the SEC spent $30 million to start the Electronic Data Gathering Analysis and Retrieval (EDGAR) system. This system made public financial information available electronically. Companies were phased into this new system over a three-year period. In 1993, the Clinton administration announced that EDGAR would be made available over the Internet — it was considered one of the first concrete examples of what the information superhighway could mean to the public.
The EDGAR database is really just like a big electronic filing cabinet. The data was there buried in the physical electronic documents, but EDGAR enabled these specially formatted files to be instantly accessed from anywhere on the planet using the Web. But it was still hard to get information out of the documents using anything other than labor-intensive, human error-prone processes. Companies, such as EDGAR Online, Inc., were spending untold millions of dollars trying to figure out how to parse the documents, map information, and provide reusable comparable data. Although these attempts were successful to some degree, they weren’t truly successful.
The SEC had known about XBRL pretty much since the inception of the open-source standard. The SEC watched the XBRL International consortium grow and mature into a globally accepted metadata standard and watched projects, such as the FDIC’s implementation of XBRL, succeed. But it wasn’t until 2005 that Christopher Cox, then chairman of the SEC, contacted XBRL International and asked whether he could do anything to help XBRL. Cox knew XBRL wasn’t ready for the tremendous volume of reports filed with the SEC, but he wanted to help make XBRL ready. He had a vision.
Cox called his vision interactive data, which is basically a more palatable name for XBRL. He wanted to change EDGAR from an electronic filing cabinet into an easily queryable electronic database of public company financial information. Cox became an advocate for XBRL. Eventually, the SEC provided funding to build the XBRL taxonomies needed to realize Cox’s objective and then spent about $50 million to modernize the existing EDGAR systems to use the XBRL global open-source standard.
This new system was called Next-Generation EDGAR, which you can read about it at www.sec.gov/news/press/2 0 0 8/2 0 08-179.htm). Next-Generation EDGAR was to be a totally new architecture compliance reporting platform. Humans would no longer need to spend countless hours of drudgery getting information from SEC filings; instead, computers would be able to simply query the data and return the information sought. For example, rather than having a human manually extract information from multiple EDGAR documents, a computer application could automatically and accurately get that information for you, populating an analysis application, a Web application, or a spreadsheet that you created with just a click of your mouse.
Next-Generation EDGAR is part of the SEC’s broader 21st Century Disclosure Initiative. You can get more information from the SEC Web site at www.sec. gov/disclosureinitiative.
In 2009, after almost a year’s worth of public roundtables, comment, hearings, and such, the Obama administration, in one of its first acts, signed into law a mandate for all public companies to file interactive data with the SEC, phased in over a period of three years. Chairman Cox and his team at the SEC had set the stage to make the vision a reality.
The SEC mandate is really a number of mandates and other areas where the SEC is making use of XBRL. The first area where the SEC made information available in an XBRL format was its executive pay finder, which uses XBRL to make executive compensation information available for the largest 500 U.S. public companies. The SEC also used tagged data internally in a stock options backdating probe. In response to turmoil in the credit markets, the SEC announced a series of credit-rating reforms, which require rating agencies to make certain information available in XBRL format. The SEC is requiring mutual funds to make their risk/return summaries available in XBRL. And finally, the big one: the SEC is requiring public company financial information to be made available using XBRL.

The Ramifications of the SEC Mandate

Under the SEC mandate, public companies regulated by the SEC must provide XBRL versions of their financial information in addition to the current filing formats (such as HTML and ASCII). The mandate will be phased in over three years, with largest companies starting in June 2009 (about 500 companies), the next largest group the following year (about 1,800 companies), and the remainder following in the third year (about 12,000 companies). (The mandate has other detailed rules that you can read at www.sec.gov/rules/ final/2 0 09/3 3-9 0 02.pdf.)
The mandate has some ramifications that aren’t necessarily part of the actual ruling, but we believe are going to happen anyway. Here are examples:
Old filing formats will eventually go away. The SEC has already stated publically that it intends to stop using the old filing formats (HTML and SGML). No timeline has been disclosed, as far as we know.
Both investors and the SEC itself will eventually be able to do a far better job at analyzing companies. The entire analysis cost/benefit model will change. Further, this ease will change who gets analyzed. Most people don’t realize it, but analysts track only about 20 percent of public companies because preparing the data for analysis using current SEC data formats is too costly. Also, a new type of analyst will appear — you! XBRL will help you keep an eye on public companies like never before. The term for this oversight is called crowd sourcing, which means letting the masses provide input.
Private companies will use XBRL. Although the SEC regulates only public companies, it’s only a matter of time before private companies will wind up using XBRL as well. For example, private companies required to file financial information with financial institutions in support of loans will likely be forced to make use of XBRL.
Not-for-profit organizations will use XBRL. Not-for-profit entities who receive grants from the federal government, are foundations, have loans, or have other funding sources are highly likely to be pushed toward XBRL. Also, in the near future, a Next-Generation EDGAR-type system for not-for-profits may make this information conveniently available for analysis.
State and local governmental entities will use XBRL. Approximately 88,000 state and local governments within the United States alone all report financial information to the Census Bureau — on paper! Other countries have similar situations. We expect them to also eventually move to XBRL. And again, you’ll likely see a convenient Next-Generation EDGAR-type system that would make using the information in the financial filings of these entities easier.
Other regulators will follow the SEC lead. The U.S. SEC wasn’t the first regulator to make use of XBRL for regulatory financial filings — the Australian Prudential Regulation Authority (APRA) was. However, it’s one of the largest and most publically visible. Other regulators will likely follow this trend toward electronic financial filings using XBRL.
XBRL filings by the SEC are nowhere close to being the end. These filings are really the beginning of a much bigger trend. XBRL will be used for all sorts of purposes over the coming years. The SEC did add a lot more momentum to the XBRL movement.

Meeting the SEC Mandate

We don’t cover exactly how to comply with the SEC mandate in any level of detail because those who have to comply with the SEC mandate know who they are and have hordes of advisers and consultants helping them. But for those curious about the SEC mandate, here’s an overview of the steps generally needed in order to meet the SEC mandate:
1. Figure out when you’ll need to start filing in the XBRL format with
the SEC.
Your public accounting firm and/or your EDGAR filing service (if you have one) likely has that information or can help you figure it out. Whoever helps you with your current filing can, at a minimum, steer you in the right direction to meeting that SEC mandate. The SEC maintains a Web page at www.sec.gov/info/edgar.shtml of general information for EDGAR filers that includes information about XBRL filings.
2. Figure out what approach you want to take.
You can break down this step into an initial short-term approach and then a long-term approach. The short-term and long-term approaches may be the same. Chapter 11 highlights the various approaches that you can use to meet the mandate to file XBRL with the SEC.
3. Start earlier than you have to.
Yes, that’s right. You definitely don’t want to learn how to file and make everything work during your first required filing period using XBRL.
Even if you don’t actually submit the filing to the SEC, you’ll want to do a minimum of one practice run to work the kinks out. We recommend doing two practice runs so that you can deal with rolling forward values from one report to the next; you can’t get that practice using only one filing. Further, you may even want to do specific practice runs with your quarterly filings and another for your annual filings, which are significantly larger.
After you work out all the kinks, doing your first filing should be a cinch.
4. For your first filing, you can block tag the disclosures contained within your financial filings.
Block tag means you can tag things as big groups of information as opposed to tagging the individual details of all your disclosures. In the second year, you’re no longer able to use the block-tagging approach. As such, you’ll want to repeat your practice run one or two periods before your first full tagging of your financial information.

SEC-Specific Software and Services

Here’s a sample of the specific services or software that you can use for filing with EDGAR:

Bowne: Bowne (www.bowne.com/xbrl), one of the larger financial printers, has expanded its product offerings to also provide services for meeting SEC XBRL mandate.
Clarity Systems: Clarity Systems (www.claritysystems.com) offers an integrated business-reporting software solution that you can use to create both SEC filings and generate XBRL for submission with the SEC.
EDGARfilings: Also a financial printer, EDGARfilings (www.edgarfilings. com) provides its customers with software that allows them to prepare EDGAR submissions and the newly mandated XBRL.
Merrill Corp.: Merrill Corp. (www.merrillcorp.com) is also one of the larger financial printers, and it has expanded its product offerings to include services for meeting the SEC XBRL mandate.
UBmatrix: UBmatrix First Step Program (www.ubmatrix.com/products/ sec.htm) provides you with the services, software, and training you need to create your XBRL for filing with the SEC.
The XBRL US Web page (http://xbrl.us/Learn/Pages/ ToolsAndServices.aspx) lists all the U.S. XBRL member’s software and service providers who can help you file with the SEC.
The Cost of Meeting the SEC Mandate
The first question on the minds of those who have to comply with the SEC mandate is, “What will it cost us?” The final ruling document issued by the SEC (page 133 of the final ruling; see www.sec.gov/rules/ final/2009/33-9002.pdf) contained cost estimates, shown in Table 13-1.

Table 13-1 shows data summarized from responses received from a questionnaire the SEC sent to a number of companies that participated within the voluntary filing program the SEC used to test XBRL. (Note that face finan-cials refers to the primary financial statements, including the balance sheet, income statement, cash flow statement, and statement of changes in equity.) Key points to note include
The time and therefore cost required for creating the XBRL formatted information is highest in the first year when you set everything up for the first time. The second filings will likely cost significantly less.
‘ You’ll incur the majority of effort, and therefore the majority of the cost, matching your financial information to the XBRL taxonomy, which you’ll use when you create the extension taxonomy you might need.
We think the total cost estimates look a little low, but the costs should be lower than the upper-bound line shown.
A significant portion of cost will be reconciling the XBRL formatted information to the other submitted formats (HTML or ASCII). When you don’t have to reconcile the two formats (meaning you’re only submitting XBRL), costs will be less. We anticipate filers will eventually push for filing only in XBRL.
Over the long term, public companies filing with the SEC will most likely experience a cost savings, not a cost increase, from filing with XBRL.

The Benefits Hidden in the Mandate

XBRL is for far more than reporting to regulators like the SEC. When you start preparing your filing with the SEC, think about ways you can apply XBRL internally.
One company, United Technologies Corporation (UTC), participated in the SEC’s voluntary filing program used to test XBRL. UTC also got to try out XBRL and learn from the experience. UTC ended up seeing a positive ROI and eventually started using XBRL for other things that had nothing to do with SEC reporting. Many other companies will also discover other uses for XBRL. UTC employees documented their discoveries at www.journalofaccountancy. com/Issues/2007/Jun/RoiOnXbrl.htm.

Minimizing Your Effort and Maximizing Your Success

Some tips can help you successfully comply with the SEC:
Practice, practice, practice. Filing a period (or preferably two) prior to your real filing will help you get everything in order. You don’t need problems popping up at the last minute. Also, this practice provides an opportunity to train your personnel. Further, an SEC-provided previewer (https://ideapreview.sec.gov/previewer) lets you privately preview your interactive data submissions before you file them. This preview helps you understand how your XBRL filings will look to those using your filings.
‘Use an XBRL-enabled disclosure checklist. You know that paper disclosure checklist that you use to create your filing, or maybe the one your public accounting firm uses? Find a version of that automated with XBRL Formula to double-check as many items as you can. You’ll probably see that you can check 80 percent of those items using automated processes, which is a significant benefit of using XBRL. This checklist can help you see other ways that XBRL can be useful.
Use templates. Have you ever used the American Institute of Certified Public Accountants publication Accounting Trends and Techniques? Try to find XBRL taxonomy templates you can use — no need to create your own from scratch. Finding these templates may be hard the first couple of years, but as more companies file, the best templates will be found on the SEC’s Next-Generation EDGAR system. It will house all those XBRL filings created by other companies, which you can copy and reuse! Plus, someone will likely create applications that help you find companies in your specific industry.
Be sure to understand XBRL Formula. Read the section about XBRL Formula in Chapter 16.