25 May 2011

Don't fear the XBRL

There's a lot of fear out there - but as Blue Oyster Cult sang in the late 1970s "Don't Fear the XBRL" - or was that "Don't Fear the Reaper"?

The SEC has gone out of its way to make initial filing of XBRL as easy and risk free as possible. XBRL may be complex, and it might be an SEC mandate, but that does not mean that is needs to be complex, or that the SEC is looking to make examples of any filers. Nor does it have to cost as much as the quotes coming from some of the major financial printers / filing agents.

Let’s look closer at some of the things we're hearing:

1. XBRL is SOX all over again.

If companies do not make their plans, and are not careful about the choices they make, XBRL will be a mini-SOX. It does not need to be. It is possible to have financial statements converted to XBRL for very reasonable prices.

2. The SEC will come after me if I get it wrong.

Actually, they won't, unless you intentionally get it wrong. The SEC specifically states that companies have a two year litigation relief, and they must only demonstrate a "good faith" effort to have provide XBRL that is "the same" as their HTML filing.

3. XBRL will take 120 hours of people time.

We have seen all sorts of time estimates for XBRL. These estimates (all for "block tagging" - the first year requirement) range all the way up to 125 vendor hours plus internal time. We believe 8 - 10 hours is much more reasonable. Anything over that is, in our view, either the result of inefficient processes or software.

4. I will be liable for what's in the XBRL.

True, but refer to number 2 above - the SEC has granted a two-year window, basically with the intention of giving filers the time to get it exactly right. Of course, we wouldn't have it any other way, but with so many choices from the taxonomy, there is a good chance that some items may not be 'perfectly' tagged. The SEC cares more that the data is available than that it is 'perfect'.

5. The taxonomy is huge.

Again, sort of true. There are reports of the taxonomy having up to 40,000 elements. The truth is closer to 15,000. But don't worry, the taxonomy is structured to facilitate identification of the best element, and most tools have strong search capabilities these days.

6. The SEC is just going to defer this anyway.

Don't plan on it. I'd say more, but I really don't need to. Too much has already been said. This is not going away.

But there are a few things to worry about:

7. Year-2 Detail Tagging.

The second year tagging requirement currently defined by the SEC does result in significantly more work. Numbers of tagged items are rising by an order of magnitude, and we are hearing that total effort is increasing by 6 times or more. Hopefully the SEC will do something about this.

8. Assurance costs.

A quick word about assurance - it is optional. However, it can be expensive. We recommend that if filers want a review, they should do it themselves, or they should have an independent accountant perform basic quality assurance over the XBRL mapping selection.

Summary -

There really is little to be afraid of, if you are careful with your choices. The biggest fear is that without doing your homework, you will spend too much. After all, just how complex are your financial statements?

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