08 June 2011

The SEC should defer "detail tagging" for smaller filers

Late last week raas-XBRL wrote to the SEC, recommending that they defer the "detail tagging" requirement for smaller filers. We believe the burden on smaller filers has not been offset by an adequate communication of the benefits that such additional effort will deliver.

We've talked about the burden of "detail tagging" XBRL on small filers. We've estimated that the second year requirement for filers could add up to $1.5 billion in additional reporting costs in the 2012/2013 filing year. We've also asked - where's the ROI on detail tagging?

Detail tagging while not particularly complex, is a significantly higher level of effort than the basic tagging required for all filers in their first year of providing XBRL to the SEC. Estimates that we have seen range from 6 times to 10 times the first year effort.

Strains are beginning to appear in total resources available for XBRL production.  The phasing of the rule is in part contributing to this resource constraint.

For example, the increased workload to support the 1000+ filers who are entering their second year of XBRL (and therefore straining their internal resources and the financial printer / filing agent resources) is happening just at the moment when the remaining 8000+ filers are fighting for the same resources to produce their first XBRL for the SEC. We are hearing that some financial printers / filing agents are "closing their books" to new business. We've now heard about two that have closed their books, and have heard rumors of at least one other.

We expect this year to be resource constrained. Next year will be even worse. And that will impact prices. Not to mention quality.

As we said in our letter to the SEC:

It sounds like a joke, but it is not – we’ve seen a real case of a major US financial printer/filing agent’s Indian operations advertising for XBRL taggers – any university degree accepted, including veterinarian. Does this mean that Indian veterinarians may be tagging the financial statements of SEC registrants? And this is in the year when the SEC’s estimated 8700 third-year filers will be providing “block tagged” XBRL. Who will be performing the tagging when the workload for those 8700 filers is six to ten times the work to produce “detail tagged” XBRL? Do we care? Only if it impacts the quality of the tagged information, and we believe it will negatively impact that quality.

We also are still waiting for the SEC and the Wizards of XBRL to release real ROI calculations. And that means both sides of the equation, the costs and the benefits, not just the benefits. "Ignore the man behind the curtain" is not the right answer. The right answer is that the net benefit to a filing company will be $xxx,xxx over five years, and the net benefit to the SEC will be $yyy,yyy,yyy over five years. The net benefit to the investor would be a good thing to be able to quantify also.

Until that ROI can be quantified, we call upon the SEC to defer the additional onerous burden of "detail tagging".

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