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July 30, 2009

Temporary Answer to XBRL’s Collision With Codification

News for those of you confused about how to comply with the Securities and Exchange Commission’s new mandate to use XBRL technology in financial reporting: A new supply of confusion has just arrived.

The latest batch of frustration erupted earlier this month, when largest companies in America had to start filing period reports “tagged” in XBRL coding. Those tags come from a taxonomy of accounting terms that neatly matches up the tags to concepts in U.S. Generally Accepted Accounting Principles.

Except, um—GAAP was replaced on July 1 by the new Accounting Standards Codification. The existing XBRL taxonomy doesn’t match up to accounting terms in the Codification, and won’t be accurate for filings that cite Codification. As you can imagine, this discrepancy has left financial reporting executives rather peeved.

Yesterday, however, I heard rumor that XBRL U.S. (the consortium that publishes the taxonomies) has created a temporary solution for those companies facing immediate filing deadlines. To get to the bottom of things, I contacted my spy attending XBRL U.S.’s conference happening out in California this week and asked him for the scoop.

The bottom line is this: Within the next two weeks, XBRL U.S. will publish an “extension taxonomy” that reflects accounting terms according to the new Accounting Standards Codification. When a company submits a periodic report to the SEC based on the new Codification—and that will be mandatory for periods ending after Sept. 15—it should also include the new extension taxonomy as part of its attached XBRL exhibits. That gets you off the hook.

XBRL U.S. confirms my spy’s summary as correct, although not surprisingly the officials there see things differently. Michelle Savage, the group’s chief spokeswoman, says XBRL U.S. and the Financial Accounting Standards Board have been planning for Codification all along, and releasing an extension taxonomy in mid-August “will give preparers plenty of time to review the new and old references before the FASB requirements in September.”

Some technical background: To create XBRL filings, companies use a “linkbase,” which is really just a database that connects XBRL tags to specific terms in U.S. accounting. The 2008 taxonomy released last year contained one linkbase; the 2009 taxonomy released this year contains another, to reflect new accounting rules adopted in the last six months. Codification now needs a linkbase of its own, and that is what’s coming next month.

The irritation springs from early filers that had been using the 2009 taxonomy since, well, that’s what they were told to do, and just as filings are about to begin they must now change course. Savage says releasing an extension taxonomy is standard procedure; XBRL U.S. wants to publish only one formal update each year, and will then follow up with extension releases as needed when a major change (like Codification) arises in the course of the year.

Thankfully, this should all pass (like a kidney stone, some would say) when XBRL U.S. publishes its 2010 taxonomy sometime around January. That document should be in full accordance with the Accounting Standards Codification, and all will be roses.

For now, however, my spy reports “lots of confusion” out there about XBRL—an unfortunate circumstance, since XBRL is still in its first year of adoption and needs all the support it can get.

Posted by: mkelly @ 7:02 am

Filed under: FASB, SEC Rulemaking, XBRL

2 »

  1. Now Matt, it’s not like Compliance Week to go around spreading FUD! The new codification project doesn’t actually *change* GAAP. It just gives it a new (and web friendly) index. FASB and XBRL-US have been working hand in hand to make sure that you can link right into the FASB’s web site from the references in the taxonomy associated with each disclosure concept. Sure, that makes it easier than when you had to use the paper versions of the standards. But the fact that FASB’s improvement is arriving at the same time as the SEC’s XBRL mandate is coincidence, not conspiracy!

    Maybe there are a bunch of “financial executives feeling peeved” about the co-incidence, but I’ve not come across any so far.

    The codification effort will make this process easier and make the accounting rules more accessible. The free version available from http://www.fasb.org is actually significantly enhanced by the XBRL codification references as it makes navigation much easier.

    Sure, the process of shifting SEC filings over to XBRL is not simple, and plenty of people have expressed their frustration about that. But you know what? At least amongst these initial 500 filers it looks like folk are stepping up in a truly professional way.

    Take a look at the filings that have arrived at the SEC so far. Right now, they are timely, accurate and already proving useful, making company 10Qs vastly more accessible.

    John Turner, CoreFiling

    Comment by John Turner — July 30, 2009 @ 11:17 am

  2. While I agree that XBRL is a very useful technology and companies are coping well with the mandate, the advance planning on this could have been better. Conspiracy is exactly what the situation called for, if you want to build enthusiasm among corporate reporting types who are already over-worked and cranky as it is.

    Comment by Matt Kelly — July 30, 2009 @ 12:45 pm

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