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Long-Silent SEC Offers New Guidance, Warnings on XBRL

Tammy Whitehouse | July 8, 2014

After taking its time to assess the state of XBRL compliance and start calling for needed corrections, the Securities and Exchange Commission has issued some new cautions regarding XBRL filings to public companies: don't forget to provide your calculation relationships, and particularly for smaller companies, reduce your use of custom tags.

The SEC's Division of Corporation Finance published an open “Dear CFO” letter as a sample of correspondence sent directly to certain public companies indicating they weren't including all the required calculation relationships in their XBRL filings. “Acceptance of your filing by EDGAR does not mean that your filing is complete or in compliance with the commission's requirements,” the letter says. “We ask that you, in preparing your required exhibit with XBRL data, take the necessary steps to ensure that you are including all required calculation relationships.”

The guidance is long overdue, in the eyes of XBRL and open-data advocates who say investors can't rely on data produced by XBRL because of persistent errors.  “The SEC's failure to enforce the quality of structured-data financial statements has prevented investors, markets, the agency, and companies from realizing the benefits of open data," said Hudson Hollister, executive director of the Data Transparency Coalition, in a statement. "The agency's progress toward transforming its whole disclosure system from documents into open data has stalled."

Calculation relationships in an XBRL filing explain the additive or summation relationships between parent-child items in financial statements. In the balance sheet, for example, calculation relationships would show how current assets and noncurrent assets add up to a total asset figure. The SEC's Dear CFO letter reminds companies to take a look at the EDGAR Filer Manual for information on how to comply with the requirement to provide calculation relationships in filings.

Separately, SEC staff also published observations on custom tags, or extensions, that are used to express numbers that are not readily found in the GAAP Taxonomy that all companies follow to tag their financial data and disclosures. The SEC's Division of Economic and Risk Analysis recently assessed the quality of XBRL exhibits from 2009 through 2013 and determined larger companies have reduced their use of custom tags, making XBRL exhibits more directly comparable, but smaller companies have not shown the same reduction.

The staff's observations say the analysis of XBRL exhibits shows a “consistent and gradual decline” in the use of custom tag rates among the largest filers, who were the earliest adopters of XBRL, as well as large filers who were subject to the requirement in the second phase of the SEC's three-phase adoption process. Smaller filers, however, those who adopted in the last phase, have not shown the same decline. “Smaller filers currently have an average custom tag rate almost twice that of larger filers, inconsistent with our expectation that smaller filers should, as a general matter, have simpler financial statements that are easier to standardize,” the staff says in its observations.

The SEC has taken some heat for not acting sooner to steer companies toward better use of XBRL that would make it a more meaningful repository of reliable information for users of financial statement data. The SEC staff says it will continue to monitor use of custom tags. “Depending on the results of this effort, commission staff may issue further guidance or pursue other action,” the SEC staff warns.