Though it sounded simple enough at the outset, the recent allowance for companies to file their financial statements using the integrated inline XBRL method may not be so simple after all.
It’s been nearly a decade since companies began submitting their financial statements in eXtensible Business Reporting Language, or XBRL, as required by the Securities and Exchange Commission. XBRL is a machine-readable format for structuring financial data that is meant to make it easier for consumers of the data to access, compile, share, and analyze the information.
From the beginning, companies have been required to file their financial statements with the SEC in the traditional HTML format as well as the newer XBRL format. Yes, that’s two separate formats, two separate processes, two separate filing requirements. The largest public companies have been at it since 2007, while the phased-in requirement gave smaller companies until 2009 to begin the dual filing.
All this time, companies have continued to secure an audit opinion on the HTML rendering, and on the internal controls over financial reporting if they are subject to that under Sarbanes-Oxley. The SEC, however, has never required an audit of the XBRL filing.
“A big advantage of inline XBRL is that the internal reviewer of the financial document can see the traditional information and the XBRL information at the same time.”
Lou Rohman, VP of XBRL Services, Merrill Corp.
In the earliest years, to allow companies to get accustomed to the XBRL system, the SEC didn’t even attach the same level of legal liability to the XBRL submission. Full liability for the XBRL-formatted data kicked in a few years later, after companies had gained some experience working with the U.S. GAAP Taxonomy, which provides the roadmap for how to do detailed tagging of data required under XBRL.
In the slow evolution of the XBRL system, the SEC recently announced it would allow companies to voluntarily merge their HTML and XBRL filings into a single filing using a process known as inline XBRL. It represents a progression of the XBRL technology that enables companies to tag data in the traditional HTML rendering.
“It allows the user of inline XBRL to be able to look at it visually through a viewer to see the presentation as it would normally be in a 10K or a 10Q, but also drill down to see what makes up the metadata behind it,” says Jim Dreyer, XBRL practice leader at PwC.
INLINE XBRL ADOPTERS
Below is a list of regulators that have already adopted the inline XBRL standard and, according to IRIS Business Services, are gaining significant benefits from it:
1. Inline XBRL in HMRC and Companies House, United Kingdom
In April 2011, companies in the UK started filing their annual accounts and corporation tax returns in inline XBRL to Her Majesty's Revenue and Customs (HMRC), the UK tax authority and Companies House, UK’s Companies’ registry. It is today one of the largest implementations of inline XBRL with around 1.9 million companies filing their accounts and tax returns every year.
This white paper on inline XBRL company filings in UK highlights the features of the XBRL and inline XBRL programs in the UK.
Inline XBRL helps UK’s HMRC and Companies House to provide XBRL data in a coherent and consistent manner. This, in turn, enables analysis and comparison of company information that is practical, efficient and useful. It also promotes ease-of-use of XBRL, keeping down cost and effort for reporting companies and other users. This move did not impose unreasonable or unnecessary burdens on either producers or consumers of information and has provided value for money for filers and regulators equally.
2. Inline XBRL in Financial Services Agency, Japan
Japan’s Financial Services Agency (JFSA) regulates banks, insurance companies, listed companies and investment funds. JFSA, one of the early adopters of structured data, mandated XBRL in 2008 and this was later replaced with the iXBRL file format in 2013. The mandate covers close to 3,500 listed companies and 5,500 investment funds.
Along with iXBRL, another change that happened was increase in the scope of structured data filings to include material facts along with financial information. A major benefit of adopting inline XBRL was also that it made it possible to expand the scope of detailed tagging in the future.
3. Inline XBRL in Revenue Commissioners, Ireland
Revenue Commissioners (known as Revenue), is the agency that regulates customs, excise and taxation in Ireland. In 2012, the Revenue initiated a voluntary program for all tax payers to file their financial statements in inline XBRL. The mandatory filing was introduced in phases starting with large companies in October 2013 and moving to the remaining corporation tax payers in October 2014.
There are some categories of companies that are exempt from inline XBRL filing for the time being but they are encouraged to avail of the optional filing facility.
One of the initial consultative papers by the Revenue, Ireland highlights that inline XBRL allows viewing of non-tagged information as well. Thus, for regulators who wish to increase the scope of mandate gradually or for those who plan to collect specific data that is relevant for analysis, inline XBRL is a good choice. This particular benefit has been aptly explored by the Revenue, Ireland as they plan to go for phase-wise iXBRL implementation.
4. Inline XBRL in Danish Business Authority, Denmark
The Danish Business Authority (DBA) is the business registry of Denmark. Around 215,000 companies submit their digital reports to DBA annually.
The XBRL mandate was introduced in a phased manner and in 2015 the XBRL data and its PDF counterparts were made freely available. While the requirement is to file PDF and XBRL documents, their filing system also accepts inline XBRL. The smaller companies are given an option to create their annual report using DBA’s application that uses inline XBRL as the rendering format.
5. Inline XBRL in Australian Securities and Investment Commission
Standard Business Reporting (SBR) is a pan-Government initiative with the objective of streamlining business reporting and reducing the reporting burden of businesses. Australia is one such country where SBR is already in action.
The Australian Securities and Investments Commission (ASIC), regulates company and financial services laws and is part of the SBR program in Australia. In 2010, ASIC had started voluntarily filing of financial statements in XBRL. Along with XBRL, a human readable version, either PDF or paper format was also be submitted.
In 2015, ASIC opened up for inline XBRL filing thereby eliminating the need to submit financial statements in dual formats. This move reduced the burden on companies.
Source: IRIS Business Services
“It eliminates the need to file two different documents that contain the same information,” says Mike Starr, vice president of filing services firm Workiva. “The problem with that requirement is the need to make sure the information in both documents is the same. That’s usually a manual review process, and it can be time consuming.”
Inline XBRL might help address one of the problems companies encountered in the earliest days of XBRL technology, which was just getting accustomed to the different visual appearance of XBRL-tagged documents compared with the traditional look of HTML documents.
“A big advantage of inline XBRL is that the internal reviewer of the financial document can see the traditional information and the XBRL information at the same time,” says Lou Rohman, vice president of XBRL services at Merrill Corp., another firm that assists with filings. “If you can review better, you can improve the quality.”
Investors and analysts have been slow to migrate their research and analysis processes to XBRL, in part because the data has been fraught with errors that make it less credible. Inline XBRL may be helpful here, says Rohman. “You could argue maybe there are transposition errors with having two documents,” he says.
In the bigger picture, however, there are still plenty of other reasons for many of the errors that have dogged the development of XBRL, most notably difficulties in selecting the right tags from the GAAP Taxonomy, says Rohman. “You will still have those issues whether you’re doing inline XBRL or traditional XBRL,” he says.
Companies that have been on the DIY path to XBRL compliance will certainly see a simpler filing process by adopting inline XBRL, although experts say that’s not a big number of companies. Companies that have worked with service providers or have contracted for a disclosure management solution might already have offloaded some of the duplicative work associated with the current dual filing requirement.
While the potential advantages of filing in XBRL seem simple enough to identify, there’s a big unknown that some audit firms are exploring before they advise clients to adopt inline XBRL. “Does this inline XBRL change the nature of this information?” asks Jim Burton, partner in charge of audit methodologies at Grant Thornton. “Does it now become filed information as opposed to furnished?”
Information that is “furnished” to the SEC is not subject to the same level of legal liability under SEC rules as information that is “filed.” Auditors are asking questions about that. If XBRL data is integrated into the HTML filing, does that mean auditors should be auditing the XBRL-tagged data as well? “Does it need to be covered by disclosure controls and procedures for internal control over financial reporting?” asks Burton. Currently, XBRL-tagged data is filed as an exhibit to the financial statements, so it is outside the scope of internal controls, says Burton. “Does inline tagging become part of the financial statements, and therefore does it need to be covered by internal controls?” he asks. “That’s going to be a legal determination.”
The SEC has not spoken publicly on that question. The SEC’s order permitting inline XBRL indicates it is a voluntary allowance permitted through March 2020. “The experience and feedback received from the use of this option could facilitate the development of inline XBRL preparation and analysis tools, provide investors and companies with opportunities to evaluate its usefulness, and help inform any future commission rulemaking in this area,” the SEC said in allowing inline XBRL.
PwC is looking into those questions as well, says Dreyer. “The change in technology is going to push us in this direction because it gives better insight and transparency to the information,” he says. “So we have to ask: What is the impact to internal control over financial reporting? We’re formulating opinions internally. Those questions still remain.”
Starr, a former staff member at the SEC, says XBRL data has been considered filed with the SEC since 2014, but is not covered by audit or internal control. "That said, SEC staff confirmed in 2009 that XBRL data is covered by the SEC's requirement that management evaluate quarterly the effectiveness of disclosure controls and procedures for information reported in SEC filings," he says.
Burton says he’s suggesting companies sit tight on inline XBRL until they have those answers. “If the ultimate determination is this is part of the financial statements and therefore is subject to audit, we wouldn’t want companies to have filed something and not have met that requirement,” he says.