SEC requires shift to integrated XBRL filing

A new requirement for companies to adopt some new XBRL technology will produce different levels of compliance burden depending on how companies are complying now.

Large accelerated filers that are voluntarily using inline XBRL perhaps with the help of an outside vendor to comply with the XBRL filing requirement are already there, for example. At the opposite end of the spectrum, however, is a significant number of smaller companies that may be cobbling along on their own doing traditional XBRL exhibits separate from their HTML documents. Those companies will have more work to do.

The Securities and Exchange Commission recently adopted a requirement for all companies to transition their filings to inline XBRL, beginning in 2019 for large accelerated filers. Other accelerated filers will have until 2020 to comply, and all other filers will be required to use inline XBRL beginning in 2021.

Inline XBRL is a means by which filers will integrate their XBRL filings—those prepared using eXtensible Business Reporting Language—with their traditional HTML document filings. The move to inline XBRL means companies will do away with the separate filing processes, the static document separate from the XBRL instance each reporting period, to produce a single document that can be read by both humans and machines. The SEC also dropped the requirement for companies to post interactive data files to their Websites.

The SEC says the new rules are intended to make the data more useful, timelier, and of better quality. The new filing process also should ultimately decrease the costs companies incur to submit their financial statement data to the SEC, according to the new rule.

The SEC began preparing companies for the transition by permitting a voluntary adoption of inline XBRL in 2016. XBRL US, a consortium promoting XBRL adoption in the marketplace, says a little more than 150 companies transitioned to inline XBRL, submitting more than 500 documents to date.

“The underlying data tagging and quality are now going to become more transparent to the market and to the SEC,” says . “It used to be buried, but now it’s going to be just part of browsing a 10K.”
Jeffrey Naumann, Managing Director, Deloitte & Touche

Data quality has been a problem with the unaudited XBRL submissions almost from the beginning. Companies must navigate the U.S. Generally Accepted Accounting Principles Taxonomy to select from among thousands of elements to individually tag each piece of financial statement data, and many relied on custom extensions where they couldn’t find tags that exactly matched specific pieces of data. The learning curve was steep, the taxonomy has changed a great deal to address concerns, and the SEC was slow to take any measures to compel companies to improve data quality.

Neither the SEC nor the market have held companies highly accountable for persistent data errors, but now experts are expecting the transition to inline XBRL to improve data quality. “It tightens up the relationship between the document and the underlying XBRL data, and that’s a good thing,” says Campbell Pryde, president and CEO of XBRL US.

“The underlying data tagging and quality are now going to become more transparent to the market and to the SEC,” says Jeffrey Naumann, managing director at Deloitte & Touche. “It used to be buried, but now it’s going to be just part of browsing a 10K. If you see missing tags, over reliance on custom tags, missing data, that will be much more front and center.”

Naumann is advising companies to prepare first by talking with their software vendors to determine their readiness to facilitate inline XBRL. Some are already ready for it, and some will have to provide companies with some new technology or new processes to get there. Then the next step is to start looking at the company’s own data quality and determining where it may have problems to correct before they would become more visible to the market via inline XBRL, he says.

“At a baseline, avail yourselves of existing things in the market,” says Naumann. “Understand the taxonomy, understand the requirements of the Edgar filing manual, the basics of the rule itself, the nuances of the element selection staff guidance.” It’s also worth exploring the data quality rules that are being developed by XBRL US as a means of cleaning up data, he says.

Key considerations related to implementing the iXBRL requirements

Registrants that use third-party vendors to prepare their interactive data files or other aspects of their EDGAR submission should assess whether those vendors are capable of preparing filings in iXBRL format. Such vendors may need to modify their software to enable it to extract iXBRL data. In addition, registrants should ensure that a filing contains no validation errors; if it does, the EDGAR system will reject the entire filing, not just the iXBRL piece.
While registrants may use third-party vendors, they retain the overall responsibility for their filings. Therefore, registrants should (1) understand how adoption of iXBRL will affect the timing and nature of their filing preparation and review processes (e.g., their ability to meet submission dates or make last-minute changes) and (2) ensure that they have personnel with appropriate expertise to review the iXBRL formatting.  
iXBRL and Disclosure Controls and Procedures
Most registrants’ disclosure controls and procedures apply to the creation of interactive data files; however, the SEC specifically excludes the use of interactive data files from the officer certification requirements in Exchange Act Rules 13a-14 and 15d-14. While the SEC has indicated that this exclusion was intended to give registrants a means of avoiding unnecessary costs, management is still responsible for the completeness, mapping, consistency and structure of its interactive data filings. Moreover, exclusion of interactive data files from the officer certification requirements does not mean that a registrant can exclude controls and procedures related to interactive data from its evaluation of disclosure controls and procedures. A registrant that submits an interactive data file with Form 10-K or Form 10-Q still must consider controls and procedures related to interactive data when complying with Exchange Act Rules 13a-15 and 15d-15 and with Regulation S-K, Item 307.
iXBRL Assurance Remains Voluntary
There is no requirement currently, or under the final rule, for any form of assurance related to a registrant’s XBRL interactive data filing. However, audit committees and management may consider whether and, if so, what form of assurance or other types of services may be useful to the company and its investors in connection with the iXBRL requirements. Such services may include the following: 
Readiness assessment — An assessment of the company’s capacity for sustainable iXBRL financial reporting based on the filer’s financial reporting process and technology infrastructure. 
iXBRL implementation — Advice and recommendations related to planning for and establishing the process of conversion of financial information to iXBRL and providing recommendations for a sustainable process for ongoing reporting.
iXBRL training — Knowledge transfer services ranging from awareness to in-depth technical training.
Agreed-upon procedures — Application of certain agreed-upon procedures with respect to iXBRL information.
Source: Deloitte

Companies relying on outside filing vendors already using inline XBRL will see little or no change in a transition to inline XBRL, says Marty Vanderploeg, CEO at software provider Workiva. Preparers are still ultimately responsible for selecting tags that best describe their financial statement data, and that doesn’t change with the move to inline XBRL, he says. “That’s still the hardest part,” he says. “And the learning curve has come up quite a bit. Companies are getting better at it.”

Companies that are not using a fully outsourced model or a model where they create a 10K separate from their XBRL exhibit will have more work to do. That means the onus really is more on software vendors to provide companies with inline XBRL solutions. An informal poll at XBRL US of its vendor members suggests they are already prepared or will be soon, says Michelle Savage, vice president at XBRL US.

Vincente Martinez, a partner at law firm K&L Gates, says the transition to inline XBRL could bring a new level of scrutiny to companies’ use of custom tags or extensions. Those are permitted when companies need to tag a piece of data that is not adequately described by an element in the taxonomy, but the early days of XBRL submissions saw huge unwarranted use of extensions.

Now those extensions will be more exposed in an inline XBRL document, which may lead to some scrutiny, especially as the SEC has called attention over the past few years to inappropriate uses of non-GAAP measures. “If you have a financial reporting metric that’s not standard, you’re going to wind up casting a focus on that particular area of your financial statements,” says Martinez.

Even with the transition to inline XBRL, the SEC still does not require companies to have their XBRL exhibit audited. Now that the audited document will contain the unaudited tag selection, that may be producing questions about the implications for auditors and the audit, says Pryde. “That’s one of the unanswered questions at the moment,” he says.