Any System Can Break

30 Sep
By: Nicole E. York

In the public company market, a key function of the financial reporting department is to communicate with the Securities and Exchange Commission.  What began decades ago as paper submissions have now become electronic transmissions of HTML and XBRL code.  Financial reporting has become such an automated practice between company, filing agent, and the SEC, that many forget what lies behind the final step of the process: EDGAR.

As a filing agent, SEC Connect is continually transmitting HTML and XBRL to the Securities and Exchange Commission via EDGAR.  We transmit so often and without issue that EDGAR often seems unbreakable. Until the day it freezes.

On Wednesday, August 14th, 2013, a majority of the public market were required to submit a Form 10-Q.  While most filing agents have now enacted either a hard “pencils down” restriction, or a general guideline for last changes, companies often are required to make last minute edits prior to submission.  Due to the complexity of XBRL code, once any edits are made, the entire file must be sent back to the SEC for XBRL validation.

Accounting departments, legal teams, and filing agents had been working days (and weeks), often with little sleep to accomplish the 10-Q submission.  The deadline was a mere two hours away, and everyone could see the light at the end of the tunnel. At about 3:35 pm ET, on Wednesday the 14th, filing agents noticed that suddenly, and without warning, the validation emails were not returning.  The SEC was accepting test and live filings, but the acceptance or suspension emails from EDGAR simply were not appearing.  Filers and filing agents across the country began attempting to contact the SEC directly, most with no success.  Those that had better communication lines were told it was merely an email delay, and would be resolved in ten minutes.

Ten minutes came and passed.  Two hours later, the delay was still in effect. If EDGAR had froze completely, we all simply would have had to wait.  However, the SEC was still accepting transmissions.  The issue then became less of a “wait and see”, and turned into an urgent decision.  Without proper SEC validation, many filing agents were unable to guarantee that the XBRL would be accepted.  Filers were forced to make a hard decision: file now, assuming all XBRL would clear validation, and risk having to amend a filing if the SEC strips the XBRL, or wait it out.  There were a few that hoped the SEC would accept late filings without penalty, as it was the EDGAR system itself that was experiencing issues.  However, the SEC was not issuing guidance on the matter and the decision was left to the company.

Filing agents were reaching out to all clients with pending filings, explaining the situation, and awaiting instruction.  Most clients live-filed.  Filing agents then began a restless evening watching for the emails.

After the deadline passed, the email delay was resolved.  However, as it was past 5:30 pm ET, the filings would not appear online until the following morning; there was no way to see if the XBRL had been stripped, or accepted.  (Because of SEC Connect’s systems and procedures, our staff was able to review our test and live submissions to determine if any XBRL had been removed, rather than wait until morning).

Filers need to be aware that this is not the first time EDGAR filers have experienced such a delay.  SEC Connect has procedures in place to confirm that all XBRL filings are validated, and will be accepted in their entirety as of the morning of the filing date.  If the client chooses to make edits, however, that assurance disappears.  When choosing a filing agent, make sure to consider if your agent is prepared with similar processes – do they have the time and ability to validate overnight so you are confident your file will transmit?  Is their staff as skilled and experienced with XBRL that they can continue making edits the day of a filing, and remain confident the XBRL code will be correct?

SEC Connect can proudly say that every “blind” transmission it made that afternoon, following multiple changes, on the day the notifications froze, was accepted – in their entirety.  Not one of our clients was forced to file an amended 10-Q to submit XBRL that the SEC had stripped.  This was not the first “delay” that EDGAR has experienced, and it may not be the last.  Be aware of the risk of late changes, be aware that EDGAR is a program that can experience delays, and most importantly – be aware of the ability of the filing agent you trust with your filings.

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