The SEC Speaks – XBRL in Focus!

8 Sep
2013
By: Nicole E. York

The SEC Staff Issues Comment Letters

Since the inception of XBRL in 2009, the goal of the SEC has been to create a uniform system that would become a tool for investors to compare and analyze company financial statements. A phase-in period was afforded to companies that would need time to adjust to a system that came with certain labor and financial burdens, especially for smaller reporting companies. This grace period has long since come to an end, and for a while, the only noise regarding compliance came from certain filing agents attempting to drum up business by pointing out errors in XBRL files.  Now the SEC has begun to weigh in on irregularities, and errors in XBRL submissions, beginning with a comment letter sent to certain public companies in July 2014.  In that letter, a sample of which the SEC has posted at http://www.sec.gov/divisions/corpfin/guidance/xbrl-calculation-0714.htm, the SEC highlighted two common XBRL errors – calculation relationships and custom element data tagging.

Custom element tagging occurs when an issuer creates a new, unique element, or definition, for a financial concept, instead of choosing an existing element from the current GAAP taxonomy database.  Calculation relationships are built by your XBRL processor, and identify each concept that is included in the sum of a total line in your financial statements.

Custom element tagging when an appropriate element already exists, as well as incorrect calculation relationships resulting in false total amounts, both contribute to a significant number of errors that occur when companies transmit their XBRL data.  The SEC will no longer tolerate them without comment, as errors like these make the system ineffective.  While these two issues were singled out by the SEC in its sample comment letter, this does not mean that other areas will go unnoticed, as the SEC looks to tighten up a system that has received criticism and pressure from Congress and data advocacy groups alike.

Issuers and their advisors need to be conscious of these areas of SEC staff focus, and recognize that no company is excluded from review.  All filers are subject to the full XBRL rule, regardless of the burden, and need to be conscious to ensure XBRL data files are prepared correctly, and take into consideration areas of SEC focus.  Not only will receipt of an SEC staff comment letter potentially require an issuer to spend time and expense in responding, and ultimately cause a revision to the filing, but the possible filing of an amendment to resolve the issue can bring unwelcome attention to your company’s reporting errors.

Is your filing agent processing your XBRL correctly?  Your XBRL processor should not only correctly tag your data, but also verify that all the values in your calculation relationships are accurate.  SEC Connect routinely works with its clients to move away from custom elements and revisit the XBRL taxonomy (library) with each release.  We urge our clients to avoid custom tags when appropriate elements are available, despite the display difference that rendering tools will provide.  Our team has built into its XBRL validation calculation checks and we work with our clients when amounts do not sum appropriately.  It is critical that your filing agent be more than a document processor, but a true partner in the creation of accurate XBRL data.

If you are interested in becoming a client of SEC Connect, contact clientservices@secconnect.com.

 

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