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Robert Krugman

SEC Proposing to Make XBRL Filings Mandatory

The day is fast approaching. What are the ramifications for your organization?

December 6, 2007
by Robert Krugman

Mandatory XBRL — It is finally coming.

Since 2005, my colleague Liv Watson and I, among others, have been writing and speaking about the evolution of the eXtensible Business Reporting Language (XBRL), and the eventual filing of documents to the Securities and Exchange Commission (SEC) in an XBRL format. That day will soon be upon us.

To review, XBRL is an XML-based technology standard that has been developed for the tagging of information contained in financial reports. Led by a global consortium with local jurisdictions throughout the world, XBRL promises to do for financial reporting what scannable bar codes did for the retail industry. In the U.S. jurisdiction, the Federal Deposit Insurance Corporation (FDIC) has required bank call and thrift reports to be filed in an XBRL format for the last two years and the SEC is quickly following suit.

Over the past few months a number of notable speeches by SEC staff including Chairman Christopher Cox, have alluded to a watershed moment. Recent comments by John White, head of the SEC's division of corporate finance and Conrad Hewitt, the SEC's chief accountant, highlight that this moment is upon us. In the recent presentations at the Financial Executives International Conference, both noted that the SEC is in the process of shaping a proposal to make using XBRL mandatory in SEC filings.

Editor Note: Join XBRL Public Review Webcast on December 17 and hear experts decipher XBRL and reveal how it can help your company reduce cost and improve internal control.

White stated: "The staff has been asked to make a recommendation (on XBRL)," and added that a final rule regarding the adoption and mandating of XBRL will be completed by the fall of 2008. Hewitt told the audience, “Stay tuned on XBRL; it's coming down the pipe very fast."

Based upon these remarks and others, all signs point to the SEC requiring accelerated filers to file their main financial statements (Balance Sheet, Cash Flow, Income Statement, and Statement of Stockholders Equity) in XBRL for 2008 annual reports.

With this date approaching quickly, the question of preparing your audit clients for this transition takes on added meaning. As has been the case for the past two years, the SEC Voluntary Program allows corporations to begin experimenting with XBRL while simultaneously reporting in the EDGAR format.

How Do You Get Started?

One of the concerns that has been highlighted by the corporate community is the resources consumed in XBRL filings in terms of costs and the time. Building upon these concerns a recent report by the Merrill Corporation found that corporations that created XBRL filings using one of the various manual tools spent on average 240 hours creating their initial filings.

Help Is on Its Way

While costs are a fair concern, many third-party service organizations will work closely with the corporations to create the XBRL-formatted content on their behalf. For example, my company, EDGAR Online, partners with RR Donnelley to help corporations produce documents in XBRL format and file with the SEC. Nearly three dozen voluntary filers have chosen to utilize this service to date and the average time commitment for these corporations has been less than 10 hours for the initial filing, and as few as two hours for subsequent filings.

Several reasons make this approach attractive:

  • Education — Working with a third-party expert in XBRL enables your firm to create XBRL-instance documents without requiring them to be experts in the technology and tagging that are at the core of XBRL-instance document creation. At the same time you can work with these service providers to gain an understanding of the process and begin to educate yourself without having to read through mountains of documentation.
  • Workflow — Many corporations currently utilize third-party filing agents or financial printers to create, format and file their EDGAR filings. This becomes an extension to the existing workflow, reducing both time and costs.
  • Cost — If your firm is unable to set aside 240 hours of resource time to create and validate the XBRL documents, using commercial vendors greatly reduces the costs.

The Benefit of Starting Now?

Early action helps the SEC to ensure that this transition is smooth and not be over-burdensome for corporations, auditors and investors. Taking the time to understand both XBRL and the filing workflow now will ensure that the eventual mandate will not catch your corporation off guard and not become an arduous SOX-like implementation.

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Robert Krugman is the Senior Vice President of Product Development for Norwalk, Connecticut-based EDGAR Online Inc. (NASDAQ: EDGR) — a provider of global business and financial information.