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Common Errors of XBRL Implementation

And how your firm can avoid them.

February 2010
by Jon Bartley, CPA, PhD, et al.

Following three years of voluntary XBRL submissions, the SEC’s mandatory requirements for XBRL financial report submissions began phasing in June 15, 2009. As with any new process, companies can easily underestimate the challenges posed by this complex reporting technology and make mistakes along the way.

This article describes common errors appearing in Voluntary Filing Program (VFP) Forms 10-K that continue to occur under the SEC’s mandatory Form 10-Q submissions and discusses how they can be prevented. CPAs can use this information to develop expectations about the challenges of XBRL document preparation and of performing agreed-upon procedures engagements. It is especially important for companies to be aware of these potential errors, because the errors occur not only in filings prepared in-house, but also in filings prepared by third-party financial printers. Regardless of who prepares the filings, the company is ultimately responsible for the documents’ accuracy.

Despite the prevalence of these errors, significant improvements have been made in XBRL creation tools, the U.S. GAAP Taxonomy and in software validation tools.

In the future, we expect many companies to integrate XBRL and their automated accounting information systems (AIS) enabling the AIS to directly produce the XBRL instance documents and eliminating many types of errors. However, almost all companies currently prepare XBRL documents using a bolt-on process that follows the traditional preparation of financial statements in ASCII or HTML format. This manual data transformation process is a significant source of the errors we observed in XBRL documents.

Methodology

To gain better insight into the challenges new filers faced, we examined the filings of the first 22 U.S. companies that submitted relatively complete XBRL-formatted 10-K financial statements in 2006 as part of the SEC’s VFP. As part of a major research initiative undertaken at North Carolina State University examining issues related to XBRL financial statement documents, we examined the XBRL documents and compared each to the original Form 10-K. We noted differences in amounts, signs, presentation, labeling, classification, etc. To examine how accuracy improved with experience and with the intervening improvements in XBRL software and the XBRL U.S. GAAP Taxonomy, we repeated our examination in 2008 for the 11 companies that filed XBRL 10-K documents continually from 2006 to 2008. We base our discussion on these results and the preliminary observations of the SEC staff regarding errors identified in the submissions of XBRL 10-Q reports of the first registrants (approximately 500) required to file XBRL documents for the second and third quarters of 2009.

The XBRL 2006 and 2008 voluntary 10-K submissions of almost all companies examined contained significant errors that would not be acceptable under the SEC’s rules for mandatory submissions. These errors occurred in various steps of the process including mapping, extension, tagging and creating and validating. The SEC staff observations from a review of initial XBRL 10-Q submissions indicate that accuracy has improved significantly, but many companies are still making the same errors we observed in the voluntary submissions. Fortunately, companies that make a good-faith effort to comply with XBRL requirements and correct errors within 24 hours of discovery are protected from legal liability by the SEC’s safe harbor provision during the first two years of submissions.

We identified these errors by comparing financial statements rendered by the SEC’s Interactive Financial Report Viewer software to the official Form 10-K and then tracing apparent errors to the underlying XBRL document containing the computer code. We defined errors as violations of basic XBRL principles in effect at the date of the document submission. At present, the SEC’s final rule (PDF) and the EDGAR Filer Manual govern the content of XBRL data files, while the XBRL US GAAP Taxonomy Preparers Guide provides detailed instructions for the construction of instance documents containing the computer-readable code that represents a company’s specific taxonomy of elements, business facts and financial relationships.

This article has been excerpted from the Journal of Accountancy. View the full article here.