SEC Adopts Final Rules Requiring Interactive Financial Data In XBRL Format

March 4th, 2009

Article by David A. Cifrino, William J. Quinlan, Jr., Eric Orsic and John M. Richardson

Subject to a three-year phase-in, public companies are required to file their financial statements in XBRL format in a separate exhibit to reports and registration statements that contain financial statements.

On January 30, 2009, the U.S. Securities and Exchange Commission (SEC) issued new rules and related guidance that require domestic and non-U.S. public companies to provide their financial statements to the SEC in a separate exhibit to certain reports and registration statements in an interactive data format using eXtensible Business Reporting Language (XBRL). Companies will also be required to post their XBRL filings on their corporate websites.

With interactive data, all of the items in a financial statement are labeled with unique computer-readable "tags," which make financial information more searchable on the internet and readable by spreadsheets and other software. The XBRL rules are designed to make it easier for analysts and investors to find and compare data on financial and business performance.

Click here to view the SEC release, No. 33-9002; 34-59324, adopting the new rules.<------------------------------------->
Note: So why is this newsworthy? Because having up-to-the-minute financial data on every major company doing business in America in a standardized, extensible format, and readily available online in real time gives investors a much better chance of actually making sense of any company's financial position.

Currently, many companies have stretched "standard accounting principles" so far away from transparency that it can now take a trained accountant hundreds of hours to evaluate a company's financial position. In addition, given the speed of commerce, quarterly financial statements can be woefully misleading in reference to current circumstances.

It is almost inconceivable that twenty five years after the advent of personal computers, the SEC is only now attempting to formalize a standardized form for financial statements that places the emphasis on providing current raw financial data from all major companies, rather than the verbiage that traditionally bloats corporate reporting, and frequently hides important information from investors and regulators.

However, the XBRL tagging is not a panacea, especially when confronted with the "nasty bastards" who are intent on obfuscating their company's true financial condition.

• To a limited extent, companies will be able to add to the standard list of tags in order to accommodate unique items in their financial disclosures. When a financial statement element does not exist in the standard list of tags, the company may add a customized tag (i.e., an extension), but whenever possible and when a standard element is appropriate, companies are required to change the label for a financial statement element that exists in the standard list of tags instead of creating a new customized tag. The adopting release provides as an example a company using the label "gross margin" in its financial statements. In that case, in its XBRL submission, the company would use the standard tag "gross profit" and change the label for that data tag to "gross margin."

Programmers are very familiar with the "Microsoft Method" of 'encompass and expand' so that an original program is modified in scope, structure, and form to such a degree that the program is fundamentally different than what it started out as, and no longer serves it's original market or intent.

Companies with a stake in being opaque will assert their particulars require custom XBRL tags; yet all finance can be reduced to a fairly simple matter of: what comes in, what goes out, and what's left over. No amount of custom tagging should be permitted which fails to precisely provide these figures. The verbiage should be limited to footnotes and addendum.