Financial reporting via XBRL: is mandate on the horizon?

• Author: Heffes, Ellen M.
• Position: Financial reporting - Extensible Business Reporting Language

On May 30, the U.S. Securities and Exchange Commission posted its proposed rule for extensible Business Reporting Language (XBRL) reporting by public companies. The comment deadline is August 1.

With this news, which was originally voted upon by the SEC on May 14, many CFOs and other financial executives of public companies are likely thinking, "That's one." The "one" in this case refers to the two expected major reporting rules for public companies that are expected to be announced--or at least "roadmaps" for transition to them--by November (when the U.S. presidential elections may mean a soon-thereafter departure for SEC Chairman Christopher Cox). The two: International Financial Reporting Standards (IFRS) and XBRL.

Indeed, the SEC proposal, if enacted, will require domestic and foreign issuers that use U.S. generally accepted accounting principles (GAAP) to submit their primary financial statements and footnotes in XBRL format.

The proposal calls for a phased-in approach, with the largest 500 companies--specifically those that file in U.S. GAAP and have a worldwide public float of over $5 billion--being required to provide financial statements in XBRL for fiscal periods ending on or after Dec. 15, 2008. In that first year, the SEC would permit footnotes to be provided in blocked tags. Thereafter, the detail within each footnote would have to be individually tagged.

Smaller U.S. public companies and companies filing in IFRS would be phased in during the following two years. The SEC noted that it will monitor initial adoption by the largest companies to determine if any adjustments are necessary.

The filing deadline for XBRL data would be the same as that for the related SEC filings currently (annual reports, interim reports, registration statements, transition reports). However, an additional 30-day "grace period" would be provided for the initial XBRL filing of the financial statements, and a similar grace period would be provided for the initial filing of the detailed footnotes required in the second year.

The proposed rule addresses liability considerations by stating that XBRL data, which is "viewable" through use of the SEC's XBRL reader--"to the extent identical in all material respects to the corresponding portion of the traditional format filing"--has the same liability as in traditional filings. Other data in the interactive file has a lesser level of liability, similar to the SEC's current voluntary filer program.

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