Are you prepared for XBRL? Lessons from the field: one key finding from the first year of implementing extensible Business Reporting Language is that getting it right is critical, since errors or noncompliance can trigger an amended filing and possibly damage a company's reputation.

• Author: Bartley, Jon
• Position: FINANCIAL REPORTING - EXtensible Business Reporting Language - Legislation

In December 2008, the U.S. Securities and Exchange Commission adopted Interactive Data to Improve Financial Reporting (SEC, 2009), mandating the submission of supplemental exhibits containing Forms 10-K, 10-Q, 8-K and others using extensible Business Reporting Language (XBRL). The initial preparation of XBRL documents during the 2009-12 phase-in period presents significant challenges and risks, and chief financial officers have the responsibility for assuring that the XBRL exhibits comply with SEC rules and XBRL protocols.

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Noncompliance can trigger amended SEC filings and lead to reputational damage with investors.

It's widely expected that XBRL--under development for more than a decade--will eventually become the official SEC filing format. Its appeal is that it provides data in an interactive, context-rich format that users can upload directly into analytical software or render as traditional financial statements.

The ease of use and transparency provided by computer-readable XBRL documents will benefit investors as well as the SEC enforcement division. Companies not regularly followed by analysts may benefit significantly from the increased access that investors will have to company information.

To gain a better understanding of the challenges and best practices for XBRL document creation, managers responsible for SEC reporting at eight public companies that had completed a full year's submissions were interviewed to discuss their experiences: Bank of America Corp. BB&T Corp., Duke Energy Corp., Lowe's Companies Inc., Nucor Corp., Progress Energy Inc., Reynolds American Inc. and SPX Corp. At the time of the interviews, all companies were involved in the process of detailed tagging of footnotes for the Q2 2010 Form 10-Q.

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Critical Decisions and Actions

Based on the interviews, companies should approach XBRL implementation as a project that will last about 30 months. Resource requirements will ramp up from initial tagging and filing through completion of the first 10-K containing detailed footnote tags.

As the process becomes routine, the incremental human resource commitment may decline to less than 40 hours for a 10-Q. The critical implementation steps are:

* Identifying and training the XBRL team;

* Selecting either an external service provider (outsource) or software for in-house XBRL document creation;

* Tagging financial statement concepts;

* Practicing XBRL document preparation prior to initial submission; and

* Validating the XBRL documents and establishing internal controls.

Identify and Train the Team

For a smooth implementation, it's essential to start at least 12 months before the first XBRL submission is due. Initial decisions need to be made about who will direct the process and available staff on the team. All companies interviewed assigned it to the director of SEC reporting or the manager of financial reporting. Supporting staff members need to be experienced accountants familiar with the company's...