• SEC Proposes Interactive Data Format (XBRL) for Financial Reporting
  • October 3, 2008 | Authors: Laurie L. Green; Antoinette Backhus
  • Law Firms: Holland & Knight LLP - Fort Lauderdale Office ; Holland & Knight LLP - West Palm Beach Office
  • On May 30, 2008, the SEC proposed rules which will require companies to provide financial statements, notes and schedules in an interactive data format which uses eXtensible Business Reporting Language (XBRL). The proposed rules apply to both domestic and foreign companies that apply U.S. GAAP to their financial statements and foreign private issuers that apply International Financial Reporting Standards (IFRS) to their financial statements. The information will be required to be provided on a company’s Web site and filed as an exhibit to the filer’s Securities Act registration statements that include financial statements, annual reports, quarterly reports and transition reports. Financial statements in XBRL format would not be required to be included in registration statements on Form S-3 and other forms that incorporate financial statements by reference.


    The SEC believes that financial statement information in XBRL format will improve its usefulness to investors by creating new ways for investors, analysts and others to retrieve and use the information in financial statements. Each item in the financial statements will be “tagged” using a standard set of codes that the computer reads. The tagged information can then be used in any of the following ways:

    • downloaded directly into spreadsheets
    • analyzed using commercial off-the-shelf software
    • used within investment models in other software formats

    In addition, the SEC expects that because companies will use the same standard codes for tagging their financial statements, investors will be able to compare financial and business performance across companies, reporting periods and industries on an “apples to apples” basis.

    The Pilot Program

    The SEC originally launched a voluntary XBRL program in 2005. Over 75 companies participated in the voluntary program. These companies filed their financial information both in the traditional format and in XBRL format. The XBRL financial information was included as an exhibit to their Exchange Act filings.


    The XBRL format uses a standard list of tags which are designed to be read by software. Companies must tag each item in their financial statements with a standard label that defines the item for the computer. The SEC has contracted with XBRL U.S. to develop the standard list of tags for U.S. GAAP filers. The most recent list of tags, called a “taxonomy,” was published on April 28, 2008, by XBRL U.S. and contains 13,000 data elements. A similar list of tags is being prepared for IFRS. The tags contain descriptive labels, definitions, and authoritative references to GAAP and SEC rules.

    The company will apply the tags to its financial statements using software that guides the company in mapping information in the financial statements to the appropriate tags in the standard list. In situations where an appropriate tag is not available, the company will create a company-specific element called an extension to act as the new tag. However, the SEC wants to limit the extensions created and prefers that the company adjust the label for a financial statement element instead.

    There are two ways in which a company can complete the tagging process:

    1) purchase commercially available software and tag the financial statements itself

    2) outsource it to a service provider (however, the company is still responsible for the information and the tagged data)

    The tagged information will not be in a readable form. A person will need to convert the tagged information into text or financial statements by using a viewer. Links to four viewers are available on the SEC’s Web site.

    In the first year of tagging, the financial statement footnotes and schedules will be tagged as a block of text. For the next year, the company will need to tag the disclosures within the footnotes and schedules.

    Specifically, the SEC proposed four different levels of detail for tagging footnotes as follows:

    1) each footnote tagged as a single block of text

    2) each significant accounting policy within the significant accounting polices footnote tagged as a single block of text

    3) each table within each footnote tagged as a separate block of text

    4) within each footnote, each amount separately tagged and each narrative disclosure required to be disclosed by GAAP and Commission regulations separately tagged

    Additionally, the SEC will check the interactive data through use of validation software to ensure that it complies with the requirements.

    Filing Requirements

    The proposed rules do not change the current filing requirements, but instead add to such requirements. Currently, when filing registration statements and annual, quarterly and transition reports, companies must use the traditional ASCII or HTML format. The proposed rules will require a company to continue to comply with the traditional format requirements, but also include, as an exhibit to registration statements and periodic reports, the financial statements, notes and schedules in XBRL format.

    When filing in XBRL format, the proposed rules will require that companies:

    • use the most recent tags that XBRL U.S. releases
    • tag certain items such as the form type, the company’s name and the public float
    • tag in accordance with Regulation S-T and the EDGAR Filer Manual
    • provide the information as an exhibit under Regulation S-K, Item 601(b)(100) and (101) or Form 20-F

    Web Site Posting

    The company must also post on its corporate Web site, if it has a Web site, the financial statements in XBRL format. However, under the proposed rules, a company is not permitted to include a hyperlink to the SEC exhibit, but must actually include the material on its Web site. A company must post the information on the company’s Web site on the earlier of: (i) the day the information was officially filed, or (ii) the day the information was required to be filed.

    Proposed Phase-In Schedule

    The proposed phase-in for mandatory XBRL filing is three years. The first companies that will be required to comply are domestic and foreign large accelerated filers using U.S. GAAP, with over $5 billion worldwide public common equity float as of the end of the filer’s most recently completed second fiscal quarter. Mandatory XBRL filing will begin with fiscal periods ending on or after December 15, 2008. For calendar year companies, this will apply to their December 31, 2008 annual reports filing on Form 10-K and any registration statements that contain financial statements for a period ended on or after December 15, 2008.
    The next phase-in group will be all other domestic and foreign large accelerated filers using U.S. GAAP. For these companies, mandatory XBRL filing will begin with fiscal periods ending on or after December 15, 2009.

    The final phase-in group will be all remaining filers using U.S. GAAP, including smaller reporting companies, and all non-U.S. filers that prepare their financial statements in accordance with IFRS. These companies will comply with mandatory XBRL filing beginning with fiscal periods ending on or after December 15, 2010.

    30-Day Grace Period

    The proposed rules permit a filer’s first required XBRL exhibit to be due within 30 days of the earlier of the due date or the filing date of the related filing. In the second year, there is also a 30-day grace period for the detailed tagged disclosures of the footnotes and schedules. If the company utilizes the additional 30-day grace period, the XBRL exhibit will need to be filed as an amendment to the filing.


    The SEC states that an auditor is not required to report on the XBRL information separately. However, as issuers begin to use interactive data in their business information processing, the preparation of financial statements may become interdependent with the XBRL tagging process. As this occurs, both the auditors and the company should evaluate these changes in the context of their reporting on internal control over financial reporting.


    The SEC proposed a bifurcated approach to liability for XBRL information. The interactive data that can be viewed through a viewer as provided on the SEC Web site and which is identical to the information provided in the traditional format, is subject to the same liability provisions under the federal securities laws as the corresponding information provided in the traditional format. However, data submitted to the SEC in the interactive data file, including the XBRL tags, will:

    • be excluded from the CEO and CFO certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act
    • be deemed to be not filed or part of a registration or prospectus under Section 11 and 12 of the Securities Act of 1933, as amended, and not filed under Section 18 of the Exchange Act
    • be deemed filed under Rule 103 of Regulation S-T
    • receive protection from liability for failure to comply with the tagging if the file meets the requirements or in situations where it does not meet those requirements, the company used good faith and reasonable efforts and corrected it as soon as reasonably practical once the company became aware of the situation

    Additionally, the SEC stated that both the XBRL tags and the viewable data will be subject to the federal securities anti-fraud provisions.

    Consequences for Missing XBRL Filing and Posting Deadline

    If a company misses the deadline for the filing of the XBRL exhibit or the deadline for posting the information on its company Web site, the company will no longer be considered current in its Exchange Act reports. The company will no longer be permitted to use various short-forms, including Forms S-3, F-3 and S-8. It will also not be permitted to include the more limited information as permitted by Forms S-4 or F-4 and it will not have adequate current public information available for the resale safe harbor exemption under Rule 144. However, once a company files the exhibit and/or posts it via its Web site, it will then be deemed current and timely again – provided that it filed the traditional financial format on time and is otherwise current in its filings. The proposed rules also provide certain exemptions for hardship situations.


    The comment period for the proposed rules ended on August 1, 2008. It is expected that the SEC will adopt these rules in the near future. At this time, companies, especially filers using U.S. GAAP, with over $5 billion worldwide public common equity float, should begin looking into the XBRL process and determining whether the process should be outsourced or not. Unlike the EDGAR conversion process, the XBRL tagging process will require management participation and will be more time consuming.