For our readers who are new to XBRL or who want an update on the type of detailed data that you can download directly from public company reports into an Excel spreadsheet, here’s a quick overview on the SEC’s changing reporting requirements. See how the new disclosures give investors more computer-friendly information than has ever been available.
If you would rather listen than read, we recommend this excellent interview with Tom Hood, from MACPA and Eric E. Cohen, one of the original founders of XBRL. Cohen gives an update on the state of XBRL since the U.S. Securities and Exchange Commission changed the way companies need to report their financial performance. He explains what to look for in the second year of the SEC’s phased-in requirements that companies use the XBRL data standard, turning financial statements into interactive databases. What information can investors and analysts expect to find online? How detailed is it becoming?
The SEC rules took affect in 2009 and will take another year to completely phase in. Initially only the largest public companies had to submit XBRL versions of their quarterly and annual reports. This year, it affects approximately 1,500 companies, but that first group of XBRL filers now moves into the next stage and has to provide even more detailed information in the XBRL format. Specifically, in the second year of XBRL filing, a company has to detail the critical Notes to Financial Statements sections and supplemental tables included in their financial filings.
Notes contain extremely valuable information to anyone interested in reading a company report and valuing its equities. It is in the Notes section that companies can significantly expand on their financials to tell their own story, often talking about things that are very specific to their unique situation, operations, and business climate.
Looking at the first round of filings from the initial group of approximately 500 large companies, most had to deal with tagging about 300 numbers on the face of the financials, so the task was not all that difficult. However, as Cohen points out, when tagging the Notes and Supplemental Schedules, they may have five to ten times as many items to tag.
Companies will have to identify and tag every Note and individually tag every number within a Note, whether the financial report writes that amount in numbers or words. Not only tables, but all the numbers within the tables – rows and columns – have to be individually tagged.
“So while there were 300 to 500 accounting concepts behind the XBRL tags used in the 1st year of filing the financial face of an annual or quarterly report, this becomes 3,000 to 5,000 accounting concepts in year two of Detailed Notes Tagging,” explains Cohen.
All this additional XBRL data is something analysts can look forward to using, since it is all information that becomes instantly readable by computers, for deep, automated analysis and comparison. Charts, tables and graphs can be drilled into for the discrete information they contain, and the data can be flowed into whatever Excel or proprietary software used for analyzing XBRL data.
(See table of EDGAR Online’s quarterly filing with detailed tagging of Notes to Financials. Source I-Metrix.)
While the larger companies had a smooth transition during the first year of XBRL tagging, this new level of Detailed Notes Tagging is expected to make more demands on time and the need for accuracy. Smaller companies, says Cohen, will benefit from lessons learned by first filers, which are to:
- Start early
- Learn about the XBRL taxonomy and how to map it to your own concepts
- Consider your options of doing the XBRL translations by purchasing software or use a third party services
- Make sure you’ve got a good level of agreement in your contract with any third party and understand the workflow and timing of working with 3rd parties because people like making changes up to the last minute.
A lot of companies are still not up to speed or even aware that the SEC will soon demand XBRL versions of their financial disclosures. A recent Grant Thornton survey of CFOs and senior comptrollers indicated that of the 64 percent of public companies not yet reporting their financial results using eXtensible Business Reporting Language, half have no plans to in the future, despite the SEC requirement that they do so by 2011. So a lot of small companies will be playing a fast game of catch up next year.
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