SEC panel advises phased in XBRL

AN advisory committee of the Securities and Exchange Commission (SEC) is recommending XBRL be made mandatory for all companies, but on a staggered basis starting with the 500 largest companies for a one-year period.

The committee also asks the SEC to study the costs of implementing the new financial reporting technology, especially fees for independent assurance from outside auditors, before mandating its use for all companies.

In a draft report (PDF 3.08 MB, 110 pages) released Friday, the 17-member Advisory Committee on Improvement to Financial Reporting laid out a recommended schedule for the SEC to transition to mandatory XBRL for all companies.

It said the SEC should phase in XBRL as follows:

• The largest 500 U.S. companies should be required to “furnish” a document containing XBRL tagged financial statements and broad or “block tagged” footnotes;
• One year later, all “large accelerated filers” should be added to the requirement that they “furnish” XBRL tagged financial statements to the SEC. The committee says the SEC should seek input from companies and users on their experiences and costs using XBRL, and consider doing a study of error rates in the documents; and
• Once the above has been done, the SEC should evaluate moving from furnishing to official filing for large accelerated U.S. filers and then mandate XBRL for all other companies.

Before universal mandatory XBRL can happen, however, two major preconditions need to be met, the report states. These include finalizing the U.S. GAAP taxonomies, expected after the current public review period ends in April, and upgrading the SEC’s EDGAR database to accept and render XBRL submissions using the new U.S. GAAP taxonomy.

“XBRL has the potential to provide financial and non-financial information to the market in a way that is better, faster and cheaper than the current system, enhancing the availability, accessibility, consistency, and comparability of business information, together with cost-savings that will be of great benefit to companies, analysts, and investors alike,” the report states.

Nonetheless, the committee believes that the phase-in should be sensitive to the concerns of smaller public companies and that the costs be closely monitored.

And since companies could mistakenly or deliberately create XBRL reports that could mislead users, independent assurance will be important, the committee said.

However, the committee seemed divided on what form the independent assurance should take, pointing out that audit costs for XBRL are a potentially sensitive issue. After the controversial costs companies incurred complying with Section 404 internal control provisions of the Sarbanes-Oxley legislation, many companies are loath to broaden their audits.

Reuters reports that at a committee meeting on Friday, Thom Weatherford, former chief financial officer at Business Objects SA, said independent assurance of XBRL could add huge costs.

“I think assurance is much more expensive than we’ll admit,” the news agency reports Weatherford as saying.

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