Accounting Talent in Demand as SEC Delivers Final XBRL Mandate
The SEC has finally delivered its mandate that corporations start filing financial statements using XBRL technology. The final version of its rule mandating eXtensible Business Reporting Language (XBRL) for public companies has been posted. The 500 largest public companies must start XBRL compliance this June, followed by other large filers in 2010, and all remaining companies in 2011. The new rule requires public companies to begin filing their financial statements in an interactive data format, allowing investors to download them more easily into spreadsheets and other software. According to the SEC, the technology is “intended not only to make financial information easier for investors to analyze (across companies and industries), but also to assist in automating regulatory filings and business information processing.” The SEC also contends that interactive data has the potential to increase the speed, accuracy and usability of financial disclosure, and eventually reduce costs.
XBRL is a language for the electronic communication of business and financial data which is transforming global business reporting with the promise of greater efficiency and improved accuracy. This technology involves computer “tags” similar to the bar codes used to identify groceries in the supermarket. According to the SEC, the tags uniquely identify individual items in a company’s financial statement so they can be easily searched, downloaded, reorganized, and put to any number of other comparative and analytical uses.
The technology is being developed by an international non-profit consortium of approximately 500 major companies, organizations and government agencies, according to XBRL.org. Right now, implementations of XBRL are growing rapidly around the world.
Here in the U.S., the effective date of the SEC’s new rule is April 13th. There will be a three-year phase-in of the new requirements, details WebCPA. According to the report, companies with a market cap of more than $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal year will provide XBRL filings with their financial statements for fiscal periods ending on or after June 15th of this year. Web CPA adds that all other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the same requirements next year for fiscal periods ending on or after June 15, 2010. All remaining filers using U.S. GAAP, including smaller reporting companies, and all foreign private issuers that prepare their financial statements in accordance with IFRS, will need to file XBRL statements the following year for fiscal periods ending on or after June 15, 2011.
Companies will provide their financial statements in interactive format both to the SEC and on their corporate Web sites. According to the SEC, “Any investor with a computer and an internet connection will have the ability to acquire and download interactive financial data that have generally been available only to large institutional users.”
Although the final XBRL rule is new, the SEC first undertook an initiative to assess the benefits of interactive data back in 2004. A year later, then-Chairman Christopher Cox began pushing for the adoption of XBRL, and he announced intentions for an eventual mandate more than a year ago.
For companies that aren’t yet familiar with interactive data (and that would be many), compliance is likely to be a somewhat daunting task, according to ComplianceWeek. Filing in XBRL format requires a fundamental shift, reports AccountingWeb.com. Simply put, the report states that, “Companies are no longer creating documents. They’re creating data, which is a very different process that demands companies modify longstanding practices.”
There are approximately 15,000 XBRL tags. On average, the financial statement for a mid-to-large cap company contains about 4,000 data elements. ComplianceWeek quotes Michael Ohata, Managing Director at KPMG and Chairman Emeritus of XBRL International as saying, “This is more than just a file conversion. Companies have to manage the quality of their XBRL the same as they do with any other filing.”
Michael Scanlon, Partner in the law firm Gibson Dunn & Crutcher, is also quoted by ComplianceWeek as saying the toughest (and most time-consuming) part of XBRL compliance for first-timers will be finding the correct tag for each line item and sub-line item on the financial statement. “For companies that haven’t gone through this yet, there will be a fair amount of pushing and pulling to make sure the company’s definitions match up to the taxonomies,” he says. ComplianceWeek adds that Scanlon believes that even if a company outsources that process, companies need knowledgeable professionals on their financial reporting staffs “to make sure they’re comfortable with the definitions being applied.”
Ohata echoes this view. ComplianceWeek quotes him as saying that companies should designate in-house experts in both technology and financial reporting to manage the XBRL preparation process. Companies must, he says, put a process in place for XBRL submissions, just as they do for external reporting. “They need to understand how XBRL is put together, and they’ll need to review and sign off not only that they followed procedures, but that there are checkpoints around quality and that’s supported by documentation,” he says. In short, regardless of whether an XBRL document is prepared internally or externally, management is responsible for its accuracy.
New concepts like XBRL and enhanced business reporting are making real changes in the way business is being done. These major financial reporting developments are critical issues facing financial, legal, risk, audit and compliance officers at publicly held companies. For example, internal auditors can help implement XBRL and provide objective assurance on the implementation process, but they need to first understand the new interactive reporting format, the mandate requirements, and pros and cons of various implementation approaches.
Right now, corporations must add the infrastructure and strive to meet the filing requirements of the SEC. In fact, XBRL US, the non-profit consortium for XML business reporting standards in the U.S. and a jurisdiction of XBRL, announced that next month it will help educate preparers on how to create XBRL-formatted financial statements for mandatory submission to the Securities and Exchange Commission (SEC). Amid the developments, executive search firm, A.E. Feldman, reports that accounting jobs are opening up for Audit Managers and senior-level professionals with expertise in the preparation and maintenance of financial, accounting and statistical reports.
Are you an accountant, CFO, Chief Audit Executive or XBRL specialist? If you want to grow your career or discuss your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
