Last Friday, the SEC posted the adopting release for its new interactive data rules. This project has been an enormous effort on the part of the Corp Fin Staff under an extraordinarily tight timeframe. Under the new rules, filers will be required to provide a new exhibit containing the financial statements and any applicable financial statement schedules in interactive data format with certain Securities Act registration statements, quarterly reports, annual reports, transition reports, and current reports on Form 8-K or Form 6-K that contain revised or updated financial statements. The new requirements will be phased in as follows:
1. Domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public common equity float above $5 billion (as of the end of the second fiscal quarter of their most recently completed fiscal year) must provide the interactive data exhibit beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2009.
2. All other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the interactive data reporting requirements beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2010.
3. All remaining filers using U.S. GAAP (including smaller reporting companies), and all foreign private issuers preparing their financial statements in accordance with IASB IFRS, will be subject to the interactive data reporting requirements beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2011.
Once the phase-in is complete, then companies becoming subject to the reporting requirements for the first time will be required to submit an interactive data file with their first periodic report on Form 10-Q or first annual report on Form 20-F or Form 40-F.
The tagging of financial statement footnotes and schedules is also subject to a phase-in schedule. While footnotes and schedules initially will be tagged individually as a block of text, after a company has tagged them in this manner for a year, then the company must begin tagging the quantitative disclosures – and may permissibly tag each narrative disclosure.
The interactive data exhibit is required for Securities Act registration statements containing financial statements, so it typically will not be required for a Form S-3 that incorporates the financial statements by reference. No interactive data exhibit will be required for initial public offerings registered under the Securities Act, nor will it be required as an exhibit to Exchange Act registration statements, such as Form 10 or 20-F.
After all of the build-up to XBRL, the question many are likely asking themselves is “what do I do now?” If you are in the first group to be phased-in, you are probably already well under way in preparations for the first interactive data filing. But for the second and third phase-in groups, the final rules should serve as a wake-up call to start preparing for the inevitable. A few pointers are:
– Familiarize yourself with the process and the output – Much of the nervousness around interactive data can be addressed by gaining a better understanding of what goes into producing it and how users may potentially utilize the data. The place to start is our “XBRL” Practice Area on TheCorporateCounsel.net. There are also lots of online tools and training sessions available for you to get up to speed. In addition, a number of issuers have participated in the SEC’s voluntary XBRL program, so they can be a great resource to consult.
– Consider whether you will use a service provider – The financial printers and others are all geared up to assist you with preparing your interactive data file, so you should visit with them to see what services they offer and how much it will all cost.
– Assemble your team – Preparing interactive data will require a team that includes accounting, finance, SEC reporting and legal personnel, among others critical to the process. While this same team is already in place for preparing the SEC reports, it may be helpful to have a smaller subgroup focused on interactive data implementation.
– Focus on quality control – As with any reporting issues, the key is having adequate procedures and controls in place to make sure that what gets included in the interactive data file is appropriate and will come out correctly when accessed through an interactive data viewer. A thorough familiarity with the applicable taxonomy and plenty of testing can go a long way on this front.
The NYSE’s Annual Corporate Governance Letter
The NYSE has sent its annual corporate governance letter, highlighting considerations for NYSE-listed issuers as the annual shareholders’ meeting season approaches.
Among the recent changes noted in the letter was the recent modification of Section 203.01 of the Listed Company Manual (effective December 16, 2008), under which listed companies subject to the proxy rules (or which, while not subject to the proxy rules, provide audited financial statements in accordance with the US proxy rules), are no longer required to issue the press release or post the undertaking on their website regarding the ability to receive audited financial statement free of charge.
In the letter, the NYSE also noted that SEC staff has indicated that it is still considering changes to NYSE Rule 452 to eliminate discretionary broker voting in connection with director elections. Further, the NYSE notes that it is considering an amendment to its timely alert policy in Section 202.06 of the Listed Company Manual to conform to the SEC’s guidance last summer on the use of corporate websites. No timetable was provided for either of these initiatives.
Alan Dye on the Latest Section 16 Developments
Tune in tomorrow for the Section16.net webcast: “Alan Dye on the Latest Section 16 Developments.” This is always one of our most popular webcasts, as Alan answers many of the more common queries he has been receiving lately.
– Dave Lynn