TheCorporateCounsel.net

At this point in my life, I think that I have come to accept a lot of things. This is what we call “growth.” I accept that I may never see a day when Congress does not turn every budget cycle into a political football and when members of Congress actually work together in a bipartisan manner to pass legislation that benefits the American people. I accept that the SEC may never revert to some sort of pre-politicized version of itself (if in fact that version of itself ever really existed). I accept that I am probably not going to get a chance to do a third tour at the SEC, particularly given that I have committed the cardinal sin of having represented clients in private practice. I accept that I am likely not going to be able own (or even drive) all of those dream cars that I have had on my list. And, perhaps most grudgingly, I accept that XBRL is here to stay.

As a self-avowed XBRL skeptic from the get-go, there was certainly a time when I hoped against hope that XBRL was just some sort of fad. With an EDGAR filing system that has always seemed to be just barely hanging on by a thread, I felt that the introduction of clunky XBRL files was inevitably just going to make a bad problem worse, with little upside in terms of the actual utility of the XBRL data to the SEC and outside parties.

I accept today that I was wrong – XBRL was not a fad. The requirements to tag data using Inline XBRL are coming in fast and furious these days, and now XBRL tagging is required in more filings than ever before – including the proxy statement, thanks to the pay versus performance disclosure requirements. This proliferation of XBRL requirements creates more opportunities for errors, which could have significant consequences for companies.

With a lot of skeptics like me out there, the SEC obviously needed a “stick” to compel XBRL compliance, and it landed on making the failure to provide the required XBRL data with a filing an error that impacts whether the company is considered current for the purposes of short-form eligibility (e.g., Forms S-3 and S-8) and the current public information requirement of Rule 144. While this consequence of non-compliance was adopted way back in 2009, to this day I think this comes as a surprise to companies when they come across a failure to comply with the XBRL requirements. The good news is that the filing of the required XBRL data will cause the filer to immediately regain compliance for these purposes, so it is a problem that can be easily remedied with an amendment to the deficient report.

As Liz noted in the blog earlier this month, Corp Fin recently provided some XBRL guidance in the form of a sample comment letter that identified several common areas of concern that the Staff comes across in the course of reviewing of filings, including: (i) filings that do not include the required Inline XBRL presentation in accordance with Item 405 of Regulation S-T, which must be amended to include the required Inline XBRL presentation; (ii) situations where the common shares outstanding reported on the cover page and on the balance sheet are tagged with materially different values (e.g., presenting the whole amount in one instance and the same amount in thousands in the second). (iii) pay versus performance disclosure must tagged using in Inline XBRL; (iv) while it is permissible to combine one or more sets of pay versus performance relationship disclosures into one graph, table, or other format, an issuer must still provide separate XBRL tags for each required item; using different XBRL elements to tag the same reported line item on the income statement from period to period; and (v) in situations where an issuer uses a custom tag, the Staff may requests an explanation of why the current U.S. GAAP tag is not applicable or asks the issuer to correctly tag the disclosure.

I do not think that the Staff’s sample comment letter is some indication that the Staff has undertaken a comprehensive effort to review XBRL compliance, but rather I think it is meant more as a reminder to companies that, in the face of so many new disclosure requirements that include an XBRL element, it is really time to get you XBRL house in order. Given the aforementioned consequences of non-compliance, there should be heightened awareness within the organization as to the importance of accurate and complete XBRL tagging. To an outside adviser like me, the XBRL process at clients is a black box – I do not have any visibility into the tagging process, which is by necessity often left to the very end of the filing process, when mistakes are more likely to occur.

The renewed focus on XBRL tagging presents a great opportunity to pull XBRL out of the black box and make sure appropriate steps are being taken as part of the company’s disclosure controls and procedures to get the XBRL tagging right and to avoid the sort of unforced errors that the SEC staff has observed – because XBRL is not a fad, and the scope of disclosure that must be tagged is only going to continue to increase.

– Dave Lynn