On January 30, 2009, the U.S. Securities and Exchange Commission (SEC) issued final rules1 that require companies to provide financial statement information in periodic reports and registration statements in an interactive data format using the eXtensible Business Reporting Language (XBRL). Large accelerated filers using U.S. Generally Accepted Accounting Principles (GAAP) that have a public float of more than $5 billion must comply with the new rules beginning with their first quarterly report on Form 10-Q (or annual report on Form 20-F or Form 40-F) containing financial statements for a fiscal period ending on or after June 15, 2009. All other companies are phased in over two additional stages during the following two years as described below. Calendar-year companies that are large accelerated filers but do not exceed the $5-billion float threshold must comply beginning with their first 10-Q for the quarter ended June 30, 2010.
What Is XBRL?
Like HyperText Markup Language (HTML), XBRL is an electronic format that “tags” data using standard definitions. The tags provide a consistent identity structure for data that can be recognized and processed by a variety of software applications such as databases, spreadsheets, and financial reporting systems. For example, a data point of “$200,000” might be linked to an issuer and the accounting terms “U.S. Dollars,” “Net Profit,” “2nd Quarter,” and “2008.” The SEC has developed a standard list of tags necessary for financial reporting under U.S. GAAP and SEC regulations. Currently available tags address approximately 13,000 different data elements, and the SEC anticipates updating the list of tags sometime in February 2009. XBRL also permits the filer to create a company-specific tag, called an extension.
XBRL is intended to eliminate manual data re-entry and make it easier and more cost-effective for analysts, investors, and others to search and analyze financial information across companies, reporting periods, and industries. The SEC envisions investors downloading and analyzing interactive data through off-the-shelf software as well as through custom-developed investment software.2
XBRL Tagging Requirements and Filing Deadlines
The XBRL data file is required to be provided as an exhibit to periodic and current reports (Forms 10-K and 10-Q and certain Form 8-Ks) and registration statements (once the price or price range has been determined) as well as transition reports for a change in fiscal year that contain financial statements and financial schedules.
XBRL data tagging is required for a company’s financial statements, including financial statement footnotes and required schedules. The XBRL data is required for all periods presented in the financial statements. Companies also are required to post financial statements in XBRL format on their corporate Web sites no later than the end of the calendar day that they filed their related registration statements or reports with the SEC, and must maintain the XBRL financial statements on their Web sites for at least 12 months. Companies are not required (or permitted) to use XBRL for their management’s discussion and analysis, executive compensation, or other financial, statistical, or narrative disclosures not included in the financial statements or related footnotes.
The tagging requirements and filing deadlines will be relaxed for initial filings to give issuers a chance to become accustomed to XBRL, as follows:
Filing Deadline and Initial Grace Period
Year one of XBRL compliance
Only required to tag financial statement footnotes and financial statement schedules individually as a block of text
Initial filing: Due 30 days after the earlier of (i) the due date of the filing or (ii) the filing date of the related report or registration statement3
Year two and beyond
Required to tag the detailed quantitative disclosures within the footnotes and schedules and will be permitted, but not required, to tag each narrative disclosure within the financial statement footnotes and schedules
First detailed tagging filing: Due 30 days after the earlier of (i) the due date of the filing or (ii) the filing date of the related report or registration statement
All subsequent filings: Due at the same time as the related report or registration statement3
Phased-In Timetable for Compliance
The timetable for compliance with XBRL rules is as follows:
Time For Compliance
Domestic and foreign large accelerated filers using U.S. GAAP with worldwide public common equity float above $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal year4
Quarterly report on Form 10-Q (or annual report on Form 20-F or Form 40-F) containing financial statements for fiscal periods ending on or after June 15, 2009
All other large accelerated filers using U.S. GAAP (filers with worldwide public common equity float above $700 million as of the end of the second fiscal quarter of their most recently completed fiscal year)
Quarterly report on Form 10-Q (or annual report on Form 20-F or Form 40-F) containing financial statements for fiscal periods ending on or after June 15, 2010
(For calendar-year companies, the requirement will apply to the Form 10-Q for the quarter ended June 30, 2010)
All remaining filers using U.S. GAAP
Quarterly report on Form 10-Q (or annual report on Form 20-F or Form 40-F) containing financial statements for fiscal periods ending on or after June 15, 2011
(For calendar-year companies, the requirement will apply to the Form 10-Q for the quarter ended June 30, 2011)
Foreign private issuers with financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)
Annual reports on Form 20-F or Form 40-F for fiscal periods ending on or after June 15, 2011
Companies that are not required to provide XBRL data files until a later date may do so earlier and may provide XBRL data at their discretion until required by the new rules. A company choosing to provide XBRL data files early may tag footnotes individually as a block of text until required to tag the detailed quantitative disclosures within the footnotes or schedules, but otherwise must follow the same requirements as those mandated and may only use the grace periods described above for their initial submission and the initial detail-tagged footnote submission.
Key Differences Between the Proposing and Adopting XBRL Releases
The key differences between the proposing and adopting XBRL releases are as follows:
The timetable for compliance with XBRL rules was postponed by approximately six months for each group of filers
The phase-in schedule will require that a company submit its first XBRL data exhibit in connection with a periodic report on Form 10-Q, Form 20-F, or Form 40-F and not an annual report on Form 10-K, even if Form 10-K would be the first filing after the phase-in date
Companies are required to submit XBRL data exhibits for financial statements contained in reports on Forms 8-K and 6-K that contain updated interim financial statements or financial statements that have been revised to reflect the effects of certain subsequent events (such as revised financial statements to correct accounting errors)
Penalties for Failing to Comply With the XBRL Filing or Web Site Posting Deadlines
Issuers that do not timely file the XBRL data exhibit with the SEC or post it on their corporate Web sites will be deemed to be not current with their reports under the Securities Exchange Act of 1934, and will not be eligible (1) to use short-form registration statements on Forms S-3, F-3, and S-8 under the Securities Act of 1933 or (2) to incorporate information by reference under Form S-4 or F-4 until they comply with the filing and posting requirements. In addition, issuers that do not timely file or post their XBRL data exhibits will not be deemed to have available adequate current public information; therefore, the resale exemption of Rule 144 will not be available for their securities until the filing or posting of the delinquent XBRL file.
The XBRL data file will be subject to the anti-fraud rules of the federal securities laws. However, during the first 24 months after a company is first required to submit its XBRL data file (but no later than October 31, 2014), the XBRL data files will be:
Deemed not filed for purposes of special liability provisions (such as Sections 11 or 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934)
Protected from liability for failure to comply with the tagging requirements if the XBRL data file failed to meet those requirements but the failure occurred despite the issuer’s good-faith effort and the issuer corrected the failure promptly after becoming aware of it
The XBRL data file also will be excluded from the officer certification requirements under the Securities Exchange Act of 1934.
Additional Information on XBRL
The Web site of XBRL International’s U.S. affiliate, www.xbrl.us, is a good resource on XBRL, the SEC’s requirements, and XBRL-enabled tools that companies may use to meet their reporting needs. Through this Web site, companies are directed to various applications and can see how data will look and be used.
The SEC’s Web site (http://www.sec.gov/spotlight/xbrl.shtml) also provides information about XBRL, including links to existing company filings using XBRL. The links are intended to demonstrate the capability of software to present XBRL data in human-readable format.
Participants in the SEC’s voluntary XBRL program have indicated that preparing XBRL exhibits, especially for the initial tagging process for first-time XBRL filers, requires significant time, even if an issuer uses an outside vendor. Companies that are required to comply with the new rules in 2009 should take action immediately, if they have not done so already, to prepare for XBRL. Large accelerated filers that must comply with the new rules in 2010 also should act now to prepare for XBRL by deciding whether they will use outside vendors for preparing and filing their XBRL exhibits or whether they will use commercially available tagging software to perform this function themselves. All other companies should consider whether it makes sense to voluntarily provide XBRL financial statements prior to their required implementation deadline.
Companies also should note the anticipated increases in cost that XBRL will require and plan their budgets accordingly. The SEC estimates, based on a survey from companies that are currently voluntarily complying with XBRL requirements, that compliance with the new XBRL rules will cost somewhere in the range of $40,000 to $80,000 for a company’s initial XBRL filing without detailed tagging, followed by an estimated cost range of $10,000 to $20,000 for each subsequent filing without detailed tagging. The SEC estimates that a company’s first submission with detailed tagging will cost somewhere in the range of $30,000 to $60,000 for a company’s initial XBRL filing with detailed tagging followed by a cost range of $20,000 to $40,000 for each subsequent filing with detailed tagging.
1 The final rules are available at: http://www.sec.gov/rules/final/2009/33-9002.pdf.
2 For more information on XBRL, please see our June 9, 2008 Legal News Alert: www.foley.com/publications/pub_detail.aspx?pubid=5086.
3 Although most companies’ initial filing will be on Form 10-Q, a company choosing to provide XBRL data files voluntarily (before they are required) may only use the applicable grace period on its initial filing, regardless of whether the filing is mandatory or voluntary.
If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or any of the following individuals:
Linda Y. Kelso
Michael B. Kirwan
John J. Wolfel