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Inline XBRL: Should Your Company Switch?

Moving quickly into the world of Inline XBRL, The Securities and Exchange Commission recently issued an order “under the Securities Exchange Act allowing companies that comply with certain conditions listed in the order to file structured financial statement data required in their annual and quarterly reports that is integrated within their HTML filing through March 2020.” (see the SEC’s announcement here)  According to the SEC’s website, “the Inline XBRL format has the potential to provide a number of benefits to companies and users of the information. Inline XBRL could decrease filing preparation costs, improve the quality of structured data, and by improving data quality, increase the use of XBRL data by investors and other market participants.”  The marriage of financial reporting visual presentation and representative structured data is at hand.

Background

Many were surprised about the suddenness of the announcement.  Through the years, the SEC has carefully introduced changes to the filing rules by announcing change well in advance.  For example, the initial XBRL voluntary reporting program was announced in the fall of 2004 with an effective date of March 2005.  The Data Coalition’s Hudson Hollister commented, ““We have just one criticism of today’s announcement,” said Hollister. “The SEC issued its legal order without first publishing the inline XBRL data structure for review by public companies and the software firms serving them. Instead, the agency issued the order and published the structure at the same time. We hope that in the future, the SEC follows the practices of agencies like the Treasury Department in its DATA Act implementation, and publishes proposed data formats in advance, before the legal directives for their use are issued.”( See Data Coalition’s press release for more)

The Scoop

The ability to file with the SEC using inline XBRL creates several advantages over the present system.  First, creating and filing one integrated document instead of two automatically cuts down on errors.  No longer will companies be tempted to force the rendering of the XBRL document to look like the paper-based version of the financial statements.  According to XBRL International Chief Executive Officer John Turner, the voluntary inline XBRL program “means that the US moves from requiring two different formats for the same information to a single format that is both human and machine readable (emphasis added, link to article here). Additionally, the SEC’s implementation features a powerful viewer that can give preparers and consumers of the data immediate feedback on the meaning of line items and the view the associated accounting definitions.

Up to this point, companies presenting the SEC with traditional formatted financial statements in HTML coupled with standard and unique company XBRL extensions had plenty of cover.  Not many analysts could use the XBRL data because the elements did not align within industry segments.   It is thought that inline XBRL could generate higher use of standard XBRL tags.

According to Turner, “(the new viewer) is a “head up display” for the company information provided to markets. It makes it immediately apparent what is being disclosed, how it is related to other disclosures and what it means. Making the metadata – the definitions – more accessible is deceptively simple and surprisingly important.”

Reasons to make the switch now

Here are a few reasons why your company should consider participating in the voluntary program right now:

  • Data consumer focus. As filed information in the HTML and XBRL format form the foundation of data used by individuals and the stock market analysts.  Creating a unified data source for visual and machine ready data will help both parties get more accurate information.  Investor relations departments will love the new approach because they can now point to one set of information to satisfy the needs of all constituents.
  • Less possibility for confusion. Throughout the mandatory filing program which began in 2009, errors have been common.  Most errors are due to preparers attempting to get the XBRL to “look like” the HTML version of the filing.  If inline XBRL removes this “force fit” by combining two separate formatted filings into one, many of those errors will disappear.
  • Cut time it takes to prepare, improves completeness. The preparation cycle for XBRL filings normally include a check of the rendering of the XBRL portion of the filing to see if it faithfully represents the HTML version.  With inline XBRL, this step is eliminated.  Additionally, the SEC provides an iXBRL previewer that facilitates color coding for all the facts that are tagged.  Any financial data that is not tagged will be easily recognized as not tagged. This will ease review of your documents.
  • Experience with format. Inline XBRL does not change the need for using XBRL properly.  It simply combines the XBRL with the HTML version of the filing.  Companies who practice with the combined format during the voluntary program will be fully prepared for an eventual switch to Inline once the voluntary program ends.  Make no mistake, the SEC is very interested in making this work.
  • Tested format in other markets. The International use of inline XBRL or iXBRL is well tested and growing.  Per XBRL International:

It (inline XBRL) is heavily used, with over 3 million private companies in the UK providing their financial statements in iXBRL format to their tax authority. iXBRL is also in use in Denmark, Japan and Australia. Many other jurisdictions are actively looking into its use.

DataTracks participates in the filing of iXBRL reports in the UK market and others around the world.  Experience counts.

Reasons to delay

  • It’s voluntary and likely to evolve. There is something to be said about taking a slow, reasoned approach to participating in the voluntary program.  If your software vendor has no experience with iXBRL, you may want to wait for them to catch up.  Fortunately for DataTracks customers, DataTracks is a world leader in the active filing of inline XBRL.
  • Will change how you look at your custom extensions. There is some thought within the XBRL community that having more visibility on the XBRL choices as they can be seen directly associated with visual presentation will cause companies to re-examination their use of custom extensions. The good news for data analysts is that if this occurs, there will be less need for adjustments in XBRL data.
  • Not just a change in technology, will take time to plan correctly. Inline XBRL is new to the SEC filing community.  Both software companies and filers will need to learn about the changes and put a plan into effect for conversion to the format.

Bottom Line

  • Begin planning now. The SEC is moving quickly and has advocates in the US senate pushing for resolution. Senators Warner and Crapo strongly suggested to the SEC that the inline XBRL program be taken up quickly. Although the voluntary program is not over until 2020, the SEC could make the filing format mandatory sooner than 2020.  The time to begin planning is now.
  • Stay with an experienced XBRL provider. DataTracks has a deep bench in working with companies filing in inline XBRL.  Go with the pros.

Changes will benefit both preparer and users of the data.  Moving to inline XBRL will generate savings to your company and should help to improve reporting quality.  This is one time when everyone wins.

About DataTracks: DataTracks US is part of DataTracks Services Limited, leaders worldwide in preparation of financial statements in EDGAR HTML, XBRL and iXBRL formats for filing with regulators. With a track record of over 10 years, DataTracks prepares more than 12,000 XBRL statements annually for filing with regulators such as SEC in the United States, HMRC in the United Kingdom, Revenue in Ireland, ACRA in Singapore and MCA in India.

To find out more about DataTracks, visit www.datatracks.com or send an email to enquiry@datatracks.com The views expressed are that of the author’s and DataTracks is not responsible for the contents or views expressed therein. If any part of this blog is incorrect, inappropriate or violates the IP rights of any person or organization, please alert us at ceo@datatracks.com.We will take immediate action to correct any violation.