Perfect XBRL: A Never Ending Journey
My boys grew up loving to read and to hear stories. One of their favorites was “The Never Ending Story” a German fantasy story by Michael Ende. The plot contained many twists and turns but in the end the journey was kept alive by the faith of the reader to continue. Active participation by the people who believed in the journey was the key.
XBRL, too, is a journey kept alive by the promise of computer usable data from mandatory filings. While the overseer of the rule for US securities financial filing, the Securities and Exchange Commission (SEC), creates hundreds of pages of rules governing filings (see EDGAR Filing Manual here http://www.sec.gov/edgar.shtml) thousands of companies who have SEC filing requirements in the XBRL format are left to find out how to get it done. While most companies contract XBRL specialty companies such as DataTracks to assist them on their filing journey, some go it alone.
What is Perfect XBRL?
This author defines perfect XBRL, SEC style, as an accepted XBRL filing with zero EDGAR Filing Manual (EFM) errors, zero validation errors and rendered XBRL documents that faithfully represent US GAAP as intended by the SEC filing entity. A perfect XBRL submission will be easily and correctly consumed by programs designed to analyze XBRL filings.
Charlie Hoffman has been working with XBRL data from the very beginning. Lately, Mr. Hoffman, who is a Certified Public Accountant, has been applying fundamental accounting concepts to XBRL instance documents looking for items where the XBRL line items are not correctly portraying US GAAP. His July 1, 2015 blog indicates that companies are beginning to look a bit deeper into their XBRL to identify and correct inconsistencies between published US GAAP financial statements and the XBRL elements used to tag them in SEC filings. At the top of the list in creating correct accounting concepts are DataTracks and RR Donnelley with less than .2 average fundamental accounting concept errors per filing. Keep in mind that consistent with Charlie’s methodology, a filing could be perfect in respect to EDGAR Filing Manual rules, XBRL validation and be accepted by the SEC but still have an “error” if the choice of XBRL element could lead to incorrect interpretations of US GAAP.
Continuing the story of how to achieve excellence in XBRL, Balaji Muthukrishnan – Vice President for XBRL practices at DataTracks recently stated:
“High quality in XBRL can be achieved when you understand the semantics and the taxonomy correctly and apply them to human readable financial statements. Our US GAAP XBRL experts are well trained in these areas and we are constantly tuning our solutions to produce the best quality XBRL statements.”
Note that even the industry leader in quality recognizes that continuous improvement is the key.
What is an Error?
Traditionally defined, an error is a condition that will cause a filing to be rejected by the SEC. From the SEC’s website:
The purpose of the public test suite is to assist developers of software that must validate Interactive Data prior to its submission to EDGAR. The test suite consists of many small Interactive Data instances, schemas and linkbases that are categorized as to whether they violate a validation check, and if so, what validation check they violate and whether that would result in a warning, or in an error that would cause the Interactive Data to be rejected.
XBRL Cloud has been focused on helping companies improve the quality of their XBRL filings since the beginning of the Voluntary XBRL filing program was first proposed back in 2004. According to XBRL Cloud Chief Technical Officer and CEO Cliff Binstock, we are getting very close to perfect technical filings with XBRL but the numbers still need to be improved. When asked about recent industry efforts to improve XBRL quality such as XBRL US’s Data Quality Committee, Binstock said, “Every effort to improve XBRL filings is important and helps us to move closer to our common goals.” “Eliminating technical errors is a great first step. The next step is to ensure that the accounting represented by the XBRL is also correct.”
Errors also limit the usefulness of XBRL. Recently, Senators Warner and Crapo sent a letter to the SEC arguing for changes to XBRL in part because “the quality of the XBRL-formatted financial statements has suffered” due to the lack of SEC enforcement letters aimed at XBRL data quality. The senators urged the SEC to consider adopting “Inline XBRL” which in their opinion would decrease errors by combining the two required filing documents (XBRL and HTML) into one document. For more on Inline XBRL, see Introducing Inline XBRL.
The SEC’s dual role in improving the quality of XBRL includes both writing the rules and enforcing them. The enforcing role has been a bit lax to date permitting filings with errors to be accepted into the system. To find out why the SEC isn’t playing “tough cop” regarding the rules, look no further than the first SEC chair to implement XBRL, Christopher Cox, chair from August 2005 until January 2009. A prevailing theme at the SEC when Christopher Cox was chair towards getting companies to accept XBRL was to go easy on errors especially during the voluntary filing program. In fact, John W. White, director of Division of Corporate Finance in 2008 gave a speech titled “Don’t throw the baby out with the bathwater” where he touched on a number of SEC initiatives including XBRL. Errors in XBRL were thought of as a means for both the SEC and their filers to learn how to report using interactive data.
Clearly, the time has arrived for a higher standard. Expressing US GAAP financial data and disclosures in digital form comes with many challenges. The technical side of XBRL may never see 100% perfection unless more attention is placed upon rules consistently applied to all three areas of XBRL quality. First, the XBRL must be validated against standard consortium XML rules. Second, SEC filings must pass every rule as stated in the EDGAR filing manual. Third, fundamental accounting concepts contained in US GAAP must be followed to ensure that the resulting XBRL in every way faithfully represents US GAAP. The XBRL community has begun to efforts to improve with the work undertaken by XBRL US and the work of Charlie Hoffman. We also need the SEC to participate in the quality journey or we risk the end of the XBRL story.
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.