Davis Polk & Wardwell Newsflash

SEC Adopts Mandatory XBRL Requirement Subject to Three-Year Phase-In

December 22, 2008

The United States Securities & Exchange Commission (“SEC”) recently adopted final rules that will require certain non-US companies to provide financial information to the SEC in an interactive data format using eXtensible Business Reporting Language (“XBRL”).  Subject to a three-year phase-in, the XBRL data will need to be provided as an exhibit to registration statements and annual reports on Form 20-F (as well as Form 6-Ks that contain updated or revised versions of financial statements that appeared in the annual report on Form 20-F).  The XBRL data will supplement, but not replace or change, disclosure using traditional EDGAR electronic filing formats.

The final rules have not yet been published but based on the SEC staff’s oral statements, the final rules, like the proposal, will only apply to companies that file financial information prepared in accordance with US GAAP or International Financial Reporting Standards (“IFRS”).  Foreign private issuers that file financial statements prepared in accordance with their home country GAAP will not, at this time, be required to provide financial information in XBRL.

What is XBRL?

XBRL is a technology that relies upon the input of data tags to identify and describe information in a company’s financial statements.  The information can then be searched, downloaded into spreadsheets or reorganized for analytical purposes.  XBRL also allows financial statements in foreign languages to be translated into English.

The SEC expects that the use of XBRL will facilitate the comparison of financial and business performance across companies, reporting periods and industries; assist in automating regulatory filings and business information processing; and increase the speed, accuracy and usability of financial disclosure.

What will companies need to do in order to meet this new requirement?

In order to convert its financial statement information to XBRL for purposes of the SEC’s requirements, a company may either:

  • upgrade its systems to produce XBRL financial statements internally and integrate the use of XBRL throughout its systems; or
  • continue to prepare its financial statements as it has historically and work with an XBRL service provider (such as a financial printer) to have them converted to XBRL.

Whichever approach a company chooses, the preparation of a company’s first set of XBRL financial statements will likely be very time and labor intensive because each financial statement item must be defined, or “tagged.”  Companies may wish to create an “XBRL team” with representatives from accounting, information technology and management to conduct this project.  While the technology team members are best positioned to handle the mechanics of tagging, accounting personnel should review all of the tagging and confirm that it is correct.  The preparation of subsequent sets of XBRL financial statements, while still time intensive, is typically less onerous because companies generally will be able to utilize the data tags put in place for a previous set of financial statements.

Three-Year Phase-In Period Beginning after June 15, 2009.

As mentioned above, the XBRL requirement is subject to a three-year phase-in period as follows:

  • Large accelerated filers that file US GAAP financial statements and have a worldwide public float above $5 billion will be required to comply with XBRL reporting requirements for fiscal periods ending on or after June 15, 2009 (i.e., the 2009 Form 20-F for calendar year-end companies).
  • All other large accelerated filers that file US GAAP financial statements will be required to comply with XBRL reporting requirements for fiscal periods ending on or after June 15, 2010 (i.e., the 2010 Form 20-F for calendar year-end companies).
  • All remaining filers that file US GAAP or IFRS financial statements will be required to comply with XBRL reporting requirements for fiscal periods ending on or after June 15, 2011 (i.e., the 2011 Form 20-F for calendar year-end companies).

Website Posting

Companies are also required to post the XBRL data on their public websites at the same time the data is provided to the SEC (although a 30-day grace period is allowed with respect to the first XBRL submission).  Companies that do not post or furnish the XBRL data as required will not be deemed current in their Exchange Act reports for purposes of Form F-3 eligibility.  The XBRL data must remain on the company’s website for 12 months.

Exclusion from Certifications 

As was proposed, the XBRL data will be excluded from the scope of the officer certifications provided in connection with Form 20-F.  Companies will also not be required to obtain auditor assurance on their XBRL exhibits.


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If you have any questions about the matters covered in this newsflash, please contact any of the lawyers listed below or your regular Davis Polk contact.

Joseph Hall, Partner
212-450-4565 | joseph.hall@dpw.com

Michael Kaplan, Partner
212-450-4111 | michael.kaplan@dpw.com

Janice Brunner, Associate
212-450-4211 | janice.brunner@dpw.com

Davis Polk & Wardwell