Davis Polk & Wardwell Newsflash

SEC Adopts Mandatory XBRL Requirement

December 22, 2008

The SEC recently adopted final rules that will require companies to provide financial statement 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, annual reports on Form 10-K and quarterly reports on Form 10-Q (as well as Form 8-Ks that contain updated or revised versions of financial statements that appeared in a periodic report).  The XBRL data will supplement, but not replace or change, disclosure using traditional EDGAR electronic filing formats.

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.

The final rules have not yet been published, but based on the staff's oral statements and the SEC's press release, the XBRL requirement is subject to a three-year phase-in period as follows:

  • Large accelerated US filers that have a worldwide public float above $5 billion will be required to comply with XBRL reporting requirements starting with their first quarterly report on Form 10-Q for fiscal periods ending on or after June 15, 2009 (i.e., the 2009 second quarter Form 10-Q for calendar year–end issuers).
  • All other large accelerated US filers will be required to comply with XBRL reporting requirements starting with their first quarterly report on Form 10-Q for fiscal periods ending on or after June 15, 2010 (i.e., the 2010 second quarter Form 10-Q for calendar year-end issuers).
  • All remaining US filers will be required to comply with XBRL reporting requirements starting with their first quarterly report on Form 10-Q for fiscal periods ending on or after June 15, 2011 (i.e., the 2011 second quarter Form 10-Q for calendar year-end issuers).

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 S-3 eligibility or Rule 144’s current public information requirement.  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 the periodic report.  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