On Feb 24, 2021 Acting Chair Allison Herren Lee directed the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings.
On March 1, 2017, the SEC voted to propose amendments related to the use of iXBRL, which were intended to improve the quality and accessibility of data submitted by public companies as well as mutual funds, who are using XBRL.
Before we discuss the details of iXBRL, we need to understand what it is. iXBRL (also known as Inline XBRL) is a entirely new format of the XBRL (eXtensible Business Reporting Language). iXBRL uses web based financial reporting while performing the financial tagging. It facilitates the reports in a way that it remains both human-friendly as well as machine readable. iXBRL is poised to replace the present reporting system consisting XBRL and EDGAR for the filing requirements. At present, the companies are required to file both a human readable web report along with the XBRL report that is machine readable. iXBRL format is capable of filing both the documents simultaneously, which remains “in line” in both the formats.
The basic difference between iXBRL and XBRL is the matter of machine readability as well as human readability. XBRL is primarily machine readable. iXBRL inserts XBRL tags in a web-based document that is human friendly/readable, which alternatively makes it readable by both the machines as well as humans.
There are a number of advantages for the filers when they use iXBRL. The first of them is saving of time and cost, because in iXBRL, instead of two documents only one document is filed which eventually reduces the cost. Secondly, iXBRL increases the quality and accuracy of filings. At present, in XBRL issues related to quality and accuracy are very common, which will diminish when we begin filing in iXBRL. Last, iXBRL is capable of viewing the files through multiple platforms because of the fact that iXBRL is HTML based.
Earlier, iXBRL was a choice given by the SEC. On March 1, 2017, the SEC unanimously proposed the use of iXBRL for filing purposes. The proposals would require the use of Inline XBRL, which has the potential to benefit investors and players of the market while decreasing, over time the costs pertaining to the preparation of information for submission to the SEC.
Being the premier filing agent, Edgar Solutions, Inc. offers full-scale iXBRL services, and can assist your company in transitioning to the new format (iXBRL) smoothly.
Edgar Solutions, Inc. processes and submits entire range of filings regularly. Apart from providing round the clock professional support, Edgar Solutions, Inc. also offers:
- Assistance with XBRL tagging as well as multi-level HTML with the use of iXBRL format.
- Faster turnarounds with optimum accuracy and quality.
- Flat-rate Pricing.
- Highly experienced CPA’s and experts.
Our state of art facility operating round the clock can assist with any questions. Visit our service pages to learn more.
SEC financial reports significantly make an impact on the perception of any company on Wall Street. On the other hand, it is common practice that some neglect the way of preparing their financials, which when improved, can lead to a more accurate data submission into XBRL. By doing so, errors can be reduced, and subsequently, we can see the minimization of probable liability in the years to come.
Currently, CFOs, Financial Controllers, accounting department personnel have a responsibility when it comes to the filing of financials in XBRL. By looking at the filing practices of companies from similar industries, we can easily catch the inconsistencies with tagging that is prevalent in the financial statements. While there are lot of similarities with tagging and content, it is not the case with the footnotes. It is a fact that overall footnote structure will have a lot of similarities, yet when it comes to content and the way it is displayed, there are higher chances of getting differences. Some companies prefer to list the items in paragraph format, while the others prefer those listings in the form of tables. In observance of that, tables being used could have different headers as well as row items. Such type of uncertainties generally leads to these inconsistencies and is the potential case of errors in tagging amongst the companies in similar industries.
We at EDGAR Solutions, Inc. are well aware of the complexities involved in the regulatory filing and have benchmarked our processes to meet the best standards in the industry. We have streamlined our workflow in creating best quality XBRL financial statements in addition to the tagging of detailed footnotes (DFN). They are as follows:
Preparation of financials
Planning is a key factor when it comes to preparing the financials. Start by preparing your financials early so auditors can effectively review the finished documents with time to spare. One of the most import factors for a quick turnaround of financial statements is creating a standardized template.
Creating a standard template
In order to create a standard template, it is important to keep the line item labels every quarter consistent. For example, on the Statements of Cash Flows under “Changes in operating assets and liabilities:” don’t use “Increase in Accounts Receivable” but instead use “Accounts Receivable”. One may also note that under “Financing and Investing Activities” some among the most common line items begin with “Purchases of..”, “Proceeds from..”, “Payments for..” or “Repayments of”. These phrases must be used more often for establishing a consistency within the filing. It might roll forward into a more precise XBRL taxonomy creation.
Another point to consider, when you have a line item that represents the same item on multiple statements, ensure that the labels match on each corresponding statement. For example, on the Statements of Cash Flows, “Net (loss) for the year” should match the same label representing that tag on the Statements of Operations (“Net Loss”). Thus, this item should be labeled as “Net Loss” on both statements.
A similar issue can be seen on the Statement of Stockholders’ Equity. For instance, “Issuance of shares for services valued at $600,000” and “Issuance of shares for services valued at $80,000” could be combined into one entry named: “Issuance of shares for services”. It is best practice to leave off distinguishing descriptive values along with the same element tags. Instead combine them into one item as well as amount.
In addition to the above, statement line item labels should be adjusted as seen above in order to create a more standardized template.
Strictly following the best practices
We at EDGAR Solutions, Inc. follow our best practices diligently and keep distinguishing ourselves from other industry experts. Some of the commonly found mistakes noticed as the primary factors affecting the quality of XBRL in negative ways are:
Formatting of Detailed Financial Notes
Some companies will list accounting policies in more than one financial statement footnote. If possible, group all accounting policies into one note titled “Significant Accounting Policies” within the financial statement footnotes.
For instance, let us consider the conversion of paragraphs of data to tables as recommended by the US GAAP Taxonomy.
There are no requirements to adjust the formatting of the XBRL submission to match the appearance of the HTML version. However, there is a requirement to tag the data accurately.
List the textual numerical data as values instead of text. Textual numbers might be overlooked and might incorporate inconsistencies along with the rest of filing structure. In addition, they must be tagged with a numerical value instead of using a string.
We must never use the extension elements alone in order to achieve a desired formatting of the XBRL data. These must be used only, when we find a material difference amongst the standard US GAAP element as well as the financial statement line item of the filer.
Filers requiring the filing of interactive data requirements should include XBRL along with certain registration statements. They are filed under the Securities Act of 1933 and include the financial statements in hard copy, once the registration statement contains a price or price range. If the filer fails to comply with this requirement, it would lead to the loss of short form eligibility. It might be remedied by submitting the XBRL to the Commission along with posting it on the corporate website of the issuer.
Expressing financial data through XBRL
Despite being the same expressed information in both the XBRL and HTML, XBRL displays it in a different way. As far as financial statements are concerned, one would easily notice the missing underlines, unmatched headings, or additional existence of parenthetical tables. Regarding footnotes, it could be noted that usually tables are used for expressing the text values, and they contain additional rows and columns, or common tagging of some texts. These are very usual practices in the industry. XBRL is based off on an automated computer process, which verifies the accuracy of data and ties it in a correct way by using several series of validations. It is a fact that the SEC focuses on quality of the tagging, instead of formatting of the XBRL filings.
Financial statements and footnotes
The amount of XBRL tags generally increases two to three times every passing year for the same types of filings (10Qs & 10Ks). Companies must consider the extra time needed to review the numbers of extra tagging. In addition to that, they must pay attention to the ways every particular tag is related with items within the financial statements being prepared.
Matching line items in the financial statements as well as footnotes must be denoted with the same element tag and value throughout the XBRL filing. Some companies do the rounding off or spelling out the values containing in the footnotes, which are the same within the financial statements. Humans might catch the disparities, but, on the other hand, systems processing the XBRL would recognize and denote those data as different items. We at EDGAR Solutions are expert in SEC XBRL filing and recognize the relationship and distinctions amongst both primary financial statements as well as detailed footnotes (DFN).
In order to understand what “Quality Tagging of XBRL” is, an analysis of the many components of a submission is required.
Fundamentally, XBRL quality is determined by two important factors: firstly the preparation of the XBRL needs to be in logical continuity with all the other filers, secondly it must deliver the same information as the traditional financial statements prepared in HTML.
High quality XBRL is prepared in a manner which can be used easily by consumers of that particular data. This data must be prepared in consistency with other filers. It is difficult to gauge the manner in which XBRL will be used in the future. However, in order to ensure that there is best possible usability of XBRL is through the following: tagging, structuring of information, individual investors accessing the data directly or through the SEC.
It often becomes difficult for organizations to ensure that they are in sync with the company preparing their reports. Edgar Solutions is an expert in handling all XBRL filings and understand that the individual preparing the report must have relevant knowledge of the governing rules and regulations including GAAP, as far as XBRL is concerned.
US GAAP taxonomies
The Financial Accounting Standards Board (FASB) produces US GAAP Financial Reporting Taxonomy Implementation and Reference Guides. The Board provides guidelines on the usage of the GAAP taxonomy. The guides are helpful in achieving consistency across different companies. Hence prepares must take these guides into consideration.
XBRL Specifications 2.1
This is another pivotal rule that XBRL filing organizations must adhere to. XBRL filers can have it easy on this one, as it is not something that is to be read and understood in depth. The reason being, that most XBRL preparation software comes handy with all the required specifications. Most of the filers today are working in adherence to this specification.
EDGAR Filer Manual
All filing companies must ensure that they follow all the instructions in the EDGAR Filer Manual pertaining to XBRL. Even though some parts of the filing process can be checked through XBRL validation software, most others do not need any form of human involvement. So the resultant action being that prepares of the XBRL files must also be in knowledge of the EDGAR Filer Manual so that XBRL is created correctly. The EDGAR Manual covers everything from the selection of the relevant tags, to giving the XBRL documents a name, as well as other detailed information on the preparation of XBRL. Consistency cannot be achieved unless all the instructions are followed. In spite of the necessary precautions taken, there is possibility of errors in the XBRL preparation. The reasons for these errors can be either a lack of knowledge or an improper application of the given instructions.
US GAAP Taxonomies
All filing companies need to be prepared and consistent with both the format and structure of the US GAAP Taxonomy. XBRL professionals who have been working for a long time have now realized that it is impregnable that familiarity with US GAAP TAXONOMY must be achieved, if we are to have optimum quality XBRL. In order to prepare XBRL accurately, it is important that the taxonomy is understood thoroughly. It is important for its application across organizations and companies.
In case of the financial statement disclosures, there is a list prepared by the US GAAP Taxonomy, where standard tags and an appropriate structure of the tags are included. This structure of the tags includes tables, axes, standards, line items and all the other elements. In order to achieve consistency, it is important that structures and formats are followed in the best possible manner. However, it is not that easy. There are pertinent challenges like a large number of tags, almost 15000 of them. Added to the previous fact, there are annual updates in the US GAAP taxonomy, which consequently leads to changes to the structures and formats in some of the areas.
There is no doubt that high quality XBRL should have the same information as do financial statements like HTML. It is important to note that a careful analysis of both HTML financial statements and files analyzed by the relevant software need to display the same results. In order to make this happen, the quality of the data in both the files, must be such that they divulge the same information. To be able to achieve this level of consistency, one requires a good understanding of both the HTML financial statements and of the XBRL files. In-depth understanding of the US GAAP rules for accounting and of SEC observations are a must for creating a good quality XBRL. Edgar Solutions has a strong team that can assist clients with meeting their filing requirements in this area.
Organizations that repeats such fundamental mistakes, assume that running a software validation on XBRL files often gives no problems as the final result. Since, it gives such results, it means that the files are all sound and valid and can be filed on SEC.
ENSURING INTERNAL CONSISTENCY :
SEC staff FAQ’S/ Observances
SEC staff observations and FAQ’S are important to be understood before XBRL’s are submitted. These observations are an account of the most significant and common problems that the staff has observed. Some observances include instances where XBRL and financial statements have different positions on the same story. Some of those situations can include: wrong calculations, improper axis member combinations, untagged rules and regulations, and other unnecessary extensions. It is important to note that most of these errors are a result of the wrong applications of the EDGAR Filer Manual instructions. Hence the importance of understanding all the rules and regulations of XBRL submissions.
Knowledge of Accounting
Individuals preparing XBRL must fully understand all accounting terminology behind the disclosures of the company, apart from the accounting significance of the different elements of US GAAP Taxonomy. It is important for all the mapping of the relevant financial disclosures, so that they convey the correct information. A high quality XBRL cannot be achieved without a strong knowledge of accounting and the elements of US GAAP taxonomy. Filing firms rely heavily upon the preparers which are lacking in sufficient knowledge of accounting, hoping that the last person reviewing has the knowledge of accounting, so as to be able to correct the errors present in XBRL filing. However, this reliance can be a problem for the preparers, as without proper knowledge, there can be errors in XBRL tagging and structure. It is also possible that the preparer might not have the required understanding of the accounting knowledge in identifying all the errors. Edgar Solutions has to its credit a pool of highly experienced CPA’s who possess sound accounting and SEC knowledge. The preparation of XBRL must be conducted right the very first time through the collaboration of individuals who possesses the required accounting level of US GAAP taxonomy and accounting terminologies, thereby reducing any risk of errors in the XBRL files.
The adherence to quality components should be consistent in XBRL and HTML financial documents. Even though validation is an integral step, it does not mean files are free of errors. Most of the errors cannot be detected by the filing software, resulting in poor quality submissions. If errors are to be reduced and resolution is made, then it is important that there are qualified professionals who are adept at all the above mentioned quality components. Edgar Solutions is your source for XBRL preparation and error-free filings.
Every year the Generally Accepted Accounting Principles (GAAP) releases update on its taxonomies, and the SEC strongly recommends using such updates. The taxonomy is a combination of both the financial as well as business reporting terms, which has generally been agreed upon. These Taxonomies when combined with the needed reporting creates the XBRL data. Normally, the yearly updates focus on the stability, although the primary focus remains the simplification of overall update. Elements that are not being fully utilized gets eliminated, which allows the amount of inconsistencies found within the update to be diminished. Apart from that, the updated version also allows the firms to use the most recent computer tags that significantly improve the accounting standards.
Benefits of GAAP
All the XBRL formatted documents contain computer readable data. Some of the benefits of using these digital financial statements are as follows:
The GAAP Taxonomy is a set of data tags utilized for XBRL tagging, which make an impact upon a wide range of filers, software providers, regulators, accounting firms as well as end users. End users are considered anyone from data aggregators to individual users. The Taxonomy has to cover such a large and diverse group. Therefore, an update reducing the costs and time spent is highly beneficial. Additionally, it reduces the error, thereby increasing the reliability of the entire filing ecosystem.