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).