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Author: Neal Hannon (Page 1 of 2)

Mind the XBRL GAAP

Recently, XBRL US and the FASB released a new taxonomy reference linkbase to enable referencing to the FASB Codification. The FASB Codification is the electronic data base that contains all US GAAP authoritative literature and was designated as official US GAAP as of July 1, 2009.  Minding the GAAP between the existing 2009 US GAAP taxonomy reference linkbase, which contains references to the old GAAP hierarchy (such as FAS 142r or FAS 162) and the new Codification system is an interesting trip indeed.

The good news is that the efforts of the XBRL US people working in co-operation with FASB and the SEC have resulted in direct links from the new XBRL reference database to the Codification.  There are a couple problems, however.

The new reference linkbase is unofficial and will not be accepted by the SEC’s EDGAR system. URI links point to the proper places in the COD for FASB publications but require a separate log in and give you access to the public (high level) view only.

Firms and organizations with professional access to the Codification will not find this a problem, but individual practitioners will have to subscribe (at $850 per year) to get any views beyond the bare bones.

SEC literature stops at the top of the page for ALL SEC GAAP citations. For example, any XBRL element that has a regulation SX reference will point to exactly the same place, the top of the document. Not very useful. The SEC should address this.

So it appears we have three levels of accounting material to deal with, 1) the high level public access literature, which is official US GAAP in the Codification; 2) the professional view additional detail and explanations, and 3) and the non-GAAP material the FASB left out of the COD that is in their hard copy literature but didn’t make the COD/US GAAP cut. Ideally, all literature coming from the SEC or the FASB should be, in my opinion, easily accessible via the Internet.

The present plans to fix the GAAP in the US GAAP XBRL taxonomy are to wait until the 2010 taxonomy is issued (Spring 2010).  Although this would give the SEC plenty of time to tweak the EDGAR system into accepting the new linkbase, until then users of XBRL will have to accept workarounds to discover the authoritative literature link from an XBRL element tag and official US GAAP.

Give Financial Statements an MRI with XBRL

Recent news item:  CLEVELAND (AP) — Indians outfielder Grady Sizemore is feeling better and will have an MRI on his strained left elbow on Monday.

It has become very commonplace for doctors to order an MRI for patients experiencing pain. According to Radiology Info.com, Magnetic resonance imaging (MRI) is a noninvasive medical test that helps physicians diagnose and treat medical conditions.  The website goes on to say, “MR imaging uses a powerful magnetic field, radio frequency pulses and a computer to produce detailed pictures of organs, soft tissues, bone and virtually all other internal body structures. The images can then be examined on a computer monitor, printed or copied to CD.” (see http://www.radiologyinfo.org/en/info.cfm?pg=bodymr)

In a similar fashion, XBRL puts a company’s financial statements under a transformation that exposes detailed pictures of the underlying accounting backing every line item.  This information can then be analyzed and compared by computer software to help determine a company’s financial health.

For example, let’s look at a sample line item from the Marathon Oil SEC filing covering the quarter ending September 30, 2008.  The form 10-Q has a line on financial statement that reads:

Loss on early extinguishment of debt 120 (nine months ending September 30, 2007, in millions)

When you give that line item the XBRL MRI treatment, computers can extract the XBRL label:

us-gaap:GainsLossesOnExtinguishmentOfDebt

the definition of the item:

Amount represents the difference between the fair value of the payments made and the carrying amount of the debt at the time of its extinguishment.
And the authoritative literature that backs up the accounting decisions:

the reference:

Presentation Reference

Name                  Accounting Principles Board Opinion (APB)
Number               26
Paragraph          20, 21
Publisher           AICPA

Inquiring minds will take a close look at APB 26 for more detail.  This examination should yield a much clearer understanding of the basis for reporting the number and therefore yield a better understanding of the financial statement.

Note:  Mr. Sizemore returned to full duty with the Cleveland Indians shortly after his MRI.

VFP XBRL Errors Will Not Carry Over to Mandatory Program

The article “Accuracy Essential to Success of XBRL Financial Filing Program,” by Eileen Z. Taylor and Matt Shipman, NC State News, June 8, 2009 — has been widely talked about recently in XBRL circles.

The key sentence in the news story about the academic paper states:

“The researchers are concerned that, if the upcoming XBRL filings do not represent a significant improvement from the voluntary reports, stakeholders in the financial community will not have any faith in the XBRL program – and it will be rendered relatively ineffective.”

Wrong on at least two counts.  First, to assume that the quality of XBRL submissions in the formal, rule laden, error checking mandatory XBRL program is going to be as error ridden as the sand-box, free for all no rules VFP is flat out wrong.  I suggest the authors of the paper read the Edgar filing manual, chapter 6, which details hundreds of rules that must be followed for an XBRL exhibit will be accepted by the system.  In other words, almost every error found in the VFP by the researchers will rejected by the SEC and require correction.

Second, validation programs can correct some of the accounting errors introduced into XBRL filings, responsible and knowledgeable humans at filing corporations must review submissions prior to filing.  The management team is responsible for the data contained in the XBRL exhibits.  The SEC has specifically stated that they expect corporations to have in place an XBRL preparation process that is documented and tested in a similar fashion to other required internal controls.  An accounting error on any future XBRL exhibit is an indication that the company does not have sufficient internal controls in place.

No, I’m not expecting the startup to be perfect.  However, I do expect XBRL filings to be as accurate or more accurate that existing HTML EDGAR filings.

This just in…. 2009 US GAAP XBRL taxonomies but not until July 22nd

The SEC has finally announced what will be happening regarding the use of US GAAP taxonomies for its mandatory XBRL program.  The following was posted on the SEC website today:

** The US GAAP 2009 Taxonomies are in the process of being loaded into the EDGAR system and will be available for use on July 22, 2009. We strongly encourage companies to begin working with this new taxonomy now — it is publicly available at .

Companies should use the latest available taxonomy for their entire fiscal year. However, due to the timing of the US GAAP 2009 taxonomy being made available, companies will be permitted to use the U.S. GAAP 1.0 taxonomy in their first required submission before switching to the US GAAP 2009 taxonomy.

This creates a very interesting dilemma for companies under the gun for the first round of filings.  Do they create returns with an obsolete taxonomy (the 2008 US GAAP taxonomy) or wait until July 22 to file with the SEC?  I wonder how this will affect companies who want to send their second quarter returns into the SEC prior to July 22nd.  If they do file with the 2008 taxonomy as permitted (see above) will their filing be comparable with companies who wait and use the 2009 taxonomy?  Will they file amendments to the filings to update to the 2009 taxonomy?  Oh so many questions.  I cant wait for the SEC’s webcast on Wednesday.

Will The SEC Be Ready For Its Own XBRL Mandate?

The Securities and Exchange Commission (SEC) is getting a bit behind on XBRL. Since publishing the final rule in the federal register (http://www.sec.gov/rules/final/2009/33-9002.pdf) on February 10, 2009, the SEC has been preparing for the first official filing.

gs in XBRL. According to the guidelines, large accelerated filers with a world-wide capital float greater than $5 billion USD as of June 30, 2008 are required to begin filing XBRL with the first quarterly filing for periods ending after June 15, 2009.

In preparation for the new filings, XBRL US released the 2009 version of the US GAAP XBRL taxonomy. The new taxonomy contains guidance on the latest FASB pronouncements (FAS 160, 161, 163, 141 for example) that are required for most filers after December 15, 2008. FASB’s timetable requires companies to adopt the new Financial Accounting Standards and have their SEC filing for 2009 reflect the changes.

The new standards were published long after the present official XBRL 2008 US GAAP taxonomy. In other words, the new 2009 US GAAP taxonomy, which does incorporate all filing requirements for US GAAP as of December 31, 2009, is required for the filing of correct XBRL.  XBRL US has released the 2009 taxonomy and they are now available on their web site but they are not available on the SEC’s website.

As of May 24, 2009, the taxonomies listed on the SEC website as official (see http://www.sec.gov/info/edgar/edgartaxonomies.shtml ) are dated March 31, 2008. This means that any filing entity subject to the new FASB regulations will not have an official taxonomy with which to file. In fact, a few companies have already submitted XBRL to the SEC using the new 2009 taxonomy only to receive a swift rejection. The EDGAR system is not yet ready to accept the 2009 taxonomy and will not be until it is announced and listed on the SEC’s website. The XBRL viewer will also not accept the 2009 US GAAP taxonomy leaving filers with no means to validate their XBRL.

Will the SEC correct this problem? Of course they will. In the meantime, individual filers and filing agents are without any official means of determining the correctness of filings. Companies that are subject to the new FAS pronouncements are encouraged to prepare their filings with the new 2009 taxonomy and wait for SEC notification. Let’s hope that day arrives very soon.

 

 

 

Is Washington Serious about XBRL?

The Government Information Transparency Act (H.R. 2392), introduced May 14 by Rep. Darrell Issa (R-Calif.), would standardize the collection of business information throughout agencies. It would require agencies to use a single data standard known as eXtensible Business Reporting Language (XBRL) and require that collected information be made readily available for public access.

Of course, this begs the question of what data will be collected.  Once decided, a taxonomy can be easily assembled that would collect the data in a uniform way.  Software companies in the XBRL space have developed web-based html driven fill in the blank data collection devices that convert cell entries into XBRL unseen by the end user.  This requires a mind shift from a report-based approach to a data-based approach to receiving feedback on TARP projects.  It also requires government agencies to centralize their data requests rather than each agency develop their own required paper-based reports.

The key again is to formulate the taxonomy, collect the data, then develop reports using a common data repository.   To see how this approach can work, take a look the Dutch Taxonomy Project ) or the Bank of Japan project detailed here http://www.xbrl.org/CaseStudies/BoJ_XBRL_06.pdf

The Day Lynn Turner Stopped My XBRL Speech

Lynn Turner, the outspoken and former SEC chief accountant under Arthur Levitt, is again in the news straight talking about what is wrong in the world of accounting.  His straight talk has earned him a reputation as a beacon for clear financial reporting and no non-sense.  I had the pleasure of meeting Mr. Turner in 2002 while speaking as a conference at the University of Northern Colorado.  My topic, XBRL, was very new to the entire audience except for Lynn.  Then something completely unexpected happened.

In the middle of my talk, Lynn raised his hand like traffic cop and said “Stop”.
The next few words surprised me and stuck with me to this day.  Lynn said, “Neal, I’m a believer and supporter of XBRL.  In fact, I wrote the speech for Arthur Levitt when he mentioned XBRL back in 2000.  But please promise me that whenever you speak in public about XBRL remind people that you must get the accounting right first.”

When the shock of being stopped in mid-sentence by the former SEC chief accountant wore off, I thanked Lynn for his comments and continued with my talk.  Later, as I reflected upon what Mr. Turner had said, the idea of putting accounting first began to resonate.  You see, XBRL is a unique new way to tell the world about the accounting choices your company has made.  Each line item and soon, each numerical value in the footnotes to financial statements will carry additional information about the label, definition and authoritative reference associated with each value.  Never before has the accounting behind the numbers been so exposed.

Getting the accounting right will be a process that will evolve over time.  For example, I do not expect the newly released 2009 Us GAAP taxonomy to be perfect.  Each individual line will require careful review by the management team during the time-compressed close to file cycle.  Review processes will be tested and tweeked as the XBRL becomes a critical part of the correctness and timliness of the corporate SEC filing.

Problems are also likely to surface from outside filing companies.  The taxonomy will be “stress tested’ when over 500 first phase filings begin this June.  I expect to hear reports of missing elements and errors in the taxonomy.  We will also hear about cases where the use of the XBRL taxonomy exposes interesting things about corporate accounting that might not be right.  As Lynn Turner admonished over seven years ago, companies need to get the accounting right first, then correctly tag the results in XBRL.

SEC Issues Summarized XBRL Guidance

The SEC has posted newly summarized XBRL compliance information on their website (http://www.sec.gov/info/smallbus/secg/interactivedata-secg.htm ). The guidance is directed towards small businesses but contains a concise description of the program for all companies. Information covers: the three year phase-in period, certification requirements, third-party involvement, Modified liability, consequences of non-compliance, web posting, grace periods, due dates, applicable financial statements, required formats, optional early compliance, and other helpful resources.

The information is not meant to replace the rules as published in the EDGAR Filing Manual (Chapter 6, Interactive Data), located here: http://www.sec.gov/rules/final/2009/33-9002.pdf.

The bottom line is that each company will be responsible for the content in their SEC XBRL filings and should become very familiar with all reporting requirements. http://www.sec.gov/info/smallbus/secg/interactivedata-secg.htm is an excellent place for companies large and small to begin to explore the SEC’s XBRL mandate.

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