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SEC Approves Mandated Financial Reporting Using Interactive Data Format (XBRL)

December 18, 2008

On December 17, 2008, the Securities and Exchange Commission announced that it will require companies to provide financial statement information in an interactive data format that uses extensible Business Reporting Language (XBRL).  The new requirements are intended to make it easier and more efficient for investors and analysts to search and analyze financial data across multiple companies, reporting periods and industries.  The new requirements will be implemented in three phases over three years, with the first phase consisting of all large accelerated filers using U.S. GAAP and having a public float of $5 billion or greater.  These companies will be required to file XBRL data for fiscal periods ending on or after June 15, 2009 (e.g., the second quarter Form 10-Q for calendar year companies). 

The following summary is based on information provided at the SEC's open meeting as the final release has not yet been published. 

Who and Which Filings are Affected?

The requirements will eventually apply to all SEC-reporting companies, including foreign private issuers, using U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards (IFRS).  The information is required to be provided as an exhibit to a company's annual, quarterly and transition reports, registration statements that include financial statements (such as those using Form S-1) and reports on Forms 8-K and 6-K that contain updated or revised versions of financial statements that appeared in a periodic report.  It is not required to be provided with registration statements that incorporate financial statements by reference (such as those on Form S-3).  The information is also required to be provided on a company's website.

What is XBRL?

XBRL is a collection of standardized tags for line items in financial statements.  Companies are required to use the list of tags, or "taxonomy," established by XBRL U.S., set forth in the SEC's EDGAR Filer Manual.  There are currently 15,000 data elements available.  A separate list of tags has been prepared for IFRS.  The SEC allows a company to create a company-specific element called an extension where a standard tag in unavailable.  However, the SEC wants to limit the extensions created where an appropriate financial statement element exists. 

A company can complete the tagging process by either purchasing commercially available software and tagging the financial statements itself or outsourcing it to a service provider and validating the tagged data.  The tagged information can be downloaded by investors and analysts directly into spreadsheets, analyzed using off the shelf software and used within financial models. Investors and analysts can also compare financial data across companies, reporting periods and industries. 

When Does My Company Need to Comply?

The phase-in for mandatory XBRL filing is three years.  The first year's phase-in group consists of all domestic and foreign large accelerated filers using U.S. GAAP and having a public float of $5 billion or greater.  These filers will be required to file XBRL exhibits beginning with the first fiscal period ending on or after June 15, 2009 (e.g., the second quarter Form 10-Q for calendar year companies).  In the second year, all other domestic and foreign large accelerated filers using U.S. GAAP will be subject to mandatory XBRL filing beginning with the first fiscal period ending on or after June 15, 2010.  All remaining filers using U.S. GAAP, including smaller reporting companies, and all non-U.S. filers that prepare their financial statements in accordance with IFRS will become subject to the XBRL filing rules beginning with the first fiscal period ending on or after June 15, 2011. 

The tagging requirement applies to all periods on the face of the financial statements.  Each company subject to mandatory XBRL filing will follow a two-year phase-in of the XBRL tagging requirements.  In the first year of tagging, the footnotes and schedules can be tagged as blocked text.  For the second year, all relevant information in the footnotes and schedules will need to be tagged.  Although tagging of narrative disclosures will be permitted, it will not be required.

The XBRL data will be filed as Exhibit 101 under Item 601 of Regulation S-K, but will not otherwise change the current financial statement filing requirements in the HTML or ASCII formats.  The rules will also require a company to post its XBRL data on its website on the earlier of the day the information was filed with the SEC or the day the information was required to be filed.  A company is required to include the actual material on its website rather than including a hyperlink to the SEC exhibit.

A 30-day grace period is permitted for a company's first required XBRL exhibit.  There is also a 30-day grace period in the second year for the detailed information tagged in the footnotes and schedules.  Companies utilizing the grace period are required to file the exhibit as an amendment to the filing. 

Liability and Failure to Comply

The raw data submitted to the SEC in the interactive data file will be excluded from the officer certification requirements under the Securities Exchange Act of 1934, will be deemed not filed and will not be audited.  This data is protected from liability during a company's first two years of filing XBRL exhibits if it fails to comply with the tagging requirements, provided that a company used good faith and reasonable efforts and corrected the failure after becoming aware of it.  The XBRL data will, however, be subject to the federal securities anti-fraud provisions. 

If a company does not timely file or post to its website the XBRL exhibit, the company will be deemed not current in its Exchange Act reports and ineligible (until it files the required XBRL exhibit) for short form registration or the resale exemption under Rule 144.  Additionally, there are hardship exemptions from the XBRL requirements when a company experiences technical difficulties or undue burden or expense.