Structured data has evolved tremendously over the last decade. This is prominent in the way that Financial Statements are being standardized across the globe. As countries and agencies transition to the XBRL reporting standard at a steady pace, a new history is being set in tags. One of the major propagators for this movement is the U.S, with the SEC at its helm to ensure a progressive and carefully documented approach.
Anything of such a comprehensive nature that’s executed on a national scale has its ups and downs. The last decade is a testimony to this and we can only understand, in retrospect, if an action was successful. So how did the SEC implement and execute this global standard for business reporting across the United States?
The Conception and Initiation: 2008 – 2009
“By tapping the power of interactive data to tear down barriers to quick and meaningful investment information, markets can become fairer and more efficient while investors can possess far better quality data than was ever possible before.”
– David Blaszkowsky, Director of the SEC’s Office of Interactive Disclosure
On April 24, 2008, in a monumental step, XBRL U.S published the first complete taxonomy for U.S GAAP. It was high time since XBRL 2.1 was being implemented in Europe and Asia, especially in China at a rapid pace.
On May 14, 2008, the SEC proposed a rule requiring public companies to file their financial statements in XBRL data. This was followed by an additional proposed rule requiring Mutual Funds to report in XBRL as well. The SEC believed in Charlie Hoffman’s vision and this reflected in the $50+ million investment for the infrastructure of Interactive Data Electronics Applications (IDEA), a new system that would give investors faster and easier access to key financial information about public companies and mutual funds.
How did XBRL come into play?
On August 19, 2008, when SEC unveiled EDGAR’s successor, Interactive Data Electronic Applications (IDEA). All financial data uploaded on the IDEA system needed to be in XBRL, even as the traditional EDGAR system continued for the rest of the filings. Reports like the 10-Ks and 10-Qs needed to be submitted both in the traditional EDGAR format and in the new XBRL format.
However, implementing XBRL was not easy for the SEC. At the time, the U.S was the world’s largest Capital Market with 17,000 public companies and 8,000 mutual funds reporting to the SEC. The taxonomy was extensive and it would set the precedent for the rest of the world. The SEC had its work cut out as entities were reluctant to get on board. Nevertheless, it was relentless with this mandate and companies started filing XBRL reports in June 2009.
The Learning Curve: 2009 – 2017
Post-2009, public companies started shifting to XBRL for their 10Ks and 10Qs. Investors and regulators were also starting to gain access to data of public companies which added to the pressure of getting it right.
The SEC had considered the fact that financial statements were comprehensive documents and filers would not be able to meet the brief in one go, so they enabled it in stages. All filers were given a 3-year phase-in period and had to complete the transition in two stages.
In the first stage, XBRL tagging was required for main financial statements only. In the following year, filers had to start “detail tagging” and “block tagging” their financial statements. This was the second stage. The company’s significant accounting policies and each table within each footnote had to be “block tagged”. Besides this, each amount (monetary value, percentage, and number) within each footnote had to be “detail tagged” separately. This was a crucial stage because these tags made the report transparent and revealed a lot about the financial state of the company.
In 2009, Large Accelerated Filers (companies with a public float > $700 million) filed their Primary Financial Statements in XBRL. The following year, they filed the next report with the “block tags” and “detail tags”. The same process was followed by Accelerated Filers (companies with a market value > $50 million but < $500 million) in 2010 and Non-Accelerated Filers or Small Reporting Companies in 2011. (public float < $75 million).
All entities were filing their complete financial reports in XBRL by 2012. The SEC may have successfully executed this major transition but it still had to deal with other problems. The transition to XBRL had cost entities both time and money. Also, the process was tedious because reports had to be EDGARized and converted separately for XBRL.
Entities used financial printers who assisted with EDGARizing and printing reports. When the XBRL mandate was announced, financial printers started to build XBRL capabilities in house or outsource XBRL conversions to experts, to handle this new requirement from their clients. But while in case of EDGAR, changes could be made immediately, they required at least 24 hours implement any change in the XBRL reports. This made it very difficult for companies to make last minute edits to their documents.
This is when Disclosure Management solutions providers began emerging in the market. They provided a single platform to create documents that could be generated both in the EDGAR and XBRL format, making the process easier as well as enabling last minute changes if necessary.
The skepticism surrounding XBRL
While public companies continued to file in XBRL, there was no immediate or apparent benefit because data patterns were not visible yet. It would take nearly a decade to establish usable data patterns. Additionally, the cost and time involved in generating said data in the XBRL format did not help.
Further, even though the US GAAP taxonomy published by the SEC had 12,126 elements, the SEC also allowed companies to create their own custom tags in the event they were not able to find what they needed in the taxonomy. This led to a large number of extensions being created by companies, and while the individual XBRL report was machine-readable, it made each report non-standard, and therefore difficult to compare.
Companies, financial printers, and XBRL solution providers also struggled to understand the technical aspects of creating an XBRL report, and this impacted the quality of the reports filed. Solution providers, companies, industry bodies, XBRL U.S., and the SEC worked together for years to refine and enhance the taxonomy to be as inclusive as possible. This collective effort contributed greatly to establishing the U.S GAAP taxonomy as it exists today.
But this learning curve was about to take a leap because the years of effort and labor involved in this process were about to start paying off. As countries and regulatory agencies across the world made this transition to structured data, a massive database started taking shape and what was just an idea in its infancy, was now becoming a force to be reckoned with. As this database became openly available, a new breed of data aggregators sprung up. These aggregators added a completely new dimension to XBRL by leveraging its data, mining it for specific information, and making it available to interested parties in the format they wanted.
The Process of Refinement: Present
On June 28, 2018, the SEC voted to transition companies to Inline XBRL, an evolved version of XBRL. Before this upgrade, the financial report was encoded in XBRL format that was only machine-readable. Inline XBRL made life easier by enabling the report to be both human and machine-readable.[2]This would also reinforce the original thinking behind IDEA and eliminate the need for separate EDGAR reports for Inline XBRL files. Inline XBRL will also improve the data quality, by making the XBRL data more visible in a human-readable document.
SEC proposed a rule mandating this transition to inline XBRL over a three-year period (2018-2021).
This colossal effort to standardize financial data, create an effective system for the SEC and reflect positive results for businesses has changed the way companies manage financial data over the last decade.
As of today, more than 150 countries and regions across the globe are in the process of adopting XBRL to file their business reports. As the future looms on the horizon, it will be interesting to witness how XBRL will evolve and change the financial landscape of the world in the coming years.
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