5 New Rules In The 18th Draft Rule Set For US GAAP Filers By XBRL US DQC

XBRL Data Quality Committee and its Role

The Data Quality Committee (DQC) is an arm of XBRL US responsible for building guidance and validation rules meant to avoid or identify discrepancies or inaccuracies in XBRL data filed with the US SEC. The Committee has a special focus on issues of data quality that adversely affect data analysis and consumption.

It prioritizes issues based on user inputs and works within its four guiding principles for element selection. These principles are incorporated into the DQC guidance for tagging financial statements in XBRL. They are designed to improve the usability and comparability of XBRL data by ensuring consistency in element selection and data modeling.

Among the observers of the DQC are standard-setters such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The Committee ensures that filers have reliable and consistent rules that are accepted by authoritative sources by incorporating guidance from these accounting standard setters.

The Purpose of DQC Rules

The FASB’s collaboration with the DQC is based on the premise that a baseline for data quality can be achieved with the establishment of a single set of rules. Better quality data can be seen coming out of US SEC filings because of this industry-driven approach which is why the US GAAP Taxonomy incorporates DQC rules. The Committee has 3 primary goals:

  1. It makes its proposed guidance and validation rules public, generally for a period of 2 months to incorporate relevant inputs through a collaborative process with stakeholders
  2. It develops clear guidance to detect and prevent XBRL tagging errors in financial data by using automated validation rules that are free to use for issuers filing with the SEC
  3. It supports the simplification and improvement of the US GAAP Taxonomy by providing inputs to the FASB and progress updates to the US SEC

These rules aid issuers in preparing high-quality, consistent financials in XBRL with the help of automated checks that test for correct formatting prior to submission with the US SEC.

In our next section, let’s take a look at the DQC Rules Taxonomy and the 5 new rules that have been introduced in the 18th Draft Rule Set for US GAAP filers.

The DQC Rules Taxonomy (DQCRT) and the 18th Draft Rule Set

The DQCRT is the XBRL representation of a select subset of XBRL DQC validation rules included with the GAAP Financial Reporting Taxonomy (GRT) annually. This taxonomy is unique in that it is predominantly meant for use by regulators and is not intended to be used in issuers’ extension taxonomies in the same way that a GRT or Document and Entity Information (DEI) Taxonomy is used.

The DQCRT is maintained by the FASB and incorporates 15 DQC rules in the latest FASB US GAAP Financial Reporting Taxonomy 2022. The DQC, which is funded by the XBRL US Centre for Data Quality, recently published its latest rule set for a 45-day review and comment period.

In its latest Public Review period (version 18), the Committee sought comment on five new automated checks, including updates to rules for filers using the US GAAP taxonomies, from April 15 to May 31, 2022. Here’s a quick look at what these rules entail.

1. Caption Value Matches Financial Statements

Function – Identification of those cases where a company uses an extensible list item referring to an Income Statement or Balance Sheet line item that does not exist on the referenced Statement. It checks values provided for the extensible list items defined in the taxonomy and whether they are legitimate financial statement line items appearing in the presentation linkbase.

Problem The Rule Solves – Numerous disclosures are sought from companies in their financial statements in one of two places, either on the Statement of Financial Position or in their notes. For values reported in the notes, the filer is required to indicate in which financial statement line item the amounts are contained. To capture the line item used, the taxonomy uses the extensible list items. The rule is designed to check that the defined line item actually exists in the Statement. It is triggered in the absence of this line item in the presentation linkbase defined in any of the financial statements. As many users of financial data take SEC filings and put the data into a template including values that pick up the amounts from the notes, this rule is very vital.

2. Investment Schedule – Financial Instrument Axis

Function – To align filer disclosures with FASB guidance defined in Financial Instruments Debt Securities on the FASB website here. It recommends that the investment schedule security types use the FinancialInstrumentAxis.

Example– A filer reporting a value for the element us-GAAP: AvailableForSaleDebtSecuritiesAmortizedCostBasis with a value of 88,749,000 using the InvestmentTypeAxis must not use the axis listed when reporting a value for the same. Instead, the FinancialInstrumentAxis should be used by the filer.

3. Equity Method Investment (EMI) Reporting

Function – To ensure that filers report Equity Method Investment (EMI) data consistently. This rule has three components as described below:

  1. Dimension Requirement for EMI Elements – The EquityMethodInvestmentDescriptionOfPrincipalActivities and EquityMethodInvestmentOwnershipPercentage elements are specific to an EMI and must be reported using the ScheduleOfEquityMethodInvestmentEquityMethodInvesteeNameAxis dimension. The values of these elements can be associated with that specific EMI with the help of this dimension.
  2. Summarized Financial Data of an EMI – This is information from the perspective of the EMI and not the portion of the element relating to the reporting entity. It identifies elements in the US GAAP taxonomy’s presentation linkbase that are descendants of the element EquityMethodInvestmentSummarizedFinancialInformationAbstract.
  3. EMI Elements Using Non Consolidated Investee Axis – This is meant to check if instead of the default or ScheduleOfEquityMethodInvestmentEquityMethodInvesteeNameAxis, the filer has used an EMI element with the EquityMethodInvestmentNonconsolidatedInvesteeAxis. These elements are identified as the descendants of the element ScheduleOfEquityMethodInvestmentsLineItems excluding the descendants of the element EquityMethodInvestmentSummarizedFinancialInformationAbstract.

Example – A value of 0.0986 has been reported by the filer for the element us-GAAP: EquityMethodInvestmentOwnershipPercentage without using the axis ScheduleOfEquityMethodInvestmentEquityMethodInvesteeNameAxis. This axis must be used when reporting a value for the same.

4. Extensible Enumerations for Financial Statement Captions               

Function –  A number of elements have been defined by FASB that if reported and not included in the face financial statements, filers need to indicate which financial statement caption the amounts appear in (identified in the US GAAP taxonomy as extensible enumeration elements). There are two components to this. The first reports an error if the company has made a disclosure and not included the caption where the amount appears in the financial statements. The second report an error for a fact that includes the Balance Sheet and Income Statement Location axis but does not have an associated extensible enumeration using the same dimensions.

Example – The element us-gaap:DebtSecuritiesAvailableForSaleAccruedInterestAfterAllowanceForCreditLoss with a value of 805,000 was used in the filing but did not appear in the financial statements of the filing. Unless it is included in another account caption, this disclosure should appear in the face financials. In that case, the element us-gaap:DebtSecuritiesAvailableForSaleAccruedInterestAfterAllowanceForCreditLoss should be identified using the us-gaap:DebtSecuritiesAvailableForSaleAccruedInterestAfterAllowanceForCreditLossStatementOfFinancialPositionExtensibleList.

5. Location Axis with a Single Member

Function – Identification of those cases where the company uses the location axes for either the Income Statement or Balance Sheet to indicate where a value reported in the notes appears in the financial statement. The extensible enumeration elements should be used in these cases. When a value reported in the notes is spread across multiple line items in the financial statements, the Financial Statement location axis should be used.

Example – The element us-GAAP: OperatingLeaseLiabilityCurrent with a value of 44,453 has been used in the filing with the BalanceSheetLocationAxis. This is the only fact reported with this element. The filer should use the extensible enumeration element to indicate the location of the item in the financial statements instead of using the above axis. To identify the account where the element us-GAAP:OperatingLeaseLiabilityCurrent is included, the element us-GAAP: OperatingLeaseLiabilityCurrentStatementOfFinancialPositionExtensibleList should be used.

In our final section, let’s take a look at the stakeholders who are part of the review and comment process and the options issuers have to check their filings before submission to the SEC.

Available Options for Issuers to Check Filings Prior to SEC Submission

The DQC Rules are freely available to issuers, enabling them to find and correct errors in their XBRL financials and ensuring that investors and regulators are provided with quality data along with the most accurate view of their corporate financial health.

The DQC encourages accountants, data providers, filers, investors, and preparation tool providers to review and comment on the proposed rules within the appropriate timeframe.

Issuers get immediate access to all final approved rules including the latest rule set in public review so they can assess their filing prior to submission with the SEC. They have 3 main options to achieve this:

  1. They may use software that has been certified to work with the ruleset
  2. XBRL US makes a checking tool available that can be found here
  3. Using downloaded rules with Arelle – an open-source EDGAR renderer built by the SEC

The public review for DQC Rule Set 18 can be accessed here.

Rules and guidance that have already been approved by the XBRL US DQC can be found here.

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If You’d Like to Know More About Producing High-quality XBRL Filings for Submission to the US SEC Using DQC Rules.

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