VideoTim Kingston, manager of corporate reporting at Zimmer Holdings, thought he was as prepared as he could possibly be to meet the Securities and Exchange Commission's new XBRL requirements. Soon after the SEC mandated that large companies begin filing financial statements that include so-called interactive data tags this past summer, Kingston researched his options and decided to buy software that could address the task, rather than outsource the process to a financial printer.
As summer began, he worked with the vendor, EDGARfilings, to map the company's earlier financial statements to the current dictionary of XBRL tags, creating a template for the medical-device maker's second-quarter numbers as they became ready. By early August, he was on the phone with EDGARfilings daily to finalize the documents ahead of the deadline.
"Everything was running smoothly," recalls Kingston. Until, that is, the day before the filing. That's when an independent check of the company's XBRL tags by its financial printer turned up a bevy of technical errors — errors that would, in theory, lead the SEC to reject the document.
After a huddle with colleagues and Zimmer CFO James Crines, Kingston pushed EDGARfilings to help get the documents right, ultimately filing a near-perfect document, albeit more than a week later than he had intended. Lesson learned? Next quarter, the company may outsource the process to its financial printer, in part to eliminate incompatibility and inefficiencies, says Kingston.
Indeed, while a flood of consulting support combined with SEC lenience (motivated in part by technical difficulties on its end) has gotten some 400 companies through the first round of filing XBRL-coded documents, many have discovered it's not as easy as it may seem. A report by XBRL Cloud, which runs technical audits of XBRL documents, finds that about 70% of companies had some type of technical error in their filings, with several counting more than 100 such errors.
Details, Details
The process, meanwhile, will only get more complex next year, as the time-consuming task of putting detailed tags on prose such as footnotes becomes part of the requirement. In short, the first round has proven to be "a wake-up call that just because we're doing XBRL doesn't mean we're doing it right," says XBRL Cloud president Cliff Binstock.
XBRL holds a number of appealing promises, including the ability for financial analysts to more readily slice and dice companies' numbers, and the possibility for companies to more easily manipulate the data in their own disparate systems, perhaps making regulatory reporting of all types more efficient (see "Some Pain, but Plenty of Gain" at the end of this article).
As it stands now, though, most companies view the process of tagging their data with the XBRL codes as a compliance matter, and not a very important one at that. At the moment, there are few consequences to doing XBRL well or poorly. The documents don't need to be separately audited, and entail limited legal liability for at least the next three years. They are also not being used by any critical mass of equity or debt analysts, according to informal polling by XBRL US, the group that writes the XBRL codes.
After touting the technology informally for a number of years, and signing up some 140 companies as voluntary filers, the SEC made XBRL mandatory last year, in the twilight of former chairman Christopher Cox's reign. Large companies have been on the hook since July; over the next three years all public companies will be required to file XBRL-tagged financials.
The SEC did little to help the process by waiting until July 20 to release the final 2009 XBRL taxonomy, or dictionary of data tags — well past when companies (and software vendors) should have begun getting their arms around it. A series of updates to the EDGAR filing manual also made it difficult for software vendors to stay current.
Running Sideways
Software angst, in fact, has prompted many companies to cry uncle. Rob Blake, senior director of interactive services for financial printer Bowne, estimates that about 75% of its clients were planning to buy software and tag their own financial statements before the SEC proposed rules on the topic, but only 25% followed through, with the rest outsourcing the process. "It did surprise me how many people were running sideways at the end," says Blake, who helped start XBRL software vendor Rivet and led some XBRL work at the SEC.
Another major financial printer, RR Donnelley, reports that nearly 100% of its 141 clients required to report in XBRL last quarter chose to outsource the process to them. "Some clients bought software but then came to us anyway," says RR Donnelley executive vice president Craig Clay.
Companies that are sticking with self-tagging note that outsourcing doesn't come cheap. "Cost was a very significant key in our decision" to self-tag, says Fred Bleier, chief accounting officer at International Paper. Bowne, for example, charges $24,995 annually to cover XBRL filings, compared with less than $5,000 for most tagging-software packages. Most expect outsourcing to get even more expensive when detailed footnote tagging becomes part of the package, a process that most financial printers haven't yet put a price tag on.
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