An initial assessment of XBRL-tagged financial statements reveals thousands of errors traceable to multiple causes, yet both the Securities and Exchange Commission and XBRL US (the consortium of accounting firms, software companies, and consultants that develops the taxonomy, or digital dictionary) seem heartened by what they see.
About 500 large U.S. firms constituted the first wave of filers, appending eXtensible Business Reporting Language (XBRL) tags to key data points in financial statements for periods ending on or after June 15, 2009. As of June 15 of this year, around 900 more companies had followed suit, even as that first wave expanded its use of XBRL to include all amounts and tables contained in financial-statement footnotes.
Using an automated program that detects many (but not all) types of incorrect tagging, XBRL US identified a total of 18,695 mistakes in about 3,400 filings made through September 29. That number may seem large, but Campbell Pryde, chief standards officer for XBRL US, notes that the filings contain more than 1.6 million tagged facts, resulting in an error rate of just over 1%.
While that number was smaller than expected, and while both the SEC and XBRL US say that companies are doing well in addressing errors that have been found, it remains to be seen how companies will perform as a larger number tackle the second-year requirement, which raises the number of tagged elements from 300 to 3,000.
Another question is whether the errors made so far negate the chief purpose of XBRL, which is to enable investors to make company comparisons more easily. “There is definitely utility in the data,” says Pryde. “But for complicated analyses, such as might be done by hedge funds, the errors might start getting in the way.”
As a first step in tagging, companies have to decide whether to have their financial printers do it after financial reports are completed (the so-called bolt-on approach) or whether to do it themselves, typically by using third-party report-writing software that builds the taxonomy mapping into the reporting (the “built-in” approach).
Mary Hoeltzel, chief accounting officer at Cigna, is a strong proponent of the built-in approach, both for the control it gives and for the potential broader uses of XBRL at companies that really understand it.
But her most important reason comes down to timing: “You need to give [printers] your report several days before the filing deadline, and I just don’t have that luxury,” she says.
Regardless of the errors a company may make, it won’t have to worry about SEC penalties, for now. “At this stage it’s not about rapping knuckles,” says David Blaszkowsky, director of the Office of Interactive Disclosure at the SEC. “It’s about helping companies get it right, and making the process easier so that users [of financial statements] will have a better product.”