Finance Elevated virtual conference

Learn from tech experts at J&J, Microsoft, AT&T, Pitney Bowes and more, June 8, 10, 15 & 17.

Technology

The XBRL US Center For Data Quality: How It Will Help Filers Produce Accurate XBRL Disclosures


by FEI Daily Staff

Mistakes in XBRL-tagged (eXtensible Business Reporting Language) financial disclosures remain a major concern for companies, the U.S. Securities and Exchange Commission and the market.

Reporting errors can make a company’s financial disclosures unusable for investors and analysts, while also exposing a company to unwanted attention from the SEC — just as the regulator has redoubled its efforts to ensure XBRL disclosures are accurate.

The Center for Data Quality

To help filers tag XBRL data accurately, the nonprofit organization XBRL US has teamed up with several major companies involved in XBRL filings to establish the XBRL US Center for Data Quality. This initiative seeks to address public concerns about XBRL and improve the quality and usability of XBRL-tagged financial data filed with the SEC. The center’s specific goals are:

  • To develop standardized guidance on the consistent tagging of data
  • To put guidance from the Financial Accounting Standards Board (FASB) and the SEC into computer code, thereby automating its availability
  • To give public companies new tools to facilitate high-quality XBRL filings
There are significant differences between previous XBRL-tagging guidance and the rules being currently being promulgated by the center, The XBRL US Center for Data Quality standardized guidance is available, free of charge, to all companies, and its published standards are agreed upon by a consortium of key companies within the industry.

The Data Quality Committee

At the core of the center is the Data Quality Committee, which includes representatives from various organizations. The committee’s primary focus is to ensure it has participation from the end users of the data so it can be certain of the involvement of data aggregators, investors, and other constituents. In addition, it includes the involvement of representative XBRL filing agents.

The Data Quality Committee is developing guidance and validation rules for XBRL tagging with the goal of helping companies file consistently accurate XBRL disclosures. The committee will focus at first on rules that test for input errors and verify compliance with current SEC and FASB guidance. Its next step will be to look at guidance for uniform, consistent tagging (e.g., whether and where to create extensions).

Once XBRL data becomes universally reliable, adoption will grow dramatically.

Before the committee finalizes guidance and rules, a 60-day review period will allow public review and comments, including practice runs with test filings. The committee’s initial set of seven guidance and validation rules was available for public comment until September 14, 2015. By the end of its first year, the center intends to have a meaningful set of guidance and rules available for preparers.

Companies will eventually run the committee’s rules on their XBRL documents before they file with the SEC. This will allow them to correct certain mistakes before filing, thereby reducing the number of errors submitted to the SEC as well as the risk of filing misleading XBRL documents. One general long-term goal of the committee is to foster a culture of XBRL compliance. Companies that do not run the committee’s rules on their XBRL files will risk submitting reporting errors to the SEC that otherwise could have been caught. These errors will stand out, since third parties will be applying the rules to submitted XBRL documents and detecting mistakes. It will then be clearly evident to the public which companies violated the rules from the Data Quality Committee.

Complexities

While many of the Committee’s XBRL rules are likely to be straightforward, the rule about negative values involves an unusual amount of detail, so filers will want to be sure they are familiar with it. The negative values rule identifies more than 2,000 tags for which a negative value should never be entered, and it checks to see whether the company entered a negative value for any of these tags.

If a negative value was entered, the software creates an error message. Filers will easily see these error messages, letting them fix the mistakes before submission to the SEC. Consumers of the data, filing companies, and the SEC will benefit extensively from this rule.

SEC and FASB Involvement

SEC staff will be able to use the Data Quality Committee’s rules to detect errors in company filings.The committee has already met with SEC staff and plans to have ongoing discussions to update the regulator on its progress.

FASB, a permanent observer on the committee, has expressed support for the initiative. Louis Matherne, FASB’s chief of taxonomy development, has noted FASB is pleased to be part of the effort, which will give insight into data quality concerns and may help FASB improve the US GAAP Taxonomy. In addition, the American Institute of CPAs (AICPA) and the CFA Institute have committee representatives, providing further input from professionals who prepare, review and use XBRL filings.

What the committee produces should complement FASB’s efforts to provide in-depth implementation help, acting as a third leg of the stool alongside FASB and the SEC.

Total Automation of XBRL Error Detection Not Possible

The guidance issued by XBRL US Center for Data Quality will help to eliminate many mistakes that should not be occurring. However, it will not be possible to automate the detection of XBRL errors completely, because there will always be items that require human involvement and review in certain areas of XBRL tagging and file creation. The point of the center’s guidance is to help people avoid making judgments where they do not have to make them.

Vision

The XBRL US Center for Data Quality wants the committee’s guidance and rules to become the definitive standards for XBRL financial reporting by public companies. Ideally, service providers and issuers will follow the guidance and rules during the tagging process, and tool providers will incorporate them into their offerings. This endeavor will help to realize the full potential of XBRL as an efficient tool for the distribution, comparison, and analysis of corporate financial data.

Lou Rohman is Vice President of XBRL Services at Merrill Corporation. He is currently a member of both the FASB’s US-GAAP Taxonomy Group and the IASB’s IFRS Taxonomy Consultative Group. He has also been an active participant on the US-GAAP taxonomy project team of XBRL US and is Merrill Corporation’s representative on the US Center for Data Quality Committee.
This article first appeared in Financial Executive magazine.