SINCE many companies have yet to make a decision about how they will meet the US Securities and Exchange Commission’s (SEC) looming XBRL deadline, we have put together a “Shoppers Guide” to help them navigate their way through the XBRL vendor market.
The guide identifies 4 main criteria as a framework when selecting an XBRL preparation solution. Each of these four criteria may be weighted differently according to your company’s priorities.
Of course, bear in mind that raas-XBRL provides XBRL filing services so we cannot be viewed as entirely impartial, although these guidelines are not specific to any one service provider’s services, including our own.
1. Time commitment
The time spent on the XBRL may vary significantly, and will be split between internal and external resources. Time requirements include mapping of financial statements to taxonomy elements, creation of and assignment of context information, and creation of the calculation and label linkbases. Not forgetting the mapping and creation of dimensions and the tagging of the stockholders equity tables, block text tagging of the notes and finally validation of the XBRL and resolution of validation issues.
This all takes time, and that time will be spent either by your vendor, by your internal resources or by consultants. In a recent presentation, one vendor representative told the audience to expect a total of 125 person hours, plus internal resources, to produce the first XBRL submission. While this may seem to be at the high end of the estimates, the XBRL US / AICPA survey in January 2010 showed that of the first time filers, albeit the very largest filers, 57% required over 120 hours to complete their first submission.
Take care when considering solutions to ask about the distribution of responsibility for actions, and the estimated total time commitments of all parties. Ask in particular about the time commitment required after “pencils down” – the amount of time required to finalize the XBRL for submission to the SEC. Financial Executives International’s Committee on Corporate Reporting has requested in a letter to the SEC (PDF 437KB) that companies be provided with a 5-day grace period to provide XBRL after the official filing date.
Every vendor will quote a price. Ask what is included in that price. Is it the price just for the software; does it include the consulting time; and what other cost elements might there be? We have heard of one case in which the vendor, while quoting a lower price, has told prospects that if they change to a different vendor, the original vendor would “own” their mapping and they would need to start over from scratch.
Few vendors have flat-rate pricing, and many have wording that states “starting at…” In one case we came across, we suspect that the vendor in question is applying the financial printer paradigm of having a very low “starting at” price plus a “per-page tagged” price. Caveat emptor! Confirm what “starting at” really means, and what the additional cost components include. And then of course there is the ‘anomaly’ of the vendor who will charge you less if they do it all for you, and charge you significantly more if you purchase their software and do it yourself – go figure…
Ask about pricing for final changes. It is common for there to be an additional price for final changes after the “pencils down” time. This serves two purposes: firstly the pricing mechanism is used as a means to impose discipline on the filing companies, and secondly it is used to generate revenue.
Ask also about amended filings as these will result in additional tagging, validation and XBRL production. Costs could appear as a lump-sum or could alternatively be based on a consulting rate for the time required to produce and generate the amended XBRL.
Finally, some vendors, while appearing to be expensive, actually represent a replacement of the entire external financial reporting framework. In these cases, shoppers should consider the potential long-terms benefits, and should ask the vendor to demonstrate how and where the promised cost savings will be achieved. After all, spending $40,000 to save $10,000 just doesn’t make a lot of sense – but spending $40,000 to save $50,000 is a good deal.
3. How much XBRL do you actually want to learn?
Ask potential vendors how much time you will need to spend learning XBRL. In the “time” discussion above there was mention of calculation linkbases, dimensions and validation. This is only scratching the surface of XBRL, and we’ve avoided going any deeper here. Not that long ago, we sat in on a free webcast in which the filing agent’s XBRL ‘expert’ was talking about “arc-roles” within 10 minutes from the start. We came away with the view that the only conceivable reason for that segment was to scare the stuffing out of the viewers, and encourage them to say “you do it for us, this is all too hard.”
XBRL is a complex standard, and no one should tell you otherwise. But so is PDF if you dig deep inside it. Some software has been written specifically to remove the complexity (in some cases at the expense of flexibility) while other software solutions are almost “programmer” level in their ultimate flexibility and complexity.
For example, if you determine that it is important that your company’s XBRL ‘render’ (or look) exactly the same as its HTML counterpart, then you may need multiple XBRL software solutions to achieve this. There are specialist XBRL rendering software solutions available on the market, and the SEC’s rendering software does provide the ability to view your XBRL as a more traditional ‘financial statement’.
It is worth noting that the SEC’s own guidance says that companies should not spend excessive effort attempting to get the presentation of their XBRL to replicate the HTML presentation, as this is difficult, time-consuming and of little value as XBRL is a data level standard, not a presentation standard.
4. Vendor experience with XBRL
In 2009, approximately 500 companies submitted XBRL to the SEC for the first time; in 2010, an additional 1000 did so. In the second year of XBRL filing for each of these companies, there was the additional burden of “detailed tagging” their financial statements to contend with. This year there are projected to be an additional 8700 companies providing XBRL for the first time.
The point is that there are few experienced XBRL specialists available. Really, very few. This means that unless you are either fortunate or have deep pockets (or both), the individual in charge of your company’s XBRL production probably has limited XBRL experience. Just as an anecdote, we are currently seeing a many job advertisements looking to hire graduates with any college degree to become XBRL production specialists.
In this context, what is important is the actual XBRL experience of the vendor, or in the case of the smaller filing agents, the experience of the vendor whose software they are using. We have already pointed to the fact that XBRL is a complex standard, with a specification that runs to somewhere over 1,200 pages for the core and additional specifications. Add to that the SEC’s unique requirements.
There are software providers (and filing agents with in-house solutions) that have been involved with XBRL for many years. Then there are others that are new on the scene – some so new that the software itself is either still in development, or only just past the ‘beta’ stage.
Ask vendors how long their software has been in production, and for examples of companies that have filed successfully using that software. You can also do your own due-diligence by exploring for yourself a list of the recent filings and the software used to create the XBRL by looking at the XBRLCloud report.
This is a subject for Year 2 of XBRL filing with the SEC, and it will add a significant additional burden to what may already be a pretty heavy load. The best estimate we have heard is a six-fold increase in the level of effort and potential cost. While we hope that the SEC will defer this requirement for smaller filers, it is only prudent to ask your potential vendors how they plan to cater for detailed tagging.
As a quick summary, detailed tagging requires that every number in all the footnotes be independently tagged, in addition to extracting the context of each number. This means that every number in every table will need to be tagged, and all numbers appearing in sentences will need to be tagged. Estimates are that the total number of tagged pieces of data in a filing may increase by a factor of 10.
Embedded below is a 2011 XBRL Production Options Scorecard that we have prepared for first-time filers. It doesn’t include all service providers, but it will give you a reasonably complete picture of your options. If you have any questions, please use the comments below or feel free to post a question in the IR Web Report group on LinkedIn.