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Browse: Home / 10 ways to ease XBRL detailed footnotes tagging


10 ways to ease XBRL detailed footnotes tagging

By Guest Contributor on July 18, 2011

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David J. Price CFO and COO of EDGAR Online, Inc.This is a guest post by David J. Price, chief financial officer and chief operating officer, EDGAR Online, Inc. Mr. Price joined EDGAR Online as Chief Financial Officer on July 6, 2010 and became Chief Operating Officer on May 13, 2011. Prior to that, he was Executive Vice President, Finance, Chief Financial Officer, Treasurer and Assistant Secretary of Cornerstone Therapeutics, Inc. (Nasdaq: CRTX). From April 2006 to September 2008, Mr. Price was a managing director for Jefferies & Company, Inc, and before that a managing director for Bear, Stearns & Co. from September 2000 to March 2006. He has also worked in the auditing capacity at several prominent international accounting firms.

IF YOU are in the “Phase 2, all other large accelerated filer” category of SEC filers, you have likely already met your first year SEC XBRL filing requirements, conquering the detailed tagging of your primary financials and block tagging of your notes. Now it is time to face the significantly larger challenge of the second year, which requires the additional work of detailed footnote (DNF) tagging. DFN tagging will involve more work, which includes, for example, creating a much larger filer extension taxonomy. To help ensure your second year DFN creation process goes smoothly, below are some helpful tips based on my experience with DFN creation: XBRL logo

1. Plan ahead

Give yourself a generous window of time in which to meet your filing requirements. Estimate the time it will take you to create and review your filing by using your page count. As these processes are new, it is appropriate to track the time that it takes you to create individual sections of your filing and use that information to predict how long other sections will likely take to complete. Also, now is the time to plan for the next milestone, year three: the expiration of the legal liability exemption. Use the provided legal liability exemption period to learn, rather than wait and risk mistakes in year three. Also, keep in mind that the turnaround time for third-party service providers, such as filing agents and external auditors, will likewise increase for the same reasons your times increased.

2. Eat the DFN-creation “elephant” by looking at it as lots of little bite-sized pieces

Rather than looking at the DFN creation as one big task, look at it as a lot of little tasks. The truth is that each piece of the notes is smaller than any one of the primary financial statements. Taking this approach turns an otherwise overwhelming task into more manageable actions. Focus on getting each piece done correctly.

3. Your primary financial statements and detailed disclosures are connected

While you can break the DFN into pieces, realize that those pieces are connected. There is a connection between many of your detailed disclosures and your primary financial statement line items. These connections must be expressed correctly using the XBRL medium. For example, the maturities of long-term debt and the details of long-term debt instruments will tie to the balance sheet. While humans can work around small discrepancies and likely infer intensions, computers cannot. Therefore, it is essential that your connections are clear. Less often, but occasionally, there are connections between the different notes.

4. Recognize that XBRL is simply a different way of expressing the same financial information

Of course, these connections between the pieces of a financial statement mentioned above are not news to you. Recognize that the SEC HTML and XBRL filing formats are two different mediums for expressing exactly the same information. Your HTML and XBRL convey the same message. Your SEC HTML financial filing foots, cross casts, and otherwise ticks and ties the data. The same will be true of the SEC XBRL financial filing. With the XBRL format, however, you can use automated computer processes to check that information ticks and ties correctly. This type of automated testing is impossible with HTML formats, as computer software cannot read the HTML and understand what it is seeing. Keep this in mind as you evaluate your processes for creating your HTML and XBRL.

5. Cultivate in-house expertise: learn to use the XBRL medium and learn the XBRL lingo

XBRL is here for the long term. Establish a base of in-house XBRL expertise. Nurture and build that internal expertise. This base of XBRL expertise will be critical when that legal liability exemption period expires, so use this exemption period wisely. If you understand how to use the XBRL medium, you can control the message that you send in your SEC XBRL financial filing. Many make the mistake and use the one term “tag” when working with XBRL. The word “tag” is a general term that can mean different things. XBRL is made up of only eight fundamental building blocks: network, table, axis, domain, member, line items, concept and fact. (Defining these is beyond the scope of this article, but you can find a good glossary at http://secxbrlglossary.wikispaces.com.) Learn these fundamental building blocks and their relation to one another, and your XBRL life will be significantly easier.

6. Make the most of any third-party XBRL support you have engaged.

Continuing for a moment on the theme of developing internal XBRL expertise, determine what role your external auditors will play in your SEC XBRL financial filing process. Leverage what your external auditors bring to the table. But also watch out. Don’t spend your time and money training your external auditors. They should already be trained. If they are not, don’t waste your time and money providing training. Engage with your external auditor early. Communicate any special requirements you have to enable effective workflow and encourage knowledge transfer between external support and internal teams.

7. Follow best practices

Use tried-and-true practices; don’t reinvent the wheel. You will understand what the best practices are when you see them; or if you don’t understand the best practices to employ because you have not yet cultivated that in-house expertise, let your third-party providers help you. Learn from those filers who have come before you. If you don’t understand which best practices to use, then work on recommendation number five above: cultivate your in-house expertise.

8. Prepare all internal stakeholders for the additional effort required by DFN creation

An internal communication plan can give your internal stakeholders needed information to help them realize the differences between the year-one primary financial statements and block text tagging and the additional effort require for DFN tagging. Your accounting and financial reporting staffs, chief financial officer, CEO, legal counsel, and board of directors, especially the audit committee, should receive this information early in the process, as waiting to engage those internal stakeholders will often result in delays in approving your SEC filing.

9. Pay close attention to all those DFN details by leveraging automated computer processes

DFN filings contain a lot of details that have to be monitored. Throwing more manual labor to the process just increases costs and increases the risk of errors slipping through your processes. Use automated computer processes where you can. For example, many of these details are numeric values that have relations to other numeric values and therefore can be tested using automated processes. These automated processes can help you be sure your XBRL information is expressed correctly.

10. Balance internal and external resources, short-term realities and long-term needs

As mentioned above, XBRL filings are here to stay. The age of digital financial reporting is upon us. Understand that there is no one right or wrong answer to getting your SEC XBRL financial filing created correctly. Identify the best mix of internal and external resources; place short-term focus on the current task of getting your filing out and the longer term focus of meeting the need of minimizing risk and keeping process costs in check. The legal liability exemption will expire soon enough. Prepare now.


Guest Contributor

IR Web Report occasionally accepts guest posts and discussion topics from corporate investor relations professionals and experts in specific areas. If you would like to contribute a post or discussion topic, feel free to contact us.

Posted in Best Practice, Disclosure, IR News | Tagged XBRL

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