Controls and procedures for XBRL exhibits
You've heard that the limited liability period has ended for nearly all XBRL filers, but what does it mean for you?
During the first 24 months in which a company was required to submit them, XBRL exhibits were considered to be furnished, and were not subject to liability for material misstatements or omissions in the information furnished—provided that filers made a good faith effort to comply with the rules and promptly corrected any errors.
At the end of this 24-month grace period, if the XBRL filed is materially inaccurate or misleading, filers may be subject to legal action by the SEC and others. In addition, those filers will be ineligible to use short-form registration statements, including Forms S-3, S-8, and 144. Companies with recent IPOs will have shorter grace periods—the limited-liability provision expires for all companies on October 31, 2014.
CEOs and CFOs sign certifications on a quarterly basis, taking responsibility for the disclosures in the 10-Ks and 10-Qs, including attachments. XBRL exhibits are excluded from these certifications, however the disclosure controls over the XBRL files are covered by those representations.
The certifications ensure that there are controls and procedures to ensure the XBRL exhibits properly record, process, summarize, and report the information.
So how do you determine whether the tagging of the fact is materially correct—or conversely, when an incorrect tagging is immaterial? After consulting many sources, including the SEC, we discovered two key tests that should be used to determine the materiality threshold:
- Does the tagged fact contain the necessary information to allow an automated analysis of the filed financial data to augment or replace other analyses used to make investing and financing decisions? Although there is no authorized definition for XBRL materiality, the ability of the tagged information to enable automated analysis of data is an important consideration.
- Does the tagged fact represent, in all material respects, the same information shown in the HTML financial statements? Far too often, facts are input incorrectly (e.g., errors of scale, negative values). There are also too many inappropriate extensions in XBRL documents filed with the SEC.
What's the process for developing and implementing controls and procedures for XBRL exhibits?
First create a repeatable, documented process. This process should include a checklist of milestones for key reviewers. Consider the reports that are available from your XBRL service provider when developing controls or determining the structure of your review to ensure it is effective and efficient.
Beside detail tagging, one of the biggest challenges presented by XBRL is the sheer volume of items that need to be reviewed.
If you have the ability to review your XBRL data simultaneously (i.e., in-line) with your HTML submission, streamline your process by reviewing the HTML version of your filing, disclosure tags, and fact properties at the same time.
If you have the ability to create a blackline report between two versions of your XBRL data, use it to focus your review on new XBRL tagging and items that have changed.
Regardless of the format you choose, implementing a set of controls and procedures for your XBRL exhibits is absolutely necessary. Now that the limited liability period is over and the exhibits are filed, not furnished, it is more important than ever to make sure your controls and procedures are in place.