Workiva Named Category Leader
Overcoming the Challenge of Too Many XBRL Extensions
March 7, 2011
Tammy Whitehouse, author of the “Accounting & Auditing Update” at Compliance Week, recently wrote an article entitled, “As XBRL Evolves, Unique Tags Threaten Its Usefulness.” As the title of the article suggests, public companies are potentially undermining one of the primary benefits of XBRL reporting by creating an abundance of taxonomy extensions - that is, company-defined, company-specific data elements that don't quite match the standard US GAAP taxonomy. In reviewing the past 200 XBRL filings, we found the average extension rate to be about on out of every five tags (19 percent to be precise), with extension tags ranging from 1 percent to 57 percent of the total (there were actually several companies that were over 50 percent). In fact, when scanning the report, we identified 20 of the 200 companies (10 percent) with extensions greater than 40 percent. While the Securities and Exchange Commission (SEC) admitted that initially there wouldn't be a standard tag for every accounting element, I'm certain they were not expecting to see XBRL reports with extensions exceeding 50 percent of all tags. After all, one of the primary purposes and benefits of XBRL is to enable apples to apples company comparisons...by creating a comparable data set shared by two or more companies. However, comparing the financial data from one company to another proves difficult when a large percentage of the XBRL data is extensions…company specific additions to the taxonomy. Now consider the transition of XBRL filing from Year 1 to Year 2. As we noted in our recent XBRL white paper, “The Devil is in the XBRL Details: Year 2 Compliance,” comparing Year 1 to Year 2 filings, points to significantly larger and more complex filings for Year 2. We know this increase in both size and complexity adds risks-and most likely an increase in extensions-to satisfying SEC reporting requirements. What can help remedy this XBRL extension dilemma? According to the article, one of the biggest suggestions is for companies to not rely “too heavily” on outsourced service providers in the XBRL tag selection process. Who knows the financial data of a company better than its financial reporting team? While XBRL service providers can help companies get through the technical aspects of the process, company employees are naturally more familiar with their financial data, and their company operations, and as a result are better positioned to determine their own mappings. Public companies wouldn't expect their financial printers to speak at their quarterly earnings call, so why should they expect them to also know all the accounting behind their financial data, sufficiently enough to build an explicit model as expressed through XBRL? We all know that the SEC's XBRL mandate has added additional pressure on already maxed-out financial reporting teams. However, SEC reporting professionals who believe they can easily outsource their own skills to handle XBRL, are underestimating their intrinsic company knowledge base and applied skill set. Companies have the subject matter expertise to do their XBRL reporting in-house, and when provided with the right XBRL applications, can actually shorten their entire reporting process, rather than make it longer due to the addition of XBRL compliance requirements.