Overcoming the Challenge of Too Many XBRL Extensions
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.
Why outsource XBRL suffering when Wdesk can help eliminate it?
For either XBRL experienced Tier 1 and Tier 2 companies or Tier 3 companies just starting to prepare and address the XBRL mandate, the innovative, integrated XBRL application offers everything a company needs to meet the SEC reporting mandate. Our unique approach to XBRL allows reporting teams to maintain complete ownership and control of key XBRL decisions from an accounting standpoint.
In addition, our Professional Services team includes XBRL experts who have been through the tagging and filing process. Our consultants are available for a full range of training and services to assist in-house teams in creating and managing compliant XBRL filings; while also helping our customers develop internal knowledge and skill sets. And, with the Wdesk web-based platform, we can help streamline the SEC reporting process-saving time, preventing errors and reducing costs. And remember to check out Ms. Whitehouse's entire article. There are some fantastic tips that bear consideration, for both Year 1 and Year 2 filers.
About the Author
Dean Ritz is a subject matter expert in information modeling with over three decades of experience in various data-dominated domains, including artificial intelligence, expert systems, object-oriented programming, and most recently the modeling of financial information. As a Senior Director at Workiva, he applies his expertise to product strategy for collaborative work management and the management of the company’s expanding patent portfolio. His interests extend to the topics of rhetoric and ethics, with scholarly work in these areas published by Oxford University Press (2011, 2009, 2007), and Routledge (2017).