Preliminary guidance on XBRL extensions research
Over the past several months, the Data Quality Committee (DQC) has been analyzing thousands of XBRL extensions from recent 10-K filings. This analysis has revealed that many filers continue to use unnecessary extensions instead of standard elements that already exist within the taxonomy. When XBRL was first adopted by the SEC, filers were concerned that the taxonomy was not complete enough to tag their financial statements. Originally, extensions were promoted as a way to address gaps in the taxonomy without thinking through the long-term consequences. Flash forward seven years—and there are problems.
It is clear that the problems XBRL extensions have caused in the usability and comparability of data for users is a major impediment to the use of the data by many data aggregators, analysts, and investors. Data aggregators, such as CapIQ and Bloomberg, use XBRL data from other international jurisdictions. They are able to supply quality data to investors in these markets due to the higher speed and lower cost of consuming XBRL data compared with traditional manual processes. However, they are not yet able to consume XBRL from U.S. filers due to the persistent challenges created by extensions and other data quality issues. In June 2014, we commented on how filers can reduce or eliminate extensions from their reports by following the guidance of the Edgar Filing Manual (EFM). The EFM requires filers to select the closest standard element that materially reflects the concept being communicated.
Unfortunately, many filers struggle with the nuances of applying materiality to their element selections. The decisions around what is material or not are made during the financial statement preparation process in accordance with SEC Regulation S-X and the FASB Codification.
For example, when small amounts are combined on a line with a larger amount, filers have already made the determination that the smaller amounts are not material. Otherwise, they would be required to show the smaller amounts on a separate line. For element selection purposes, small amounts that are combined with other, larger amounts are by definition immaterial, and should not be considered in deciding which standard element to use.
The DQC intends to release definitive guidance that specifies those situations where extensions are required and, accordingly, limits the use of extensions only to those situations.
The DQC recognizes that there are potential concerns that will need to be addressed for a change of this magnitude. Such concerns consist of the timing of the change, including the impact on previously reported financial data. The DQC plans to issue a draft discussion document in May 2016 to get input on its preliminary conclusions. In addition, the Committee plans to review the draft discussion document at its May meeting with the SEC staff. For up-to-date information on the work of the DQC and its proposed XBRL validations, work on extensions, and meetings with the SEC staff, visit XBRL US.