SEC Electronic Tagging Requirement for Foreign Companies Begins
Originally published on Bloomberg Tax, March 23, 2018 by Denise Lugo.
Foreign companies using international accounting standards and trading on U.S. markets need to start using XBRL to file financial reports with the SEC or risk having access to the markets interrupted.
eXtensible Business Reporting Language (XBRL) is the technology that enables companies to tag data to identify and describe information in their reports.
Foreign private issuers—non-U.S. companies that aren't government entities and trade publicly—that use international financial reporting standards (IFRS) have been exempt from XBRL filing requirements that have applied to U.S. domestic companies since 2009.
Companies that don't file with XBRL this year would lose the ability to access the U.S. public capital markets using a shelf registration statement for one year, according to Securities and Exchange Commission rules. This means a company would be subject to the risk of SEC delay if it wanted to access that market, lawyers told Bloomberg Tax.
A delay would prevent an issuer from being able to quickly tap into the market when needed, or when market conditions are optimal.
The SEC in 2017 announced the removal of the exemption from XBRL. The SEC said 912 foreign companies were registered with it as of 2014, the latest year for which it could furnish records.
“It was only a matter of time before the mandate was extended to foreign private issuers,” Joseph Hall, partner at Davis Polk & Wardwell LLP in New York, said. “The SEC has often given foreign private issuers more time than domestic issuers to comply with new technical EDGAR filing requirements, and other mandates,” he said.
Lawyers also told Bloomberg Tax the SEC mandate won't create problems for private foreign issuers, but companies should be mindful that compliance requires additional time and expense, as it did for U.S. domestic issuers.
Other practitioners said companies will have to ensure their XBRL tagged data is accurate, even if they have outsourced the work.
“One of the things we emphasize is that XBRL data is not different than any information that's filed with the SEC,” said Mike Starr, vice president of governmental and regulatory affairs at Ames, Iowa-based enterprise software company Workiva. Its clients include ArcelorMittal in Luxembourg, Crescent Point Energy Corp. in Canada, and Sequans Communications in France. “There need to be procedures and controls in place to make sure the data that's being filed is accurate,” he said.
“When companies outsource the tagging, that doesn't relieve them from the responsibility for the accuracy or completeness of that tagging, even if a service provider does the tagging for them,” Starr said.
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