SEC Adopts Inline XBRL
On June 28, 2018, the SEC adopted amendments to the XBRL requirements to require the use of Inline XBRL for financial statement information and fund risk/return summaries. Inline XBRL involves embedding XBRL data directly into the filing so that the disclosure document is both human-readable and machine-readable. Accordingly, no separate XBRL filings are required. The amendments also eliminate the requirement for companies to post XBRL data on their websites.
In 2009 the SEC adopted rules requiring companies to provide the information from the financial statements accompanying their registration statements and periodic and current reports in machine-readable format using XBRL by submitting it to the SEC as exhibits to their filings and posting it on their websites, if any. Since that time, however, many industry participants have expressed concerns regarding the quality of, extent of use of, and cost to create XBRL data. In fact, the SEC itself has discovered quality issues with the data in XBRL. As with all regulatory requirements, XBRL has its proponents and supporters as well.
Pressure from both the naysayers and proponents, as well as the clear inefficiency of duplicative postings, drove the current amendments.
The requirement for companies and funds to post XBRL data on their websites will be eliminated upon the effective date of the amendments. The Inline XBRL requirements will become effective on a phased schedule as follows:
- Large accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2019.
- Accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2020.
- All other filers will be required to comply beginning with fiscal periods ending on or after June 15, 2021.
- Filers will be required to comply beginning with their first Form 10-Q filed for a fiscal period ending on or after the applicable compliance date.
In its press release announcing the amendments, the SEC cited the following potential benefits:
- Is expected to reduce, over time, XBRL preparation time and effort by eliminating duplication and facilitating the review of XBRL data.
- Gives the preparer full control over the presentation of XBRL disclosures within the HTML filing.
- Is expected to reduce the likelihood of inconsistencies between HTML and XBRL filings and improve the quality of XBRL data.
- Enhances the usability of structured disclosures for investors through greater accessibility and transparency of the data and enhanced capabilities for data users, who would no longer have to view the XBRL data separately from the text of the documents.
Statement of Commissioner Hester M. Peirce
Commissioner Hester Peirce dissented from the amendments and made a statement related to her dissenting position. Although Ms. Peirce supports a shift to Inline XBRL in general and supports the elimination of website-posting requirements, she doesn’t in general support the use of Inline XBRL for smaller public companies or funds due to the costs associated with switching to this technology.
Commissioner Peirce, who is consistently pro-business and very thoughtful in her role as a regulator, states:
As regulators, we have broad authority—authority we do not hesitate to use—to reach into the day-to-day operations of the companies we oversee. Our rules can radically change the way companies conduct their business, organize their workflow, and allocate resources. Today’s rule will require the adoption of very specific technology to be used in a very specific way on an ambitious timeline. When we issue such a mandate, it has wide-ranging effects on the industry, including knock-on effects on vendors, investors, and others who interact with the relevant filers. By mandating the use of inline XBRL, we are privileging one form of technology over present and potential future competitors. When we take this step, therefore, we must be very certain that we are choosing the right technology at the right time for the right purpose in the right set of companies.
She notes that companies have been able to voluntarily use Inline XBRL under a pilot program, but the uptake on that use has been minimal, with only 1.8% of all eligible filers using the technology and most of those being accelerated or large accelerated filers. She further points out that the benefit of XBRL at all for smaller companies is questionable, with few investors utilizing its technology, adding, “[B]efore requiring small filers to invest considerable resources in implementing inline XBRL, we should be sure that the data is actually useful to their investors.”
The costs and burdens on funds will be even greater, with investors bearing the cost burden without real benefit. In fact, Ms. Peirce suggests that the users of fund XBRL risk/return data are primarily data aggregators who sell the information.
The Author
Laura Anthony, Esq.
Founding Partner
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