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The United States Securities and Exchange Commission (SEC) has voted to require companies that must file financial statements with it to submit a version of those filings that incorporates eXtensible Business Reporting Language (XBRL) data tags. The SEC’s final rules call for a phase-in over a three-year period starting on June 15, 2009 (a six-month delay from their earlier proposal). The first group required to provide XBRL-tagged statements will consist of filers with more than $5 billion of worldwide common equity outstanding, or slightly more than 500 corporations today (the exact number will depend on how the stock market performs over the next six months). Thus, those companies operating on a calendar year will start to XBRL-tag with the filing of their second quarter 10-Q, a nod to those that did not want to begin their tagging process with the longer and more complex annual 10-K filing. The second group, companies with a worldwide market value of outstanding common equity of $700 million or more (called by the SEC “large accelerated filers” or LAFs), will being filing after June 15, 2010 and all remaining companies that file with the SEC will begin a year after that. In addition, the scope of the tagging requirements will increase substantially for each of the cohorts over a three-year period, starting with relatively simple financial statement data and extending to detailed information contained in footnotes. The SEC also decided to make the tagging of narrative disclosures such as the management discussion and analysis optional rather than mandatory. At the same time, it now will require companies to tag any updated financial data in 8-Ks (a filing that often incorporates financial press releases) as well as use tags in registration statements that provide financial statements.

The XBRL filing requirement will have two significant impacts. First, those companies that must file with the SEC will have an additional burden to bear in their close-to-report cycle, one that will grow increasingly heavy as the level of detail rises. Finance departments will have to adapt their post-period end processes to be able to handle this increased workload within the filing deadlines. Ventana Research recommends that if they haven’t already, all public companies should begin investigating ways to automate some or all of the processes associated with filing XBRL-tagged reports. This may range from using applications to manage the tagging of financial statement information all the way to using dedicated software applications to comprehensively handle the creation and editing of the content included in their SEC filings. Second, all companies now will be able to access the wealth of information about competitors, suppliers and customers that is contained in SEC filings. This information has been available for years, but for most companies accessing and using it has been too much of a hassle. We recommend that every company access and use this information for assessing their performance, understanding trends and setting future plans.