XBRL is designed to create interactive financial statements, giving the financial community a standard way to publish, search and analyze financial statements. 

At this point, you have probably heard about XBRL requirements, but may be unsure about what it is and how it will affect your organization or clients.

As we approach the end of the first year in the three phases of compliance, the next round of public company filers needs to prepare because the deadline is rapidly approaching.

What is XBRL?

XBRL stands for “eXtensible Business Reporting Language” and is a web-based code designed for companies to share business and financial reporting information in a standardized format. This makes it easier to compare financial information across various organizations.

Instead of financial information being reported in a static format, such as in a printed document, each data item is tagged, allowing it to be used interactively. XBRL can improve an organization’s financial reporting accuracy and efficiency because the data can be tagged at its source, while also increasing comparability across organizations.

Who is required to comply?

Essentially all public companies and foreign private issuers are required to comply with the XBRL requirements. However, the specific deadlines for compliance depend on the size of the organization. For instance, the first phase applied to large accelerated filers with a public float in excess of $5 billion and applied to their first quarter ending after June 15, 2009. The second phase is applicable to all remaining large accelerated filers for their first quarter ending after June 15, 2010. Phase three applies to all remaining public companies for their first quarter ending after June 15, 2011.

What is required for compliance?

For all companies, compliance will be in two phases. In year one, each company will be required to tag each line of their financial statements and will “block tag” the notes to the financial statements. Block tagging consists of labeling an entire note (i.e. Accounting Policies) with a single tag, without tagging individual items within the note.

In year two, all numbers in the notes and schedules must be individually tagged, including tables. For the initial filing in years one and two, the XBRL submission can be filed up to 30 days following the submission of the EDGAR filing. All subsequent XBRL filings must be submitted with the EDGAR filing.

First XBRL filing: Key steps

Knowledge assessment. XBRL implementation should begin with a companywide discussion to assess the current level of XBRL knowledge within the organization. To address any knowledge gaps, the company should obtain training from outside experts or internal staff with sufficient knowledge about XBRL. XBRL US (http://www.xbrl.us), the organization established to support the implementation of XBRL in the U.S., also offers a variety of XBRL resources on its website, as do many of the large public accounting and consulting firms.

Implementation approach. XBRL implementation can be done with either a self-service or full-service approach.

The self-service option consists of purchasing a software package and performing all implementation steps internally. The full-service option consists of outsourcing some or all of the XBRL implementation responsibilities to a third-party service provider, while the company mainly reviews the outputs. 

The self-service option may provide significant monetary savings and allow for more control over the process. However, there are significant internal labor costs associated and software training required and the implementation and quarterly filing procedures.

With the full-service option, companies can rely on the expertise of the service providers and can significantly reduce internal labor costs. However, the company will lose some control over the overall process. For example, the company will need to budget in required lead time for preparing the XBRL documents.

Pitfalls to avoid

Insufficient education or training. Be sure to take full advantage of the several resources available to help close any knowledge gaps. It is critical to invest the time needed to properly understand the XBRL requirements and deadlines and how they impact your organization.

Poor planning. Properly implementing XBRL will take several months of planning and preparation. It is also recommended that you test file your XBRL filing at least one quarter prior to the deadline. Failing to properly account for the internal labor hours could result in significant delays and poor data quality, and switching to a full-service provider midstream will yield a significant increase in costs.

Long-term outlook. Look beyond initial compliance and consider the long-term implications of decisions made during the implementation process. Failing to do so could create headaches or unexpected costs later. Look forward to the compliance requirements for year two and beyond, and consider which option (full-service or self-service) is consistent with the company’s long-term goals for XBRL compliance.

Start it up

It’s clear — XBRL is here, and it’s time to get on board. These tips should help you get started, and don’t forget to visit http://www.xbrl.us for in-depth information on implementation. With a clear understanding of the purpose and uses for XBRL, proper planning and a comprehensible, workable plan, you should be on the road to XBRL success.

James P. Davis Jr., CPA, CITP, is a senior accountant with Colby and Co. PLC in Chesapeake. He specializes in IT consulting.. He sits on the Virginia Society of CPAs (VSCPA) Editorial Task Force. Contact him at jdavis@colbycpa.com.

Haven S. Pope, CPA, CFE, is the manager of financial reporting at CarMax Inc. (http://www.carmax.com), in Richmond. sits on the Virginia Society of CPAs (VSCPA) Editorial Task Force. Contact him at haven@hjpope.com.

Note: The opinions expressed are those of the authors and not of the authors’ employers.