XBRL

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XBRL

• What you need to know

Jim Brashear, Haynes and Boone, LLPMark Story,
Securities and Exchange Commission Ed Hodder,
Bowne
NIRI SWRC ConferenceSt. Louis, MOAugust 21,
2008
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Agenda

• Overview of XBRL
• SEC Interactive Data Initiative
• XBRL Demonstration
• Implementing XBRL
• Discussion of Issues and Implications

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Why Interactive / Intelligent Data?

• Need for increased efficiency in business
  information reporting
• Data producers, processors, and consumers
• Demands for faster distribution of information
• Required to report more often
• Demands for more detail and additional processing
  to ensure accuracy
• Data is more complex
• Need to decrease costs
• Re-using or re-purposing of information expensive
• Manual processing (re-keying) is prone to errors
• Increasing costs of manual processing

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What is XBRL?

• eXtensible Business Reporting Language
• XBRL is a use of Extensible Mark-up Language
  (XML) for business and financial reporting
• Next generation language after HTML
• HTML tells your computer how to display text
• XML and XBRL tell your computer how to interpret
  the context of the text

• Business reporting equivalent of UPC or SKU bar
  code

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Key XBRL Terms

• Tag
• Machine-readable bar code that gives a standard
  definition for each line item in an income
  statement, cash flow statement, or balance sheet
• Taxonomy
• A collection of terms to define a reporting
  situation
• Specific accounting standards (US GAAP, IFRS)
• Industry segments (e.g., energy, REITs,
  Broker-Dealers, Commercial)
• Company-specific tags (Extensions)
• Instance document (XBRL formatted document)
• Collection of tagged data to describe a specific
  reporting instance

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What does XBRL do?

• Lets say we want to report cash and cash
  equivalents of 5 million
• Instead of just typing 5,000 as text
• XBRL wraps around the number coded tags that
  define the context of the number
• ltus-gaap CashCashEquivalents Decimals"6"unitRef"
  USD"gt5000lt/us-gaap CashCashEquivalentsgt

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XBRL gives context to numbers
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How does XBRL work?
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(No Transcript)
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International Standard
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XBRL Tags for US GAAP

• US GAAP Taxonomies
• Define required disclosures and common reporting
  practices
• Includes primary financial statements and
  footnotes
• No changes in current reporting requirements
• Finalized April 28, 2008
• Development initiated March 2007
• Contract with SEC
• Made available for public review December 4, 2007

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XBRL US GAAP Scope

• US GAAP Taxonomy
• All US GAAP required disclosures plus common
  reporting practices
• Extensions to taxonomy will still be required
• Industries
• - Commercial industrial - Banking
  Savings
• - Real Estate - Insurance
• - Broker Dealer
• Preparers Guide
• Going forward - Maintenance and Support Plan

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What could be tagged in a footnote?

• RDE expense was 6,107 million in 2006, 5,842
  million in 2005 and 5,874 million in 2004.
• The company incurred expense of 5,682 million in
  2006, 5,379 million in 2005 and 5,339 million
  in 2004 for scientific research and the
  application of scientific advances to the
  development of new and improved products and
  their uses, as well as services and their
  application. Of these amounts, software-related
  expense was 2,842 million, 2,689 million and
  2,626 million in 2006, 2005 and 2004,
  respectively. Included in the expense was a
  charge of 7 million and 1 million in 2006 and
  2005, respectively, for acquired in-process RD.
• Expense for product-related engineering was 425
  million, 463 million and 535 million in 2006,
  2005 and 2004, respectively.

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What could be tagged in a footnote?

• RDE expense was 6,107 million in 2006, 5,842
  million in 2005 and 5,874 million in 2004.
• The company incurred expense of 5,682 million in
  2006, 5,379 million in 2005 and 5,339 million
  in 2004 for scientific research and the
  application of scientific advances to the
  development of new and improved products and
  their uses, as well as services and their
  application. Of these amounts, software-related
  expense was 2,842 million, 2,689 million and
  2,626 million in 2006, 2005 and 2004,
  respectively. Included in the expense was a
  charge of 7 million and 1 million in 2006 and
  2005, respectively, for acquired in-process RD.
• Expense for product-related engineering was 425
  million, 463 million and 535 million in 2006,
  2005 and 2004, respectively.

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What are the benefits?

• Giving data context makes it intelligent
  datathat can be
• Reused
• Repurposed
• Exchanged
• Submitted
• Machine processed

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The XBRL value proposition

• Businesses
• More efficient preparation of financial
  statements and management reporting
• Financial reports created once and re-used many
  times, e.g. as printed reports, Web pages, or
  regulatory filings.

• Analysts, Investors and Regulators
• Enhanced distribution and usability of existing
  financial statement information
• Automated analysis tools
• Less re-keying of financial information.

• Financial Publishers and Data Aggregators
• More efficient data collection
• Avoid costs associated with custom data feeds and
  re-keying
• Fewer errors
• More time to focus on analysis

• Software Vendors
• Use XBRL for data export and import (e.g.
  transactions and reports)
• Potential for full interoperability with other
  financial and analytical applications

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Easier analysis and reporting

• Data automatically extracted into spreadsheets
  and documents with no re-keying
• Reduction in data-entry errors
• Enhanced ability to create reports
• Faster disclosure and distribution to
  shareholders, analysts and management
• Analysis will be significantly easier and faster

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Faster Disclosure and Dissemination

• For small and mid-size companies, third party
  data aggregators can take weeks to post
  companies financials
• With machine readable data
• Financials will be accessible immediately
• Larger volumes of data become easier to analyze
• So small and mid-cap companies will have a better
  chance of getting analyst coverage

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Increased Accuracy and Comparability

• Today, after companies report in EDGAR,
  aggregators normalize, database and often distort
  data
• Aggregators employ labor intensive, error prone
  process to rekeying information
• Use their own proprietary applications, applying
  their own rules for consolidating
• With XBRL, companies adhere to common set of
  reporting elements but can add company-specific
  reporting labels (extensions) without changing
  underlying definitions
• Financials not perfectly comparable but as
  reported data will be substantially more
  comparable
• Financial data already tagged, no need for the
  investment community to re-key the data

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More efficient internal processing

• Fully-developed XBRL implementation has potential
  benefits beyond external reporting
• Speed the timeline for financial closing and
  reporting
• Eliminate manual processes
• Increase accuracy
• Reduce reporting costs
• Facilitate rapid, frequent internal analysis

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Improved Disclosure Controls
Today
XBRL Web Services

• Automated
• Integrated within enterprise processes/cost
  effective
• Proactive/timely
• Visible/transparent to management stakeholders
• More Secure

• Manual
• Physically connected to internal data store
• Segregated in each business unit/redundant costs
• Periodic/reactive/untimely
• Opaque/deep in organizational processes
• Less secure

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Agenda

• Overview of XBRL
• SEC Interactive Data Initiative
• XBRL Demonstration
• Implementing XBRL
• Discussion of Issues and Implications

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SEC Role in XBRL

• Markets function best when all the information
  that market participants need is available to
  them when they want it, and in a form they can
  use it.
• Thats why the Commission is so keen on
  interactive data for financial reporting.
• Im not thinking years. Im thinking months.
• And the SEC will play a leadership role.

SEC ChairmanChristopher CoxJanuary 2006
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SEC XBRL Program

• April 2005, SEC launched voluntary test filer
  program to encourage companies to use XBRL
• January 2006, SEC offered incentives to
  participate
• Expedited reviews of registration statements
• Inform WKSI if Form 10-K is selected for review
  within 30 days after filing and undertake to
  comment within 45-60 days of filing
• October 2007, SEC announced new Division of
  Interactive Disclosure
• January 2008, SEC CIFiR subcommittee recommended
  mandating XBRL
• May 2008, SEC approved two XBRL rule proposals
• Public company submissions to EDGAR
• Mutual fund risk/return summary data submission

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Support for XBRL

• XBRL principally advocated by companies with a
  commercial stake in promoting interactive data
• Enthusiastic support from XBRL vendors and data
  recipients
• analysts, academics, researchers, regulators,
  information aggregators and other data
  intermediaries
• Limited demand from reporting companies and
  investors

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Most Issuers Unenthusiastic

• Reporting companies bear the cost to provide
  interactive data to benefit external user groups
• Limited current benefit to well-covered companies
  from adding additional step to existing
  disclosure process
• May increase visibility for smaller issuers
• Internal benefits are not well-understood

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Pilot Program Participation

• Relatively few companies volunteered to
  participate in the SECs XBRL pilot program
• Several have commercial stake in XBRL
• Other companies are including XBRL in their
  earnings releases and other external reports

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Proposed Rule Summary

• Require certain registrants to provide financial
  statements in XBRL
• Tagged disclosures include primary financial
  statements, notes and schedules
• Also company and form identifier information
• Supplements disclosure using existing EDGAR
  electronic filing formats
• Does not replace EDGAR
• Existing ASCII or HTML filing formats still
  required
• Apply to domestic and foreign companies using
  U.S. GAAP
• Eventually to apply to foreign private issuers
  using IFRS

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XBRL Does Not Affect Substance

• Rules change disclosure format, not substance
• XBRL submissions would be provided as exhibits
  identified in Item 601(b) of Schedule S-K
• Must use most-current tags released by XBRL U.S.
  or IASCF per the EDGAR manual
• Includes tags such as company name, form type,
  etc.
• Company-specific extension taxonomies would be
  allowed if no standard tag could be applied to a
  financial statement element
• If the issuer uses a different name (e.g., gross
  margin) for a standard XBRL element (e.g., gross
  profit), the issuer should change the label of
  the standard XBRL element rather than creating an
  extension element

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XBRL Submissions

• Document types covered by XBRL rulemaking
• Annual and quarterly reports
• Transition reports
• Securities Act registration statements
• SEC considering mandatory XBRL submission of
• Executive compensation disclosure, but data tag
  taxonomy not complete
• Financial information in Form 8-K and 6-K

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Data Tagging Financial Statements

• The face of the financial statements would be
  tagged
• Balance Sheet
• Income Statement
• Statement of Comprehensive Income
• Statement of Cash Flows
• Statement of Owners Equity
• XBRL exhibit must contain the same elements as
  the HTML and ASCII filings
• Partial XBRL presentation is prohibited
• E.g., cannot exclude from XBRL prior-period
  information

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Data Tagging Footnotes

• The financial statement footnotes and schedules
  also would also be tagged
• Levels of detail in footnote tagging
• Each footnote separately tagged as a block of
  text
• Each significant accounting policy separately
  tagged as a block of text
• Each table separately tagged as a block of text
• Each amount (monetary value, percentage and
  number) separately tagged within each footnote
• Each narrative disclosure required by SEC rules
  and U.S. GAAP or IFRS separately tagged
• Phase-in of each issuers footnote tagging
• First year, only must tag each footnote as a
  block of text
• Full tagging after issuers first year of XBRL
  submissions

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XBRL Submission Timing

• For initial and amended filings, a company must
  at the same time
• File the ASCII or HTML report or registration
  statement via EDGAR
• Submit the XBRL exhibit via EDGAR
• Post the XBRL exhibit on companys website, if it
  maintains one
• SEC may amend to same day as EDGAR filing date
• Hosted third party link should be sufficient, but
  link to the SECs website is not
• Two exceptions
• 30 day grace period for a filers very first XBRL
  exhibit
• 30 day grace period for a filers first XBRL
  exhibit that includes detailed tagging of the
  footnotes and schedules
• Exceptions are for the first filing of any type
  of submission - not the first filing of each type
  of submission

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Phase-in of Mandatory XBRL

• Three-year phase-in schedule proposed
• Issuers may elect to provide XBRL exhibits
  earlier than mandated
• Fiscal periods ending on or after December 15,
  2008
• Domestic and foreign large accelerated filers
  that use U.S. GAAP and have world-wide public
  float above 5 billion
• Public float determined as of the end of the most
  recent second fiscal quarter
• Estimate would cover approximately 500 companies
• Fiscal periods ending on or after December 15,
  2009
• All other domestic and foreign large accelerated
  filers that use U.S. GAAP
• Fiscal periods ending on or after December 15,
  2010
• All remaining filers using U.S. GAAP, including
  smaller reporting companies
• All foreign private issuers that use IFRS

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Non-compliance

• Filers that do not timely submit to EDGAR and
  post on their website the required XBRL exhibits
  would be
• Deemed not current with their Exchange Act
  reports
• Ineligible for short forms S-3, F-3 and S-8
• Ineligible for abbreviated S-4 or F-3 information
• Ineligible for Rule 144 resale exemption safe
  harbor
• Issuer would regain timely filed status upon
  submitting XBRL exhibit, only if the filing was
  otherwise timely
• Only redeems late XBRL submission
• Automatic hardship exemption for up to 6 days
• Covers late XBRL submissions due to unexpected
  technical difficulties
• Issuer may apply to SEC for continuing hardship
  exemption

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Liability

• The SEC rulemaking distinguishes among
• Human readable data as displayed in an XBRL
  viewer available on the SECs website
• Data in the XBRL files submitted via EDGAR
• Data in the XBRL file posted on the companys
  website
• Viewable data would be subject to the same
  liability as the corresponding data in an EDGAR
  filing in ASCII or HTML
• E.g., materially accurate amounts and statements
• Companies would not be permitted to use
  cautionary statements that required XBRL
  submissions should not be relied on in making
  investment decisions

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Limited Liability for Technical XBRL Errors

• Data in the XBRL exhibit would be subject to
  limited liability
• Similar to liability under the voluntary XBRL
  program
• Data deemed furnished (not filed)
• Excluded from officer certification of financial
  statements
• Data in the XBRL exhibit which fails to meet the
  Rule 405 tagging and related requirements would
  be protected from liability if
• Issuer made good faith efforts to comply (e.g.,
  using XBRL verification tools) and
• Issuer corrected the failure as soon as
  reasonably practicable after becoming aware of it

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Agenda

• Overview of XBRL
• SEC Interactive Data Initiative
• XBRL Demonstration
• Implementing XBRL
• Discussion of Issues and Implications

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(No Transcript)
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Agenda

• Overview of XBRL
• SEC Interactive Data Initiative
• XBRL Demonstration
• Implementing XBRL
• Discussion of Issues and Implications

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Issuer Awareness of XBRL

• Most companies are only beginning to develop an
  awareness of XBRL
• Current focus is almost entirely on the use of
  XBRL in external reporting
• Little focus on other XBRL advantages
• Little implementation planning

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Prepare for XBRL

• What should you be doing to get ready for XBRL?
• People
• Processes
• Technology
• Vendors

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XBRL Challenges

• Companies should begin to understand the
  complexities, challenges and consequences of XBRL
  implementation
• Begin to develop awareness of XBRL among senior
  executives
• Begin implementation planning process

1. People 2. Data 3. Software 4.
Process 5. Submit
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Misconceptions About XBRL
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XBRL Implementation

• Companies must analyze
• XBRL implementation costs and steps
• Changes to current processes
• Companies could simply append XBRL conversion to
  their current disclosure process
• Limited benefits to the issuer
• Companies would need integrate XBRL into
  accounting systems to get the full benefit
• Most financial reporting systems do not currently
  generate XBRL data
• Fully implementing XBRL into enterprise financial
  systems would be more complex, time-consuming and
  costly

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Implementation Approaches

• Do-It-Yourself
• Acquire and install tagging software
• 1-3 people tag/review/approve XBRL exhibit
• Requires internal/consultant expertise
• Test and submit for filing
• Vendor Services
• Vendor provides tagging capabilities
• Iterative review of XBRL exhibit
• Knowledge transfer and training
• Minimize need for internal/consultant expertise
• Test and submit for filing
• Comprehensive list of vendors on XBRL US website
• http//xbrl.us/vendors/

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XBRL and Internal Controls

• XBRL implementation will affect current
  disclosure controls and internal controls
  processes
• Need to review accuracy of tagging and production
  of XBRL exhibit
• During implementation of XBRL reporting
• May require parallel work streams on existing and
  new XBRL processes
• Parallel work streams likely will involve the
  same personnel, causing distraction during peak
  times, with potential adverse effects on closing
  and disclosure timelines

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Personnel Considerations

• Most companies lack personnel with expertise in
  XBRL reporting
• Companies may incur additional expense to hire
  new employees or consultants
• XBRL implementation may involve a learning curve
  for employees in the disclosure process
• XBRL reporting requires a scarce skill-set
• Employee who understands both accounting concepts
  and how XBRL tags and XML hierarchies operate in
  multiple financial calculations

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Personnel Impacts

• External Reporting Group
• Impact MEDIUM
• 1-3 resources to learn and create/review XBRL
• Inform Audit Committee (might request
  presentation)
• Investor Relations
• Impact LOW
• Knowledgeable of activity
• Legal Department
• Impact LOW
• Prepare wording for EDGAR submission
• Other Management and Board of Directors
• Impact LOW
• Educate about SEC mandate and process changes

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Steps to get you started 1. Get Educated

• Read the Preparers Guide
• Understanding and using taxonomies
• Creating extensions and instance documents
• Validating and rendering
• Reviewing instance documents
• Rules of thumb, e.g.,
• Preparers must verify they are using the most
  updated version of the taxonomy available on the
  XBRL US web site.
• Must use elements that exist in the public
  taxonomy whenever possible
• Tag each individual note in its entirety as a
  single block of text.
• Review case studies 3M, Comcast, Microsoft,
  Morgan Stanley

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Steps to get you started 1. Get Educated

• Review the collection of business and financials
  elements
• www.xbrl.us

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Steps to get you started 1. Get Educated

• Listen to webcasts, attend training programs
• Explore alternatives in XBRL creation
• Outsourcing and do-it-yourself tools
• Talk to your current service providers
• Review multiple service and tool providers
• Find demos, contact info and training services at
  www.xbrl.us

• Talk to Voluntary Filer participants
• Review other filers XBRL documents (www.sec.gov)
• Use one of the free or trial tools to test out
  XBRL creation
• Read the PCAOBs Staff Answers and Questions on
  XBRL

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Steps to get you started

• Estimate time and cost commitments
• Develop the plan
• Identify the internal team
• Determine responsibilities
• Discuss pros and cons with management,
• Advise management on mandate
• Gain commitment on timing of participating
• Discuss broader XBRL implementation
• Think through the process from start to finish
• Start now!

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Agenda

• Overview of XBRL
• SEC Interactive Data Initiative
• XBRL Demonstration
• Implementing XBRL
• Discussion of Issues and Implications

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Implications

• Technology-driven regulation
• The SEC notes in the rulemaking We continue to
  update our filing standards and systems as
  technologies improve.
• Should the fact that technology facilitates
  faster or additional disclosure result in a
  regulatory mandate?
• In what ways might improved technology drive
  further disclosure requirements?

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Implications

• Auditor Involvement
• SECs proposed rule would not require an auditor
  to consider the XBRL submission as part of its
  review of other information that accompanies
  audited financial statements or is otherwise
  published by the company
• To what extent should an issuer involve its
  independent auditor in the creation of XBRL data?
• XBRL creation is part of disclosure controls

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Implications

• Limited Liability
• SECs proposed rule would protect company from
  liability for errors in the XBRL exhibit, but not
  the human readable display of that data
• As a practical matter, is that a distinction
  without a difference?

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Implications

• Picking Winners
• Rulemaking asks Is it appropriate to require
  public companies to provide interactive data
  using XBRL?
• Shifting cost burden to reporting companies
• The SEC notes in the rulemaking to the extent
  that investors are currently required to pay for
  disclosure that has been extracted and
  reformatted into interactive data format by third
  party resources, the availability of interactive
  data in Commission filings would allow investors
  to avoid additional costs.
• Is it appropriate to require issuers to bear the
  costs of facilitating new ways for investors,
  analysts, and others to retrieve and use
  financial information?

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Implications

• Investor Relations
• XBRL will enable users to automatically extract a
  limited set of tagged data elements from the full
  financial statements
• May lead to users interpreting selected bits of
  data outside the context of the full instance
  document supplied by the reporting company
• E.g., figures without explanatory notes
• Will enabling investors to parse bits of data or
  pull data more frequently create volatility or
  other issues?
• Will XBRL drive more questions for companies
  because analysts and investors can more easily
  analyze data?
• Will XBRL limit companies ability to emphasize
  particular data, because they cannot control the
  display format?

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Web Resources

• www.sec.gov/spotlight/xbrl.htm
• XBRL at the SEC
• www.xbrl.org
• XBRL International
• xbrl.us
• XBRL US
• www.us.kpmg.com/microsite/xbrl/train/86/86.htm
• KPMGs XBRL tutorial