by Michael Becker, Vice President, Global Disclosure and Financial Reporting Services, Business Wire
Quite often I speak at industry events on XBRL. At these events I take off my Business Wire hat and speak in general terms about the XBRL community. And while I enjoy nothing more than speaking to folks about XBRL, I have not had an opportunity to let you know how I personally feel, until now. This month we will answer two questions: How should you file (do-it-yourself vs. outsource); and if you opt to outsource XBRL, how do you select a partner?
However, before we can use words like “in-house,” “outsource,” “dimension” or “hypercube,” your organization must first lay the groundwork for XBRL. The primary task is to select a cross-departmental team of individuals who possess the requisite knowledge of your financial statements and footnotes (e.g., investor relations and financial reporting). This XBRL team will be tasked with knowing the SEC’s Interactive Data rule [PDF], the EDGAR Filer Manual (Volume II, Chapter Six), all relative U.S. GAAP Taxonomies and of course, the XBRL rules themselves. It will also be this team’s responsibility to set the XBRL timeline and recommend an approach (do-it-yourself vs. outsource) for your organization.
Question One: Should we tag XBRL in-house with a piece of software or outsource XBRL to a vendor? Do-it-yourself tagging is a long, long (long) way from perfect. This is because the software on the market today is not mature. While many of the XBRL software packages possess a nice graphical user interface (GUI), a solid GUI does not equate to high-quality XBRL. As a matter of fact, the XBRL filings that possessed the highest number of errors in Q2 originated from issuers who attempted to tackle XBRL on their own.
The problem with the in-house approach to XBRL is twofold. As stated earlier, the XBRL software community is maturing and, in my opinion, still has a way to go. Secondly, while XBRL is a computer language that should be easily handled by a computer program, today high-quality XBRL requires a human mind to make determinations on best practice use of taxonomies (e.g., to extend or not to extend a line item) and the EDGAR Filer Manual and XBRL rules. It is no wonder that several software vendors have changed their model to consulting.
Therefore, my recommendation is to not attempt XBRL on your own at this time. And, if you do opt to purchase a piece of software and tag your XBRL filing, work with a partner like Business Wire to QA the tags and assure that the XBRL exhibits validate properly prior to SEC submission.
Question Two: We’ve opted to outsource XBRL to a vendor. What questions should we ask when selecting a partner? Selecting an XBRL partner is important; this is one project where I dare say you get what you pay for.
First, ask where and how the XBRL services are being performed. This includes initial mapping and tagging, creation of the XBRL exhibits; and for those issuers who outsource EDGAR, ask if the XBRL team is in the same location as the EDGAR operation. We are aware that in order to scale, many vendors are outsourcing work to myriad locations in myriad manners. I disagree with this approach wholeheartedly.
An issuer must maintain control when outsourcing. Outsourcing to a vendor who outsources stymies the process and adds unnecessary variables, variables that are not welcome when working with material, non-public information.
Furthermore, the corporate XBRL team must be engaged because nobody knows the nuances of its financials better. Therefore, when selecting a vendor you will want:
- First, the ability to speak with your taxonomist, who knows both U.S. GAAP accounting and XBRL , when you want;
- And second, the ability to update your EDGAR filing and associated XBRL exhibits seamlessly, down to the last minute.
In essence, you must find a vendor that becomes an extension of your financial reporting team.
Nobody wants to make last-minute Author’s Alterations to an EDGAR filing, but it happens, and if it does, make sure your vendor can handle the XBRL and EDGAR changes in real-time. At Business Wire we have our EDGAR and XBRL teams located in one secure office to ensure updates are made in real-time and there are no version control issues.
You must also ask prospective vendors about the knowledge level of their XBRL staff. Be sure to speak with the individuals who will make tagging decisions on your financial statements. Confirm that these taxonomists are knowledgeable and that you will be able to work with them in a collaborative manner, at your pace. For example, at Business Wire we only hire CPA-level staff on our XBRL team.
Lastly, here are several additional questions to ask prospective vendors: At what level do you validate (e.g., XML, XBRL, EDGAR Filer Manual)? How much does the entire process cost (e.g., beware of hidden fees)? What sort of XBRL experience do you have and is the vendor financially stable?
In conclusion, one could easily argue that I am biased on this particular subject. The frank answer is that I am. From my seat, I can see the issuers who have attempted XBRL on their own and the errors they have made, I can see the vendors who outsource XBRL to foreign partners, I can see the vendors that have turned XBRL into an assembly line, I see the challenges of detailed footnote tagging ahead and then look at the brilliant XBRL minds who sit alongside me at Business Wire and think: Who in their right mind would not want to outsource XBRL to a partner like Business Wire?