Setting the scene: What is XBRL, where is it used and why are these changes so important for you?

By Mike Willis, Assistant Director, Office of Structured Disclosures, Division of Economic and Risk Analysis, U.S. Securities & Exchange Commission

Disclaimer: The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed today are those of the author, and do not necessarily reflect the views of the Commission or the other members of the staff of the Commission.

What have attendees learnt from your session?

Filers learnt about compliance requirements, but more importantly, they learnt about a range of benefits enabled by standardization of the formatting of disclosures. These benefits are less about information ‘comparability’ and more about enhancing specific reporting process and controls while improving stakeholder communications. Investors, analysts and filers may also learn about incremental insights (and risks) available within the machine-readable standardized disclosure reports and what they can do to more effectively assess them.

What is Inline XBRL? Why is it so important to ensure these changes are implemented?

Current paper and electronic disclosure formats such as ASCI, html, PDF do not fully enable machines to understand all of the individual disclosures contained within a report. These unstructured formats (the digital equivalent of a stone tablet) result in significant manual processes and controls by filers and investors/analysts alike. The inherent opacity of these unstructured reporting formats creates a supply chain-processing environment where significant resources are required to both produce and consume disclosures creating somewhat of an un-level consumption playing field where capital formation insights may be more available to those with the most resources.

Filers looking to streamline reporting processes such as report validations, disclosure checklists, comparative analysis, benchmarking across peers and best-practice disclosures may find that these largely manual processes can be significantly automated potentially enhancing cost, time and quality. Investors and analysts looking for disclosure insights may find lower cost access to exponentially more information within company reports potentially enhancing their analytical costs and scope of coverage.

Inline XBRL is a freely available and open international information format useful in digitizing and standardizing business information. As such, it enables a migration from paper and electronic paper formats to the more machine-readable standardized structured format that democratizes disclosure access and enables quality improvements. Inline XBRL provides context, definition, and other relevant data for each disclosure thereby enabling significantly more automated processing of the disclosures – for both filers and their stakeholders.

What impacts does Inline XBRL have on reporting on both sides of the Atlantic?

In general, machine-readable standardized structured formats such as Inline XBRL dramatically increase the accessibility, reusability, timeliness and quality of disclosures. Processes and controls that used to take a month, week, day or an hour may now take only a few seconds.

Here are a few enhancements that filers, investors and analysts may now expect within Inline XBRL viewers (some of which are included within the viewer that is publicly available on the SEC website) and/or may be available via vendor solutions leveraging the Inline XBRL format:

• Report filters– enables mouse click identification of a range of common data quality error types and other relevant views such as a dynamic index of block text tagged disclosures.
• Disclosure checklist – enables the identification of missing, incomplete, or inconsistent disclosures with a mouse click. In the past, the disclosure checklist process was a manual staff process control whereas with disclosures structured in a common machine-readable manner – topical queries (rather than only words) are possible.
• Business Rules – highlights disclosures that may be ‘exceptions’ to a range of business, risk, compliance and data quality rules.
• Red lining changes – identifies changes of reported disclosures (both narrative and numeric) between different period reports.
• Time Series Charting – for numeric values in the report. Click on a value and up pops a time series chart directly on top of the report. Sort of an augmented reality viewer for report analysis.
• Time Series Charting Benchmarking – for numeric values in the report compared with other registrant disclosures

These are some of the currently available benefits and market participants may expect more to come.

Can you provide some examples of how the machine-readable structured disclosures are used within the SEC?

There are a number of ways that machine-readable disclosures are enhancing staff capabilities; here are a few:

• Compliance assessments – the machine-readable tags in taxonomies are referenced to the respective accounting standards enabling more effective identification of missing, incomplete, and/or inconsistent disclosures.
• Data Quality – relatively immediate assessments on data quality errors – and those are often included in the filer review and comment process.
• AI/Machine learning – enables monitoring of tonality trends – comparing tonality of narrative disclosures vs related numeric disclosures for trending inconsistencies as a signal for closer review.
• Economic and market analysis – Aggregated data is very useful – changes in cash, or effective tax rates, or geographic trends are useful for general and ad-hoc economic and market analysis.

Filers may also be interested to know that the machine-readable data sets are publicly available on the SEC website. The Financial Statements and Notes Data Sets (which are among the most heavily downloaded content on the entire SEC.gov site) are updated quarterly on the public SEC website.

What data quality issues should filers be most aware of and what do you suggest filers do to address these?

Here are a few common data quality topics where filers may want to pay close attention:

• Inappropriate extensions –Filers should pay very close attention to the appropriateness of custom extensions or company specific tags. We still see company specific extensions for PP&E, Cash and other disclosures where we should not because those items have standard tags in the taxonomy and a company specific tag is unnecessary..
• Inappropriate negative values – filers should review the signs for structured numeric disclosures. For most numeric values, the natural sign is positive and a negative value may change the intended meaning. For example, a ‘contingent liability’ associated with a negative value would be inappropriate.
• Inappropriate scaling – filers should review the scaling associated with numeric values. For example, a numeric disclosure measured in billions scaled in millions (or vice versa) would be a material data quality error. Inappropriate tag selection – filers should closely review the taxonomy element associated with a specific disclosure (e.g. the taxonomy element used to tag the disclosure). For example, a revenue tagged with the pension plan discount rate element would be an inappropriate tag selection.
• Missing or No tagging – filers should ensure that disclosures required to be structured include appropriate tagging and are not unstructured. Missing tags may raise the question in the analyst mind if the filer has generally adequate reporting processes and controls.

Filers can and should consider the following:

• Ensure that your reporting processes and controls adequately include data quality considerations.
• Apply the freely available open source XBRL US Data Quality rules for both US GAAP and IFRS GAAP taxonomy reports.
• Closely assessing the common data quality error types within the report before submission, specifically, monitoring current and prospective changes to company specific extensions.
• Benchmarking extensions to monitor what others might be doing and apply your own judgment to your company disclosures.
• Pay attention to EDGAR warning messages and correcting for identified quality items.

What do you see ahead for the future of digital financial reporting?

Overall, migrating the disclosure supply chain from electronic paper toward more machine-readable structured standardized disclosures provides more useable and granular disclosures for the public, investors, filers, academics and analysts.

Enabling investors with free access and immediate reuse of 100% of ALL structured disclosures (narrative and numeric) in a matter of seconds after submission is an enhancement for all supply chain participants. This democratization of registrant disclosures is a useful enhancement step towards more effective capital formation. Like most things, we have some improvement opportunities and filers have significant opportunities to realize communication and process benefits.

The future of digital reporting will clearly be ‘better off’ than today as filers, their investors and others work to further standardized the disclosure supply chain in order to more fully realize the benefits and opportunities and address data quality problems.

One perception that may influence the future of digital reporting is the contextual orientation for this topic – which many filers may perceive as a regulatory compliance requirement (which it is); however, it is also a supply chain effort and clear benefits from such a standardization activity include lower costs, higher quality and enhanced consumer interactivity.