Public Companies, XBRL Service Providers Lobby for Deadline Extension

Summary: A provision of the SEC's XBRL rule making that analysts have been anticipating, the detailed tagging of footnotes, recently went into effect. The change has added to an already heavy workload for corporate controllers and their staffs as they try to meet the second-quarter regulatory filing deadline. At the moment, there doesn't appear to be any relief in sight.

Thomson Reuters Accounting and Compliance Alert
Written by Joe Radigan
7/12/2010
Volume 4, No. 132
ISSN 1935-9721

Financial Executives International recently told the SEC that its members will need an extra five days each quarter to meet the latest requirement in the interactive data filing rules—detailed tagging of financial statement footnotes.

The trade group wants the SEC to amend the footnote requirement in Release No. 33-9002, Interactive Data to Improve Financial Reporting, that will come into effect for second-quarter 2010 filings.

If the agency grants the request, companies would have five days to submit the tagged version of the footnotes to their quarterly and annual reports following the date the filings are submitted to the SEC's EDGAR system.

An SEC spokesman said the agency's policy is not to issue public responses to individual comment letters.

Because most public companies rely on third-party service providers to prepare their financial statements for submission to the SEC's EDGAR system, the more detailed tagging is likely to lead to "a bottleneck in the turnaround of [eXtensible Business Reporting Language] XBRL files on an ongoing basis at the end of each quarter," FEI's committee on corporate reporting wrote in a June 22 letter to the SEC.

Philip Moyer, president and CEO of EDGAR Online Inc. in Norwalk, CT, said his company has been swamped with 12,228 questions from the 100 clients for which it is preparing XBRL footnotes in the second quarter. In the first three months of the year, it received 700 questions on the same topic.

The increase in requests for time and assistance from the small circle of technology providers that help public companies prepare regulatory filings—including EDGAR Online, Bowne & Co., and R.R. Donnelley & Sons. Co.—is prompting them to add staff to meet the demand.

Some of the technology providers are reportedly preparing a letter to second the FEI request and grant companies an automatic grace period.

Without the grace period, companies have to request extensions for their XBRL filings from the SEC.

"Companies don’t want to do that because it makes them look bad," said Patrick Quinlan, CEO of Rivet Software in Denver, which is providing footnote tagging for 135 of the 420 large public companies covered in the first wave of the SEC's XBRL requirements.

Quinlan said any delay in the compliance date is only pushing back the inevitable.

"Companies are going to have to go through that pain whether they do it now or kick it down to the next quarter," he said.

In addition, given that the SEC last fall rejected the possibility of delaying the compliance dates for an earlier stage of its XBRL rules, Quinlan said there is little chance that regulators will agree to the FEI request.

For the first year of filings submitted in XBRL, footnotes only had to tagged as a block of text. But FEI said the extra work needed to tag the financial statements forced many of its members to delay their filings by one to three days. It expects the delays to worsen because of the footnote requirement.

At a recent meeting of FEI members, they discussed the challenge of relying on third-party suppliers to prepare their statements in XBRL.

The demands on the third-parties may lead to them being overwhelmed trying to meet the demand for their services, the trade group said.

"The SEC has a lot on its plate," said a corporate securities lawyer who works with public companies on their regulatory filings and asked not to be identified. "I'm not sure they will be that open to arguments for delay, particularly from the large, accelerated-filer group."

Large-accelerated filers have market caps of $5 billion.