The U.S. Securities and Exchange Commission (SEC) requires public companies to submit financial statements in eXtensible Business Reporting Language (XBRL) format. This standard facilitates the analysis of financial data by making it more accessible and structured. Companies must comply with these requirements to ensure that their financial filings are properly formatted, accurate, and easy for analysts, investors, and regulators to access and review.
Step 1: Understand Your Reporting Requirements
Before preparing the filing, familiarize yourself with what XBRL is and how the SEC mandates its use. XBRL is a standardized, computer-readable format for financial reporting. It allows companies to tag individual data items in their financial statements, such as assets, liabilities, revenues, and expenses, with machine-readable codes.
In the U.S., the SEC requires certain financial statements (such as the balance sheet, income statement, cash flow statement, and statement of stockholders’ equity) to be filed in XBRL format alongside traditional filings (such as in HTML or text-based formats). Specific rules and instructions for XBRL filing can be found on the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system website.
Step 2: Retrieve the Right XBRL Taxonomy
Taxonomies define the specific elements that can be used in your filing. You need to ensure you’re using the correct taxonomy that corresponds to your financial statements. For example:
- U.S. GAAP Taxonomy for U.S. companies.
- IFRS Taxonomy for international financial reporting.
Step 3: Gather Financial Data
The next step is to prepare your financial data, which needs to be converted into XBRL format. This typically involves gathering information from various financial statements such as balance sheets, income statements, cash flow statements, and equity statements. Follow these steps while preparing:
- Collect Data: Ensure all relevant financial information is collected from various sources.
- Organize Information: Structure your data in a way that aligns with the XBRL taxonomy you’re utilizing and provides the framework for which data points and relationships are defined.
Step 4: Select XBRL Software
Choosing the appropriate XBRL software is essential for effective filing. There are several software solutions available, ranging from standalone applications to integrated accounting software that includes XBRL capabilities. When selecting software, consider the following features:
- User-Friendly Interface: Choose software that is easy to navigate to reduce the learning curve for your team.
- Data Validation: Look for software with built-in validation checks to ensure your XBRL reports comply with the relevant taxonomy.
- Customization Options: The ability to customize XBRL tags to fit your unique reporting needs is also essential.
When choosing between a full-service provider and a software solution for XBRL filing, the primary differences lie in the level of control, expertise required, and costs associated with each approach.
- Full-service providers, like Colonial Filings, are recommended. Why?
- They require minimal involvement and knowledge of XBRL.
- Pay lower fees than you would using DIY software.
- Peace of mind that the filings are handled by professionals.
- A software solution is recommended if you have or want to build internal expertise, prefer more control over the process, and okay with paying quite a bit more money.
Creating Your XBRL Filing
Creating an XBRL filing for the SEC is critical for public companies to report their financial information in a structured, machine-readable format. The SEC mandates that financial statements, such as balance sheets and income statements, be submitted in XBRL. This process involves gathering accurate financial data, selecting the appropriate taxonomy, tagging the data, validating the filing, and submitting it through the SEC’s EDGAR system.
Step 5: Tag Your Financial Data
With your XBRL software, you can start tagging the financial data in accordance with the selected taxonomy. This step typically involves:
- Data Input: Input your organized financial data into the XBRL software.
- Generate Output: Use the software to generate an XBRL report, which is usually an XML file adhering to the XBRL specification.
Step 6: Validate Your Filing
Validation is a vital step in the XBRL filing process. Ensure your generated XBRL document is accurate and compliant with the regulatory requirements. Here’s how to validate your XBRL report:
- Automatic Validation: Use the validation features within your XBRL software to catch any errors.
- Review by Team: Have your finance team or a designated reviewer check the report for accuracy, focusing on amounts, formatting, and completeness.
Step 7: Create the XBRL Document
Once validation is complete, generate the XBRL instance document and presentation linkbase. This document contains all the tagged data and follows the required schema.
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Submitting Your XBRL Filing
Submitting an XBRL filing to the SEC requires companies to submit forms in iXBRL or in-line XBRL formats which are based on XML. These formats require validation of financial data and calculations to ensure valid live filing.
Step 8: Review Submission Guidelines
Each regulatory body has specific submission guidelines. Check for requirements related to:
- File format (e.g., .xbrl, .xml)
- Filing method (e.g., online submissions, electronic filings)
- Submission deadlines
Step 9: Submit the Filing
Once validation is complete, it’s time to submit your XBRL filing. The submission method will generally depend on the regulatory body’s requirements:
- e-Submission: Most regulatory bodies facilitate electronic submissions. Refer to their online guidelines for uploading your XBRL file.
- Confirmation Receipt: After submission, ensure you receive a confirmation of receipt. This is important for your records and compliance verification.
Post-Filing Procedures
After submitting an XBRL to the SEC, companies must follow key post-filing procedures to ensure compliance. Additionally, companies must keep their financial data and taxonomies updated for future filings, ensuring that ongoing compliance with XBRL requirements is maintained for quarterly and annual reports.
Step 10: Maintain Records
Following the initial filing, maintaining accurate records and staying informed of any changes in XBRL regulations is essential. Consider the following maintenance strategies:
- Web-posting Requirement: Companies that file in iXBRL do not need to post the XBRL files on their website as was previously required for regular XBRL filings prior to the SEC’s change of rule on September 17, 2018.
- Keep Documentation Updated: Regularly update financial statements and records to reflect current data and processes.
- Track Regulatory Changes: Stay informed of changes in financial reporting standards and XBRL taxonomy updates to ensure ongoing compliance.
Step 11: Address Feedback or Comments
If the SEC provides comments or requests further information, we recommend addressing it promptly. This could involve resubmitting the XBRL filing or providing additional clarification regarding your financial statements.
