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A View from the SEC Staff on XBRL Compliance (Part 2)

Merrill Disclosure Solutions | December 19, 2014

An interview with Scott Bauguess, SEC Division of Economic and Risk Analysis, and Matthew Slavin,SEC Office of Structured Disclosure

During 2014, the SEC Division of Corporation Finance called attention to omitted calculation relationships in XBRL-tagged financial statements by issuing a sample public comment letter (the “Dear CFO” letter), and SEC staff released another set of observations on custom-tag rates. For insights into these SEC actions and other recent XBRL developments, Dimensions spoke by telephone with Scott Bauguess, the deputy director and deputy chief economist in the SEC Division of Economic and Risk Analysis (DERA), and Matthew Slavin, the IT Program Manager in the Office of Structured Disclosure. Dr. Bauguess served as DERA's acting co-director and chief economist over the summer, before Mark J. Flannery started as the division's new director and chief economist in September 2014.

Part 1 of this interview appeared in the October 2014 issue of Dimensions

How does DERA work with the Division of Corporation Finance on XBRL matters?

Mr. Bauguess: We're primarily a support organization, so we do not have a lot of outward-facing activities. The Division of Corporation Finance is one of our big customers. We are constantly in dialogue with the Division of Corporation Finance, supporting them on these types of issues. We were big consultants on their “Dear CFO” letter [on calculation relationships]. We helped them do the analysis and identify the companies. We walked through what the calculation errors were and how they were manifested.

Mr. Slavin: And in [CorpFin's] use of XBRL data as well.

Mr. Baugess:
Right. We are a consumer of the XBRL data and give feedback to [CorpFin] with analysis.

Mr. Slavin:
Occasionally, we get requests for information that we are able to pull directly from our database of XBRL submissions and provide staff in different divisions with information that they need to help them perform analyses. We interface with them through the Accounting Quality Model as well. That does include some XBRL data - we primarily use data from commercial sources, but we use some XBRL data. We plan to continue expanding the use of XBRL data.

There has been some talk about a viewer that would let users see data from XBRL filings right on the SEC's
website. Is that happening?

Mr. Slavin:
We are currently building an inline XBRL prototype. We are assessing how that might improve the experience here at the SEC. It is a viewer that allows you to see the metadata - the XBRL within the HTML. We are starting to see real potential benefits in making it easier to review the XBRL and to use it.

Is there a timeline for making inline XBRL an optional filing format?

Mr. Bauguess:
That's a Commission decision. Our role is to work on the technology and let the Commission know when it's ready and available, and then the Commission decides how to act on it. But certainly this has been something that from the beginning, as far back as 2009, we have wanted to put into the marketplace.

You mentioned the Accounting Quality Model, or AQM. Are there any other examples of ways in which XBRL data is being used internally by SEC staff?

Mr. Bauguess:
One of the powers of XBRL is its real-time nature. We do consume a lot of third-party information, which is very important to our function here, but one of the nice aspects of XBRL is that we can incorporate it in real time. We feed XBRL data directly into our models and risk assessment programs in real time, which we cannot do with data from third party subscription services. Using XBRL data is one of our big pushes for the future.

Mr. Slavin:
XBRL tagging is also required around text information, andthere is a lot of potential and interest in leveraging that text information for analytics. I do not think we have any other examples that we have spoken about publicly. There were requests for information on pensions and post-retirement-benefit obligations, and that has been spoken about publicly. That is an example of the sort of information we can provide analysis on.

Mr. Bauguess:
We frequently respond to inquiries from Capitol Hill asking about our registrant space. Because XBRL data covers the entire spectrum and not just the two-thirds that vendors have historically covered, we are able to respond much more completely about how legislation may affect the filer population. That is something new over the past couple of years, since XBRL was phased in completely.

What is your response to a CFO who wonders whether the benefits of implementing XBRL justify the time and expense?

Mr. Bauguess:
When CFOs do not see why XBRL data is useful, it is because they do not see the process by which the data travels. Ultimately, [the data] makes it back to the data vendors. One way you can see it is being used is in the increasing number of companies being covered by vendors, as it is now easier for vendors to process data. Before XBRL, it was very expensive to have filings manually keyed into a database. It would take on average about 24 days for a filing to be made available in electronic form. Now that has been reduced to a very short time, and the number of companies being covered has grown. It is now cheaper to cover small companies than it was before because you can start with the XBRL data and add value and enhancements to that.

Mr. Slavin:
The scope of the information now being provided was not previously available: the detailed information in the notes and the text information. I think the richness of the metadata within XBRL has not been fully tapped yet. There is still a lot more to come. As we look at the data, we find new ways to use it - and new possibilities as well.

Mr. Bauguess:
This is an infrastructure project to provide information that can be used more broadly in databases and made more accessible. That information finds its way into hundreds of products
offered by commercial vendors where nobody sees where it came from. These vendors use all sources of information to provide their content, and XBRL is the lowest-cost way of accessing that information. XBRL is often behind the scenes.

Mr. Slavin:
Part of the slowness in the adoption of XBRL has been because it is “as-reported data.” It needs to go through a type of normalization and mapping process before it can be more easily compared. At the same time, just having this data from filers in an as-reported state is something new and offers a lot of possibilities. We are now only just starting to get enough of this data to perform some of the analyses that we would like.

Mr. Bauguess, you have been with the SEC since the development of XBRL and the start of the XBRL mandate. What has turned out differently than you expected at the beginning of the phase-in period?

Mr. Bauguess:
I was actually the lead economist who did the economic analysis for the proposing release in 2008 and for the adopting release in 2009, so I have seen the XBRL mandate from its inception. One of the surprising things that I have seen, at least recently, is the amount of innovation that has taken place in this market, the number of vendors that have participated in this space, and how much time it took for that to develop. I think I would have predicted that it would have been faster, with fewer market participants, but in actuality we have seen upwards of 30 vendors and service-providers in this space and huge shifts in market share amongst those vendors over the past five years. It is very encouraging and exciting to see so much activity, and that is also why I think we have seen some growing pains. The market is still learning how to adjust to the new requirements.

Does the SEC have plans to promote the consumption of XBRL data by users?

Mr. Bauguess:
We get that question a lot. One of our primary functions is to produce the information for the marketplace. There are many great venues where that data is then processed and provided to investors. They add value and content to it, whether it is a fee-based service or a free service such as Google or Yahoo. Our focus has always been trying to get the data out for the market to use, as opposed to adding value or content to it in the way third parties would.

Mr. Slavin, you moved from being an XBRL consultant to working at the SEC. When you joined the SEC, were there aspects of its approach and attitude towards XBRL that differed from your expectations?

Mr. Slavin:
Certainly, it was an adjustment to come to a regulatory environment, which is very different from the environment where I had been. I had to learn a lot about government processes and how rules get made. What I found was that there are a lot of people really devoted to XBRL and structured data. I was very happy to see this interest and to be able to leverage that interest for analysis, which is one of the reasons why I came here. There are many good, smart folks who are looking for new ways to leverage structured data for analysis, and I think there is an appetite for structured data that may not have been there previously in the Commission. There is a lot more data available, and there is a lot more interest in it.

Were you surprised by the quality of XBRL filings and the errors being made?

Mr. Slavin:
No. In my prior position, I did a lot of analysis of XBRL exhibits. Nothing really new surprised me on that front when I moved to the SEC. I am excited about our continuing to provide good information about XBRL topics and [about] tools to leverage the data. As we start to use the data more, we do realize that there are areas where we need to focus more heavily on quality, perhaps, but in using the data we also find more possibilities for more in-depth analysis. I think the biggest surprise for me was the possibilities of using text information for analytics.

Any final messages about XBRL for companies, lawyers, analysts, and investors?

Mr. Bauguess
: We think about XBRL a lot. We are focused on the issues. We are cognizant of the problems and also the successes. We want to walk the middle road quietly to make progress without tipping to one side or the other.

Mr. Slavin:
It is important to take XBRL very seriously. The data is being used, and it does represent the company's information. It is important to review it and to understand what is being tagged. It is not just for our validation. This data is being used and will be increasingly used, so quality is important.

For additional insights into the SEC's new priorities related to XBRL, see the speech by Dr. Flannery at the Data Transparency Coalition's Fall Policy Conference, in which he states: “DERA staff will continue to address the quality of XBRL submissions by periodically analyzing their content for accuracy and completeness. And where appropriate, DERA staff will work closely with the Division of Corporation Finance to provide guidance to filers based on these observations. This effort will occur through DERA's Office of Structured Disclosure - the newly renamed successor office to the Office of Risk Assessment and Interactive Data.”

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