The SEC will be checking for XBRL errors and notifying filers when their submissions have possible XBRL tagging issues. This was recently announced by the SEC as part of its release of the draft EDGAR Filer Manual (EDGAR Release 18.3), scheduled for release October 1, 2018.
What does it mean?
The SEC has become increasingly aware of errors in XBRL tagging and apparently it is starting to push back. Currently, EDGAR provides some rather simple XBRL related warnings. These warnings are very basic and factual. For example, it checks to determine if the period and year are accurate in the XBRL files. However, the new warnings expand the focus of XBRL validation. By providing error messages directly to the filer at the time of the test submission, it will raise awareness and will likely result in filers correcting the errors prior to live filing, consequently improving their data quality. Although the initial items that will be checked are very limited, I expect the number and significance of the items will grow in the not-too-distant future.
The XBRL US Data Quality Committee (DQC) has created a multitude of similar rules that check for XBRL errors. Because the DQC has had great success in reducing the number of errors in SEC filings, I expect the SEC is also anticipating reduced errors by bringing increased awareness to filers.
What errors will be checked by the SEC?
The SEC has included three error types that are proposed to be checked, according to its draft EDGAR Filer Manual. Violations of those errors will be communicated by an EDGAR warning, not a suspension of the filing. The new XBRL errors that will be checked include:
- are certain US-GAAP and IFRS numeric reporting items tagged incorrectly as negative?
- does the filing use deprecated tags in the submission?
- does the filing contain custom axis tags for purposes already served by certain existing standard taxonomy axes?
For the testing of incorrect negative values, the SEC will check for three US GAAP tags and five IFRS tags. That’s not a lot. But it is a start.
For the testing of deprecated tags (which are tags that remain in the taxonomy but are no longer applicable for use), this is a logical and clear-cut check. Filers simply shouldn’t have deprecated tags in a filing.
For the testing of custom axis tags, the draft EDGAR Filer Manual mentions that filers should use the “Products or Services” axis which is in the standard taxonomy, as opposed to creating a custom axis for Product “Line” or Product “Category” or Product “Type”. The SEC won’t be able to do an automated check to see if every custom axis tag is incorrect, but it appears there are certain custom axis tags that, when used, will be flagged.
Unnecessary custom axis tags have created problems for users of the data, so the SEC has previously communicated this problem in hopes of reducing these errors. The SEC has now taken this to the next level by creating an error message which is sent directly to the filer that is in violation.
What should filers do now?
SEC filers should be aware of the increasing use of XBRL and the SEC’s heightened focus on XBRL quality. A registrant’s legal liability for the XBRL-tagged financials is the same as the traditional paper-based financials. As such, each format should receive the same level of importance from the filer, something that hasn’t always been the case.
To detect those errors that can be caught by automated rules, every filer should run an SEC test filing and the most updated version of the DQC rules prior to submitting XBRL files. The DQC rules detect problems with incorrect negative values, deprecated elements, improper axis/member combinations and many more types of errors designed to help filers ensure quality XBRL data.
For those errors that can’t be detected by automation, make sure that your internal or external XBRL team includes individuals that are extremely knowledgeable about the SEC rules, the applicable taxonomy, the XBRL language, the DQC rules, and the accounting disclosures. Individuals on Merrill Corporation’s XBRL team have this unique mix of skills and can help your financial reporting team with the complexities that arise.
Proper XBRL – file with confidence
The SEC is aware of XBRL errors and is pushing back on quality, so take precautions to make sure your XBRL is correct. For expert assistance contact Merrill…because every filer should be confident that the tagged-data submitted to the SEC is providing the same information as the disclosures in the traditional financial statements.