I have been warning that Detailed Tagging under the SEC program (also known as “Level 4 tagging”) will be significantly more burdensome for reporting companies. I have gone so far as to ask if this will be the “new SOX” in effort. Now a number of vendors are beginning to echo that concern, although none of them will use the “new SOX” expression. the SEC says they are watching closely, and looking for “best practices”.
Is this scare-mongering by vendors, or is it a real problem?
What some vendors are saying
After all, many vendors today are selling both solutions and consulting services to help clients create SEC-ready XBRL. If creation of XBRL is as easy as the XBRL community has claimed, then there is only a limited scope for such consulting support.
One example comes from Clarity Systems who are holding a webcast titled “SEC XBRL Mandate Part II – Be Afraid, Be Very Afraid” (February 24. Register here). In the advance materials, Clarity uses two quotes estimating between 2500 and over 5000 elements being used.
Another example comes from the BusinessWire webinar last week, when they said that the average first time filing uses approximately 150 elements, and they expect the detailed tagged filing to require an additional 2000 elements. This number shocked me. I was particularly impressed by the BusinessWire webcast. It was an “introductory” webcast that made sure the participants got to see XBRL in all its angle-bracket glory, and made sure that everyone heard just how difficult and complex XBRL really is.
I’ve written before that I do not believe the numbers that have been given by the XBRL “experts”. I believe those numbers reflect a gross underestimation of the actual effort involved.
Of course, an alternative (conspiracy) theory is that the vendors are playing up just how complex and difficult this will be specifically to convince companies that they should outsource the process. While part of me believes that, part of me does not. But when you see vendors talk about the complexity of calculation linkbases, arcroles and dimensions, and telling people just how terribly complex XBRL is, I had to wonder if that wasn’t just great marketing. Scare the *stuffing* out of the filers so that they outsource.
Listening to vendors would be enough to convince anyone that this is going to be – difficult.
What the SEC is saying
But listening to the SEC and you hear a different story. I asked David Blaszkowsky, Director of the SEC Office of Interactive Data (IOD, or “XBRL” to the rest of us) if he thought that the SEC’s estimates were too optimistic. He was quite candid – the experience of the voluntary filers gave the SEC a very good idea of what to expect in terms of workload for tagging of face financial. He acknowledged that detailed tagging was a bit of an unknown, and added (*) “I can say that we already know some companies that have created detailed tagged versions of their filings. Obviously we are watching carefully and looking for best practices and successes.”
The AICPA/SEC webcast took a careful and balanced look at detailed tagging. They gave a careful explanation of detailed tagging, and showed real examples of deconstructing a footnote, identifying the information that would need to be tagged, and talking through the process of identifying appropriate elements. It all seemed so reasonable. Then I remembered that the presenters have been intimately involved with XBRL for many years. And years in XBRL are like “dog-years” to the rest of the world.
So the people presenting for the SEC, as reasonable and knowledgeable as they are, also have a half decade head start on all the filers that they trying to calm.
Predictions anyone?
There is a very good chance that detailed tagging of financial statements could be a real nightmare. I predicted that only the first wave of filers would actually be performing detailed tagging, and that the actual effort may lead to a SOX-like deferment for smaller filers. If detailed tagging does represent the level of effort that we’re hearing, the howls of pain from filers will sound a little like SOX. And this is not an economy in which significant addtional effort for reporting will be welcomed.
If it goes smoothly, this might end up as a non-issue. But that’s not a bet I’d be willing to take.
(*) I promised David Blaszkowsky that I would include his official disclaimer: “As a matter of policy, the Securities and Exchange Commission disclaims responsibility for the private statements of SEC employees. The views I am expressing today are solely my own, and do not reflect the views of the Commission, the Commissioners, or of any employees other than myself.”
