Seven Tips for your First Filing of Detailed Footnotes in XBRL

Wednesday, September 21, 2011 Print Email

As organizations have completed their year-one SEC requirement with block note tagging in XBRL, they are preparing for the next major milestone: filing their detailed footnotes (DFN) in XBRL. Normally, a DFN filing is about two to five times the size of a block note filing with significantly more custom fundamentals. This causes increased complexity and time to be spent in the process of preparing, reviewing, and finalizing the XBRL for concurrent filing with the EDGAR filing. It is possible that many organizations may have completed adjustments to their financial reporting and approval processes while they implemented the first phases of the XBRL filing requirement. Even so, it’s still necessary to review the timeline due to the increased size and complexity of the submission.

To complete the first DFN filing successfully, organizations should consider the following guidelines:

1. The XBRL processes and HTML production differ significantly. The most significant shift in regulatory financial reporting since the implementation of EDGAR is XBRL. Organizations can complete the validating of financial statements and the references to specific pieces of data with HTML EDGAR filings. As with XBRL, the structure of the filing and available validation software enables automated review for completeness, accuracy and consistency. This leads to improved data quality, which impels efficiencies in the creation and use of the information, specifically as the technology behind XBRL is more widely adopted by organizations, financial analysts and investors.

2. Your financial filing service provider is a necessity. Each organization needs towork with its SEC XBRL financial filing service provider to recognize the disparities between tagging of primary financial statements and detailed footnotes. The number of concepts for a detailed footnote filing is on average two to five times the number of concepts in your primary financials for the same type of filing (10-Q or 10-K). Footnotes also introduce a level of complexity to the XBRL preparation and review process. In addition to the increase in the number of concepts, footnotes introduce another level of review to ensure that concepts that appear in multiple footnotes and the primary financial statements are represented exactly the same everywhere that they appear.

3. Clearly state relationships between footnotes and primary financials. Understand the relationship of the data in your footnotes as it relates to the data in your primary financials. The same concept needs to be mapped to the matching XBRL tag and definition everywhere it occurs in your filing; the values must be represented exactly the same way. Many organizations will round out their numbers in a footnote when referring to an actual value from the primary financial statement. A human being can make the connection between small disparities and understand how to interpret the footnote. However, XBRL is a language for computers, and they do not interpret intentions.

4. Leverage an in-house XBRL expert. Establish a base of in-house expertise that can provide internal oversight and support as well as better enable review and approval of XBRL tags. Identify a contact person who can receive additional training and work with your SEC XBRL financial filing service provider on preparing a filing schedule that takes into account the complexity and additional review time required for the detailed footnote processing.

5. Assess the role of your external auditors in the filing process. Determine what role your external auditors will play in the SEC XBRL financial filing process. If they will review the DFN prior to filing, be sure to factor that time into your filing schedule. Evaluate what level of expertise the firm has with XBRL, and more importantly, the level of experience your specific audit team has with XBRL.

6. Learn from other organizations. If your organization has not had to file detailed footnotes in XBRL until this year, then you have the chance to learn from all of the organizations that went ahead of you during the past year.

7. Prepare internal stakeholders for the DFN process with a communication plan. The internal communication plan gives your key constituents an idea about the differences in processes and timelines for detailed footnote XBRL filings. Your accounting and financial reporting staffs, chief financial officer, CEO, legal counsel and board of directors, especially the audit committee, should receive this information. Last-minute changes to footnotes are generally not quick, easy or without risk of missing the desired filing date. While the realities of business are that there are always circumstances that require last-minute review and approval, preparing the organization for the consequences and work effort involved can only help.

Final guidance for first-time filers

Organizations of all sizes are working to determine how to meet the SEC’s XBRL filing requirements. As for the DFN filing and other requirements, businesses are assessing the value of bringing in outside expertise or developing that knowledge on staff. For each organization, the optimal scenario will differ, as there is no one-size-fits-all approach to filing in XBRL. Instead, imagine a sliding scale with “insource” on one end and “outsource” on the other as well as varying mixtures in between. Some organizations will fall to one side while others will fall somewhere in the middle.

The early efforts of this new requirement are the most challenging as filers learn the process, challenges and best practices involved. When it comes to the detailed footnote requirements of XBRL filing, having sufficient, up-front knowledge and preparation can make a considerable difference in attaining a successful filing.

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