XBRL mandate will challenge IROs

Dec 18, 2008

‘Companies have to be prepared for that,’ lawyer says

The timing of the SEC’s decision to make XBRL reporting mandatory is appropriate given that the US GAAP taxonomy and vendor filing solutions are in place. Yesterday’s ruling set off a flurry of press releases from advisers noting their ability to help companies make the transition, but it will still be a lot for IROs to take in.

Vendors say it takes from 80 to 240 hours to map, review and submit initial XBRL filings, and IROs, financial controllers and legal counsel are expected to be key players in the process.

While the details of conversion are one thing, it is the next step, when the information is received by the public, that may be the most concerning. That is because the speed at which investors will soon be able to analyze XBRL-powered data will put entirely new demands on financial reporting teams. ‘Analysts will be looking at the data in different ways and at a more granular level,’ says Michael Littenberg, a securities law and capital markets partner at Schulte Roth & Zabel. ‘Companies have to be prepared for that.’

At the last XBRL International conference in Washington, DC in October, analysts boasted about how they’d be able to find variances and discrepancies in reported data immediately. ‘IR professionals need to get their heads around how it is the investment community will be using interactive data and the questions it will lead to,’ Littenberg adds.

Since XBRL data facilitates cross-company analysis, Littenberg suggests that IROs give serious thought to how their companies sit in their peer group and what metrics they might be judged on.

The SEC mandate is likely to mark a rapid phase in XBRL development. ‘You may see a lot of mid-size companies accelerate compliance, especially if analysts are asking for it,’ Littenberg says.

By Anna Snider