This article has been updated to clarify issues surrounding the rule’s effective date.
The Securities and Exchange Commission is officially moving corporate regulatory filings into the Internet Age. This morning the SEC issued the final rule mandating that the 500 largest public companies start to file their financial results using the interactive data tagging language known as XBRL this year. XBRL tagging is said to make financial statements more searchable and comparable.
The effective date of the new rule is April 13, which means that most of the largest public issuers are required to file quarterly results using XBRL for fiscal periods ending on or after June 15. For example, for calendar year companies, the rule will first apply to Form 10-Qs dated June 30, 2009.
By 2010, all so-called accelerated filers, amounting to about 1,800 public companies, must comply with the new rule, and by 2011 all public companies must do so.
During their first year of filing, companies are required to use XBRL for the three primary financial statements — the income statement, the cash flow statement, and the balance sheet — as well as for footnotes to the statements, which can be presented in a “block” format. However, by the second year, footnotes must be formatted in a detailed manner.
Companies will have a bit of breathing room regarding their first submission. The SEC is allowing the first XBRL filing to be submitted 30 days after the traditional filing on the regulator’s EDGAR database system. But all subsequent financial results must be filed on EDGAR and with XBRL tagging at the same time.
From a global perspective, some observers believe the adoption of XBRL will help move companies toward international financial reporting standards. Indeed, many experts believe that the tagging language makes it easier for companies to migrate from local generally accepted accounting principles to IFRS. Both U.S. and international accounting rulemakers have been working since 2002 to converge local GAAPs with IFRS in an effort to produce one set of global standards. Anything seen as moving that effort forward is viewed as strenthening and adding transparency to financial reporting, in general.