There are few topics that make my eyes glaze over more quickly than anything related to XBRL. But in a recent FEI article, former SEC Chief Accountant Wes Bricker says that companies and audit committees need to pay closer attention to the quality of their efforts to comply with XBRL tagging requirements:
While more regulators have been requiring XBRL in recent years, its use hasn’t been without challenges: for instance, errors, inconsistent tagging of the same information across companies or mis-tagging tags are ongoing issues. And there are even technology companies that have emerged over the past few years that mine XBRL-public filings, remedy the problematic data and then sell the corrected data back to those that use XBRL data (including back to companies themselves).
While any errors in financial reporting or other processes is cause for concern across the market because of its corrosive impact on confidence over time, with XBRL errors there’s also a potential corrosive effect for individual companies, such as potential negative impacts to stock price, credit ratings, and even reputation.
The article notes that errors are difficult to scrub from the Internet, even following a corrective amendment – and the consequences can be significant. Reporting errors caused by XBRL issues could pose reputational risks, which can be compounded if tagging inaccuracies are overlooked and carried forward into future periods. Faulty XBRL data also could bring about errors in rating agencies’ models – which in a worst case scenario could result in a lower credit rating and higher borrowing costs.
Despite these stakes, the XBRL tagging error rate is high. According to a Toppan Merrill blog discussing the article, 34% of September 10-K & 10-Q filings reportedly contained tagging errors. That blog also points filers to the US XBRL Data Quality Committee’s website, which provides a free service permitting companies to check their filings.
Wes Bricker’s article recommends actions that companies and audit committees should take to enhance the XBRL process, including enhanced education and training of staff in corporate accounting, finance, treasury, and investor relations. The article didn’t mention the need to loop in the legal department or outside counsel – which is good, because my eyes glazed over about three paragraphs ago. But as Liz blogged last month, if SEC commissioner Allison Herron Lee gets her way, we all may have to force ourselves to pay closer attention to XBRL tagging issues.
-John Jenkins, TheCorporateCounsel.net January 15, 2021
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