Peer Review: An Internal Control for the XBRL SEC Tagging Mandate
Brands, Kristine, Strategic Finance
In 2009, the U.S. Securities & Exchange Commission (SEC) issued a mandate requiring that U.S. public companies submit their 10-K, 10-Q, and 8-K filings using eXtensible Business Reporting Language (XBRL). The final of the three phases of this mandate became effective for smaller filers with year-ends after June 15, 2011--approximately 5,000 companies. Now all U.S. public companies are required to use the U.S. Generally Accepted Accounting Principles (GAAP) Financial Reporting Taxonomy (UGT) to meet this requirement. Compliance requires tagging these financial filings with XBRL tags for each account (element) on a company's financial statements. The requirement also applies to footnote disclosures.
The mandate has provided more transparency in corporate reporting but at a cost to the companies trying to map their accounts to XBRL while trying to achieve full financial disclosure. Some of the problems the SEC identified were the creation of extension elements when existing elements existed, using the wrong element, and the need to add an extension element because an element necessary for disclosure didn't exist. For example, in 2009, United Airlines needed to disclose high fuel costs, but the UGT didn't have a term for it. To satisfy the disclosure, the company needed to add an extension for fuel costs. In response to the weaknesses of the 2009 UGT, the Financial Accounting Foundation (FAF), parent of the Financial Accounting Standards Board (FASB), released the 2011 UGT in February 2011. It includes more than 4,000 changes to address accounting standards changes and 1,900 new elements, which increases the number of elements to more than 15,000. While the improvements to the UGT will help U.S. filers improve the quality of their filings, the scope of this requirement continues to challenge those working to accurately map their accounts to XBRL. Some filers, such as Microsoft, have adopted XBRL peer review to help them make informed tagging choices. Let's take a look at how Microsoft uses the peer review process and Rivet Pivot software to do this.
Companies are beginning to perform a review of their industry peers to compare tagging choices in their XBRL filings. This simply means comparing a company's financial statement tagging elements to those selected by the company's industry peers as well as all filers. Microsoft has taken the lead in peer review and uses a report designed by Rivet Software, Rivet Pivot, to automate this process. Because SEC financial filings are public records, all that a company needs to do is choose the peer company filings and dates and download them from the SEC website.
According to Paige Hamack, Microsoft's SEC Reporting Group accounting manager: "An integral part of our XBRL reporting process at Microsoft is a quarterly analysis of the XBRL tags used by an alternating group of peer companies. …