XBRL: common dangers

With thousands more companies to be included in the SEC's XBRL mandate, we look at some of the common pitfalls of XBRL tagging and how to avoid them

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While XBRL may be old hat for some of the largest companies in the US, many of which have been using the electronic tagging system for some time, June 15 will see another 1,200 companies fall under the SEC’s XBRL mandate. These companies will be required to submit periodic financial filings and registration statements with XBRL-tagged data.

Affected firms may want to get their hands on a new report from XBRL US entitled ‘Avoiding common errors in XBRL creation’. The study examines 1,400 XBRL filings submitted since June 2009 and uncovers more than 5,000 mistakes relating to the use of US GAAP taxonomy.

Some of the errors are so simple they will come as a surprise to many. The most common mistake, which accounted for 64 percent of all errors, is using signs on values incorrectly – in other words, reporting a positive value as a negative or vice versa. These types of mistakes, explain the report’s authors, undermine the purpose of XBRL in that they prevent accurate comparability of financial statements.

The second most common error, at 17 percent, is reporting one fact but failing to report another that must be disclosed when the first is reported. This can be a problem when reporting complicated, interrelated details involving preferred stock, options and other compensation-related matters, although pay is not the only area where this type of error occurs. Other common mistakes include reporting a value when the value should be zero or not disclosed; reporting a value that should be zero or not disclosed if another related value is not reported; required values not being reported; a concept that has been removed from the taxonomy being used; and duplicated values not matching.

Helping hand
The fact that some companies are having problems with XBRL filings is not surprising given the relative newness of the XBRL market and the complexity of XBRL transformation. Public companies should not be penalized for these errors; they should be given the tools and information they need to establish best practices and create data of the highest possible quality.

The experience of most companies that have already gone through the XBRL process suggests that once the system is in place, most corporate secretaries and others involved in the filing process forget about it and assume it will work correctly for all subsequent filings. This is not always the case, however, and it is a good idea to periodically check that the system and the taxonomies used are still valid.

Incorrect reporting is likely to become a larger problem as the next 1,200 companies come online this year and the remaining publicly listed companies fall under the mandate in 2011.