Currently, thousands of companies or their consultants are dealing with the burden of filing financials in XBRL (eXtensible Business Reporting Language) formats.
We have several tips gathered from industry experts, including SEC staff to help you better prepare your financials and produce more accurate and better quality filings.
1. Prepare your financials properly.
A large portion of the battle to success starts in planning. Start by preparing your financials early so auditors can effectively review the finished documents with time to spare. One of the largest contributors to a quick turnaround of financial statements is creating a standardized template.
2. Creating a standardized template.
To create a standardized template, it is important to keep the line item labels from quarter to quarter consistent. For example, on the Statements of Cash Flows under “Changes in operating assets and liabilities:” don’t use “Increase in Accounts Receivable” but rather use “Accounts Receivable”. You may also find that under Financing and Investing Activities some of the most common line items start with “Purchases of…”, “Proceeds from…”, “Payments for…” or “Repayments of…”. Consider using these phrases more often to establish a consistency that may roll forward into a more precise XBRL taxonomy creation.
Another point to consider is that if you have a line item that represents the same item on multiple statements, ensure that the labels match on each corresponding statement. For example, on the Statements of Cash Flows, “Net (loss) for the year” should match the same label representing that tag on the Statements of Operations (“Net Loss”). Thus, this item should be labeled as “Net Loss” on both statements.
A similar issue can be seen on the Statement of Stockholders’ Equity. For example “Issuance of shares for services valued at $500,000” and “Issuance of shares for services valued at $75,000” can be combined into one entry: “Issuance of shares for services”. It is best practice to leave off distinguishing descriptive values with the same element tags and rather combine them into one item and amount.
Consider adjusting your statement line item labels as seen above to facilitate the creation of a more standardized template.
3. Learn about the best practices.
You may not know all of the best practices at this point, but it is important to keep learning from your third-party provider and other industry experts. You may even consider reviewing filings from other filers that have come before you.
4. XBRL is another language used to express your financial data.
Although information expressed in XBRL and HTML are exactly the same, XBRL may display differently. In the financial statements, you may notice that underlines may be missing, headings may not match exactly, or even some additional parenthetical tables may exist. In the footnotes, you may see that text values will often be expressed in tables, tables will have extra columns or rows, or even some text itself may be tagged separately. Don’t worry, this is normal. XBRL is based off of an automated computer process that verifies that the data is accurate and ties in correctly through several series of validations.
5. Understand the relationship between your financial statements and footnootes.
On average, the number of XBRL tags has nearly doubled or tripled from year 1 to year 2 for the same type of filings (10-Qs and 10-Ks). Companies should take into consideration the extra time required to review the increased amount of tagging and how each particular tag is related to items in the financial statements.
Matching line items in the financial statements and footnotes should be represented with the same element tag and value all throughout XBRL filing. Some companies may either round or spell out values in the footnotes that are the same in the financial statements. Human beings can make the connection between disparities, but computers processing XBRL will interpret the data as different items. Each company can work with its SEC XBRL filing agent to recognize the relationship and difference between the primary financial statements and detailed footnotes.