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Should You Adopt XBRL Early?

July 28, 2009

Before we consider what is involved in adopting XBRL early, let’s review the SEC’s rules for mandatory adoption. XBRL Exhibits to SEC filings will be phased in over three years. In 2009 domestic and foreign large accelerated U.S. GAAP filers with a public float greater than $5 billion as of 2nd quarter of most recently completed year must begin XBRL filing in 2009. Accelerated filers using U.S. GAAP will follow in 2010. All other U.S. GAAP filers, and Form 20-F filers using IFRS as issued by the IASB, must file the XBRL exhibit in 2011. In the year that filers are first required to use XBRL, they must do so for all filings after June 15th of that year. Early adoption is permitted for all SEC filers. The SEC offers a Voluntary Filing Program (VFP) to all early adopters.

In the first year of required XBRL use, companies must detail tag the face of financial statements and block tag footnotes. In the second year, companies must detail tag all accounting concepts in financial statements, footnotes and schedules (narratives disclosure tagging is optional).

Should you adopt Early?

There are several areas to think through when you are deciding whether your company should adopt XBRL before being required to do so by the SEC or by market pressures. Here is a brief discussion of a few areas to consider and the implications of each.

Competitive Advantage: By adopting early, companies will have a slight competitive advantage through simplified access to securities markets. Investors would be able to access XBRL tagged corporate filings more quickly and easily which should lead to both a greater audience for your corporate story and a greater number of potential investors.

Learning Curve: Companies that adopt XBRL early will pass through the learning curve before their competitors. The primary advantage of learning XBRL early is that its potential as an electronic data communication tool is realized sooner thereby encouraging earlier use of XBRL to streamline internal and external reporting (more to come on this in a future post).

Software Tools: Companies that are considering early adoption need to determine whether they prefer to outsource their XBRL implementation effort or “insource” the effort by completing the work internally. (A future post will address advantages and disadvantages.)

Internal Data Use: Early adopters that tag data deeper within their financial reporting data flow can access that data electronically increasing the persistence, validation, context, and usability of their data in other applications. For example, a company that tags its data within Hyperion can feed that data to Excel spreadsheets, tax software, internal reporting software, executive dashboards and the like. By adopting these tactics as an early XBRL user, companies can gain accuracy and efficiency while reducing costs.

Investor Communication: Early adopters will be able to tell their story to the investing public more quickly and thoroughly than their non-XBRL counterparts will. Early adopters financial reporting will be far more transparent to investors and others.

Regulatory Requirements: Early adopters of XBRL do not receive special treatment with respect to security law compliance. The same two year limitation of liability applies to the XBRL exhibits of early adopters and on-time adopters. The two year limitation begins to lapse on the date of the first XBRL filing.

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