Written by Jen Stretch, CPA
Are you in compliance with the most recent changes to the EDGAR Filer Manual (“EFM”)? The new version of the EFM was approved by the Securities and Exchange Commission in July of this year. Read on for details about the changes that are most likely to directly affect your XBRL compliance and how to adjust.
There are four major changes to rules that impact how you’ve historically selected your XBRL tags.
- Rule 6.6.29 – A change in the importance of element attributes when selecting elements
- Rule 6.6.13 – A deleted rule related to the use of elements on the financial statements
- Rule 6.8.4 – Provides additional guidance on element selection vs element extension
- Rule 6.6.5 – Incorporation of the new ConsolidatedEntitiesAxis
This EFM rule provides guidance on element selection by providing a ranking of element attributes in order of importance. In the previous version of the EFM, the element attribute that took the highest precedence for the selection process was the Period Type (instant vs. duration) followed by the element type, etc. See Figure 1.
In the new EFM version, the element attribute that takes the most precedence is its references. Previously an element’s references were the least important attribute in the element selection process. So why did they go all the way to the top of the list in the new EFM?
It is important that the element that is being used to tag a concept is related to the accounting standard that requires the value be disclosed, but this change is also related to the addition of change notes and taxonomy implementation notes (TINs) that are sometimes included in the references section of element information. Change notes are used to provide guidance on the changes made to an element ,if any, between two versions of the U.S. GAAP Taxonomy (UGT). TINs provide specific Financial Accounting Standards Board (FASB) guidance on certain elements in the taxonomy, such as when to enter a positive or negative value and whether the element should be used before or after adoption of new Accounting Standards Updates (ASUs).
So whether you are updating the element for an existing tag or tagging an entirely new concept, be sure to take the references into consideration first. If the concept being tagged is inconsistent with the direct codification reference identified in the Reference section, the element may not be appropriate. Change notes and TINs will also be helpful in determining whether an element is appropriate for the concept being tagged. Not all elements in the UGT, however, have content in the references section. Some elements may not have references if they represent concepts that are not required by U.S. GAAP or because they are just incomplete. The FASB has taken on a reference project to ensure that references are complete and accurate, but this project is being completed in phases. In the meantime, if there are no references for an element, take a look at its other attributes to help you make your decision.
Rule 6.6.13 was deleted from the most recent EFM version. This rule prevented companies from using two different elements in different time periods for the same line item on the facing financial statements. This rule was removed to allow companies more flexibility in element selection which will help to reduce unnecessary extensions and negative value errors. For example, if you have a line item on your cash flow statement that is positive in one period and negative in the other, there may not be a two-way element (which allows you to have a negative value) in the UGT. Before this rule was removed, you had two choices for this situation; you could extend a custom two-way element that encompasses both increases and decreases or use an existing one-way UGT element and have a negative value error for the period(s) with negative values. With the July EFM release, however, companies can now choose two different elements for the same line item, which means that the line item on the cash flow statement that has both a positive and negative value (and no two-way element available in the taxonomy) can use a “proceeds from” element for the positive value and a “payments for” element on the negative value. This will allow data users to clearly understand the tagged concept rather than spending extra time researching negative values or custom elements.
With this EFM change in mind, it’s a good idea to check extensions and negative values on the face of the financial statements to see if any element updates are appropriate. Keep in mind, though, that if a two-way element is available in the UGT, it should be used first, as opposed to tagging different time periods with different one-way elements.
This rule states that filers should use elements defined in a standard taxonomy, the UGT for example, whenever possible. This means that custom element extensions should only be used if there is not an appropriate element available in one of the taxonomies. But what is an appropriate element?
This is what the rule was updated to address. Rule 6.8.4 now states that if an element’s documentation and authoritative references are synonymous with the concept being tagged, then a custom label should be assigned to the element rather than creating a custom element. The EFM provides a specific example of this guidance in action.
If a company’s income statement uses the term “Gross Margin”, which is synonymous with the element “GrossProfit”, then the standard gross profit element should be used with a label updated to match the presentation on the financial statement. See Figure 2 below. This treatment is in preference to extending a custom element for minor differences. This helps XBRL data users compare common concepts across companies during their research.
The final change to the EFM that is most likely to impact your XBRL is related to the new “ConsolidatedEntitiesAxis”. This axis was added to the 2017 UGT with the intention that it be used to identify information about consolidated entities. As you can see below in Figure 3, the members that previously provided consolidated entity information under the “LegalEntityAxis” have moved to the “ConsolidatedEntitiesAxis”.
EFM rule 6.6.5 was updated to allow companies to use this new axis for consolidated entity information in their filings. The “LegalEntityAxis” was not removed from the rule, and therefore it is acceptable to continue using it. Before your next filing, be sure to review any disclosures about consolidated entities in your filing and determine if this is update is appropriate for your next filing.
Since these rule changes went into effect in July, many companies will have already adopted these new standards – which means now is a great time to compare with your peers. You can use this free trial of Certent’s disclosure research solution, DisclosureNet, to locate specific examples in peer or competitor filings in seconds.