For the past three years the SEC has been phasing-in its rules requiring registrants to tag financial statement information using XBRL. The final phase was completed just last month, meaning that a great number of U.S. public companies are now required to comply with XBRL reporting requirements. Brian Breheny, a partner at Skadden and Practice Center Contributor, sent in this alert he prepared along with several Skadden colleagues discussing the final phase-in.
The final stage of the SEC’s three-year phase-in period for its rules requiring registrants to tag financial statement information using XBRL was reached last month. As a result, U.S. public companies (other than investment and business development companies) below the large accelerated filer threshold (generally, companies with a market cap of less than $700 million) are now required to comply with XBRL reporting requirements beginning with the first Form 10-Q covering a fiscal period ending on or after June 15, 2011. For example, accelerated filers that have a December 31st year end will be required to comply with the XBRL tagging requirements in connection with the filing of their second quarter Forms 10-Q that are due on or before August 9, 2011. The interactive data file is also required to be posted on the company’s web site.
As a result of reaching this final phase-in period, all U.S. domestic companies (other than investment and business development companies) are now required to comply with the XBRL filing requirements. Large accelerated filers (generally, companies with a market cap of more than $700 million) have been subject to these rules for at least a year. Foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board, as part of the third and final phase-in group, also are required to comply with the XBRL filing requirements in connection with annual reports on Forms 20-F or 40-F for fiscal years ending on or after June 15, 2011. The staff of the SEC’s Division of Corporation Finance, however, recently provided relief from the XBRL requirements for those issuers until an SEC-approved XBRL taxonomy for their financial statements is available.
As a reminder, the SEC has provided two grace periods for first-time XBRL filers. First, the rules provide a 30-day grace period for a company’s first XBRL filing and, in the second year of compliance, for a company’s first XBRL filing that is required to include detailed tagging of footnotes and schedules (in each case the exhibit containing the interactive data file would be filed as an amendment to the original filing). Thereafter, the XBRL submission must be filed on or before the due date of the applicable filing. Second, during a company’s first year of XBRL compliance it may choose to block-text tag each footnote and financial statement schedules. Thereafter, the company must tag more detailed information in its footnotes and financial statement schedules.
Liability Exemptions Phase-Out
When the SEC adopted the XBRL filing requirements in December 2008, it recognized the concerns that filers had raised about potential liabilities under the securities laws for errors and omissions in interactive data files by limiting certain liabilities for a two-year period. Each group of companies in the three-year phase-in period is provided the benefit of the two-year limited liability provisions. The limitations include deeming interactive data files “furnished” and not “filed” or part of a registration statement or prospectus for purposes of the liability provisions in Securities Act Sections 11 and 12 and Exchange Act Section 18, and exempting the interactive data file from the anti-fraud provisions of the securities laws if the company makes a good faith attempt to comply with the data tagging rules and promptly amends any deficiency after becoming aware of it.
The two-year limited liability period runs from the due date of the first Form 10-Q—exclusive of the available 30-day grace period for first-time filers noted above—for which a company was required to submit XBRL data. For the first group of companies that were required to comply with the XBRL requirements, large accelerated filers with a market cap of over $5 billion, these limited liability provisions will end on August 10, 2011. Because the filing deadline for the Form 10-Q for the period ended June 30, 2011 for large accelerated filers is August 9, 2011, the first group of companies will not lose the benefits of the limited liability provisions until they file their Forms 10-Q for the period ended September 30, 2011.
Given the expiration of the limited liability periods, companies should evaluate their disclosure controls and procedures for interactive data files.