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XBRL – The New Reality

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Last Wednesday, the Securities and Exchange Commission (SEC) adopted a proposal requiring that companies’ financial statements be filed with the agency in XBRL, otherwise known as eXtensible Business Reporting Language.

The SEC has outlined a three-year XBRL phase in schedule that begins for the largest accelerated filers in the fiscal period ending on or after June, 15 2009 and concludes with the fiscal period ending on or after June 15, 2001 for non-accelerated filers.

According to NIRI, the National Investor Relations Institute, the phase in schedule is as follows:
 


Year 1 Year 2 Year 3
U.S. (or non-U.S.) accelerated filers with a public float of $5B using U.S. GAAP (about 500 companies) All other accelerated filers All other filers, using U.S. GAAP or IFRS
Fiscal period ending on or after June 15, 2009 Fiscal period ending on or after June 15, 2010 Fiscal period ending on or after June 15, 2011

 

If you’d like to learn more about XBRL and what it means for your company, Business Wire recently hosted an informative webinar on the subject.  The SEC offers a host of information on its site at www.sec.gov/spotlight/xbrl.shtml and XBRL US, a local jurisdiction of XBRL International – a not-for-profit consortium of approximately 500 companies and agencies worldwide working together to build the XBRL language and promote and support its adoption, provides news and other information in an easy-to-use format.

XBRL is now a reality, so it’s time to take the plunge and begin planning for the inevitable.

 

— Laurie Berman, lberman@pondel.com

SECrets

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For the first time since the SEC created the Division of Enforcement in 1972 to consolidate enforcement activities that previously had been handled by the various operating divisions at the Commission’s headquarters, the agency has published a document containing the internal policies and procedures that SEC staff must follow when conducting investigations.
 
According to Bowne’s SEC and Edgar Monitor, there are several noteworthy sections:
 

  • Witness Assurance Letters – Provides witnesses offering testimony with assurance that no SEC action will be taken against them.  Prior, the SEC was required to obtain the written approval of the Department of Justice to grant such assurances.
     
  • Ranking Investigations and Allocating Resources – Describes the internal procedures in place at the SEC to manage open investigations and allocate resources.
     
  • External Communications Between Senior Enforcement Officials and Persons Outside the SEC Who Are Involved in Investigations – Adoption of internal best practices on communications between senior officials and non-SEC persons concerning an ongoing investigation.
     
  • Termination Notices – Explains notification procedures about the conclusion of an investigation with no action taken.

 
While most of us will never be involved in an SEC investigation, it is good to know we now have more insight into exactly what to expect should such a situation arise.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

XBRL – It’s Closer Than You Think

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Within the next month or two, the SEC will finalize rules that mandate XBRL-based submissions for collecting financial reporting information for all domestic and foreign SEC reporting companies.  For those of you wondering, XBRL stands for Extensible Business Reporting Language.  Proponents of  XBRL believe it will allow for more accurate, relevant and scalable analysis of financial information, as well as create greater transparency that can result in a lower cost of capital.  To read more about the SEC’s phase-in plan, view Bowne & Co’s plain English summary of XBRL-based submissions to access Bowne & Co’s plain English summary.

— PondelWilkinson, investor@pondel.com


Mullin’s Musing on SEC Order

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Our friends at Sheppard Mullin weighed-in on the SEC’s emergency order issued last night regarding easing restrictions on issuers to re-purchase their securities during the current market conditions.

— PondelWilkinson, investor@pondel.com

SEC Continues to Cut Shorts Off at Knee

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The SEC today announced that it is temporarily prohibiting short selling in 799 “financial companies.”  The Financial Services Authority in the U.K. took a similar action yesterday.
 
The move is intended to preserve fair and orderly markets, and curb sudden and excessive artificial fluctuations in securities prices primarily driven by rumor, innuendo or collusion.  The new list of 799 “financial companies” is an expanded list of the original 19 companies that were restricted as part of an emergency orderannounced in July.
 
The SEC also has “concluded that it is necessary to require certain institutional investment managers to report information concerning daily short sales of securities.” In effect, this requires Form 13(f) filers for the calendar quarter ended June 30, 2008 to file a new form – Form SH – on the first business day of every calendar week immediately following a week in which it effected short sales.  The filing must include: “disclosure of the number and value of securities sold short for each section 13(f) security, except for short sales in options, and the opening short position, closing short position, largest intraday short position, and the time of the largest intraday short position, for that security during each calendar day of the prior week.”  Exceptions to this exist and are discussed in the SEC order at the above link.
 
The new SEC order is effective at 12:01 a.m. EDT on September 22, 2008. The SEC requires the first Form SH to be filed on September 29, 2008.  The order is in effect until 11:59 p.m. on October 2, 2008 unless further extended by the Commission.
 
Not only will this begin to reveal to many companies who might be betting on their company’s demise, it also should keep their respective SEC legal counsel on their toes. And while the cost of being a public company continues to rise, gaining insights into who is shorting your stock may be priceless.

 

— PondelWilkinson, investor@pondel.com
 
 

SEC Cracks Down on Naked Shorting

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The Securities and Exchange Commission issued three rules today to strengthen investor protections against “naked” short selling. The rules take effect at 12:01 a.m. on Thursday, September 18.
 
A short sale occurs when a short seller essentially borrows a stock and sells it with the understanding that the loan must be repaid by buying the stock in the market at a later date and hopefully at a lower price.
 
Naked short selling is the practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale.

 

— PondelWilkinson, investor@pondel.com
 
 

A Good IDEA?

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Today, the Securities and Exchange Commission unveiled the successor to the agency’s EDGAR filing database, called IDEA (Interactive Data Electronic Applications).  The 1980s-era EDGAR database is being replaced by a Web-based system that the SEC says should give investors better and more up-to-date financial disclosure in a new, easy-to-use format.  The move to IDEA follows several SEC discussions about the mandatory use of XBRL in public company filings.
 
According to the Washington Post, while advocates believe public companies will benefit through increased filing automation, others point out that public companies will have to face the burden of transition and implementation costs.
 
Although we may face some growing pains as IDEA and XBRL become reality, transparency and access to better information benefit all constituencies over the long-run.
 
The SEC plans to run IDEA and EDGAR concurrently over the next several years, after which EDGAR will come an archive for older filings.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Are Web Sites a Suitable Disclosure Outlet?

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According to the Securities and Exchange Commission, the answer is…maybe.  The SEC’s new interpretive guidance states that posting material information on a corporate Web site may satisfy Regulation FD, but that the facts and circumstances of each case must be weighed first.
 
According to law firm, Cravath, Swaine & Moore LLP, several factors must be determined before a Web site can be used as the sole means of disseminating material information.  These include:
 

  • whether the Web site is a recognized channel of information distribution;
  • how, where and when the information is posted and becomes broadly accessible to the public; and
  • the Web site’s capability to meet the “simultaneous or prompt” timing requirements of Regulation FD’s Rule 100 as well as the Web site’s capability to meet reasonable usage demands.

 
At this point, it’s probably a safer more shareholder friendly bet to continue utilizing the wire services to disclose important information.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

To Audit IC or Not to Audit IC

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That is the question.
 
Small public companies with less than $75 million of public equity may get another one-year reprieve from having to comply with one of the provisions of the 2002 Sarbanes-Oxley Act.  The Wall Street Journal (December 13, 2007, page C4) reports that SEC Chairman Christopher Cox is considering submitting a formal proposal in early 2008 that would exempt such companies from the rule requiring that they have their internal accounting controls audited and reported on by an outside auditing firm.  Meanwhile, the SEC will continue conducting a study on the estimated costs of complying with the external-auditor review provision to determine whether to phase in that requirement for small public companies in 2009, or propose a further delay or modification to the Act.
 
The chairwoman of the House Small Business Committee has gone on record in favor of the delay, pending results of the study.  If the delay is approved, most small public companies will likely breath a sigh of relief, while shareholder advocacy groups will likely express their angst at what they perceive to be yet another move to undermine the important shareholder protections called for by Sarbanes-Oxley.
 
Of course, voluntary compliance with the internal control review provisions remains an option for any small business and can help the board and management convey to investors their strong governance values.  A thorough assessment of the costs and benefits (both real and intangible) should precede any such decision.  PondelWilkinson is uniquely qualified, together with legal counsel, to assist your board and management in weighing the available options. 

 

— PondelWilkinson, investor@pondel.com
 
 

XBRL – SEC Asks for Public Comment

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The SEC’s office of Interactive Disclosure began asking for public comment on the use of eXtensible Business Reporting Language, commonly known as XBRL, in public company financial statements.  Several large, well-known companies have voluntarily adopted XBRL in their EDGAR filings with the SEC and the agency has committed more than $50 million to make its public company disclosure system compatible with XBRL, according to the National Institute of Investor Relations.  XBRL International, a not-for-profit consortium of approximately 550 companies and agencies worldwide working together to build the XBRL language and promote and support its adoption, reports that XBRL is an open standard, free of license fees that promotes the interactive sharing of financial data.
 
It is believed that XBRL will provide investors and analysts with more useful financial disclosures by allowing companies to present their financial information in a format that allows investors and analysts to more easily locate and analyze this information.  It is also anticipated that XBRL will provide greater efficiency, improved accuracy and reliability and cost savings to anyone involved in supplying or using financial data.
 
While there will likely be some growing pains when public companies are required to adopt XBRL in their financial statements, over the longer term its use should make it easier for the investing public to analyze a company’s financial statements and easier for public companies to get their story out into the investing marketplace.
 
The public comment period ends April 4, 2008.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com