Determinants of Levels of Satisfaction with SEC-Mandated XBRL Filing Process & Providers

Glen L. GraySung Wook YoonCalifornia State University, NorthridgeDeterminants of Levels of Satisfaction with SEC-Mandated XBRL Filing Process: A Work in Progress

University of KansasApril 26-27, 2013 DisclaimerThe analysis, interpretations, and views expressed in this paper are solely those of the authors and do not necessarily represent positions or opinions of the Financial Executives International (FEI).2A Brief XBRL History1969: Al Gore invents the Internet1994: Commercialization of the Internet1999: FASB and IASC each publish reports on financial reporting on the InternetMost large companies are including financial reporting information on their Web sitesNo consistency in terms of content, format, and navigationProbably violating financial reporting regulations! (Still true?)Boundary problems (In or out of financials?)Automated searches almost impossibleOctober 1999: First XBRL meeting with 13 membersDecember 2008: SEC required XBRL filings starting in 200933Adoption summary for corporate filersPeriods ending after June 15, 2009Periods ending after June 15, 2010Periods ending after June 15, 2011 (1) LargeAccelerated Filersw/ public float> $5B(~ Fortune 500)Year 1 structure amounts in financial statement tables in detail and notes to financial statements in 'block text'. Roughly 300 disclosure elements.(~950 filings)Year 2 - structure amounts in financial statement tables and individually tag each significant accounting policy, table within a footnote and each quantitative amount within a footnote. Roughly 3,000+ disclosure elements.Same as year 2.

Limited liability provisions are scheduled to be lifted by the SEC after 2nd year. Companies may desire more comfort on processes and controls.B. Balance of Accelerated Filers with public float > $700m(~ next 1,600 largest public companies)Early Adoption available.

Year 1 structure amounts in financial statement tables in detail and notes to financial statements in 'block text'. Roughly 300 disclosure elements.(~5,000 filings)Year 2 - structure amounts in financial statement tables and individually tag each significant accounting policy, table within a footnote and each quantitative amount within a footnote. Roughly 3,000+ disclosure elements.C. Balance of ~10,000 public companies (including FPIs under IFRS)Early Adoption available.

Early Adoption available.

Year 1 structure amounts in financial statement tables in detail and notes to financial statements in 'block text'. Roughly 300 disclosure elements. (~26,500 filings)US SEC Mandate Summary 3 Three year phase-inIn year 2, volume & complexity increase 10X4Statusin the USA*

IFRS FilersGAAPFilersRequired SEC FilersTax FilersInternal XBRL UsersFinancial Statements to Banks*Much more action outside the USA

5Common Adoption Alternatives

PortalPortal

PortalPortal1. Regulator provided XBRL enabled excel, word, and PDF templates and Web Interface2. Bolt-on via Outsourcing or internal Utility3. Bolt-on via Internal Process4. Embedded ProcessesThe Regulator will provide submission options using the Regulatory portal and via XBRL embedded word documents, excel workbooks, and PDF templatesPrinters and other third party service providers provide outsourced solution for mapping the disclosure elements on the financial statements and note disclosures (in block text) to the Regulator TaxonomyReportWriterERPERP

XBRL can be adopted by companies at the highest reporting level (i.e. consolidated) solely for purposes of complying with regulatory requirements. However, potential XBRL process enhancement benefits are not fully realized.Enables automation of currently manual assembly and review processesRequires companies to assess information needs and provides an opportunity to eliminate inefficiencies in current compliance and reporting processes.Enables process enhancements that lead to more timely higher quality data for decision making purposesMaximizes benefits of XBRL to preparers and internal users of financial and non-financial information.6PwCDate6SEC Staff ObservationsOn initial submissions http://www.sec.gov/spotlight/xbrl/staff-review-observations.shtml

October 2009

RenderingElement selectionContextual referencesNegative values and negated labelsDecimalsOther observationsNovember 2010

Negative valuesExtending for an element where an existing US GAAP Taxonomy element is appropriateObservations on Axis and Member use Observation on US GAAP modeling of Axis and MembersObservation on Tagging completeness Parenthetical Amounts7Date7Staff Observations From Review of Interactive Data Financial StatementsThe staff in the Office of Interactive Disclosure has completed an initial evaluation of the eXtensible Business Reporting Language (XBRL) submissions under the Commission's new rules relating to interactive data for financial reporting. We have now received most of the Interactive Data Files from the initial phase-in group of filers and overall the filings indicate that filers devoted significant effort to consider their responsibilities under this program, comply with the new rules and provide high-quality submissions.Based on a limited review, we have identified certain matters filers should consider as they prepare future submissions to further improve the quality of those submissions. In describing these matters, we have included specific examples for illustrative purposes only. These examples are not meant to represent a complete list of all such items we identified during our review nor necessarily reflect a violation of our rules.The observations based on this initial review represent the views of the staff of the Office of Interactive Disclosure. They are not rules, regulations, or statements of the Securities and Exchange Commission. Further, the Commission has neither approved nor disapproved them.RenderingThe format of financial statements and footnotes rendered on the Commission's interactive data viewer generally will be similar but not identical to the HTML/ASCII filing when filers adhere to the guidance in the rule release and EDGAR Filer Manual ("EFM"). Filers should be aware that there is no requirement that the rendered files appear identical to the HTML/ASCII filing (Compliance and Disclosure Interpretations for Release 33-9002, Question 130.08). In addition, filers should not deviate from the guidance in the rule release and EFM (e.g., change, delete, or summarize information in the Interactive Data File) solely in an attempt to correct rendering issues.Element SelectionFilers should select elements after a thorough search of the standard taxonomy and careful consideration of elements' standard definitions, standard labels, and other attributes. Filers will benefit from using several taxonomy search strategies to identify the appropriate element and becoming thoroughly familiar with the general organization of the standard taxonomy. Filers should understand that elements related to any particular face financial statement, such as the cash flow statement, may be located within another face financial statement section, such as the income statement, or within one of the "Disclosures" sections of the standard taxonomy. Also, filers should be aware that inadvertently misspelling search terms or using search terms that differ from standard label names may produce unintended search results, and search results may include elements unique to specific industries which may not be appropriate for the filer.Based on the results of a thorough search, filers should select the element with the narrowest definition that captures all material information (EFM 6.6.24 through 6.6.29). We have noted the following types of issues with element selection:Filers created a new element when it appears an appropriate standard element exists.Filers selected a standard element when it appears a new element should have been created. If a standard element does not adequately capture all material information, filers should create a new element.Filers neglected to tag amounts appearing parenthetically in the financial statements, such as the allowance for doubtful accounts and shares of stock outstanding. Such parenthetical amounts should be tagged and presented separately from the face of the financial statements (EFM 6.13.4).Context ReferencesThe context reference, in combination with a selected element, defines a fact or value in the financial report. Context references provide specific information (such as reporting periods or particular businesses) that allows tagged information to be understood in relation to other information presented. We have noted the following types of issues with respect to context references:When filers report financial information using a roll-forward format, they should use the same instant context reference for the beginning balance as for the end of the previous period (EFM 6.5.9 and 6.5.10).Negative values and negated labelsFilers may enter an amount as a negative value and/or they can negate the label in the label link base, with each action serving an entirely different purpose and achieving an entirely different result. We have noted many instances of filers incorrectly entering amounts with negative values. Filers should be aware that the standard taxonomy generally is designed so that for most elements, amounts will be entered with positive values. Filers should first decide whether to enter an amount as a positive or negative value based on the specifics of the particular element (i.e., its definition and debit/credit balance attribute). After a decision has been made to enter an amount as a positive or negative value, filers can then change whether the amount is rendered within brackets by negating the label in the label link base. In this regard, the default position of all signs in the standard label link base is set to "positive." Therefore, if an amount is entered as a positive value, it will render without brackets unless the label is negated. Conversely, if an amount is entered as a negative value, it will render with brackets unless the label is negated. (EFM 6.6.30 and 6.11.6) The following examples illustrate the issues we have noted related to these matters:DecimalsFilers should follow the decimals attribute table in EFM 6.6.32 to ensure that the tagged amounts accurately reflect the rounded values reported in their financial statements. We have noted some filers incorrectly used a "0" decimals attribute for earnings per share rounded to cents when they should have used a "2" decimals attribute instead.Other ObservationsOther miscellaneous observations are noted below:http://www.sec.gov/spotlight/xbrl/staff-review-observations.shtml

FEI XBRL Preparedness Surveywww.financialexecutives.org * Conducted by Financial Executives Research Foundation (FERF)Survey closed October 4, 2011142 companies respond (138 unique companies)Tier 1: 34; Tier 2: 57; and Tier 3: 4755 survey questions (some w/ sub-questions)

*SEC Reporting and the Impact of XBRL: 2011 SurveyFree to FEI members; $49.95 for non-members, howeverEmail: Bill Sinnett, Senior Director, Research, at bsinnett@financialexecutives.org8Continue with Current Process?9Continue with Current Process?XBRL Filing StatusSEC Filing StatusBringing In-House/ Software SolutionOutsourcingUndecidedTIER 1Large Accelerated Filer100%%%TIER 2Large Accelerated Filer90%5%5%TIER 3Accelerated Filer100%%%Non-Accelerated Filer100%%%Smaller Reporting Company100%%%If switching, what do you plan to change to?10ResultsPlan to Continue to Use Current Process (CONT)Satisfied with Current Provider (SAT)NODon't KnowYESNot Very Satisfied68.0% 24.0%8.0%Somewhat Satisfied26.5%26.5%46.9%Very Satisfied13.4%13.4%73.1%11Fiat 50012

A Deeper Dive into the DataDependent VariablesWill you continue the same process going forward?(Q33).

13A Deeper Dive into the DataIndependent Variables (Survey)Size: RevenueComplexity: International Ops & # of business unitsService providerXBRL filing bottleneckIn-house vs. outsourcingResources (e.g., training, FAQs, etc.)Preparation hoursXBRL familiarityPencils downLevel of taggingDelayed filing date (caused by XBRL)Filing errors or issues14A Deeper Dive into the DataIndependent Variables (Outside)External auditorAudit fee/client revenueNon-audit fee/audit fee for clientXBRLCloud.comNumbers of errors related with EDGAR Filing Manual Numbers of errors related with US GAAP Architecture % Extension tags

1516H1: More complex organizations will have lower satisfaction levels.H2: Organizations with more complex XBRL filings will have lower satisfaction levels.H3: Level of satisfaction will not be different for in-house vs. outsources preparation. H4: Organizations with Big 4 auditors will have higher satisfaction levels.H5: Organizations with higher levels of using non-audit services from their auditors will have higher satisfaction levels.Working Hypotheses17H6: Organizations with higher levels of training will have higher satisfaction levels.H7: Organizations with higher errors rates will have lower satisfaction levels.H8: Organizations that experience filing delays due to XBRL will have lower satisfaction levels.H9: Overall process satisfaction levels will not vary by provider.Working Hypotheses18Results: Continue w/ ProcessWill ContinueWill Not ContinueXBRL Filing Status (XBRLFILER)Tier 3Tiers 1 & 2XBRL ProvidersDonnelly & Other choice IrrelevantXBRL Creation (FOUT and INTERNAL)Completely internal process (INTERNAL)IrrelevantHours to review and coordinate with outsourcing provider (OUTHOUR)Less than 80 hoursMore than 80 hoursPencils Down period (PENCIL)Shorter periodLonger periodLevel of tagging detailsLower level of taggingHigher level of taggingFilling errors or issuesLess errors or issuesGreater errors or issues19R-Square0.4702Max-rescaled R-Square0.5426Analysis of Maximum Likelihood EstimatesParameterEstimateStandardWaldPr>ChiSqErrorChi-SquareXBRLFILER1.50700.62685.78090.0162Donnelley4.26171.62606.86940.0088OtherPro4.33201.93685.00250.0253INTERNAL2.11900.89505.60590.0179OUTHOUR-0.49340.20925.56010.0184PENCIL-0.55100.27593.99040.0458TAGGING-2.83470.89809.96570.0016ERROR-0.88110.50743.01550.0825Results: Continue w/ Process20No big surprises regarding what variables are on the prior table.Some surprises regarding what variables are not on the table.Big 4 vs. Non-Big 4Non-audit feesTraining and resourcesFamiliarity with XBRL

Results: Continue w/ Process21Field and case studies to look behind the numbers.Conduct a survey with fewer, more-focused questions to achieve a higher response rate.The application of various theories that can support (or not) the findings.Moore, G.A. (2002) Crossing the Chasm, revised edition, Collins Business, New York.Rogers, E.M. (2003) Diffusion of Innovations, Fifth Edition, Free Press/Simon & Schuster, Inc. New York.Swan, J.A., and Newell, S. (1995) The role of professional associations in technology diffusion, Organization Studies, 16(5), pp. 847-874.Swanson, E. B., & Ramiller, N. C. (1997). The organizing vision in information systems innovation. Organization Science, 8, 458-474Troshani, I., and Doolin, B. (2007) Innovation and diffusion: A stakeholder and social network view, European Journal of Innovation Management, 10(2), pp. 176-200.Zhu, K., Kraemer, K.L., Xu, S. (2006) The process of innovation assimilation by firms in different countries: A technology diffusion perspective on e-business, Management Science, 52(10), pp. 1557-1576.

Research OpportunitiesQuestions/Suggestions?

Thank You

glen.gray@csun.edu

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