Every so often the SEC issues a report on how filers are complying with the EDGAR Filer Manual (EFM). For the most part, compliance with the XBRL standard has been commendable. With that said, it is understandable that as this process gets underway, there are some recurring errors being made as filers learn about the nuances and terminology of XBRL. Perhaps one way to look at the XBRL standard is to compare it with a very recognizable part of American life: Football. At first glance, football doesn’t seem to have too much in common with financial reporting. However, one way I have explained XBRL to some of our clients is to draw an analogy between the unofficial rules that govern the creation of the widely used and understood “game report” with the guidelines outlined by the EFM. Below, I have detailed some of the XBRL filing issues which the SEC has noted as being particularly problematic for some filers against the backdrop of America’s most popular sport. Here goes:
- Negative Values – On a team’s game report, negative numbers are very rare. For example, when reporting a value such as “Yards lost due to penalties”, the number is shown as a positive value. What makes the football fan reading this information associate this with a negative value is the definition of the statistic with which it is associated. “Yards lost…” is understood to be a negative value, so it wouldn’t make sense to write it in the game report as such. In a way, this would be a double negative, and it certainly wouldn’t make sense that the team gained field position because they committed penalties. This is the same as XBRL, where the specific concept that is applied to the line item is what defines the number as a positive (credit) or negative (debit). This is one idea that the SEC consistently reminds users in its Staff Observations reports.
- Negation – Sometimes, however, it may make sense to use a negative number. For instance, what if a team played so poorly that they had negative rushing yards. The game report could display the information as “Total Rushing Yards Gained” and represent the number as negative. However, it looks much cleaner to use a label that instead reads “Total Rushing Yards Lost” and display a positive fact value. This is an example of a negated label role, which essentially flips the balance type of the concept when displaying it. In XBRL, this can be seen when a company is reporting a loss for net income. Instead of displaying a negative value for net income, you would negate this concept and represent a positive number for the label net loss.
- Concept Fact Limitations – This is a common mistake that is made that seems very obvious when it is broken down. When you are looking at the team’s game report, how many times do they list the home team’s score? The answer, obviously, is once. More than that, there is only one number that can be associated with this score. Once the game is over, the final score is the final score and it does not change. Thus, when you see “Home Team Score” on the report, you will only see it associated with a single number. Same for “Total Passing Yards”, “Points Against”, etc., where there is only one fact value per statistic per game. This also is true with XBRL otherwise it won’t make sense. For example, if you have a concept such as “AssetsCurrent”, only one number can be associated with it.
- Dimensions – What if you need to use a statistic more than once? For instance, what if the starting quarterback were to get hurt in the first quarter of the game, and the back-up played the remainder? The statistic “Total Passing Yards” would be misleading to the user of the game report, as it would be unclear as to how well the back up played when he was inserted into the game. You could use the statistic “Total Passing Yards” twice, but as I outlined above you cannot use the statistic more than once. As it turns out, you can as long as you add a dimension that differentiates it. In this case, the dimensions you would use would be the starting QB and the backup. Thus, you would have “Total Passing Yards - Starter” with the starting QB’s stats, and then “Total Passing Yards – Back-Up” with the backup’s stats. This is the same with XBRL. If you need to use the same concept over again, you need to add dimensions to differentiate it. Often this comes into play when differentiating Class A Common Stock from Class B Common Stock, as both are types of common stock but will have different values.
- Extension Concepts – Recall the last time you watched a big game with a diehard fan. How many times did you have to hear some obscure statistic that you were surprised that anyone could have ever thought up? Certain statistics such as “Touchdowns-to-lineman-weight ratios” may not be a normal part of the game report, but may be important to fully disclose the details of the game. In XBRL, these “added statistics” are referred to as extension concepts, and they behave in much the same way: to disclose information about the financial statement that the standard taxonomy cannot. Usually, these extension concepts are company specific and represent specific nuances of a company’s operations. However, these extension concepts cannot be used in place of a concept that is already described and accounted for in the standard taxonomy that has the same definition. Just like a football statistician would not use the statistic “Points Scored from Entering the End Zone” in the place of “Touchdowns”, extension concepts should not take the place of or overlap concepts in the standard taxonomy.
While there are clearly many, many differences between corporate financial statements and football game reports, the above points serve as an illustrative guide to describe some rules of XBRL financial reporting with something we can easily recognize and understand. W e hope this helps you in your XBRL financial reporting.