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High Rate of Custom Tags Weaken Quality of XBRL Filings

An SEC staff report said a large number of small companies are still using custom interactive data tags for the financial statements in quarterly and annual reports instead of the standard ones from the taxonomy for U.S. GAAP. The SEC is trying to cut down on the number of custom tags in part because their prevalence undermines the utility of the XBRL filings.

An SEC staff report said a large number of small companies are still using custom interactive data tags for the financial statements in quarterly and annual reports instead of the standard ones from the taxonomy for U.S. GAAP.

“The continued high custom tag rates among smaller filers may be, in part, due to continued development and growth in the market for filer software and services, resulting in offerings of varying levels of functionality and ease of use,” the SEC’s Division of Economic and Risk Analysis said in Staff Observations of Custom Tag Rates, a report released on July 7, 2014. “In particular, many of the smaller filers with high custom tag rates used the same three third-party providers to submit their filings.”

The report didn’t fault any specific service providers.

The report said custom tags have declined among the largest companies in the five years since the SEC mandated the use of the eXtensible Business Reporting Language (XBRL) with the January 2009 publication of Release No. 33-9002,Interactive Data to Improve Financial Reporting, falling to about 6 percent of all line items for the largest companies in 2013 from 15 percent in 2009.

Mid-size companies have decreased their use of custom tags to about 6 percent in 2013 from 10 percent in 2010. Smaller companies, since they were phased in in 2011, have hovered around 11 percent to 12 percent for the past three years.

The SEC is trying to cut down on the number of custom tags in part because their prevalence undermines the utility of the XBRL filings. The agency promoted the use of interactive data to make it easier for investors, creditors, and analysts to sort and analyze data and compare companies. The comparisons are feasible because the tags, or the definitions for the line item information, that are prepared for the accounting standards in U.S. GAAP are standardized for all companies.

To the extent that companies break away from the approved taxonomy, which is updated every year by the Financial Accounting Foundation (FAF), the parent organization of the of FASB, they undermine efforts to make the comparisons possible.

In the SEC’s view, the prevalence of the custom tags stems from a reliance upon some third-party processors of XBRL data that are developing tags on their own instead of employing tags supplied in the FAF’s XBRL taxonomy. Companies, which are legally obligated to adhere to the requirements in Release No. 33-9002, aren’t monitoring their service provider’s work.

“It’s the company’s responsibility to review this,” said Jordan Woodard, director of business development for Rivet Software, an XBRL software company in Denver. “But a lot of them don’t have time, and they’re the ones the SEC is going after.”

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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