iXBRL for SEC Filings: Key Information You Need to Know

The Securities and Exchange Commission (SEC) has made significant strides toward enhancing financial reporting transparency, with Inline XBRL (iXBRL) being one of the most transformative technologies. iXBRL for SEC filings ensures that financial reports are not only human-readable but also machine-readable, allowing easier access and analysis of critical financial data. This article explores the key elements of iXBRL and its role in SEC filings, highlighting the benefits, requirements, and how companies can ensure compliance.

What is iXBRL?

Inline XBRL (iXBRL) is a hybrid format that combines the functionalities of XBRL (eXtensible Business Reporting Language) and HTML. It allows financial data to be embedded within an HTML document in a readable format while also tagging the data for use by machines. The primary advantage of iXBRL is its ability to display financial statements clearly while maintaining the machine-readable tags that are necessary for automated processing, ensuring both transparency and accuracy.

SEC Filing Requirements and iXBRL

The SEC mandates that publicly traded companies file certain key financial documents using iXBRL format. These filings include annual reports (10-K), quarterly reports (10-Q), and other financial statements, ensuring standardized and accessible information for stakeholders.

• 10-K and 10-Q Filings: These filings are required by the SEC from publicly traded companies. They must include audited financial statements, disclosures, and other critical information, such as risk factors, management discussions, and executive compensation.
• iXBRL Requirement: Since 2018, the SEC has required that certain filings, including Form 10-K and Form 10-Q, be submitted in iXBRL format. This ensures that the information can be easily analyzed by regulators, investors, and analysts.

Key Features of iXBRL for SEC Filings

1. Human and Machine-Readable: One of the main benefits of iXBRL is that it combines machine-readable data with a human-readable format. Investors, analysts, and stakeholders can easily access financial information in a format that is intuitive, while the tagged data can be processed and analyzed by software applications.
2. Accurate Tagging: In iXBRL, each financial element is tagged with a unique identifier according to the taxonomy (a set of defined concepts, such as revenue, expenses, assets, liabilities). Accurate tagging is crucial to ensure the data aligns with GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards).
3. Compliance with SEC Standards: The SEC requires companies to tag key financial data such as balance sheets, income statements, and cash flow statements. By using iXBRL, companies can ensure they meet regulatory requirements while providing the necessary transparency to investors.

Benefits of iXBRL for SEC Filings

• Enhanced Transparency: iXBRL improves the accessibility and transparency of financial reports, making it easier for investors, analysts, and regulators to understand and analyze data.
• Improved Data Accuracy: By automating the process of tagging and reporting, iXBRL reduces the risk of human error, ensuring that the data is accurate, consistent, and in compliance with regulatory standards.
• Cost-Effective Filing: For companies, using iXBRL for SEC filings can reduce the cost and time associated with filing. With automated processes, the risk of rework and costly mistakes is minimized.
• Real-Time Data Access: Investors and other stakeholders can access real-time, structured data that helps them make more informed decisions. This creates a more efficient financial reporting ecosystem.

iXBRL Tagging Process for SEC Filings

• Preparation: Companies need to prepare their financial statements and disclosures, ensuring that all data is accurate and in compliance with GAAP or IFRS.
• Tagging: Financial statements are tagged using an iXBRL-compatible software or tool. This step involves associating each financial element with the correct tag from the SEC-approved taxonomy.
• Validation: Once the financial statements are tagged, they must be validated to ensure they are in compliance with the SEC’s requirements and that the data is accurate. This includes checking the correctness of tags, data formats, and the adherence to the SEC’s filing rules.
• Filing: The final iXBRL document is filed with the SEC, where it is made publicly available for investors, regulators, and analysts to access and review.

Challenges of Using iXBRL

1. Complexity of Tagging: While iXBRL makes it easier for machines to process financial data, the tagging process can be complex and time-consuming. Accurate tagging is critical to ensure compliance and transparency.
2. Technical Expertise: Companies need to have in-house experts or third-party service providers with technical expertise to ensure that iXBRL filings meet the SEC’s standards.
3. Software and Tools: To create iXBRL-compliant reports, companies need to use the right software or tools. Some of these tools may require a financial investment, making it challenging for small businesses to adopt iXBRL seamlessly.

Best Practices for iXBRL Filing

1. Leverage Professional iXBRL Services: Companies can consider partnering with professional iXBRL conversion services to ensure that the tagging process is accurate and compliant with SEC regulations.
2. Keep Up with SEC Updates: The SEC’s filing requirements and taxonomies are subject to change. Companies should stay updated with the latest requirements to ensure their filings are always compliant.
3. Use Automation: To minimize errors and reduce the manual workload, companies can use automated iXBRL tagging tools. Automation can help ensure accuracy and efficiency.

Conclusion

iXBRL for SEC filings represents a significant step forward in financial reporting. It streamlines the filing process by making financial data both human- and machine-readable, enhancing transparency, accuracy, and accessibility. However, to ensure compliance, it is important to follow the SEC’s tagging rules and work with professionals who understand the intricacies of iXBRL tagging rules. As more companies adopt iXBRL, the future of financial reporting will become more efficient, accurate, and transparent, benefiting both businesses and investors alike.

If your company needs assistance with iXBRL tagging or SEC filing compliance, consider partnering with experienced service providers to ensure a smooth and compliant filing process.