Every CFO spends hours slaving over her financials – right from data gathering to presenting it in the right manner. Now whether this is managed directly by the CFO, or via a team of accountants who work the numbers under the CFO’s leadership, the undeniable fact is that for any CFO worth her salt, there is nothing more precious than the quarterly/annual financial close numbers.
So it really beats me that after painstakingly preparing all the documents, many CFOs are happy to hand them over to a service provider for preparation of their compliance filing documents, without first confirming the service provider’s credentials and experience.
And this is no longer something to be pooh-poohed - XBRL data is increasingly being used by end users such as analysts and investors. And while the quality might have improved over the last couple of years, it is certainly nowhere near where it needs to be.
At IRIS, we have created one of the deepest normalized data sets (that includes detailed footnotes) using filed XBRL data. One of the ways we ensure the data is error-free is by running it through a series of rules that through up any anomalies and discrepancies in the company filings.
And boy, do we see our share of these every day!
Let me demonstrate with a few examples:
1. Company name: Amonria Omnia
- Document: 10-Q1 2016
Error 1: Footnote not tagged
An entire footnote (NOTE 5 - SUBSEQUENT EVENTS) has been omitted for tagging which is mandated per the Level 4 tagging requirement.
Error 2: Fact value wrongly tagged
An important fact value has been tagged wrongly:
‘Use of Estimates’ in NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES is different in the HTML document when compared with what is tagged in the XBRL document.
Extract from HTML:
Content tagged in XBRL:
2. Company name: 808 Renewable Energy Corp
- Document: 10K 2015
Error 1: Fact value omission
NOTE 9 - RELATED PARTY TRANSACTIONS has some values in a paragraph that have not been tagged (items in red below).
Error 2: Monetary value tagged as percentage
In NOTE 12– INCOME TAXES, there is a table that shows computation of ‘Income taxes’
The line item 'Change in valuation allowance' is a monetary concept, but has been tagged with a 'percentage' element which is incorrect. This line item should be tagged with a US-GAAP element having datatype 'monetaryItemtype'
These are just a few examples of the kinds of errors we find on a daily basis while analyzing company filings. In the case of the two companies above, we incidentally found that their documents have been prepared by the same service provider.
So what must a CFO do to ensure that filing quality does not suffer?
1. Check your service provider’s credentials:
A set of service providers use servicing capability and a low price point to lure clients. But today when more and more analysts are using your filed data for their analysis (and the SEC is stepping up its scrutiny of company filings), it is imperative that you put quality of output before everything else. Speak to the service provider to understand their process well, focus on the credentials and experience of the person who will be working on your document. Check filings of their other clients for errors. Invest in building up some XBRL expertise in your team – someone who can engage with the service provider to ensure that your data will be represented correctly.
2. Third party evaluation:
Have a third-party expert evaluate your quality for an independent opinion. Often there are mistakes in your documents that need a keen eye apart from in-depth understanding of the underlying taxonomy. We at IRIS would be happy to conduct a no-obligations quality check on your SEC filing should you wish.
3. Invest in the future:
Several changes are afoot at the SEC. You might be aware that the SEC is now accepting voluntary filing in inline XBRL and the U.S. GAAP taxonomy will also be undergoing some structural changes in 2017. You need a provider who not only works with you today but keeps you abreast of what’s going to happen tomorrow too. Someone who can ensure that no matter what regulatory changes come down the line, your compliance process remains smooth and seamless.
At IRIS, we are committed to a world of high quality data and would be happy to ensure that your filing meets the highest quality standards as well. Write to us at firstname.lastname@example.org for a free quality review of your filing.
IRIS CARBONTM is a cloud based collaborative platform that provides companies and mutual funds with a robust, easy and high quality way of creating, managing and filing their 10-Ks, 10-Qs, 8-Ks and various other financial reports to the SEC. The platform combines expert services from IRIS’ globally acclaimed team that works on a real time basis to provide unlimited assistance to clients. For more information, reach out to me at email@example.com.