United States: SEC Adopts Inline XBRL Rule

The US Securities and Exchange Commission (SEC) has adopted amendments requiring the use of the Inline eXtensible Business Reporting Language (XBRL) format for the submission of operating company financial statement information and fund risk/return summary information. The amendments become effective 30 days after publication in the Federal Register but provide a phased-in compliance period for using the Inline XBRL format. It is expected that the changes will become effective by the middle of August 2018.

The Inline XBRL format allows filers to embed XBRL data directly into the document filed on EDGAR. This means filers will no longer need to tag a copy of the information in a separate XBRL exhibit or file a separate interactive data file on their websites. As noted in the adopting release, "Inline XBRL is both human-readable and machine-readable for purposes of validation, aggregation, and analysis."

Operating Companies

Amendments. XBRL requirements apply to operating companies that prepare their financial statements in accordance with US generally accepted accounting principles (US GAAP) or in accordance with International Financial Reporting Standards (IFRS). Currently, these companies must submit an interactive data file that includes information tagged in XBRL as an exhibit to the related official filing and post that interactive data file on their websites. The amendments will require companies to use Inline XBRL so that the interactive data is part of the main document filed on EDGAR.

In addition, the requirement for an operating company to post XBRL financial statement information on its website will be eliminated as of the effective date of the amendments.

The SEC also made it clear that the amendments do not change the requirements regarding officer certifications and auditor assurance. However, the SEC has not prohibited companies from indicating in financial statements (such as in a footnote) the degree of auditor involvement—or lack of auditor involvement—relating to financial statement information XBRL data.

The amendments did not change the categories of companies that must tag their data in XBRL. Accordingly, the Inline XBRL requirements will apply to all operating company filers, including smaller reporting companies, emerging growth companies and foreign private issuers, that are currently required to submit financial statement information in XBRL.  

Compliance Schedule. The SEC provided the following transition schedule to phase in the date for operating companies to comply with the Inline XBRL requirements:

If a company is a Form 10-Q filer, it will not become subject to the Inline XBRL requirements with respect to Form 10-K or any other form until after it has been required to comply with the Inline XBRL requirements for its first Form 10-Q for a fiscal period ending on or after its applicable compliance date.

Changes to Securities Act and Exchange Act Forms. The SEC made technical changes to the instructions of Forms S-3, S-8, F-3 and F-10 under the Securities Act of 1933 (Securities Act) and to the cover pages and/or instructions of Forms 10-Q, 10-K, 20-F, 40-F and 6-K under the Securities Exchange Act of 1934 (Exchange Act) to reflect the fact that the Inline XBRL amendments eliminate the need for operating companies to file separate XBRL exhibits and to post an interactive data file on their websites.

Funds

Amendments. Registered open-end management investment companies (i.e., mutual funds and exchange-traded funds) that are subject to the risk/return summary information XBRL requirements will also be required to use Inline XBRL. The amendments also eliminated the 15-business-day XBRL filing period for fund risk/return summaries. In addition, the requirement for a fund to post XBRL risk/return summaries on its website will be eliminated as of the effective date of the amendments. The instructions to Form N-1A under the Securities Act and the Investment Company Act of 1940 were revised as part of the XBRL amendments.

Compliance Schedule. The SEC provided the following transition schedule to phase in the Inline XBRL requirement for funds:

Additional Amendments

The SEC also terminated its 2005 XBRL Voluntary Program as of the effective date of the amendments. At the time of this SEC action, the only issuers that remained eligible for the program being terminated were registered investment companies, business development companies and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X.

The SEC also adopted some technical conforming changes, including changes to rules for hardship exemptions, current public information under Rule 144(c)(1) under the Securities Act, form eligibility and Rule S-T.

Practical Considerations

Although there is a phase-in period for companies to switch to the Inline XBRL format, the amendments to the cover pages of the various SEC forms become effective 30 days after the adopting release is published in the Federal Register. Therefore, all companies will shortly need to revise the cover pages of various SEC forms that were revised as part of the XBRL amendments.

Similarly, as soon as the XBRL amendments become effective, companies no longer will be required to post their XBRL exhibits on their websites, even though they will not yet be using the Inline XBRL format.

Because Form 10-Q filers will have a Form 10-Q as their first filing requiring Inline XBRL, these companies will not have to transition to the new format with a more complicated document such as an annual report or a registration statement, unlike filers that are not required to file quarterly reports.

Companies should determine well in advance of their phase-in date how they will implement Inline XBRL. If they plan to use an outside vendor, they should inquire as to the steps this third party is taking to be in a position to embed the interactive financial data directly into documents filed on EDGAR. Companies that handle XBRL themselves need to be sure that their employees receive proper training on the new format.

Companies will be permitted to use Inline XBRL in advance of their phase-in date once the SEC announces that it has updated the EDGAR system to accept the new format, which the SEC anticipates will occur in March 2019. Companies should consider whether it would be helpful to become early adopters.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.