AICPA comments on the SEC’s List of Rules to be Reviewed Pursuant to the Regulatory Flexibility Act

The American Institute of CPAs (AICPA) submitted a comment letter to the Securities and Exchange Commission (SEC) related to its List of Rules to be Reviewed Pursuant to the Regulatory Flexibility Act. The December 21, 2018 letter addressed questions on the importance of, and continued need for, the SEC Final Rule, “Interactive Data to Improve Financial Reporting.”  

In the letter, the AICPA stated, “The AICPA is a strong supporter of the application of data standards for the reporting of business information. XBRL is a global nonproprietary digital standard for exchanging business information used by millions of companies around the world to report their financial information to securities regulators, lenders, tax authorities, and other regulating bodies.”

Companies and investors have benefited over the years by the use of XBRL.  The letter expressed that, “The increased use of XBRL over the years has driven transparency and improved efficiency by helping analysts and other users of financial and business information find relevant facts within a few mouse clicks and has enabled them to spend more time developing hypotheses, analyzing models, and thinking about results rather than data gathering. Companies that have used XBRL have benefited from their ability to reach more investors and have provided analysts with direct and transparent access to more detailed financial disclosure information.”

Since the rule was adopted almost ten years ago, the U.S. solutions marketplace has expanded significantly, enabling dozens of tool and service providers to offer XBRL creation products and analytics tools. As a result, filers have reduced their costs to comply. The comment letter stated that, “The AICPA and XBRL US conducted a comprehensive analysis of smaller public companies and found that the cost of XBRL preparation declined 45% from 2014 to 2017. Findings showed that the average annual cost of XBRL preparation (preparing four filings in XBRL format) was $5,476 per year, down from $10,000 per year in 2014.”

In June 2018, the SEC adopted a rule to require inline XBRL (iXBRL), which will allow for the creation of a single document designed to be read by both humans and machines. The enhanced capabilities of inline XBRL is expected to improve the creation and review process which will have a positive impact on data quality. The AICPA stated that, “Because filers will need to integrate their process to create the iXBRL financial statements, the risk of tagging errors caused by creating separate files may be eliminated. iXBRL may also reduce the instances in which filers make inappropriate tagging choices or create inappropriate extensions in order to make the rendering of the separate XBRL files replicate the HTML financial statements.”

In the comment letter, the AICPA mentioned that auditor involvement is a component of ensuring public trust and confidence in quality financial disclosure.  While the mandate of iXBRL did not change auditor responsibility requirements and filers are not required to obtain assurance on their Interactive Data File, the AICPA stated, “However, XBRL information will be available in the public domain and will be embedded within 10-K and 10-Q filings, and as a result we expect auditor involvement with iXBRL will be of great value to users and demand for auditor involvement will evolve. As iXBRL becomes more widely used, the AICPA stands ready to assist in helping to ensure investors have confidence in the embedded information through existing or evolving types of assurance services.”