Historically, the EDGAR side of SEC filing has been a form of word processing: the filing agent used specialized software to convert Word and Excel documents to HTML. The agent probably never even read the documents or looked at the numbers. XBRL is fundamentally different. XBRL involves creating a second set of financial statements. This requires a sophisticated knowledge of GAAP accounting, which is something most SEC filing agents simply do not have. In response, most filing agents are scrambling to hire qualified accountants or outsourcing their XBRL work to third parties. We believe these approaches are both expensive and inefficient.

At IncFin, we provide the accounting support for our affiliate Federal Filings, LLC. Together, we have created an XBRL service offering unlike any other you will find.

OVERVIEW OF THE SEC’S XBRL REQUIREMENTS

What is XBRL? Basically, when someone mentions XBRL with regard to SEC filings, they are referring to a set of financial statements in addition to the ones you already file. These new financials are machine-readable, meaning they can be downloaded directly to Excel or other software. The data can also be exchanged among analysts or anyone else interested in researching your company. For an example, you can look at Dell Computer and click on the “Interactive Data” button.

Does XBRL replace the type of filings I have been doing? No. Your existing filings in HTML will proceed as normal, but additional XBRL exhibits will be attached.

What documents must be filed in XBRL? Any document with financial statements, such as a 10-K, 10-Q, or S-1.

What is involved in creating an XBRL file? In its most basic sense, creating an XBRL file involves matching each item in your financial statements to the proper concept in the U.S. GAAP taxonomy. The U.S. GAAP taxonomy is a dictionary containing a list of all the individual types of information that may be used in financial statements. Examples are “gross sales”, or “goodwill, net of amortization”. Because there are more than 17,000 individual concepts in the U.S. GAAP taxonomy, this matching (or “tagging”) process requires a thorough knowledge of accounting. In order to have meaning, each item of data must then also be assigned additional characteristics, such as the time period (“Three Months Ended June 30, 2011”), and the type of information (“U.S. Dollars”).

When does my company have to begin filing XBRL data? There is a three year phase-in period, broken down by the size of the company. The first required XBRL filing is the company’s 10-Q for the period ending after:

• 06.15.09: Large Accelerated Filers with market cap in excess of $5 billion
• 06.15.10: Other Large Accelerated Filers
• 06.15.11: All other filers

Within each group in the three-year phase in, there is a an additional two year phase-in:

• First year: Detail tagging of financial statements, block tagging of footnotes.
• Second year: Same as first year, but footnotes must also be detail tagged.

What is block vs. detail tagging? Block tagging means each footnote is assigned one tag, such as “Notes Payable”. Block tagging is relatively easy. Detail tagging means that each individual item of data within each footnote requires its own tag, such as “Principal amount”, ”Interest rate”, “Term”, “Accrued interest”, etc. Obviously, detail tagging requires significantly more effort than block tagging.

What else should I know? First, it is important to understand that XBRL reporting is primarily an accounting task. It isn’t really very complex to an experienced SEC accountant. However, in all likelihood your EDGAR service provider knows nothing about accounting, so to them, XBRL probably seems very complicated and time consuming. The response of most SEC filing agents is to (a) outsource their XBRL service to an XBRL software vendor (who probably doesn’t know anything about SEC reporting or public company accounting); or (b) scramble to hire qualified accountants to do their XBRL reporting. Both of these solutions are extremely expensive.

Second, consider the phase-in schedule mentioned above, but this time consider the number of companies in each layer:

It is highly likely that at the June 15, 2011 deadline a significant capacity problem will occur among service providers.

What actions should I take now?

Please contact our affiliate Federal Filings, LLC for more information.