Will XBRL Exemption Be Too Risky for Small Cap Companies?

In an earlier blog post, we discussed the cost burden of XBRL and the ongoing debate related to H.R 37.  With the new resolution passed by the house last week, H. Res. 27, the Senate will now have an opportunity to vote on the XBRL mandate.

News outlets (see recent coverage in Accounting Today) report that the Senate is likely to pass the bill making small businesses with revenues less than $250 million exempt from the XBRL requirement. The intention is to reduce financial reporting costs burdens to help small businesses focus on innovation.

The current bill states that companies with revenues less than $250 million are exempt for 5 years from XBRL filings. While this might provide small businesses with relief now, what happens in 5 years?

Unless the matter is taken up again in 5 years, small companies will be expected to file both EDGAR and XBRL. Companies may find that revamping their XBRL operations in 5 years will be more costly than implementing procedures today.

Currently, the cost of XBRL conversions is less than $10,000 annually (“Financial Executive International survey” page 19). However, the effort and resources required for companies to get up to speed after five years could be double that.  Several steps will be involved including training of internal staff to review the XBRL; integrating financials to flow within the XBRL system; and retagging financial notes with the latest GAAP taxonomies.

Retagging financial notes will likely be the most costly. As it stands now, SEC filers like Edgar Agents are able to seamlessly roll financials in from the last quarter so all the latest taxonomies and mandates apply. It would be time consuming if a filer stopped reporting in XBRL now then started up again in five years. They would need to basically start over from scratch. The final bill to incorporate XBRL could significantly exceed expectations if a company’s SEC filer charges extra fees for overtime hours.

If resources and costs remain the argument against XBRL, delaying the implementation may not be the answer.  It’s true that the process of converting financial data to XBRL has advanced over the last few years and will continue to get easier (and more affordable) for companies. But, if companies need to reconvert their filings into XBRL after 5 years, companies could be faced with higher costs of implementation down the road.

At Edgar Agents, we help companies meet the XBRL requirements in a cost effective way. We guide companies through the process and offer specialized tools that make implementing XBRL easier, such as our XBRL widget.  More importantly, we help companies adjust and meet new SEC requirements while improving transparency to investors.

While the debate continues, one thing is for sure – XBRL will continue to evolve and Edgar Agents will be there to help companies navigate it today and in the future.