Monthly Archives: July 2015

XBRL US Publishes Proposal to Improve XBRL Filings and a Few Reminders

The SEC requirement to provide XBRL submissions with filings that include registrants’ financial statements (including of course Forms 10-K, 10-Q and 8-K’s that include full financial statements) is one of the issues we discuss in all our workshops. Most of these discussions are about “problems” and “issues” companies have with XBRL. Some of the most frequently raised issues are inconsistency in tagging and creating unnecessary extensions.

Few would question the need for addressing these issues in tagging to make XBRL data more usable. XBRL US and the FASB, (FASB maintains the taxonomies for US GAAP), have both been working on projects to improve tagging.

XBRL US Proposed Guidance and Validation Rules

XBRL US, the non-profit group that has as its mission:

“to support the implementation of XML business reporting standards through the development of taxonomies for use by U.S. public and private sectors, with a goal of interoperability between sectors, and by promoting XBRL adoption through marketplace collaboration”,

has proposed several rules relating to the use of XBRL. These rules are being exposed for public comment through September 14, 2015. You can review the proposed rules which deal with topics such as “element values are equal” and “negative values” at:

If you have not read about the history and development of XBRL, you could also check out this part of the XBRL US web page:

FASB Simplification Project and Related Improvement Projects

We have blogged before about this FASB project to make the taxonomies easier to use and hence improve the quality of information. The staff has made progress in some areas such as removing unused tags. The latest update on the simplification project for the US GAAP taxonomies is at:

If you scroll around the page linked to above, you can also read about projects where the FASB is focusing on improving the taxonomy in targeted areas such as fair value disclosures and pensions.

FASB Implementation Guides

The FASB XBRL Staff has also issued a significant number of Implementation and Reference guides to use in XBRL tagging. You can find all of them, ranging from topics such as segment reporting to subsequent events, at:

SEC XBRL Documents

Lastly, in the XBRL world, just in case you haven’t heard about them, the SEC has issued two documents about the use of XBRL, a “Dear CFO Letter” about calculation structures and a DERA study about the use of extensions. We blogged about them a while back and you can review them by looking back to our post of September 2, 2014.

As always, your thoughts and considerations are welcome!






Non-GAAP Measures – The Next Chapter – Is it a Good Day to Non-GAAP?

In several of our previous posts we have been exploring the guidance for the use of non-GAAP measures along with some areas where the SEC finds problems and hence writes non-GAAP measure comments.

This next chapter is about removing items considered unusual or infrequent. Many companies use such measures in order to present what they believe is a more “normal” or “recurring” earnings number and trend.

This is not a simple issue in any way shape or form. It is clear investors place significant value on this information. It is also clear that some companies push this presentation too far.

As an example, suppose a company has recorded a restructuring charge in the current quarter and in their earnings release and MD&A in Form 10-Q management wants to present a picture of earnings without this restructuring charge.

What are the SEC’s rules about such measures? Reg G of course applies to the earnings release, and does not prohibit such an adjustment. As we reviewed in our earlier posts, Regulation S-K Item 10(e) is the source of the SEC’s guidance about the use of non-GAAP measures in filed documents:

(e)(ii) A registrant must not:

(A) ———Omitted————-

(B) Adjust a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years;

You can read the complete Item in our post of June 5, 2015 or at:

When S-K Item 10(e) was originally created as part of the SOX regulatory revisions the language in this paragraph was interpreted as essentially prohibiting performance measures with adjustments for unusual or infrequent items in filed documents. While many companies would include such adjustments in non-GAAP measures in earnings releases, because the SEC was very active with comments in this area, rarely would they appear in MD&A in filed documents.

(Note: You can check our post of May 7, 2015 to review the difference between filed and furnished.)

To clarify their position about this issue the SEC has issued several Compliance and Disclosure Interpretations about the use of non-GAAP measures:

Here is the relevant C&DI:

Question 102.03

Question: Item 10(e) of Regulation S-K prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Is this prohibition based on the description of the charge or gain, or is it based on the nature of the charge or gain?

Answer: The prohibition is based on the description of the charge or gain that is being adjusted. It would not be appropriate to state that a charge or gain is non-recurring, infrequent or unusual unless it meets the specified criteria. The fact that a registrant cannot describe a charge or gain as non-recurring, infrequent or unusual, however, does not mean that the registrant cannot adjust for that charge or gain. Registrants can make adjustments they believe are appropriate, subject to Regulation G and the other requirements of Item 10(e) of Regulation S-K. [Jan. 11, 2010]

So, lets go back to our example company where management wants to add this charge back to show operations on a more “recurring” basis. Management could add the restructuring charge back to net income in the company’s earnings release and the MD&A of the related 10-Q. In the 10-Q Regulation S-K Item 10 would apply, and the company would have to consider how to describe the restructuring change. If the company had such a charge in the last two years or reasonably expected such a charge in the next two years then they could still adjust for it in the non-GAAP measure, but they could not describe it as non-recurring, infrequent or unusual.

Do companies always follow this guidance? Unfortunately NOT! Here is an example:

In the fourth bullet point of the second paragraph of this section you present a non-GAAP measure of the increase in SG&A adjusted for “one-time unusual items” as a percentage of net sales. You indicate that the one-time unusual items are acquisition, integration, spin-off and restructuring related costs, but we note that you have recorded similar costs in the last three fiscal years. Item 10(e)(1)(ii) of Regulation S-K prohibits adjusting a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Please explain why you believe these adjustments are non-recurring in nature or revise similar presentations in future filings to refrain from characterizing these adjustments as “non-recurring.” Please refer to question 102.03 of our Non-GAAP Financial Measures Compliance and Disclosure Interpretation, available at

Disclosure Simplification? That was too easy for GE, they went so much further!

In one of our June workshops a participant brought the most recent GE Form 10-K into the group’s discussions. GE has dramatically redesigned their Form 10-K to be a communication focused document.

If it weren’t for the cover page, most SEC reporting professionals would not even recognize this filing as a 10-K. Right after the cover page is a picture of a GE worker and this is followed by an executive summary. It looks like an annual report to shareholders at first, but no, it is the ACTUAL FORM 10-K! It even has colors!

The document is organized differently to tell GE’s story in a meaningful and engaging way. When you think Form 10-K you usually think of a lock-step structure of Parts and Items, and this structure does not appear at all in this narrative document. GE has used General Instruction C.1. in a very innovative way. This instruction says:

  1. Preparation of Report.
    1. (1)  This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report on paper meeting the requirements of Rule 12b-12. Except as provided in General Instruction G, the answers to the items shall be prepared in the manner specified in Rule 12b-13.

GE completely redesigned the structure and the flow. GE did not follow the lock-step format of the Form 10-K Parts and Items. Instead they reorganized the content into a logical structure and flow. In addition, you will see a variety of font sizes and headings, pictures, graphics and other tools to make information easier to follow and understand. (All of course looking back to the concepts of Plain English.)

When we here at the blog first read the document we wondered how it could even be grounded in the Form 10-K instructions, but check out page 231. Here is the linkage to the instructions. In the order of the Parts and Items in the Form 10-K instructions GE cross references to where the required disclosures are in their new 10-K.

The investment in improvement and change in this document is, well, WOW!

You can find the 10-K at:

As always, your thoughts and comments are welcome and appreciated!

A Bit of Perspective about Clawbacks in the News

If you are involved in SEC reporting, you have likely been hearing about clawbacks of executive compensation. The SEC, as required by Dodd/Frank, has proposed a new rule about clawbacks. You can see the SEC’s press release about the proposed rule at:

The press release also has a good summary of the proposal and a link to the text of the proposed rule. (The link is near the top of the press release on the right side of the page.)

This rule proposal has created a fair amount of commentary and discussion, as anyone would expect.

That said, courtesy of Section 304 of SOX, clawbacks have been in play before this proposed rule. And this SOX provision has some teeth. Diebold Corporation, in the wake of a settled accounting fraud enforcement action, was required to clawback compensation from its CEO. Here is an interesting quote from the press release announcing the various enforcements:

“The complaint does not allege that (the CEO) engaged in the fraud.”

You can read the release at:

So, what is the reason that Dodd/Frank requires more rule making about clawbacks? One of the principal differences concerning clawbacks between Dodd/Frank and SOX is that SOX requires clawbacks when a restatement arises from accounting fraud.

Dodd/Frank moves things to a higher level because it will require clawbacks for any material restatement, regardless of cause. So even an unintentional error will trigger a clawback requirement.

In a sense, this is a bit like the SOX whistleblower hotline compared to the Dodd/Frank whistleblower hotline. SOX requires an anonymous hotline to the audit committee, Dodd/Frank goes a step further and created the anonymous hotline directly to the SEC.

As always, your thoughts and reactions are welcome!