Truth About Validation, Part II: Acceleration Can Hurt, Deceleration Rocks

[2010-04-06 UPDATE:  "Accelerated" discussion updated to provide two specific examples to more clearly discuss the various moving parts.]

Since my original post about valuation and its impact on XBRL submissions, there has been additional discussion and detail brought to light that I think warrants a revisit.  The good news is that the "falling out of a Group"/deceleration discussion I had in my original post is still true.  The bad news, on the other hand (and trust me...it's pretty bad), is for some companies that accelerate.

What's important to keep in mind through all of this is that the SEC is running the Interactive Data mandate consistent with as much as what's already in place as they possibly can.  I say this as the discussion that follows is based on the following general principle:  

A company's XBRL filing status (and specific to XBRL, valuation determination) is the same as the determination for general filing status and is effective upon notice to the SEC, thus (mostly) driving "what happens next" in terms of acceleration/deceleration and XBRL submissions.

Reinforcing this concept is C&DI 105.06, whose purpose is to drive home the fact that "intra-year" valuation changes do not impact XBRL Group status (as they don't impact general filing status either).  My original post had an open item around 105.06, but there really isn't any.  The only valuation date important for XBRL Group determination is the same as determining filing status to the SEC.  Period.

With this in mind, let's get started with DECELERATION.  Not too much new to report other than a reinforcement of the effectiveness of the deceleration.  Assuming a 12/31 fiscal year-end company drops valuation-wise from Group 1 to Group 2, the effectiveness of the drop is as of 12/31...which means that the company does not have to provide XBRL for their 12/31 or 3/31 submissions.  Some Group 1 companies that saw their valuation fall below $5bln still submitted XBRL documents for 12/31 when they didn't have to.  Regardless, they don't have to submit 3/31 XBRL documents either, should they so choose. 

As for ACCELERATION, the basic premise in my original post still holds true but there does exist a "gotcha" situation.  To better understand the situation, let's get two key Final Rule components on the table that come into play:

1. A company's very first XBRL submission, regardless of acceleration, MUST always be a 10-Q
2. Pages 179-180 (back in the geeky legalese section) defines what a company may submit before June 15 of each mandated start period as well as what a company MUST submit for financial statements related to data on/after June 15

To understand how these two key components move in conjunction with the general principle stated above, let's first take a 6/30 fiscal year-end company not yet in the mandate that sees its 12/31/2009 valuation grow to over $5bln.  Since the company has yet to file XBRL, the company is NOT required to submit Year 2/detail Notes tagging for its 6/30/2010 10-K.  Even though the general principle (effective when reported) in conjunction with Final Rule pages 179-180 would make it seem as such, the key is that they have previously not been required to submit XBRL and as such, they do not join the mandate (i.e., do their first filing) on a 10-K.  Effectively the company receives a complementary "get out of tagging jail" card for the 10-K, but the company's 9/30 10-Q XBRL submission MUST be based on Year 2 tagging requirements.

Now that we've got the "first submission" aspect as it relates to ACCELERATION out of the way, let's talk about beyond first submission.  In this example, let's assume a 12/31 fiscal year-end company that was originally in Group 1 (i.e., 6/30/2008 valuation > $5bln), moved to Group 2 (i.e., 6/30/2009 valuation < $5bln), but then expects to be back in Group 1 (i.e., projected 6/30/2010 valuation > $5bln).  In this situation, the company would forgo having to provide an XBRL submission based on Year 2 tagging requirements for 6/30/2010 and 9/30/2010 since they are officially a Group 2 company.  However, for the 12/31/2010 10-K, the company MUST provide XBRL documents based on Year 2 tagging requirements since:

1. This is not the company's first XBRL submission
2. The move back into Group 1 is effective upon notice to SEC
3. Pages 179-180 dictate what must be submitted for post-June 15 report data

Lots of moving parts when it comes to ACCELERATION but in both cases, the company wins a little and loses a little.  What's important is to go into the XBRL mandate valuation changes with eyes wide open around these key aspects and not get caught off-guard.

- Rob