Based on a report that the SEC also released yesterday, if the frequency of "custom tags" in XBRL exhibits does not decrease, we might expect to see companies receive a similar letter (or a comment in a comment letter). Apparently, the primary culprits of high custom tagging are smaller filers (defined in the report as any company that is not a “large accelerated filer”).
In short, the lower the number of custom tags, the more helpful XBRL exhibits should be to investors. The XBRL U.S. GAAP taxonomy contains thousands of standardized financial elements, or “tags.” When a company submits its financial statements in XBRL, the company is supposed to choose one of the standard tags for a particular financial element unless a standard tag does not appropriately describe the financial element, in which case the company can create a custom tag. Standard tags are preferable because, among other things, their use should make the comparison of the financial elements of multiple companies more efficient.
The SEC expects that custom tagging will become less frequent as the market for filer software and services grows and develops. The SEC intends to continue monitoring the use of custom tags, and depending on the results, it “may issue further guidance or pursue other action.”
A few other highlights from the report:
- smaller filers accounted for 96% of filers with high custom tag rates (defined in the report as those with overall custom tag rates of greater than 50%, i.e., more than 50% of the filer’s line item tags were custom tags as opposed to standard tags);
- smaller filers currently have an average custom tag rate almost twice that of larger filers, which is inconsistent with the SEC’s expectation that smaller filers should, as a general matter, have simpler financial statements that are easier to standardize; and
- a strong correlation was observed between third-party provider selection and exhibits with high custom tag rates, which suggests that in many instances the high custom tag rate may be due the reporting tool or service used (in the report’s sample of smaller filers with high custom tag rates, 64% were served by the same third-party providers, of which one third-party provider accounted for 33% of all filers with a high custom tag rate).