SEC moves forward on XBRL

Strategic Finance, July, 2008 by Stephen Barlas

Several prominent business groups, including Financial Executives International (FEI), may be of the opinion that the Securities & Exchange Commission (SEC) essentially stuck it to the corporate reporting community when it published its proposed rule that would force the Fortune 500 to start filing certain data with the SEC using data tags in eXtensible Business Reporting Language (XBRL) for fiscal periods ending on or after December 15, 2008. The remaining companies using U.S. GAAP would provide this disclosure over the following two years. In making the proposal, the SEC rolled over groups such as FEI's Committee on Corporate Reporting (CCR), which had written a letter pleading with the SEC to wait until certain conditions were met before moving whole hog into XBRL. In its April 4 letter, the CCR said, for example, that the SEC should more thoroughly test the new XBRL taxonomies--issued by XBRL-US, Inc. on April 28-before implementing any requirement. Moreover, the letter declared, "As preparers we have learned that there are no improvements at this time in our internal processes as a result of creating and providing tagged information and that preparers do in fact experience increased costs and efforts as a result."

Taylor Hawes, controller of Finance Operations at Microsoft and chair of the FEI Committee on Finance and Information Technology, told Strategic Finance, "The SEC proposed ruling is an appropriate first step in driving adoption of XBRL as a filing method."He had previously worried about "policy" issues around adoption. He added, "With the recent completion of the XBRL-US GAAP taxonomy, I believe some of the policy issues have been addressed. However, it will remain to be seen once a critical mass of companies begin filing and tagging their filings." The SEC published a proposed rule, so changes in details could be made by the time the rule is made final.

Corporate Reporting on Foreign Resource Extraction

Rep. Barney Frank (D.-Mass.), chairman of the House Financial Services Committee, has introduced the Extractive Industries Transparency Disclosure Act (H.R. 6066). The bill would require U.S. companies to include in their financial reports the details on natural resources they extracted from developing countries. If it were anyone else, some would wonder whether the sponsor really was serious. But Frank, who also rammed the advisory "Say on Pay" bill through the House (though that legislation has stopped short in the Senate), is as serious as can be. "In too many countries, the discovery of valuable natural resources has led to more harm than good. This legislation is an important step towards preventing this situation from either continuing or occurring in the first place," Frank says. "The principle that the people of a country ought to know what revenue is being generated by their country's resources shouldn't be a controversial one, and I look forward to speedy passage of this bill."

New Tax Bill "Giveth and Taketh"

The tax bill the House passed on May 21, which is now before the Senate, resurrects the research and development tax credit that expired at the end of last year. It pays for the lost revenue to the Treasury with a couple of whopping tax increases on corporations in one instance and on hedge fund executives and corporate CEOs in another. The House bill (H.R. 6049) extends a number of business tax deductions besides the marquee R&D credit (worth $8.7 billion to companies in 2008), including the "active financing exception," which is of value mostly to manufacturers with overseas operations. It allows them to defer taxes on foreign income until profits are repatriated. The House bill also tosses in about $18.5 billion of new tax credits for good measure, mostly in the alternative energy area.

The tax hit to the Treasury is about $55.5 billion. The bill relies on only two revenue raisers to recoup that tax hit. In the first instance, the bill sets aside an accounting change set to go into effect this year--and delays it until tax years beginning after 2018-that would allow companies to use a liberalized rule for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation. In the second instance, the bill would tax individuals on a current basis if such individuals receive deferred compensation from a tax-indifferent party. Current law--Internal Revenue Code [section]409A--generally allows executives and other employees to defer paying tax on compensation until the compensation is paid. This provision is based on the Offshore Deferred Compensation Reform Act of 2007 introduced by Sen. John Kerry (D.-Mass.) and Rep. Rahm Emanuel (D.-Ill.) on October 18, 2007. The Bush administration quickly asserted its opposition to both revenue raisers.

STEPHEN BARLAS, EDITOR