What you need to know • The SEC proposed a rule that would require operating companies and mutual funds to

use Inline XBRL and embed tags in their financial statements and their risk/return summaries, respectively, rather than provide this data in separate XBRL exhibits.

• The requirement would be phased in over three years for operating companies based on their filing status and over two years for mutual funds based on net assets.

• Officers would not have to certify and companies would not need to involve their auditors with the Inline XBRL information, just like XBRL exhibits today.

• Comments are due 60 days after the proposal is published in the Federal Register.

Overview The Securities and Exchange Commission (SEC) proposed a rule that would require operating companies and mutual funds to use Inline XBRL and embed tags in their financial statements and their risk/return summaries, respectively. The companies and funds would still have to provide some contextual information about the XBRL tags as a separate exhibit to their filings, but would no longer have to post the XBRL data on their websites.

The SEC said that requiring Inline XBRL could increase the use of XBRL data by investors and other market participants, who would no longer have to view tagged data separately from the text of companies’ financial statements or funds’ risk/return summaries. Investors and other market participants could use new tools (e.g., the Inline XBRL viewer on sec.gov) to review and analyze the tagged financial information.

No. 2017-10 2 March 2017

To the Point SEC — proposed rule

SEC proposes requiring the use of Inline XBRL

The proposed rule would require operating companies and mutual funds to use Inline XBRL to satisfy interactive data filing requirements.

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2 | To the Point SEC proposes requiring the use of Inline XBRL 2 March 2017

Last year, the SEC began allowing operating companies to voluntarily use Inline XBRL to satisfy their XBRL requirements.

Key considerations Scope of the proposed rule The proposed rule would relocate XBRL tags from an exhibit to a filer’s HTML submission and would require companies and funds to tag the same information they tag today.

The proposed rule does not offer any exceptions, and it would apply to emerging growth companies, smaller reporting companies and foreign private issuers (FPIs) that prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board (IASB).

The SEC separately published its first IFRS Taxonomy for these FPIs. These FPIs must comply with XBRL tagging in financial statements for periods ending after 15 December 2017. FPIs that do not prepare their financial statements in accordance with IFRS as issued by the IASB or US GAAP will still be exempt from XBRL reporting requirements.

How we see it • While the SEC does not currently require the tagging of management’s discussion and

analysis or executive compensation disclosures, it has indicated that it may expand XBRL tagging requirements to other types of information companies report.

• If the rule is finalized, FPIs that will have to begin filing XBRL data should consider voluntarily using Inline XBRL in their initial submissions to avoid the cost of changing from XBRL exhibits to Inline XBRL when it becomes mandatory.

Timing of Inline XBRL submissions Operating companies The proposal would not change the timing of XBRL data submissions by operating companies. Therefore, operating companies would generally need to provide the Inline XBRL information when they make a filing with the SEC. Companies that fail to provide Inline XBRL with a filing would be considered not to be current in their reporting obligations, which, among other things, would preclude them from using short-form registration statements.

Mutual funds The proposal would permit mutual funds to submit Inline XBRL data concurrently with certain post-effective amendments filed under Rule 485. The proposal also would require initial registration statements and post-effective amendments filed pursuant to Rule 497 to include Inline XBRL data at the effective date. Similarly, prospectuses filed pursuant to Rule 497 would be required to include Inline XBRL data concurrently with the filing.

Transition guidance Inline XBRL would be phased in over four years after the final rules are effective based on a company’s filing status or a fund’s net assets. All entities would have the option to use Inline XBRL prior to the compliance dates.

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3 | To the Point SEC proposes requiring the use of Inline XBRL 2 March 2017

Operating companies • Large accelerated filers that prepare their financial statements in accordance with US

GAAP would be required to use Inline XBRL in the second year after the rule is effective.

• Accelerated filers that prepare their financial statements in accordance with US GAAP would be required to use Inline XBRL in the third year after the rule is effective.

• All other operating companies that are required to submit Interactive Data Files would be required to use Inline XBRL in the fourth year.

Mutual funds • Larger entities (i.e., funds that together with other investment companies in the same

“group of related investment companies” have net assets of $1 billion or more as of the end of the most recent fiscal year) would be required to use Inline XBRL one year after the effective date.

• Smaller entities (i.e., funds that together with other investment companies in the same “group of related investment companies” have net assets of less than $1 billion as of the end of the most recent fiscal year) would be required to use Inline XBRL two years after the effective date.

Certification and assurance Like XBRL exhibits today, Inline XBRL data would be excluded from the officer certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act. Similarly, the proposed rule would not require companies or funds to involve their auditors with Inline XBRL data. Inline XBRL is generally excluded from internal control over financial reporting (and therefore not subject to Section 404 of the Sarbanes-Oxley Act), but companies and funds, nevertheless, would be expected to have disclosure controls and procedures for the process of Inline XBRL creation.

Next steps • Companies and funds should consider what processes, documentation and controls they

would need to convert to Inline XBRL.

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‘Our document-driven, text-based disclosure system is increasingly obsolete in an age of big data, cloud computing, and machine learning.’ — Kara Stein, SEC Commissioner