SEC cautions on properly tagging lease liability disclosures

The Securities and Exchange Commission issued an advisory Friday about how filers are using the wrong XBRL tags for reporting their finance lease liability and future payments.

Staff members in the SEC’s Division of Economic and Risk Analysis have noticed that some companies are not appropriately tagging disclosures about their finance lease liability, undiscounted future lease payments, and the excess amount of the undiscounted future lease payments over the finance lease liability, specifically the imputed interest.

The SEC said that filers who are tagging those disclosures should use the following elements from the U.S. GAAP Financial Reporting Taxonomy, respectively:

• FinanceLeaseLiability;
• FinanceLeaseLiabilityPaymentsDue; and,
• FinanceLeaseLiabilityUndiscountedExcessAmount.

Public companies have been adjusting to the new lease accounting standard that the Financial Accounting Standards Board began requiring them to use in 2019. The standard was delayed for private companies until this year, but they don’t need to worry about filing their financial statements with the SEC. The SEC has been mandating for years that public companies should use XBRL (Extensible Business Reporting Language) for filing their financials through its EDGAR online system. The data-tagging technology enables financial analysts and investors to compare performance and trends across companies and sectors. FASB maintains the XBRL taxonomy for U.S. GAAP and adjusts it each year for new accounting standards. However, it may take some time for companies to adjust to the changes.

Joshua Roberts/Bloomberg

“The most commonly observed tagging errors include the inappropriate use of custom tags to tag the excess amount of the undiscounted future lease payments over the finance lease liability, incorrect use of negative values to tag the excess amount as an offset to the undiscounted future lease payments, and use of incorrect tags related to capital leases under the FASB Accounting Standards Codification 840 – Leases, which has been superseded by ASC 842 – Leases,” said the SEC.

The SEC is trying to discourage companies from relying on tags that they have customized for their own purposes because it limits comparability.

“While custom tags accommodate unique circumstances in a filer’s particular disclosure, the commission has acknowledged that the use of custom tags could potentially reduce the ability of users to compare similar information across companies,” said the SEC. “Thus, the commission’s rules specify that ‘an electronic filer must create and use a new special element if and only if an appropriate tag does not exist in the standard list of tags for reasons other than or in addition to an inappropriate standard label.’”

Negative values can also be a problem in XBRL, according to the commision. “Regarding negative values, most XBRL numeric elements are designed to be entered as positive values even if, in presentation, they are generally offsets to other values,” the advisory explained. “For example, accumulated depreciation, depletion, and amortization for property plant and equipment should be entered as positive values. For more information on negative values, see Sections 6.6.30 and 6.11.6 of the EDGAR Filer Manual (Volume II).”

The SEC pointed out that selecting current and relevant elements from the U.S. GAAP Financial Reporting Taxonomy to tag disclosures allows for more effective access to and analysis of the disclosures by investors, other market participants and other users of the data: “As part of the selection process, filers should carefully review the accounting standards disclosure requirements and the U.S. GAAP Financial Reporting Taxonomy before mapping their disclosures to the taxonomy elements."

For more information, see FASB’s U.S. GAAP Financial Reporting taxonomy and the SEC staff observations and guidance on data quality.