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XBRL

Why Investors Are Not Using XBRL: Part 2

By April 2, 2014No Comments

Last week we posted our first example of the data quality issues that are preventing investors from using XBRL directly. This week’s example is a 10-K from Arch Coal that was filed with the SEC on February 28, 2014. This 10-K is the company’s 21st XBRL filing since August 2009. After 21 attempts they are still filing financial statements with significant errors that will prevent investors from using the data. Specifically, the cash flow statement contains a variety of errors that total $1.3 billion.

HTML Version

Arch-CF-HTML

 XBRL Version

Arch-CF-XBRL

Issue 1: Seeing Double

In this 10-K, which includes audited financial statements, Arch Coal presented two lines in their cash flows from operating activities that have identical values but different labels (see Amortization of acquired sales contracts, net and Sales contract amortization). Investors will need to compare the XBRL and the HTML version of the filing to determine that there should only be one amortization line and that using both of these lines would result in the double counting of this amortization. If an investor used both of these line items in their analysis it would have resulted in an additional $56.7 million of amortization over the 3-years covered by the filing.

Issue 2: Incorrect Signs

The second error we found in this audited cash flow statement is with the Net loss resulting from from early retirement of debt and financing activities. The company presented these items in XBRL as uses of cash (negative values) while the HTML version presents the same items as sources of cash (positive values). Using the values presented in the XBRL filing will understate cash from operating activities by $236.1 million over the 3 years covered by the filing.

issue 3: Phantom Facts

Our system identified the third issue which involves an item called Asset impairment and mine closure costs being presented in the XBRL cash flow statement but not on the HTML cash flow statement.  Where did this come from? We have no idea but it definitely does not belong on the cash flow statement. The impact is $539.2 million.

Issue 4: More Incorrect Signs

In the cash flow from investing activities the filer is presenting Purchases of short term investments as a source of cash (positive value) when it should be presented as a use of cash (negative value). The impact is $450.1 million over the 3 years covered by the filing.

Conclusion

These 4 issues add up to $1.3 billion which is $300 million more than the company’s market capitalization of $1 billion. For XBRL to be deemed trustworthy by investors it will need to do better. Filings like this 10-K from Arch Coal are causing investors to mistrust the data. 

This 10-K is also proof that time does not solve the issues with financial statement errors in XBRL. This is the company’s 21st XBRL filing since 2009 and it looks like their first attempt. A simple comparison of the HTML and XBRL financials should have caught these issues. If a little company like ours can identify and correct these issues, the SEC, with its $1.7 billion budget for FY2014, should be capable of identifying these issues before accepting and distributing the filing. Until then, they should at a minimum enforce their rules on filing incorrect financial statements. Without enforcement, the companies have no reason to ensure that their data is accurate.

Additional Thoughts

Warning: technical discussion. Some of these issues are with the presentation layer and the filer’s misuse of the negated value label, not the calculation linkbase. For example, the sign issues would be calculated correctly if you used the logical (debit or credit) values. However, our experience has shown that the signs in the presentation layer are more stable than the logical values. Incorrect logical values on the cash flow statement are the leading source of errors in XBRL filings that we process.

Notes: