Issued: August 26, 2011
Impact: All US GAAP
Issue
The items NetCashProvidedByUsedInOperatingActivitiesContinuingOperations and NetCashProvidedByUsedInOperatingActivities do not have a balance type. The reason for this is so that the adjustment expense and revenue items can be represented using the calculation linkbase. If these items were to have a balance type, the calculation relationship would fail due to the XBRL specification rule that does not allow a credit item to be added to a debit item. This is one of the few occurrences of this type in the taxonomy and the only one in the face financials. These situations commonly arise whenever two items are reconciled. In this case, the cash from operations is reconciled to net income.
The lack of a balance type means that the calculation is not checked by software. As a result, there are numerous cases where an incorrect calculation weight is applied to show the relationship with cash provided from operating activities. The underlying cause is that the item being added into cash from operating activities has an incorrect sign. Typically, these items occurr on the following items:
Increase (Decrease) in an Asset or Liability.
Increase (Decrease) in Accounts Receivable is a good example of where filers have used an incorrect sign. In the US GAAP taxonomy, an increase (decrease) in an asset is a credit balance type in the cash flow. The increase in the value of the asset is represented as a natural positive input value. As an increase in the value of the asset over the period, the item should have an overall negative one (-1) calculation weight impact on cash flows (if an asset increases cash must decrease). A number of filers however have provided a positive one (+1) calculation weight in the extension taxonomy. If the calculation works, this means that the registrant has entered the sign of the item tagged incorrectly. The registrant in these cases needs to change the calculation weight to negative one (-1) and input the value as a positive amount if this is an increase in the value of the asset and a negative amount if a decrease in the value of the asset. If the sign of the item is not the same as those shown in the financial statements, use the negated label so that the positive value in the instance is shown as a negative when it is rendered in the SEC viewer.
Gain or Loss
GainsLossesOnExtinguishmentOfDebt is a good example of this. This problem usually occurs on those items that appear in the cash flow but not in the income statement. If the item is in the income statement, they are usually forced to get the sign right if they want the calculation to work. These items are typically a credit balance type representing a ‘gain’ as the natural positive input value. As a gain, the item should have a negative one (-1) calculation weight representing a deduction from cash flow. A number of filers, however, have incorrectly provided a positive one (+1) calculation weight in the extension taxonomy. The registrant in these cases needs to change the calculation weight to negative one (-1) and input the value as a positive amount if a gain and a negative amount if a loss.
The SEC guidance that states that the weights of items should not be changed does not help solve this issue as, in a number of cases, registrants may need to change the calculation weight if they have flattened the cash flow (which is typical) from that presented in the US-GAAP taxonomy.
Recommendation
Review these items carefully. Cash represents an implicit debit balance. If a debit item is reported in the cash flow from operations, the effective calculation weight[1] must be +1. If a credit item is reported in the cash flow from operations, the effective calculation weight must be -1.
[1] The effective weight is the product of calculation weights on all those relationships between two elements.