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An Integrated Approach to Assurance on XBRL Instance Document: A Conceptual
FrameworkRajendra P. Srivastava
Ernst & Young Professor and DirectorE&Y CARAT, The University of Kansas
Prepared for Presentation at
The 15th World Continuous Auditing And Reporting Symposium
&The 5th International Conference On Enterprise
Systems, Accounting and Logistics
July 7-8, 2008, Crete, Greece
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Outline Definition of Assurance on XBRL Instance Document Background SEC Proposal: Interactive Data to Improve Reporting Current Approaches to Assurance on XBRL Instance
Documents Objectives for the assurance services on XBRL
instance documents Materiality concepts Control Test versus Substantive Procedures Conclusions
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Assurance on XBRL Instance Document
General Definition (Srivastava, 2008)
“The XBRL instance document is a true representation of the electronic document (ASCII or HTML) filed with the SEC”
Definition under SEC Proposal
“The tagged financial statements are accurate and consistent with the information the company presents in its traditional format filings”
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Background SEC Proposal: Interactive Data to Improve Reporting (2008) Plumlee, D. and M. Plumlee. 2008. Assurance on XBRL for
Financial Reporting. Working paper, University of Utah. AICPA Assurance Services Executive Committee. 2008. The
Shifting Paradigm in Business Reporting and Assurance.1. XBRL Assurance Task Force, 2. Data Integrity Task Force
Boritz, J. E. and W. G. No. 2007. Auditing an XBRL Instance Document: The Case of United Technologies Corporation. Working paper, University of Waterloo.
Assurance Working Group (AWG) of XBRL International (2006)
Public Company Accounting Oversight Board (PCAOB). 2005. Staff Q&A Regarding XBRL Financial Reporting.
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XBRL Instance Document Preparation Process
XBRL Specification 2.1An XML Schema that provides the rules for
valid XBRL instance documents and taxonomies
US GAAP Taxonomies• Standard elements• Standard labels• Standard calculations• Standard references• Standard presentations
Instance Document
Corporate Financial Facts
Corporate Extension Taxonomies• Unique elements• Unique labels• Unique calculations• Unique references• Unique presentation
Presentation Tools/Style Sheets
Final Output
“tagging”
Taken fromPlumlee & Plumlee 2008
SEC ProvidedViewer
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SEC Proposal: Interactive Data to Improve Reporting (May 2008)
Proposal to mandate the filing of corporate financial data in interactive data (XBRL) format as exhibits along with human readable traditional filings and posting of the XBRL instance document on the company’s website.
Companies with a worldwide public float over $5 billion will be required to submit their primary FS, footnotes and FS schedules in XBRL format for fiscal periods ending in late 2008.
Accelerated filers will be required to comply with the new rules starting the following year
The remaining public companies would comply the year after that.
The comment period will end on August 1, 2008.
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General Requirements under SEC Proposal (Rule 405 Regulation S-T)
Information in interactive data format should not be more or less than the information in the ASCII or HTML part of the report
Use of the most recent and appropriate list of tags released by XBRL U.S. or the IASCF as required by EDGAR Filer Manual.
Viewable interactive data as displayed through software available on the Commission’s Web site, and to the extent identical in all material respect to the corresponding portion of the traditional format filing
Data in the interactive data file submitted to SEC would be protected from liability for failure to comply with the proposed tagging and related requirements if the interactive data file either
Met the requirements; or Failed to meet those requirements, but failure occurred despite the
issuer’s good faith and reasonable effort, and the issuer corrected the failure as soon as reasonably practical after becoming aware of it.
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Legal Liability under SEC Proposal
The financial statements and other disclosures in the traditional format part of the related official filing with which the interactive data appear as an exhibit would continue to be subject to the usual liability provisions of the federal securities laws.
The usual liability provisions of the federal securities laws also would apply to human-readable interactive data that is identical in all material respects to the corresponding data in the traditional format filing* as displayed by a viewer that the Commission provides.
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Validation Software: SEC Proposal Expectation
Check if required conventions (such as the use of angle brackets to separate data) are applied properly for standard and, in particular, non-standard special labels and tags;
Identify, count, and provide the staff with easy access to non-standard special labels and tags*
Identify the use of practices, including some the XBRL U.S. Preparers Guide contains, that enhance usability**
Facilitate comparison of interactive data with disclosure in the corresponding traditional format filing
Check for mathematical errors; and analyze the way that companies explain how particular financial facts relate to one another***
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SEC Perspective on Assurance of XBRL Instance Document
No requirement to involve third parties for preparing or providing assurance (Based on the following consideration) Comprehensive list of tags User-friendly software to create instance document Multi-year phase-in for each filer Interactive data technology specifications Advances in rendering/presentation software and
validation tools Expectation that filers will take the initiative to
develop sufficient internal review procedures to promote accurate and consistent tagging; and
The filer’s and preparer’s liability for the accuracy of the traditional format version
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Current Approaches to Conducting Assurance Service
PWC – Actual audit of United Technologies Corporation Financial statements
Boritz and No (2007) – A mock audit performed to explore the process
AICPA Assurance Services Executive Committee. 2008. The Shifting Paradigm in Business Reporting and Assurance
Public Company Accounting Oversight Board (PCAOB). 2005. Staff Q&A Regarding XBRL Financial Reporting.
Assurance Working Group (AWG) of XBRL International (2006)
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Concerns about the Current Approaches
In general, there is a lack of conceptual framework
It is similar to what the audit process used to be some 50 years back; a bunch of procedures to be
performed specific to each balance sheet account
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Table 3 Comparison between AWG and PCAOB (Boritz and No, 2007)
AWG PCAOB
Acceptance
Q4: Auditors’ sufficient knowledge of the applicable SEC Regulations and XBRL taxonomies and specifications to perform the examination.
Q6: Auditor’s independence in order to perform an attest engagement regarding XBRL-Related Documents
Terms of engagement
Planning the engagement – Understanding the subject matter
Assessing the appropriateness of the subject matter
Q5: The attributes of suitable and available criteria for examination engagements regarding XBRL-Related Documents
Assessing the suitability of the criteria
Q5: The attributes of suitable and available criteria for examination engagements regarding XBRL-Related Documents
Risk and materiality
Obtaining evidence Q7: Objectives and examination procedures regarding the XBRL-Related Documents
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Table 3 Comparison between AWG and PCAOB (Boritz and No, 2007, continued)
AWG PCAOB
Using the work of an expert
Management representations
Q7: Objectives and examination procedures regarding the XBRL-Related Documents
Reporting Q8: Reporting requirements for examination engagements regarding XBRL-Related Documents
Q1: General information about XBRL
Q2: Information about the XBRL Voluntary Financial Reporting Program on the EDGAR System
Q3: Primary engagement standards regarding XBRL-Related Documents
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Accounting Model: FASB, 1993
Benefit > Cost; Materiality
Usefulness
Relevance
Prediction
Timeliness
Consistency &Comparability
Reliability
Verifiable FaithfullyRepresented
User
Neutral
Feedback
Understandability
“Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information”, Original Pronouncements, Accounting Standards as of June 1, 1993, Volume II (AICPA Pronouncements, FASB Interpretations, FASB Concepts Statements, FASB Technical Bulletins), Financial Accounting Standards Board, CN, USA, 1993
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IQ Model (Bovee, Srivastava & Mak, IJIS
2003)
Information Quality
Accuracy
Completeness
Consistency
Non-Fictitiousness
RelevanceInterpretabilityAccessibilityIntegrity
Timeliness Criterion n
Criterion1
VolatilityAge
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A Quality Model for XBRL Instance Document (Srivastava 2008)
Quality of XBRL Instance Document
ReliabilityAccuracyCompletenessExistence (Validity)
Proper Linkbases
Appropriate UnitsProper Contexts
Calculation
It faithfully represents the Electronic Filings of FS
Proper XMLRepresentation
Valid XBRLSchema
Definition Presentation
ReferenceLabel
OtherAppropriate Attributes
Proper XBRLSchema
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Assertions Related to XBRL Assurance Document (Srivastava 2008)
Existence (Validity): All XBRL tags used to tag business facts are appropriate tags All non-standard tags used to tag business facts do not have
standard tags Completeness: All business facts including disclosures and
footnotes are tagged Accuracy: All tagged business facts accurately represent the
facts on the filed document Reliability
Valid XBRL Schema (Proper XML Representation & XBRL Schema)
Proper Contexts Proper Linkbases (Label, Calculation, Definition, Reference,
Presentation) Appropriate Units Other Appropriate Attributes (e.g., Debit/Credit Bal, Monetary,
…)
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Materiality and Risk Two kinds of materiality
Materiality for the entire FS Materiality for each line item in the instance document
Since the materiality concept used in the FS audit is at the aggregate level, the implied materiality in the instance document is also at the aggregate level.
However, since users are going to use each line item separately in their decisions, they will perceive each line item to be accurate in isolation. This would lead to erroneous decisions
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Audit Approach: Control Test versus Substantive Test
Control tests on the effectiveness of the software that produces XBRL instance document
Control tests on the effectiveness of the validation software
Substantive procedures All major line items need to be traced and
compared No Statistical Sampling
Each line item is a separate test unit; not appropriate for statistical sampling
However, on certain attribute one would be tempted to perform sampling but the size of the population is too small to use sampling
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Use of Technology for Assurance - FRAANK
Compare the two XBRL Instance Documents: one prepared by FRAANK and the other filed with the SEC for the following
Existence (Validity): All XBRL tags used to tag business facts are appropriate tags All non-standard tags used to tag business facts do not have
standard tags Completeness: All business facts including disclosures and
footnotes are tagged Accuracy: All tagged business facts accurately represent the
facts on the filed document Reliability
Valid XBRL Schema (Proper XML Representation & XBRL Schema)
Proper Contexts Proper Linkbases (Label, Calculation, Definition, Reference,
Presentation) Appropriate Units Other Appropriate Attributes (e.g., Debit/Credit Bal, Monetary,
…)
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An Example: FRAANK Output of unmatched tags
Original Label Tag Parent Tag
Accrued aircraft rent
KU_AccruedAircraftRent CurrentLiabilities
Advance ticket salesKU_AdvanceTicketSale
s CurrentLiabilities
Advances on flight equipment
KU_AdvancesOnFlightEquipment
PropertyPlantEquipmentGross
Air traffic liability KU_AirTrafficLiability CurrentLiabilitiesAircraft and traffic servicing
KU_AircraftAndTrafficServicing
OperatingExpenses
Aircraft fuel KU_AircraftFuelOperatingExpens
es
Aircraft fuel and related taxes
KU_AircraftFuelAndRelatedTaxes
OperatingExpenses
Aircraft fuel and taxes
KU_AircraftFuelAndTaxes
OperatingExpenses
Aircraft lease KU_AircraftLeaseOperatingExpens
es
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Conclusion For effective and efficient assurance process
of XBRL instance documents, we need assurance objectives (assertions) as a set of criteria against which evidence could be gathered and evaluated to make a decision whether the assurance objectives have been met or not in order to give an opinion
We need software like FRAANK
The present discussion is the first such attempt
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