Assurance on XBRL for Financial Reporting

Abstract

SYNOPSIS: Since 2004, the Securities and Exchange Commission (SEC) has taken steps toward requiring eXtensible Business Reporting Language (XBRL) to be used in its filings, including a voluntary filing program. “Tagging” financial information using XBRL creates documents that are computer readable and searchable. Once XBRL is required, investors are likely to demand assurance on the tagging process. The Public Company Accounting Oversight Board (PCAOB) has issued guidance on attest engagements regarding XBRL financial information furnished under the SEC’s current voluntary filer program, which relies on the auditor “agreeing” a paper version of the XBRL-related documents to the information in the official EDGAR filing. This approach may be adequate for the current paper-oriented reporting paradigm. However, once filing in XBRL becomes required, the power of XBRL to allow individual financial datum to be extracted from the SEC’s financial database will be realized. This “data-centric” idea is a crucial extension of the traditional reporting paradigm that will alter the way financial and nonfinancial data can be used. The current audit focus on reconciling only the XBRL output with the paper submissions does not address this paradigm shift. In this commentary, we discuss the SEC’s efforts to incorporate XBRL into its filing process and provide a brief overview of the technical aspects of XBRL. The commentary’s principal focus is on several important questions that assurance guidance must address in a data-centric reporting environment, such as, what constitutes an error, or what does materiality mean when individual pieces of financial data will be used outside the context of the financial statements? It also describes some XBRL-related areas where academic research can help guide XBRL-document assurance efforts.

Analysis of XBRL Literature: A Decade of Progress and Puzzle

“…Other XBRL related topics covered in academic journal included the SEC's interest in a Financial Reporting using XBRL (Debreceny et al 2005), Auditing and Assurance with XBRL (Bovee et al, 2005;Plumlee and Plumlee, 2008) and Financial Reporting implications (Hodge et al 2004). More recent XBRL related articles in the academic journals included a look at the potential synergies between the REA model and XBRL GL (Amrhein, Farewell and Pinsker, 2009) and an experimental study of the relationship between reporting format and user perceptions, preferences and performances (Ghani, Laswad and Tooley, 2009).…”

Financial Reporting Practices of Italian SMEs: Why Do They Disclose More?

“…Thus, scholars have stressed the need of third-party assurance on XBRL tagging process (Plumlee and Plumlee, 2008;Srivastava and Kogan, 2010). In fact, (Boritz and No, 2008), when analyzing the XBRL filings under the SEC"s XBRL Voluntary Filing Program on EDGAR, find increasing quality control and assurance issues pertaining to the XBRL filings.…”

Computer-Assisted Functions for Auditing XBRL-Related Documents

“…Based on our review of the aforementioned guidelines (AICPA, 2003;2009;AWG, 2006;PCAOB, 2005) and other literature discussing XBRL assurance issues (AICPA, 2008;Boritz and No, 2009;Plumlee and Plumlee, 2008;Srivastava and Kogan, 2010;XBRL.US, 2008), we developed the following assurance framework for XBRL-related documents.…”

“…The limited guidance for and experience with the creation of XBRL documents raise questions about the quality of XBRL-tagged information, which, in turn, leads to assurance issues related to the use of XBRL (Boritz and No, 2009;2004a;2008;Elliott, 2002;Farewell and Pinsker, 2005;McGuire et al, 2006;Pinsker, 2003;Plumlee and Plumlee, 2008). The goals of this paper are to identify a set of specific audit objectives and related audit tasks for XBRL-tagged information and to discuss how computer-assisted audit functions can be used to carry out those audit tasks.…”