XBRL and Continuous Auditing/Assurance

1
XBRL and Continuous Auditing/Assurance

• The Third Continuous Reporting and Auditing
  Conference
• Eric E. Cohen, CPA PricewaterhouseCoopers LLP.
• 1 June 2001, Newark, New Jersey, USA

2
Requirements for CA
Automated Audit Procedures
Reliable Systems
Auditor Proficiency
Reliable Communication Links
Subject Matter
Timely Audit Reports
CICA /AICPA Research Study on Continuous Auditing
3
Nature of Reliable Systems
4
(No Transcript)
5
User Discovers Information
6
Is Information In Context?
7
Is Context Derivable?
8
Is Original Company the Source?
9
Reconciliation and Assurance
10
Resolution and Determination of Risk
11
XBRL Facilitator for CA

• Value of a standard
• Built into applications for better integration
• Built into audit tools for testing and
  communications
• Setup, changeovers eased
• (Human) communications and expectation setter

12
Business Facts and Accounting

• Business events (sale, cash receipt)
• ebXML space
• Interpretation of events (mapping to accounts)
• Accomplished now through Setup or Master files
• Results of interpretation (entry of
  account-oriented info)
• XBRL GL space
• Summarization of events (detail to summary)
• XBRL for XYZ reporting space
• Presentation of interpretation of events
  (print/view/export summary)
• XBRL for XYZ reporting space

The GAAP GAP
13
Foundation Facts

• Facts enter financial systems through journal
  entries or postings from subsidiary journals
• Account, amount, date Atomic entry
• Related atomic entries match a journal header
• Related journal headers match a source wrapper
• Relationship to reporting
• bottom up (atom relates to taxonomies and
  elements) or
• top down (this report uses these atomic
  classifications)
• XBRL GL
• Reporting neutral
• Fact gatherer

14
(e)Business and Accounting
Mirror
Image
15
General Ledger

• Bridge between EDI and XBRL Reporting
• Foundational repository for Foundational Facts
• Hub between Financial reporting, Tax and all
  others
• Enabler of outsourcing/ASP
• Provides means to extract or download GL
  information from outsource ASP in reusable,
  standardized format
• Insurance for ASP failure, problems,
  dissatisfaction
• Information available at any time, from anywhere,
  for anyone responsible with rights to access it
• Facilitates
• Consolidations and other interoperability issues
• Migration between systems

16
Chart of Accounts
Accounting Periods
Source journals
E X P O R T T O X M L
Budgets versions years
Mappings
Comparatives years
Journal Entries
Standard, repeating, recurring journals
Ledger
Mask
Standard Reports TB, Source
Custom Reports, exports
17
Chart of Accounts
Accounting Periods
Source journals
IM PORTFROM X M L
Budgets versions years
Mappings
Comparatives years
Journal Entries
Standard, repeating, recurring journals
Ledger
Mask
Standard Reports TB, Source
Custom Reports, exports
18
Account Amount Date
EDIFICAS - derived after-the-fact
GL-AR-AP-IM-PR-XX
19
One File, Three Levels
Accounting Entries
Entry Header
Entry Line
20
General Ledger details Include primary postings
Chart of Accounts Includes Accounts
Departmental allocations
And customers, vendors
Customer, vendor open items
21
General Ledger Holds More
22
Cost or Analytical Accounting
23
General Ledger Holds More
24
Legal issues

• Sequential logging and governmental audits

Reversals
tje?
Book Governmental Reporting
Book to Tax Differences
25
Software Developers

• Pros
• Easier coupling, interface
• Less development required to interface with third
  party products
• ASP
• Add-ons
• Financial reporters
• Budgeting
• Specialization OK
• Users can use best software for their own use and
  use XBRL to consolidate rather than one package
  throughout

• Cons
• Switching costs
• Easier for users to buy complimentary products
  outside of the vendors family
• Plug-and-play
• Modular
• Easier for users to leave product
• Data migration path

26
End Result
27
Assurance Today
data

• No piece-meal opinions
• As a whole
• Relies on
• Materiality
• Subsequent events
• Documents on the Net are representations of paper
  document reusability limited
• HTML
• PDF
• Java(script)
• Questions surrounding where assurance ends
• Links off-site
• Management comment

28
Demands for Data Level Assurance
data

• Data level assurance is
• Assurance on the data?
• Assurance on the processes, per se? (necessary
  for)
• Assurance on the tags / classifications?
• Data level assurance
• Are the tags assigned correctly?
• Was it posted to the right account / bucket /
  classification?
• Supplemental assurance
• Linkage to taken as a whole
• Presentation a non-issue

29
XBRL
data

• Tags assigned to data
• Data items can be presented
• As single fact
• Collectively as extract
• As entire financial statement
• Information reusable
• Tools exist to show what is covered under
  assurance
• This is where we need to go

30
XBRL
data

• Promises to make financial information more
  discoverable
• Enables integrated reporting, from point of entry
  to reporting
• Will ride along on XML-related technologies
• Move from presentation of data to data-centric
  model
• Raise the bar on expectations
• Partial receivables and inventory information
  to bank
• New Performance metrics offered to
  shareholders
• Continuous Sales figure constantly updated on
  web site
• Continuous audit

31
XBRL

• Does not create the data level assurance need
• Is a facilitator and catalyst
• Can be part of the solution

32
XBRL
data

• Is a CPA firm that creates an XBRL file doing a
  compilation?
• Does it need an accountants letter for the XBRL
  file itself if the CPA firm creates it?
• Can only the firms personnel assign tags to the
  file?
• If the wrong tag but correct label are provided,
  what are the repercussions?
• What happens if only a partial financial
  statement is represented with XBRL?
• What about adding information not normally
  included?

33
How Can We Cope?
data

• Technology to tie Company authorization and CPA
  assurance
• To eDocument
• To eData
• Must be
• Transparent to non-technical users
• Much simpler than assurance seals
• Nearly impossible to counterfeit

34
Selective Unfolding Tax XML
coping
TAX AUTHORITY
TAXPAYER
AGENT 1
Tax information Page 1 General info Page 2
Sales tax Page 3 Motor fuels Page 4 Corporate
Page 2
Page 1 to everyone
Page 3
AGENT 2
Page 4
Sees only cyphertext
AGENT 3
Hacker
35
Selective Unfolding Order XML
coping
Web buyer
Page 2
AR
Web order Page 1 General info Page 2 credit
info Page 3 purchase info
Page 1 to everyone
Page 3
Sees only cyphertext
Shipping
Hacker
36
Why Does This Affect XBRL?
coping

• XBRL for Financial Statements todays publicly
  disclosed financial reporting information right?

Publicly Disclosed F/R Data
Todays F/R and tomorrows business metrics
publicly disclosed.

• Investors
• Creditors

Prediscloure data
Accounting and business reporting data.

• Managers
• Trading partners
• CPA

• Banks
• Consolidation

Traditional financial reporting the tip of the
iceberg?
37
The User Matters
coping

• Need live connection to network
• Rights determine access

login
Here is the data you are allowed to see
password
Rights check
38
The User Matters
coping

• XML file archived
• Or email
• Or ftp
• User accesses XML
• Based on keys, sees certain information
• More needed?
• Key request
• More information opens

lt?xml version"1.0"?gt ltsigned data key1
cyphertext ltsigned data key2 cyphertext
D I S C O N N E C T
Open file
Here is the data you are allowed to see
More please? Key request
Here is the data you are allowed to see now
My key
Create file
39
Selective Unfolding XBRL GL
coping
Level 1
Bank
Level 3, filter by division
Investor relations
Divisional Manager
XBRL FR and GL Top level Public disclosure Level
1 Segmental breakdown Level 2 AR, AP, cash
flow Level 3 Full GL detail
Level 2
Sees only Top level
Treasury Management
Hacker
Public
40
Key Considerations
Call to action

• Data Level Assurance
• Tag
• Was tag applied to right number
• Data Fairly Presented In Context Of Overall
  Financials
• Item in context of the rest of the financials
• More than just numbers links info (like going
  concern status) to numbers
• Data Fairly Presented
• Item on its own

41
Key Considerations
Call to action

• Data Level Assurance Issues Is it possible?
• Materiality in a data age
• Assurance to numbers or to processes
• Classification (is the tag right) or data (is the
  number right)
• What is the investor's expectations of what this
  means?

42
Academic/Industry Relations

• "the most persistent observation . . . is that
  researchers and users belong to .. separate
  communities with very different values and
  ideologies and that these differences impede
  utilization."

Beyer, J.M. Trice, H.M. 1982. The utilization
process A conceptual framework and synthesis of
empirical findings. Administrative Science
Quarterly, 27 591-622.
43
Academic Involvement

• So far
• Business Reporting on the Internet authors
• Lymer, Debreceny, Gray (and Rahman)
• LDB involved in development
• Bryant College
• Symposium and administrate the
• XBRL Academic Competition
• Students particpate in research, applications,
  taxonomy
• University of Kansas
• Helping Edgar Online with XBRLization of SEC
  filings
• Rutgers
• Awareness and considerations
• Seattle Pacific
• Working with vendor XBRL Solutions to create
  training materials
• To come
• AAA Stovepipes coming together

44
Opportunities for Research and Teaching

• Audit ramifications of XML
• XML Audit and Control
• Development of performance measurements items
• GRI, Sustainability
• Accounting and organizational behavior
• XML changes roles
• What is obsolete, new?
• Financial reporting systems
• What can happen?
• Objective evaluations of value
• What are keys to acceptance and implementation

• Digital signatures and encryption
• How does this serve the public interest
• Need the discipline of being model oriented
• How will this affect policy making?
• How do we best
• Bring together communities
• Provide rigor
• Encouraage future thought
• What is the downside?
• Data trust - how to live without materiality and
  subsequent events?

45
Questions?

• Eric E. Cohen, CPA
• PricewaterhouseCoopers LLP
• 117 Rossiter Road, Rochester NY 14620-4127 USA
• 716.271.4070
• Internet
• eric.e.cohen_at_us.pwcglobal.com

46
pwc