XBRL Assurance-Crete July-2008 raj by xiangpeng

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									An Integrated Approach to Assurance on XBRL
Instance Document: A Conceptual Framework

                   Rajendra P. Srivastava
              Ernst & Young Professor and Director
              E&Y CARAT, The University of Kansas
                       rsrivastava@ku.edu



                  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
                                                               1
       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
                                                             2
    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”
                                                     3
        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.               4
          XBRL Instance Document Preparation Process
                            XBRL Specification 2.1
                  An XML Schema that provides the rules for valid
                    XBRL instance documents and taxonomies


US GAAP Taxonomies
                                                  Corporate Extension
• Standard elements
                                                  Taxonomies
• Standard labels                 “tagging”       • Unique elements
• Standard calculations                           • Unique labels
• Standard references                             • Unique calculations
                                                  • Unique references
• Standard presentations
                                                  • Unique presentation


                           Corporate Financial Facts


                                   Instance               Taken from
                                  Document                Plumlee & Plumlee 2008


SEC Provided           Presentation Tools/Style
Viewer                 Sheets


                                Final Output                                       5
      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.
                                                               6
         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.
                                                                                   7
      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.
                                                           8
      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***
                                                               9
    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                                   10
      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)

                                                            11
 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


                                      12
         Table 3 Comparison between AWG and PCAOB (Boritz and No, 2007)
         AWG                                       PCAOB
                        Q4:Auditors’ sufficient knowledge of the applicable SEC
                           Regulations and XBRL taxonomies and specifications to
Acceptance                 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         Q5:The attributes of suitable and available criteria for
   appropriateness of    examination engagements regarding XBRL-Related
   the subject matter    Documents
Assessing the           Q5:The attributes of suitable and available criteria for
   suitability of the      examination engagements regarding XBRL-Related
   criteria                Documents
Risk and materiality
                        Q7:Objectives and examination procedures regarding the
Obtaining evidence                                                                 13
                           XBRL-Related Documents
      Table 3 Comparison between AWG and PCAOB (Boritz
      and No, 2007, continued)


       AWG                                     PCAOB

Using the work of an
expert
Management             Q7: Objectives and examination procedures regarding the
representations        XBRL-Related Documents
                       Q8: Reporting requirements for examination engagements
Reporting
                       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                                     14
                Accounting Model: FASB, 1993
                                                          User


                                                Understandability

                                                     Usefulness


                 Relevance                                                                   Reliability

      Feedback                 Timeliness                                     Verifiable                 Faithfully
                                                                                                        Represented
                 Prediction                       Consistency &
                                                  Comparability                              Neutral

                                        Benefit > Cost; Materiality
“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                                          15
       IQ Model (Bovee, Srivastava &
             Mak, IJIS 2003)
                                         Information
                                           Quality




           Integrity           Accessibility      Interpretability               Relevance



                                                   Timeliness        Criterion
Accuracy        Consistency                                               1           Criterion
                                                                                         n

                            Non-
 Completeness          Fictitiousness
                                                       Age       Volatility


                                                                                             16
        A Quality Model for XBRL Instance
        Document (Srivastava 2008)

                                 Quality of XBRL               It faithfully represents the
                                Instance Document              Electronic Filings of FS




   Existence             Completeness                Accuracy                  Reliability
   (Validity)

                      Proper Contexts                Appropriate Units
 Valid XBRL
   Schema                         Proper Linkbases                           Other
                                                                      Appropriate Attributes

 Proper XML
Representation                     Label                Calculation               Reference
                 Proper XBRL               Definition                  Presentation
                    Schema
                                                                                               17
        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, …)18
        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
                                                                  19
      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
                                                             20
         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, …)
                                                                              21
       An Example: FRAANK Output of
       unmatched tags
Original Label            Tag                        Parent Tag
Accrued aircraft rent     KU_AccruedAircraftRent     CurrentLiabilities
Advance ticket sales      KU_AdvanceTicketSales      CurrentLiabilities
Advances on flight        KU_AdvancesOnFlightEqui    PropertyPlantEquip
  equipment                 pment                       mentGross
Air traffic liability     KU_AirTrafficLiability     CurrentLiabilities
Aircraft and traffic      KU_AircraftAndTrafficServi
   servicing                cing                     OperatingExpenses
Aircraft fuel             KU_AircraftFuel            OperatingExpenses
Aircraft fuel and related KU_AircraftFuelAndRelate
   taxes                    dTaxes                   OperatingExpenses
Aircraft fuel and taxes   KU_AircraftFuelAndTaxes    OperatingExpenses
Aircraft lease            KU_AircraftLease           OperatingExpenses22
23
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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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