Assurance on XBRL Instance Document:
A Conceptual Framework of Assertions
Rajendra P. Srivastava
And
Alexander Kogan
16th World Continuous Auditing & Reporting Symposium
Rutgers University- Newark
November 7 and 8, 2008
Outline
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Definition of Assurance on XBRL Instance Document
Background
SEC Proposal: Interactive Data to Improve Reporting
Current Approaches to Assurance on XBRL Instance
Documents
Assertions and Assertion Based Audit Approach
Materiality concepts
Control Test versus Substantive Procedures
Conclusions
Assurance on XBRL Instance
Document
General Definition (Srivastava & Kogan, 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”
Background
• SEC Proposal: Interactive Data to Improve Reporting (2008)
• Plumlee, D. and M. Plumlee. 2008. Assurance on XBRL for Financial
Reporting. Accounting Horizons, Vol. 22, No. 3: 353–368
• 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.
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
• Standard elements
• Standard labels
• Standard calculations
• Standard references
• Standard presentations
“tagging”
Corporate Extension
Taxonomies
• Unique elements
• Unique labels
• Unique calculations
• Unique references
• Unique presentation
Corporate Financial Facts
Instance
Document
SEC Provided
Viewer
Presentation Tools/Style Sheets
Final Output
Taken from
Plumlee & Plumlee 2008
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.
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
o
o
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.
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 humanreadable 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.
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
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
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)
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
Accounting Model: FASB,
1993
User
Understandability
Usefulness
Relevance
Feedback
Reliability
Timeliness
Prediction
Verifiable
Consistency &
Comparability
Faithfully
Represented
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
Management Assertions (SAS 106)
and Related Audit Objectives
Assertions about account balances
• Existence
• Completeness
• Rights and Obligations
• Valuation or Allocation
Assertions about classes of transactions and
events
• Occurrence
• Completeness
• Accuracy
• Cutoff
• Classification
Assertions about presentation and disclosure
• Occurrence and rights and obligations.
• Completeness
• Classification and understandability
Audit Objectives
o
o
o
o
o
o
o
Validity
Completeness
Ownership
Valuation
Cut-off
Classification
Disclosure
IQ Model (Bovee, Srivastava &
Mak, IJIS 2003)
Information Quality
Integrity
Accuracy
Accessibility
Consistency
Completeness
Interpretability
Timeliness
Criterion
1
Non-Fictitiousness
Age
Volatility
Relevance
Criterion
n
Risk Based Approach for
Conceptualizing Assertions
1.Data Deficiencies in the XBRL Instance Document
Omissions of relevant data from the traditional format
documents (Completeness)
o Insertions of data not present in the traditional format
documents (Existence)
o Erroneous element values and / or attribute values
(such as context, unit, etc.) (Accuracy: Element
Accuracy or Attribute Accuracy)
o
Risk Based Approach for
Conceptualizing Assertions
1.Deficiencies of the Mark-up in the XBRL instance
Document
Erroneous tagging of data that violates XML syntax
rules (Violation of Well-formedness)
o Erroneous tagging of data that violates XML Schema
(Violation of Validity)
o Inappropriate choice of XBRL elements to tag traditional
format document data (Violation of Proper
Representation)
o
Risk Based Approach for
Conceptualizing Assertions
1.Deficiencies of XBRL Taxonomies used by the
Filer
Improper choice of general and industry-specific XBRL
taxonomies by the filer (Proper Taxonomies)
o Violations of XML or XBRL language rules in XBRL
taxonomy extensions by the filer (Valid Taxonomy
Extensions)
o Inappropriate introduction of new elements in XBRL
taxonomy extensions (Proper Extension Elements)
o Inappropriate / erroneous linkbases in XBRL taxonomy
extensions (including the choice of
inappropriate/misleading labels) (Proper Linkbases)
o
A Quality Model for XBRL Instance Document
(Srivastava & Kogan 2008)
XBRL instance document is a true
representation of the electronic document
(ASCII or HTML) filed with the SEC
2. Meta-Data in XBRL
Instance Document
are Reliable
1. Business Facts in XBRL
Instance Document
are Reliable
1.1 Completeness
1.2 Existence
1.3.1 Element Accuracy
2.1 Well-Formedness
3.1 Proper Taxonomies
It faithfully represents the
Electronic Filings of FS
3. Meta-Data External to XBRL
Instance Document
are Reliable
1.3 Accuracy
1.3.2 Attribute Accuracy
2.2 Validity
3.2 Valid Taxonomy
Extensions
2.3 Proper Representation
3.3 Proper Taxonomy
Extension Elements
3.4 Proper
Linkbases
Assertion Based Audit Methodology:
1. Business Facts in XBRL Instance Document are
Reliable Procedures as items of evidence pertaining to the assertion
Specific Assertions
Completeness
Existence
Accuracy
Element
Accuracy
Attribute
Accuracy
Manual (M): Trace from the text document to the instance document
and note that all business facts are tagged.
Intelligent Software (IS): Intelligent software can be programmed to
tag all the business facts. Compare programmatically each tagged
fact prepared for the SEC filing with the tagged facts by the intelligent
system.
M & IS: Intelligent software creates a text document from the XBRL
tagged document and a knowledgeable person traces from this
created document to the original document to check if the tagged
facts are present in the original document.
M: Trace from the text document to the instance document to check if
the values of all the business facts are the same as the values on the
rendered document.
IS: Intelligent software can be programmed to read the values of the
business facts from the original document and compare them with the
corresponding values in the instance document.
M: Trace from the text document to the instance document to check if
the values of all the attributes are the same as the values of these
attributes in the instance document.
IS: Intelligent software can be programmed to read the values of the
business items from the original document and compare them with
the corresponding values in the instance document.
Assertion Based Audit Methodology:
2. Meta-Data in XBRL Instance Document are Reliable
Specific Assertions
Procedures as items of evidence pertaining to the assertion
Well-Formedness
Manual (M): Evaluate the error messages generated by the software
to verify well-formedness.
Intelligent Software (IS): Utilize any approved XML parsing software
to verify that the instance document is well-formed.
Validity
M: Evaluate the error messages generated by the software to verify
validity.
IS: Utilize any approved XML validating parsing software to verify that
the instance document is valid.
Proper
Representation
M: Trace from the instance document to the text document to check if
the tags, as they are defined in the XBRL taxonomies, properly
represent the facts of the traditional format document.
IS: Intelligent software can be programmed to maintain a mapping
between the facts of the traditional format document and the elements
of the instance document to aid in manual decision making.
Assertion Based Audit Methodology:
3. Meta-Data External to XBRL Instance Document
Specific Assertions
Procedures as items of evidence pertaining to the assertion
Proper Taxonomies
Manual (M): Compare the discoverable taxonomy set in the instance
document with the available approved and acknowledged XBRL
taxonomies to check if all the appropriate taxonomies are used and all
the used taxonomies are appropriate.
Intelligent Software (IS): Utilize XBRL processing software to identify
and visualize the discoverable taxonomy set in the instance document.
Valid Taxonomy
Extensions
M: Evaluate the error messages generated by the software to verify
validity.
IS: Utilize approved XBRL processing software to verify that the
taxonomy extensions are valid.
Proper Extension
Elements
M: Analyze new elements in XBRL taxonomy extensions to verify that
they are defined properly and they not duplicate unnecessarily existing
elements.
IS: Utilize XBRL processing software to examine new elements in XBRL
taxonomy extensions.
Proper Linkbases
M: Analyze new and changed arcs in the linkbases of XBRL taxonomy
extensions to verify that they are defined properly.
IS: Utilize XBRL processing software to examine new and changed arcs
in the linkbases of XBRL taxonomy extensions.
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
o All major line items need to be traced and compared
• No Statistical Sampling
o Each line item is a separate test unit; not appropriate for
statistical sampling
o However, on certain attribute one would be tempted to
perform sampling but the size of the population is too
small to use sampling
Other Issues:
Materiality and Risk
• Two kinds of materiality
o
o
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
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