A Relative Cost Framework of Demand for External
Assurance of XBRL Filings
Abstract: There has been much discussion in the academic literature and in the XBRL community
on the role of audit firms in providing assurance services for XBRL filings, especially now that the
use of XBRL has been mandated in the United States. In this paper we develop a framework of the
demand for external assurance of XBRL filings predicated on two relative cost arguments. First, that
in the absence of a mandate for XBRL filings to be assured by an external auditor, a manager will
compare the cost of obtaining external assurance against the cost of obtaining confidence on the
filings internally. And second, that a manager will be reluctant to pay more for external assurance on
a XBRL filing than they paid to prepare it. We call the former the external cost relative to internal
cost comparison, and the latter the external cost relative to preparation cost comparison.
Based on our relative cost framework we predict that there will only be a role for externally provided
assurance of XBRL filings if the cost of that assurance can be either reduced or appear less
significant to clients. The former outcome can be brought about by shifting assurance from the
XBRL filings themselves to assurance of the preparer through a SSAE No. 16/SAS No. 70 report,
thereby converting the cost of XBRL assurance from a variable cost to a fixed cost that is spread
amongst many filers. External auditors can also attempt to make the cost of XBRL assurance less
salient to managers by folding that cost into their total audit fees.
Keywords: XBRL, assurance services, audit firms, relative cost, SSAE No. 16, SAS No. 70.
1. Introduction
Based upon reviews of XBRL Edgar filings at the US Security and Exchange Commission (SEC)
undertaken by the professional and academic communities (Boritz and No, 2008; Debreceny et al,
2010; Bartley et al, 2010; www.xbrlcloud.com; www.edgar-online.com), the ongoing occurrences of
errors in XBRL-related documents and XBRL-instance statements indicate the need for better
quality control in the preparation of these filings (hereafter we shall refer to all documents tagged
with XBRL and submitted to the SEC as “XBRL filings”). Management and board members of
XBRL filers want a high level of confidence that their filings are free of material errors. No matter
what degree of importance these executives place on XBRL, they would not want to see their
company’s name associated with the error or warning validation codes on such near real time online
analysis websites as www.xbrlcloud.com, accompanied by the risk of subsequent unfavorable press
coverage. Besides the imperatives of company executives, the analyst community may be reluctant to
use XBRL filings if their confidence in those filings falls below their minimum quality threshold.
The question we explore in this paper is what role external auditors can play in improving
confidence in XBRL filings given that there is no mandate at present for those filings to have
independent assurance. The Center for Audit Quality (CAQ, 2009) Alert #2009-55 “Potential audit
firm service implications raised by the SEC Final Rule on XBRL” lists seven potential XBRL-related
services audit firms may be asked by their clients to provide:
1. Advisory Services
2. Assurance Services
3. Agreed-upon Procedures
4. Examination of an Assertion About XBRL-Tagged Data
5. Examination of Controls Over the Preparation of the XBRL-Tagged Data
1
6. AT Section 601, Compliance Attestation
7. Review of an Assertion About XBRL-Tagged Data
The first three services are the most comprehensive ones accounting firms are likely to be asked to
provide, and our focus on this paper is on the second of those, assurance services. As CAQ (2009)
makes clear, there is as yet no requirement that filers obtain an assurance service (under Attestation
Standards AT section 101), but the anticipation that this might change in the future is why
comprehensive assurance services are the focus of the academic research on external assurance of
XBRL filings.1
We exclude advisory services in our discussion because of limitations on audit firms providing nonaudit services such as advising clients on preparing their XBRL filings. As its name implies, the
scope of an agreed upon procedures (AUP) engagement, which is conducted under Attestation
Standards AT section 201, can be whatever the client and firm agree to. An XBRL-filing AUP
engagement could range from a relatively small engagement that focuses on just one aspect of the
XBRL filing to a comprehensive engagement that addresses all aspects of the filing. The key
distinguishing characteristic of an AUP engagement in contrast to an assurance service is that the
accountant does not issue an opinion at the end of the AUP engagement. Although an AUP
engagement does not provide XBRL filers with assurance, we discuss AUPs in this paper in order to
establish a lower bound for the cost of assurance services for XBRL filings.
The fact that independent assurance is not mandated for a mandated XBRL filing provides a unique
opportunity to examine what drives the endogenous demand for assurance and auditing services in
general. While many academics and practitioners have taken for granted that filers would ultimately
demand the “gold standard” of an assurance service provided by an external auditor, at present few
1
This literature is discussed below.
2
filers have employed external auditors to conduct the less demanding AUP engagements. Ernst
&Young estimated that less than a quarter of filers were using an external auditor in their XBRL
filing process as of November 2010.2
We develop in this paper a relative cost framework for understanding the decision making process
of managers of companies making XBRL filings who are contemplating employing an external
auditor to provide assurance services for those filings. Our framework assumes that these managers
would examine substitutes for external assurance services and also that behavioral factors will
constrain how much they are willing to pay for those services.
We develop our relative cost framework in the next section of the paper. Section 3 then examines in
depth one aspect of our framework, what we call the external cost relative to preparation cost
comparison. Section 4 does the same for the external cost relative to internal cost comparison.
Section 5 discusses the economic predictions arising from our relative cost framework for nonmandated independent assurance of XBRL filings by external auditors. Section 6 offers concluding
comments.
2. The Demand for Non-Mandated External Assurance Services for XBRL
Filings
In December 2008, the SEC officially mandated the phase in of XBRL filings to be furnished as an
attachment to traditional Form 10-Q and 10-K filings. The timing and scope of the mandate is
illustrated in
Table 1. The schedule for the application of that mandate to filers depends on the size of the
company’s public float and, in addition, the scope of the mandate increases over time for all filers.
As stated by Mathew Slavin of Ernst & Young at the 5th KU XBRL Conference, April 2011, with statistics based upon
more than a thousand responses to an E&Y webcast held in November 2010. E&Y emphasized that due to selfselection bias this not a representative sample, but it does provide a general perspective on the level of demand for
AUPs.
2
3
Adoption
summary for
corporate
filers
A. A. Large
Accelerated
Filers
w/ public
float
> $5B
(~ Fortune
500)
B. Balance of
Accelerated
Filers with
public float >
$700m
(~ next 1,600
largest public
companies)
Periods ending
after June 15, 2009
Periods ending after
June 15, 2010
Periods ending after
June 15, 2011
Year 1 – structure
amounts in financial
statement tables in
detail and notes to
financial statements
in 'block text'.
Roughly 300
disclosure elements.
(~950 filings)
Year 2 – structure amounts
in financial statement tables
and individually tag each
significant accounting policy,
table within a footnote and
each quantitative amount
within a footnote. Roughly
3,000+ disclosure elements.
Same as year 2.
Limited liability provisions are
scheduled to be lifted by the
SEC after 2nd year. Companies
may desire more comfort on
processes and controls.
.
Year 1 – structure amounts in
financial statement tables in
detail and notes to financial
statements in 'block text'.
Roughly 300 disclosure
elements.
(~5,000 filings)
Year 2 – structure amounts in
financial statement tables and
individually tag each significant
accounting policy, table within
a footnote and each
quantitative amount within a
footnote. Roughly 3,000+
disclosure elements.
C. Balance of
~10,000
public
companies
(including
FPIs under
IFRS)
Year 1 – structure amounts in
financial statement tables in
detail and notes to financial
statements in 'block text'.
Roughly 300 disclosure
elements. (~26,500 filings)
Table 1. Phase-in of SEC XBRL requirements.
In our framework we take as given that managers will demand some level of confidence on their
company’s mandated XBRL filings and focus on their decision about how they obtain that desired
level of confidence. That inevitably focuses attention on who can provide that confidence and the
relative cost of each of those providers. This is a perspective that obviously does not need to be
considered in situations where the use of the external auditor is mandated (such as financial
4
statement audits), which is what makes the case of XBRL a unique experiment to help determine
what is the endogenous demand for external auditors in a “free market” for the assurance that they
provide.
Multiple Confidence Providers
The key to understanding demand for external assurance services for XBRL filings in the absence of
a mandate to employ an external auditor is that, as
Figure 1 illustrates, there is not one, but multiple providers of the confidence sought by
management that their XBRL filing is free of material errors. The overall confidence of management
in the XBRL filing, as well as that of users of those filings, is an aggregation of:
1. Confidence in the skills of the internal staff involved in preparing, reviewing, and/or
approving the XBRL filing;
2. Confidence in the validation tools in the XBRL creation/conversion software (or other
validation tools) that may be used to prepare/validate the XBRL filing;
3. Confidence in the capabilities of the filing agent or other outside service provider that may
be used to prepare the XBRL filing; and,
4. Confidence arising from the assurance of the XBRL filings by an external auditor.
Hence, given that there are a variety of providers who individually and in aggregate deliver the
desired level of confidence about the XBRL filings to the management and board, a role for the
external audit firm as the primary source of assurance for XBRL filings cannot be taken for granted,
as it obviously can with the financial statements themselves where auditing is mandated by law. In
the absence of such a mandate for independent assurance of XBRL filings, the role of firm’s auditor
in relation to those filings has long been debated.
5
Figure 1: Confidence Providers for XBRL Filings
Evolution of XBRL Assurance
The first meeting of the 13-member XBRL steering committee at the AICPA headquarters in
October 1999 is considered the birth of XBRL.3 The primary focus at that time was on developing
specifications and standards for creating XBRL-related financial reports. Paralleling these initial
activities were informal discussions regarding what types of assurance services were appropriate for
XBRL-tagged financial reports. The assurance discussion became more formal with the
establishment of assurance taskforces—both in the U.S. and internationally—and the publishing of
3
http://www.xbrl.org/history-print.aspx.
6
several whitepapers discussing assurance of XBRL filings (AICPA 2002; Trites 2005, 2006). In 2005,
the Audit Standards Board (ASB) of the AICPA published “Attest Engagements on Financial Information
Included in XBRL Instance Documents” (AT 9101.47–.54) to provide guidance to accountants providing
XBRL-related assurance services. In 2005, the Public Company Accounting Oversight Board
(PCAOB) published guidance for assurance on filings under the SEC Voluntary Filing Program
(VFP).
Although activities continue in the XBRL community regarding assurance, the SEC specifically
noted that assurance was not required for its prior VFP or its current mandatory XBRL filings (SEC,
2009). It is notable that in its explanations for not mandating assurance of XBRL filings, the SEC
makes reference to many of the alternate providers of confidence shown in Figure 1:4
“…note that we are not requiring that filers involve third parties, such as auditors or consultants, in
the creation of their interactive data filings. We are taking this approach after considering various
factors, including:

commenters’ views;

the availability of a comprehensive list of tags for U.S. financial statement reporting from
which appropriate tags can be selected, thus reducing a filer’s need to develop new elements;

the availability of user-friendly software with which to create the interactive data file;

the multi-year phase-in for each filer, the first year of which entails the relatively
straightforward process of tagging face financial statements, as was done during the
voluntary program, and block tagging footnotes and financial statement schedules;

the availability of interactive data technology specifications, and of other XBRL U.S.,
XBRL International, and Commission resources for preparers of tagged data;
4
SEC (2009, pp. 94-95).
7

the advances in rendering/presentation software and validation tools for use by preparers of
tagged data that can identify the existence of certain tagging errors;

the expectation that preparers of tagged data will take the initiative to develop practices to
promote accurate and consistent tagging; and

the filer’s and preparer’s liability for the accuracy of the traditional format version of the
financial statements.”
A Conceptual Framework
As long as the SEC does not mandate that a company’s external auditor must provide independent
assurance regarding its XBRL filings, whether to ask that auditor to provide XBRL-related assurance
services, or a lesser-scope AUP engagement, is a cost/benefit decision to be made by management
on the basis of the relative cost of the various providers of confidence illustrated in
Figure 1. Management’s cost/benefit decision is one component of our framework.
The other component arises from considering what an external auditor would charge to provide
assurance services regarding XBRL filings in comparison to the company’s cost of preparing those
filings in the first place. The evidence is that preparation costs are falling even as the price of
externally provided assurance services remains high or unknown.5 Srivastava and Kogan (2010),
Boritz and No (2011) and Boritz and No (2009) have recently put forward frameworks for the
assurance of XBRL filings by an external assurance provider, but these papers do not discuss the
cost of implementing their assurance frameworks, which, considering their length and depth, may
well be considerable. Plumlee and Plumlee (2008) also discuss assurance of XBRL filings and they
Since our decision framework is from the perspective of the management of XBRL filers, we will henceforth refer to
the cost to filers of obtaining external assurance of XBRL filings, rather than the price charged by the external auditor to
provide that assurance.
5
8
do call for research into the cost and benefits of that assurance, while warning that the specialized
technical knowledge needed to verify XBRL filings may be very expensive to obtain. Just as
managers have to consider the relative cost of alternative providers of confidence in the XBRL
filings, so they have to think about how much of their XBRL filing budget they are willing to
allocate to obtaining external assurance relative to how much they spend on actually creating those
filings.
We bring these two components together in a conceptual framework on the demand for external
assurance of XBRL filings. The framework is predicated on an aspect of the costs of that external
assurance that has yet to be raised in either the academic or practice literature, that the feasibility of
an external auditor providing assurance of XBRL filings is a function not just of the absolute cost of
providing assurance for those XBRL filings, but also of two relative cost comparisons:
1. The external cost relative to preparation cost comparison: The cost to the filer of
obtaining independent assurance on XBRL filings from an external auditor relative to the
company’s cost of preparing those filings. This comparison arises from extrapolating what
happens if the cost of preparing XBRL filings keeps falling while the cost of externally
assuring those statements does not. Our contention is that given behavioral considerations,
managers will be resistant to pay more for assuring an XBRL filing than they pay for
preparing that filing in the first place.
2. The external cost relative to internal cost comparison: The cost of obtaining
independent assurance on XBRL filings from an external auditor relative to the cost of using
internal providers of confidence. This comparison comes down whether it costs less to
obtain adequate confidence internally by improving the process by which the XBRL filings
are prepared, as opposed to having to ex-post verify an XBRL filing that has already been
9
prepared by the company or outsourced service provider, as the external auditor is tasked
with doing.
Discussions regarding relative cost have not significantly impacted auditing before. Obviously, with
the auditing of financial statements mandated, the tradeoff with internally generated confidence is
not an issue: as outlined in SAS No. 65, an external auditor can rely to some extent on the work
performed by the internal auditor, but the external auditor is alone responsible for the audit opinion
that accompanies the financial statements and that responsibility cannot be shared. Hence, there is
no equivalent to the decision facing management in the case of XBRL filings about the relative value
of obtaining assurance from internal and external providers of confidence. Similarly, while audit
committees will always negotiate with the auditor over the cost of the audit, and pressure CFOs to
control costs in the accounting department, there has been no compelling reason to compare these
two costs against each other since both are large, and not apparently trending in any particular
direction. And, of course, the bottom line is that both these costs are seen as necessities, with hiring
an external auditing being mandated—as is filing financial statements—and not an optional extra, as
is the case at present with XBRL filing assurance.
We make the case, however, that that both of these relative cost comparisons will impact the
demand for the provision of assurance of XBRL filings by an external auditor. In fact, we can go
further and predict that these two relative cost comparisons will drive external XBRL assurance to
converge to outcomes which either reduces the relative cost of external assurance, or else effectively
reduces the significance of that cost to potential clients. An approach that leads to the former
outcome is one in which the XBRL filing preparation process will be the focus of the assurance
services rather than the XBRL filings themselves, hence making the cost of assurance a fixed cost
that can be spread amongst many users rather than a variable cost to be borne by each filer. The
10
second scenario would see audit firms attempting to fold the cost of assuring XBRL filings into the
overall costs of providing assurance for all the company’s mandated SEC filings so that the client
does not make a standalone comparison between the costs of XBRL assurance and either the
preparation costs or the cost of internally obtained confidence on the XBRL filings.
What combination of these outcomes will actually arise is an empirical question. We discuss the
predictions of our relative cost framework in section 5, but first, we discuss each component of our
framework in greater detail.
3. The External Cost Relative to Preparation Cost Comparison
When considering the cost of preparing XBRL filings relative to the cost of providing assurance on
them, the evidence from practice is that despite the increasingly onerous requirements for XBRL
filings (e.g. detailed footnote tagging in the second year), the cost of preparing XBRL filings falls
significantly after the second filing year, and moreover, even the startup cost is not particularly high
to begin with. Microsoft, for example, reportedly spent 180 person-hours preparing its initial XBRL
filings in 2008 (under the VFP), but only 24 person-hours in 2009, at a cost that its controller
publicly described as “chickenfeed”. The cost to Microsoft of preparing its XBRL filings in 2010
was under $100,000.6 Phil Moyers of Edgar Online claims that, with his automated tagging
approach, a typical company’s statements can be processed in no more than 8 to 10 hours. 7 These
numbers are in line with those reported for the SEC’s earlier voluntary filing program, which are
shown in
Table 2 (Source: SEC 2009, page 133).
All these figures are taken from statements made by Bob Laux, Senior Director, Technical Accounting & Reporting,
Microsoft Corporation, at AAA panel discussions in 2008 and 2009.
7 Statement made at AAA panel, 2009.
6
11
st
1 submission/
block-text
footnotes &
schedules
Subsequent
submission/ blocktext footnotes &
schedules
st
1 submission/
detailed footnotes
& schedules
Subsequent
submission/
detailed footnotes &
schedules
Preparation
face financials
$31,370
$4,310
$4,310
$4,310
Preparation
footnotes
$1,750
$1,750
$17,500
$8,750
Preparation
schedules
$250
$250
$1,750
$875
Software and
filing agent
services
$6,140
$6,140
$6,140
$6,140
Web site
posting
$1,000
$1,000
$1,000
$1,000
Total cost
$40,510
$13,450
$30,700
$21,075
Upper bound
$82,220
$21,340
$60,150
$37,940
Table 2: Preparation Costs of XBRL Voluntary Filing Program Filers
As shown in Table 1, the SEC mandate for XBRL requires progressively more complete and
complex XBRL filings during the second filing year, in particular, the tagging of the detailed
contents of financial statement footnotes.8 Hence, one can make the argument that the cost of
filings will rise somewhat from that of VFP filers, though as can be seen from Table 1, even an
order of magnitude increase in these costs in the second year would still make them relatively small
for all except the smallest of filers.9 Moreover, a countervailing force on these costs is the tendency
“Financial statement footnotes and financial statement schedules initially will be tagged individually as a block of text. After a year of such
tagging, a filer also will be required to tag the detailed quantitative disclosures within the footnotes and schedules and will be permitted, but not
required, to the extent they choose, to tag each narrative disclosure.” http://www.sec.gov/rules/final/2009/33-9002.pdf
9 SEC (2009, page 135): “Block tagging of footnotes is estimated at 7 hours for the first filing, with a 50% reduction in time for subsequent
filings; and Detailed tagging of footnotes is estimated at 70 hours for the first filing, with a 50% reduction in time for the subsequent filings.”
8
12
of XBRL tagging to attain a “steady state” meaning that once the ramp up in the mandated
requirements is complete, for a specific company, its tags (and associated labels) are going to be
virtually the same from year to year. Essentially the XBRL filing will become a template, with only
its content (numbers, dates, etc.) being updated each year, not its tags or other structure.
That is indeed, a feature of such XBRL software as Rivet Software’s Crossfire Compliance™, which
allows users to simply drop new content into the correct “buckets” on a template drawn from the
prior year’s filing.10 As such, the numbers of hours needed to prepare the filing should fall
significantly after the second year of the mandate, as Table 1 indicates. In addition, despite the initial
safe harbor for XBRL filings, it is likely that a company’s counsel would advise that the tags and
structure of a XBRL filing be held constant as much as possible in order to retain direct
comparability to prior years. It is precisely this fear of litigation, after all, that resulted in companies
using taxonomy extensions to tag their filings even when the official taxonomy provided a nearequivalent tag: the safest course of action was to make sure that the XBRL filing used the same
terminology as the previous paper filings to the SEC, just as the structure of those paper filings are
also kept largely invariant from year to year.11
Academic Assurance Frameworks
In contrast to the decreasing cost of preparing the XBRL filings, the academic frameworks put
forward for assuring XBRL filings are becoming, depending on one’s point of view, either more
complete or more complex, but undoubtedly very time consuming and costly to implement.
Srivastava and Kogan (2010) develop a “conceptual framework of assertions for providing assurance on XBRL
http://www.rivetsoftware.com/solutions/default.aspx
In a speech at the AAA Annual Meeting (2003), Colleen Cunningham, then the Chief Accountant at AT&T, indicated
that the legal department would never let her change anything on the financial statements (other than numbers, etc.).
The labels and level of details/aggregation were cast in concrete.
10
11
13
instance documents”. They claim that violations of any of these assertions “will constitute errors in the
XBRL instance documents”. Even the summary diagram as shown in
Figure 2 (Source, Srivastava and Kogan, 2010, page 267) for their framework, let alone the lengthy
written explanation of each element in the diagram, indicates the complexity of their approach
towards assurance.
Figure 2: Srivastava and Kogan (2010) conceptual framework of assertions for providing
assurance on XBRL instance documents
Boritz and No (2011) develop their own framework for assurance of XBRL-related documents, as
shown in
Figure 3 (Boritz and No, 2011, page 31), and they claim that theirs is more thorough than that of
Srivastava and Kogan (2010): “Our model differs from the model developed by Srivastava and Kogan in two ways.
First, our model includes several additional components (e.g., internal control and consistency) that were not addressed
14
in their model. Second, our model identifies the audit tasks that an auditor needs to perform to achieve the related
audit objectives.”
Figure 3: Boritz and No (2011) framework for assurance of XBRL-related documents
Neither Boritz and No (2011) nor Srivastava and Kogan (2010) discuss the effort required to
implement their frameworks or the costs of doing so. But some indication of the time needed can be
assessed by the earlier study of Boritz and No (2009) in which the authors “audited” the XBRL
filings of United Technologies Corporation to determine whether their “XBRL-Related Documents were
a complete and accurate reflection of its paper paradigm government filing”. Completeness and Accuracy are
only one portion of the Boritz and No (2011) framework, but even that more limited task took
15
Boritz and No (2009) some 63 hours to complete (in other words, nearly eight full working-days).
Even then, the authors warned that the assurance provided was incomplete: “At the end of the process,
we had high assurance that the 10-Q XBRL Related Documents were a complete and accurate reflection of
UTC’s 10-Q. However, if we had to form a conclusion on the fairness of the presentation in accordance with
GAAP of the XBRL-Related Documents, we would be unable to do so because there are no assurance standards or
guidelines for making such an assessment for various sections such as the MD&A, regulatory information, and the
company’s taxonomy extensions” (page 65, emphasis in original). Presumably then, the time and cost of
implementing the complete Boritz and No (2011) framework, which extends far beyond the
completeness, accuracy, and fairness of the XBRL filings, would be significantly higher.
Draft AICPA Proposed Principles and Criteria for XBRL-Formatted Information
The AICPA’s XBRL Assurance Task Force published an exposure draft of their “Proposed Principles
and Criteria for XBRL-Formatted Information” on June 1, 2011 (AICPA 2011), which states that: “The
AICPA Assurance Services Executive Committee (ASEC) has developed a set of principles and criteria for
preparers, reviewers, and practitioners to use in evaluating the completeness, mapping, accuracy, and structure of
information formatted in eXtensible Business Reporting Language (XBRL) (XBRL principles and criteria).”12
Although the AICPA document does not cite other materials (in particular, not the academic
literature discussed above), in many ways the scope of the document parallels the frameworks of
Boritz and No (2011) and Srivastava and Kogan (2010). The exposure draft is organized around four
principles (AICPA 2011 p. 9):
a. Completeness—All required information is formatted at the required levels as defined by the entity’s reporting
environment. Only permitted information selected by the entity is included in the XBRL files.
Available at http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/XBRL/Pages/ExposureDraftXBRLPrinciplesandCriteria.aspx. The AICPA has requested comments by July 15, 2011.
12
16
b. Mapping—The elements selected are consistent with the meaning of the associated concepts in the source
information in accordance with the requirements of the entity’s reporting environment.
c.
Accuracy—The amounts, dates, other attributes (for example, monetary units), and relationships (order and
calculations) in the instance document and related files are consistent with the source information in accordance
with the requirements of the entity’s reporting environment.
d. Structure—XBRL files are structured in accordance with the requirements of the entity’s reporting
environment.
Under these principles, the document lists a total of 24 specific criteria: two for completeness, eight
for mapping, nine for accuracy, and five for structure. Appendix B then maps detailed SEC filing
requirements from the EDGAR Filer Manual and other SEC documents to the principles and
criteria. While the word “cost” never appears in the AICPA exposure draft, there is no reason to
believe that implementing it would be any less onerous than the frameworks of Boritz and No
(2011) or Srivastava and Kogan (2010).
It is important to note that we are not arguing in this paper that the academic frameworks or the
AICPA’s proposed principles and criteria are not appropriate or useful, and we are more than willing
to accept the arguments of these authors that a comprehensive approach is needed if assurance
services on XBRL filings are to meet the same high standards expected of financial statement audits.
Rather, what we draw attention to is the disparity between the potential costs of implementing ever
more demanding frameworks for XBRL assurance services and the ever decreasing cost of preparing
XBRL filings, which in turn is likely to be a major source of controversy as assurance standards are
developed.
17
Behavioral Considerations
In theory, the decision on whether to utilize an external auditor for assuring a company’s XBRL
filing is a function of the costs of that assurance compared against the tangible and intangible future
benefits of that assurance, such as decreased risks of litigation or reputational damage arising from a
faulty filing. As such, the costs of preparing the XBRL filings are a sunk cost and should be
irrelevant to this decision.
So, why do we consider preparation costs central in our relative cost argument? Because we believe
that whatever normative theory may say, in practice, managers will generally be willing to spend only
a fraction of the original preparation cost on assurance, especially since the dollar value of avoided
litigation or reputation damage is difficult to quantify.
To use an everyday analogy, people often say that the appetizer is the best part of a restaurant meal,
but how many people would be willing to pay more for the appetizer than for the designated “main
course”? In theory, the price of any item on the menu should be a function of the cost of its
ingredients and preparation, but in practice, restaurants follow a rule of thumb that an appetizer has
to be priced significantly lower than an entrée, regardless of its actual manufacturing cost (Cooper,
1991).13 In other words, behavioral considerations trump economic realities in restaurants, and
likewise, we consider it unlikely that the decision making process for external assurance of XBRL
filings could escape similar constraints on how much users will be willing to pay for it.
This is particularly the case when, as yet, there is no indication of the cost of not getting assurance
on XBRL filings. While that cost—the same as the benefit of XBRL assurance—need not have any
relation to the cost of preparation, it is commonplace that when there is uncertainty as to benefits,
Unless it is obvious (to the consumer) that the appetizer utilizes particularly costly ingredients (i.e. caviar or foie-gras).
It is hard to imagine an auditor arguing that assurance of XBRL filings warrants such an exemption.
13
18
they are judged as being proportional to costs, which results in a relative cost decision model: if
assurance costs too much, it becomes hard to justify such an additional expense; on the other hand,
if assurance is inexpensive, its benefits may be perceived as correspondingly low. Indeed, many
people judge the quality of a product that they are unfamiliar with (wine, antiques, electronics) by
their purchase price (“Good things are not cheap; Cheap things are not good”). There is a
considerable research literature in economics and marketing documenting this phenomenon
(summarized by Rao and Monroe, 1988. See also the seminal paper by Scitovszky, 1945).14
Lessons From Agreed Upon Procedures
There is a need to reconcile these two seemingly diametrically opposed forces, of decreasing XBRL
preparation costs accompanied by ever-stringent demands for XBRL assurance to be “done right”.
The solution is that either the cost of assurance has to fall in line with the cost of preparing XBRL
filings, or else the level or scope of assurance has to be constrained instead.
In the latter case, assurance will be much less comprehensive than the research literature proposes,
something akin to an agreed upon procedure, performed under SOP No. 09-1 (“Performing AgreedUpon Procedures Engagements That Address the Completeness, Accuracy, or Consistency of XBRL-Tagged Data”),
as well as under SAS No. 75.15 Under SAS No. 75, the auditor and the specified users agree on
procedures to be performed under the AUP and the users take responsibility for the sufficiency of
The declining relative cost of XBRL preparation will also impact the decision on XBRL assurance through the way in
which decisions are made within all but the smallest companies in practice: by having thresholds for authorization, with
only those expenses over a certain (large) limit being referred to the most senior management. With the cost of XBRL
preparation already measured in the tens of thousands of dollars (rather than millions), once the filing itself reaches
steady state with the novelty and risks of the first few years filing behind them, will C-level management of Fortune 500
companies really pay attention to an activity with such a relatively small cost? And if they do not, will the lower-level
managers then placed in charge of the process be willing to spend a relatively large amount of money on obtaining
XBRL assurance on their own authority?
14
15
http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/Accounting/Standards/AICPASOPsAccounting/PRDOVR
~PC-014947/PC-014947.jsp
19
the procedures for their purposes.16 As discussed above, when performing AUPs, the auditor
provides no opinion, certification, or assurance that the assertions being made in the XBRL filing
are free from material misstatement. The users of reports based on AUPs must draw their own
conclusions on the results of the tests reported. Audit firms have offered such services for XBRL
filings, but it would appear that there has been thus far little demand for them.
But relative to the preparation costs shown in Table 2, the costs of even the more limited agreed
upon procedures are high. According to private discussions between the authors with Big 4 auditors,
the average cost of such agreed upon procedures that have been conducted is about $25,000. Dan
Roberts, past chairman of the XBRL US steering committee, put the cost higher: “Current ranges for
non-detail tagged “Agreed Upon Procedures” engagements are running anywhere from $25,000 to $50,000 per, with
anecdotal evidence that the base price in moving upward pretty quickly. I fully expect that number to increase
dramatically for detail tagged XBRL.”17
Matthew Slavin from Ernst & Young provided an estimate of the audit effort need to conduct an
agreed upon procedure in the first two years of the XBRL filing mandate that would imply an even
greater cost:18

“Typical year 1 engagement takes 2–3 elapsed weeks and range from 80–120 hours.

Typical year 2 engagement (detailed footnote tagging) takes 4–5 elapsed weeks and range from 250–400
hours.”
Using the $250 hourly rate used by the SEC in their cost calculations (in Table 2) would thus imply
AUP costs ranging from $20,000-$30,000 in the first year and $62,500-$100,000 in the second year,
numbers which need to be contrasted against the preparation costs shown in Table 2. In relation to
http://www.nysscpa.org/cpajournal/1996/JAN96/f160196.htm
http://raasconsulting.blogspot.com/.
18 Speaking at the 5th KU XBRL Conference, April 2011.
16
17
20
our relative cost framework, these costs of AUPs are important for they define a lower bound for
the cost of the more comprehensive—and hence, presumably even more costly—assurance services
provided by an external auditor.
Implications of Changes in Safe Harbor Provisions
Finally, we note that currently auditors face no liability for XBRL filings made by their clients and
those clients themselves enjoy a safe harbor for those filings for the first two filing years.19 What
does our relative cost framework predict will happen when that safe harbor expires?20 On the one
hand, the threat of litigation might make filers seek higher levels of confidence in their XBRL filings,
including through greater demand for AUPs and assurance services. But, on the other hand, once
the safe harbor is removed external auditors will have to price into their products an insurance
component to compensate for being perceived as “deep pockets” by potential litigants. It is unlikely
that audit firms will offer any service for as little as $25,000 if they risk being sued as a result.
An additional insurance cost may possibly be avoidable with AUPs with their explicit disowning of
assurance, but that also makes AUPs less desirable as far as XBRL filers are concerned. On the other
hand, adding an insurance premium to the cost of external assurance services will lead to a greater
divergence in relative costs between preparation and assurance.
It should also be kept in mind that there are numerous instances where businesses face liability but
do not respond by seeking external assurance—product liability being the most obvious example. In
the absence of a mandate, external auditors are just one provider of confidence out of many,
including internal sources, such as investments in product quality, as we discuss below. Thus, even if
“There is no additional basis for auditor liability based on data tagging. Also, an auditor will not be required to apply AU Sections 550,
711 or 722 to interactive data provided in an exhibit or to the related viewable interactive data.” SEC (2009, page 94).
20 Safe harbors expire “within 24 months of the time the filer first is required to submit interactive data files but no later than October 31,
2014.” SEC (2009, page 26).
19
21
the elimination of the safe harbor provision increases the concerns of management about their
XBRL filings that does not guarantee a role for external assurance, for demand for the latter will still
depend on relative cost of that particular source of confidence.
4. The External Cost Relative to Internal Cost Comparison
As shown in Figure 1, determining the relative utilizations by management of the XBRL filer of the
various providers of confidence in the filings, and particularly, whether to purchase external
assurance services is a multi-dimensional decision. Figure 4 illustrates the various elements of their
decision framework. The “Economically Feasible Space” is the area where the external accounting
firm can function from an economic perspective. Pricing assurance services outside of this space
would be unsatisfactory to either management (if priced too high) or the accounting firm (if priced
too low). The numbers and thresholds are shown for illustrative purposes and will obviously vary
across XBRL filers and audit firms.
22
4
3
Costs and Benefits ($)
6
0%
1
Level of Confidence (%)
Desired Confidence Level
Internal Confidence Activities
2
External Assurance Activities
Economically
feasible space
5
100%
Figure 4: The economically feasible space for XBRL assurance services at the beginning of
the filing mandate
The key points illustrated in Figure 4 are:
1. The cost to the external auditor of providing a level of confidence exhibits decreasing
returns to scale, meaning, for example, that the incremental cost of going from the 80% to
the 90% level of confidence is higher than to go from 70% to 80%.
2. The benefit to the management of the filer of obtaining a level of confidence exhibits
decreasing marginal returns, meaning, for example, that the incremental benefit obtained
from going from the 80% to the 90% level of confidence is less than that obtained when
going from 70% to 80%.
23
3. At some level of confidence, the cost and benefit curves would intersect beyond which the
incremental costs of obtaining further confidence would be greater than the incremental
benefits received by management from that additional confidence and it would not make
economic sense for managers to continue to spend money to obtain external assurance of
their XBRL filings.
4. Crucially, there is some internal level of confidence threshold that management obtains
without the additional assurance provided by an external auditor. This is the essence of the
external cost relative to internal cost comparison.
5. There may also be a threshold minimum project size (in terms of fees that can be charged to
the client) that the accounting firm is willing to take on.
6. On the other hand, there is a threshold fee resistance frontier that is the upper limit the
client would be willing pay for assurance services. Based on the external cost relative to
preparation cost comparison there is going to be considerable resistance by management to
paying assurance fees that exceed their cost to prepare the XBRL filings.
Moreover, the importance of this perspective is to further illustrate that no matter what the exact
numbers, shape of curves, thresholds, and the economically feasible space are for a specific XBRL
filer, all of these parameters would be expected to change over time such that the economically
feasible space would shrink in size, especially once steady state in the preparation of the XBRL
filings is attained (i.e. after year two from the initial filing). This is shown in Figure 5:
24
4
3
1
0%
Level of Confidence (%)
Desired Confidence Level
2
External Assurance Activities
Economically
feasible
space
Internal Confidence Activities
Costs and Benefists ($)
6
5
100%
Figure 5: The economically feasible space for XBRL assurance services once steady state is
attained
For example, as the company personnel and the filing agents move along the learning curve and
reduce the errors and mistakes identified in prior filings, the internal confidence threshold will shift
to the right reflecting the increase in confidence by management and the board in the company’s
XBRL filing even without assurance provided by an external auditor. In addition, the fee resistance
frontier threshold is going to make a major shift down in the third and subsequent SEC filing years
when the company filing processes achieves a steady-state, template-based condition, and hence the
cost of preparation falls even further relative to the cost of assuring it using an external auditor.
Using the Microsoft numbers presented earlier, that fee resistance frontier would move from
$100,000 to “chickenfeed”.
25
In short, the external cost relative to internal cost comparison will increasingly reduce the space
within which the purchase of assurance for XBRL filings becomes feasible. This is similar to the way
in which the external cost relative to preparation cost comparison works against the use of an
external source of confidence in XBRL filings as the cost of preparation and the cost of external
assurance of XBRL filings diverge.
Both relative cost comparisons lead to the same conclusion that the demand for assurance of XBRL
filings using an external auditor is not guaranteed, and is difficult to sustain without major
adjustments to the relative cost of obtaining that assurance. Based on that outcome of our
framework, we can now turn to predictions for how the market will react in response to these
relative cost forces.
5. Predictions from the Relative Cost Framework
Both relative cost comparisons imply that the kind of comprehensive XBRL assurance proposed in
the academic and practitioner literature will be difficult to make a market reality. Reducing the scope
of assurance is one alternative, but it is hardly a very attractive one, especially since as the cost of
preparation continues to fall and the capabilities of internal confidence providers rises, the cost of
providing even that limited external XBRL assurance will have to continue to spiral downwards. But
this outcome assumes that market forces will not induce participants—particularly the external
auditors seeking new products to sell—to react in ways that will restore the competitiveness of
external assurance of XBRL filings.
Our framework allows us to make predictions on how the market will evolve in order that the
relative cost disadvantage of external auditing can be reduced. If external auditors are to secure a
role in providing confidence in XBRL filings they have to overcome the problem that the relative
cost of the product they offer—be it an agreed upon procedures engagement or a full-blown
26
assurance service that meets the standards of Srivastava and Kogan (2010), Boritz and No (2011),
and Boritz and No (2009)—is too high relative to either the preparation cost or the cost of
alternative providers of confidence. Hence, there are two possible responses:
1. Either the cost of external assurance has to actually fall, or else,
2. The salience of that external cost in the manager’s decision making process has to be
reduced, so making the cost of external assurance appear less significant.
Folding in XBRL Assurance into the Audit Engagement
Is it possible for the impact of the cost of external assurance of XBRL filings in management
decision making to be reduced even if its actual cost remains the same? It is, because the external
auditor is in the favorable position of already offering a product to the XBRL filer with a guaranteed
demand: the mandated audit of the financial statements. That gives the external auditor the
opportunity to reframe the discussion from “how much does assurance of XBRL filings cost relative
to the cost of preparing XBRL filings and/or the cost of obtaining confidence in those filings
through an alternative means” to “how much more will it cost the company to obtain assurance of
its XBRL filings relative to what it is already paying in audit fees”.
Significantly, this is still a relative cost argument, but one that is much more favorable to the external
auditor. Essentially, while the numerator remains the same, the denominator in the relative cost
comparison is being shifted from the internal costs to prepare the XBRL filing (assurance cost ÷
preparation cost) to the much larger total cost billed by the external auditor to conduct the financial
statement audit (assurance cost ÷ financial statement audit cost), thus reducing the resulting relative
cost ratio.
The strength of our prediction can be gauged by the fact that the audit firms are already making this
very argument with respect to AUPs, which, as we have seen, are themselves relatively expensive
27
compared to the filer’s other XBRL-related costs. For example, Paul Penler of Ernst & Young
recently indicated with respect to the cost of XBRL filing assurance that “with the average audit fee being
approximately $2 million, another $25-50,000 is just another one or two percent increase in costs”.21 Daniel
Roberts, former Chairman of the XBRL US Steering Committee, made a similar argument when he
stated: “Current ranges for non-detail tagged "Agreed Upon Procedures" engagements are running anywhere from
$25,000 to $50,000… Certainly that may be chump-change to a top 500 companies already paying millions for
their audit.”22
Changing the conversation this way for assurance services may well work for the external auditor, at
least as far as large clients with audit fees sufficiently great that the cost of the XBRL assurance
service would not be noticeable when it is folded into the audit fees. But the success of such a
strategy depends critically on whether the client indeed sees the audit of the financial statements and
the assurance of the XBRL filings as a joint product that should be combined, which is a hard
argument to make when only the audit is mandated. It is akin perhaps, to selling an extended
warranty on a consumer product or new car: it works sometimes, but not all the time and not with
all consumers, and still depends critically on keeping the relative costs, however they are measured,
in check. Moreover, this tactic is far harder to apply to smaller filers with their lower financial
statement audit fees. Finally, if one believes in market forces, a strategy of changing the perspective
of cost comparisons rather than reducing fees is hard to sustain in the long run, especially in the
absence of a mandated demand for the product.
Stated at the 5th KU XBRL Conference, April 2011. In fact, actual audit costs are somewhat higher than the number
cited: “Publicly held companies paid an average of $3.3 million in audit fees in 2010, a slight 2 percent rise over the prior year, while public
company audits averaged 12,540 hours , roughly the same as the year-ago period.” Carlino (2011).
22 http://raasconsulting.blogspot.com/2011/05/putting-price-on-xbrl-for-american.html.
21
28
Shifting External Assurance Costs from a Variable to a Fixed Cost
The alternate prediction of our framework is that in response to unfavorable relative cost
comparisons, costs for obtaining external assurance for XBRL filings would actually have to fall.
The best outcome in that regard is obviously to attain full XBRL assurance but in a way that respects
both relative cost comparisons. Is such an outcome possible? We argue that it is, and begin by
making the comparison between XBRL and pdf conversion. Like XBRL, that is a conversion of
data from one format to another. Many financial statements are also distributed in pdf format, for
example, from a company’s own website. However, no one demands or supplies assurance about
the pdf conversion. Why is that? Because that conversion is carried out by software made by a
reputable company and it is taken for granted by both preparers and users that the conversion works
100% perfectly at all times, with no distortion or loss of the underlying data.
To the extent possible, externally provided XBRL assurance has to adopt a similar model. If XBRL
assurance is important, then that assurance has to shift from being provided on each XBRL filing,
and instead, to focus on the mechanism that converts the paper financial statement into an XBRL
filing. Currently, that is either the company’s own staff utilizing XBRL preparation software (such as
Edgar Online’s I-Metrix Xcelerate, or Rivet Software’s Crossfire Compliance), or a financial printer
or other filing agent.
Thus, the relative cost problem can be resolved by shifting the XBRL filing preparation from inside
the company to a preparer outside it which is certified by an external auditor through an assurance
service as following appropriate guidelines for the XBRL conversion. These guidelines may well be
based on the frameworks proposed in the research literature for XBRL filing assurance. But the key
is that by providing assurance on the conversion process followed by a preparer rather than on
29
individual filings the expense of the assurance service becomes a fixed cost that can be spread
among many filers and their XBRL filings, thus satisfying the relative cost criteria.
Providing assurance on the process used by the filing agent is analogous to obtaining ISO
certification, such as the ubiquitous ISO 9000 certificates that organizations obtained when Total
Quality Control was driving business practices globally, or ISO 14000 for environmental
management. For certification to work there has to be consistency in the way in which the XBRL
conversion is undertaken—exactly like the way in which programs consistently convert word files
into pdf files. This means that the filing agents have to follow a standardized set of procedures,
including, most critically, for selection of tags and extensions.
SAS No. 70/ SSAE No. 16
Research is needed on how frameworks such as those proposed by Srivastava and Kogan (2010) or
Boritz and No (2011) can be modified to shift their focus from the XBRL filings to the process that
gives rise to those filings, thus providing a standard that can be followed by XBRL filing agents.
Fortunately, whatever assurance framework that is utilized, there is already a regulatory system in
place which allows an external auditor to providing assurance on the XBRL filing agent: the Service
Organization Controls Reports issued under SSAE No. 16 (“Reporting on Controls at a Service
Organization”) that on June 15th, 2011, will replace SAS No. 70 (“Service Organizations”).23
SAS No. 70 was promulgated in 1992 to deal with the problem that auditors faced with clients who
had begun to outsource important business functions to service organizations, such as data centers
or data processing firms. Clearly the way in which those service organizations conducted their
outsourced activities impacted the client’s audited financial statements, which meant that the client’s
23
http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/SOC/Pages/SORHome.aspx
30
auditor had to pay attention to the service organization. The problem is that service organizations
typically have many different companies as clients, and the auditors of each of them would need to
have assurance that the service organization was performing contracted services (as frequently
described in the service level agreement (SLA)) has proper internal controls. That assurance can only
be obtained by examining the processes and controls of the service organization in detail, but it is
obviously impractical and too costly for the auditor of each and every client to audit the service
organization separately. Hence, the intention of SAS No. 70, and now of SSAE No. 16, is to obtain
returns to scale by having the service organization itself commission a report from an auditor as to
the presence and effectiveness of controls on its processes, a report which can then be shared with
the auditors of all its clients.
There is an obvious parallel between the context of SSAE No. 16/SAS No. 70 and the situation of a
firm that outsources its XBRL filing preparation and submission to a filing agent. If the XBRL filer
can obtain assurance as to its conversion process, then that will go a long way towards providing
managers with the external confidence they need as to their company’s XBRL filings. Of course, the
level of confidence will in all likelihood not reach 100% of the level of assurance that can be
obtained from assuring the filing itself, just as a test of controls is not a substitute for a test of detail.
But as Figures 4 and 5 indicated, all a manager wants is to obtain enough confidence to attain the
economically feasible space, and there is a clear tradeoff between the cost of assurance and its
effectiveness.
SOC 1 Report
When assuring XBRL filing agents, we have in mind obtaining a SOC 1 Report, which is a “Report on
Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting”. As
stated by the AICPA, “SOC 1 engagements are performed in accordance with Statement on Standards for
31
Attestation Engagements (SSAE) 16, Reporting on Controls at a Service Organization. SOC 1 reports focus solely
on controls at a service organization that are likely to be relevant to an audit of a user entity’s financial statements.
SOC 2 and SOC 3 engagements address controls at the service organization that relate to operations and
compliance.”24 Given the specific situation, in terms of the mix of players (company personnel, filing
agents, etc.) and the assigned responsibilities, some aspects of SOC2 and SOC3 may be also
applicable.
Apart from specifying SOC 1, 2, and 3 reports, SSAE No. 16 also introduces Type 1 and Type 2
engagement reports for each SOC report:25

Type 1 – report on the fairness of the presentation of management’s description of the service organization’s
system and the suitability of the design of the controls to achieve the related control objectives included in the
description as of a specified date.

Type 2 – report on the fairness of the presentation of management’s description of the service organization’s
system and the suitability of the design and operating effectiveness of the controls to achieve the related control
objectives included in the description throughout a specified period.
The difference between a Type 1 and a Type 2 report depends on whether the auditor simply
verifies that the service organization has controls over its processes or whether the auditor also
verifies that those controls are in fact working effectively. A Type 1 report is analogous to a
company obtaining ISO 9000 certification, though the AICPA makes it clear that a service
organization cannot claim to be “SAS 70 /SSAE 16 certified”. However, as far as XBRL assurance
is concerned, a Type 2 report is more consistent with the frameworks of Srivastava and Kogan
24
http://www.aicpa.org/InterestAreas/InformationTechnology/Resources/TrustServices/DownloadableDocuments/109
57-378%20SOC%20Whitepaper.pdf
25 http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/SOC/Pages/AICPASOC1Report.aspx
32
(2010) or Boritz and No (2011). As always, the imperatives of both absolute and relative assurance
cost will determine the exact form of assurance that would be optimal for an XBRL filer to obtain.
But the main point we make is that by shifting assurance from filing to filer prevents relative cost
comparisons from making externally provided XBRL filing assurance from being economically
infeasible in the first place.
6. Conclusion
As we analyze the relative cost comparisons that impact the decision of management about the
provider of confidence on their company’s XBRL filings, the economic feasibility of using an
external auditor who would provide independent assurance at the level proposed in the research
literature is brought into question. However, this is not an all or nothing situation; instead future
research needs to focus on rank-ordering or prioritizing the assurance components contained in
those frameworks in light of different characteristics of companies and the mix of the use of the
confidence providers included in
Figure 1. One question is how the ranking of those components would change if the company used
a filing agent to prepare the XBRL filing versus preparing the XBRL filing completely in house.
Another question is how our analysis would change if the SEC mandated independent assurance. As
to what will happen when safe harbor provisions expire, that will become evident in the near future.
It appears to us that the longer the SEC waits to mandate XBRL assurance, the smaller the
economically feasible space for that source of assurance will become. If the SEC’s future rules
mandate a scope of XBRL assurance similar to the comprehensive frameworks of Srivastava and
Kogan (2010), Boritz and No (2011), and AICPA (2011) that may push the assurance cost well
outside of the economically feasible space; the SEC will then receive a tremendous level of pushback
from filers. As such, it is hard to imagine that the SEC will mandate a broad scope of assurance
33
requirements; instead the SEC rules will be probably more principles based, providing broad
guidelines and leaving much discretion to the external auditors to design their assurance plans
specific to each client. One imagines that the lessons were learnt from the implementation of section
404 of the Sarbanes Oxley Act, when the original highly prescriptive standards of AS 2 resulted in
very large implementation costs, and which were subsequently replaced by the more principles based
AS 5 standard, which also shifted some of the work from the external to the internal auditor.
Talking of internal controls, the SEC in its final ruling mandating XBRL filings itself raised another
possibility about how external auditors might impact the process: “As the technology associated with
interactive data improves, issuers may integrate interactive data technology into their business information processing,
and such integration may have implications regarding internal control over financial reporting no different than any
other controls or procedures related to the preparation of financial statements. If this integration occurs, the preparation
of financial statements may become interdependent with the interactive data tagging process and an issuer and its
auditor should evaluate these changes in the context of their reporting on internal control over financial reporting.” 26
But having raised this possibility, which seemingly implies that external assurance of XBRL filings
may become mandated through the back door of the Sarbanes Oxley Section 404 attestation
engagement, the SEC backs off by re-emphasizing that such assurance is not required: “However, this
evaluation is separate from the preparation and submission of the interactive data file, and as such the results of the
evaluation would not require management to assess or an auditor to separately report on the issuer’s interactive data
file provided as an exhibit to a filer’s reports or registration statements.”27 There is clearly an inconsistency here
that may well be resolved in such a way that would bring about a guaranteed place for the external
26
27
SEC (2009, pp. 99-100).
SEC (2009, page 100).
34
auditor in the XBRL assurance process, though, of course, one may well question how long it will be
before “issuers… integrate interactive data technology into their business information processing”.
Finally, what happens if the XBRL filing becomes the actual SEC filing as opposed to being a
supplement to the “official” SEC filing? This has already happened in some jurisdictions and many
in the XBRL community expect the same thing to eventually happen in the USA. The exact impact
of this change is hard to predict. On the one hand, if the XBRL filing becomes the official filing, the
filer’s and auditor’s self interest in ensuring and assuring that there are no material errors in the
XBRL filing increases. On the other hand, many of the current assurance components in the
Srivastava and Kogan (2010) and Boritz and No (2011) frameworks relate to comparing the official
source document to the XBRL filing. These audit tasks, and their associated costs, essentially go
away if the XBRL filing becomes the source document.
Regardless of what happens, though, as far as mandates and assurance frameworks are concerned,
the bottom line is that any XBRL assurance regime cannot function if it does not take into account
the relative costs of obtaining that confidence.
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37