XBRL : how is it affecting auditing financial statements?

Presented by
Vinod Kashyap
NextGen Knowledge Solutions Private Ltd.
Date : October 18, 2012

XBRL & Financial Reporting

Risks in XBRL Environment

Internal Controls

Assurance over XBRL Instance Document

Q&A

2012 © NextGen Knowledge Solutions Private Ltd. 2

The computer language for the electronic
communication of internal and external
business report information
International supply chain standardization
effort backed by over 1000+ being adopted
Balance Sheet March 31, 2012 March 31, 2011 by regulators/companies across the world
(Audited) (Rs.) (Rs.)
Inventories 6,12,962 5,57,111
Cross-platform, software-agonistic,
Internet-friendly global standard based on
Trade Receivables 4,49,173 3,77,347 XML (eXtensible Mark-up Language)
Improves data accuracy by reducing
manual efforts and subjectivity
Available to all type of business
<in-gaap:Inventories =”contextRef=I2012”
unitRef =“INR” decimal=“0”>6,12,962<in-
information: Financial, Non-financial, rules,
gaap:Inventories> formulas, summarized, detailed


Balance Sheet March 31, 2012 March 31, 2011
(Audited) (Rs. in Thousands) (Rs. in Thousands)
Inventories 612 557

Trade Receivables 449 377

Numeric Unit Precision
INR Thousands

Time Period Accounting Standard
March 31, 2012 Indian GAAP

Label Accounting Concept Indian GAAP
Inventories Inventories Taxonomy
Commercial & Industrial

<in-gaap: Inventories contextRef=I2012” unitRef
=“INR” decimal=“-3”>612000<in-gaap: Inventories>


From Traditional
Financial Reporting
Process
Mapping
• Identify base taxonomy.
• Map financial facts to XBRL elements.
• Identify financials facts that do not match to base
taxonomy elements.

Tagging
• Create an instance document by:
 associating the fact values being reported in a given
filing with specific elements in the taxonomies.
 defining periods, units of measures, and other
aspects specific to that report.

Reviewing
 Validate the instance document against the
regulatory requirements.
 Rendering the instance document.


XBRL is based on XML, which facilitates data exchange
XBRL can not be read by human eye
- Data is filtered through rendering applications or viewers to visually present tagged
data
- “How do we trust the tagged data which is in computer readable form?” phenomena
Certain formatting and stylistic features are not coded in XBRL
- Presentation data will NOT be identical to traditional format document
Presentation varies from one rendered version to the next
Rendering is a necessary evil
- Tagged data needs to be rendered in order to see it
- Focus / emphasis on presentation Vs. Regulator-compliant XBRL and use for financial
analysis
- Contrary to original purpose of XBRL creation


Traditional Format XBRL Format
Human Readable Machine Readable


Potential to replace traditional format and electronic version (PDF &
HTML) of financial statements
Attestation of financial statements doesn’t apply to XBRL Reports
Misconception about XBRL
Auditor’s Conservatism
XBRL is a new risk
Challenges in audit of XBRL: Resources, Software & Standards


Audit and Examination Engagements - Reasonable Reliance
Review Engagements – Limited Reliance
Agreed-upon-procedures (AUP) – No Reliance


As per current Standards on Audit issued by ICAI:-
Audit of financial statements doesn’t cover audit of XBRL data
XBRL data doesn’t construe “Other Information” as defined in
Standard of Audit (SA) 720


AICPA – "Performing Agreed Upon Procedures Engagements That
Address The Completeness, Accuracy, or Consistency of XBRL Tagged
Data“
AICPA – “Principles and Criteria for XBRL Formatted Information”
ICAEW – "Guidance For Performing Agreed Upon Procedures That
Address XBRL Tagged Data Included Within Financial Statements
Prepared in iXBRL Format"
JICPA – "Agreed Upon Procedures Engagements of XBRL Data"
ICAI – "Guidance Note on Certification of XBRL Financial Statements"


Information on Identity of reporting entity
Nature of financial data
Information on reporting period
Currency
Precision or Scaling
Segment information


Technical reference information
Base reference information
XBRL Validation
Selection of wrong tags
Reporting wrong data
Failing to mark-up a concept


Closed taxonomy risks
Accuracy of data
Alterations in taxonomy
Taxonomy version


Open taxonomy risks
Duplicate taxonomy element
Taxonomy elements not making true representation
Misleading Labels
Extensions not compliant with XBRL specifications
Prohibited names


Source : ISACA, COBIT 4.1, USA, 2007

Regardless of which implementation strategy an organization
selects controls across three major areas are necessary to
manage the risk:

Selecting, maintaining & testing taxonomies and extension
taxonomies

Accurately mapping and tagging data elements to XBRL Reports

Enforcing change management procedures for XBRL process

Source : ISACA


- Identification of base taxonomy
Completeness
Mapping - Mapping of facts with taxonomy elements
- Mapping of facts with residuary tags

- Defining Contexts
Tagging - Associating fact values with specific taxonomy elements

- Validation for Technical Specifications
Reviewing - Validation on regulator’s Validation Tool
- Rendering


Completeness

Structure Mapping

Accuracy


All required information & data as required by the entity’s reporting
Completeness requirement is formatted in the XBRL Instance Document & is
complete in all respect

All facts that are required to be formatted are formatted
Mapping of facts or presentation or calculation relationships in source
Existence
documents
Solution
Requirements
Other required information
Accuracy

Structure


Solution The elements Viz. : line items, domain members & axis selected in
Completeness
Mapping
Requirements the XBRL file are consistent with the associated concepts in the
source document

Taxonomy referenced in the Instance document is correct
Mapping Attributes are consistent with source information
Element
Selected element is consistent with the concept in source information
Most specific element is used for Other required information
Same element is used for facts appearing multiple times
Same element is used for each period
New element is created only when no suitable element exist in
taxonomy
Structure


The amount, date & other attributes e.g. monetary units are
Completeness
Accuracy consistent with the source information

Contextual information is consistent with the source information
- Reporting Period
Mapping
- Decimal Values
- Units
- Entity Identifier
Formatted amounts have appropriate sign
Rendered text block information is consistent with source information

Structure


Completeness

Labels are consistent with the captions in the source information
Mapping
Calculations reflected in the source information are included in
Calculation Linkbase
All formatted data is consistent with the underlying source information
Extension elements for accounting concepts with debit or credit balance
include balance attribute

Structure


Completeness

Extension elements for currency amounts for non-accounting concepts
Mapping :-
include
(i) a debit or credit balance attribute; or
(ii) a documentation label for meaning of positive or negative value

Structure


XBRL files are structured in accordance with the requirements of
Completeness
Structure the entity’s reporting environment

All information is organized using required presentation groupings
Entity Identifier & Scheme for each context is identical
Instance document should pass Validation Test on regulator’s Validation
Tool e.g. MCA Validation Tool
New Table structure are only created when no suitable table structure
exists in standard taxonomy
Name of extension elements do not contain prohibited information


Control tests
on the effectiveness of XBRL Software

on the effectiveness of the Validation Software

Substantive procedures
All major line items need to be traced and compared
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


Two kinds of materiality
o Materiality for the entire Financial Statement
o Materiality for each line item in the instance document
Since the materiality concept used in the Financial Statements 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.


Practitioners' Independence
Management Assertions
Agreement on Procedures
Responsibility for sufficiency of procedures
Criteria for determination of findings
Evidential matter
Materiality limit
Restriction on use of report


"The focal point of XBRL Assurance is the evaluation of the accuracy

and validity of the XBRL tags applied to the line items in the financial
statements of reporting entity. In order to perform these evaluation,
the auditor needs to have the knowledge of what constitutes an error,
what is the risk in XBRL Instance document, how control tests &
substantive tests should be applied in XBRL environment and how
materiality should be conceived and applied to XBRL Instance
document."


“No matter how complex things are,
basically everything is simple.”


NextGen Knowledge Solutions Private Ltd.
Vinod Kashyap
vinod.kashyap@nextgenknowledge.com

http://www.nextgenknowledge.com

XBRL : how is it affecting auditing financial statements?

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