Pwc. PwC Data Level Assurance: Bringing Data Into Continuous Audit Using XML Derivatives (Such as XBRL Classic and GL) Fifth Continuous Assurance Symposium

Data Level Assurance:Bringing Data Into

Continuous Audit Using XML Derivatives

(Such as XBRL Classic and GL)

Fifth Continuous Assurance Symposium

Rutgers Business School Newark, NJ 23-11-2002

Eric E. Cohen Chair, XBRL US

©2001 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.

Agenda•XBRL Tokyo – Increasing Transparency to Financial Markets

•Data level assurance

•Drivers

•From documents to data

•XML derivatives: lifeline for data level assurance

•XML

•XBRL

•XML web services

PricewaterhouseCoopers


XBRL Tokyo – Banking Focus

Banking crisis

Origami Bank – folded

Sumo Bank – belly up

Bonsai Bank – cutting back branches

Karaoke Bank – up for sale, going for a song

Kamikaze Bank – nose-dived

Karate Bank – 500 jobs chopped

Sushi Bank – something fishy going on; staff getting a raw deal

Data Level AssuranceAtomic Information: Assurance need, opportunity or

impossibility?


Drivers For Data

•Corporate malfeasance.


Drivers For Data

•New reporting model and demand

•Atomic information on web site, in press releases

•Demand for material disclosure items outside of periodic report

• In my view, we need to supplement the static periodic disclosure model - that has long served investors well, but in today's world results in the delivery of information that is often stale upon arrival, and impenetrable to many of those who receive it. I believe we need to move toward a dynamic model of current disclosure of unquestionably material information.

– http://www.sec.gov/news/speech/spch523.htm


Paper-paradigm Report → e-Document

PresentFS

Pre-disclosed

Management

GL detail

Underlying transactionsAll e-documents

datasummaries

Mp3, mpeg, tif, etc.

How do I knowthat the file is actually

what it is represented to be?


Trx

Accounting

Reclassification

Allocations

Summarization

Recognition

TaggingPresentation

Encapsulation

Do tagsmatch

presentation?

Does tags’content match

detail?

Is allnecessary content and

context included?

Controlssurroundingtaxonomies,

linkbases

Is file/streamauthentic andauthorized?

E-D

ocument →

e-D

ata


Tag, You’re It! e-Document → e-Data

•Looking at data items individually

• Press release with Sales figures

• Are those figures “real”?

•Example: NASDAQ Pilot (www.nasdaq.com/xbrl)

• More usable data will be … used! Assurance …

•Necessary (?) contextual information

• Obvious: unit of measure, time period

• What is inventory without valuation method?

• What is PPE without knowledge of going concern?


From Documents To Data

•Documents become data

• How many files in a web page? How many files in XBRL instances?

• Not analog but digital

• Not strictly freeform, but standardized (tags)– Additional information

• Assurance not only on the sum of the parts but the parts themselves

•Recognizes risk/reward of disclosure/assurance

•Forget “fairly presented”, “taken as a whole”, materiality

•And with CA, forget subsequent events


What Is Data Level Assurance?

New statements providing variable comfort that

• Appropriate authorization and authentication is assured

• Reader has necessary context for understanding data item(s)

• No obvious inconsistencies between tags and textual items (machine and human readable identification) exists

• Content of tag and tag of content make sense

• Appropriate controls between instances and referred-to schemas are in place

And technology that makes that assurance portable after transformation of the original data item

Vasarhelyi and Cohen, draft definition as of November 5, 2001


What Is Data Level Assurance?

•NOT necessarily assurance on the underlying supportive data

•NOT necessarily assurance on the underlying systems

•NOT necessarily something the profession is jumping to embrace

•NOT necessarily something we will be able to easily explain to the marketplace and manage expectations


Nature of Assurance

•In data level assurance, redefined– Analytical review– Substantive testing– Data level testing– Internal control evaluation– A new model of risk assessment – Materiality as a threshold of error– Tradeoffs of costs and assurance obtained– Collecting and weighting of evidence– Subsequent events

Data Level AssuranceAtomic Information: Assurance need, opportunity or

impossibility?


Role Of XML Derivatives

•Cross-platform, application independent document/data format

• XML

• Common vocabulary/vocabularies

• XBRL et al.

•XML-based programming equalizer and exposure tool

• XML Web Services

•Standardized query capability

• ???


Hg

XML, Content & Context: Mercury


XML Alone Doesn’t Solve Problem

qbxml

smbxml

Intacct xml

SAP

Peoplesoftxml

qbxml

smbxml

Intacct xml

SAP

Peoplesoftxml

Oracle


Shared Vocabularies Bring Efficiencies

XB

RL

GL

qbxml

smbxml

Intacct xml

SAP

Peoplesoftxml

qbxml

smbxml

Intacct xml

SAP

Peoplesoftxml

Oracle


Today over 10,000 US public companies release financial results quarterly…

But the contents are not organized. The data must be reentered into computer applications for interpretation.

What if financial documents included both content ($75,453)

and structure ($75,453=net income for Q1/2001)?

XML Applied To Reporting: XBRL


A proposed industry standard for the publishing, exchange

and analysis of financial and business reports and data.

Information is entered only once using an Internet-based tool for preparing and publishing all financial and business documents with automatic conversion to various formats

Information may be reliably extracted and analyzed across companies with no manual intervention

Supports current and emerging accounting standards

XBRL


Overall World of XBRL

Tax Reporting

Performance Metrics

Regulatory Filings

GAAP

Special Industry Reports

Future GAAP

XBRL GL XBRL “Classic”

Data Concepts

“View” of data

Internal External


XBRL GL: “Generic Ledger”


Bridging eBusiness and Reporting

BUSINESS

Investors

Aggregators

Regulators Creditors LendersTax Website

Transaction Creation

ERP G/L Packages CRM

•Orders•A/P•Delivery

Customers•Orders•A/R•Delivery

2-way2-way

Suppliers

Oneway

Oneway

XBRLBUSINESS REPORTING

Transaction SpaceX12, EDIFACT, XML INITIATIVES

XBRL GLJournal Taxonomy

DetailAccountingrecognition/classification

Intra system Detail to summary

Mappings → Rules


Transaction Space

•Examples

• X12, UN/CEFACT Forum

• ebXML business vocabularies (?!), UBL

• MISMO, ACORD, HR-XML, RosettaNet, itd.

•Purpose

• Single-use, point to point

(e-)BusinessX12, EDIFACT, XML INITIATIVES


XBRL GL: Universal Audit Trail

•Purpose

• Machine to machine transfer

• Archival

• Consolidation

•Bigger than General Ledger

• ASQC/www.globalbestpractices.com/ABC/Process Based Accounting

XBRL GLJournal Taxonomy


Uses Of XBRL GL

AccountingSystem

Budget

AccountingSystem

A

AccountingSystem

B

Chart of Accounts

Customers, Vendors, Employees

Open AR, AP, Inventory Status

Journal Entries, Ledger History

AccountingSystem

CPA

Trial Balance

Adjustments

One Vocabulary

One Framework


Reconciliations: Accounts Receivable

3. XBRL GL entriesType=“balance”summarized amounts in account, period in time

2. XBRL GL entriesType=“entries”represents individual detail of entries

4. XBRL US ciaccountsReceivableTradeNet.accountsReceivableTradeGross

1. XBRL GL: entriesType=“assets”represents AR aging

USGL

USAR

ContinentialGL

or

xbrlElement=“accountsReceivableTradeNet.accountsReceivableTradeGross”xbrlTaxonomy=“{usgaap}”

Are all documents from 1. reflected in the detailed entries of 2.? (documentType=“invoice”,

etc.)

Do the entries in 2 sum up to the balances in 3?

Do the entries in 2 or 3 map to the total in 4??


Future Audit

Sub-systems GLFinancialReporter

TransferSub-systems

Sub-systems

BranchSystems Financial

Reportsxbrlpost post

Compare details with summaries

XML-based source documents can be stored in databases and retrieved and reported upon as needed.

XML-based universal audit trail can represent transactions AND processes; archive and query anytime.

XML-based universal audit trail provides drill-down detail from standardized business reports.

XSL

itd

XML data can be from a file, a data stream, or a web service.

Compare withexternal sourcedata

Rules-based monitoring, triggers and alarms

Information for Data Assurance

FinancialFinancial

Non-Non-financialfinancial

QualitativQualitativee

QuantitatiQuantitativeve

MandatorMandatoryy

VoluntarVoluntaryy

Internal External


Tracking “Transactions”

•Standard schemas for “transaction” trapping and understanding

• Processes

• Entries, Agents, Resources, Events

•Actuals, budgets

•Logs, alarms

•Data reliability? How much can you trust the underlying data

• Reliability of cash: 99%

• Reliability of accounts receivable: 95%


Reliability

From my APICS days:

If inventory is 96% correct, and

If bills of material are 96% correct, and

If purchase order schedule is 92% correct, and

If manufacturing schedule is 90% correct, then

Almost 25% of production and purchasing decisions are wrong


Hooking Into Client Systems

Embedded audit modules

• Proprietary

• Independence issues?

• Internal audit

CORBA

XML Web services


Hooking to Outside Systems

•Benchmarking Information

• FedEx, UPS

• Google

• NASDAQ Pilot (www.nasdaq.com/xbrl)

• Data aggregators

•Third parties and Extranets

• Circularization


Current GAP filled by proprietary mappings

XML Web Services

Accounting

System AAccountingSystem B

AuditTool

Data Format: XML“Create an XBRL export file for me please, or let me know how to tap into the XBRL data stream.”

“Help me understand how to get the XBRL data from your web service.”

Shared Vocabulary: XBRLGeneric Discovery, Access: WS

Generic Data Query: ???

“Give me this year’s trial balance and the details for Officer’s Comp, Maintenance and Repairs, and prepaid taxes.”