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XBRL Implementation: A Field Investigation Diane Janvrin Associate Professor Won No Assistant Professor AAA Annual Meeting August 4, 2010 - PowerPoint PPT Presentation
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XBRL Implementation: XBRL Implementation: A Field InvestigationA Field Investigation
Diane Janvrin Associate Professor
Won No Assistant Professor
AAA Annual Meeting August 4, 2010
We thank Amelia Baldwin, Efrim Boritz, William Dilla, and Gary Wickland for their research insights. We appreciate the assistance of Marvin Bouillon and Kathy Wieland in contacting study participants. We thank Winston Chappell and Pat Wagaman for research assistance.
Motivation XBRL (eXtensible Business Reporting
Language) Method XBRL Implementation Process Findings Future Research Opportunities Summary
AgendaAgenda
SEC mandate
Obtain understanding of how early mandate
participants are implementing XBRL
Identify future research opportunities related to
XBRL implementation
MotivationMotivation
XBRL(XML)XBRL(XML)
HTML HTML based based
financial financial statements statements reportingreporting
Paper Paper based based
financial financial statements statements reportingreporting
Web(HTML)Web(HTML)
Off LineOff Line LAN, Intranet, InternetLAN, Intranet, Internet
XBRL XBRL based based
financial financial statements statements reportingreporting
Provide a standard method for preparing, analyzing, and exchanging financial information.
IntroductionIntroductionFinancial Reporting SystemFinancial Reporting System
Limited accessibility
Not allow data exchange,
intelligent search, and
adaptive presentation
<B> Cash: 50000 </B><I> Debt: 10000 </I>
<Cash> 50000 </Cash><Debt> 10000 </Debt>
Cash { font-weight: bold }Debt { font-style: italic }
Cash: 50000Debt: 10000
Cash: 50000Debt: 10000
Cash: 50000Debt: 10000
Paper BasedPaper Based HTMLHTML XBRLXBRL
Presentation
ContentContent
ActualActual
IntroductionIntroductionFinancial Reporting SystemFinancial Reporting System
XBRL BasicsXBRL Basics Instance document
o XML file that contains business reporting information and represents a collection of financial facts and report-specific information using tags from one or more XBRL taxonomies
o Element A financial reporting concept, defined in XBRL
o ContextEntity and report-specific information (reporting period, segment information, and so forth) required by XBRL that allows tagged data to be understood in relation to other information
Taxonomy o Electronic dictionary of business reporting elements used to report
business informationo Standard taxonomy
Developed for U.S. companies by XBRL.USo Taxonomy extensions
Created by individual companies
Mandate BasicsMandate Basics SEC rule proposal May 30, 2008 Adopted by SEC on December 17, 2008 Basics of the rule: Required primary financial statements (PFS) and footnotes for all
issuers using US GAAP/IFRS for periods ending June 15, 2009 or later
Year 1 – all large accelerated filers (worldwide equity float above $5 billion)
Year 2 – all other accelerated filers Year 3 – all others First year PFS plus block tag footnotes 2nd year include detailed tag footnotes 30 day grace period for first filing of PFS and detailed footnotes
Method Examine actual implementation process for early filers
Qualitative technique using structured interview guide
Interviewed nine accountants in five companies in diverse industries
Examined initial XBRL furnishings under the SEC mandate
XBRL Implementation Process
Plan implementation
Tag financial items and create taxonomy extensions
Validate, review, and render instance document and taxonomy extensions
Audit and issue XBRL-related documents
XBRL Implementation Process
Findings regarding Plan Implementation
Main objective of XBRL implementation was regulatory compliance
Most respondents supported XBRL but one questioned its value
Implementation team included both accounting and information technology personnel
Three companies purchased bolt-on software; two used third party service providers
Respondents selected XBRL software based on ease-of-use, cost, and technical support
Respondents found many XBRL software packages difficult and time consuming to use
Respondents who purchased bolt-on software had technology infrastructure issues
One respondent who used third party service provider has one year contract for XBRL services and three year contract for SEC filing services.
Findings from Tag Financial Items and Findings from Tag Financial Items and Create Taxonomy Extensions PhaseCreate Taxonomy Extensions Phase
Tag Financial Items
All respondents used bolt-on rather than integrated approach to tag financial items.
All respondents initially tagged statements using 2008 taxonomy and then re-tagged statements once 2009 taxonomy was available.
All respondents chose to block tag footnotes for 2009.
Two respondents indicated serious concerns with ability to detail tag financial statement footnotes. One strongly argued that given current state of software and lack of SEC direction, SEC should delay detailed footnote tagging requirements.
Findings from Tag Financial Items and Findings from Tag Financial Items and Create Taxonomy Extensions PhaseCreate Taxonomy Extensions Phase
Create Taxonomy Extensions Most respondents tended to minimize number of taxonomy
extensions used due to either desire to match with existing standard taxonomy or perceptions regarding difficulty of creating taxonomy extensions.
Two companies who purchased XBRL software asked software consultants to create taxonomy extensions.
Several respondents indicated that they found technical aspects of creating taxonomy extensions challenging.
Two respondent companies created several extension elements that were not used in their XBRL-related documents.
Findings from Validate, Review, and Findings from Validate, Review, and Render Instance Document and Taxonomy Render Instance Document and Taxonomy Extensions PhaseExtensions PhaseValidate Instance Document and Taxonomy Extensions Several respondents noted validation process was frustrating and
error messages generated were difficult to understand
Inconsistencies in validation error messages between software products
Software products did not use error messages suggested by SEC
Review Instance Document and Taxonomy Extensions All companies reviewed instance document internally
Two companies also asked financial printer to review instance document
Findings from Validate, Review, and Render Instance Document and Taxonomy Extensions Phase
Render Instance Document and Taxonomy Extensions
Although not required, all respondents viewed documents using rendering software to protect company reputation
Two respondents reported frustrations with rendering views used by XBRL software
Respondents reported frustrations with SEC delays in updating its rendering software to reflect 2009 taxonomy
Findings from Audit and Issue XBRL-Related Documents Phase
Audit XBRL-Related Documents Auditors were not interested in auditing XBRL-related documents
Only one respondent suggested that audit procedures may differ since with XBRL tags, materiality may be based on values in individual financial items rather than entire statement
Issue XBRL-Related Documents Most companies worked with financial printers to issue XBRL-related
documents
Financial printers use their own software rather than software used by financial preparer to produce XBRL-related documents provided to SEC and placed on company websites
Challenges Ahead
Tagging and taxonomy extension process is very time consuming
In general, software needs to be improved and service providers need additional XBRL knowledge
Delays in taxonomy updates are frustrating and system needs to be developed to ‘instantly’ update software with new taxonomies
Respondents are concerned that XBRL may cause delays in SEC filings
Software needs to be improved before detailed footnote tagging can occur
Research Opportunities Respondents indicated that senior management involvement
was relatively low except during the initial XBRL implementation decision
However, information systems research argues for senior management involvement throughout the development process (Chatterjee et al. 2001; Jarvenpaa and Ives 1991)
What is the impact of low senior management involvement on the XBRL implementation process?
Research suggests that technology outsourcing decisions are characterized by their size, complexity, and potential irreversibility (O’Connor and Martinsons 2006)
What factors drive the XBRL outsourcing decision?
Research Opportunities
Our respondents used either outsourcing or bolt-on approach
Thus XBRL proponents would argue that without an integrated approach, companies are not obtaining the full benefits such as transparency in financial reporting process and increased data accuracy
Why aren’t companies moving beyond implementing XBRL for regulatory requirements?
What motivation / procedures are needed to move companies to an integrated approach?
Research Opportunities
All respondents chose to block tag footnotes and some argue that current technology cannot support detailed tagging of footnotes
Prior research suggests that the amount of effort users expend to obtain information disclosed in footnotes may affect their judgments (Nelson and Tayler 2007)
How can the process of detailed tagging of footnote information by improved?
What are the implications of providing users with block tagged footnotes vs. detailed tagged footnotes?
Research Opportunities
Technical aspects of creating taxonomy extensions were challenging
Even respondents who used consultants to create taxonomy extensions only examined the new tags for reasonableness and obvious errors (e.g., label)
How can the process of creating taxonomy extensions be simplified?
What procedures are needed to review taxonomy extensions?
Research Opportunities
XBRL instance documents displayed should be identical in all material respects to the corresponding portion of the traditional format filing
Thus, appropriate controls are needed to ensure the accuracy of the XBRL-tagged financial information
Only one respondent mentioned internal control issues with respect to the XBRL tagging process
What internal controls over the XBRL tagging process are needed?
Research Opportunities
Several respondents found the validation process frustrating and the error messages generated difficult to understand
Our review of initial XBRL-related documents revealed several inconsistencies in validation error messages between software products. These errors messages were often different from those suggested by the SEC.
Can prior error detection research in systems (Klein 2001, 2008) and accounting (Caster et al. 2000) provide guidance to researchers examining the impact of inconsistent validation error messages on the accuracy of XBRL-related documents?
Research Opportunities
How can the review and rendering processes be improved?
How will XBRL impact the audit process?
What skill set is needed to implement XBRL?
What is the best way to develop this skill set?
How can the taxonomy update process to improved and can current software ‘instantly’ reflect all taxonomy updates?
Senior financial executives are worried that furnishing XBRL-related statements may delay their SEC filings.
Limitations
Interviewed nine individuals from five accelerated filer companies
No companies provided XBRL-related documents under the SEC mandate during our initial interview period
Findings may not generalize to larger populations
Interviews were limited to SEC mandate
XBRL implementation process in other countries may be different
Summary Examining XBRL implementation process is important and timely due to
SEC mandate. Significant hurdles exist to XBRL implementation including
– Software issues
– Delays in taxonomy updates
– Complex taxonomy extension process
– Upcoming detailed tagging of footnotes
Compliance is main XBRL implementation motivation Currently, no integration into supply-chain reporting systems Lack of internal controls Validation process is difficult due to inconsistent error messages Companies are concerned about rendering due to company reputation
concerns