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XBRL and Continuous Auditing/Assurance

XBRL and Continuous Auditing/Assurance. The Third Continuous Reporting and Auditing Conference Eric E. Cohen, CPA PricewaterhouseCoopers LLP. 1 June 2001, Newark, New Jersey, USA. Requirements for CA. Reliable Systems. Automated Audit Procedures. Auditor Proficiency.

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XBRL and Continuous Auditing/Assurance

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  1. XBRL and Continuous Auditing/Assurance The Third Continuous Reporting and Auditing Conference Eric E. Cohen, CPA PricewaterhouseCoopers LLP. 1 June 2001, Newark, New Jersey, USA

  2. Requirements for CA ReliableSystems Automated Audit Procedures Auditor Proficiency Reliable Communication Links Subject Matter Timely Audit Reports CICA /AICPA Research Study on Continuous Auditing

  3. Nature of Reliable Systems

  4. User Discovers Information

  5. Is Information In Context?

  6. Is Context Derivable?

  7. Is Original Company the Source?

  8. Reconciliation and Assurance

  9. Resolution and Determination of Risk

  10. XBRL: Facilitator for CA • Value of a standard • Built into applications for better integration • Built into audit tools for testing and communications • Setup, changeovers eased • (Human) communications and expectation setter

  11. Business Facts and Accounting • Business events (sale, cash receipt) • ebXML space • Interpretation of events (mapping to accounts) • Accomplished now through Setup or Master files • Results of interpretation (entry of account-oriented info) • XBRL GL space • Summarization of events (detail to summary) • XBRL for XYZ reporting space • Presentation of interpretation of events (print/view/export summary) • XBRL for XYZ reporting space The GAAP GAP

  12. Foundation Facts • Facts enter financial systems through journal entries or postings from subsidiary journals • Account, amount, date = Atomic entry • Related atomic entries match a journal header • Related journal headers match a source wrapper • Relationship to reporting • bottom up (atom relates to taxonomies and elements) or • top down (this report uses these atomic classifications) • XBRL GL • Reporting neutral • “Fact gatherer”

  13. (e)Business and Accounting Mirror Image

  14. General Ledger • Bridge between EDI and XBRL Reporting • Foundational repository for Foundational Facts • Hub between Financial reporting, Tax and all others • Enabler of outsourcing/ASP • Provides means to extract or download GL information from outsource ASP in reusable, standardized format • Insurance for ASP failure, problems, dissatisfaction • Information available at any time, from anywhere, for anyone responsible with rights to access it • Facilitates • Consolidations and other interoperability issues • Migration between systems

  15. Chart of Accounts Accounting Periods Source journals E X P O R T T O X M L Budgets versions years Mappings Comparatives years Journal Entries Standard, repeating, recurring journals Ledger Mask Standard Reports TB, Source Custom Reports, exports

  16. Chart of Accounts Accounting Periods Source journals IM PORTFROM X M L Budgets versions years Mappings Comparatives years Journal Entries Standard, repeating, recurring journals Ledger Mask Standard Reports TB, Source Custom Reports, exports

  17. Account Amount Date EDIFICAS - derived after-the-fact GL-AR-AP-IM-PR-XX

  18. One File, Three Levels Accounting Entries Entry Header Entry Line

  19. Chart of Accounts Includes Accounts General Ledger details Include primary postings Departmental allocations And customers, vendors Customer, vendor open items

  20. “General Ledger” Holds More

  21. Cost or Analytical Accounting …

  22. “General Ledger” Holds More

  23. Legal issues • Sequential logging and governmental audits Reversals tje? Book = Governmental Reporting Book to Tax Differences

  24. Pros Easier coupling, interface Less development required to interface with third party products ASP Add-ons Financial reporters Budgeting Specialization OK Users can use best software for their own use and use XBRL to consolidate rather than one package throughout Cons Switching costs Easier for users to buy complimentary products outside of the vendor’s family Plug-and-play Modular Easier for users to leave product Data migration path Software Developers

  25. End Result

  26. data Assurance Today • No piece-meal opinions • As a whole • Relies on • Materiality • Subsequent events • Documents on the Net are representations of paper document; reusability limited • HTML • PDF • Java(script) • Questions surrounding where assurance ends • Links off-site • Management comment

  27. data Demands for Data Level Assurance • Data level assurance is … • Assurance on the data? • Assurance on the processes, per se? … (necessary for) • Assurance on the tags / “classifications”? • Data level assurance • Are the tags assigned correctly? • Was it posted to the right account / bucket / classification? • Supplemental assurance • Linkage to “taken as a whole” • Presentation a non-issue

  28. data XBRL • Tags assigned to data • Data items can be presented • As single fact • Collectively as extract • As entire financial statement • Information reusable • Tools exist to show what is covered under assurance • This is where we need to go

  29. data XBRL Promises to make financial information more discoverable Enables integrated reporting, from point of entry to reporting Will ride along on XML-related technologies Move from presentation of data to data-centric model Raise the bar on expectations Partial: receivables and inventory information to bank New: Performance metrics offered to shareholders Continuous: Sales figure constantly updated on web site Continuous audit

  30. XBRL Does not create the data level assurance need Is a facilitator and catalyst Can be part of the solution

  31. data XBRL Is a CPA firm that creates an XBRL file doing a compilation? Does it need an accountant’s letter for the XBRL file itself if the CPA firm creates it? Can only the firm’s personnel assign tags to the file? If the wrong tag but correct label are provided, what are the repercussions? What happens if only a partial financial statement is represented with XBRL? What about adding information not normally included?

  32. data How Can We Cope? Technology to tie Company authorization and CPA assurance To eDocument To eData … Must be Transparent to non-technical users Much simpler than assurance seals Nearly impossible to counterfeit

  33. coping Selective Unfolding: Tax XML TAX AUTHORITY TAXPAYER AGENT 1 Tax information: Page 1: General info Page 2: Sales tax Page 3: Motor fuels Page 4: Corporate Page 2 Page 1 to everyone Page 3 AGENT 2 Sees only cyphertext Page 4 AGENT 3 Hacker

  34. coping Selective Unfolding: Order XML Web buyer Page 2 AR Web order Page 1: General info Page 2: credit info Page 3: purchase info Page 1 to everyone Page 3 Sees only cyphertext Shipping Hacker

  35. coping Why Does This Affect XBRL? • XBRL for Financial Statements – today’s publicly disclosed financial reporting information … right? • Investors • Creditors Today’s F/R and tomorrow’s business metrics – publicly disclosed. Publicly Disclosed F/R Data Prediscloure data Accounting and business reporting data. • Managers • Trading partners • CPA • Banks • Consolidation Traditional financial reporting – the tip of the iceberg?

  36. The User Matters … coping • Need live connection to network • Rights determine access login: Here is the data you are allowed to see password: Rights check

  37. The User Matters … coping • XML file archived • Or email • Or ftp • User accesses XML • Based on keys, sees certain information • More needed? • Key request • More information opens <?xml version="1.0"?> <signed data key1 cyphertext <signed data key2 cyphertext D I S C O N N E C T Open file Here is the data you are allowed to see More please? Key request Here is the data you are allowed to see now My key … Create file

  38. coping Selective Unfolding: XBRL GL Level 1 Bank Level 3, filter by division Investor relations Divisional Manager XBRL FR and GL Top level: Public disclosure Level 1: Segmental breakdown Level 2: AR, AP, cash flow Level 3: Full GL detail Level 2 Sees only Top level Treasury Management Hacker Public

  39. Call to action Key Considerations • Data Level Assurance • Tag • Was tag applied to right number • Data Fairly Presented In Context Of Overall Financials • Item in context of the rest of the financials • More than just numbers … links info (like going concern status) to numbers • Data Fairly Presented • Item on its own

  40. Call to action Key Considerations • Data Level Assurance Issues Is it possible? • Materiality in a data age • Assurance to numbers or to processes • Classification (is the tag right) or data (is the number right) • What is the investor's expectations of what this means?

  41. Academic/Industry Relations • "the most persistent observation . . . is that researchers and users belong to .. separate communities with very different values and ideologies and that these differences impede utilization." Beyer, J.M. & Trice, H.M. 1982. The utilization process: A conceptual framework and synthesis of empirical findings. Administrative Science Quarterly, 27: 591-622.

  42. Academic Involvement • So far • Business Reporting on the Internet authors • Lymer, Debreceny, Gray (and Rahman) • LDB involved in development • Bryant College • Symposium and administrate the • XBRL Academic Competition • Students particpate in research, applications, taxonomy • University of Kansas • Helping Edgar Online with XBRLization of SEC filings • Rutgers • Awareness and considerations • Seattle Pacific • Working with vendor XBRL Solutions to create training materials • To come • AAA Stovepipes coming together

  43. Audit ramifications of XML XML Audit and Control Development of performance measurements items GRI, Sustainability Accounting and organizational behavior XML changes roles What is obsolete, new? Financial reporting systems What can happen? Objective evaluations of value What are keys to acceptance and implementation Digital signatures and encryption How does this serve the public interest Need the discipline of being model oriented How will this affect policy making? How do we best Bring together communities Provide rigor Encouraage future thought What is the downside? Data trust - how to live without materiality and subsequent events? Opportunities for Research and Teaching

  44. Questions? • Eric E. Cohen, CPA • PricewaterhouseCoopers LLP • 117 Rossiter Road, Rochester NY 14620-4127 USA • 716.271.4070 • Internet • eric.e.cohen@us.pwcglobal.com

  45. pwc

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