Assurance on XBRL for Financial Reporting

Abstract

SYNOPSIS: Since 2004, the Securities and Exchange Commission (SEC) has taken steps toward requiring eXtensible Business Reporting Language (XBRL) to be used in its filings, including a voluntary filing program. “Tagging” financial information using XBRL creates documents that are computer readable and searchable. Once XBRL is required, investors are likely to demand assurance on the tagging process. The Public Company Accounting Oversight Board (PCAOB) has issued guidance on attest engagements regarding XBRL financial information furnished under the SEC’s current voluntary filer program, which relies on the auditor “agreeing” a paper version of the XBRL-related documents to the information in the official EDGAR filing. This approach may be adequate for the current paper-oriented reporting paradigm. However, once filing in XBRL becomes required, the power of XBRL to allow individual financial datum to be extracted from the SEC’s financial database will be realized. This “data-centric” idea is a crucial extension of the traditional reporting paradigm that will alter the way financial and nonfinancial data can be used. The current audit focus on reconciling only the XBRL output with the paper submissions does not address this paradigm shift. In this commentary, we discuss the SEC’s efforts to incorporate XBRL into its filing process and provide a brief overview of the technical aspects of XBRL. The commentary’s principal focus is on several important questions that assurance guidance must address in a data-centric reporting environment, such as, what constitutes an error, or what does materiality mean when individual pieces of financial data will be used outside the context of the financial statements? It also describes some XBRL-related areas where academic research can help guide XBRL-document assurance efforts.