xbrl solving real-world problems

8/14/2019 XBRL Solving Real-world Problems

1/18

2009 Palgrave Macmillan 1741-3591 International Journal of Disclosure and Governance Vol. 6, 3, 207223www.palgrave-journals.com/jdg/

Original Article

XBRL: Solving real-world problemsReceived (in revised form): 20th March 2009

Glen L. Grayis a professor of Accounting and Information Systems at California State University, Northridge. Glen received his PhD in 1987 from Univer-

sity of Southern California. He has been an academic member of XBRL International since 2000. His research interests include XBRL,

auditing, IT controls, data mining, electronic financial reporting and electronic commerce. He has conducted research projects funded by the

IIA, the AICPA, the ISACA and the Big-4 accounting firms.

David W. Milleris an assistant professor of Information Systems at California State University, Northridge. David received his PhD in 2003 from Mississippi

State University. His research focuses on investigation into technologys effect on social structures and the diffusion of technological innova-

tions as well as issues surrounding management of information security.

ABSTRACT The use of eXtensible Business Reporting Language (XBRL) continues to grow

since its public introduction in April 2000. For example, since April 2005, the Securities andExchange Commission (SEC) has been encouraging Electronic Data Gathering, Analysis, and

Retrieval (EDGAR) filers to voluntarily furnish XBRL-related documents as attachments to tradi-

tional EDGAR filings. More recently, the SEC has funded a US$54 million project to modernise

EDGAR. XBRL is a key component of this modernisation and the mandatory filing of XBRL

documents was phased in starting in 2009. In October 2005, the Federal Financial Institution

Examination Council (FFIEC) completed a $39 million project that requires over 8000 banks to

submit their quarterly call reports to the FFIEC using XBRL. Around the world, several stock

exchanges, taxing authorities and other regulatory agencies are requiring organisations that report

to them to use XBRL. Beyond the required reporting, XBRL is also providing an improved

platform for such things as internal reports and consolidations. Despite the potential benefits of

XBRL only 137 companies (out of over 10 000 filers) participated in the SECs voluntary filing

programme (VFP). Less than 1 per cent of the banks required to use XBRL for quarterly call

reports to the FFIEC are also participating in the SECs VFP. XBRL adoption appears to be sitting

on the edge of the chasm between the early adopters, who are tolerant of the issues associated

with new technology and are less concerned about near-term Return On Investment (ROI), and

the majority of the potential market, who are more sensitive to costs, ROI and ease of use. To

help XBRL move over that chasm, our study begins by conducting four focus groups to develop

an understanding of the current issues and concerns faced by organisations related to accounting,

financial reporting and auditing. The specific issues and questions regarding XBRL were subse-

quently summarised and forwarded to selected members of the XBRL community, who were

asked to suggest how XBRL addressed those issues, concerns and questions. The findings are that

the XBRL community feels that XBRL technology can fulfill the needs of the financial reporting

community and that further awareness within that community is needed before there will be

Correspondence: Glen L. Gray

Department of Accounting & Information Systems,

College of Business and Economics,

California State University, Northridge, Northridge,

CA 91330-8372, USA


2/18

Gray and Miller

2009 Palgrave Macmillan 1741-3591 International Journal of Disclosure and Governance Vol. 6, 3, 207223208

INTRODUCTIONThe use of financial reporting data identifica-

tion technology known as eXtensible Busi-

ness Reporting Language (XBRL) continues

to grow since its public introduction in April

2000. For example, since April 2005, the US

Securities and Exchange Commission (SEC)

has been encouraging corporations and mutual

funds filing financial reports through its

Electronic Data Gathering, Analysis, and

Retrieval (EDGAR) system to voluntarily

furnish XBRL-related documents as attach-ments to traditional EDGAR filings. More

recently, the SEC has funded a US$54 million

project to modernise EDGAR in which XBRL

is a key component of this modernisation. A

result is that the SEC has begun phasing in

a programme requiring that all corporations

and mutual funds include XBRL instance

documents as part of their EDGAR filings1,2

where all public companies will be required to

furnish XBRL documents by 2011. The US Fed-

eral Financial Institution Examination Council

(FFIEC) completed a $39 million project in

October 2005 that required over 8000 banks

to submit their quarterly call reports to the

FFIEC using XBRL.3 Around the world,

stock exchanges, taxing authorities and/or

other regulatory agencies in Australia, Belgium,

Canada, China, Denmark, France, Germany,

Ireland, Israel, Japan, Korea, Luxembourg,

the Netherlands, New Zealand, Norway,

Singapore, Spain, Sweden, Thailand and the

United Kingdom are requiring organisations

that report to them to use XBRL. Clearly,

the SEC and FFIEC, along with the many

regulatory agencies of other nations, feel that

a standardised financial reporting data format

is necessary and that XBRL offers the needed

standard.

Financial reporting experts have lauded

the requirement of collecting filing data ina uniform format in general and the use of

XBRL in particular (cf.4,5). XBRL is believed

to enhance the search capability of the SECs

EDGAR database allowing efficient and effec-

tive retrieval and examination of data, thus ena-

bling financial analysis of registered filers and

comparisons between filers within industries.4

Moreover, organisations who have voluntarily

adopted XBRL for their filings have found

the cost, time and technical proficiency thresh-

olds to the adoption to be relatively low.6

According to an SEC survey, the first-year

preparation costs could average $30 K$40 K

(with upper bounds of $60 K$82 K), with

a significant drop in the subsequent years.2

Once the financial data were formatted using

XBRL report production costs were reduced

with more efficient reporting, information

widespread adoption of XBRL absent a regulatory requirement. These findings are important

essentially to anyone wishing to promote or champion the adoption of XBRL for management

and control of internal financial data and reporting processes. This list should include, but certainly

not be limited to: compliance officers; accounting and systems auditors, both internal and external;

finance and information systems managers; and, systems designers. Although our study reports

ways in which XBRL addresses many of the questions, issues and concerns of auditors, researchers

may wish to conduct further studies to determine if there are other questions, issues and concerns

of auditors that were not found in our study. Or, our findings could be used for comparison of

this topic in other populations such as compliance officers and finance managers. Researchers

could also study ways to effectively convey our findings to promote and champion the diffusion

of XBRL.

International Journal of Disclosure and Governance(2009) 6,207223. doi:10.1057/jdg.2009.8;

published online 14 May 2009

Keywords: XBRL; diffusion of innovation; technology adoption; financial reporting; internal controls


3/18

XBRL: Solving real-world problems

2009 Palgrave Macmillan 1741-3591 International Journal of Disclosure and Governance Vol. 6, 3, 207223 209

sharing was improved, and internal controls

and regulatory compliance were strength-

ened.68Along with issues of monitoring and

regulatory compliance, XBRL holds potential

benefits for those responsible for corporate gov-

ernance.5,9

Adopting XBRL for internal finan-cial data affords opportunity to lower corporate

risk, increase efficiency and transparency and

better serve stakeholders and the marketplace.10

Despite the benefits of XBRL touted by the

SEC and the XBRL community at large, only

137 of the more than 10 000 registrants adopted

XBRL filing under the SECs voluntary filing

programme (VFP). Of the more than 8000

banks required to file reports in XBRL to the

FFEIC, less than 1 per cent have chosen to

participate in the SECs VFP.

With most new technologies, a chasm fre-

quently exists between early adopters of a new

technology and the mainstream market.11Based

on its adoption numbers (that is, the adoption

numbers for SECs VFP), XBRL seems to be on

the edge of that chasm. The early adopters are

willing to try innovations just because they are

new. They are less concerned with issues such

as cost and Return On Investment (ROI), and

whether others are adopting the innovation while

they are more willing to deal with the challenging

aspects of technology. The mainstream marketis more price and ROI sensitive, has a stronger

whats-in-it-for-me attitude, and values ease of

use and reliability. Plus the any voluntary use of

XBRL has an up-hill battle against several manda-

tory requirements, which, depending on industry,

can include mandates, such Sarbanes-Oxley,

Health Insurance Portability and Accountability

Act, Basel II and payment card industry (PCI) that

compete for general and IT resources.12

Moving beyond early adopters to main-

stream is going to be a challenge to the XBRLproponents. There are many factors that affect

the ready adoption (diffusion) of an innova-

tion such as XBRL. Generally recognised as

the preeminent scholar in the diffusion of inno-

vations, Rogers13 has shown that getting an

innovation widely adopted is often very dif-

ficult. Even when the innovation has obvious

advantages, it may be many years from the

time the innovation becomes available until

it is widely adopted, if ever. So, a common

issue for proponents of a particular innovation

is how to speed up the rate of diffusion of

the innovation. Diffusion is best understood asa particular form of communication in which

participants create and share information in

order to reach a mutual understanding relative

to the innovation. Therefore, diffusion of the

innovation requires that information about the

advantages of its adoption be collected and then

shared with potential adopters.14In the case of

XBRL, the direct costs, such as acquiring the

application software, learning how to use the

application and the one-time effort to build

the data template, are low,1but there is no clear

indication that this has been well communi-

cated to potential adopters of XBRL.5 There

are also more subjective organisational factors

that may inhibit diffusion of the innovation

even if the objective information of the advan-

tages afforded by the innovation are known.15

Clearly, there is a disconnection between the

apparent benefits versus the costs of adopting

XBRL.

There has been little academic research to

date specific to the diffusion of XBRL. What

research has been done has provided findingsencouraging to those hoping for widespread

adoption of XBRL, whereas reinforcing the

disappointment that reaching a critical mass

of diffusion is far from imminent. Troshani

and Rao16 concluded that widespread adop-

tion of XBRL is unlikely without mandates

from regulatory bodies. They further suggested

that organisations may not be ready to adopt

because of limited awareness of benefits, func-

tionality and related costs. In a related study,

Troshani and Doolin

17

found potential adop-ters of XBRL who have a legitimate basis for

adopting nevertheless lacked power and a sense

of urgency necessary to significantly affect dif-

fusion. As a remedy, they suggest instrumental

measures such as knowledge building and

deployment, subsidy, mobilisation and direc-

tives from organisational stakeholders towards


4/18

Gray and Miller


designing proactive solutions that positively

affect diffusion. Individuals responsible for cor-

porate governance can influence the adoption

of XBRL as well as have the responsibility for

the policies, procedures and practices organisa-

tions need covering use of XBRL.10

A commonelement of these findings is the importance of

the need for stakeholders to develop and accu-

mulate knowledge of the advantages and ben-

efits of adopting XBRL, particularly relative

to the costs and concerns of its adoption and

sharing that information with potential adop-

ters. The outcome of each study is a belief

that improved information on the advantages

of XBRL, properly communicated will greatly

increase its diffusion.

The purpose of the research presented in this

paper is to contribute to the body of knowledge

regarding XBRL relative to the concerns of

potential adopters regarding its adoption. Even

though the SEC is mandating that XBRL be

used for filings, diffusion research suggests that

widespread diffusion is not assured beyond

the minimum filing requirements.13,16Assuring

widespread adoption of XBRL will depend

largely on documenting the applications and

advantages offered by XBRL in the required

and other domains versus the associated costs

and communicating this knowledge to potentialadopters.16In this study, we explore significant

accounting and financial reporting concerns

of organisations and identify how XBRL can

help alleviate those concerns. Specifically, we

endeavour to determine what are the high-

priority accounting, financial reporting and

internal audit problems that XBRL potentially

addresses that would encourage people to adopt

XBRL for their organisations.

The remainder of this paper is divided into

three major sections. The section Backgroundprovides general background information on

XBRL technology and the potential drivers

of XBRL acceptance. The section Research

overview provides an overview of the research.

The section Focus Group Summary and

XBRL Community Responses summarises the

research findings, including the high-priority

accounting, financial reporting, and internal

auditing issues and concerns suggested by the

focus group participants and the corresponding

responses from the XBRL community mem-

bers on how XBRL could directly address

those issues.

BACKGROUND

Moving toward critical massThe diffusion of an innovation such as XBRL

can be compared with the diffusion of other

technology innovations such as fax machines,

barcodes, instant messaging and even the tel-

ephone. As with any of these innovations,

the more people that adopt the innovation, the

more valuable the innovation becomes to each

adopter until a critical mass is achieved. At the

point of a critical massthere are enough adopters

of an innovation that the innovations further

rate of adoption becomes self-sustaining.13But,

before a critical mass can be reached, there

must be those early-adopter organisations who

implement the innovation before there is any

clear benefit in adopting it. Such early-adopter

organisations may adopt the innovation antic-

ipating the rate of adoption will increase to

critical mass or when a change agent seeks to

persuade an organisation to adopt the innova-tion. Whichever the case may be, for diffusion

of an innovation to occur, information about

the innovation needs to be communicated to

potential adopters. The information may come

from adopters who share their experiences

with others or the information may come in

a linear fashion from an authoritative agent.

In the latter case, the agent can attempt to dis-

tribute information about the innovation like

the SEC VFP in XBRL or can attempt to

persuade the potential adopters through rulesor regulations like the new SEC requirement to

file using XBRL. The communication of this

information then drives the adoption process.

Therefore, to understand the diffusion of an

innovation (or lack of diffusion) we must first

understand the informational drivers of that

innovation. Adoption of XBRL has been


5/18



slowly growing on a worldwide basis since

its rollout in 2000 but has yet to achieve a

critical mass where its continued adoption is

self-sustaining. Therefore, to better understand

the state of XBRL diffusion, we must explore

the informational drivers affecting its adoption.There appears to be several drivers that are con-

tributing to XBRL diffusion moving toward a

critical mass, including:

Sarbanes-Oxley. A significant driver for

XBRL has been the unpleasant findings

from organisations Sarbanes-Oxley activi-

ties. Management is now far more aware of

basic process flow, data and control prob-

lems in their organisations. Consequently,

management is searching for solutions to

improve the efficiency and effectiveness

of processes and controls, and to reduce

the associated costs. XBRL has many fea-

tures that can help management meet those

objectives. For example, implementing

XBRL Global Ledger (XBRL GL) at the

beginning of the information supply chain

gives auditors an efficient means to inter-

rogate detailed transactions, so, the auditor

will be able to analyze larger samples and

lower the materiality levels, which, in turn,

will increase the probability of discoveringproblems or fraud.

Extensible markup language(XML) knowledge.

XBRL is an application of XML tech-

nology, which is experiencing its own rapid

growth in adoption. Organisations already

have growing staffs that are knowledge-

able of XML, so from a technology per-

spective, XBRL is more of an evolutionary

technology than a revolutionarytechnology,

which should make XBRL adopter easier

with a flatter learning curve.External recipients. Government regulators,

tax agencies, stock exchanges and other

recipients of XBRL instance documents

are major supporters of XBRL because it

can vastly improve their productivity in

terms of the initial data collection, manip-

ulation, validation, analysis and reporting.

There also can be a significant drop in

new errors entering the information supply

chain because manual data reentry steps

are greatly reduced or eliminated. Con-

sequently, more time can be focused on

data analysis. This escalating acceptance ofXBRL report by third-party recipients has

been a worldwide phenomenon.

XBRL consortium synergy. There are over

500 (and growing) organisations world-

wide that are members of XBRL Inter-

national. The size and diversity of this

membership creates significant synergy.

Many software companies already have or

are adding XBRL functionality to their

products. Other software companies are

developing new XBRL tools for the crea-

tion of XBRL instance documents. The

XBRL members from the financial analyst

and reporting communities are also devel-

oping tools and services around XBRL.

The accounting firm members are encour-

aging their clients to enhance their proc-

esses and controls through implementing

XBRL technology.

Potential uses of XBRL

The first meeting of the XBRL Steering Com-mittee was October 1999 and the public roll

out of XBRL was April 2000. Since that time,

many people have made presentations to a

broad diversity of audiences regarding XBRL

technology and its applications.18 It is clear

from these presentations that there are a wide

variety of potential applications of XBRL tech-

nology, including those summarised below:

Web-based financial reporting: most large

public companies in countries with activepublic markets voluntarily post their

financial statements on their websites.

In the United States, SEC Regulation

FD and Sarbanes-Oxley Section 409 are

encouraging companies to do even more

with their web-based financial disclosures.

Using XBRL-financials makes it easier for


6/18

Gray and Miller


investors and other users to download and

analyze the financial information. The new

SEC XBRL mandate requires that public

companies post their SEC XBRL filing to

their own websites.

Financial analysis: Banks, creditors and finan-cial analysts are interested in XBRL as it will

significantly reduce the mechanical aspects

of financial analysis and provide more time

for analysis and decision-making. Analysis

of financial data generally involves three

tasks: (1) collecting and loading the data

into the users analytical software whether

spreadsheets or sophisticated analytical tools;

(2) using the software to aggregate, disag-

gregate, clean and re-categorise the original

data so it is comparable with other data

already collected from other sources; and

(3) analyzing the data and making decisions

based on that analysis. If the original data

are a printed (or human-readable electronic)

document (for example, Form 10-K) or in

an incompatible format, most of the users

time will be spent on the mechanical tasks

(1) and (2). XBRL enables the analyst to

access financial data and move the data to the

analytical software more quickly, thereby,

reducing the time and processing costs for

tasks (1) and (2) and allowing more time fortask (3), decision-making. Also, the elimina-

tion of cutting-and-pasting or manual data

reentry greatly reduces the probability of

new errors being introduced into the data.

Tax and regulatory filing: many government

agencies, such as tax and regulatory bodies

around the world, have mandated XBRL

documents and many others are monitoring

these activities and may do likewise. The

most significant announcements in the

United States were the SECs voluntaryXBRL submissions started in April 2005,

the FFIEC $39 million XBRL-based call

report modernisation project, which went

live in October 2005, and the recent SEC

XBRL mandate.

Internal reports: The power of XBRL also

applies to internal data exchanges and

reports, which are often more detailed,

frequent, variable and ad hoc compared to

external reports. The efficiencies of XBRL

are significant inside the organisation as

well as outside the organisation. XBRL

was first viewed as an external financialreporting tool, but it was also quickly seen

as a valuable internal reporting tool. As said

before, XBRL GL taxonomy moves XBRL

upstream to the transaction level and subse-

quently allows drilling down from financial

statements to trial balances to underlying

transactions. Different XBRL-compatible

accounting packages will be able to freely

exchange data.

Consolidations: XBRL could be used to con-

solidate accounting information (as well as

other information) from disparate systems

used by different business units. If each

system is XBRL compatible, after a one-

time mapping process, consolidating could

be automated.

The evolving use of XBRLExactly how each organisation implements

XBRL will vary widely; XBRL can be imple-

mented incrementally and can coexist with

other technologies. For banks in the UnitedStates and for organisations in some other

countries, their first use of XBRL was cre-

ating XBRL instance documents for manda-

tory external reports to government regulators

and/or stock exchanges. Other organisations

may be more likely to use XBRL to exchange

data internally; similar to the way Excel is

frequently used today. Some XBRL tools are

add-ins to Excel, so the environment will be

somewhat familiar to first-time XBRL users.

Currently, creating an XBRL instance docu-ment is usually a two-step approach where the

user will collect data or a report in one format

and then use an XBRL tool to create an XBRL

instance document. There will probably be a

mix of manual and automated tasks involved

in mapping the traditional report to the appro-

priate XBRL tags. However, with companies


7/18



such as Great Plains, SAP, Navision, Hyperion

and Oracle, building XBRL functionality into

their products, producing an XBRL instance

document will, in the future, become a one-

step process maybe just as simple as a Save As

option in the application programme. This willaccelerate the creation of an XBRL instance

document and reduce human error associated

with re-entering data.

RESEARCH OVERVIEW

Motivation and goalsAs said before, there is a growing popula-

tion of successes for XBRL where it has been

implemented or will be in the near future.

The embracement of XBRL by the SEC and

other regulators has the potential to greatly

increase the diffusion of XBRL. We can fairly

safely presume that nearly all US banks, pub-

licly traded companies and mutual funds will

acquire at least a basic awareness and experience

with XBRL. Diffusion researchers have shown,

however, that such a level of knowledge of

an innovation is not sufficient to assure its

adoption achieving a critical mass.13The com-

paratively low number of adopters of XBRL

under the VFP seems to bear this out. Pro-moting a more widespread adoption of XBRL

will likely require the creation, collection and

sharing of information on the advantages of

adopting XBRL that go beyond the filing

requirements imposed on companies. The pur-

pose of this paper is to look at the informational

drivers of adoption of XBRL; particularly, we

examine drivers stemming from information on

the advantages of XBRL beyond that which

companies will garner from the mandatory

filing rules. The general goals for this researchproject included:

1. Identifying the most significant accounting

and financial reporting issues facing a wide

variety of enterprises.

2. Identifying how and where XBRL could

address those issues.

Research methodThe primary participants in this research study

were internal auditors from a variety of organi-

sations, including public and private companies,

government agencies and not-for-profit organ-

isations. Internal auditors generally have a verybroad understanding of their organisations well

beyond just the accounting functions. How-

ever, only a very small population of internal

auditors (or the general business population,

for that matter) is familiar with basic XBRL

concepts. As such, it would have been impos-

sible to directly ask internal auditors to discuss

potential applications of XBRL. To address this

limitation, the multiple-step approach shown

in Figure 1 was used. The first step was to

collect and review XBRL literature, which

included published papers, XBRL presentations

and both public and member-only materials

available at the www.xbrl.org website.

The second step was to conduct a series of

2-hour focus groups with internal auditors,

including volunteers from:

1. San Fernando Valley IIA chapter,

2. Dallas IIA chapter,

3. Hawaii IIA chapter and

4. Los Angeles ISACA chapter.19

The primary objective of each focus groupwas to develop an understanding of the cur-

rent issues and concerns related to accounting,

financial reporting and auditing that organisa-

tions are experiencing. About 90 min of each

focus group was dedicated to this first objec-

tive. In the first round-robin, each auditor was

asked to provide an issue or concern that is most

challenging or problematic for their organisa-

tions controller. Once that discussion subsided

with auditors reacting to the other participants

suggestions, a second round-robin was startedwith each auditor asked to provide an issue or

concern that is most challenging or problematic

for their organisations internal audit operations.

During the last 30 min of each focus group, the

researcher provided a brief overview of XBRL

and the participants were also asked for their spe-

cific comments and questions regarding XBRL.


8/18

Gray and Miller


The focus group comments regarding

accounting, financial reporting and auditing,

and specific issues and questions regarding

XBRL were summarised and forwarded to

selected members of the XBRL community.

These XBRL community members were asked

to suggest how XBRL could directly or indi-

rectly address the issues, concerns and questions

suggested by the internal auditors.

The final step was to structure and aggregate all

the information collected during the project.

FOCUS GROUP SUMMARY ANDXBRL COMMUNITY RESPONSESThis section summarises the comments from

the internal auditor focus group participants

and a synthesis of the corresponding responses

from the XBRL community members. The

issues and concerns suggested by the internal

auditors generally grouped into the following

topics:

Sarbanes-Oxley and internal controls;

fear of spreadsheets;

retrieving and consolidating accounting

information;

audit tools.

In addition to the above topics that surfaced

during the focus groups, this section also

includes the participants specific questions

regarding XBRL from the latter part of the

Review XBRLliterature

Conduct 4 focusgroups

Send comments toXBRL community

Synthesizeresponses

Structure andaggregateinformation

Summarizefindings

Feedback

Figure 1:Research methodology.


9/18



focus groups and applicable responses from the

XBRL community.

As the following paragraphs will expand

on, the overall concern of the internal auditors

could be summarised in the single term data

integrity. Worrying about having timely andaccurate data so that financial statements and

other business reports can be produced in a

timely fashion creates stress for preparers and

auditors because they are faced with the over-

riding question: how do I reallyknow that data

I have are accurate and complete? As the fol-

lowing paragraphs illustrate, data integrity is

challenged from many different aspects of the

organisational environment and XBRL has the

potential to improve that environment.

Sarbanes-Oxley andinternal controlsConsidering the timing of the focus groups,

it was not a surprise that Sarbanes-Oxley and

internal controls were significant topics of the

focus group discussions, including the following

sample of comments

Sarbanes-Oxley was a real eye opener in

terms of the state of internal controls over

financial reporting.Non-standardisation of controls was a con-

cern. It was not that the controls were weak

or lacking, but the same process in different

business units would have a different set of

controls.

The continuation of the controls was a

concern because once the existing controls

have been tested and documented, how do

you know that those controls are still being

used after the testing has been completed?

Segregation of duties was an issue in that,partly because of the proliferation of spread-

sheets, it is not totally clear who has access

to what data. In the IT department there

are super-users who raise additional segre-

gation of duties concerns.

Segregation of duties is a dynamic issue

because segregation of duties could be

appropriate today, but tomorrow, because

of personnel or other changes, there could

be a conflict of duties.

Independence and objectively can be an

issue, particularly related to management

overrides. For example, what if a managertells a subordinate to do something that

violates policies? What if a strong CEO or

CFO tries to convince employees or audi-

tors to not report something?

The general lack of formal training regarding

policies and procedures is a concern.

Fraud detection is an issue because fraud

detection requires more auditor time

and resources. Materiality levels are set too

high and samples are too small partly

because of budget constraints to detect

fraud.

Lack of transparency of transactions was an

issue, raising questions such as: did the data

change? When did the data change? What

did it change to?

An issue related to legacy systems is that

the people who understood the legacy

systems are retiring or literally dying off.

Yet, companies have no plans to replace

those systems.

Keeping up with technology changes is a

concern, particularly, if there are multipleplatforms each of which is changing over

time. Sometimes those changes are inter-

nally driven (for example, maintenance and

upgrade activities) and other times they are

external changes (for example, changes to

meet a regulatory requirement or software

patches and upgrades).

The dynamic aspects of businesses can

be a challenge to auditors. For example,

adding a product or service might result in

a change to the general ledger by addinga new account or line item. This would

mean that reports based on the general

ledger and spreadsheets that use data from

this general ledger would have to be modi-

fied to reflect the GL change. How do you

know this was done by everybodyaffected

by the changes?


10/18

Gray and Miller


Who owns the processes and controls? What

if nobody will take the ownership? Or

what if a person will take ownership of the

processes but not the associated controls?

The following is a synthesis of the comments

of the XBRL community members regarding

XBRLs potential contributions to ameliorating

Sarbanes-Oxley and internal control concerns.

XBRL contributions to Sarbanes-Oxley and internal controlenvironmentIn response to the above points, the XBRL

community members indicated that XBRLs

contributions to improving controls and data

integrity are both direct and indirect. Although

XBRL cannot solve every internal controlproblem, many aspects of XBRL can improve

internal controls. As a reporting tool, XBRL

has several built-in controls. First, XBRL soft-

ware tools will not create an XBRL instance

document if it is not XML and XBRL syntac-

tically and semantically correct the software

will generate a list of errors instead. In addi-

tion, XBRL taxonomies include linkbases that

contain business rules, adding another level of

validation, and linkbases can move validation

to the earlier stages of the organisations internal

information supply chain.

Data layer validation. Another important

value of linkbases is that the validation is

taking place at the data layer instead at the

application layer. This means better quality

data will be accessed by different appli-

cations in the application layer and that the

data validation components of each applica-

tion do not have to be as sophisticated. This

data layer validation is a significant contrib-

utor to the productivity increase expectedin the FFIECs bank-reporting project,

where the time to deliver summary reports

based on the individual call reports from

over 8000 banks dropped from 60 days to

2 days because the XBRL data goes through

an extensive validation process before it is

transmitted to the FFIEC.

Continuous auditing (CA). XBRL supports

CA, particularly, at the XBRL GL level.

If XBRL instance documents are used as

the interface to exchange data between

disparate systems inside and outside the

organisation, because those interfaces willbe standardised and uniform, embedded

audit modules (EAMs) can also be stand-

ardised and uniform. Therefore, it will be

much easier to implement EAMs and CA

functionality organisation wide. In addi-

tion, it will be easier to fine-tune those

uniform EAMs to improve fraud detection

and reduce false positives.

Does all of this mean that an XBRL instance

document will contain no errors? Unfortu-

nately, garbage-in-garbage-out still applies. If

somebody accidentally or intentionally posts a

transaction incorrectly, that error could move

through the information supply chain and

the XBRL documentation process. However,

as XBRL may result in more finely tuned,

standardised controls, it maybe more effective and

efficient in preventing, capturing, or at least flag-

ging errors. Moving XBRL further upstream

with XBRL GL level reduces the possibility

of errors subsequently creeping back into the

information supply chain as data are exchangedfrom one process to the next.

In summary, XBRL promotes standard-

ised data formats and built-in data rules for

exchanging data, which, in turn, can promote

standardised controls, standardised testing and

improved audit processes. Over the long run,

standardised testing can mean that the mate-

riality levels can be reduced and larger data

samples can be tested for errors and fraud.

Fear of proliferationof spreadsheetsThe internal auditors in the focus groups

raised many concerns about the proliferation

of spreadsheets, including

Current spreadsheets are very complex

and, generally, not designed to share data


11/18



between separate spreadsheets, which means

frequent manual data reentry.

The external auditors were not improving

managements comfort level with spread-

sheets because the auditors do not test all

the existing spreadsheets.A frequent concern was that spread-

sheets that are now an integral part of the

accounting and financial reporting systems

and these in-house developed spreadsheets

do not include design or operating docu-

mentation.

A big concern was how to validate spread-

sheets and the source data for those spread-

sheets.

Another issue was the potentially false

sense of security that the data collection

are being performed properly because the

transfer process has been automated or built

into the application (for example, Oracles

enterprise resource planning (ERP) system

can automatically transfer data into spread-

sheets).

Another concern was the ongoing mainte-

nance control or the lack there of. For

example, what kind of testing is done after

changes are implemented into a spreadsheet

to ensure that the changes did not create

new problems? What about security atthe spreadsheet access level and at the data

level?

XBRL contributions to alleviatingspreadsheet concernsIn response to the above internal auditor com-

ments, one of the XBRL community members

said that the issues with spreadsheets can be

characterised as

1. The frequent cutting-and-pasting and

manual data reentry introduce new errors

into the information supply chain.

2. No live links exist from the spreadsheets

back to the source data, so it is not clear

what the source data were and, if the value

of the sources changes, the spreadsheets

that included that data are not automati-

cally updated.

3. Because different people may be extracting

the same data, but at different times, there

will quickly be a version control problem.

4. Data validations both on incoming datafrom the source and out going data from

the spreadsheet are probably incomplete,

undocumented and performed manually.

5. Business rules and analysis formulas are cap-

tured in the spreadsheet cells and macros,

but different individuals are creating their

own idiosyncratic representations of these

rules and formulas without collaboration.

6. Spreadsheets are rarely self-documented. For

example, a cell might include = (C17/C28),

then the person goes to C17 to see what

is there and they see = SUM(A6:A10),

and so on. Worse yet is to examine a long

macro full of cell references with no names

or comments. Trying to determine what

the cell references and macro are actually

doing and whether they are doing it

correctly is a major challenge.

7. Is creating and maintaining spreadsheets

the best use of a persons time, particularly

because accountants and financial people,

generally, have little, if any, formal com-

puter training? Plus the redundancies ofindividuals independently creating essen-

tially the same spreadsheet significantly adds

to the overall cost of the spreadsheets.

8. The shear number of spreadsheets that exists

in organisations means that there are many

spreadsheets that are never going to be fully

audited. All of those spreadsheets could be

part of the Sarbanes-Oxley Sections 302 and

404 internal control domain.

The XBRL community members expressedthe view that spreadsheets are NOT going to

disappear with the implementation of XBRL.

XBRL has superior functionality to act as an

intermediary between disparate systems or

applications. Eventually, some spreadsheets can

be removed from functioning as intermediaries

and be replaced by XBRL-based web services


12/18

Gray and Miller


or local applications. With XBRL, the business

rules that are currently embedded in spread-

sheets and uncontrollable can be incorporated

in XBRL taxonomies, thereby, moving busi-

ness rules from the application layer to the

data layer. Applications, such as spreadsheets,will still be needed to manipulate the XBRL

instance documents, but the logic and the rules

will be standardised and external to the applica-

tions, thereby, greatly reducing version control

problems and redundancy.

In summary, the tight coupling between

XBRL instance documents and their taxonomies

provides strong error checking and persistent

connectivity, which can mean an unbroken

audit trail. However, with all that said, spreadsheets

will still be an important tool. For example, if a

spreadsheet is needed to perform some unique

tax calculations, the spreadsheet would first

automatically import the appropriate XBRL

instance document, the tax calculations would

be performed in the spreadsheet, and then the

results could be automatically exported to an

XBRL instance document that would, in turn,

automatically update the general ledger.

Retrieving and consolidatingaccounting information

The internal auditors indicated that inter-facing and consolidating disparate general

ledger packages are ongoing challenges for

controller and internal auditors, specifically

including

Exchanges between packages under dif-

ferent platforms such as Unix, mainframes

and Windows servers were problematic.

Proprietary file formats of the third-party

packages can also be a problem.

Sometimes applications are so dissimilar thatthe data could be exchanged and aggregated

only through manual reentry activities.

Ever-changing systems are a concern

because even after procedures are in place

to perform data exchanges between systems,

one or more of the systems will change in

a relatively short time frame.

Some regulators and taxing authorities have

different reporting periods compared to

the companys fiscal year and they will

have different definitions (for example,

allowable expenses) for line items for their

reports.Another concern is mis-posting of accoun-

ting transactions. That is, how do you

know that all transactions were posted to

the appropriate accounts?

Disparate systems, dissimilar platforms

and software applications that must share,

exchange and transfer data contribute

heavily to data integrity concerns.

Different Generally Accepted Accounting

Principles in different countries add to the

consolidation problem.

Decentralisation of the organisation can be

a problem.

The highly competitive global marketplace

in which most companies must function

makes long-range planning very difficult.

Many companies now have more integrated

business relationships with trading partners

and supply chain participants, which have

to interact and exchange data.

Budget limitations can be a problem. As

such, even though management may want

to replace or upgrade old systems, they maynot have the budget to do that.

XBRL contribution to consolidatingaccounting dataIn response to the above comments, the XBRL

community members expressed the belief that

one of the core powers of XBRL is acting as

a means to support the map-once-use-many

exchange of data between disparate internal

systems, third-party systems and trading part-ners and banks. Essentially, once a system is

mapped to an XBRL instance document (or

if a system automatically produces an XBRL

instance document) that instance document

becomes the uniform interface to exchange

data with the world outside that system. This

concept is similar to the traditional electronic


13/18



data interchange concept, but XBRL is much

more robust.

Auditing toolsInternal auditors in the focus groups did not

complain specifically about the set of functionsbuilt into audit tools such as IDEA and ACL;

instead, as the following outline indicates, the

concerns related to deciding what functions

to use for specific situations and selecting the

right data to meet specific testing and auditing

objectives.

Each audit tool has a learning curve that

must be addressed to ensure that there is

somebody on staff who is ready to use the

tool when needed.

Extracting data is more of a challenge than

using the tool itself because organisations

have hundreds of data fields distributed

among hundreds of database tables located

on different computers.

False positives can be an issue with audit

tools, particularly for very large databases.

Some of the auditors came from organisa-

tions where auditors were not allowed to

create and run their own data extractions.

The IT department did the queries because

they worried that the auditor would makemistakes that will use excessive computer

resources and slow down other processes.

With large organisations, part of the

problem with data analysis is the sheer

volume of data.

XBRL contribution to audit toolsIn terms of helping the auditors audit, the

XBRL community members indicated that two

important aspects of XBRL are its potential tofunction as a means to exchange data between

applications and its map-once-use-many func-

tionality. Some of the specialised auditing tools,

such as ACL and IDEA, are now capable of

working directly with XBRL data. The data

mapping will have to be performed the first

time to create the XBRL instance documents

or files from the clients native files. Deter-

mining the correct fields and tables will still

have to be addressed, but once mapped, the

XBRL mapping will be the ongoing inter-

face to that data. As XBRL moves upstream

with XBRL GL, XBRL will be at the mostdetailed level allowing for the finest granularity

for analysis. Eventually, XBRL could be the

native format and the mapping step will no

longer be necessary.

XBRL will also help address the situation

where the IT departments will not let the audi-

tors conduct their own queries. The auditors

could work with the IT department to create

the mapping between the current systems and

the desired XBRL instance documents that will

be used by the auditors. This mapping would

have to be performed once, but the mapping

could then be automated to create revised

XBRL instance documents on an as-needed

basis. Over time, the XBRL instance docu-

ments could become more comprehensive and

sophisticated.

XBRL comments and questionsBefore each focus group, the internal audit

participants were e-mailed some papers and

links related to XBRL to review before the

focus groups. In the last 30 min of each focusgroup, participants were asked for their com-

ments and questions regarding XBRL. A sum-

mary of these comments and questions were

subsequently e-mailed to selected members of

the XBRL community to solicit their responses.

The following summarise the internal auditors

questions and the XBRL community members

responses.

Question #1: Once the investment community

learns that it is easier with XBRL to providemore data quicker with less work, will the

investment community (and regulators) start

demanding more detailed and expanded data,

wiping out any productivity gains?

Response #1: Regardless of communication

channels, as was seen with Sarbanes-Oxley,


14/18

Gray and Miller


Regulation FD and so on, regulators and inves-

tors are going to continue to demand more and

quicker information from organisations that

is given. As such, organisations need to find

the most efficient and effective ways to meet

that growing demand. The map-once-use-many, the standardisation of processes and

controls, and the built-in validation and con-

trols are some of the aspects of XBRL that

will help organisations meet those growing

demands.

Question #2: Why take the time and effort

now to map the current disparate systems to

XBRL for consolidation purposes as (1) the

company already has something in place for

doing consolidations, and (2) if they implement

ERP systems in the future, this functionality

will be built in?

Response #2: This question is an oversimplifi-

cation of the current situation and the related

problems. Although it is true that organisa-

tions already have a consolidation process; that

process is generally replete with manual steps

and weak controls that can be enhanced and

made more efficient with XBRL. Also, the idea

that an ERP system provides this functionality

seems to ignore some of the common problemswith data today, such as

No shared context across applications both

within and across enterprises.

Labels (field names and so on) are not

consistent across applications no shared

definitions.

Poor data quality because of little or no

independent validation of data as it moves

from process to process.

One Way data traffic with data moving

out of an ERP system for analysis, but it

is difficult to put the results back into the

ERP system. For example, information for

a tax provision analysis will be dropped into

Excel, but the resulting answer must be

entered back into an ERP via a manual

journal entry.

Physical relationship between data and

analytics with business rules defined at

the application layer meaning that several

versions of the same business rules can reside

in different applications (for example, dif-

ferent accounting systems, different spread-sheets and so on). This leads to version

control problems.

Poor connectivity to resources across

applications.

Owing to the poor connectivity and one-

way data flow, it is difficult or impossible to

follow an audit trail upstream from reports

to the original sources. This is a significant

Sarbanes-Oxley issue.

Question #3: Why spend the time and effort

now on mapping old systems to XBRL? Why

not just wait for the second generation of appli-

cations where XBRL is more integrated or

native in the software and other applications?

Response #3: As with any technology, the issue

usually boils down to identifying and quanti-

fying all of the applicable costs and benefits.

XBRL is not going to be the cost-effective

solution in every situation. However, if the

benefits exceed the costs in a particular situ-

ation, then postponing the implementation ofXBRL technology means that the net benefits

are being postponed and lost. XBRL can be

implemented incrementally, so it is not an all-

or-nothing situation.

Question #4: Although the cost of disk storage

and bandwidth are coming down, there are still

some costs associated with XML technologies

in terms of larger file sizes.

Response #4: Although it is true that XML tags

can add significant overhead to a files size,

most XBRL instance documents for financial

reports are still relatively small. As XBRL GL

can be used to exchange transaction-level data,

those files could become much larger than the

XBRL financial reporting instance documents.

Fortunately, with the continuous decrease in


15/18



the cost of storage devices, even if the use of

XBRL instance documents grows significantly

in an organisation, the storage cost should not

become a major issue.

Question #5: Currently, the benefits of XBRLseems to be to the recipients of XBRL

instance documents, but what are the ben-

efits to the preparer of this XBRL instance

document?

Response #5: Most public companies would

agree that simply communicating better, faster

and more directly with the analysts and cap-

ital markets is itself a good thing and there

are academic studies to support that opinion.

XBRL provides companies with both ways to

tell their story and provide their data to the

analysts in a format that can easily be consumed

by their computer models. In general, from the

companys perspective, some of the benefits to

the preparer are

lower cost of producing information;

tell your own story (precise & clear);

more timely, accurate, data for decisions;

enhanced analytical capabilities;

better control environment, which is appli-

cable to both small and large companies;accelerated adoption of reporting model

changes.

Question #6: Because of the complexity and

size of XBRL files, will it be easier to inten-

tionally hide something or make it harder to

find an error that occurred in the XBRL file?

Response #6: As XBRL files are validated and

the structural relationships are open, there

is much less possibility of this, compared tounvalidated and closed systems, such as text,

faxes, CSV files and spreadsheets.

Question #7: Because XML/XBRL is an open

and a common language, does that make it

easier for hackers to hack into these kinds of

files?

Response #7: No XBRL files can be digitally

signed and made immune to hacking. Open-

ness and commonness are not security risks.

Failure to implement proper controls and infor-

mation security is the root problem.

Question #8: It is all well and good that

XBRL could be used internally to consoli-

date accounting data from disparate systems;

however, that is a very small population of

companies.

Response #8: The number of organisations that

are candidates for XBRL is larger than it first

appears. There are the non-US based multi-

nationals and the large population of private

companies. Any company with a consolida-

tion of two or more accounting systems is acandidate for XBRL consolidation. There is

a false assumption that an ERP system stand-

ardises information. Putting all of a companys

data into one location does not solve the

fundamental information problem. Even in a

single database you can have disparate data

definitions.

Question #9: Does XBRL have a very steep

learning curve for both the tags and basic

XBRL technology?

Response #9: There is no denying that XBRL

has some complexity. Fortunately, much of the

grunt work associated with creating extension

taxonomies and XBRL instance documents has

been built into a growing population of XBRL

software tools.

CONCLUSIONSThe diffusion of an innovation to the point of

a critical mass is not assured regardless of anyinherent advantages the innovation offers. Such

is the case with XBRL. Despite the views of

the advantages of XBRL expressed by experts

in its implementation and use and embrace-

ment of XBRL by the FFIEC and SEC,

there has not been widespread adoption by

organisations. The research in the diffusion of


16/18

Gray and Miller


innovations tells us that it is also uncertain if

the mandated adoption of XBRL will result

in its increased use in domains of financial

data not covered in the mandates. To achieve

the widespread adoption of XBRL, particularly

in these other domains, requires the sharingof information pointing out the advantages

it offers. Of course, this information needs

to be created and collected before it can be

shared. This paper has done this by ascer-

taining the primary concerns of practitioners

regarding financial data and coupled this with

views of experts in how XBRL alleviates

those concerns. In particular, this study

demonstrates that there are many ways that

XBRL directly addresses the high-priority

accounting, financial reporting and auditing

issues facing public companies and other organ-

isations.

The next step then is to see that this infor-

mation is shared with potential adopters of

XBRL. Practitioners and regulatory agents

may share this information directly in hopes

that its value will be readily perceived by

potential adopters.14Researchers may expand

and elaborate further on this information,

creating more information; or, perhaps more

importantly, they may explore which avenues

of communication are best to share this infor-mation. Researchers could also expand on this

research to include other stakeholders beyond

internal auditors.

This study has created information on

the advantages the XBRL offers adopters of

the innovation associated with high-priority

accounting, financial reporting and auditing

within and beyond what has been or will be

learned from complying with the mandates.

We believe that appropriate communication

of this information will help accelerate diffu-sion of XBRL to the point of critical mass and

help cross the chasm from early adopters to the

mainstream.

ACKNOWLEDGEMENTWe remain grateful to the IIA Research Foun-

dation for funding this research and for granting

us permission to incorporate selected materials

from XBRL: Potential Opportunities and Issues for

Internal Auditors for this paper.

REFERENCES AND NOTES1 Swartz, K. (2008) The SECs IDEA: Replace

EDGAR. Information Management Journal

42(6): 13.

2 Securities and Exchange Commission (SEC).

(2009) Interactive Data to Improve Financial

Reporting, Release no. 339002.

3 This is also commonly referred as the FDIC

project.

4 Debreceny, R.S., Chandra, A., Cheh, J.J.

and Janvrin, D. (2005) Financial reporting

in XBRL on the SECs EDGAR system: A

critique and evaluation. Journal for Information

Systems19(2): 191210.5 Garbellotto, G. (2007) 14th XBRL interna-

tional conference: An internal perspective.

Strategic Finance88(7): 5758.

6 Stantial, J. (2007) ROI on XBRL. Journal of

Accountancy203(6): 3235.

7 Willis, M. (2003) Corporate reporting enters

the Information Age. Regulation 26(3):

5660.

8 Plumlee, D.R. and Plumlee, M.A. (2008)

Assurance on XBRL for financial reporting.

Accounting Horizons22(3): 353368.

9 Premuroso, R.F. and Bhattacharyaa, S. (2008)

Do early and voluntary filers of financial

information in XBRL format signal superior

corporate governance and operating perform-

ance? International Journal of Accounting Informa-

tion Systems9(1): 120.

10 Cohen, E.E., Schiavian, T. and Servais, O. (2005)

XBRL: The standardised business language for

21st century reporting and governance. Inter-

national Journal of Disclosure and Governance2(4):

368394.

11 Moore, G.A. (2002) Crossing the Chasm,

Revised edn., New York: Collins Business.

12 Gray, G.L. (2005) XBRL: Potential Oppor-tunities and Issues for Internal Auditors.

Altamonte Springs, FL: The Institute of

Internal Auditors Research Foundation.

Research Report.

13 Rogers, E.M. (2003) Diffusion of Innovations,

5th edn., New York: Free Press/Simon &

Schuster.


17/18



14 Swan, J.A. and Newell, S. (1995) The role of

professional associations in technology diffu-

sion. Organization Studies16(5): 847874.

15 Zhu, K., Kraemer, K.L. and Xu, S. (2006)

The process of innovation assimilation by

firms in different countries: A technology dif-

fusion perspective on e-business. Management

Science52(10): 15571576.

16 Troshani, I. and Rao, S. (2007) Drivers and

inhibitors to XBRL adoption: A qualitative

approach to build a theory in under-researched

areas. International Journal of E-Business Research

3(4): 98111.

17 Troshani, I. and Doolin, B. (2007) Innova-

tion and diffusion: A stakeholder and social

network view. European Journal of Innovation

Management10(2): 176200.

18 Many of those presentations are available at

www.xbrl.org, www.xbrl.us.

19 An ISACA chapter was selected to obtain

a more IT-focused perspective, however,

the perspectives between the groups did not

seem to be materially different. This may reflect

the self-selected (versus Randomly selected)

nature of focus group volunteers. That is,

volunteers generally have some interest in

the topic. As such, The IIA volunteers prob-

ably had some general interest in IT, so they

were not that much different than the ISACA

volunteers.


18/18

Reproducedwithpermissionof thecopyrightowner. Further reproductionprohibitedwithoutpermission.

xbrl solving real-world problems

Documents