A Relative Cost Framework for

Rethinking Assurance of XBRL Filings

ISAIS 2011: Rome, Italy

Glen L. Gray, California State University, Northridge, USAMichael Alles, Rutgers Business School, USA

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Questions…• How much would you pay to insure your

old car with a value of $650?

• How much would you pay for a glass of wine at McDonald’s?

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History• 1969: Al Gore invents the Internet• 1999: IASB and FASB each publish reports

regarding Web-based financial reporting—Many search problems

• 1999: Charlie Hoffman invents XBRL• 2000: Various groups start exploring XBRL

assurance issues—XBRL Int., AICPA, CICA, PCAOB…

• 2009: SEC mandates phase in of XBRL filings—but does not require assurance

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Scoping Assurance Services• Srivastava & Kogan, 2010• Boritz & No, 2011

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Srivastava & Kogan Framework

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Boritz & No Framework

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Who/What Provides Assurance

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Costs: What will the market pay?• External cost relative to internal cost

– whether it costs less to obtain assurance internally vs. having ex-post assurance of XBRL filing as the external auditor may be tasked with doing

• External cost relative to preparation cost– extrapolating what happens if the cost of

preparing XBRL filings keeps falling while the cost of assuring those statements keeps rising

[Assumption: voluntary choices]

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Costs: Volunteer Filing Program1st

submission/ block-text

footnotes & schedules

Subsequent submission/

block-text footnotes & schedules

1st submission/

detailed footnotes & schedules

Subsequent submission/

detailed footnotes & schedules

Preparation face financials

$31,369(125 hours)

$4,312(17 hours) $4,312 $4,312

Preparation footnotes $1,750 $1,750 $25,000 $12,500

Preparation schedules $250 $250 $2,500 $1,250

Software and filing agent services

$6,140 $6,140 $6,140 $6,140

Web site posting $1,000 $1,000 $1,000 $1,000

Total cost $40,509

$13,452

$38,952

$25,202

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Economically Feasible Space: Early Years

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Economically Feasible Space: Later Years

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Shifting Focus to Filing Agents• Volume, volume, volume• Converting fixed costs to variable costs• Shifting assurance from instance

documents to processes• SAS No. 70/ SSAE No. 16

Thank You!Grazie Mille!

Glen L. Gray [glen.gray@csun.edu] Michael Alles [alles@business.rutgers.edu]

Questions?