Assurance on XBRL Instance Documents:

Assurance on XBRL Instance Documents:

The Case of United Technologies CorporationThe Case of United Technologies Corporation

University of Waterloo

Efrim BoritzWon Gyun No

UWCISA - 5th Symposium on Information Systems AssuranceOctober 12, 2007

IntroductionIntroduction

XBRL and Assurance

SEC’s Voluntary XBRL Filling

Reporting Framework for Electronic Filings

Assurance Framework for Electronic

Business Reporting

Findings

Recommendations

AgendaAgenda

Increased XBRL implementation for regulatory filings across the world.Increased XBRL implementation for regulatory filings across the world. U.S.: SEC U.S.: SEC XBRL voluntary program on EDGAR XBRL voluntary program on EDGAR and $5.5M to XBRL-US to develop and $5.5M to XBRL-US to develop

taxonomies.taxonomies.

U.K.: Plans to make XBRL mandatory for company tax filings from 2010.U.K.: Plans to make XBRL mandatory for company tax filings from 2010.

Canada: CSA XBRL voluntary filing program on January 19, 2007.Canada: CSA XBRL voluntary filing program on January 19, 2007.

Japan: Japan: TSE XBRL reporting system in 2006.TSE XBRL reporting system in 2006.

XBRL 3rd in FEI’s top 10 financial reporting challenges for 2007(Heffes, 2007).

Most companies currently providing their information using XBRL are doing so

without assurance.

Very limited guidance and experience on XBRL instance document

preparation

SEC’s voluntary XBRL filing program Some errors in SEC filings

Case study of the EDGAR filing of United Technologies Corporation

Perform mock audit procedures

Interview preparers and auditors

Address a number of issues that an auditor might confront if/when provides assurance on

XBRL instance document

IntroductionIntroduction

Phase I - Paper Paradigm Electronic Financial Reporting (Past)

Phase II - Paper Paradigm Electronic Financial Reporting Using XBRL (Current)

Phase III - XBRL Paradigm Financial Reporting (Future)

XBRL and AssuranceXBRL and AssuranceThree Phases in Electronic Financial ReportingThree Phases in Electronic Financial Reporting

SEC’s voluntary XBRL filing on EDGARSEC’s voluntary XBRL filing on EDGAR

February 3, 2005February 3, 2005

File paper format and furnish XBRL format statementsFile paper format and furnish XBRL format statements

MD&A, notes, and accountant’s report are optional.

Companies create customized taxonomies to enable the XBRL filing to

parallel the paper format filing as closely as possible.

Some insights into SEC filings (at February 28, 2007)

36 companies and total 126 fillings

Significant parts of the filed instance documents are based on companies’

own customized taxonomy extensions.

Instance Validation: 51 (49.5%)

Taxonomy Validation: 114 (90.5%)

Financial Reporting Instance Standards (FRIS) and Financial Reporting

Taxonomies Architecture (FRTA)

SEC’s Voluntary XBRL SEC’s Voluntary XBRL FillingFilling

Compare the XBRL instance document in detail to the paper format Compare the XBRL instance document in detail to the paper format

filingfiling

Interview preparer to obtain explanations

To identify issues that an auditor might confront if performing audit

procedures on an XBRL instance document

To learn about and report on the nature and extent of the work that

would be required to determine whether the translation of the

paper format document to the XBRL document was complete and

accurate

To provide recommendations for both auditors and XBRL instance

document preparers

Research ObjectivesResearch Objectives

Client Acceptance

Planning

Testing & Evidence

Evaluation & Reporting

Assurance Framework for Assurance Framework for Electronic Business ReportingElectronic Business Reporting

1. Acceptance

8. Using the work of an expert

9. Management representations

2. Terms of engagement

7. Obtaining evidence

10. Reporting

From Assurance Working Group of XBRL International (2006)INTERACTIVE DATA: THE IMPACT ON ASSURANCE, NEW CHALLENGES FOR THE AUDIT PROFESSION

From Hayes, R., Dassen, R., Schilder, A., & Wallage, P. (2005)Principles of Auditing: An Introduction to International Standards on Auditing

3. Planning the engagement: Understanding the subject matter

4. Assessing the appropriateness of the subject matter

5. Assessing the suitability of the criteria

6. Risk and Materiality

Audit ProcessAudit ProcessAA Cross-reference Between PCAOB and AWG Cross-reference Between PCAOB and AWG

Audit ProcessAudit ProcessManual Two-way Tracing: Step IManual Two-way Tracing: Step I

ContextsContexts

Audit ProcessAudit ProcessManual Two-way Tracing: Step IIManual Two-way Tracing: Step II

Financial Facts and XBRL ElementsFinancial Facts and XBRL Elements

Audit ProcessAudit ProcessManual Two-way Tracing: Step IIIManual Two-way Tracing: Step III

Notes and MD&ANotes and MD&A

Found that only “Found that only “44.3%44.3%” of the 10-Q instance document was based ” of the 10-Q instance document was based

on the on the approved XBRL taxonomiesapproved XBRL taxonomies..

Could not determine whether this use of custom extensions is

appropriate due to the lack of assurance standards or practices with

respect to this matter.

A custom taxonomy was used instead of the approved XBRL

taxonomy that was available.

Accountants Information – Name

<AccountantsInformationName> vs. <AccountantName>

Used different elements for the same names, signatures, job titles,

and date contained in different exhibits

James E. Geisler and Gregory J. Hayes in the signature section of UTX’s 10-Q

were not used in the section 1350 certifications. Instead different taxonomy

elements were used.

FindingsFindingsTaxonomyTaxonomy

ContextsContexts

145 contexts145 contexts

Not in any logical orderNot in any logical order

Could cause problems in subsequent periods to determine inter-period

consistency (e.g., quarter to quarter)

Labels

Titles and subtitles were not always presented in the instance document in a

consistent manner, or were missing altogether.

Some labels were missing or not exactly the same in the label linkbase as in

the taxonomy.

Totals

Some totals which appear in the notes in the 10-Q are omitted in the instance

document.

Sometimes totals are in the instance document and sometimes they are left

as implicit items defined in the calculation linkbase.

FindingsFindingsInstance DocumentInstance Document

Textual Narratives

Disaggregation of textual narratives in both notes and Disaggregation of textual narratives in both notes and

MD&AMD&A

<usfr-pte:CommitmentsContingenciesNote>

<usfr-pte:ContingenciesContingentLitigationEnvironmental>

<usfr-pte:ContingenciesContingentLitigationGovernmentInvestigations>

<usfr-pte:ContingenciesContingentLitigation>

XBRL Elements

FindingsFindingsNotes and MD&ANotes and MD&A

FindingsFindingsAccountant’s Report Regarding XBRL EngagementAccountant’s Report Regarding XBRL Engagement

Used Used own taxonomy own taxonomy for ‘Report of Independent Registered for ‘Report of Independent Registered

Public Accounting Firm’ Public Accounting Firm’ instead of using usfr-ar instead of using usfr-ar (US (US

Financial Reporting - Accountants Report) taxonomy.Financial Reporting - Accountants Report) taxonomy.

FindingsFindingsAccountant’s ReportAccountant’s Report

AWG (2006, p. 24): 9 basic elements should be included in the report.AWG (2006, p. 24): 9 basic elements should be included in the report.

PCAOB (2005, p. 6)PCAOB (2005, p. 6)

An audit report: if the XBRL instance document has been audited.

A review report: if it was reviewed and the report was filed with the SEC.

Do not express opinion: if it was reviewed, but the review report was not filed

with the SEC.

Disclaim an opinion: if it was not covered by an audit report or review report.

The AWG’s recommended elements were satisfactorily addressed in

the report.

PWC stated that the underlying information in the 10-Q instance

document has not been audited and did not express an opinion on

that information in the report since the review report prepared by

PWC was not filed with the SEC.

The accountant’s opinion on the instance document was created in

HTML format rather than XBRL and was filed as a separate document.

FindingsFindingsAccountant’s Report Regarding XBRL EngagementAccountant’s Report Regarding XBRL Engagement

Took an XBRL expert about Took an XBRL expert about 63 hours 63 hours to complete (not to complete (not

counting other steps that would be required)counting other steps that would be required)

Had high assurance high assurance that the instance document was a

complete and accurate reflection of UTX’s 10-Q paper format

filing

Cannot form a conclusion on the fairness ...in accordance

with GAAP of the instance document

No assurance standards or guidelines for making such an

assessment

Limited knowledge for evaluating the MD&A, regulatory

information, and the appropriateness of the company’s own

extensions to the XBRL taxonomies

FindingsFindingsSummarySummary

Auditors’ effort, time, and cost could be reduced.Auditors’ effort, time, and cost could be reduced.

A deliberate A deliberate structuringstructuring of an XBRL instance document of an XBRL instance document

A A logical ordering logical ordering of elements in the XBRL instance document (e.g., by financial of elements in the XBRL instance document (e.g., by financial

statement, notes, and MD&A)statement, notes, and MD&A)

An embedded description of the structure

Explanation of why custom taxonomies are required or are preferred to approved

taxonomies.

Create rules for naming attributes (Sgt_Ottis_2004 vs. Context11)

Organize contexts systematically and document rules used to create them

Need Computer-Assisted Audit Techniques

Assurance on XBRL instance documents.

Some form of comfort/assurance will be necessary.

Need guidance for both preparers and auditors

If an external report is provided, then it should be provided as an XBRL instance

document to utilize the advantage of XBRL

Need a taxonomy for an auditor's assurance report on XBRL instance

RecommendationsRecommendations

Questions & SuggestionsQuestions & Suggestions