Neal HannonSenior Consultant, XBRL Strategies

The Gilbane GroupNeal@gilbane.com

FICPA Annual Accounting and Business Show

OrlandoMay 27 2009

FICPA

XBRL XBRL Entering The Digital AgeEntering The Digital Age

XBRL: XBRL:

EnteringEntering

The Digital AgeThe Digital Age

Point #1XBRL is Accounting

chopped into structured pieces

Evolution of Accounting• Structure and nature of manual accounting

• Translating accounting into software

Digesting and assimilating hundreds of accounting packages into a standardized way of representing business data to a computer

Evolution of Accounting• Structure and nature of manual accounting

• Translating accounting into software

Digesting and assimilating hundreds of accounting packages into a standardized way of representing business data to a computer

The Franciscan Roots of Modern Accounting

 First surviving accounting textbook:       “The Summa” written by Fra. Luca Pacioli in 1494       (included illustrations by L. Da Vinci)

A best seller in its dayPublicized the Method of VeniceHelped to spread literacy in the middle class

  

Luca Pacioli—the “Father of Accounting”

A mathematician and merchantBecame a Franciscan friarFranciscans came out of, and ministered to, merchant classDid not invent double-entry accounting but spread the knowledge

The Method of Venice(Double-entry Accounting) A binary (0,1) method for recording economic eventsInvention of the “Debit” and “Credit” concepts from the Italian terminologyAllowed for much easier addition and subtraction before calculators were invented 

DebitComes from the Italian “debito”which comes from the Latin “debita” and “debeo”which means:       OWED TO the proprietor       or an asset of the proprietor  CreditComes from the Italian “credito”which comes from the Latin “credo”which means:

Trust or belief (in the proprietor)    or OWED BY the proprietor  

From the 13th century to the present:Double-entry accounting spread throughout the worldAccountants in each country adapted accounting

practices to suit their:CulturesLaws & regulationsCapital market structuresEnvironments

National differences in accounting rules and practices render financial statements of companies based in different countries UNCOMPARABLE

Securities Act of 1933

• Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives: – require that investors receive financial and

other significant information concerning securities being offered for public sale; and

– prohibit deceit, misrepresentations, and other fraud in the sale of securities.

Securities Exchange Act of 1934

• With this Act, Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self regulatory organizations (SROs).

Sarbanes-Oxley Act of 2002• On July 30, 2002, President Bush signed into law the

Sarbanes-Oxley Act of 2002, which he characterized as "the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt." (the 1930’s)

• The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures, combat corporate and accounting fraud

• Created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession.

XBRL Committee Encouraged by SEC Chairman Arthur Levitt's Recommendation That It be Expanded and Used by Investors and CompaniesBusiness Wire,  Oct 30, 2000  Business EditorsNEW YORK--(BUSINESS WIRE)--Oct. 30, 2000In remarks last week, Arthur Levitt, Chairman of the Securities Exchange Commission (SEC), acknowledged XBRL and recommended its further development to turn financial statements into meaningful information for investors using this new revolutionary technology. Chairman Levitt's remarks were made at the American Institute of Certified Public Accountants' (AICPA) Fall Council Meeting in Las Vegas, Nevada on October 24, 2000.

First SEC Mention of XBRL

Former Chief Accountant Lynn Turner:

“I support XBRL. I wrote the comment for chairman Levitt’s speech. But please tell

everyone you talk to about XBRL that you must

Get the Accounting Right!”

Additional regulation coming?Additional regulation coming?

AccountingGoes Digital

Do You Remember Vinyl Records?

Had to Play from start to finish

Record could be damaged if you attemptedto play a specific track.

Similarly , Financial statements, notes and disclosures today are meant to be read and understood as a whole. Audit opinions are given on the entire set of financials. The paper-based, report centric world lives on.

Vinyl Records And Disclosures

The technology dramatically changed how we relate to musicand gave us more power to select individual cuts suited tomusical tastes and preferences

Then Came Digital Music•Individual Tracks Separated•Choose Your Own Order for Play•Start and Stop

What can digital data do?

George Martin and the Beatles

• The task– Collect, identify, classify the entire set of

music created by the Beatles– Using master tapes, break out the riffs– Re-configure music into digital sound bytes

• The results– New Music.. The Beatles Love Album

George Martin and the Beatles

• The task– Collect, identify, classify the entire set of

music created by the Beatles– Using master tapes, break out the riffs– Re-configure music into digital sound bytes

• The results– New Music.. The Beatles Love Album

The SEC and Interactive Data

• The task– Collect, identify, classify the entire set of GAAP

created by US Authoritative Sources of GAAP– Using financial statement hierarchy, break out

the elements into an XBRL taxonomy– Re-configure accounting into digital bytes

• The results– New Filings.. The SEC Interactive Data

initiative in XBRL

Digital data fundamentally

changes

the paper-based

reporting paradigm

Who is using XBRL and how are theybenefiting?

• Federal Deposit Insurance Corporation (FDIC) went live with its XBRL system in 2005, and has since reduced errors from 18,000 to zero, with an estimated savings of $26 million over the next ten years.

• The Dutch Government went live in 2007 and expects to save $345 million annually as a result of implementing XBRL.

• The Australian Tax Office is implementing XBRL and expects to save $780 million (Australian) per year.

XBRL

Not just for the SEC

ExternalFinancialReporting

BusinessOperations

InternalFinancialReporting

Investment,Lending,

RegulationProcesses Economic

Policymaking

Participants

AuditorsTradingPartners

Investors

FinancialPublishersand Data

Aggregators

Regulators

Software Vendors

ManagementAccountants

Companies CentralBanks

XBRLXBRLXBRLXBRL XBRLXBRLXBRLXBRL

XBRL for G/LJournal Entry

Reporting

XBRL for Financial Statements

Scope and Role of XBRL

Who is using XBRL and how are theybenefiting?

Kim Wallin, Controller, State of Nevada

• In 2007, Wallin begin considering XBRL as a solution to grant reporting, and when the Department of Agriculture asked for help with their reporting, Deloitte was brought in and two of Agriculture's grants were selected for the XBRL pilot.

"The goals were timely and accurate data,“"The goals were timely and accurate data,“

said Wallin, "stronger internal controls, said Wallin, "stronger internal controls,

reduced costs, a standardized system of reduced costs, a standardized system of

seamless data exchange, business processes seamless data exchange, business processes

and data elements. and data elements. XBRL met all XBRL met all

of those goals."of those goals."

XBRL Does NOT

• Change management’s accounting decisions.

• Require either more or less disclosure than companies are currently experiencing

• Restrict companies to using elements in the taxonomy (data dictionary) only.

Have you ever wondered which specific US GAAP authoritative literature stands behind each item onyour company’s SEC disclosures?

A US GAAP XBRL Taxonomy has the answer

Ever wonder how accounting experts mightdefine each key item on your SEC 10K?

A US GAAP XBRL Taxonomy has the answer

XBRL BASICS

• Accountants: Industry experts have Accountants: Industry experts have developed a data dictionary, or taxonomy developed a data dictionary, or taxonomy that covers US GAAP reporting requirements that covers US GAAP reporting requirements to the SECto the SEC

• The taxonomy will has labels, definitions, The taxonomy will has labels, definitions, and references to authoritative literature and references to authoritative literature organized in a reporting hierarchy in addition organized in a reporting hierarchy in addition to computer codes in XBRL.to computer codes in XBRL.

US GAAP TaxonomyDevelopment Effort

FAF, XBRL US

GAAP,SEC Regulations

Codification projectAudit check lists

Internal and publictesting

XBRLprotocols

TaxonomyRelease

CFOInvestor Relations

CurrentReporting Practice

Key concept:Create a Data model

AnalystsInvestors

XBRL

The Accounting’s inside

Description of accounting policies associated with the recognition of gross revenues and gross revenue adjustments, which are components of net revenues in the statement of operations for the period.

Standard label in English:Revenue Recognition Accounting Policy, Gross and Net Revenue Disclosure

Standard label in XBRL:RevenueRecognitionAccountingPolicyGrossNetRevenueDisclosure

Accounting Principles Board Opinions (APB)Number 22, Paragraph 8

Label

Definition

Authoritative Reference

Will the Meta Data Count?• So.. If a filing contains a label that is further described by a

definition and a reference, the computer referencing the item will have all three pieces of information as discoverable meta data

• Label• Definition• Reference

• If the definition is off or the reference is wrong, is the tagged data also wrong? What if an investor, reading the XBRL meta data, relies on the XBRL definition or reference? Shouldn’t the entire financial information supply chain care about the triad of accounting?

Will the Meta Data Count?

• XML is a wonderful language for describing objects in computer readable formats. XML depends on meta data to describe the contents of its digital message.

• XBRL must contain several attributes in order to transform numbers into meaningful business reporting interactive data.

• When we move from a paper based reporting world to an interactive data world, the data contained in a finding will not be complete or understandable without accurate meta data accompanying the element reported.

Principles

GAAP accommodates variation in applied accounting methods as long as the methods generally conform to GAAP’s set of principles…..

This drives computers crazy!

The XBRL “Principles” Problem

• How do you tag a principle?

• Computers need consistency– Like transactions reported the same way

XBRL Accounting Triad

• Labels

• Definitions

• References

Label – may or may not be close to a company’s financial statement presentation. The common language label could also bedifferent from the XBRL label

Definition – Definitions for US GAAP requireddisclosures will most likely contain languagedirectly from authoritative literature.

References – References point to authoritative literature with disclosure requirements or to directional references, Will change to codification in 2010

Accounting Action PointsAccounting Action Points

• Start thinking data, not reports

• Look for ways to simplify data collection and re-use with XBRL

• If you work with public companies, practice XBRL now before the mandate

Key Considerations• Taxonomies must be well developed

– Complete and accurate tagging system is key to achieving benefits

– Be considerate of whether tags faithfully represent financial reporting under GAAP

– FASB’s Codification project will change taxonomies– IFRS- US GAAP Convergence – tags will converge as

standards do

• Future standard-setting and XBRL– More accommodative to global comparability issues? – Should Taxonomy guidance issued with new standards?

Neal HannonSenior Consultant, XBRL Strategies

The Gilbane GroupNeal@gilbane.com

FICPA Annual Accounting Show and Business Expo

Orlando May 27 2009

FICPA

Thank You