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Transcript of Pwc. PwC Data Level Assurance: Bringing Data Into Continuous Audit Using XML Derivatives (Such as...
Data Level Assurance:Bringing Data Into
Continuous Audit Using XML Derivatives
(Such as XBRL Classic and GL)
Fifth Continuous Assurance Symposium
Rutgers Business School Newark, NJ 23-11-2002
Eric E. Cohen Chair, XBRL US
©2001 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.
Agenda•XBRL Tokyo – Increasing Transparency to Financial Markets
•Data level assurance
•Drivers
•From documents to data
•XML derivatives: lifeline for data level assurance
•XML
•XBRL
•XML web services
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XBRL Tokyo – Banking Focus
Banking crisis
Origami Bank – folded
Sumo Bank – belly up
Bonsai Bank – cutting back branches
Karaoke Bank – up for sale, going for a song
Kamikaze Bank – nose-dived
Karate Bank – 500 jobs chopped
Sushi Bank – something fishy going on; staff getting a raw deal
Data Level AssuranceAtomic Information: Assurance need, opportunity or
impossibility?
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Drivers For Data
•Corporate malfeasance.
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Drivers For Data
•New reporting model and demand
•Atomic information on web site, in press releases
•Demand for material disclosure items outside of periodic report
• In my view, we need to supplement the static periodic disclosure model - that has long served investors well, but in today's world results in the delivery of information that is often stale upon arrival, and impenetrable to many of those who receive it. I believe we need to move toward a dynamic model of current disclosure of unquestionably material information.
– http://www.sec.gov/news/speech/spch523.htm
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Paper-paradigm Report → e-Document
PresentFS
Pre-disclosed
Management
GL detail
Underlying transactionsAll e-documents
datasummaries
Mp3, mpeg, tif, etc.
How do I knowthat the file is actually
what it is represented to be?
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Trx
Accounting
Reclassification
Allocations
Summarization
Recognition
TaggingPresentation
Encapsulation
Do tagsmatch
presentation?
Does tags’content match
detail?
Is allnecessary content and
context included?
Controlssurroundingtaxonomies,
linkbases
Is file/streamauthentic andauthorized?
E-D
ocument →
e-D
ata
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Tag, You’re It! e-Document → e-Data
•Looking at data items individually
• Press release with Sales figures
• Are those figures “real”?
•Example: NASDAQ Pilot (www.nasdaq.com/xbrl)
• More usable data will be … used! Assurance …
•Necessary (?) contextual information
• Obvious: unit of measure, time period
• What is inventory without valuation method?
• What is PPE without knowledge of going concern?
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From Documents To Data
•Documents become data
• How many files in a web page? How many files in XBRL instances?
• Not analog but digital
• Not strictly freeform, but standardized (tags)– Additional information
• Assurance not only on the sum of the parts but the parts themselves
•Recognizes risk/reward of disclosure/assurance
•Forget “fairly presented”, “taken as a whole”, materiality
•And with CA, forget subsequent events
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What Is Data Level Assurance?
New statements providing variable comfort that
• Appropriate authorization and authentication is assured
• Reader has necessary context for understanding data item(s)
• No obvious inconsistencies between tags and textual items (machine and human readable identification) exists
• Content of tag and tag of content make sense
• Appropriate controls between instances and referred-to schemas are in place
And technology that makes that assurance portable after transformation of the original data item
Vasarhelyi and Cohen, draft definition as of November 5, 2001
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What Is Data Level Assurance?
•NOT necessarily assurance on the underlying supportive data
•NOT necessarily assurance on the underlying systems
•NOT necessarily something the profession is jumping to embrace
•NOT necessarily something we will be able to easily explain to the marketplace and manage expectations
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Nature of Assurance
•In data level assurance, redefined– Analytical review– Substantive testing– Data level testing– Internal control evaluation– A new model of risk assessment – Materiality as a threshold of error– Tradeoffs of costs and assurance obtained– Collecting and weighting of evidence– Subsequent events
Data Level AssuranceAtomic Information: Assurance need, opportunity or
impossibility?
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Role Of XML Derivatives
•Cross-platform, application independent document/data format
• XML
• Common vocabulary/vocabularies
• XBRL et al.
•XML-based programming equalizer and exposure tool
• XML Web Services
•Standardized query capability
• ???
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Hg
XML, Content & Context: Mercury
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XML Alone Doesn’t Solve Problem
qbxml
smbxml
Intacct xml
SAP
Peoplesoftxml
qbxml
smbxml
Intacct xml
SAP
Peoplesoftxml
Oracle
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Shared Vocabularies Bring Efficiencies
XB
RL
GL
qbxml
smbxml
Intacct xml
SAP
Peoplesoftxml
qbxml
smbxml
Intacct xml
SAP
Peoplesoftxml
Oracle
PricewaterhouseCoopers
Today over 10,000 US public companies release financial results quarterly…
But the contents are not organized. The data must be reentered into computer applications for interpretation.
What if financial documents included both content ($75,453)
and structure ($75,453=net income for Q1/2001)?
XML Applied To Reporting: XBRL
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A proposed industry standard for the publishing, exchange
and analysis of financial and business reports and data.
Information is entered only once using an Internet-based tool for preparing and publishing all financial and business documents with automatic conversion to various formats
Information may be reliably extracted and analyzed across companies with no manual intervention
Supports current and emerging accounting standards
XBRL
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Overall World of XBRL
Tax Reporting
Performance Metrics
Regulatory Filings
GAAP
Special Industry Reports
Future GAAP
XBRL GL XBRL “Classic”
Data Concepts
“View” of data
Internal External
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XBRL GL: “Generic Ledger”
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Bridging eBusiness and Reporting
BUSINESS
Investors
Aggregators
Regulators Creditors LendersTax Website
Transaction Creation
ERP G/L Packages CRM
•Orders•A/P•Delivery
Customers•Orders•A/R•Delivery
2-way2-way
Suppliers
Oneway
Oneway
XBRLBUSINESS REPORTING
Transaction SpaceX12, EDIFACT, XML INITIATIVES
XBRL GLJournal Taxonomy
DetailAccountingrecognition/classification
Intra system Detail to summary
Mappings → Rules
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Transaction Space
•Examples
• X12, UN/CEFACT Forum
• ebXML business vocabularies (?!), UBL
• MISMO, ACORD, HR-XML, RosettaNet, itd.
•Purpose
• Single-use, point to point
(e-)BusinessX12, EDIFACT, XML INITIATIVES
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XBRL GL: Universal Audit Trail
•Purpose
• Machine to machine transfer
• Archival
• Consolidation
•Bigger than General Ledger
• ASQC/www.globalbestpractices.com/ABC/Process Based Accounting
XBRL GLJournal Taxonomy
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Uses Of XBRL GL
AccountingSystem
Budget
AccountingSystem
A
AccountingSystem
B
Chart of Accounts
Customers, Vendors, Employees
Open AR, AP, Inventory Status
Journal Entries, Ledger History
AccountingSystem
CPA
Trial Balance
Adjustments
One Vocabulary
One Framework
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Reconciliations: Accounts Receivable
3. XBRL GL entriesType=“balance”summarized amounts in account, period in time
2. XBRL GL entriesType=“entries”represents individual detail of entries
4. XBRL US ciaccountsReceivableTradeNet.accountsReceivableTradeGross
1. XBRL GL: entriesType=“assets”represents AR aging
USGL
USAR
ContinentialGL
or
xbrlElement=“accountsReceivableTradeNet.accountsReceivableTradeGross”xbrlTaxonomy=“{usgaap}”
Are all documents from 1. reflected in the detailed entries of 2.? (documentType=“invoice”,
etc.)
Do the entries in 2 sum up to the balances in 3?
Do the entries in 2 or 3 map to the total in 4??
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Future Audit
Sub-systems GLFinancialReporter
TransferSub-systems
Sub-systems
BranchSystems Financial
Reportsxbrlpost post
Compare details with summaries
XML-based source documents can be stored in databases and retrieved and reported upon as needed.
XML-based universal audit trail can represent transactions AND processes; archive and query anytime.
XML-based universal audit trail provides drill-down detail from standardized business reports.
XSL
itd
XML data can be from a file, a data stream, or a web service.
Compare withexternal sourcedata
Rules-based monitoring, triggers and alarms
Information for Data Assurance
FinancialFinancial
Non-Non-financialfinancial
QualitativQualitativee
QuantitatiQuantitativeve
MandatorMandatoryy
VoluntarVoluntaryy
Internal External
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Tracking “Transactions”
•Standard schemas for “transaction” trapping and understanding
• Processes
• Entries, Agents, Resources, Events
•Actuals, budgets
•Logs, alarms
•Data reliability? How much can you trust the underlying data
• Reliability of cash: 99%
• Reliability of accounts receivable: 95%
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Reliability
From my APICS days:
If inventory is 96% correct, and
If bills of material are 96% correct, and
If purchase order schedule is 92% correct, and
If manufacturing schedule is 90% correct, then
Almost 25% of production and purchasing decisions are wrong
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Hooking Into Client Systems
Embedded audit modules
• Proprietary
• Independence issues?
• Internal audit
CORBA
XML Web services
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Hooking to Outside Systems
•Benchmarking Information
• FedEx, UPS
• NASDAQ Pilot (www.nasdaq.com/xbrl)
• Data aggregators
•Third parties and Extranets
• Circularization
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Current GAP filled by proprietary mappings
XML Web Services
Accounting
System AAccountingSystem B
AuditTool
Data Format: XML“Create an XBRL export file for me please, or let me know how to tap into the XBRL data stream.”
“Help me understand how to get the XBRL data from your web service.”
Shared Vocabulary: XBRLGeneric Discovery, Access: WS
Generic Data Query: ???
“Give me this year’s trial balance and the details for Officer’s Comp, Maintenance and Repairs, and prepaid taxes.”