The Internal Use of XBRL for Continuous Auditing Purpose Is XBRL an accelerator for CA in practice in The Netherlands? Erasmus School of Economics K.B.Kh argi Master Thesis Economics & Informatics Economics & ICT programme StudentID 275859 EUR Supervisor Prof. Dr. G.J. van der Pijl 2 nd Supervisor Ing. A.A.C. de Visser 18 May 2011
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The Internal Use of XBRL for Continuous Auditing Purpose
Is XBRL an accelerator for CA in practice in The Netherlands?
Eras
mus
Sch
ool o
f Eco
nom
ics
K.B.Khargi
Master Thesis Economics & Informatics
Economics & ICT programmeStudentID 275859EUR Supervisor Prof. Dr. G.J. van der Pijl 2nd Supervisor Ing. A.A.C. de Visser18 May 2011
Master Thesis Economics & ICT
The Internal Use of XBRL for Continuous Auditing Purpose
Is XBRL an accelerator for CA in practice in The Netherlands?
The Internal Use of XBRL for Continuous Auditing Purpose
Acknowledgement
I thank my parents for stimulating me during my education and giving me space to succeed in
everything I was doing.
This thesis would not have been possible without the interviewees. I thank them for their
precious time, and for sharing their experience with XBRL with me: Willem Geijtenbeek, Huub
Lucassen, Jan Pasmooij, Paul Snijders, Hans Verkruijsse, and Jacques Urlus.
I thank my supervisor of the EUR Ad de Visser for guiding me throughout the whole process,
and for asking how I really was (and listen to the whole story). I thank Wim Pijls for an orienting
dialogue about XBRL.
When I was down-hearted and had absolutely no hope for my study I turned to the ESSC. I
really appreciate the help I got from Wendy Pelkmans, Sachlan Apil and Mr. B. den Boogert.
Furthermore I thank my friends and family for being patience when I was rude and moody
sometimes during the time I wrote this thesis.
Kavita Khargi
K.B. Khargi 275859 18 May 2011 1
The Internal Use of XBRL for Continuous Auditing Purpose
Abstract
The motivation for this study has been the many papers on continuous auditing proclaiming
that XBRL would enable continuous auditing and accelerate its adoption.
In the Netherlands this seem to be not the case; XBRL is not even implemented within internal
processes of companies.
Therefore this research question was formulated:
What is needed in order to shift XBRL towards the front of the business reporting supply chain
for the purpose of continuous auditing in The Netherlands?
After a literature study and several interviews with experts the following was the result for the
conditions:
First a change in perspective of the way we look at accounting is needed.
Steps that companies have to take before implementing XBRL internally:
o Bear in mind what the stakeholders want; find out to whom the report is
important, the target group, and what information they are interested in.
With the focus on sustainability they want a dialogue, with an annual report not.
o Map the internal information need for all levels in the company
o Make a corporate data model with all databases that are used and clean
pollution in these databases; harmonize and synchronize all the different
definitions from several systems for one same concept.
o Map the lack of knowledge within the firm knowledge management. This also
includes what information exactly is given away to other parties with XBRL and
what are the consequences.
Software suppliers should take a more active role and not wait for what customers want.
K.B. Khargi 275859 18 May 2011 2
The Internal Use of XBRL for Continuous Auditing Purpose
Table of Contents
1. Introduction................................................................................................................................................................. 51.1 Background........................................................................................................................................................ 51.2 Motivation...........................................................................................................................................................61.3 Research Objective..........................................................................................................................................7
1.3.1 Scientific Relevance..............................................................................................................................71.3.2 Business Relevance...............................................................................................................................8
1.4 Research Question...........................................................................................................................................91.5 Research Methodology...............................................................................................................................101.6 Thesis Construction.....................................................................................................................................11
2. XBRL............................................................................................................................................................................. 122.1 The purpose of XBRL...................................................................................................................................122.2 Two tiered design of XBRL........................................................................................................................132.3 Technical definition of XBRL....................................................................................................................142.4 Barriers for adopting XBRL......................................................................................................................152.5 Benefits of XBRL............................................................................................................................................172.6 Adoption of XBRL in different countries.............................................................................................18
2.6.1 XBRL adoption around the world...............................................................................................182.6.2 XBRL in The Netherlands.................................................................................................................20
3.1 What is Continuous Auditing?.................................................................................................................223.2 History of Continuous Auditing..............................................................................................................243.3 Benefits and issues of continuous auditing.......................................................................................253.4 Continuous auditing in The Netherlands............................................................................................253.5 Requirements for Continuous Auditing.............................................................................................263.6 Tools for Continuous Auditing................................................................................................................27
4 XBRL and CA in the Business Reporting Supply Chain...........................................................................284.1 Business Reporting Supply Chain..........................................................................................................284.2 XBRL-GL: an enabler for CA?....................................................................................................................304.3 What features XBRL to be an enabling factor for CA?..................................................................31
5 Standard Business Reporting in The Netherlands...................................................................................335.1 What is SBR?....................................................................................................................................................33
5.1.1 The SBR standards.............................................................................................................................345.1.2 The SBR components.........................................................................................................................355.1.3 The SBR facilities.................................................................................................................................355.1.4 Filing reports with SBR....................................................................................................................36
5.2 Benefits of SBR to business.......................................................................................................................376 Empirical data.......................................................................................................................................................... 38
6.1 Top level interviews: chairpersons XBRL Netherlands...............................................................386.1.1 Interviewee1.........................................................................................................................................386.1.2 Interviewee2........................................................................................................................................426.1.3 Interviewee3.........................................................................................................................................45
K.B. Khargi 275859 18 May 2011 3
The Internal Use of XBRL for Continuous Auditing Purpose
6.2 Middle level interviews: IT auditors.....................................................................................................506.2.1 Interviewee4........................................................................................................................................506.2.2 Interviewee5........................................................................................................................................566.2.3 Interviewee6........................................................................................................................................61
6.3 Bottom Level: Case studies.......................................................................................................................646.3.1 Wacoal.....................................................................................................................................................646.3.2 Project Basic-life.................................................................................................................................676.3.3 Microfinance Information eXchange (MIX).............................................................................69
7 Analysis....................................................................................................................................................................... 727.1 Internal use of XBRL....................................................................................................................................727.2 Reluctance of firms......................................................................................................................................737.3 Benefits of the internal use of XBRL....................................................................................................757.4 Conditions........................................................................................................................................................ 777.5 Successes and failures.................................................................................................................................797.6 Continuous auditing and XBRL...............................................................................................................807.7 Tools................................................................................................................................................................... 837.8 Adoption of XBRL..........................................................................................................................................847.9 Current situation of XBRL in The Netherlands................................................................................857.10 Future.................................................................................................................................................................86
8 Conclusion..................................................................................................................................................................888.1 Main Findings................................................................................................................................................. 888.2 Research Limitations...................................................................................................................................908.3 Recommendations for further research..............................................................................................908.4 Lessons Learnt............................................................................................................................................... 91Bibliography...................................................................................................................................................................92
The Internal Use of XBRL for Continuous Auditing Purpose
3 Continuous Auditing
In this chapter the term continuous auditing is explained. Also, some background information of
the history is presented.
3.1 What is Continuous Auditing?
In real-time accounting systems it has become desirable to have continuous assurances as to the
condition of the information’s integrity (Flowerday and von Solms, 2005). Furthermore,
continuous assurances allow for corrective action to be taken sooner when a problem is found
rather than in current auditing scenarios. To quote, ‘‘The focus of the audit will shift from manual detection to technology-based prevention’’ (Bierstaker et al., 2001).
Rezaee(2002) defines continuous auditing as “a comprehensive electronic audit process that
enables auditors to provide some degree of assurance on continuous information
simultaneously with, or shortly after, the disclosure of the information”. He speaks of
continuous auditing as a process.
The definition of continuous auditing used by the AICPA and CICA: “a methodology that enables
independent auditors to provide written assurance on a subject matter using a series of
K.B. Khargi 275859 18 May 2011 22
Process 1
Process 2
Process 3
Process 4
Process …
General
Ledger:
Several
Journal
Entries
Continuous Auditing
Annual account,
Management
Reports,
Etc.
XBRL (external use)XBRL (internal use)
The Internal Use of XBRL for Continuous Auditing Purpose
auditors’ reports issued simultaneously with or a short period of time after, the occurrence of
events underlying subject matter.”
In the Global Technology Audit Guide (GTAG) Coderre (2005) says CA is an umbrella for two
main activities: continuous control assessment and continuous risk assessment. With control
assessment audit’s attention is focused on possible control deficiencies. With continuous risk
assessment processes or systems that are experiencing higher than expected levels of risks are
highlighted.
Continuous auditing = continuous control assessment + continuous risk assessment
Coderre mentions that the frequency of the continuous activity will depend on the risk inherent
to the process or system.
Continuous audit procedures can be designed to test internal controls, by analogy with
traditional auditing. This is called continuous control monitoring. CA procedures can also be
designed to execute substantive testing, including analytical procedures. This is then called
continuous data assurance. (Alles et al. 2008)
Continuous auditing = continuous control monitoring + continuous data assurance
K.B. Khargi 275859 18 May 2011 23
The Internal Use of XBRL for Continuous Auditing Purpose
The Internal Use of XBRL for Continuous Auditing Purpose
directly from XBRL documents. We had a head start on understanding XBRL through use of an
XBRL-based data processing and benchmarking system which was operational from 2006 to
2008. The changes to our data collection and processing also affected the data presentation and
analysis options for the public.
MIX chose to develop an XBRL taxonomy based on International Financial Reporting Standards
(IFRS).The MIX Microfinance taxonomy received recognition from XBRL International as the
first acknowledged extension of the current IFRS taxonomy. MIX adopted a data-driven
approach for the taxonomy, rather than a forms-driven approach, and IFRS was also well-suited
for this purpose. They used dimensions to help capture a diverse range of disclosures and
varying depth of data in many interest areas. For instance, they used dimensions to provide
breakouts of primary concepts by gender, by microfinance products, and by geographic focus of
services. They did not use formulas due to the lack of an approved formula specification when
they launched the taxonomy development.
MIX made a strategic decision at the start of this development to license off-the-shelf software
whenever possible and to avoid custom development. They anticipate that increased global
adoption of XBRL will lead to market competition and more and better software solutions over
time. To that end, they licensed two products from Rivet Software: CrossTag, for creation of
XBRL documents using the MIX Microfinance Taxonomy, and the Rivet XBRL Loader, to ‘shred’
XBRL documents for aggregation. MIX chose these applications because of their relative user-
friendliness and because they enable us to maintain a modular solution which we could upgrade
over time (rather than an end-to-end solution). They also had in-house database development
work for data post-processing (currency conversion, ratios calculation).
This project was lounged in late 2008. MIX’s extension taxonomy, based on the most recent IFRS
taxonomy, was ready for production (in working draft form) by the end of Q1 2009. The XBRL
data collection process was fully functional by the middle of Q2 2009. The MIX Market website
(www.mixmarket.org) presenting XBRL-powered data was up and running by the end of Q2
2009. Benchmarking and analysis functions were online by the end of Q3 2009.
Results
• XBRL allowed presenting much deeper data on microfinance institutions.
• The use of a flexible XBRL data model has allowed MIX to model many additional data
sets delivered from the same resource base.
K.B. Khargi 275859 18 May 2011 71
The Internal Use of XBRL for Continuous Auditing Purpose
• Creation of a single XBRL taxonomy allowed to harmonize previously scattered
standards, and to provide a concrete means of communicating this model to
stakeholders.
• Use of XBRL has made the current barrier to providing data a bit higher, given the lack of
XBRL tools available for the broader microfinance community. However, this is an
expected result until MIX can better communicate about standards and distribute
systems more broadly (especially online).
Lessons learned from the project
- Mix does not need XBRL end-to-end (yet). The primary benefits of XBRL for MIX have been on
organizing and modeling data. XBRL is not yet used for data presentation, but this is partially
due to the limited current use cases within the microfinance community. It is expected that the
capabilities for aggregating and rendering XBRL information will only improve over time and
MIX can leverage these as they become available.
- Use work that others have done. There are many XBRL resources out there and many groups
working to solve the same types of problems. Consulting with the broader community makes
development easier and has spillover benefits for everyone involved.
- Build in flexibility. XBRL is changing rapidly. Try and anticipate on changes and not paint
oneself into a corner in terms of solutions. MIX employed a data-driven approach to data
modeling and a modular approach to their systems architecture to maintain flexibility.
Future
- MIX plans to refine the use of their XBRL taxonomy. There are minor changes to presentation
and some additional elements to consider. They want to model more non-financial information,
especially relating to the social mission of some microfinance providers. They plan to better
incorporate extension taxonomies to accommodate more variations in local standards.
- The current model is to collect data directly from microfinance institutions. However, this is
labor-intensive. They would like to leverage other naturally-occurring data flows within the
microfinance sector (to regulators, to investors, from MIS providers) while also facilitating these
flows through the dissemination of technology innovations.
- MIX needs to investigate options to push XBRL further through our data process flow, in
particular for aggregation and online rendering of XBRL content
(MIX, 2010)
K.B. Khargi 275859 18 May 2011 72
The Internal Use of XBRL for Continuous Auditing Purpose
7 Analysis
In this chapter the analysis of the gathered data from the interviews is elaborated. This chapter
is divided into sections corresponding to the sub questions and the aspects of the questionnaire
used for the interviews. Per aspect is presented what was mentioned during the interview about
that certain topic and what was found in literature.
7.1 Internal use of XBRL
After reading literature about continuous auditing and XBRL (GL), the impression had been
made that this would be already implemented at companies in The Netherlands. But
unfortunately, this is not the case. In the early days of XBRL experts mentioned that XBRL could
trigger continuous auditing, and this statement was copied by in many papers over the decade.
There were only a few projects that involved XBRL for internal use worldwide.
Projects where XBRL was used in internal processesCountry Organization Period SummaryJapan Wacoal April 2003- now Enable consolidation of 36 subsidiaries
by integrating 32 independent legacy systems to a new accounting system using XBRL GL
Several: HQ in USA
Microfinance Information eXchange
late 2008- now Ease reporting burden from monetary institutions from all participating countries to the diverse audience using XBRL GL
Netherlands Basic Life 2003-2005 Implementing XBRL GL in order to be fast, error-free and transparent
Netherlands Tax Services 2011 (not yet published about)
Replacing XML audit files for better data analysis and other calculations.
Netherlands Rabobank 2011 Still in a proposal phaseFigure 18: Projects where XBRL was used in internal processes
All of the experts interviewed for this research mentioned that using XBRL internally is not an
issue for companies in The Netherlands. It is seen as problematic and costly by the companies. It
is expected that when the frequency of XBRL usage will increase the shift towards the front of
the chain will occur. First, acceptation is needed; this will result in a higher rate of adoption. The
expectation is that this will happen once reporting in XBRL will become mandatory.
Concluding
K.B. Khargi 275859 18 May 2011 73
The Internal Use of XBRL for Continuous Auditing Purpose
Although from literature it seems that XBRL is already used for internal purpose, in practice this
is not the case in The Netherlands.
7.2 Reluctance of firms
From the interviews held for this research some reasons why companies are reluctant to use
XBRL for their internal processes are mentioned. These reasons were not found in literature;
that was only focus on reasons why one should use XBRL.
Lack of focus
The reason why the focus is not on XBRL GL and internal processes is the well-known
accounting scandals around business reporting. At first with the development of XBRL the focus
was on internal use, but after the scandals the focus with XBRL has only been on external
reporting. Now the focus is slowly shifting again.
For SME compliance is not necessary for the business continuity. Only when it brings cost
reductions they will consider using XBRL, or when others use it, or when there are efficiency
gains for the intermediaries. Staying in control is for companies not a reason for implementing
XBRL Continuous monitoring/ auditing is not an issue for most companies.
ERP systems
Large companies stick to the (ERP) systems they already use; the data is already standardized.
Shifting the focus to the front end of the chain with XBRL GL, only works when there are clear
efficiency gains for the firm. Implementing XBRL GL causes major adjustments in business
processes. And companies will therefore wait for a natural moment for replacing the systems.
ERP software suppliers don’t have interest in XBRL; in itself ERP already uses the concept of
standardization. Although this is used for big enterprises and the standardization only applies
within the company. Implementing XBRL in an ERP system will take much time and the value of
benefits is negligible. Technically it is already possible, but it is in the hands of the software
suppliers to do something with XBRL. And they will only do so, when the customers demand
that.
It is important to know exactly the information flow and quality of the data and being consistent
is also required. This is the reason why large companies are not interested in XBRL. Because of
K.B. Khargi 275859 18 May 2011 74
The Internal Use of XBRL for Continuous Auditing Purpose
all the legacy systems of ERP system and sub administrations with spreadsheets used by large
companies, it will take a lot of time and effort to map this.
Lack of academic research
A barrier is the lack of knowledge how to design XBRL for internal use; real knowledge of XBRL
is still limited. The focus is on quantity and not on quality. The implementation process must be
well documented, and there is a lack of scientific papers on that topic. But all this is still theory,
when the technique is proven, then further expansion will go faster.
Technical issues
Although the technique is ready, as seen with the Wacoal project, the problem with XBRL GL is
that it takes more memory and processing. And before implementing XBRL internally cleaning
pollution in databases is needed.
Another challenge could be that the Dutch method of accounting and journal entries differs from
that in the US.
The situation now is that XBRL starts from the trial balance, not from transaction level.
Business Reporting Chain
The rightful place of XBRL is within a chain. But the situation now is that the link in the chain at
the front is missing. The demanding parties, at the rear of the chain, such as the tax services and
chamber of commerce are requiring the companies to file their reports in XBRL format. For the
use of XBRL internally, there is no (independent) party that does so. This could be the job of a
CFO, but they don’t focus on the use of XBRL internally yet.
Figure 19: BRSC and XBRL and lack of regulating parties in the front
K.B. Khargi 275859 18 May 2011 75
Business Operations
Internal Financial Reporting
External Finacial
Reporting
Investments and Lending
AnalysisNo parties that
regulate
Demanding parties
are Regulators
The Internal Use of XBRL for Continuous Auditing Purpose
K.B. Khargi 275859 18 May 2011 76
The Internal Use of XBRL for Continuous Auditing Purpose
Concluding
There are various reasons why XBRL is not used by companies for their internal processes.
These reasons were not found in literature, but the experts that were interviewed mentioned
that the focus is now on external reporting and doing that right for the demanding parties.
There is no party that supervises XBRL for internal use. Companies still wait for more academic
research. Large companies that use ERP systems there is no urge to shift to XBRL; the data is
already standardized and they are able to report in XBRL. Preparing for such a project takes a
lot of effort and time with the cleansing of databases.
7.3 Benefits of the internal use of XBRL
From both literature and the interviews benefits why companies should use XBRL within their
internal processes were gathered. This are the benefits for internal XBRL use found in literature,
these were already elaborated on in section 2.5:
Improving data analysis
Better risk assessment
Accelerated implementation of continuous auditing
Improved internal controls
Reducing spreadsheet proliferation
Furthermore, there are benefits that were mentioned in the interviews. The first two confirm
what was found in literature. The last was not mentioned at all in literature.
Track data flows
The reason to use XBRL for being in control only works when the shift in the chain towards the
front is made with GL. This shift gives the means to track data flows. Continuous monitoring is a
goal for the organization. Continuous auditing uses CM for audit purposes. When accounting
firms require this from their clients they eventually have to implement it.
Transparency and efficiency
Continuous auditing is one of the benefits of XBRL. The most important ones are that it provides
transparency (US GAAP) and consistency (knowing exactly where in the report, type of
currency). It is an ideal base for fully automated data processing. When there is one standard in
the world, switching between systems will become much easier.
K.B. Khargi 275859 18 May 2011 77
The Internal Use of XBRL for Continuous Auditing Purpose
Relatively low costs
The costs are not very high compared to an average IT project. So far the administrative burden
has not been reduced, not for the report sending parties. The benefits now are with the
receiving parties. But GL will bring balance to this, when it will be included in the SBR program.
The quality will be higher because of the ability to drill down to transaction level.
Reorganizing back office
Another reason is the ageing of the population; more people are retiring soon, and firms are
getting ready to innovate and automate the back office processes, while the few people left can
be placed in the front office.
Concluding
There are many benefits for the use of XBRL mentioned in literature. These benefits are mostly
about what XBRL can enable in theory; improving data analysis because of the ability to track
data, better risk assessment, accelerated implementation of continuous auditing, improved
internal controls, and reducing spreadsheet proliferation. In practice this is not found in The
Netherlands, because XBRL is only used for external reporting. Other reason, that was not stated
in literature, but mentioned by the interviewees are the relative low cost, and the automation of
back office processes, because of aging of the employees.
K.B. Khargi 275859 18 May 2011 78
The Internal Use of XBRL for Continuous Auditing Purpose
7.4 Conditions
These are conditions for using XBRL in a continuous auditing environment/ for internal
processes of a company. These were gathered from the interviews. The conditions are divided
into several categories; general conditions (change in perspective), and conditions for the
companies themselves and the software suppliers.
Change in perspective
The focus of companies is making money and solving (short term) problems. The main idea of
business is not up to date; one should forget a company’s processes as different departments,
but view processes as the money-to-money flow (COSO).
Now reports are assembled for compliance reason. But if that is turned around and reports are
assembled for managerial purposes in an accurate way, then the compliance will also be. Chain
reversal is the solution; until now the development has come from the demanding parties, but
when it comes from companies themselves, the adoption rate will grow.
A turning point is needed in the way people look at accounting; this is hindered by the
conventional way of accounting. People have to accept that computers communicate in a
different way than humans. A lot of data is redundant but it is only human not to trust
something that they can’t understand. There are already solutions for this problem; XBRL
viewers for humans.
Within the firms people are reluctant towards automation and wondering whether their jobs
will still exist in the future. Jobs will disappear, but there will remain enough to do.
With cloud computing and XBRL, the activities for the accountants will change; they will have to
benchmark for smaller companies and be helpful to them. The accountants’ role shifts from
controlling towards giving advice. Within the SBR platform there is also enough to do.
Companies
The companies where pilots with XBRL GL are implemented management that is innovative.
These people have to be convinced of the effectiveness and efficiency of XBRL for internal use.
They have to consider that XBRL is a means and not a goal.
K.B. Khargi 275859 18 May 2011 79
The Internal Use of XBRL for Continuous Auditing Purpose
The success lies in several factors which all have to apply for the situation:
- Necessity; a real business case
- An authority that can enforce the situation, like a CFO
- Budget and people available
- Time and planning
- A well defined goal or achievement
These are steps that companies have to take before implementing XBRL internally:
Bear in mind what the stakeholders want; find out to whom the report is important, the
target group, and what information they are interested in. with the focus on
sustainability they want a dialogue, with a year report not.
Map the internal information need for all levels in the company
Make a corporate data model with all databases that are used and clean pollution in
these databases; harmonize and synchronize all the different definitions from several
systems for one same concept.
Map the lack of knowledge within the firm knowledge management. This also includes
what information exactly is given away to other parties with XBRL and what are the
consequences.
Software Suppliers
It is a job for the software suppliers to build in the possibilities to use XBRL for internal
purposes. From the interview it seems that technically it is already possible to do so. But the
software suppliers are waiting for the demand for XBRL GL, instead of anticipating. The largest
XBRL software supplier in The Netherlands, Semansys, does not work with GL yet. Fujitsu has
experience with GL in the US.
Corporate data management has to be done and management of tools. And there has to be some
kind of dictionary of the concepts, not yet a taxonomy, but a dataset of definitions, one way of
defining a concept. The condition for this is that the software is ready. This software has to read
the taxonomy.
Eventually software will be able to process the taxonomy, but until that day it will be inefficient,
for the software suppliers are trying to avoid problems.
K.B. Khargi 275859 18 May 2011 80
The Internal Use of XBRL for Continuous Auditing Purpose
Concluding
Conditions before XBRL could be applied in a continuous auditing environment can be divided
in three categories; change in the general perspective of traditional accounting is required. For
companies there are steps to be taken in preparation of using XBRL for internal purposes.
Software suppliers should be more proactive and anticipate on the development and not wait
for the customers for their demands.
7.5 Successes and failures
XBRL has failed in a sense that everyone expected a high rate of adoption in short time.
In The Netherlands we have chosen for a broad approach with the SBR program. With SBR we
have a multiple domain approach. One constraint of this approach is that it takes a lot of effort
and time. But in the end there are different demanding parties where companies can file their
reports to in XBRL format.
The goal of the SBR program was to reduce the administrative burden. This is achieved only
partly and only for some of the demanding parties, certainly not for the filing companies.
The experts that were interviewed had no experience with XBRL projects that really failed. One
person mentioned that if anything ever went wrong with a project that failed, it was because of
the low level of maturity of the organization.
For successful implementation of XBRL for internal use there has to be balance between the
software suppliers and the market, companies that demand XBRL.
K.B. Khargi 275859 18 May 2011 81
Demanding Parties
Software Suppliers Market/ Firms
The Internal Use of XBRL for Continuous Auditing Purpose
Figure 20: balance between all XBRL parties
Concluding
With the SBR program The Netherlands succeeded in developing an approach that is domain
independent. Although the expected benefits are not yet reached, there are no projects that
failed. But all projects so far regarded XBRL for external reporting.
7.6 Continuous auditing and XBRL
From literature as well as from the interviews it appears that XBRL is suitable for continuous
monitoring/ auditing purposes. But this is all theory, there are no cases known in practice
where XBRL is used for continuous auditing or monitoring.
Continuous auditing can only be performed when continuous monitoring is implemented,
because the data that is analyzed is gained from continuous monitoring processes. (See chapter
3).
Continuous monitoring
With regard to continuous monitoring, in the future it will be possible to tag data with a XBRL
label in a business unit. There is already software that does that, but without XBRL, this is a
‘rudimentary’ form of XBRL. The condition for XBRL GL and continuous auditing is one
formalized data model.
The role of accounting in continuous monitoring is checking where the gaps are; whether the
internal control measures and change management are right. The accountants in this situation
now will have a number of own software which is used to drain data from the clients systems
and analyze that. The essence of continuous auditing is finding out when a process runs well
and recognizing patterns.
An example of companies with continuous auditing is Siemens or IBM. They use continuous
monitoring and know exactly how processes run and are automated. A lot of data is being
tagged when it enters the systems. But this is not done with XBRL. The tags contain information
about the data, and can do simple calculations; adding and subtracting.
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The Internal Use of XBRL for Continuous Auditing Purpose
Why should this data not be used for internal control measures? It is perfectly suitable; e.g.
when an invoice is received in XBRL, the numbers on it can be checked. But the first step is the
check of the Dutch taxonomy. Then a three-way match can be performed; that what is ordered is
also what is delivered and the prices are right. This three-way match can raise the level of
assurance and therefore the reliability. Relations can be interwoven within the tags.
Continuous auditing is not a point of focus, from the view of the XBRL market; there is no
demand for it. However, control functions are; how does the accountants want to check and
validate XBRL. GL is perfectly suitable for this with its control modules. The question is what it
is one wants to check. The urge needs to be created that this is needed.
From accounting strategic point of view there is added value for the use of XBRL. For bigger
companies the use of XBRL GL will make the financial reporting supply chain more transparent.
XBRL-GL is used at transaction level. That is one level down the process level. In practice
information has to be draught from different separate systems.
Assurance
Assurance is now given once a year. But is this what the society wants? They want rather more
assurance whatever and whenever they want (JIT; just in time). Also, the different target
audiences have different demands for the level of assurance.
Conditions for continuous auditing
The worlds of continuous auditing and XBRL are slowly blending. But some conditions for this
process are maturity level, technique and a certain ‘enclosability’ . This can be compared with
the evolution of the internet.
Continuous auditing is only successful when data is reliable. An issue is that such an
implementation requires data from the very depth of systems, that the end of the lifecycle of a
system is seen as a natural moment to replace it.
With XBRL FR this impact for companies is less, because this is only implemented the end of the
chain.
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Role of intermediaries
XBRL-FR alone is already hard to implement, so XBRL for continuous auditing is a bridge too far.
The issue now is that it depends on what the clients want and do on the market. They are not
able to describe what is needed for an XBRL project; that is why intermediaries are needed.
There are two drivers for successful adoption of XBRL: regulatory obligation or demand from
the clients. And the latter will not be the one.
Software suppliers lack the vision, so any continuous auditing initiatives should come from the
largest intermediaries. Within large and midsized companies there is definitely a demand.
Intermediaries also see the demand for internal use.
Concluding
As was found in literature and confirmed by the interviewees, continuous auditing software
does not use XBRL and XBRL is not used for continuous auditing processes.
There are cases know (Siemens, IBM) where continuous auditing is successfully implemented.
In these cases XBRL is not used for this process. Continuous auditing therefore can be
implemented successfully without XBRL. In itself XBRL can be used without continuous
auditing. But both literature as well as the people interviewed agreed that the added value of
XBRL lies in the internal use.
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7.7 Tools
XBRL tools are not yet used for CA. And CA tools that were mentioned in chapter 3 do not use
XBRL.
There are 3-4 XBRL software suppliers; Fujitsu, Altova, Semansys. Fujitsu has also XBRL GL.
They work with a holistic approach. Altova has no GL, although it may be suitable. Semansys
does not do anything with GL yet. They deliver what the clients want, and that is not GL.
Tools could be built-in in other systems or a separate XBRL tool. There are tools that use , which
support the accountant; Unit4 for auditing, Caseware for reporting, Afas, Exact, which are
classical accounting tools. These tools are more on the administrative side. Tools as Reeleeze
which are web based are for both administrative as for reporting purposes. What we see is that
the domains are merging. Twinfield is an online accounting package that is busy with internal
control, but not GL.
But much is still done in a way that is ad hoc.
Concluding
XBRL tools are not yet used for CA. And CA tools that were mentioned do not use XBRL.
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7.8 Adoption of XBRL
What was found in literature about the adoption of XBRL is already described in section 2.6 of
this thesis. Beneath the relevant remarks from the interviews are noted.
There are two reasons why the adoption of XBRL in other countries seems to go quicker:
1. To make reporting in XBRL obligatory and have some kind of supervision for this.
2. In other countries they have one taxonomy per regulator, and it is fairly simple, like in
Belgium.
In The Netherlands it is not yet required by law to report in XBRL. But the SBR program is
developed to reuse data and this process gives a lot of discussion and delay.
The taxonomy and architecture are not yet efficient
In Belgium they have chosen for a single domain approach. This is a much simpler approach; it
was simply changing a small part of the reporting chain and adjust is to XBRL for only one
demanding party. They don’t use a holistic approach for XBRL. There is no added value in the
way they have implemented XBRL. When they want to extend this it will cost more effort in the
end, than a multiple domain approach.
In The Netherlands with the multiple domain approach we aim for harmonization in
standardization with a holistic approach. This approach is much more suitable for broad
implementation.
Regarding the numbers of adoption merely, The Netherlands lag behind, because of the range of
ideas of harmonization. But with the SBR program The Netherlands is leading.
Soon there will be a push situation from the government, the decision has not been made, but
they are working on that. For now, there is a pull situation, but from the intermediaries, not the
companies.
The European Chamber of commerce (CESR) is investigating to oblige XBRL for all companies
on the stock market. So, the pressure also comes from that side.
The multi domain approach is a precursor for successful continuous auditing/ monitoring,
because multiple aspects are needed for analyzing data. A domain independent approach is
perfect for this.
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Concluding
The multi domain approach in The Netherlands with the SBR program initially seemed to cause
a lagging position regarding the use of XBRL. But now the benefits for harmonization and
standardization are becoming visible.
7.9 Current situation of XBRL in The Netherlands
XBRL expansion is still in the first stage where a bolt-on approach is used. This means that
implementation is applied only at the rear end of the reporting supply chain. Most often this is
an aggregated process, where existing data is converted into XBRL.
Smaller types of companies and governments use packages for administrative purposes that
already use XBRL. But that is always a ‘save as’ function.
The business community is on the eve of a singularity point; the information flow is now a push
mechanism, because firms think they know what is right for the social welfare, this was defined
in the first half of last century. The value of the information in the reports for the stakeholders
need to be reconsidered A solution for this issue could be asking the audience what information
they need. This approach is a shift to the pull stream. Now regulations prescribe what the
contents of the annual report must be.
SBR
SBR is now in the early phase of implementations. This is mostly driven by the intermediaries,
not from the companies. There are not many companies that report directly to the demanding
parties in XBRL, there are no more than 5.
SBR is only for the government, XBRL is more than that. But SBR is also stimulated for semi
government sectors, such as education and the water management boards.
Current situation for SME
Clients do their own accounting. The trial balance is read into the accounting software.
Then mapping is done on paper. Because the definition is already in the trial balance, this
process is simultaneous to assembling the XBRL document. But there is no efficiency gain for
the companies with this approach.
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The real benefits in the current situation are at the side of the demanding parties. They used to
rekey numbers from papers.
Results so far
Results are not yet quantifiable in amount of money. The results now are more qualitative;
faster tax filing, faster credit report to banks. Besides, result can be measured when there has
been a zero measurement before; in that case results can be compared. Now, it is more a feeling
that is not reasonable which says: “yes, there are benefits”.
Concluding
With the SBR program in The Netherlands with the bolt-on approach, the focus is still on the
rear end of the business reporting supply chain, and XBRL is used for external reporting only.
Most often this is done with a “save as” method.
7.10 Future
These are the statements made by the interviewees regarding the future of XBRL.
For the future there will be a growth in electronic administration, also within smaller firms. This
endangers the role of the intermediaries; for accountants or administrative offices it will be a
matter of assembling already electronically available information for reports, for payments.
XBRL will grow, but also electronic standardization and computerization. Globalization is just a
matter of time.
In 5 years the focus of XBRL usage will still be on the side of external parties. When we want the
use of XBRL for all companies, a lot of cleansing needs to be done first. When that is settled, the
focus can shift towards the internal use of XBRL. And in the end, that is where the added value of
XBRL lies.
There are still actions that have to be taken by the software suppliers and accounting packages.
Trainings need also be developed.
But first there has to be a turning point. And when the right people are informed, and external
reporting in XBRL is settled, the next step will be using XBRL for internal processes.
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The future of XBRL is bright. It will be there, because in some foreign countries it is already
required and companies on the stock market have to report in XBRL.
The market is evolving and there will be fusions of software companies. In the end there will be
a number of them left. It will also be good for the international concurrence position for The
Netherlands, if they stay in the race. The fear of the intermediaries is that they will be taken
over.
Most probable, in 2013 reporting in XBRL will be regulatory obliged. Then higher numbers will
be reached. And when GL will be included in the SBR program, continuous auditing will also be
possible.
On the long run XBRL will become a natural thing.
The steps towards such a situation have to be in the right order:
1. Theory: a concept has to be well defined.
2. Practice: solving problems with software, people understanding the concept
When there are some cases of successful implementation, the market will move towards
adoption
For the SME eventually the use of XBRL (FR) will increase, when the commitment of the
government will be clear and the hurdles with the intermediaries will be taken away.
The large firms will be interested in GL and continuous auditing when their focus will be on
insights in control .In 2013 even with partial regulations we will be one step closer.
Concluding
All of the interviewees independently stated that this research was conducted three years too
early. They expect that when reporting in XBRL will be regulated and required by law, and when
that goes smoothly, the focus of the companies will shift towards the benefits of XBRL for their
internal processes.
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8 Conclusion
This is the final chapter of this thesis. The results or main findings of the study are displayed
beneath. Some research limitations are presented. Also recommendations and lessons learnt are
included in this chapter.
8.1 Main FindingsHere the main findings with regard to the aspects of the theoretical model are presented. These
findings are results of the analysis of the interviews that have been held for this study and
answer the research question.
Although from literature it seems that XBRL is already used for internal purpose, in practice this
is not the case in The Netherlands.
Reluctance of firms
There are various reasons why XBRL is not used by companies for their internal processes.
These reasons were not found in literature, but the experts that were interviewed mentioned
that the focus is now on external reporting and doing that right for the demanding parties.
There is no party that supervises XBRL for internal use. Companies still wait for more academic
research. Large companies that use ERP systems there is no urge to shift to XBRL; the data is
already standardized and they are able to report in XBRL. Preparing for such a project takes a
lot of effort and time with the cleansing of databases.
First a change in perspective of the way we look at accounting is needed.
Benefits
There are many benefits for the use of XBRL mentioned in literature. These benefits are mostly
about what XBRL can enable in theory; improving data analysis because of the ability to track
data, better risk assessment, accelerated implementation of continuous auditing, improved
internal controls, and reducing spreadsheet proliferation. In practice this is not found in The
Netherlands, because XBRL is only used for external reporting. Other reason, that was not stated
K.B. Khargi 275859 18 May 2011 90
What is needed in order to shift XBRL towards the front of the business reporting supply
chain for the purpose of continuous auditing in The Netherlands?
The Internal Use of XBRL for Continuous Auditing Purpose
in literature, but mentioned by the interviewees are the relative low cost, and the automation of
back office processes, because of aging of the employees.
Conditions
Conditions before XBRL could be applied in a continuous auditing environment can be divided
in three categories; change in the general perspective of traditional accounting is required. For
companies there are steps to be taken in preparation of using XBRL for internal purposes.
Software suppliers should be more proactive and anticipate on the development and not wait
for the customers for their demands.
Successes and failures
With the SBR program The Netherlands succeeded in developing an approach that is domain
independent. Although the expected benefits are not yet reached, there are no projects that
failed. But all projects so far regarded XBRL for external reporting.
Continuous auditing
As was found in literature and confirmed by the interviewees, continuous auditing software
does not use XBRL and XBRL is not used for continuous auditing processes.
There are cases know (Siemens, IBM) where continuous auditing is successfully implemented.
In these cases XBRL is not used for this process. Continuous auditing therefore can be
implemented successfully without XBRL. In itself XBRL can be used without continuous
auditing. But both literature as well as the people interviewed agreed that the added value of
XBRL lies in the internal use.
Adoption
The multi domain approach in The Netherlands with the SBR program initially seemed to cause
a lagging position regarding the use of XBRL. But now the benefits for harmonization and
standardization are becoming visible.
Current situation
With the SBR program in The Netherlands with the bolt-on approach, the focus is still on the
rear end of the business reporting supply chain, and XBRL is used for external reporting only.
Most often this is done with a “save as” method.
Future
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All of the interviewees independently stated that this research was conducted three years too
early. They expect that when reporting in XBRL will be regulated and required by law, and when
that goes smoothly, the focus of the companies will shift towards the benefits of XBRL for their
internal processes.
8.2 Research Limitations
Because of the lack of implementation of XBRL for internal use in The Netherlands, case studies
were used to fill this gap. These projects may not be representative for the situation in The
Netherlands for most firms.
Another limitation could be that companies already use XBRL for internal purposes, but they
have not published about this. XBLR FR is for open, external communication and therefore not a
competitive issue. XBRL GL is for internal use, and for the reason of operational sensitivity, it is
a competitive issues and could be companies reluctant about publishing about their pilots with
GL. But if this was the case, the experts interviewed for this research would have known this
and could have mentioned this project, but anonymously.
The people interviewed for this research are all advocates of XBRL. There was nobody
interviewed that was against XBRL. This could result in conclusions that are biased. On the
other hand, even in literature there are no arguments found against XBRL Everybody believes in
the possibilities of XBRL.
8.3 Recommendations for further research
A lot of future research could be conducted on the topic of XBRL and continuous auditing. The
interviewees themselves have noted that the market is waiting for more scientific research.
One question that rose during this study was why CA software does not use XBRL and vice
versa. In many papers about continuous auditing is said that XBRL will enable it. And also in
literature about XBRL is mentioned that it can be used for CA, from the early days of the
development of XBRL. So why have these two concepts not integrated yet?
Another topic for future research could be how to get companies ready to use XBRL for internal
purposes. The results of this study only answer the question what is needed for the shift in
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general. One could go deeper into the matter and research what is needed to convince firms and
let them see the added value of XBRL from the very start of their processes.
8.4 Lessons Learnt
While conducting this research a lesson learnt was that people can copy each other’s words for
a decade long without adding anything new. This also refers to what was mentioned in the
previous section; in many papers about continuous auditing is said that XBRL will enable it. It
was written in papers from 2001 and the same was said in paper of 2009. Everyone is
enthusiastic about the possibilities of XBRL, but the wheel turns slower than was expected.
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Chapter 6Wacaol Case study:http://www.xbrl.org/nmpxbrl.aspx?id=90Basic Life Case study:http://www.xbrl.org/nmpxbrl.aspx?id=93MIX Case study:http://www.microcapital.org/microcapital-brief-xbrl-international-publishes-case-study-from-the-microfinance-information-exchange-mix/http://www.xbrl.org/CaseStudies/
The Internal Use of XBRL for Continuous Auditing Purpose
Appendix: Questionnaire
AchtergrondOnderstaand schema geeft een overzicht van mijn scriptie. Verschillende blokken (of combinaties ervan) zijn uitgewerkt in de hoofdstukken. Mijn onderzoeksvraag heeft betrekking op het gebied in de cirkel. Dit is nauwelijks beschreven in de literatuur, wat betreft XBRL. Op het gebied van continuous auditing/ monitoring vind je wel meer. Veel mensen roepen dat XBRL de adoptie van continuous auditing zal versnellen. En slechts weinigen geven ook daadwerkelijk aan waarom en hoe dat dan zou moeten gebeuren. Hoe dat in de praktijk gaat, ben ik helemaal niet tegengekomen. Dus daarom dit onderzoek…
BackgroundThe picture presents an overview of my thesis. Different (combinations of) blocks are the subject in the several chapters.My research is captured by the part within the circle. This is hardly described in literature, for XBRL. With regard to continuous auditing/ monitoring more is found. A lot of authors state that XBRL will accelerate the adoption of continuous auditing. And only few present why and how that should be realized.I have not found, how that occurs in practice. That is the reason for this research…
Vrag en achtergrond / Questions Background 1. Wat is uw functie?
What is your position?2. Wat voor rol speelt XBRL in uw werk?
What is the role of XBRL in your daily activities?
K.B. Khargi 275859 18 May 2011 97
Process 1
Process 2
Process 3
Process 4
Process …
General
Ledger:
Several
Journal
Entries
Continuous Auditing
Annual account,
Management
Reports,
Etc.
XBRL (external use)XBRL (internal use)
The Internal Use of XBRL for Continuous Auditing Purpose
Vragen XBRL /Questions XBRL 3. Waar en hoe wordt XBRL intern ingezet (linkerkant van schema)? XBRL-GL of iets
anders? Indien de focus op de rechterkant van het schema ligt, wat is de reden hiervan? Kosten, barrières, regelgeving? Where and how is XBRL used internally (left side of the scheme)? XBRL-GL or something else? If the focus is only on the right sight, what is the reason? Costs, barriers, regulations?
4. Wat zijn de redenen voor een bedrijf om XBRL te implementeren?Speelt het “in control” zijn ook een rol hierbij? Dit is immers voor bedrijven die continuous auditing toepassen de belangrijkste reden.What are reasons to implement XBRL for a firm? Is “being in control” considered? For companies that have applied continuous auditing was this the main reason. (previous research K.B.Khargi 2010)
5. Zijn er voorwaarden om XBRL te implementeren? Welke?Are there conditions to implement XBRL? Which are there?
6. Wat zijn de succesfactoren en knelpunten bij XBRL implementatie? Kunt u voorbeelden noemen van succesvolle of juist mislukte projecten?What are success factors and pitfalls with XBRL implementations? Could name examples of such projects?
7. Zijn er bij het gebruik van SBR al cijfers van de resultaten bekend? Are there with the use of SBR already results known?
8. Welke XBRL tools worden er gebruikt? Zijn deze voor intern of extern gebruik?Which XBRL tools are used? Are these used for internal or external purpose?
Vragen XBRL en CA / Questions XBRL and CA 9.10.11.12.13.14.15.16.17. Worden de tools van vraag 8 ook ingezet voor continuous auditing doeleinden?
Are tools from question 8 also used for continuous auditing purposes?18. Zijn er voor een bedrijf bij de stap naar continuous auditing voorwaarden betreffende
het gebruik van XBRL? Welke?Are there conditions for a firm with the step to CA regarding the use of XBRL? Which?
Vragen afsluitend / Finishing Questions19. Waarom gaat XBRL adoptie sneller in landen als België, Korea, Japan?
Why is the adoption of XBRL faster in countries such as Belgium, Korea, Japan?20. Hoe is de situatie nu betreffende XBRL implementaties in Nederland?
Valt alles onder SBR binnen Nederland? Is er sprake van een push- (vanuit regelgeving/ accountants) of pull-(vraag, vanuit bedrijven) situatie? Of een combinatie? Hoe wordt XBRL “verkocht”?
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How is the current situation regarding XBRL implementations in The Netherlands?Is all done within the SBR program? Is there a push (from regulations/ accountants) of a pull (demand from the firms) situation? Or a combination of those? How is XBRL “sold”?
21. Hoe ziet u de toekomst van XBRL in Nederland?How do you see the future of XBRL in The Netherlands?