Proposed AU 550 Interpretation on XBRL Instance Documents of Audited Financial Statements ASB Presen

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Proposed AU 550 Interpretation on XBRL Instance
Documents of Audited Financial StatementsASB
PresentationApril 9, 2003
Presenters Paul Penler, Ernst Young Jane
Mancino, AICPA David Peterson,
PricewaterhouseCoopers Louis Matherne, AICPA
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Proposed Agenda

• Background Discussion (20 mins)
• Proposed Interpretation (60 mins)

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The Task Force and its Charge

• The AICPA XBRL Implementation Task Force consists
  of representatives from the AICPA Member
  Innovations Group, Auditing Standards Board (ASB)
  staff, Ernst Young LLP, KPMG LLP and
  PricewaterhouseCoopers LLP.
• The AICPA XBRL Implementation Task Force (AICPA
  Task Force) has been formed to identify and
  analyze potential issues, options and
  recommendations for auditors to be associated
  with a clients XBRL Instance Document of audited
  financial statements under the current U.S. GAAS
  literature.

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Why are We Here Now?

• Since the inception of XBRL in 1999, it has been
  perceived that the ability to provide third party
  assurance is required for the acceptance of XBRL
  reports in the market place.  
• Expected continued increased existence of XBRL
  Instance Documents of audited financial
  statements.
• It is to the best interests of the market, and to
  auditors, that the profession provides guidance
  on this emerging challenge in a clear,
  consistent, effective and efficient manner
  prior to the existence of thousands of XBRL
  Instance Documents of audited financial
  statements.

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What is XBRL?

• XBRL is an emerging XML standard which represents
  existing business reporting documents (e.g.
  financial statements) with additional contextual
  tags.
• An XBRL Instance Document of a financial
  statement document is machine readable (i.e., a
  computer can read the data, search for
  information, or perform calculations).
• Walkthrough example on the next slide.

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XBRL Instance Document Example
Financial Statement
XBRL Taxonomy
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Mapping
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Instance Document

• Tagged Data
• Tags Themselves
• F/Ss
• Auditors Report

Consumed
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Viewed
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Viewing a XBRL Instance Document
There has been some discussion as to the
requirement that an XBRL Instance Document
needs to be viewed through a piece of software.
The viewing of an XBRL Instance Document (.XML)
through a software application, is very similair
to viewing a finacnial statement in a PDF format
in an Acrobat Viewer. Both .XML and .PDF files
need a software application to be fully
comphrehendable. However, both could be viewed
raw in an application like Microsoft Notepad.
PDF Viewed In Notepad - Example
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Emerging Use of XBRL

• Several public companies have posted XBRL
  Instance Documents of their financial statements
  on the SEC EDGAR system and on their web sites
  including Microsoft and Morgan Stanley.
• Several National Banks are currently involved in
  a market demonstration project to assess the
  benefits and obstacles to have borrowers submit
  their financial statements in XBRL to Lenders.
• Several U.S. regulatory agencies (including the
  FDIC, OCC and OTS) are involved in a joint
  project which will have all U.S banks submit
  quarterly financial reports in XBRL to regulators
  starting in 2004.
• In a few years, XBRL may be the primary medium in
  which financial statements, and other financial
  reports, are submitted to Regulators and Banks.

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Why is Assurance Important?

• To the Market
• Users will want to obtain confidence that the
  electronic version of the financial statements
  are the same as the human readable version.
• To Assurance Providers
• The ability to extend assurance on the financial
  statements to this new electronic medium is a
  reasonable evolution of the auditing profession.

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Why is AU 550 a fit?

• Follows the spirit of AU 550 extending
  assurance to other information which is
  subjected to audit procedures during the audit of
  the basic audited financial statements.
• No restrictions on use of the report related to
  the XBRL Instance Document thus, the new report
  and instance document can be distributed to the
  same users that receive the audited financial
  statement.
• The original assurance on the audited financial
  statements stays with the XBRL Instance
  Document.
• Reasonable cost approach. Although several
  assurance options may exist, including AT 101, AU
  550 is perceived as being the most efficient
  option.

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Key Questions Addressed in the Proposed AU 550

• Does the intended use meet the required AU 550
  criteria?
• Has the other information been subjected to the
  auditing procedures applied on the audit of the
  basic F/Ss?
• Will the Auditors Report, F/Ss and Notes be
  included in the XBRL Instance Document
• What will be reported on?

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Interpretation Question 1

• .19 Question?Does an XBRL Instance Document fit
  the AU 550 definition of a document containing
  other information in addition to audited
  financial statements?

• Key Elements of the above question
• Is the XBRL Instance Document (ID) a Document?
• What is the other information?
• Does the XBRL ID contain information other than
  the Independent Auditors Report, Audited
  Financials Statements and Notes?

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Interpretation Question 1 (cont)

• .20 Interpretation?An entity may make its audited
  financial statements available in the form of an
  XBRL Instance Document. XBRL, the business
  reporting offshoot of the Extensible Markup
  Language (XML), is a freely licensable open
  technology standard which makes it possible to
  store and/or transfer data along with the complex
  hierarchies, data-processing rules and
  descriptions that enable analysis and
  distribution1. An XBRL Instance Document is
  essentially a machine-readable format of the
  financial statements (i.e., a computer can read
  the data, search for information, or perform
  calculations). Through the XBRL tagging process,
  a mapping of the audited financial statement data
  is created that enables a user to extract
  specific information - facilitating analysis.
  For example, XBRL would enable a user to use a
  software tool to automatically extract certain
  financial line items, at its most recent fiscal
  year end, and automatically import those amounts
  into a worksheet calculating several ratios.

Key Element of this paragraph Defines XBRL.
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Interpretation Question 1 (cont)

• .21 The XBRL Instance Document consists of
  various data points and their corresponding XBRL
  tags (that describe elements contained within the
  audited financial statements) and may include
  other items such as a PDF (Adobe Acrobat) version
  of audited financial statements. Hence, an XBRL
  Instance Document is a stand-alone document that
  may be published using a website, E-Mail and
  other electronic distribution means.

• Key Elements of this paragraph
• Is the XBRL Instance Document a Document? Yes
• Although the document may distributed through or
  posted on the internet, the XBRL Instance
  Document is one self contained in document.
• Is the XBRL ID a web site (I/A/W AU 9550 .16 -
  .18)? No
• A web site can be one of several means of
  distribution for XBRL Instance Documents.
• The website is distinct from a XBRL Instance
  Document just like a website is distinct from a
  PDF of an audited financial statement.

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Interpretation Question 1 (cont)

• .22 AU 550 can apply when An entity publishes
  various documents that contain information
  (other information) in addition to audited
  financial statements and the independent auditors
  report thereon. In the case of an XBRL Instance
  Document, the other information consists of the
  information taken from the audited financial
  statements and their corresponding XBRL tags.
  Under AU 550 the final document would consist of
  the XBRL Instance Document, which would also
  include the audited financial statements and
  independent auditors report. Therefore, an XBRL
  Instance Document does fit the definition of a
  document under AU 550.

• Key Elements of this paragraph
• Is the XBRL Instance Document a Document? Yes
• The XBRL Instance Document is one self contained
  document.
• Although it is designed to be read by computer
  applications, it Document can be printed and
  held in ones hand.
• What is the other information contained in a
  XBRL Instance Document?
• The tagged information and
• The XBRL tags themselves, denoting presentation
  context and descriptions. (I.e. the relationship
  to other tagged information)

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Interpretation Question 2

• .23 Question?When the auditor, at the clients
  request, devotes attention to the other
  information in an XBRL Instance Document, what
  are the auditors considerations when providing
  assurance on other information?

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Interpretation Question 2 (cont)

• .24 Interpretation?This interpretation would be
  applicable under the circumstances described in
  AU 550.02 (b), that is, when the auditor, at the
  clients request, devotes attention to the other
  information in an XBRL Instance Document. It is
  unlikely that the client would request the
  auditor to devote such attention unless the
  client also requested the auditor to express an
  opinion on whether the information is fairly
  stated in all material respects in relation to
  the basic financial statements taken as a whole
  (see AU 550.07). In this case, the other
  information contained within the XBRL Instance
  Document must have been subjected to the auditing
  procedures applied in the audit of the basic
  financial statements. Therefore, an auditor may
  provide assurance on the other information as
  long as (1) that information has been subjected
  to the auditing procedures applied in the audit
  of the basic financial statements, and (2) the
  audited financial statements and the independent
  auditors report thereon are included in or
  linked to the XBRL Instance Document.

• Key Element of this paragraph
• Are the two threshold criteria in AU 550 met?
  

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Interpretation Question 2 (cont)

• .25 With regard to the first requirement in
  paragraph .24 above, the other information taken
  directly from the audited financial statements
  and tagged in the XBRL Instance Document has been
  subjected to auditing procedures applied in the
  audit of the basic financial statements.
  However, in order to determine that the
  information and its manner of presentation is
  fairly stated in all material respects in
  relation to the basic financial statements, the
  auditor should ordinarily perform the following
  incremental procedures

• Key Element of this paragraph
• Has the other information, contained in a XBRL
  Instance Document, been subjected to the auditing
  procedures applied in the audit of the basic
  financial statements? Yes
• The information in the tags consists of the GAAP
  data itself and the relationship of the tags to
  one another.
• The relationship captured in the tags is fully
  represented in the original financial statements
  definition of the tags, how items are presented
  in relation to one another, etc

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Interpretation Question 2 (cont)

• (.25 cont)
• However, in order to determine that the
  information and its manner of presentation is
  fairly stated in all material respects in
  relation to the basic financial statements, the
  auditor should ordinarily perform the following
  incremental procedures
•   Trace and agree the tagged information
  to the audited financial statements,
•         Ensure all of the information in the
  audited financial statements, including the
  notes, is tagged and included in the XBRL
  Instance Document,
•       Test for consistency of tagging e.g..
  the same financial statement line items in
  different periods are represented by the same
  tag, and
•       Ensure that it is clear which tagged
  information is not covered by the auditors
  report.

• Key Elements of this paragraph
• No audit procedures are applied outside of the
  audit of the basic financial statements.
• The above activities are similar to procedures an
  auditor would perform related to any additional
  schedule covered by AU 550 or AU 551.

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Interpretation Question 2 (cont)

• .26 This concept can be extended to additional
  financial information that may not be presented
  in the audited financial statements, but
  nonetheless has been subjected to auditing
  procedures during the course of the audit
  engagement (for example, detail of general
  expenses). However, information in the XBRL
  Instance Document that is not part of or derived
  from the financial statements, such as
  Managements Discussion and Analysis would not
  have been subjected to auditing procedures
  applied in the audit of the basic financial
  statements. Therefore, no assurance could be
  provided on this information. The lack of
  assurance on this information does not mean that
  such information could not be tagged and
  contained within the XBRL Instance Document.

• Key Elements of this paragraph
• Only GAAP information may be subject to assurance
• The additional GAAP financial information is
  consistent with the common practice of presenting
  additional information with audited financial
  statements i.e. Detailed SGE Schedule
• Clients tagging of Non-GAAP information is
  permissible

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Interpretation Question 2 (cont)

• .27 The second requirement in paragraph .24 above
  can be accomplished by a variety of technical
  solutions that would meet the AU 550 requirement
  (for example, include in the XBRL Instance
  Document a PDF version of, or irrevocable link
  to, the audited financial statements and the
  independent auditors report).

• Key Elements of this paragraph
• The audited financial statements and the
  independent auditors report are included in the
  XBRL Instance Document.
• The inclusion may be represented in an actual
  copy included in the instance document or through
  a irrevocable link to the information (e.g
  presented in HTML or in a PDF file on a web
  site).
• The financial statements can be viewed as a hard
  copy is viewed today i,.e. tables are presented
  in the same manner.

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Reporting

• .28 AU 550.07 allows the auditor to report on
  such information using the guidance in AU section
  551.12 and .14, Reporting on Information
  Accompanying the Basic Financial Statements in
  Auditor-Submitted Documents (AICPA, Professional
  Standards, vol. 1). The auditor may either
  include a separate paragraph in the auditors
  report on the financial statements or issue a
  separate report.
• 29 An example of a report on information
  accompanying the basic financial statements
  follows 
• Our audit was conducted for the purpose of
  forming an opinion on the basic financial
  statements taken as a whole.  The XBRL tagged
  information, and corresponding XBRL tags, is
  presented for purposes of additional analysis and
  is not a required part of the basic financial
  statements. Such information, except for that
  portion marked "unaudited", on which we express
  no opinion, has been subjected to the auditing
  procedures applied in the audit of the basic
  financial statements and, in our opinion, is
  fairly stated in all material respects in
  relation to the basic financial statements taken
  as a whole.

• Key Element of this paragraph
• Report options are consistent with AU 55o
  guidance through AU 551.

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