What about Assurance (or "Lord make me virtuous, but not yet"?
Originally posted 3 November 2009
Probably
the best place to start is by paraphrasing St Augustine: "Lord make me
virtuous, but not yet". St Augustine was born in North Africa and lived
for a time in Carthage. While his mother was a Catholic, his father was
pagan, and he followed in his father's footsteps for much of his
earlier life. Eventually he converted to Catholicism, and became one of
the great leaders of the church.
XBRL is a business reporting language, and the first and primary
application has always been the provision of financial statements by
companies to users of financial and business information, be they
investors, regulators, banks, etc. The provision of assurance over the
financial statements, via the audit and audit report, represents the
lifeblood of the accounting profession. Isn't it amazing then that the
accounting industry did not raise howls of protest to the SEC's
specific statement that XBRL versions of financial statement do not
require assurance.
There seems to be two potential reasons for this:
1. The SEC has stopped believing in assurance, or
2. The accounting industry simply does not know how to provide assurance over XBRL.
The first is, well, silly.
XII Assurance Working Group
The
Assurance Working Group is included in the list of working groups on
the XII website, complete with it charter and purpose. Lets listen in
for a moment. ( or you read it yourself. scroll down to the Assurance WG.).
I especially like the deliverables, and the dates of the meetings that
the deliverables will (future tense) be prepared. Frankly, you have to
wonder why they even bother any longer...
The
objective of the Assurance Working Group (AWG) is to support the IAASB
in the development of relevant standards and guidance for the audit
profession surrounding the use of XBRL for company reporting. In
working with the IAASB, the working group will support the standards
development process through the collaborative development of the
deliverables outlined below for use by the IAASB, the audit profession
and other relevant capital market participants. The AWG works in close
collaboration with the International Auditing and Assurance Standards
Board (IAASB) of IFAC.
The AWG will provide the following deliverables:
- A discussion paper for use by the IAASB at their meeting in Lima early March 2005 and/or by the Steering Committee of the IAASB at their meeting in Rome mid June 2005.
- A white paper reflecting risks and opportunities related to XBRL as well giving advice on how to move forward on this issue.
- Recommendations for the IAASB, which will make it possible for them to issue auditing standards.
Proactively inform the IAASB of relevant technical matters.
- Respond to technical matters referred to it by the IAASB.
-
Recommendations for educational materials and delivery resources to
enhance the awareness among the audit profession and the stakeholders
regarding the assurance issues associated with the use of XBRL.
The good news: Now, in 2009, 4 years leter, the IAASB says they will look at XBRL. Progress!
|
The second is a little more problematic. After all, the accounting industry has been the primary champion for XBRL for
a decade.
You would think that with a 10 year head start, they would by now know
how to do what is after all, their core competency. And you would think
that XBRL International would have paid more attention to the issue.
Frankly, XBRL International and the accounting industry have failed to
cater for what is arguable one of the most important aspects of XBRL -
assurance over the information provided in the XBRL format.
Of course this will now generate a number of e-mails (hopefully headed off by this comment) reminding people that the
AICPA and the CAQ (
Center for Audit Quality
- of the AICPA) both recently published guidance on how accountants and
auditors can provide assurance over XBRL. But in both cases, the
assurance provided is based on Agreed Upon Procedures, and therefore is
for internal use only - not much good for an investor. Why don't we
move to AUPs for all assurance/audit. It would certainly save
businesses globally a huge amount of money, and in most cases could
actually be performed by internal resources. But my guess is that this
would not satisfy regulators or investors.
Mind you, supporting #1 and #2 above, here is an extract from page 3 of the
CAQ's submission to the SEC's proposed rule mandating XBRL:
"We fundamentally believe that independent assurance on XBRL
documents would add value by increasing reliability and enhancing
public confidence in financial reporting, as it does today. However, we
also acknowledge that some, including the Commission and the SEC's
Advisory Committee on Improvements to Financial Reporting (CIFiR), are
concerned that the cost and time incurred to obtain such assurance
might outweigh the benefits to preparers and users."
It almost makes you wonder if the same couldn't be said about the audit
in general. Adds value, but concerned that the cost and time might
outweigh the benefits.
But, lets return to the SEC for a moment. The SEC specifically
exempted XBRL from assurance, and provided a two-year window of
litigation relief. And this is for information that the SEC says will
benefit investors. So if there another explanation? Maybe the SEC is
losing faith with the accounting industries ability to define or
deliver assurance, at least over the future of information for
investors?
But there is a kicker - the SEC did also say that
litigation relief is only provided if companies can demonstrate a "good
faith effort" to ensure their XBRL is error-free. So what is a "good
faith effort". Cleverly this allows the AICPA and accounting firms both
the time to test their own XBRL assurance processes in private. It was
interesting to sit in on one of the post first-wave webcasts, and the
hear David Blaszkowsky of the SEC's OID say that he was pleased that
companies in the first wave had demonstrated a "good faith effort". I
can only surmise that companies are requesting and receiving assurance
in the form of the Agreed Upon Procedures framework provided by the
AICPA. But alas, as the AUP if for internal use only, we cannot know
that.
Unfortunately this leaves the second tier and smaller
accounting firms with no opportunity to test-drive assurance over XBRL,
gives the markets no assurance that the XBRL is actually being audited,
at the same allowing the accounting firms to generate some of the
XBRL-based fees they have been so desperate to find.
This certainly will give the big accounting firms a benefit. Imagine
being a large SEC registrant currently audited by a "second tier" firm
(firms like Grant Thornton, Crowe Chizek, Eisner, Moss Adams,
McGladrey, BDO, Baker Tilly (Virchow Krause), etc) and having to
provide XBRL to the SEC, and to demonstrate a "good faith effort". You
current second-tier firm has no experience providing assurance over
XBRL, but the big-4 who are selling auditing services to you do have
that experience. It is the classic FUD marketing play - Fear,
Uncertainty and Doubt.
"Certainly your current accountants should be able to provide assurance - that so important "good faith effort", but we not sure what actual experience they have doing that. I sure hope they don't use you as the test case.
Of course, we've been doing this for a year now, and have smooth and
streamlined processed to ensure the costs are managed and minimized.
Would you like to see a proposal?"Finally, the true costs of XBRL implementation remain hidden.