The imminent arrival of eXtensible Business Reporting Language
(XBRL) as the preferred format for financial reporting will have a
minimal effect on the workload of US audit firms, according to two
mid-tier firm partners.

The Securities and Exchange Commission (SEC) last year announced
that domestic and foreign large accelerated filers will have to
submit their financial statements in XBRL format this year. The new
rules for SEC filings will be phased in over three years beginning
with fiscal periods ending on or after 15 June.

Initially, auditors will not be required to provide assurance on
XBRL filings. This means the XBRL roll-out will have a negligible
impact on firms such as BDO Seidman, according to Jeff Lenz, a
partner in the firm’s national SEC department.

“I suppose some people will have the view that the investment
community will like it better if there is some sort of auditor
requirement but I would not expect an overwhelming demand for
that,” Lenz said.

RSM McGladrey’s international assurance services group partner
Bob Dohrer said the firm welcomed the XBRL roll-out and agreed
there would be minimal revenue generated from the new format until
regulators require mandatory assurance.

Lenz and Dohrer said their clients are either completing the
XBRL tagging themselves or being assisted by specialist tagging
companies; audit firms are not being engaged.

“As far as assisting non-audit clients with the process, it is
an area where our firm is not heavily focused right now because in
large part it becomes a mechanical exercise, there will be a lot of
commercial providers,” Dohrer noted.

XBRL tags allow individual items to be uniquely identified in a
company’s financial statements so they can be easily searched
online, downloaded into spreadsheets, reorganised in databases and
used for other comparative and analytical purposes.

A recent Institute of Internal Auditors survey of more than 200
chief audit executives worldwide found 51 percent of respondents
did not have any knowledge of XBRL, and 42 percent only knew the
very basics.

Lenz also downplayed the costs involved with the introduction of
the tagging system and said comparisons between the costs required
to implement XBRL and Section 404 of the 2002 Sarbanes-Oxley Act
were “vastly overstated”.

“Some people have compared [XBRL] to implementing Section 404,
which requires reporting on internal controls. We do not see this
as remotely close to that in terms of cost,” he said. “I couldn’t
quote a number on audit fees from 404 but I would say it is a
significant number and I think the fee revenue we will get from
XBRL will be a trivial number.”

Dohrer predicted that regulators will not require mandatory
assurance on XBRL filings for at least five years.

“If we look into the future one can only imagine that the
current EDGAR [electronic data gathering, analysis and retrieval] filings will be replaced by the XBRL filings and at that point
audit firms are certainly going to be asked to provide some
assurance around that XBRL process,” he said.

Dohrer said there will be a lot of questions around what kind of
assurance auditors will be asked to provide.

“When we issue our audit opinion it is on the financial
statements as a whole. There is a significant question around when
users of that information pull out just the domestic trade
receivables number; how is the assurance around that number going
to be communicated in a virtual world?” he said.

Meanwhile, an investment analyst has warned that investors might
not embrace XBRL with open arms, despite the benefits XBRL is
supposed to offer.

JPMorgan Cazenove head of accounting and valuation research
Peter Elwin has questions regarding the cost, how the taxonomy has
been formulated and how changes in accounting rules will affect the
taxonomy.

“I do not think investors have engaged with XBRL at all, because
they don’t have to,” Elwin said. “It is far too esoteric for them
to engage in debates about the taxonomy. That is the worry.

“Is what has been created ultimately a form of Esperanto which
has been designed by a few clever people but in reality may not
match the way the real world works? That would be one of the big
risks.”

Elwin said investors would ideally like between three and five
years worth of financial data before they consider investing in
XBRL search engines.

“There is a tipping point. If the SEC requires companies to
submit data in XBRL then that quite quickly gets you to a stage
where you have a useful data set,” he said.

Nicholas Moody