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April 30, 2008

XBRL raises assurance concerns

Questions are now being raised on whether auditors should provide assurance on eXtensible Business Reporting Language (XBRL) tagging as the US Securities and Exchange Commission (SEC) moves a step closer to introducing the electronic taxonomy-based reporting system in its jurisdiction.

The US securities regulator will propose that about 500 large companies that report under US GAAP and have a worldwide public float of more than $5 billion would be required to tag their financial statements using XBRL for fiscal periods ending in late 2008. XBRL would be phased in for the remaining SEC-listed companies using US GAAP within the following two years, while SEC-listed companies using IFRS would be required to use XBRL for fiscal periods ending in late 2010.

BDO Seidman national director of accounting Ben Neuhausen told the International Accounting Bulletin that such a move could have a dramatic impact on the profession if auditors are required to audit or provide some form of assurance on the XBRL tagging of information.

“Starting out there is no such requirement, but there has certainly been talk that somewhere down the road investors would like the assurance that companies did tag the numbers correctly,” Neuhausen said, adding that such assurance would create additional work for auditors.

The scale of the impact will depend on the level of assurance ultimately required, Neuhausen said.

“If the auditors are asked to give some assurance on the XBRL tag numbering, then would it still be the same overall framework that it is in relation to the financial statements taken as a whole, or would it focus on each individual tag?,” he asked.

An immediate impact for professional services firms will be that clients will seek help to understand XBRL rules and help in the first time implementation, Neuhausen said.

A recent study by Grant Thornton US, which surveyed chief financial officers and senior comptrollers across the US, found that only 55 percent of respondents were familiar with XBRL.

On the release of the survey, Grant Thornton said the findings identified an experience gap that will pose a challenge for the SEC as it phases in the adoption of XBRL by issuers.

Carolyn Canham

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