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January 27, 2009

XBRL release expected to have almost no impact on US auditors

By Nicholas Moody

The hype around the US Securities and Exchange Commission (SEC) release of an eXtensible Business Reporting Language (XBRL) roadmap is having minimal effects on local auditors, according to two US mid-tier firms.

The SEC announced late last year that domestic and foreign large accelerated filers will have to submit their financial statements in XBRL from 2009 after the commission approved a final rule change to introduce the interactive tagging requirement.

The new rules for SEC filings will be phased in over three years beginning with fiscal periods ending on or after 15 June 2009.

The three year plan to roll-out XBRL will have a negligible impact on BDO Seidman according to Jeff Lenz, a partner in the firm’s national SEC department, because initially auditors will not be required to provide assurance over the XBRL filings.

“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 wouldn’t 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.

However, he agreed revenue generated from XBRL will be minimal until the SEC makes a decision to require assurance over these filings.

Limited understanding

A survey of more than 200 chief audit executives worldwide by the US-based Institute of Internal Auditors (IIA) in October last year, which found 51 percent of respondents didn’t have any knowledge of XBRL and 42 percent only knew the very basics.

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

Lenz and Dohrer said their clients are either completing the XBRL tagging themselves or being assisted by specialist XBRL tagging companies.

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 don’t 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 requiring auditor assurance of XBRL filings would be at least five years away.

“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.

A question of assurance

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’s 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.

Nicholas Moody

TIMELINE

SEC’s XBRL roadmap

Phase one: Domestic and foreign large accelerated filers that use US GAAP and have a worldwide public float above $5 billion required to file in XBRL from 15 June 2009.

Phase two: All other domestic and foreign large accelerated filers using US GAAP required to file in XBRL from 15 June 2010.

Phase three: All remaining filers using US GAAP and all foreign private issuers that prepare their financial statements using IFRS as issued by the International Accounting Standards Board required to file in XBRL from 15 June 2011.

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