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  • 1. Impact of XBRL on Assurance Environment REPORT TO ACC 626: IT ASSURANCE AND COMPUTER ASSISTED AUDIT TECHNIQUES JASON LO
  • 2. Introduction  XBRL and it’s impact on the Assurance Environment  Goal is to provide a two lenses of looking at XBRL  Impact upon audit procedures  Impact upon fraud detection  Twofold view to provide current year and post year analysis
  • 3. Agenda  XBRL goals, capabilities and functionality  Audit procedures  Continuous auditing  Implications on fraud detection  Automated detection  Going forward…
  • 4. XBRL : What is it?  eXtensible Business Reporting Language >> XBRL  Universal business taxonomy  Define elements in the financial statements  Goal: Facilitate the automated production and consumption of large volumes of business performance information with high degrees of data quality
  • 5. XBRL: Functionality  “Tagging of Financial Data  <Identification of element> <accounting policy> AMOUNT </policy> </element>  Results in:  Computer readable financial information, thus  Shift from humans reading and analyzing, to computer algorithms, thus  Rapid scalable increase in analysis capability and speed
  • 6. XBRL: Reason for implementation  Technology has existed since Internet in the form of HTML  Reasons for impact:  SEC reporting requirements  Improved analytical capability due to computing technology
  • 7. Audit Process: Impact  Current Challenge: Information to be audited is only available after year end  Contrasted with consumer demands for improved timeliness  Drive to shift procedures to occur DURING the reporting period
  • 8. Audit Process: Continuous Audits  Shifting audit procedures to during the reporting period  Control testing  But only prevents certain things from occurring  Embedded Audit modules  Tracks all transactions  Screens on specific criteria and posts alerts upon red flags  But… low adoption across industries
  • 9. Audit Process: XBRL-GL  Facet of the XBRL reporting environment  Taxonomy used to report into a GL  Corporate benefit  Modular GL can be placed into various templates to support differing reporting standards / report to other organizations  Auditor benefit  Export data, run through audit modules
  • 10. Audit Process: Audit Implications  Potential to bring back the continuous audit  Time improvements  Accuracy improvements  Obligation to:  Push for companies to increase usage of XBRL-GL
  • 11. Fraud Detection: Impact of Fraud  $400 Bn of losses attributed to fraudulent activities in the United States  But fraud detection is beyond the scope of auditors – so why is it relevant?  Changing technological environment threatens the relevance of the auditing profession
  • 12. Fraud Detection: Methodology  Heavy area of research  Focus upon development of “fraud detection algorithm”  Success rates increasing – 90% success in predictions  Identification of statistically significant variables that predict the existence of fraud  But…  Difficulties in entering data into models  Reliance on manual or error prone data extraction processes
  • 13. Fraud Detection: XBRL implications  XBRL reporting solves the data entry issue  Can run company, or even industry wide financials through fraud detection models  Widespread and comprehensive analysis  Hole in the market for fraud detection software  Auditor implications? Will we become irrelevant?
  • 14. Conclusion on Assurance Environment Impact  Revolutionizes the concept of a continuous audit  Makes it possible again  Significant benefits and potential in developing automated fraud detection
  • 15. Going Forward…  Assurance  Currently, no level of assurance required in the preparation of XBRL documents  However, with increase in usage, demand for assurance will also increase  Could change the role of auditors in terms of the scope of assurance required
  • 16. Conclusion  XBRL = Paradigm shift in reporting environment  Auditors have a responsibility to keep abreast of these changes else risks significant damage in:  Value proposition of audits  Reputation

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