On PositioningXBRL Assurance Business Rulesin a Computational Infrastructurefor Modern AuditingPhilip ElsasComputationalAu...
ComputationalAuditing.comIntroduction• Since 2003: Company - Canada, Netherlands• 1988-2003: Deloitte.with intermezzo at B...
ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Au...
How XBRL Worksby Charles Hoffman, CPASource at http://www.youtube.com/watch?v=nATJBPOiTxM3
Unstructured TextInventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of co...
Structured Text<InventoryInformation>InventoryInventory consists of produce purchased for resale and supplies and are stat...
Structured for Presentation<html><p><bold>Inventory</bold></p><p>Inventory consists of produce purchased for resale and su...
Structured for Meaning<Inventory><ConsistsOf>produce purchased for resale and supplies</ConsistsOf><StatedAt>lower of cost...
Structured for Meaning, GlobalStandard<InventoryComponents contextRef=“D-2006”>produce purchased for resale andsupplies</I...
9This isn’t your Daddy’s FinancialReporting Application!Current approach, type this into Word:InventoryInventory consists ...
ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Au...
ComputationalAuditing.comXBRL Assurance11IFAC and other accounting organizations are discussing the topic to decide on a c...
ComputationalAuditing.comHow to articulate, validate and execute aspecification of an XBRL assurance process?12In XBRL Ass...
ComputationalAuditing.com13• declare function my:withinTolerance( $x as xdt:anyAtomicType,$y as xdt:anyAtomicType ) as xdt...
ComputationalAuditing.com14Having a computer-interpretable articulation of business rulesoffers main advantages:1. automat...
ComputationalAuditing.com151. avoids handcrafting XBRL Formula expressions…Being focused on capturing audit methodologyin ...
ComputationalAuditing.com16Why is it worthwhile to look into such abuilder approach? To gain extra advantagesSince a dedic...
ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Au...
ComputationalAuditing.com18Charles’ SmartXBRL Application:Built in Yahoo!SiteBuilderPlayed in anarbitrary browser
ComputationalAuditing.comp.334 19p.337Auditmethodologyspecificationdrives integralplanning,execution anddocumentationIllus...
ComputationalAuditing.comSmart Audit Support’sDocument Index related toDeloitte’s International Audit Approach(1990’s)p.33...
ComputationalAuditing.comWhy builder-based approach?extra benefits to gain for XBRL Assurance21The main challenge in speci...
ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Au...
ComputationalAuditing.com23Case I: Charles’ Smart XBRL App: extended for assuranceLower of Cost or Market (LCM) is anappro...
ComputationalAuditing.comStandard lib24Case I: Charles’ Smart XBRL App: getting ‘Formula in Form’Inventory(Inflow:Purchase...
ComputationalAuditing.com25Case II: Raj Srivastava’s Information Security AssessmentBased on:Sun,Srivastavaand Mock,2006“A...
ComputationalAuditing.com26Case II: Raj’s Information Security AssessmentThis can almost be expressed, in a slightly diffe...
ComputationalAuditing.comM: Majority Owner-ManagerS: Sales departmentB: Buy/Purchase departmentF: Financial departmentT: I...
ComputationalAuditing.com28Case IV: Conceptual Positioning &Computational Infrastructure• Executable External Controls, or...
ComputationalAuditing.comSource: Rick Bookstab(b)er at http://rick.bookstaber.com/2009/02/markup-languages-and-mapping-mar...
ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Au...
ComputationalAuditing.com2. First release: matter of weeks or months, not years2. The audit firms, as first aggregators of...
ComputationalAuditing.com“Limperg described the essence of the Theory of Inspired Confidence as follows:“The normative cor...
Upcoming SlideShare
Loading in …5
×

XBRL Kansas Elsas

1,290 views
1,202 views

Published on

"On positioning XBRL Assurance Business Rules in a Computational Infrastructure for Modern Auditing", contributed by Philip Elsas of ComputationalAuditing.com to the 2009 International Conference on XBRL: A Practical View of XBRL in the 21st Century, Lawrence, Kansas, April 24-25, 2009

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,290
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Smart Audit Support - Build &amp; Apply - Industry Templates - for the Audit Planning Process. International &amp; National - Build is done by auditors only - no ITers involved. Dutch Tax Office, Center for Process &amp; Product Development, report “Optimizing Audit Decisions” in fiscal audit; an approach relying on audit documentation; relevant for audit oversight approaches. Personally at Deloitte - first half: Internal Audit Staff - second half: External Management Consultant Intermezzo late nineties at Bakkenist Management Consultants as consultant &amp; shareholder - sold to Deloitte
  • XBRL Kansas Elsas

    1. 1. On PositioningXBRL Assurance Business Rulesin a Computational Infrastructurefor Modern AuditingPhilip ElsasComputationalAuditing.comLawrence, Kansas April 24-25, 20092009 Annual University of KansasInternational Conference on XBRLA Practical View of XBRL in the 21stCentury
    2. 2. ComputationalAuditing.comIntroduction• Since 2003: Company - Canada, Netherlands• 1988-2003: Deloitte.with intermezzo at Bakkenist Management Consultants, sold to Deloitte.• 1990- 1996: PhD Computational Auditing- Principal, Chief Architect & inventor of Smart Audit Support- Smart Audit Support is since 1994 key in Deloitte’s worldwideaudit practice. Currently integrated in “The Deloitte Audit”- System blueprint in Chapter 5 of …- PhD in Mathematics & Computing Science on Financial Auditing- Parallel to Smart Audit project, in part-time at Vrije Universiteit- Directly after appearance awarded with the biennialAlfred Coini Prize for the best publication in AuditingOffering software and consultancy services toaudit practices and audit software firms1The Dutch Tax Office used Computational Auditing in 2001-2003 as Frame ofReference to compare Big 4 firm’s planning and decision-support models andsystems to investigate how to improve audit productivity (57 page report);considers Smart Audit Support “leader of the pack”.
    3. 3. ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Auditing• How XBRL Works, by Charles Hoffman• Charles’ Smart XBRL App & Deloitte’s Smart Audit Support• Killer App for XBRL Assurance:Early Warning System for Systemic Risk2• XBRL Assurance, Business Rules and XBRL Formula• Looking into Builder-Based XBRL Assurance App’sKiller App (Wikipedia): any computer program that is so necessary or desirablethat it proves the core value of some larger technology, such as computerhardware like a gaming console, operating system or other software.A killer app can substantially increase sales of the platform that it runs on.
    4. 4. How XBRL Worksby Charles Hoffman, CPASource at http://www.youtube.com/watch?v=nATJBPOiTxM3
    5. 5. Unstructured TextInventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to $45,594 and $34,456, respectively.Source: Charles Hoffman4
    6. 6. Structured Text<InventoryInformation>InventoryInventory consists of produce purchased for resale and supplies and are stated at the lowerof cost or market using the first-in, first-out (FIFO) method. Inventory as of December 31,2006 and 2005 amounted to $45,594 and $34,456, respectively.</InventoryInformation>Source: Charles Hoffman5
    7. 7. Structured for Presentation<html><p><bold>Inventory</bold></p><p>Inventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to <bold>$45,594</bold> and<bold>$34,456 </bold>, respectively.</p></html>InventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to $45,594 and $34,456, respectively.Source: Charles Hoffman6
    8. 8. Structured for Meaning<Inventory><ConsistsOf>produce purchased for resale and supplies</ConsistsOf><StatedAt>lower of cost or market</StatedAt><ValuationMethod>FIFO</ValuationMethod><Value2006>$45,594</Value2006><Value2005>$34,456</Value2005></Inventory>InventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to $45,594 and $34,456, respectively.Source: Charles Hoffman7
    9. 9. Structured for Meaning, GlobalStandard<InventoryComponents contextRef=“D-2006”>produce purchased for resale andsupplies</InventoryComponents><InventoryCostBasis contextRef=“D-2006”>lower of cost or market</InventoryCostBasis><ValuationMethod contextRef=“D-2006”>FIFO</ValuationMethod><Value2006 contextRef=“D-2006” unitRef=“USD” decimals=“0”>45594</Value2006><Value2005 contextRef=“D-2006” unitRef=“USD” decimals=“0”>$34,456</Value2005>InventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to $45,594 and $34,456, respectively.Source: Charles Hoffman8
    10. 10. 9This isn’t your Daddy’s FinancialReporting Application!Current approach, type this into Word:InventoryInventory consists of produce purchased for resale and supplies and are stated at thelower of cost or market using the first-in, first-out (FIFO) method. Inventory as ofDecember 31, 2006 and 2005 amounted to $45,594 and $34,456, respectively.Smart XBRL Application:Or:Put a grid (neutral format table) hereInventorySource: Charles Hoffman
    11. 11. ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Auditing• How XBRL Works, by Charles Hoffman• Charles’ Smart XBRL App & Deloitte’s Smart Audit Support• Killer App for XBRL Assurance:Early Warning System for Systemic Risk10• XBRL Assurance, Business Rules and XBRL Formula• Looking into Builder-Based XBRL Assurance App’s
    12. 12. ComputationalAuditing.comXBRL Assurance11IFAC and other accounting organizations are discussing the topic to decide on a commonapproach and XBRL auditing standards. The auditor may give assurance to an XBRL financialstatement, an XBRL business report and XBRL real-time reporting (often referred to ascontinuous reporting). The short term focus is on XBRL financial statements and regulatoryreports, while the future focus is expected to be more on real-time reporting.The XBRL standard has the ability to define business rules. These businessrules can be found in different places (i.e. datatypes or linkbases) in theXBRL taxonomy. Application of these business rules will contribute to thereliability of the XBRL report. The business rules can be used by thereporting company (preparer), the taxonomy author (i.e. regulator) or theauditor.Source: Marc van Hilvoorde, 2008, http://en.wikipedia.org/wiki/XBRL_assuranceXBRL assurance is the auditor’s opinion on whether a financial statementor other business report published in XBRL, is relevant, accurate, complete,and fairly presented. An XBRL report is an electronic file and calledinstance in XBRL terminology.
    13. 13. ComputationalAuditing.comHow to articulate, validate and execute aspecification of an XBRL assurance process?12In XBRL Assurance we are particularly interestedin articulating a methodology-based auditapproach, or audit process, that guides how toachieve assuranceIsn’t it too low?Isn’t it too high?For example: Charles’ Smart XBRL ApplicationInventory(Inflow:Purchase) + Inventory(Begin) – Inventory(End) →Inventory(Outflow:Resale,Suppliers) in products or money (gross profit)1st interpretation: Bold font = Completeness Regular font = Correctness2nd interpretation: Bold font = Correctness Regular font =CompletenessExample audit equation
    14. 14. ComputationalAuditing.com13• declare function my:withinTolerance( $x as xdt:anyAtomicType,$y as xdt:anyAtomicType ) as xdt:boolean* { fn:abs( $x - $y) lt 500 }– tax:withinTolerance ($Assets,($CurrentAssets + $FixedAssets))– sec:withinTolerance ($Equity,$EquityPrev + $Earnings)– withinTolerance ($Assets,$Liabilities + $Equity)• …• if (…) then … else if (…) then … else …Source: Charles Hoffman, 2009, http://xbrl.squarespace.com/journal/2009/1/11/things-generally-missed-about-business-rules-validation.htmlSource: XBRL Formula Requirements by Hamscher, Shuetrim and Vun Kannon, 2005,http://www.xbrl.org/technical/requirements/Formula-Req-CR-2005-06-21.htmIn articulating an XBRL assurance process,a central role is considered for Business Rulesusing XBRL FormulaFor example, fragments from corresponding XBRL Formula• Assets = Liabilities + Equity (i.e. the balance sheet balances)• The invoice total equals to the sum of the invoice line item amounts• If you report Property, Plant and Equipment on your balance sheet, youneed to provide specific policies and disclosures relating to that line itemFor example, Business Rules
    15. 15. ComputationalAuditing.com14Having a computer-interpretable articulation of business rulesoffers main advantages:1. automatic validation, and2. automatic execution, like workflow software app’s fordocument transformations (BPEL, XPDL, YAWL, Wf-XML)And, as a consequence of having one standard language tospecify assurance business rules, users have extra advantages:• A global standard way to express business rules• A global standard way of exchanging such rules between applications• Business rules are separate from, instead of integrated in, applications• XBRL engines support a large user base, reducing cost per user• You can apply your own XBRL rules on incoming XBRL informationSource: Charles Hoffman, 2009, http://xbrl.squarespace.com/journal/2009/1/11/things-generally-missed-about-business-rules-validation.html [with point #2 extended]Advantages
    16. 16. ComputationalAuditing.com151. avoids handcrafting XBRL Formula expressions…Being focused on capturing audit methodologyin Business Rules expressed in XBRL Formula,let’s now look into an approach that:2. …by using a tailored website builderand generates these expressions ‘behind the screens’ forvalidation and ‘executable code’-generation purposes• applicable to XBRL reports as Cascading Style Sheets• ‘inside scripting’ (inside the audit team):data analysis tasks, with form-driven configuration andmethodologically embedded in an audit planning context:“When to do which task?” and “What to do with results?”• client-side scripting and• server-side scripting (e.g. JSP Standard Tag Library),• technically embedding executable scripts, via 3-way scripting:• automatically generating XML, XBRL and XBRL Formulas• publish/upload these smart forms as dynamic web pages• by specifying smart, interactive document/form templatesto articulate guidance on how to achieve XBRL assurance:“What keepsAudit Leadersup at night?”,ACL, 2008
    17. 17. ComputationalAuditing.com16Why is it worthwhile to look into such abuilder approach? To gain extra advantagesSince a dedicated builder for XBRL Assurance is easyto use, it enables autonomous use by auditors, toprepare methodological guidance for auditors,without content intermediaries: quality & speedAn executable specification of an audit methodologysupports driving integral planning, execution anddocumentation of each audit instanceChoosing document templates as ‘embedders’ of the auditmethodology enables levels of documentation, bothprescribing (setting standards) & describing (client instance)If it’s Not Documented,it’s Not AuditedEvidence AcquisitionStrategy that’sExecutable
    18. 18. ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Auditing• How XBRL Works, by Charles Hoffman• Charles’ Smart XBRL App & Deloitte’s Smart Audit Support• Killer App for XBRL Assurance:Early Warning System for Systemic Risk17• XBRL Assurance, Business Rules and XBRL Formula• Looking into Builder-Based XBRL Assurance App’s
    19. 19. ComputationalAuditing.com18Charles’ SmartXBRL Application:Built in Yahoo!SiteBuilderPlayed in anarbitrary browser
    20. 20. ComputationalAuditing.comp.334 19p.337Auditmethodologyspecificationdrives integralplanning,execution anddocumentationIllustrativecase:Classificationof theClient’s Useof ComputersProven Architecture for InteractiveAudit Documentation and GuidanceConditional relevancy:An outgoing arrow −labeled with choice−specifies an activation dependency to aquestion, section, table, form, task, etc.Effective: don’t miss relevant issueEfficient: less relevant issue is not accessibleMitigation of litigation risk‘Correctness byConstruction’Deloitte’s Smart Audit Support:Interactive Audit Documentationpublished in Word and browsersWorld’s strongest audit support
    21. 21. ComputationalAuditing.comSmart Audit Support’sDocument Index related toDeloitte’s International Audit Approach(1990’s)p.33620PERFORM PRE-ENGAGEMENTACTIVITIESAssess Engagement RiskEstablish Terms of EngagementPerform Preliminary Analytical ProceduresUnderstand the Clients BusinessUnderstand the Accounting ProcessDetermine Planning MaterialityDevelop Client-Service ObjectivesUnderstand the Control EnvironmentAssess Risk at the Accountand Potential-Error LevelRely on Controls ? Control Reliance Strategy ?Identify ControlsIdentify Controls and,if Efficient, Establisha Rotation PlanTest ControlsPerform FocusedSubstantive TestsPerform Basic Levelof Substantive TestsPerform IntermediateLevel ofSubstantive TestsEvaluate Results of TestsPerform Financial Statement ReviewPerform Subsequent Events ReviewObtain Management RepresentationsReport on Financial Statementsand Render Management LetterPERFORMPRELIMINARYPLANNINGASSESSRISKDEVELOPAUDITPLANPERFORMAUDITPLANCONCLUDEANDREPORTThat Mitigate RiskSpecific Identified Risk No Specific Identified RiskNO YES YES NOp.62All planning docsare smart formsAll planning docsare smart formsAll planning docsare smart formsAll planning docsare smart formsAll planning docsare smart formsAll planning docsare smart formsAudit pack is abundle of formsDeloitte’s AuditMethodology
    22. 22. ComputationalAuditing.comWhy builder-based approach?extra benefits to gain for XBRL Assurance21The main challenge in specifying an executable assurance methodology:preserve operational integrity and consistencyThat’s where science steps in: mathematical proofs that show how each ‘rewriting step’in the executable methodology specification preserves integrity and consistencyE.g. the processing structure of allconnected questions, tables, etc. isguarded to be a Directed Acyclic Grapha specification huge in size, complex in structure, globally distributed, regionally refined,daily used by many, in groupware, and, as wanted and encouraged, regularly updated• Assurance expert makes own application & uploads it (business model)• Jumpstart: only a few hours learning curve on how to use builder tool• Comfortable: builder prevents classes of technical errors, no debugging• No need for cumbersome ‘knowledge elicitation’ from expert to engineer• No need to transfer ‘knowledge engineer’ specs to XBRL Formula expert• No need for the expert to verify the app made by XBRL Formula expertSince a dedicated tool to build assurance guidance is easy to understandand use, assurance experts are enabled to autonomously constructexecutable guidance material, leading to extra benefits:‘Correctness by Construction’ in Domain-Specific Language (DSL)
    23. 23. ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Auditing• How XBRL Works, by Charles Hoffman• Charles’ Smart XBRL App & Deloitte’s Smart Audit Support• Killer App for XBRL Assurance:Early Warning System for Systemic Risk22• XBRL Assurance, Business Rules and XBRL Formula• Looking into Builder-Based XBRL Assurance App’s
    24. 24. ComputationalAuditing.com23Case I: Charles’ Smart XBRL App: extended for assuranceLower of Cost or Market (LCM) is anapproach to valuing and reporting inventory.Normally ending inventory is stated athistorical cost (what was paid to obtain it)but there are times when the original cost ofthe ending inventory is greater than the costof replacement thus the inventory has lostvalue. If the inventory has decreased invalue below historical cost then its carryingvalue is reduced and reported on thebalance sheet. The criterion for reportingthis is the lesser of the value of the originalcost or the market value. Any loss resultingfrom the decline in the value of inventory ischarged to Cost of Goods Sold (COGS) ifnon-material, or Loss on the reduction ofinventory to LCM if material.http://en.wikipedia.org/wiki/Lower_of_Cost_or_MarketFunctionality looked for by DecisionSoft, 2003 Available in Deloitte’s Smart Audit Support
    25. 25. ComputationalAuditing.comStandard lib24Case I: Charles’ Smart XBRL App: getting ‘Formula in Form’Inventory(Inflow:Purchase) + Inventory(Begin) – Inventory(End) →Inventory(Outflow:Resale,Suppliers) in products or money (gross profit)Example audit equationExcel library withXBRL functionsThe ‘Formula in Form’ isautomatically generatedby an off-the-shelfspreadsheet add-onSector packs ofprefab sheets
    26. 26. ComputationalAuditing.com25Case II: Raj Srivastava’s Information Security AssessmentBased on:Sun,Srivastavaand Mock,2006“An Informa-tion SystemsSecurity RiskAssessmentModel underDempster-ShaferTheory”,pp.43-48dual-thumb sliders with range highlights
    27. 27. ComputationalAuditing.com26Case II: Raj’s Information Security AssessmentThis can almost be expressed, in a slightly different way, in Deloitte’s Smart Audit Support
    28. 28. ComputationalAuditing.comM: Majority Owner-ManagerS: Sales departmentB: Buy/Purchase departmentF: Financial departmentT: IT departmentW: Warehouse managerL: Labor/salary accountsP: Planning departmentC: Creditor accountsD: Debtor accountsA: ApplicationAgent LegendC b f tF m dD s tA tL f tP tP tW tA tA tSAAL FL FL FMM D FDCB FB FWPPPPWAAAAC mD f tS tA tF tB f t B f tP tW tL f22525 20022550025251,00040040010020202020500400Agent’s access is associated to:1. Transactions2. States3. FlowsA capital letter is authorized, legitimate accessA small letter is illegitimate access, arising mainly as consequence of being authorizedQuantitatively motivatedprocess decomposition27Case III: EY’s & Hans’ Smart Flowchart Pilot StudyOutput in XML,XBRL and scripts:1. Audit equations2. Segregation ofDuties analysisCase by Hans Verkruijsse & EY teamEnterprise-level Process Documentationincorporating Automatic Audit AnalyticsApproach: Powerful and easy systemto support practice, founded in theoryThe world’s strongestprocess-oriented AuditingTheory: classical DutchAuditing Theory (80+ yrs)& its best-fitting rigorousProcess Theory:Petri nets tailored to theAuditing DomainDynamic: TransactionProfit & Loss ItemTStatic: State Balance ItemSSystematic framework guidesinput preparation processInput: diagramTop-level is Supercycle. Overview connectingtraditional cycles. Clarifying. Refreshing.Case used in Efrim Boritz’ CAATs classFit recognized byJagdish Gangolly
    29. 29. ComputationalAuditing.com28Case IV: Conceptual Positioning &Computational Infrastructure• Executable External Controls, or audit tests, to test ‘Ist’ ICs to ‘Soll’ ICs;external auditor, to identify and, if possible, mitigate weaknesses inclient’s Internal Controls (ICs)• Normative Internal Controls in ‘Soll’, ‘To Be’ modality; external auditor• Executable Internal Controls in ‘Ist’, ‘As Is’ modality; internal auditorXBRL Assurance Business Rules as:• Methodological context for data analysis tasks, answering: “When to dowhich test ?” and “What to do with the test results ?” (ACL AuditExchange)• Standard setters develop high-level guidance packs, and strict forms àla tax, as basis to be refined, but not overruled, by other pack builders• External auditors develop sector or client packs for internal auditors,strengthening client relationship (source trade, vendor lock-in & ‘open’)• Uploading by fee-earning experts. Downloading and applying by fee-paying engagement teams. With a broker fee for the platform provider• By auditors, for auditors - no content mediators, only platform providerAudit Pack Platform, Business Model:
    30. 30. ComputationalAuditing.comSource: Rick Bookstab(b)er at http://rick.bookstaber.com/2009/02/markup-languages-and-mapping-market.html, speaker at the XBRL Risk Governance Forum, hosted by theIBM Data Governance Council, February 2009 [emphasis added]:“Within the work of this Forum are the seeds of reducing the risk of future marketcrisis. Indeed, it could be the foundation for a quantum leap in risk management.”29Case V: Rick Bookstaber’s proposal to set up an earlywarning system to identify build-up of systemic risk + mitigation“Having the proper tags – the proper bar code, if you will – for financial products,ranging from bonds and equities to structured products and swaps will allow us tounderstand the potential for crisis events and system risk. It will help us anticipatethe course of a systemic shock. It will identify cases where many investors might beacting prudently, but where their aggregate positions lead to a level of risk whichthey on their own cannot see. It also will give us the means to evaluate crises afterthe fact.”Why not have the external auditors do the first data aggregation ? They already visitall the major companies, know about auditing risks and know how to aggregatedata to relevant, accurate, complete and fairly presented information on thebusiness level. They only have to bundle and aggregate this individual businessinformation to sector information. Furthermore, they are also familiar with allconfidentiality issues involved. The audit firms submit their audited sectorinformation to a central governmental agency, who is responsible for the newanticipation tasks.Comment posted by Philip Elsas on Rick’s blog
    31. 31. ComputationalAuditing.comAgendaOn Positioning XBRL Assurance Business Rulesin a Computational Infrastructure for Modern Auditing• How XBRL Works, by Charles Hoffman• Charles’ Smart XBRL App & Deloitte’s Smart Audit Support• Killer App for XBRL Assurance:Early Warning System for Systemic Risk30• XBRL Assurance, Business Rules and XBRL Formula• Looking into Builder-Based XBRL Assurance App’sKiller App (Wikipedia): any computer program that is so necessary or desirablethat it proves the core value of some larger technology, such as computerhardware like a gaming console, operating system or other software.A killer app can substantially increase sales of the platform that it runs on.
    32. 32. ComputationalAuditing.com2. First release: matter of weeks or months, not years2. The audit firms, as first aggregators of systemic risk indicators,connect ‘micro to macro’ in XBRL (i.e. who is leveraged, what do theyown and what do they owe to whom?), and submit their auditedsector indicators to a government agency responsible for the newanticipation and mitigation tasksHow far away?31Priority for Urgency:Early Warning System as Killer App for XBRL Assurance,speeding up getting XBRL’s ‘Place & Future’ into ‘Here & Now’1. For computational functionality: stop expecting more from XML,start expecting more from the builder-based approach1. An off-the-shelf system for bar-code tracking and tracing andconfigured for XBRL tag-coded financial productsProposed SolutionRisks to be identified: crowding in markets,‘hot spots’ of high leverage, linkages inevent of crisis based on investor positionsJumpstart by co-operation of top-specialists Rick Bookstaber, Raj Srivastavaand Charles Hoffman, and preferably in co-operation with a Big 4 audit firmSmall step for XBRL,quantum leap for financial worldXBRL Assurance is closer than ever
    33. 33. ComputationalAuditing.com“Limperg described the essence of the Theory of Inspired Confidence as follows:“The normative core of the Theory of Inspired Confidence is therefore this:the [auditor] is obliged to carry out his work in such a way that he does notbetray the expectations which he evokes in the sensible layman and;conversely, the [auditor] may not arouse greater expectations than can bejustified by the work done.” [1932, 1933]This takes the principles-based approach to its logical extreme. At this extreme, there are nodefinite rules for what procedures an auditor must perform in a particular case, but the generalprinciple that guides the auditor is to perform enough work to meet the expectations theauditor has aroused in society. Thus, the most important factor is society’s needs, and therelated factor that interacts with it is the ability of auditing methods to meet society’s needs.However, society’s needs are not fixed and change over time. Also, auditing methods canchange and improve over time.”32Why the audit profession welcomes increase of theirusefulness by being pivotal in ‘systemic early warning’“The dynamic theory [of inspired confidence] that connects society’s need for reliablefinancial information to the ability of auditing methods to meet this need is theessence of the process that the PCAOB must follow.” …“The PCAOB’s process must be directed by what is necessary to protect investors andfurther the public interest.”Source of quotes: Douglas R. Carmichael, first PCAOB Chief Auditor, 2004,http://aaahq.org/audit/midyear/04midyear/papers/Carmichael%20Speech.doc“The PCAOB and the Social Responsibility of the Independent Auditor”Limperg Institute Symposium, the Netherlands, June 10, 2009, organized byHans Blokdijk & Ruud Veenstra, with contribution of ComputationalAuditing.com[emphasis added]

    ×