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XBRL and the Internal Auditor

November 11, 2009

XBRL in the United States is currently most visible in regulatory reporting to the SEC. Many organizations have assigned the responsibility for XBRL to the financial reporting department, but is that the only area that should be involved? Is there a role for internal auditors in complying with SEC XBRL requirements and utilizing XBRL to gain internal reporting efficiencies? Let’s explore the internal auditor’s potential role in XBRL.

The management of an organization is responsible for ensuring that accurate and complete financial statements are produced. In this context, management is also responsible for XBRL formatted financial statement accuracy and completeness. The internal auditor can play an important role in providing some oversight to the XBRL financial statement preparation process including:

  • Providing comfort that internal controls over the XBRL process are adequate
  • Validating that business and financial data is tagged to appropriate US GAAP Taxonomy elements
  • Confirming that XBRL rendered financial statements are proper and agree with printed financial statements
  • Verifying that the SEC’s XBRL filing requirements are met

There are also many opportunities for internal auditors when an organization tags the US GAAP Taxonomy deeply into its business and financial systems. Imaging that an organization tags XBRL into its ERP at the general ledger account and cost center level. Those XBRL tags could be utilized to feed financial data to a variety of systems such as consolidation and financial reporting software, tax software and regulatory reporting software. In addition, internal auditors could utilize the XBRL data tags to:

  • Move from statistical sampling of financial information to performing 100% testing by utilizing Excel, Access or similar desktop software.
  • Eliminate or reduce manual intervention and provide strengthened ability to centralize controls, processes and performance standards thereby reducing risk
  • Providing reliable, consistent and electronically available information that allows internal audit to develop standardized, shareable and electronically executable internal audit programs.
  • Increase the ability to enforce controls and provide analytics that can be persistently shared for communication and collaboration with internal and external stakeholders, including external auditors

Have you limited the potential of XBRL in your organization? Is accounting and finance the only function involved in your XBRL process? Consider the longer term impact and benefit of XBRL. Now could be the time for you to involve your internal audit, information technology and tax functions to maximize the benefits of XBRL within your organization.

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3 Comments leave one →
  1. ERIC COHEN permalink
    November 12, 2009 7:08 am

    From the Institute of Internal Auditors, a white paper on the same topic:

    Extensible Business Reporting Language (XBRL): What’s in it for Internal Auditors

    http://www.theiia.org/bookstore/product/extensible-business-reporting-language-xbrl-whats-in-it-for-internal-auditors-1397.cfm

    • Jeff Henson permalink
      November 13, 2009 4:41 pm

      Good Call Eric. The IIA White Paper “XBRL – What’s in it for the Internal auditor is a great resource.

      Jeff

  2. November 20, 2009 3:51 pm

    Readers may also want to look at this post by Gianluca Garbellotto, lead author of the paper Eric mentions, on the Hitachi XBRL blog http://tinyurl.com/cstzgn

    Bob Schneider
    Editor, Data Interactive (the Hitachi XBRL blog)
    http://hitachidatainteractive.com

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