This Week in XBRL: Using XBRL for Fraud Auditing

The Blog for the Central Virginia Chapter of the Association of Certified Fraud Examiners has posted an in-depth study of potential uses for XBRL within the realm of fraud discovery and prevention. Originally posted on November 20th, the article does an incredible job of explaining alternative uses for XBRL, and how your company can use the language to keep a better eye on major financial issues.

Below, we have shared an excerpt from the blog post. To read the full text, click here, or the link at the bottom of the quote.

As one of its many projects to improve financial reporting, the SEC supports the use of Extensible Business Reporting Language (XBRL) to tag corporate financial transaction-level data as a way to connect financial accounts in a database like Oracle Financials to the underlying account detail and make browser-user instituted data query results available in close to real time on the corporate web-site.  This gives the general browser  user (whether s/he be an investor or a fraud examiner) a level of access to financial data unfettered by the conventional time-period, quarterly  based financial statement model of  financial  data reporting.   Investors can make investment decisions and fraud examiners and auditors can obtained up-to date financial data to test on a concurrent basis.

Conventional auditing, unsupported by on-line access to current data, is like trying to capture Niagara Falls in a bucket.  Not only is the data available frequently so out of date as to have limited value for testing; often it’s place and significance in the wider corporate financial picture is difficult to discern.  Is an identified problem a fluke limited to just a few transactions or is it an example of a wider, more significant control issue?  Real time availability of recent, sub-totaled, quarterly transaction level data on a multi-year basis,  can answer such a question with ease.

 

The ability to concurrently test for the presence (or suspected presence) of an on-going fraud scenario using up-to-date financial data has tremendous appeal for any fraud examiner or forensic accountant.  But there are problems; there always are.   The financial reporting model we all learned in business school  requires our client firm to prepare its financial statements under a strict set of rules and then to disclose the complete set of information at a pre-defined time.  Under the type of concurrent XBRL based system envisioned by the SEC,  financial information is available at times the user (auditor, investor, etc.) determines; all she has to do is write a database query and the information is at her finger tips.   That’s the rub.  Query language is not standard English and the consequences of using data output from an auditee system based on an erroneous query would be disastrous for  your employing attorney’s case.  So, any auditor with the desire to use such systems must either have the requisite query building skill to do so with confidence (very few do) or, better,  rely on third party experts (information systems auditors or the equivalent) as compensated assistants.

Please click here for the full article text.

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Merrill Corporation is proud to offer XBRL Complete, a suite of services that meets - and has options to exceed – the mandated requirements for XBRL for mutual funds. For more information, please click here or call 866-367-9110.