XBRL Implementation: A Field Investigation Diane Janvrin Associate Professor Won No Assistant Professor AAA Annual Meeting August 4, 2010 We thank Amelia Baldwin, Efrim Boritz, William Dilla, and Gary Wickland for their research insights. We appreciate the assistance of Marvin Bouillon and Kathy Wieland in contacting study participants. We thank Winston Chappell and Pat Wagaman for research assistance.

Motivation XBRL (eXtensible Business Reporting Language) Method XBRL Implementation Process Findings Future Research Opportunities Summary Agenda

SEC mandate Obtain understanding of how early mandate participants are implementing XBRL Identify future research opportunities related to XBRL implementation Motivation

XBRL(XML) HTML based financial statements reporting Paper based financial statements reporting Web(HTML) Off Line LAN, Intranet, Internet XBRL based financial statements reporting Provide a standard method for preparing, analyzing, and exchanging financial information. Introduction Financial Reporting System Limited accessibility Not allow data exchange, intelligent search, and adaptive presentation

Cash: Debt: Cash { font-weight: bold } Debt { font-style: italic } Cash: Debt: Cash: Debt: Cash: Debt: Paper Based HTMLXBRL Presentation Content Actual Introduction Financial Reporting System

XBRL Basics Instance document o XML file that contains business reporting information and represents a collection of financial facts and report-specific information using tags from one or more XBRL taxonomies o Element A financial reporting concept, defined in XBRL o Context Entity and report-specific information (reporting period, segment information, and so forth) required by XBRL that allows tagged data to be understood in relation to other information Taxonomy o Electronic dictionary of business reporting elements used to report business information o Standard taxonomy Developed for U.S. companies by XBRL.US o Taxonomy extensions Created by individual companies

Mandate Basics SEC rule proposal May 30, 2008 Adopted by SEC on December 17, 2008 Basics of the rule: Required primary financial statements (PFS) and footnotes for all issuers using US GAAP/IFRS for periods ending June 15, 2009 or later Year 1 – all large accelerated filers (worldwide equity float above $5 billion) Year 2 – all other accelerated filers Year 3 – all others First year PFS plus block tag footnotes 2nd year include detailed tag footnotes 30 day grace period for first filing of PFS and detailed footnotes

Method Examine actual implementation process for early filers Qualitative technique using structured interview guide Interviewed nine accountants in five companies in diverse industries Examined initial XBRL furnishings under the SEC mandate

XBRL Implementation Process Plan implementation Tag financial items and create taxonomy extensions Validate, review, and render instance document and taxonomy extensions Audit and issue XBRL-related documents

XBRL Implementation Process

Findings regarding Plan Implementation Main objective of XBRL implementation was regulatory compliance Most respondents supported XBRL but one questioned its value Implementation team included both accounting and information technology personnel Three companies purchased bolt-on software; two used third party service providers Respondents selected XBRL software based on ease-of-use, cost, and technical support Respondents found many XBRL software packages difficult and time consuming to use Respondents who purchased bolt-on software had technology infrastructure issues One respondent who used third party service provider has one year contract for XBRL services and three year contract for SEC filing services.

Findings from Tag Financial Items and Create Taxonomy Extensions Phase Tag Financial Items All respondents used bolt-on rather than integrated approach to tag financial items. All respondents initially tagged statements using 2008 taxonomy and then re-tagged statements once 2009 taxonomy was available. All respondents chose to block tag footnotes for Two respondents indicated serious concerns with ability to detail tag financial statement footnotes. One strongly argued that given current state of software and lack of SEC direction, SEC should delay detailed footnote tagging requirements.

Findings from Tag Financial Items and Create Taxonomy Extensions Phase Create Taxonomy Extensions Most respondents tended to minimize number of taxonomy extensions used due to either desire to match with existing standard taxonomy or perceptions regarding difficulty of creating taxonomy extensions. Two companies who purchased XBRL software asked software consultants to create taxonomy extensions. Several respondents indicated that they found technical aspects of creating taxonomy extensions challenging. Two respondent companies created several extension elements that were not used in their XBRL-related documents.

Findings from Validate, Review, and Render Instance Document and Taxonomy Extensions Phase Validate Instance Document and Taxonomy Extensions Several respondents noted validation process was frustrating and error messages generated were difficult to understand Inconsistencies in validation error messages between software products Software products did not use error messages suggested by SEC Review Instance Document and Taxonomy Extensions All companies reviewed instance document internally Two companies also asked financial printer to review instance document

Findings from Validate, Review, and Render Instance Document and Taxonomy Extensions Phase Render Instance Document and Taxonomy Extensions Although not required, all respondents viewed documents using rendering software to protect company reputation Two respondents reported frustrations with rendering views used by XBRL software Respondents reported frustrations with SEC delays in updating its rendering software to reflect 2009 taxonomy

Findings from Audit and Issue XBRL- Related Documents Phase Audit XBRL-Related Documents Auditors were not interested in auditing XBRL-related documents Only one respondent suggested that audit procedures may differ since with XBRL tags, materiality may be based on values in individual financial items rather than entire statement Issue XBRL-Related Documents Most companies worked with financial printers to issue XBRL-related documents Financial printers use their own software rather than software used by financial preparer to produce XBRL-related documents provided to SEC and placed on company websites

Challenges Ahead Tagging and taxonomy extension process is very time consuming In general, software needs to be improved and service providers need additional XBRL knowledge Delays in taxonomy updates are frustrating and system needs to be developed to ‘instantly’ update software with new taxonomies Respondents are concerned that XBRL may cause delays in SEC filings Software needs to be improved before detailed footnote tagging can occur

Research Opportunities Respondents indicated that senior management involvement was relatively low except during the initial XBRL implementation decision However, information systems research argues for senior management involvement throughout the development process (Chatterjee et al. 2001; Jarvenpaa and Ives 1991) What is the impact of low senior management involvement on the XBRL implementation process? Research suggests that technology outsourcing decisions are characterized by their size, complexity, and potential irreversibility (O’Connor and Martinsons 2006) What factors drive the XBRL outsourcing decision?

Research Opportunities Our respondents used either outsourcing or bolt-on approach Thus XBRL proponents would argue that without an integrated approach, companies are not obtaining the full benefits such as transparency in financial reporting process and increased data accuracy Why aren’t companies moving beyond implementing XBRL for regulatory requirements? What motivation / procedures are needed to move companies to an integrated approach?

Research Opportunities All respondents chose to block tag footnotes and some argue that current technology cannot support detailed tagging of footnotes Prior research suggests that the amount of effort users expend to obtain information disclosed in footnotes may affect their judgments (Nelson and Tayler 2007) How can the process of detailed tagging of footnote information by improved? What are the implications of providing users with block tagged footnotes vs. detailed tagged footnotes?

Research Opportunities Technical aspects of creating taxonomy extensions were challenging Even respondents who used consultants to create taxonomy extensions only examined the new tags for reasonableness and obvious errors (e.g., label) How can the process of creating taxonomy extensions be simplified? What procedures are needed to review taxonomy extensions?

Research Opportunities XBRL instance documents displayed should be identical in all material respects to the corresponding portion of the traditional format filing Thus, appropriate controls are needed to ensure the accuracy of the XBRL-tagged financial information Only one respondent mentioned internal control issues with respect to the XBRL tagging process What internal controls over the XBRL tagging process are needed?

Research Opportunities Several respondents found the validation process frustrating and the error messages generated difficult to understand Our review of initial XBRL-related documents revealed several inconsistencies in validation error messages between software products. These errors messages were often different from those suggested by the SEC. Can prior error detection research in systems (Klein 2001, 2008) and accounting (Caster et al. 2000) provide guidance to researchers examining the impact of inconsistent validation error messages on the accuracy of XBRL-related documents?

Research Opportunities How can the review and rendering processes be improved? How will XBRL impact the audit process? What skill set is needed to implement XBRL? What is the best way to develop this skill set? How can the taxonomy update process to improved and can current software ‘instantly’ reflect all taxonomy updates? Senior financial executives are worried that furnishing XBRL- related statements may delay their SEC filings.

Limitations Interviewed nine individuals from five accelerated filer companies No companies provided XBRL-related documents under the SEC mandate during our initial interview period Findings may not generalize to larger populations Interviews were limited to SEC mandate XBRL implementation process in other countries may be different

Summary Examining XBRL implementation process is important and timely due to SEC mandate. Significant hurdles exist to XBRL implementation including –Software issues –Delays in taxonomy updates –Complex taxonomy extension process –Upcoming detailed tagging of footnotes Compliance is main XBRL implementation motivation Currently, no integration into supply-chain reporting systems Lack of internal controls Validation process is difficult due to inconsistent error messages Companies are concerned about rendering due to company reputation concerns