pwc Data Level Assurance Bringing Data Into Continuous

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Data Level Assurance: Bringing Data Into Continuous Audit Using XML Derivatives (Such as XBRL Classic and GL) Fifth Continuous Assurance Symposium Rutgers Business School Newark, NJ 23 -11 -2002 Eric E. Cohen Chair, XBRL US Pw. C © 2001 Pricewaterhouse. Coopers refers to the individual member firms of the world-wide Pricewaterhouse. Coopers organisation. All rights reserved.

Agenda • XBRL Tokyo – Increasing Transparency to Financial Markets • Data level assurance • Drivers • From documents to data • XML derivatives: lifeline for data level assurance • XML • XBRL • XML web services Pricewaterhouse. Coopers

XBRL Tokyo – Banking Focus Banking crisis Origami Bank – folded Sumo Bank – belly up Bonsai Bank – cutting back branches Karaoke Bank – up for sale, going for a song Kamikaze Bank – nose-dived Karate Bank – 500 jobs chopped Sushi Bank – something fishy going on; staff getting a raw deal Pricewaterhouse. Coopers

Data Level Assurance Atomic Information: Assurance need, opportunity or impossibility? Pw. C

Drivers For Data • Corporate malfeasance. Pricewaterhouse. Coopers

Drivers For Data • New reporting model and demand • Atomic information on web site, in press releases • Demand for material disclosure items outside of periodic report • In my view, we need to supplement the static periodic disclosure model that has long served investors well, but in today's world results in the delivery of information that is often stale upon arrival, and impenetrable to many of those who receive it. I believe we need to move toward a dynamic model of current disclosure of unquestionably material information. – http: //www. sec. gov/news/speech/spch 523. htm Pricewaterhouse. Coopers

Paper-paradigm Report → e-Document All e-documents Underlying transactions GL detail Management Pre-disclosed How. Present do I know FS is actually that the file data what it is summaries represented to be? Mp 3, mpeg, tif, etc. Pricewaterhouse. Coopers

E-Document → e-Data Presentation Tagging Summarization Allocations Reclassification Accounting Trx Recognition Is file/stream authentic and authorized? Encapsulation Do tags match presentation? Does tags’ content match detail? Controls surrounding taxonomies, linkbases Is all necessary content and context included? Pricewaterhouse. Coopers

Tag, You’re It! e-Document → e-Data • Looking at data items individually • Press release with Sales figures • Are those figures “real”? • Example: NASDAQ Pilot (www. nasdaq. com/xbrl) • More usable data will be … used! Assurance … • Necessary (? ) contextual information • Obvious: unit of measure, time period • What is inventory without valuation method? • What is PPE without knowledge of going concern? Pricewaterhouse. Coopers

From Documents To Data • Documents become data • How many files in a web page? How many files in XBRL instances? • Not analog but digital • Not strictly freeform, but standardized (tags) – Additional information • Assurance not only on the sum of the parts but the parts themselves • Recognizes risk/reward of disclosure/assurance • Forget “fairly presented”, “taken as a whole”, materiality • And with CA, forget subsequent events Pricewaterhouse. Coopers

What Is Data Level Assurance? New statements providing variable comfort that • Appropriate authorization and authentication is assured • Reader has necessary context for understanding data item(s) • No obvious inconsistencies between tags and textual items (machine and human readable identification) exists • Content of tag and tag of content make sense • Appropriate controls between instances and referred-to schemas are in place And technology that makes that assurance portable after transformation of the original data item Vasarhelyi and Cohen, draft definition as of November 5, 2001 Pricewaterhouse. Coopers

What Is Data Level Assurance? • NOT necessarily assurance on the underlying supportive data • NOT necessarily assurance on the underlying systems • NOT necessarily something the profession is jumping to embrace • NOT necessarily something we will be able to easily explain to the marketplace and manage expectations Pricewaterhouse. Coopers

Nature of Assurance • In data level assurance, redefined – Analytical review – Substantive testing – Data level testing – Internal control evaluation – A new model of risk assessment – Materiality as a threshold of error – Tradeoffs of costs and assurance obtained – Collecting and weighting of evidence – Subsequent events Pricewaterhouse. Coopers

Data Level Assurance Atomic Information: Assurance need, opportunity or impossibility? Pw. C

Role Of XML Derivatives • Cross-platform, application independent document/data format • XML • Common vocabulary/vocabularies • XBRL et al. • XML-based programming equalizer and exposure tool • XML Web Services • Standardized query capability • ? ? ? Pricewaterhouse. Coopers

XML, Content & Context: Mercury Hg Pricewaterhouse. Coopers

XML Alone Doesn’t Solve Problem qbxml smbxml Intacct xml SAP Peoplesoft xml Oracle Pricewaterhouse. Coopers

Shared Vocabularies Bring Efficiencies qbxml smbxml SAP Peoplesoft xml XBRL GL Intacct xml SAP Peoplesoft xml Oracle Pricewaterhouse. Coopers

XML Applied To Reporting: XBRL Today over 10, 000 US public companies release financial results quarterly… But the contents are not organized. The data must be reentered into computer applications for interpretation. What if financial documents included both content ($75, 453) and structure ($75, 453=net income for Q 1/2001)? Pricewaterhouse. Coopers

XBRL A proposed industry standard for the publishing, exchange and analysis of financial and business reports and data. q Information is entered only once using an Internet-based tool for preparing and publishing all financial and business documents with automatic conversion to various formats q Information may be reliably extracted analyzed across companies with no manual intervention q Supports current and emerging accounting standards Pricewaterhouse. Coopers

Overall World of XBRL GL XBRL “Classic” Data Concepts “View” of data Internal External Future GAAP Special Industry Reports Regulatory Filings Performance Metrics GAAP Tax Reporting Pricewaterhouse. Coopers

XBRL GL: “Generic Ledger” Pricewaterhouse. Coopers

Bridging e. Business and Reporting On e wa y Tax Regulators Investors Creditors Lende Website rs Aggregators Intra system 2 way XBRL BUSINESS REPORTING ERP G/L Packages Detail to summary CRM XBRL GL Journal Taxonomy Creation Accounting Detail Transaction Mappings recognition/ → Rules Transaction Space • Orders classification Suppliers Customers X 12, • A/P • Delivery EDIFACT, On e wa y • A/R • Delivery XML INITIATIVES 2 -way Pricewaterhouse. Coopers

Transaction Space • Examples • X 12, UN/CEFACT Forum • eb. XML business vocabularies (? !), UBL • MISMO, ACORD, HR-XML, Rosetta. Net, itd. • Purpose • Single-use, point to point (e-)Business X 12, EDIFACT, XML INITIATIVES Pricewaterhouse. Coopers

XBRL GL: Universal Audit Trail • Purpose • Machine to machine transfer • Archival • Consolidation • Bigger than General Ledger • ASQC/www. globalbestpractices. com/ABC/Process Based Accounting XBRL GL Journal Taxonomy Pricewaterhouse. Coopers

Uses Of XBRL GL One Vocabulary One Framework Trial Balance Accounting System Adjustments CPA Accounting System Budget Chart of Accounts Accounting System A Customers, Vendors, Employees Open AR, AP, Inventory Status Journal Entries, Ledger History Accounting System B Pricewaterhouse. Coopers

Reconciliations: Accounts Receivable 4. XBRL US ci accounts. Receivable. Trade. Net. accounts. Receivable. Trade. Gross US GL Continential GL US AR xbrl. Element=“accounts. Receivable. Trade. Net. accounts. Receivable. Trade. Gross ” xbrl. Taxonomy=“{usgaap}” 3. XBRL GL entries. Type=“balance” summarized amounts in account, period in time Do the entries in 2 or 3 map to the total in 4? ? Do the entries in 2 sum up to the balances in 3? Are all documents from 1. reflected in the detailed entries of 2. ? (document. Type=“invoice”, etc. ) or 2. XBRL GL entries. Type=“entries” represents individual detail of entries 1. XBRL GL: entries. Type=“assets” represents AR aging Pricewaterhouse. Coopers

Future Audit Com p exter are with nal s ource data Compare details with summaries XSL Branch Systems Sub-systems post itd post GL Transfer Financial Reports xbrl Sub-systems Rules-based monitoring, triggers and alarms XML-based source documents can be stored in databases and retrieved and reported upon as needed. XML-based universal audit trail can represent transactions AND processes; archive and query anytime. XML-based universal audit trail provides drill-down detail from standardized business reports. XML data can be from a file, a data stream, or a web service. Pricewaterhouse. Coopers

Information for Data Assurance Internal External Quantitative Qualitative Financial Non-financial Mandatory Voluntary

Tracking “Transactions” • Standard schemas for “transaction” trapping and understanding • Processes • Entries, Agents, Resources, Events • Actuals, budgets • Logs, alarms • Data reliability? How much can you trust the underlying data • Reliability of cash: 99% • Reliability of accounts receivable: 95% Pricewaterhouse. Coopers

Reliability From my APICS days: If inventory is 96% correct, and If bills of material are 96% correct, and If purchase order schedule is 92% correct, and If manufacturing schedule is 90% correct, then Almost 25% of production and purchasing decisions are wrong Pricewaterhouse. Coopers

Hooking Into Client Systems Embedded audit modules • Proprietary • Independence issues? • Internal audit CORBA XML Web services Pricewaterhouse. Coopers

Hooking to Outside Systems • Benchmarking Information • Fed. Ex, UPS • Google • NASDAQ Pilot (www. nasdaq. com/xbrl) • Data aggregators • Third parties and Extranets • Circularization Pricewaterhouse. Coopers

XML Web Services “Give me this year’s trial balance and the details for Officer’s Comp, Maintenance and Repairs, and prepaid taxes. ” “Help me understand how to get the XBRL data from your web service. ” “Create an XBRL export file for me please, or let me know how to tap into the XBRL data stream. ” g n i t n u Acco A m e t s Sy Accounting System B Current Generic Data. GAP Query: filled ? ? ? proprietary Genericby Discovery, Access: WS mappings Shared Vocabulary: XBRL Data Format: XML Audit Tool Pricewaterhouse. Coopers

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