ACCOUNTING & FINANCE STATEMENT

Accounting & Finance Statement



Accounting & Finance Statement

Introduction

Extensible Business Reporting Language (XBRL) is the standard for financial and business reporting that provides a consistent, accurate, machine-readable format. In March 2005, the Securities and Exchange Commission (SEC) initiated their XBRL Voluntary Filing Program (VFP), the early adoption program to prepare companies for EDGAR submission of XBRL data. Through April 2008, over 75 companies have filed in XBRL format; approximately 10% are foreign companies.

The use of XBRL will make information more accurate, transparent and usable by key audiences of the public company: investors, analysts, regulators, lenders and others. Preparers at public companies have an opportunity to "test out" different options for filing in XBRL format during the SEC's voluntary program and prior to a potential mandate of XBRL submission to EDGAR. In today's market, roughly 50% of the VFP participants outsource the creation of their XBRL financials to their financial printer, wire service or an outside consultant; the remaining 50% purchase a software tool and perform the XBRL creation themselves. This document provides case studies for both processes.

Critical Review

While the use of XBRL to detect options backdating is a striking illustration of its potential to improve governance, the lessons it provides cannot be taken at face value. The point is that the SEC succeeded in identifying stock option backdating not just because they had the technology of XBRL, but because it was part of a process that took advantage of XBRL's capabilities:

Real-time reporting: reducing lags in monitoring so that analysis is timely enough to be actionable.

Analytical capability: a large and well trained staff that gave the SEC the capability to make use of the XBRL-enabled data and to analyze it to see patterns they previously missed.

Motivation: a clear goal by the SEC staff of detecting and deterring earnings management.

As shown in Fig. 1, Elliott breaks down the decision making process into steps in order of increasing value added.

Fig. 1. Information value chain.

We analyze the framework provided by Elliot from the viewpoint of motivations of stakeholders in the value chain. In the context of the financial information value chain the diversity of the stakeholders leads to a variety of differing goals in this domain. 3 The list of these goals and strategies is presented in Table 1 (Piechocki, 2007).

Table 1. Motivations of information value chain participants (Piechocki, 2007).

Motivation/business goal

Description

Provide assurance of financial reports

Assure that disclosed information is reliable

Provide fair view of consolidated group of entities

Provide information about the consolidated group of entities which represents the fair view on group's financial position, performance and other relevant information

Provide a fair view of company

Provide information about the company which represents the fair view on company's financial position, performance and other relevant information

Protect capital market participants

Control of the listed companies in order to avoid practices not allowed on capital markets

Provide general public with financial information

Publish information in a form accessible to general public

Reveal malpractice and mistakes of tax payers

Control of the tax assessment processes and analysis of financial information submitted by tax payers

Secure borrowings

Control of the borrowing ...