A Research on the Application of XBRL in the Independent Audit

doi:10.4236/cn.2013.53B1004

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Communications and Network, 2013, 5, 16-19

doi:10.4236/cn.2013.53B1004 Published Online August 2013 (http://www.scirp.org/journal/cn)

A Research on the Application of XBRL in the

Independent Audit

Zhaoyang Wang

1Economy& Management School of Wuhan University

2Hunan University of Finance and Economy, Wuhan, Changsha China

Email: [email protected]

Received July, 2013

ABSTRACT

XBRL (extensibility commercial language) network financial report is gradually extending in our country, which will

have a far-reaching impact on independent audit. The research on the application of XBRL’s principle, operation proc-

ess and the improvement of the audit process in the audit work is helpful for bringing some developing measures for

independent audit based on XBRL.

Keywords: XBRL; the Independent Aud it; Audit Quality

1. Introduction

In January 2011, The Treasury and the securities regula-

tory commission issued “the notice about some matters

of implementing enterprise accounting standard general

classification standards”, according to which, the first

implemented public accounting firms with qualification

of Securities and futures business and their relevant

business shall report XBRL2010 annual financial reports

instance document and expansion classification standards

made by their auditing customers of a-share listing com-

pany to the Treasury, through the certified public ac-

countants industry management system between May 1,

2011 to June 30.

China's listed company formally strides into the net-

work financial statements era, the network financial re-

port based on XBRL will have great effect on the audit of

China's capital market.

2. The Application Principle of XBRL in

Audit

To understand the application of XBRL in audit, you

should first understan d how XBRL work s. Applicatio n of

XBRL asks to understand a few major terms: specifica-

tions, taxonomies and instance documents

The XBRL specifications are the software code to de-

scribe financial information forms. Technical specifica-

tions help software developers and programmers to cre-

ate mutual exchange of digital file, it allows users of fi-

nancial information do comparison to different com-

pany’s financial statements, even if the original format of

the financial statements is completely incompatible.

Specifications are not only for financial statements, but

for dealing with all the digital report, the general ledger

and the non-financial information.

XBRL taxonomies are the describing standard to pre-

sent business information and accounting statements. It is

made up by an XML schema file and the link library

which is within the mode file or directly referred to it.

Through XBRL, financial report producers can store the

link data elements in accounting database. It forms a

standard way of using XBRL to code that based on the

classification standard [1]. For example, an annual report

including management decision and analysis, financial

statements, note disclosure, the audit opinions can use

XBRL coded.

XBRL instance documents are used to record the ac-

tual value of the business, and to provide the necessary

background information to explain the fact value. A

XBRL instance file usually consists of one or more clas-

sification standard, different classification standard links,

expanses, modifies in different ways between each other,

the explaining of XBRL instance documen t re quires con-

sideration of related classification standards [2]. For ex-

ample, one instance documents can include a company's

annual report, surplus disclosure and general ledger and

other detailed data. Instance document can make the fil-

ing work of external financial information and internal

financial information more easily, because XBRL can

output different types of data for different financial in-

formation terminal users through the computer program

and its operation. Instance document can also provide

*Humanities and social sciences youth project of the education ministry

(12 YJC790247), Hunan soft science project (2011ZK3025), and Hu-

nan social science fund project (08 YBA151)

Z. Y. WANG 17

style form for users to print output through the browser

or other format.

After understanding the basic working principles of

XBRL, we come to the application principle of the

XBRL in independent audit, which can be understood

through a graphics: as shown in Figure 1:

3. Influence of Which XBRL does to the

Traditional Audit

3.1. Influence of which XBRL does to Audit

Efficiency

The application of XBRL techno logy will greatly expand

the auditor’s audit scope. Make the auditor can real-time

monitor the auditees’ financial data. At the same time,

because of the using of XBRL computer technology, the

auditor would liberate from simple trial test program,

they can generate corresponding audit report in real time.

3.2. Influence of which XBRL does to Audit Risk

Because of XBRL, financial information can achieve

real-time disclosure. So the misstatement risk of financial

statements would be much higher. Since the financial

statements are made with XBRL, auditors need to do

controlling test to XBRL’s technical standard, classifica-

tion standard, instance document, in addition to substan-

tive test.

3.3. Influence of which XBRL does to Audit

Quality

Because of the application of XBRL technology, com-

puter technology and Internet technology, the auditor can

reduce the time for the entry, conversion, inquiry, index

of data, so auditors have more time on reviewing audit-

ees' financial information analytically. This is helpful to

improve the efficiency and effectiveness of the analytical

review. They can take a lot of substantive tests as well,

and this substan tial test could not be done due to the high

cost of artificial testing time, so that using the XBRL will

improve the audit quality to a certain extent. Empirical

studies on the influence of XBRL’s application in audit

quality will be a hot spot of theory research after XBRL

is applied in China’s enterprises.

On the other hand, because XBRL is based on com-

puter technology and Internet technology, therefore there

are corrupt and security problems. Compare to paper

document, electronic data is easier to be maliciously

tampered and leave no trace [2]. At the same time, the

existence of network attack is also an important problem

to affect the quality of audit based on XBRL.

4. The Improvement of Audit Program in

XBRL

4.1. The Audit Preparations for Application of

XBRL

XBRL to be universal in our country is just a question of

time. After the company is in full implementation of

XBRL network financial report, as for auditors, their

risks mainly focus on if the financial information and

accounting data are accurate and complete mapping to

mark. So the audit should focus on whether the company

designed a full and effective internal control system for

XBRL, and whether the internal control system should be

able to ensure the exchange of relevant financial data

efficiently and accurately, and the financial data is re-

corded in a proper accounting period.

Another key that auditor concerns are whether all rel-

evant data in data sources is already marked, namely,

whether the report is finished. This involves reviewing

markers system in the software system to ensure the in-

formation is new and the data element or new account

included in the process of mark. This work can be done

with the control function of the computer program [3].

Figure 1. The application process of XBRL in independent audit.

Z. Y. WANG

4.2. XBRL Operating Environment

Besides pay attention to the XBRL internal control sys-

tem of auditee company, the auditors need to design cor-

responding tests to determine whether the XBRL techni-

cal criteria, classification standards, and instance docu-

ment is fit for financial statements. Auditors should have

relevant expertise for these test programs, and are quite

familiar with industry standards and any specific gener-

ally accepted accounting principles. The audit procedure

should focus on the technical specifications, classifica-

tion standard and instance document background, check

into the c details of XBRL to ensure that they are the

latest and the most appropriate [4]. The internal control

system designed on the base of XBRL should focus on

operation and effectiveness of operation competence, to

ensure that a complete, consistency, specific classifica-

tion standards were applied in a new entity. General

XBRL audit control procedures include network opera-

tion, application development and maintenance, and ac-

cess control. XBRL application program control includes

address input, error correction and output. For example,

when a classification is newly set, modified or added, the

auditor should verify or check the file classification

standard examples to ensure that the labels being used

are from classification standard.

4.3. The Network Security

Because XBRL is the financial report based on Internet,

and can provide dynamic link from the financial infor-

mation file to the foundation database. In this case, the

substantial safety risk exists in operating systems, appli-

cations and database. For example the wrong configura-

tion could lead to unauthorized change or the destruction

of the data, and influences the correctness of the financial

statements. When these links appear, the auditor should

consider the security of the entity and adequacy of the

procedures, including setting up a firewall, enhancing the

operating system and other relevant safety control, and

backup the most primitive da ta.

The specific improvement process of audit procedure

is as shown in Figure 2.

5. New Requirements for the Application of

XBRL Technology

5.1. Requirements to Auditors

With the application of XBRL network financial report,

the financial report which the auditors confront is no

longer of the financial information isolated, but an Inter-

net database [5]. This requires the auditor should not

only put on practical test procedures, but also need to

identify whether the XBRL technical specification, clas-

sification standard, and instance document of the auditee

unit is appropriate. On the one hand, it increased the

auditor's audit risk. On the other hand, it put forward new

requirements to the auditor's knowledge system. Not only

requires the auditors be proficient in professional

knowledge, but also requires them have in-depth under-

stand for the principle and process of XBRL.

5.2. Requirements to Accounting Firms

From the notice of The Treasury, accounting firms have

an important role in applying XBRL in our country. So

accounting firms should first be informative.

On the one hand, accounting firms should well train

their auditors, let them grasp XBRL audit technology

proficiently to prepare for audit technological reformation;

Figure 2. The improvement of audit procedures based on XBRL.

Z. Y. WANG 19

On the other hand, accounting firm itself should get in-

formative reformation. The main goal of accounting firm

information is to establish and perfect the information

technology standard system, establish and improve data

standard system and large database, promote the in-

ter-communication and information sharing and business

cooperation, focus on the d evelop ment and ap plication of

series software[4]. So the accounting firm the informa-

tion should become a turning point for XBRL technology

promotion. Through the information of accounting firms,

we can realize the purpose of promoting XBRL technology.

To continue with, accounting firm should control risk.

Because of XBRL, the auditor's risk will increase, so the

public accounting firm should control risk more strictly,

in order to improve auditing quality.

5.3. Requirements to the Auditee Unit

With the implication of XBRL network financial report,

enterprises should establish special XBRL internal con-

trol system, and make appropriate choose to the XBRL

technical criteria, classification standards, examples

document for their own unit. Because of the first applica-

tion of XBRL, enterprises should take double system

operation, so that they can get both XBRL financial re-

port and the tradition al financial report, in order to verify

the relevant technology and internal control system of

XBRL. On the other hand, the auditees should actively

cooperate with the auditor, make detailed introduction

for XBRL application and accounting information sys-

tem of their company, to help the auditor b e familiar with

the environment quick ly, and make a right judgment.

5.4. Requirements to the Government and

Stakeholders

As for the application of XBRL network financial report,

in our country, the government has played an important

role. But for the moment, XBRL corresponding doesn't

sound. The government should implement the relevant

decrees to promote enterprises to take XBRL reform

quickly, and put on rewards or punishment on their re-

form results. And timely organize related training for

accountant and auditor, so that they can be familiar with

XBRL and correctly use it in a short time.

And from the point of their own interests, enterprise

stakeholders should also pay attention to the enterprise’s

XBRL reform, and deepen their understanding of XBRL

working principle by learning.

REFERENCES

[1] W. L. Chen, “XBRL Financial Network Audit Verifica-

tion Report in: A Research Framework,” Accounting

Monthly, Vol. 12, 2011, pp. 61-63.

[2] M. Bovee and A. Kogan, “Financial Reporting and Au-

diting Agent with Net Knowledge (FRAANK) and exten-

sible Business Reporting Language (XBRL),” Journal of

Information Systems, Vol. 19, No. 1, 2005, pp. 19-41.

doi:10.2308/jis.2005.19.1.19

[3] Z. M. Lv, “The Reengineering of Audit Process Based on

XBRL,” Financial and Economic Questions Research,

Vol. 3, 2011, pp. 125-128.

[4] J. H. Yu, X. X. He, G. Chen and Q. C. Cao, “The Design

and Implementation of Financial Information Audit Sys-

tem in XBRL,” Computer and Modernization, Vol. 12,

2011, pp. 82-85.

[5] G. L. Gray and D. W. Miller, “XBRL: Solving Re-

al-world Problems,” International Journal of Disclosure

and Governance, Vol. 6, 2009, pp. 207-223.

doi:10.1057/jdg.2009.8