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Great article from the CFA Institute about the growing need for audited digital reporting used by the capital markets to grow economies and jobs by enhancing commerce through reliable and independently reviewed disclosed financial and non-financial data used for better decision making.

The CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow. CFA Institute has over 145,000 members in 163 countries and territories, including 140,000 CFA charter-holders, and 148 member societies. 

DIGITAL REPORTING IS NOW A GLOBAL BEST PRACTICE:

Today there are more than 140 regulators around the world in 70 countries that are using XBRL (XML data format) and tens of millions of companies are filing their disclosed business reports in XBRL to be used by investors worldwide to make better investment decisions in a machine-readable format. More than 60% of investors are using digital data in XBRL (machine-readable format) for investment decisions compared to a "non-machine readable" format (PDF). As digital reporting/continuous reporting accelerates in the marketplace across all business reporting -- the new need for digital assurance becomes even more paramount as we move from "paper reporting" to "digital reporting, machine-readable format".

Companies are also finding value in digital reporting as well -- especially as finance departments move more and more into financial and non-financial data analysis. Companies also want additional assurance of this disclosed data as they do benchmarking and competitive analysis as this KPMG white paper demonstrates.  

BLOCKCHAIN GROWS IN IMPORTANCE AND THE NEED FOR ASSURANCE BECOMES A BEST PRACTICE

The need for digital assurance becomes even more critical as companies and government move to blockchain -- distributed ledgers/ smart contracts -- and the need to extract specific data elements contained in blockchain grows in importance. These external parties using this blockchain data want the assurance that this data is authentic and reviewed by a third party for better decision making. Since most of these reports will contain XBRL tagged data -- more than ever this additional data assurance will be required on XBRL data as more and more regulators move to blockchain as a viable solution.  

Currently, ASSURANCE is MANDATED for non-machine readable documents "paper" PDF formatted documents sent to regulators but NOT MANDATED by regulators for digital formatted "machine-readable documents like financial statements sent to investors in the XBRL (XML Data FORMAT) used by the MAJORITY OF INVESTORS WORLDWIDE. 

As XBRL International Reported:

Investors act as fiduciaries, making decisions on behalf of millions of pension fund holders and institutions. They rely significantly on company financial statements to support their investment decisions and (at least for those that have taken the time to consider the issues at stake) have come out strongly in favour of independent audit or assurance around Inline XBRL documents.

For what it’s worth, our take is that there are still plenty of investors that are unaware that there could be different levels of independent review — and therefore different levels of investor protection — for the human formatted and machine formatted aspects of the same document. It’s safe to assume that they have an EXPECTATION THAT THE DOCUMENTS HAVE BEEN REVIEWED IN THEIR ENTIRETY.  

EDITORIAL NOTE:
What is disclosed in a "paper" regulatory submitted report made available to investors needs to have the same assurance as a "digitally" regulatory submitted report to a regulator or stock exchange. But today this is NOT the case. 

AGAIN: Investors would expect both the human-readable layer as well as the machine-readable layer of this single document to be audited and verified by an independent third party -- especially if specific data elements are being reviewed and included in other external reports. 

Assurance is critical in supporting investor confidence in the data disclosed -- especially if the data is disclosed in footnotes. 

Essentially today -- we have today "two reports going to regulators from public companies -- one in a "human readable format" -- "paper format" and another layer in "digitally tagged format" and assurance is provided on the "human readable format" but the digital data format also attached to the filing is different and NO ASSURANCE is provided on the digital format even though worldwide investors are increasing relying on the "digital format" for investor decisions. Clearly data elements are being extracted from full regulator reports but assurance is not provided or following this data and regulators are not requiring that this assurance be provided. 

This becomes even more relevant as companies begin to disclose non-financial reporting information in their regulatory reports to regulators such as human capital or natural resource information.

For example, Investors are looking at number of female directors or senior managers and extracting this information and comparing it with other data from other companies. That want to make sure that this data has assurance from an independent third-party. They are increasingly extracting this information via search engines using a machine-readable format but the assurance is not following this data or the data tagged information created by the company is not the same as the information disclosed in a human readable format. 

Info World Magazine published a great article on the difference between paper and machine-readable formats and significance to our society as the power of the Internet expands worldwide. 

FROM THE CFA INSTITUTE AND THE NEED FOR DIGITAL ASSURANCE REPORTING IN THE CAPITAL MARKETS: 

From the article from the CFA Institute:

First, investors are reviewing and using this digital information to make investment decisions.

Second, regulators around the world, including the US SEC currently and the European Securities and Markets Authority (ESMA) as of 2020, will require digitally tagged financial statements.

Third, regulators are moving toward mandating filers to submit their digital information in an inline XBRL format. This format embeds the machine-readable XBRL tags into the human-readable financial statements (i.e., into a single document). Investors would expect both the human-readable layer as well as the machine-readable layer of this single document to be audited. After the US and the EU, we expect that Japan, China, and some other jurisdictions in Asia will follow suit.

This increasing adoption translates to the consequential need for third-party review, which in the interim has been accomplished through AUPs. The significance of addressing this need sooner than later must be emphasised.

Furthermore, we believe data quality issues could be overcome by an audit requirement. As Lou Rohman, XBRL Services, Merrill Corporation, points out in his article “Should XBRL Financials Be Audited?”:

“One significant consequence of an audit is that it would motivate those companies that are currently submitting poorly tagged XBRL to start paying attention, and do it the right way. Unfortunately, poor quality XBRL is submitted too often today, whereby the XBRL computer-readable financials don’t provide the same information as the HTML human-readable financials.

A second benefit of an audit is that the improved quality of XBRL would decrease the pain and effort of consumers of the XBRL to “fix” the data prior to using it. Much effort is put forth by consumers to correct the tagged data submitted by registrants. Better data would also increase the ability of less-sophisticated consumers to use the as-submitted data and rely on the output of their analysis.”

Read more from CFA Institute on financial reporting.

 

This result is similar to what was found in prior surveys.

We urge regulators and audit standard setters to take heed of what investors want.

FROM IFAC REGARDING XBRL AND ASSURANCE SERVICES ON XBRL DATA WHITE PAPER:

"XBRL, Automation, and Enhancing the Credibility of Financial Reporting and Auditing", Presented by Ian Ball
Chief Executive, International Federation of Accountants:

From an assurance perspective, addressing the issue of credibility is foremost. This relies upon trust in the assurance that is provided on information distributed to the market. Can investors, regulators and others who rely on us trust the information that they are using? The answer is not simple.

The current assurance concept is based on “paper-based” financial statements and whether they as a whole present fairly in all material respect the financial position and results of an entity. That is, the current audit opinion focuses on the financial statements as a whole rather than on the individual components per se. As a result, it does not fully address the challenge of consumer access, consumer tailored presentation and reuse of individual information.

The current assurance paradigm may therefore need to be supplemented with assurance concepts that address a more granular reporting concept, as part of the migration of the reporting supply chain from a paper-based system.

But before this migration can occur, there are some fundamental issues that need to be addressed. Consider for example:

Is there in fact demand for assurance on information disseminated in XBRL format? And, if so, on what is assurance to be provided?

Let me illustrate this issue with some examples. One possibility is for assurance to be provided on the traditional financial statements as converted to XBRL format. The US Attestation Standard 101 provides some guidance for attest functions on XBRL formatted reports; but, this may be only a starting point on the path to progress assurance upon all relevant aspects of an XBRL formatted financial statement. Another possibility is an opinion only on the XBRL instance document, being the financial statement in XBRL format. If so, should assurance extend to all elements in the instance documents, including the data tags, taxonomy references and other data elements not ordinarily transparent in ‘paper-based’ financial statements?

Alternatively, should a combined audit opinion about the quality of the data and the data presented as derived from a dataset in XBRL format use a specific style sheet? Or is assurance needed on the XBRL preparing process?

In short, since data in XBRL format can be presented in different ways and data elements can be approached or processed separately from other data, the fundamental issue relates to “document-level” assurance versus “data-level” assurance.

Related to this issue is the question of the level of assurance that is needed, what would audit-level assurance (if that is possible) cost, and would users be willing to accept that cost for the benefits obtained? And regulators, stock exchanges and intermediaries must reflect further upon the assurance required. The answer may depend on their view as to whether financial information in XBRL format should not only be permitted – but required – when financial information is filed with them. [As an observation, given recent experience with the implementation of Sarbanes-Oxley, the question of value for money needs to be carefully considered.]

Further, additional investigation is needed into the professional and legal issues surrounding information disseminated over the internet and in XBRL.

EDITORIAL NOTE:
Now is the time for the accounting and auditing profession to move full forward on the development and utilization of digital assurance standards and best practices as digital reporting becomes part of the public and private reporting/disclosure practice. 

WE HAVE SEEN WHAT EFFECTIVE DIGITAL REPORTING HAS DONE FOR CONSUMER PRODUCTS WORLD -- NOW IS THE TIME TO UTILIZE THIS SAME TECHNOLOGY FOR FINANCIAL AND NON-FINANCIAL REPORTING WITH EXTERNAL ASSURANCE PROVIDED ON THE REPORTED DATA USED TO GROW ECONOMIES SMARTER.