How to Audit XBRL Documents: The basics
XBRL (eXtensible Business Reporting Language) is an open standard that supports information modeling and the expression of semantic meaning commonly required in business reporting. It plays a vital role in enhancing the efficiency and transparency of business information by providing a standardized format for financial statements and other business reports.
Here’s a basic step-by-step guide to effectively audit XBRL documents:
Before embarking on an audit, auditors must have a comprehensive understanding of the XBRL framework. This includes familiarity with the XML language, taxonomies, XBRL dimensions, and different tagging conventions.
1. Assessing Applicable Standards and Regulations
Auditors must identify the relevant standards, regulations, and guidelines that apply to the jurisdiction and industry in which an entity operates. General examples include US GAAP, IFRS, or other local accounting standards.
2. Verifying Taxonomies
It is important to ensure that the correct taxonomy has been used, as taxonomies contain the definitions of the specific tags used for reporting particular items and are the basis on which the validation rules are generated.
Even more, auditors should verify the taxonomy version being used and ensure that the taxonomy version is up-to-date and consistent with the applicable reporting framework and if custom extensions are used, they should be validated that they are properly defined and documented.
3. Analysing Instance Documents
Instance documents contain the actual data and should be carefully examined. Things like data accuracy, proper tagging, and consistency checks should be checked by comparing the XBRL data to the original financial statements to ensure accuracy whilst verifying that each data point is tagged correctly using the appropriate element from the taxonomy. Furthermore, auditors must ensure that the information is consistent across different reports and periods.
4. Validating Calculations
Verify that the calculations within the XBRL documents are accurate and that they adhere to the relationships defined within the taxonomy.
5. Assessing Qualitative Aspects
Auditors should evaluate the qualitative attributes of the XBRL documents such as readability, understandability, and the proper use and correctness of items such as footnotes and references.
6. Documenting Findings
Keep a detailed record of all findings, issues, and resolutions. Documentation is important for communication, transparency, and future reference.
7. Preparing a Report
Prepare a comprehensive audit report that summarizes the procedures performed, findings, recommendations, and any necessary actions.
8. Continuous Education and Updating Skills
Stay up-to-date with the latest developments in XBRL, relevant regulations, and industry best practices. Sign up to regulatory sites and organizations such as XBRL International for timely updates.
9. Gathering Necessary Tools
Select the appropriate tools for the audit. Capable software applications that provide the right functionality to review and validate XBRL documents are necessary.
Auditing XBRL documents is a multifaceted process requiring technical expertise, a keen eye for detail, and a comprehensive knowledge of applicable regulations and standards. By following this structured approach, auditors can ensure that XBRL documents are following the relevant laws and accurately represent the financial position and performance of the entity.
An ongoing commitment to continuous learning and the use of specialized tools can further enhance the efficiency and effectiveness of the audit process. As the use of XBRL continues to expand, so too does the importance of quality audit practices in maintaining confidence in financial reporting.
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