Saeed Roohani is Professor of Accounting at Bryant University and one of the leading authorities on XBRL education. He is Program Chair of both the 9th Global XBRL Academic Competition and the 8th Bryant XBRL Conference to be held on October 13. The initial installment of our two-part interview was published as Part I; the second part appears below.
(8) In what ways does academic XBRL research affect the day-to-day activities of accounting practitioners, such as CFOs, comptrollers, and staff accountants? Or, to put it more bluntly, why should financial professionals in the field care about XBRL research?
Those of us who train individuals as accounting and financial professionals need to feel confident about what we teach and train, so we need to know to what extent XBRL will help companies, regulators, investors, and creditors. Research supplies the evidence to support those assertions. In that respect, financial professionals have a vested interest in knowing the extent to which XBRL is useful and other possible benefits of XBRL reporting.
True, it is sometimes hard to match exactly XBRL academic research with the everyday activities of an accounting practitioner. But it would be a mistake for CFOs and comptrollers not to be interested in XBRL research. At a minimum, research is an independent assessment of what goes in the real world..
(9) One of your particular research interests is continuous auditing. What role can XBRL serve in implementing continuous auditing? Does XBRL have specific qualities that make it peculiarly suited for continuous auditing needs?
One major reason I got involved in continuous auditing (CA) was to clarify that existing CA models and approaches presented in the literature would face major challenges if applied in the context of the independent audit of financial statements.
There’s two main reasons for that. First, you cannot really be independent if you as an auditor stay with the client on a continuous basis. Also, you would have to create an audit module and install it in a client’s computer system, and this is prohibited under Sarbanes-Oxley.
It is now established that CA is best suited for internal auditing, as opposed to external auditing. XBRL GL is mainly focused on internal reporting and auditing. Also, XML facilitates the communication of disparate systems within a company where the only solution used to be implementing a new ERP system. With disparate systems, internal auditors have to audit input and output of each system separately, and make the reconciliation. So XBRL is peculiarly suited for internal CA needs because all systems today can communicate in XML, and thus XBRL.
(10) What impact do you think the adoption of an integrated approach (as opposed to a bolt-on approach) for implementing XBRL will have on a company’s system of internal control?
Internal controls deal with business rules and internal operations of an entity, and companies are required by law to have adequate internal controls in place. If I understand the question correctly, the integrated approach is more suitable to meeting objectives of internal controls, because such controls and their intensity vary from organization to organization and from industry to industry.
(11) What effect do you believe an XBRL mandate will have on US capital markets? Do you believe it will help smaller companies gain valuable exposure and help reduce their cost of capital? Or do you think the impact will be slight?
Like anything new, the initial impact will be huge and worldwide. However, it is not an event to which one may want to measure stock market reaction. One major argument for XBRL reporting is that we will have more transparency, and more transparency allows investors to reward (i.e., buy the stocks of) companies that are willing to share timely and reliable information. XBRL provides a digital and real time information communication mechanism to the investing community; but the company’s CFO still decides what to disclose and to what extent to be transparent.
It is important to recognize that XBRL does not force CFOs to disclose more than what they want. On the other hand, experience suggests that investors punish companies that are not transparent and have weak corporate governance.
I think smaller companies eager to grow stand to gain more from adopting XBRL because they have to get on the radar of analysts, who will be using XBRL for comparing performance indicators. Also, even a small company may want to operate at a global level, and most exchanges and regulators around the world are now looking toward XBRL reporting.
(12) You’ve been involved with XBRL almost since its inception. As you look back over the past ten years or so, has anything surprised you, for example, in the course of its development or the pace of its adoption?
Yes, it took us a bit longer than expected. But now that we have a better and robust business reporting standard, perhaps we have secured future success. In terms of organization and the human factor, XBRL has moved from being mostly a volunteer-based community to mostly a consultant-based community. For example, at earlier conferences we had dinners at local restaurants with everybody knowing each other and having cozy chats. XBRL conferences are now so big that dinners are often in big ballrooms! I miss the old times!