Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi America, Ltd. Internal Auditing and Interactive Data
Written by Lily Bi Posted on October 23, 2008
Lily Bi, CIA, CISA, is Director, Technology Practices at The Institute of Internal Auditors (The IIA). Bi is responsible for developing the Global Technology Audit Guides (GTAG®) series and spearheading other initiatives to position The IIA as a leading provider of IT audit guidance for internal auditors.
Financial statements, IFRS, XBRL…it has been a lot for internal auditors to catch up with. Being responsible for providing assurance service, the internal audit profession is pushed forward to face the challenges of both technology and regulation. The mandate of filing financial reports in interactive data format, specifically XBRL, is not only an emerging trend, but a reality that companies throughout the world have to face today. And it raises some important questions: What is the current status of XBRL adoption? What is internal auditors’ involvement in the XBRL implementation process, if any? Is there a need for guidance developed by internal audit professionals?
As the globally recognized, guidance-setting body for the profession, The Institute of Internal Auditors (The IIA) conducted an XBRL survey in early September to find out the answers to these questions. More than 200 chief audit executives worldwide, such as audit generals and directors, participated in the survey. Here are some of the key results:
Familiarity The survey tells us that 51% of internal auditors don’t have any XBRL knowledge at all; 42% only know the very basics.
Adoption Only 8% of respondents say that their companies are currently filing financial reports in XBRL format, but more than 37% say that this will happen in the coming three years.
Internal auditor’s involvement Among those companies who file financial statements in XBRL format today, only four respondents say they play some role.
Adoption approaches The survey results indicate that 52% of respondents’ companies chose an in-house approach, and 48% chose a co-sourcing or outsourcing approach when implementing and creating financial reports in XBRL format. No respondents say XBRL is used in the company’s internal process other than financial reporting.
Financial reporting standards The majority of the respondents state that they use country-specific accounting standards, such as US-GAAP; only 17% currently use IFRS.
Need for guidance Almost 90% of respondents say The IIA’s coming XBRL paper is needed to provide knowledge and guidance for the internal audit profession.
From a technology perspective, XBRL is a ten-year-old computer language for business reporting. But the survey states that internal auditors currently have not been engaged in helping their companies to convert financial reports in XBRL format. By definition, internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. With mandatory mandates either in place or under review in countries like US, Canada, Australia, Belgium, China, Denmark, Japan, France, Netherlands, Singapore, and United Kingdom, and more to come, there will be an inevitable impact on the internal audit profession.
Management in an organization has overall responsibility for ensuring accurate and complete financial statements in XBRL format. Internal auditors can help management implement XBRL and provide objective assurance on the implementation process. To do so, internal auditors should first understand the new interactive reporting format, the mandate requirements, and pros and cons of various implementation approaches.
In addition, the business reporting supply chain starts from initial transactions, internal consolidation and reporting, to external financial reporting. Many organizations use XBRL at the end point of this supply chain because of the urgency of compliance with a regulator’s mandate. But XBRL as an interactive business reporting language can be used to serve throughout various stages in organizations’ business reporting supply chains. This will potentially give internal auditors great opportunities to access deeper business data, perform data analysis more easily, improve profiling and risk assessments, and identify potential issues. As an audit tool, interactive data will ultimately accelerate continuous auditing and monitoring.
The IIA’s forthcoming XBRL guidance paper, which will be released in January 2009, will address these topics.