Academic journal article Management Accounting Quarterly

Does Assurance on XBRL-Derived Financial Statements Impact the Decisions of Nonprofessional Investors?

Academic journal article Management Accounting Quarterly

Does Assurance on XBRL-Derived Financial Statements Impact the Decisions of Nonprofessional Investors?

Article excerpt

The Securities & Exchange Commission (SEC) mandated the use of eXtensible Business Reporting Language (XBRL) for SEC registrants in 2009. One provision of the mandate was that registrants also make the XBRL instance document available on the registrant's webpage. (1) Prior to the SEC XBRL mandate, most publicly traded firms, including the entire Fortune 500, had published their financial statements on their investor relations website for many years. The information was often available as a Hypertext Markup Language (HTML) or Portable Document Format (PDF) file. These file types, however, do not facilitate using the financial information.

XBRL usage facilitates the exchange of financial information without rekeying. Unlike HTML and PDF formats, which simply change the file-save format, XBRL introduces new potential sources of errors into the instance document and XBRL-related files. The audit of financial statements that underlie the XBRL instance document does not cover these additional potential vulnerabilities. The combination of additional errors and lack of audit procedures may affect the existing information asymmetry between management and investors.

Empirical evidence has shown information asymmetry between managers and investors to affect investors negatively. (2) There are, however, several ways to reduce the asymmetry of information. Audits are one way since they add a "trust" factor to management disclosures. (3) Additionally, the profession and regulators see the implementation of new reporting technologies as an attempt to mitigate asymmetric information-related reporting problems. (4) The authors of "Feasibility and Economics of Continuous Assurance" indicate that "the future prospects of XBRL-based reporting precipitate an entirely new set of needs at the account level" and that the development of an architecture for the assurance is an important assurance research issue for the near future. (5)

Consequently, we investigated the impact of XBRL assurance on individual investor decisions. Consistent with the prior literature, we used master of business administration (MBA) students to proxy for individual investors. (6) Empirical evidence indicates that there is a significantly greater likelihood that potential investors will invest when a CPA (Certified Public Accountant) provides assurance on the XBRL instance document. Yet evidence does not indicate that CPA assurance on the instance document reduces perceived investment risk. Our results directly address the call for XBRL assurance-related research while potentially being helpful to the Public Company Accounting Oversight Board (PCAOB) in its consideration of which Statement on Standards for Attestation Engagements (SSAEs) to continue and discontinue. (7) Further, both the XBRL-related and nonprofessional investor-related results may be of interest to the SEC with regard to a possible next step with its interactive data program.


The demand for XBRL assurance services may be rooted in the regulators' XBRL implementation choices. These choices impact the procedures that constitute the XBRL assurance service.


XBRL provides a means for electronically sharing financial information between information producers and consumers. As a derivative of eXtensible Markup Language (XML), it uses nonproprietary code to share information in a way that is not platform dependent.

The use of XBRL is growing internationally among regulators. When regulators decide to implement XBRL, they face many choices (e.g., open version or closed taxonomy, fixed rendering or flexible, tagging through a portal or by the filer). These choices affect the complexity of creating the XBRL instance document and related files. The SEC implementation allows filers an open taxonomy with a filer-created rendering, and all tagging is the responsibility of the filer. A stream of research has investigated the errors that are present in the SEC filings, as well as period reports on filing-error observations from the SEC and XBRL US. …

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