Assurance on XBRL Instance Documents:

1. UWCISA - 5th Symposium on Information Systems Assurance October 12, 2007 Assurance on XBRL Instance Documents: The Case of United Technologies Corporation University of Waterloo Efrim Boritz Won Gyun No

2. Agenda • Introduction • XBRL and Assurance • SEC’s Voluntary XBRL Filling • Reporting Framework for Electronic Filings • Assurance Framework for Electronic Business Reporting • Findings • Recommendations

3. Introduction • Increased XBRL implementation for regulatory filings across the world. • U.S.: SEC XBRL voluntary program on EDGAR and $5.5M to XBRL-US to develop taxonomies. • U.K.: Plans to make XBRL mandatory for company tax filings from 2010. • Canada: CSA XBRL voluntary filing program on January 19, 2007. • Japan: TSE XBRL reporting system in 2006. • XBRL 3rd in FEI’s top 10 financial reporting challenges for 2007(Heffes, 2007). • Most companies currently providing their information using XBRL are doing so without assurance. • Very limited guidance and experience on XBRL instance document preparation • SEC’s voluntary XBRL filing program • Some errors in SEC filings • Case study of the EDGAR filing of United Technologies Corporation • Perform mock audit procedures • Interview preparers and auditors • Address a number of issues that an auditor might confront if/when provides assurance on XBRL instance document

4. XBRL and Assurance Three Phases in Electronic Financial Reporting Phase I - Paper Paradigm Electronic Financial Reporting (Past) Phase II - Paper Paradigm Electronic Financial Reporting Using XBRL (Current) Phase III - XBRL Paradigm Financial Reporting (Future)

5. SEC’s Voluntary XBRL Filling • SEC’s voluntary XBRL filing on EDGAR • February 3, 2005 • File paper format and furnish XBRL format statements • MD&A, notes, and accountant’s report are optional. • Companies create customized taxonomies to enable the XBRL filing to parallel the paper format filing as closely as possible. • Some insights into SEC filings (at February 28, 2007) • 36 companies and total 126 fillings • Significant parts of the filed instance documents are based on companies’ own customized taxonomy extensions. • Instance Validation: 51 (49.5%) • Taxonomy Validation: 114 (90.5%) • Financial Reporting Instance Standards (FRIS) and Financial Reporting Taxonomies Architecture (FRTA)

6. Research Objectives • Compare the XBRL instance document in detail to the paper format filing • Interview preparer to obtain explanations • To identify issues that an auditor might confront if performing audit procedures on an XBRL instance document • To learn about and report on the nature and extent of the work that would be required to determine whether the translation of the paper format document to the XBRL document was complete and accurate • To provide recommendations for both auditors and XBRL instance document preparers

7. Assurance Framework for Electronic Business Reporting Client Acceptance 1. Acceptance Planning 3. Planning the engagement: Understanding the subject matter 2. Terms of engagement 4. Assessing the appropriateness of the subject matter Testing & Evidence 7. Obtaining evidence 5. Assessing the suitability of the criteria 8. Using the work of an expert Evaluation & Reporting 6. Risk and Materiality 9. Management representations 10. Reporting • From Assurance Working Group of XBRL International (2006)INTERACTIVE DATA: THE IMPACT ON ASSURANCE, NEW CHALLENGES FOR THE AUDIT PROFESSION • From Hayes, R., Dassen, R., Schilder, A., & Wallage, P. (2005)Principles of Auditing: An Introduction to International Standards on Auditing

8. Audit Process ACross-reference Between PCAOB and AWG

9. Audit Process Manual Two-way Tracing: Step I • Contexts

10. Audit Process Manual Two-way Tracing: Step II • Financial Facts and XBRL Elements

11. Audit Process Manual Two-way Tracing: Step III • Notes and MD&A

12. Findings Taxonomy • Found that only “44.3%” of the 10-Q instance document was based on the approved XBRL taxonomies. • Could not determine whether this use of custom extensions is appropriate due to the lack of assurance standards or practices with respect to this matter. • A custom taxonomy was used instead of the approved XBRL taxonomy that was available. • Accountants Information – Name <AccountantsInformationName> vs. <AccountantName> • Used different elements for the same names, signatures, job titles, and date contained in different exhibits • James E. Geisler and Gregory J. Hayes in the signature section of UTX’s 10-Q were not used in the section 1350 certifications. Instead different taxonomy elements were used.

13. Findings Instance Document • Contexts • 145 contexts • Not in any logical order • Could cause problems in subsequent periods to determine inter-period consistency (e.g., quarter to quarter) • Labels • Titles and subtitles were not always presented in the instance document in a consistent manner, or were missing altogether. • Some labels were missingornot exactly the same in the label linkbase as in the taxonomy. • Totals • Some totals which appear in the notes in the 10-Q are omitted in the instance document. • Sometimes totals are in the instance document and sometimes they are left as implicit items defined in the calculation linkbase.

14. Findings Notes and MD&A • Disaggregation of textual narratives in both notes and MD&A Textual Narratives XBRL Elements

15. Findings Accountant’s Report Regarding XBRL Engagement

16. Findings Accountant’s Report • Used own taxonomy for ‘Report of Independent Registered Public Accounting Firm’ instead of using usfr-ar(US Financial Reporting - Accountants Report) taxonomy.

17. Findings Accountant’s Report Regarding XBRL Engagement • AWG (2006, p. 24): 9 basic elements should be included in the report. • PCAOB (2005, p. 6) • An audit report: if the XBRL instance document has been audited. • A review report: if it was reviewed and the report was filed with the SEC. • Do not express opinion: if it was reviewed, but the review report was not filed with the SEC. • Disclaim an opinion: if it was not covered by an audit report or review report. • The AWG’s recommended elements were satisfactorily addressed in the report. • PWC stated that the underlying information in the 10-Q instance document has not been audited and did not express an opinion on that information in the report since the review report prepared by PWC was not filed with the SEC. • The accountant’s opinion on the instance document was created in HTML format rather than XBRL and was filed as a separate document.

18. Findings Summary • Took an XBRL expert about 63 hours to complete (not counting other steps that would be required) • Had high assurance that the instance document was a complete and accurate reflection of UTX’s 10-Q paper format filing • Cannot form a conclusion on the fairness ...in accordance with GAAP of the instance document • No assurance standards or guidelines for making such an assessment • Limited knowledge for evaluating the MD&A, regulatory information, and the appropriateness of the company’s own extensions to the XBRL taxonomies

19. Recommendations • Auditors’ effort, time, and cost could be reduced. • A deliberate structuring of an XBRL instance document • A logical ordering of elements in the XBRL instance document (e.g., by financial statement, notes, and MD&A) • An embedded description of the structure • Explanation of why custom taxonomies are required or are preferred to approved taxonomies. • Create rules for naming attributes (Sgt_Ottis_2004 vs. Context11) • Organize contexts systematically and document rules used to create them • Need Computer-Assisted Audit Techniques • Assurance on XBRL instance documents. • Some form of comfort/assurance will be necessary. • Need guidance for both preparers and auditors • If an external report is provided, then it should be provided as an XBRL instance document to utilize the advantage of XBRL • Need a taxonomy for an auditor's assurance report on XBRL instance

20. Questions & Suggestions