XBRL Reporting Seminar 20

Samantha Tio

Wai Yin May

Jeremy Yeo
 Brief Overview of XBRL
 XBRL is a markup language, similar to XML or HTML

 Designed specifically for business applications,

 Companies identify their tags on XBRL taxonomies

 Brief Overview of XBRL
 The definitions are based on the meanings of items, such as
Revenues or Accounts Payable, found in GAAP-based financial
statements; the idea is to associate or link each financial
statement item with an XBRL tag in a manner consistent with
the creation of GAAP financial statements
Question 1

 Based on the reading, provided below, do you think XBRL reporting

is effective mode of investor communications? Explain why or why
not.
 Question 1
 Yes
 Enhances transparency
 Investors can easily understand the financial reports
 Enhances comparability of financial reports
 Same taxonomy (support specific company reviews and further financial
and operating analysis)
 Do not need to reformat
 Financial and operating information can be easily accessed by the stakeholders
through XBRL
 Question 1
However…………..

 If the information is considered to be more reliable than before, regulators

and investors may place too much emphasis on it

 If the data is accessible at any time, there is greater need for it to be accurate
at all times otherwise it could prove to be misleading

 High implementation cost for some companies if they do not have up-to-date
technology or web presence (Cost-Benefit Analysis)
 Question 2
 To what extent can financial analysts and retail investors benefit from XBRL
reporting?
Question 2
Needs of the financial analysts and retail investor:

- Transparency

- Comparability of the financial information

- Accurate information
 Question 2
Enhance transparency of the report:

- Provides an electronic method for companies to report financial info in

accordance with the GAAP
 Question 2
Enhance comparability of the reports:

- XBRL can solve the problem of reformatting and manipulating the data
retrieved from the EDGAR

- Enables users to directly extract information from EDGAR across a broad set of
companies for comparison and other analysis without direct reference to the
printed financial reports.

- XBRL uses an unique word vocabulary that allow the various accounting and
recordkeeping systems to be compared and contrast for any business analysis

- Helps to fulfill the expanded data analysis needs emanating from the differing
recordkeeping systems
 Question 2
Other benefits of XBRL:

- Potentially even deeper coverage of midcap companies by analysts

- Accurate data

- Faster data inflow and access , creating an increased probability that anomalies
in financial reporting could be discovered much earlier

- Enhanced productivity

- Faster taxonomy changes

- Reduce cost of analyzing and reporting financial information

- Increase speed and efficiency of business decisions

Question 2

 Issues to consider:
 Cannot undo fraudulent accounting
 No clear guidance on auditing of the XBRL
 XBRL data is computer-readable and users will not be able to visually
recognize the errors (Tagging Error)
 A single inappropriate or missing tag could result in the statements
“taken as a whole” being materially misstated,
Question 3

 In your opinion, do you think XBRL can help to prevent

opportunistic financial reporting?
 Question 3
 Yes
 Helps the SEC to crunch through the relevant information much faster

 Increase the probability that anomalies in financial reporting could be discovered

much earlier

 If managers realize that XBRL adoption makes their financial disclosure

management transparent, they will become less likely to engage in financial
disclosure management that is harmful to the users of financial reports.
 Question 3
 No
 Cannot undo fraudulent accounting
 Currently, the “Paper-centric” view taken. But should move towards “Data-centric”
 No clear guidance on auditing of the XBRL techniques
 Sampling
 Materiality
 Ability of individual companies to create their individual tags hence hence complicate the
assurance process
 If managers realize that disclosure management may damage firms’ reputation and affect users’
investment decision after XBRL adoption, they will become more likely to choose more precise
or neutral accounting policies and procedures on their financial reporting.
 If the information produced by XBRL is considered to be more reliable than before, regulators
and investors may place too much emphasis on it however, there is still an opportunity for the
data to be manipulated by company management.
PART II
Management Guidance of Analysts Forecasts
Reasons for management guidance for low earnings
forecast

1) Lower the bar

 Increase/maintain share price on earnings announcement date

 Exceed forecast slightly/meet forecast

 Differential reaction to positive Vs negative earnings surprises (loss

aversion)
Reasons for management guidance for low earnings
forecast

2) Avoid shareholder litigation

 Reduce ground for liability due to management misleading the

market
 Effectiveness of forecast guidance
Not effective in long run

 Investors adjust for bias in analyst forecasts

 Studies have shown that stock market reacts asymmetrically strongly to

positive compared to negative earnings surprises
 Effectiveness of forecast guidance
Not effective in long run

 Investigation by CAR author:

 Investors’ earnings expectations do not coincide with analyst forecasts
 Over-confidence in self-collected info
 Reaction pattern reverses when earnings surprise reflect investors’ perceptions
 Effectiveness of forecast guidance
Not effective in long run

 Whisper numbers
 Unofficial and unpublished forecasts reserved for favoured clients of the brokerage
(now regulated by Sarbanes-Oxley Act)
 Forecasted earnings based on collective expectations of individual investors
 No evidence of higher accuracy
 Affects investors’ expectations and hence share price