The Quality of XBRL Structured Financial Statements: An Empirical Examination of Custom Tags

In 2009 the US Securities and Exchange Commission (SEC) adopted the eXtensible Business Reporting Language (XBRL) system to improve the process by which financial statements can be used. Interactive financial data filed with the SEC using XBRL provides easily readable and comparable financial data, thereby improving transparency and efficiency in the corporate market. SEC rules permit companies to use custom tags in their financial reports in cases when an appropriate element cannot be found in the Financial Accounting Standards Board (FASB) standard XBRL taxonomy. The inordinate use of custom tags may result in a reduction of financial report quality by diminishing the comparability and usability of filings by investors and analysts. Using XBRL-based empirical data from 2015 to 2017 fiscal years, this paper explores the inordinate use of custom tags. Do high uses of custom tags result from the complexity of a company’s operational structure or are they used deliberately by managers attempting to manipulate their financial disclosures? I find that the use of custom tags is positively related to variables indicating the lower quality of financial reports

The Effect of Accounting Reporting Complexity on Financial Analysts

We investigate the association between a new XBRL based measure of accounting reporting complexity (ARC) and analyst behavior. We find that analysts are less likely to cover firms with complex accounting. Further, higher ARC is associated with lower forecast accuracy, higher forecast dispersion, and lower informativeness of recommendation revisions and responsiveness to earnings announcements. This association is attenuated when analysts have longer tenure, greater firm-specific experience, and are focused on fewer industries. Investigating several complex accounts, we find that the complexity of derivatives, fair value, and pension accounts are each negatively associated with forecast accuracy, suggesting that understanding these complex accounts requires specialization. We propose a new measure of analysts’ account-specific expertise and find that expertise with derivative and fair value accounts attenuates the negative effects of complexity in these accounts to a greater extent than general analyst experience. Overall, our findings suggest that analysts’ expertise plays an important role in mitigating the adverse effects of ARC

Data Standardization and Quality Degradation of Human-readable Data

Data standardization is a widely recommended solution to improving data quality. Despite the potential benefits, we examine if it has any unintended, especially undesirable, side effects on data quality. The eXtensible Business Reporting Language (XBRL) is an XML-based open standard that aims to facilitate the preparation, exchange and comparison of financial reports. Leveraging the unique opportunity created by the exogenous mandatory XBRL adoption enforced by the U.S. SEC, we use a difference-in-differences (DID) research design to establish the causal relationship between XBRL adoption and quality of HTML-formatted financial reports, an important source for investors and analysts to obtain firms’ financial information. Surprisingly, we find the mandatory XBRL adoption has degraded the quality of the adopting firms’ HTML-formatted financial reports, as measured by a number of data quality metrics, including spelling errors and readability. The U.S. SEC and adopting firms need design appropriate policies to minimize the undesirable side effects

XBRL

XML (eXtensible Markup Language), with wide-ranging applications in business and other applications, is hailed as a revolutionary advance in data transfer and information identification on the Internet. This tutorial explores XML applications in business transactions and then focuses on XBRL (eXtensible Business Reporting Language). XBRL is an application of XML in financial reporting. XBRL uses accepted financial reporting standards, and allows automatic exchange and reliable extraction of financial statements across all software and technologies. XBRL includes a well-defined dictionary of markups and is supported by many supplementary technologies. This tutorial explores the following aspects of XBRL: markups, documents and schemas; transformation and processing technologies that support XBRL; tools and software that enable real-world implementation of the language; and audit and control issues associated with XBRL

Financial Reporting in XBRL. First Evidence on Financial Statement Notes of Italian Unlisted Companies

The new taxonomy 2014-11-17 mandates Italian unlisted companies to codify in XBRL also the notes to the financial statements. Building on previous literature, the aim of this study is to analyze the impact of mandatory XBRL extension to the financial statements notes on financial reporting quality of the Italian unlisted companies. We focus our analysis on the taxonomy usage and the customizations made by the filers. Our data represents the very first sample of Italian financial statements filed in fully XBRL format. Despite the significant changes affecting the process of financial statement preparation, we find that Italian unlisted companies have accepted and acknowledged the potential benefits and limits of the new taxonomy. When dividing the notes section between textual blocks and tables, we find a clear preference for the filers to use textual blocks for both, standard and abbreviated financial statements. Overall, we find that filers of both financial statement types use extensively the customizations offered by the taxonomy. Moreover, for the filers of abbreviated financial statements, we show that they tend to use not only more table customizations but also tables that are proper for the standard financial statements, thus offering higher voluntary disclosure

Financial Reporting Practices of Italian SMEs. Why Do They Disclose More?

From reporting periods ending on or after 31 December 2014, Italian unlisted companies filing their financial statements under the national GAAP have to deposit them to the Business Register in fully XBRL format. In particular, for companies submitting their financial statements in the abbreviated form, the mandatory taxonomy has offered the option to use in their notes also the tables of the standard one: this means that they can voluntarily provide more information than that normally required by the law. In this paper, we investigate this phenomenon focusing on its level and analyzing the variables explaining the reasons that push Italian SMEs to use, in their abbreviated financial statements, non compulsory tables that are proper of the standard ones. Based on a large sample of 8,738 elements, we report surprising results: more than 80% of the abbreviated financial statements include at least one table proper of the standard ones, while on average they include seven. In addition, when analyzing the determinants of this phenomenon we find that the only relevant variable explaining the number of optional tables included in the abbreviated financial statements is the software used for preparing them

XBRL financial reporting supply chain architecture

Recently the Internet with XML technologies and especially XBRL technology has impacted what is recognised as the financial reporting supply chain. Some claims in the market report that XBRL has the potential to reduce inefficiencies, automate and optimise the financial reporting supply chain. Nevertheless the real nature of the impact still remains unclear. The growing number of XBRL projects around the world together with strong interest from bodies such as the SEC in the United States, CEBS in the European Union and the IASB building XBRL taxonomies demonstrate the need for research in the area of XBRL application in the context of financial accounting and accounting information systems as well as in the financial reporting supply chain context. In order to answer the demand on the research in this area this research addresses financial reporting supply chain on the basis of financial accounting literature. With the introduction of information systems for enterprises, financial reporting was often discussed as a part of the AIS literature. Nevertheless the supply chain character and information systems context of financial reporting are rarely considered in the research literature in any theoretically constituent manner. This study examines the impact of XBRL on the financial reporting supply chain architecture. First goal of this thesis is to properly state and set the boundaries of financial reporting supply chain. In order to realise the goal modelling of financial reporting domain as financial reporting supply chain architecture is conducted. The second goal is to critically assess impact of XBRL on the modelled financial reporting supply chain architecture components. This assessment is conducted by enhancing financial reporting supply chain architecture with XBRL components thus modelling XBRL financial reporting supply chain architecture. The secondary goal of the assessment is the construction of the reference model of XBRL financial reporting supply chain architecture