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XBRL AUP = quality assurance = market value (CFOs and audit committees take note)

Should you ask your audit committee to evaluate your XBRL files for completeness, mapping, accuracy and structure under an agreed-upon procedures (AUP) engagement in accordance with the principles and criteria set by the AICPA? I get asked this question all the time, especially by companies whose limited liability is expiring. But everybody should consider AUP for their XBRL.

Why? In the absence of a mandatory audit assurance, an AUP engagement helps ensure that XBRL data brings meaningful value and transparency to the investment community.

Even if your audit committee has adopted a wait-and-see attitude, analysts and investors may be making investment decisions about your company that may be based on substandard and inconsistent data quality. For example, the SEC found several significant and recurring errors by large accelerated filers during the first two months of 2011. The most prevalent data-quality issues revolved around negative values, extended elements and tagging completeness.

Says XBRL US: “In the over 14,900 XBRL submissions to date, over 145,000 data issues have been identified related to the use of the XBRL US GAAP Taxonomy. These inconsistencies include incorrect signs, missing concepts and concepts used incorrectly.“

While a formal AUP is not required, it is best to have a mock AUP environment that ensures compliance of your XBRL-formatted information. A recent trend is for companies to leverage their internal audit function or professional service firm to implement a mock AUP environment to be better prepared for the formal AUP engagement.

What exactly is AUP?
First, an AUP engagement doesn’t deliver an audit opinion. The practitioner performs agreed-upon procedures and assessments, and then reports findings, alternatives and recommendations in a letter to management and the audit committee.

An AUP ensures the completeness, accuracy, proper mapping and structure of your XBRL files. These are the four important aspects of XBRL, according to the AICPA’s latest exposure draft for the XBRL process. Here is what an AUP engagement covers.

Completeness Do you have a procedure to ensure that all required source information is tagged in XBRL? For example, a few commonly missed tags are significant accounting policies embedded throughout footnotes, spelled out amounts and superscript footnotes.

Mapping Even though finding data-quality issues on proper mapping can be aided by software-assisted search and benchmarking analytical tools, at the end of the day, this core process can be subjective: choosing the narrowest tag and assessing materiality can be an art rather than a science. Likewise, the SEC considers mapping to be the most critical part of the XBRL quality control process, but there are no software tools that can detect this type of error prior to filing.

Accuracy Even if common data-quality issues, such as negative values, are flagged by software tools, you still need to assess their validity based on financial facts and the specific circumstances for comparative quarters and year-to-date periods.

Structure Technical validation errors of this type tend to be black-and-white and can be detected by third-party SEC and EDGAR validation tools prior to submission to the SEC.

AUP = quality assurance = market value
Whether you have a built-in versus a bolt-on XBRL solution, you need quality assurance over your XBRL data. Some AUP steps can be accomplished with software tools, while other procedures require professional judgment. Automated tools can only help you so much in highlighting inconsistencies and the usual suspects. Ultimately, you need to tell your company’s story by choosing the tag that best maps to the underlying transaction and translates that fact into meaningful information.

Because investors rely on your XBRL data to make investment decisions, it is ultimately your responsibility to avoid errors before they are disseminated to the public. Aside from compliance, the real benefit of XBRL is increased transparency and comparability, which can in turn increase the value of your stock when the analyst community gains more confidence in your XBRL data.

Learn more about RoseRyan’s XBRL expertise.

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Cleantech survey findings consistent with word on the street

RoseRyan recently completed the second annual State of Cleantech Survey with our partners KPMG, Barney & Barney and Arbor Advisors. In general, the findings are very consistent with what we are hearing from clients. Cleantech ventures are still being funded but investors are keeping a cautious eye out due to macroeconomic issues. Although there have been some high-profile flops (Solyndra) there have also been many successes (Tesla). The Valley continues to produce high-profile cleantech success stories, and I anticipate there will be some big wins in the coming year.

Some of our key findings include:

  • The overall outlook for venture funding is optimistic, with 67 percent of survey respondents saying they are extremely, very, or somewhat optimistic.
  • The outlook for cleantech growth in Northern California is strong, with fully 50 percent saying they are extremely/very optimistic.
  • The two biggest trends are an increase in M&A and the expansion of large multinationals into cleantech.
  • The greatest challenge is gaining access to capital.
  • Regarding personnel, cleantech demand is highest for engineering support.

All of my clients are highly optimistic about the future of cleantech. Most believe that if they had greater access to capital at attractive terms they would be able to expand their business rapidly. Some sectors, including solar and lighting, are growing rapidly and are being impacted by the advent of strong Chinese competitors, while others, including energy efficiency and storage, are growing at a steadier pace. Big multinationals are biding their time trying to predict who the winners and losers are going to be.

I fully expect the pace of innovation to continue as the federal stimulus–funded clients approach their second and third years post-funding. The cleantech market is showing some signs of maturity and funding infrastructures are improving. Although the frothiness of the past may be mellowing, the overall market is growing at a nice, sustainable pace.

In the coming year expect some big news in biofuels and electric vehicles spaces…it should be interesting to watch!

You can download a PDF of the 2011 Cleantech Survey report or read the news release.

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Seminar: Managing Risk—Accounting and Currency Issues for Life Sciences Companies

Please join us September 27 in San Carlos for a free seminar tackling two pressing topics affecting biotech and medical device companies: new accounting rules and managing foreign exchange risk.

New accounting rules are here—and more are coming
This year the Financial Accounting Standards Board introduced several new accounting rules that affect life sciences companies—and FASB has many more changes planned. Maureen Earley, a RoseRyan technical accounting guru, will review the practical implications and give you an inside look at what’s on deck.

International clinical trials bring foreign currency risks
Managing foreign currency exposure on international clinical trials is becoming increasingly important for life sciences companies. Nick Bennenbroek, a Wells Fargo economist and head of the bank’s currency strategy, will discuss where things are heading and how best to manage foreign exchange risk.

The program will be held 8–10 a.m. at Wells Fargo Insurance Services, 959 Skyway Road, San Carlos. It includes breakfast and time for networking.

 

Register here.

Need more information? Please contact Eve Murto.

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Seminar: New Accounting Issues Affecting Technology Companies

RoseRyan and Silicon Valley Bank are pleased to present “New Accounting Issues Affecting Technology Companies” September 29 in Santa Clara. Technical accounting pro Maureen Earley will review the practical implications for technology companies of several new accounting rules introduced in 2011. She’ll also pull back the curtain and give you a peek at what’s next. If you work in finance at a private technology company, you’ll want to know how these new rules affect the information you provide to your company, investors, board and even your lenders.

What you’ll learn:

  • Revenue recognition accounting changes for 2011
  • Financial Accounting Standards Board rule changes in the pipeline
  • Common accounting issues for VC-backed technology companies

The program is free, and will be held 4–5:15 p.m., followed by a networking reception, at Silicon Valley Bank, 3005 Tasman Drive, Santa Clara.

Register here.

Need more information? Please send an email to Eve Murto.

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Global accounting standards need more than just U.S. adoption

Everyone supports a single set of global accounting standards, and there is a big spotlight on the United States and its pending decision process to adopt or incorporate IFRS into its reporting structure. However, there is a lot more to achieving global accounting standards than just adoption of standards.

The United States does not hold the key, as many indicate in their comments to an SEC staff paper (PDF) that proposes one possible method of incorporation of IFRS in the United States. (The paper was released in May; the comment period officially closed July 31.) Respondents point out that ensuring that the principles-based accounting guidance is consistently applied is up to regulatory agencies and others responsible for oversight of the financial reporting in jurisdictions around the world.

“Among other things, differences in language (and translation), culture, reporting cycles, legal and tax systems will unavoidably affect how global accounting standards are interpreted and applied to some degree,” Financial Executives International (FEI) comments point out.

PricewaterhouseCoopers responded with concerns regarding consistent application. Its comments state, “achieving the vision requires both the adoption of IFRS in all significant capital markets and enhanced cooperation and coordination among national regulators, the International Accounting Standards Board (IASB) and its interpretive body, preparers, and auditors in order to facilitate the consistent application of IFRS.”

The American Institute of Certified Public Accountants sounded a similar note in its response, encouraging the Public Company Accounting Oversight Board (PCAOB) to pursue greater harmonization of auditing standards with its international counterpart, the International Auditing and Assurance Standards Board.

Even the IASB itself acknowledges this issue. In April, the IFRS Foundation issued its Trustees’ Strategy Review report (PDF) on its ongoing strategy as a global accounting standard setter, in which they identified steps to help ensure the consistent application of IFRSs. These steps include:

  • Provide additional application guidance and examples.
  • Work with securities regulators, audit regulators and other standard setters to identify divergence in practice and consider improvement to standard or interpretative guidance.
  • Enlist IFRS Foundation to education and content services aimed at promotoing consistent application.
  • Indentify jurisdictions where IFRSs are being modified and encourage transparent reporting of divergence.
  • Seek assistance from other public authorities to assist in achieving this objective.

So while the world sits and waits for the United States to hurry up and make a decision about incorporation of IFRS, there is still a lot that could be done by other agencies to promote a single set of global accounting standards.

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