Chapter 6: Technology concepts Flashcards
Discuss the use of XBRL in Australia.
XBRL is not a current standard for filing financial accounting reports with the Australian Stock Exchange.
However, regulatory authorities in Australia are presently developing financial requirements.
The Standards-Based Reporting (SBR) initiative provides a taxonomy for the reporting requirements of Australian government agencies.
What is the relationship between XBRL and XML?
XML is metadata and specifies different data and their usage.
XBRL is an XML variant, explicitly developed for business application.
XBRL allows the production and reporting of financial information using XML standards and thereby enables the searching and manipulation of this data through the internet.
When creating files, XML allows the software to label data with a type of metadata, called tags.
The tags specify what each word, number, character, or group represents and reduces the need for further data manipulation.
Likewise, XBRL applies a tag to every financial statement item, including the discussion and analysis.
Similar to XML tags, we can also use the tags to search, manipulate and sort data.
Since all current software can import, export and process data in XML format, as an XML vocabulary, the same is true for XBRL.
Discuss the benefits that XBRL can provide to external stakeholders.
Because XBRL is extensible and flexible, we can adapt it to a wide variety of requirements.
All participants of the financial information supply chain can benefit from using XBRL, whether they are preparers, transmitters or users of business data.
For example, XBRL can help users save time in analysing, selecting, and processing data because they do not need to collate and re-enter the financial information.
Preparers can use software to validate data in XBRL format and to highlight errors and gaps.
Investment analysts can use XBRL to simplify data selection and comparison, prepare faster reports, enhance decision-making, and deepen company analyses.
Lenders can save costs and speed up their dealings with borrowers.
Regulators and government departments can assemble, validate and review data more efficiently.
Discuss the benefits that XBRL can provide to internal users.
Internal users from different company divisions using various accounting systems can assemble data quickly, cheaply and efficiently using XBRL.
Moreover, employees can quickly produce different types of reports using data in XBRL format.
Not only can staff automate data handling, removing time-consuming, error-prone processes, but software can also verify the data for accuracy.
Small businesses can also benefit using XBRL by standardising and simplifying their assembly and filing of information to the authorities.
With XBRL, software developers can build and install tools into a wide variety of systems, without the need to customise the company interface.
While installation may require custom configuration based on a company’s internal control systems, the process would be cheaper using XBRL.
Additionally, because XBRL is an external standard that supports financial reporting based on the US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), companies can respond to rapid changes in regulatory reporting requirements.
The ability to consolidate acquisitions and integrate business systems has historically been challenging due to differences in data and account structures.
However, if both companies are using the standard, XBRL has the potential to reduce the time and effort to integrate new acquisitions significantly through the consistent classification of tagged information.
Describe the relationship between taxonomy, schema, element, tag, and linkbase in terms of XBRL.
Concerning XBRL, a taxonomy is an XML schema and the set of linkbases referencing it.
Taxonomies are the dictionaries where we define each XBRL tagged accounting item and contains one or more schemas.
A schema is a formal description of the database structure and contains taxonomy-defined elements.
A taxonomy also contains linkbases defining the relationship between the different elements, such as the current and long-term assets within the asset category.
calculation, label, reference, definition, presentation
Describe the five linkbases associated with XBRL.
(i) Calculation linkbases relate XBRL concepts through the application of basic calculation rules (e.g. assets = liabilities + owner’s equity) and ensure the accuracy of the many accounting equations that comprise XBRL reports.
They also enable XBRL software to interpret these relationships correctly and automatically derive correct values from the input data.
(ii) Label linkbases provide human-readable strings for concepts.
For example, depending on the selected taxonomy standard, users will either receive the US GAAP or the IFRS definition when looking up the meaning of ‘cash and cash equivalents’.
Label linkbases can also support multiple languages.
(iii) Reference linkbases associate concepts with the citations of a body of authoritative literature, for example, a securities exchange ruling.
(iv) Definition linkbases associate concepts with other concepts using a variety of rules.
(v) Presentation linkbases associate concepts with other concepts to guide the creation of accounts visualisation.
Explain the concept of continuous auditing.
Continuous auditing describes how an organisation using an ERP system audits its accounts throughout the financial year, rather than only examining samples of transactions after balance date.
Continuous auditing also checks that controls are in place, rather than only auditing the output.
List and describe at least four benefits provided by XBRL.
1. Reduced data manipulation:
The users of the financial information do not need to re-input data to analyse it.
2. Paperless reporting:
XBRL offers paperless reporting and users can view the reports online.
3. Industry-accepted standards:
Software companies, government and professional accounting communities have jointly designed a single version of XBRL.
4. Reduced accounting time:
Significantly less time is required to prepare accounting reports through the application of different taxonomies and standards.
Other benefits include recognition by most accounting software vendors, interchangeable data, comparisons across companies, and improved audit quality.
Discuss what does extensibility means in XBRL.
Extensibility means that each company can extend the taxonomy by developing its elements.
Therefore, companies can extend the provided taxonomy tags by adding extra ones particular to their business.
The downside is that because taxonomies are extensible, a user may create unnecessary taxonomy extensions for elements instead of using a standard tag.
Although all instance documents require internal controls, the creation of additional elements may reduce effective auditing.
Likewise, a company creating new elements for multiple items reduces comparability between companies within an industry.
Explain how accounts can be tagged using XBRL.
There are five steps to code accounts using XBRL.
(i) Open the report in either Microsoft Word or Excel.
(ii) Download the appropriate taxonomy and related files from the XBRL website.
(iii) Attach the XBRL schema and associated files to the report.
(iv) Tag the accounts by selecting the appropriate code from the left-hand column and the corresponding tag from the right-hand column.
(v) Save the document as an XML file to retain the XBRL codes.
List and discuss four typical advantages of cloud computing.
1. Access to a cloud service provider requires a monthly fee only, rather than significant capital investment.
Consequently, reduced investment in the underlying technological infrastructure can benefit smaller organisations and new entrants.
2. Cloud computing offers a risk-management strategy because, in the event of a disaster, IT services remain accessible.
3. The cloud service provider ensures up-to-date applications and technology.
4. The cloud service provider manages all security and maintenance.
Explain how an ERP system integrates the activities within an organisation.
Enterprise resource planning (ERP) systems help a company to manage its business.
A fundamental goal of ERP code is to integrate workplace business processes and facilitate the flow of knowledge inside a company, thereby making business choices data-driven.
ERP systems integrate all the functions of a business into a unified platform, streamlining information and an organisation’s financial reporting.
Explain the benefits of an ERP system.
The benefits of an ERP system lie in its ability to integrate business modules.
For example, individual modules, such as manufacturing, benefit from the integration of information related to the inventory, materials, labour and overhead needed.
The integration of sales and marketing with manufacturing can provide customers with better service through the planning, scheduling and delivering of orders, and also integrated products.
A central database benefits an organisation through updated, accessible and streamlined information across all modules.
What key business processes do ERP systems support?
ERP systems support four key business processes:
- Sales – order to cash process
- Purchases – purchase to pay process
- Manufacturing – the value-adding process
- Human resources – payroll process
Explain how an ERP system supports key business processes.
An ERP system supports critical business processes through:
- data capture
- facilitating operations
- more effective decision-making
The ERP system captures all the necessary activities and transactions and covers four aspects of the business event:
- Person(s) involved
- Exchanged resources
- Location
- Completion date
The collation of these dimensions allows an organisation to aggregate and summarise data in various forms depending on the decision-makers requirements.
Furthermore, the ERP system automates the generation of routine accounting reports.
Finally, the centralised database also supports business processes by capturing and splitting data into either business event data or master data.
