MCA should examine why XBRL tagged data hasnt been used for data analytics for early fraud detection: ASSOCHAM prez

New Delhi: The Ministry of Corporate Affairs (MCA) should look into and find out as to why the eXtensible Business Reporting Language (XBRL) tagged data has not been used by the Government for data analytics purposes that can effectively help in early detection of frauds, more so as top Indian companies have been submitting their financial statements in this format for last nine years, ASSOCHAM president, Dr Niranjan Hiranandani said in an ASSOCHAM Virtual Conference.

“It has been a sheer waste of money not only for the Government who has must spent huge money in developing the platform for XBRL filings at Ministry of Corporate Affairs but also for all those companies who have been spending extra money on converting their annual financial statements in XBRL format,” said Dr Hiranandani in his address on Day 2 of a global ASSOCHAM virtual conference on Audit, Risk and Governance – Emerging Trends, Current Challenges and Way Forward.

The XBRL is global standard for digital financial reporting and is successfully working in North America, Europe, Australia and even in a small country like Singapore.

The ASSOCHAM chief also said that the Accounting body of India needs to do more on adoption of emerging technologies in auditing.

“It’s a pity that International Standards on Audit Data Collection were developed over a period of four years with participation of 35 countries. Thanks to thought leaders of accounting profession in India, it was not part of international efforts on standards development process,” he lamented.

Dr Hiranandani, a top-industrialist and co-founder and managing director, Hiranandani Group of Companies added that National Financial Reporting Authority (NFRA) being the regulator of auditing profession in India, also needs to strengthen its own knowledge base on the growing use of technology in auditing.

The first of its kind virtual conference on this subject organised in India saw participation of over 40 national and global speakers and delegates from several countries.

Mr Mike Willis, assistant director, Office of Structured Disclosure, Division of Economics and Risk Analysis, U.S. Securities Exchange Commission said, “Regulators are collecting huge quantity of data with a focus on quality of XBRL filing. A good quality of XBRL filing allows its users to quickly analyze information using data analysis tools, Artificial Intelligence (AI) and Machine Learning (ML), that are currently being used by US Securities Exchange Commission.”

Speaking at the second day of the conference Eric E. Cohen, co-founder, XBRL, Chief Architect, XBRL’s Global Ledger Taxonomy Framework (XBRL GL) said that “Apart from interoperability issues that are there in block chain, it also brings new risks which the Organizations implementing block chain based solutions must consider.”

He added, “COSO has recently published a document ‘Block chain and Internal Control: The COSO Perspective’ which describes the new risks in blockchain and also suggests internal controls to mitigate those risks. This document has been co-authored by me.”

CMA Biswarup Basu, president, ICMAI (Institute of Cost Accountants of India) said that in the post Covid situation, it is significant to study the role of cost & management accounting while undertaking the reconstruction of economy, industries & businesses.

Mr Brian Fox, founder and chairman, Confirmation and VP-Strategic Partnership, Thomson Reuters said, “Auditors need to aggressively adopt the mentality of looking for fraud in their audits. If we don’t take this seriously and do a better job of helping clients find and combat fraud, eventually the public and regulators will take away our exclusive right to do financial audits.”

Mr Harsh Jogani, director-commercial, Thomson Reuters India said, “We have strong underlying trends emerging in the audit industry due to Covid-19 outbreak. Outsourcing routine audit processes from humans to automated systems, shift from paper to electronic confirmation increasing reliability of audit evidence gathered, adoption of APIs’ and data analytics tools making audits more continuous in nature and future proofing businesses and audit profession with a mindset shift to detect frauds.”

Mr Miklos Vasarhelyi, KPMG professor & director, Continuous Auditing and Reporting Lab, Rutgers Business School which is ranked #1 for Accounting Information Systems in the world for last twelve years said, “Continuous Auditing facilitates complete checking of transactions on a real-time basis that makes immediate detection of errors and frauds possible. The opportunities for complicated frauds will reduce if the frauds are detected at an early stage before they attain larger proportions.”

Mr Joel Pinkus, director, KPMG Global Solutions Group – Innovation Team; former chair of AICPA Working Group for Audit Data Standards; former US Head of Delegation for ISO PC 295 said, “Standards can be the foundational point for innovation to address future change. They should be considered starting points for understanding multinational alignment on concepts. However, they shouldn’t be considered the finish line…by the time a standard is developed the need is usually in the past and the innovators have moved on to the next challenge.”

Vinod Kashyap, director, Nextgen Said that “Bureau of Indian Standards has released the draft of audit data collection standards for public comments before its adoption as Indian Standards.”

He added, “Audit data standards will not only save previous time of auditors that they are spending today in extraction of data from the accounting / ERP systems of auditee but will also help in improving audit quality.”

Dr Rajendra P. Srivastava, professor Emeritus, ex-director of EY Center for Auditing Research and Advanced Technology, University of Kansas, said, “The research shows that presence of three fraud factors is necessary to commit fraud: (1) Opportunity (2) Rationalization /Attitude (3) Incentives / Pressures.”

Dr Srivastava also discussed as to how regulators are trying to manage these three factors.