The XBRL Mandate: Opportunities, And Threats, For Non-Big 4 Auditors

This is a guest post by Daniel Roberts, the past Chairman of the XBRL US Steering Committee, a voting member of the XBRL International Assurance working group, and a member of numerous XBRL working groups.

Daniel has more than 25 years of professional services experience helping clients with engagements in the areas of innovation, sustainability, internal audit, risk management, corporate governance, and implementation of technology to support these initiatives. Daniel participates actively in discussions on CSR & sustainability solutions for organizations. He wrote to the SEC to advocate for more effective disclosure and mandated improvements in MD&A reporting of climate related issues and risks. He believes CSR & sustainability are business issues and must be approached as such.

Daniel has been involved at all levels in the XBRL world since the beginning of 2003, included serving as Chairman of the XBRL US Steering Committee. He also chaired the XBRL International Accounting Supply Chain group. He is a voting member of the XBRL International Assurance Working Group, and was instrumental in supporting the SEC’s decision to mandate the use of XBRL for filings.

Daniel comes from a USAID family, was born in Libya, and has lived in Tanzania, Tunisia, Thailand, Syria, Greece, New Zealand, the United States, and most recently France and the UK. In 1985, he earned his Bachelor of Science in Behavior and Social Science at the University of Maryland.


For years now, every time someone complains about “auditor concentration” the stock response from the big firms seems to be “the smaller firms aren’t stepping up”, all the while the largest four firms are auditing approximately 98% of the market capitalization of the largest companies on the major exchanges in the US and the UK. While there is, of course, no single reason for this dominance, the ability to invest in technology and quickly adapt to new standards does contribute to smaller firms’ subordination.

Mandates such as XBRL provide an example of how the largest audit firms exploit new regulation to further market concentration for their advantage.

The SEC mandated that companies provide XBRL versions of public company 10-K and 10-Q filings.  This year, 2011, is the “third year” of a three-year phase in. If we’re in the third year, why isn’t XBRL “old news”? Because this year – 2011 – the vast majority of public companies, those with market caps under $75 million, are required to file in XBRL for the first time. The SEC’s estimate is that 8700 companies are required to provide XBRL versions of their filings for the first time in 2011.

How does this “new” reporting standard further encourage audit firm concentration?

Until now, only the largest companies had XBRL on their radar. As a result, XBRL was also on the radar of the largest, global accounting firms. In fact, the Big 4 (and a couple of the next-tier firms) have been active in the development of XBRL for years. So the Big 4 have had more than two years to train a cadre of individuals who understand this new technology and can talk to current and potential clients about it. The smaller firms have been playing the eternal game of “Standards Overload” and catch-up. None of their clients needed to create XBRL (until this year) and, therefore, those firms did not invest in their own knowledge.

If I were a Big 4 business development executive, I’d be taking a very good look at the list of high quality companies – the ones with growth prospects and great audit fee potential – that are not currently Big 4 firm audit clients. New, complex, expensive and time consuming technologies are perfect for FUD: “Fear, Uncertainty and Doubt”. How can I use FUD to poach plum clients from smaller audit firms? I’d make a list of a couple hundred targets for the partners and  give them a script. This is what they should say:

“Mr CFO, did you know that you are required to provide your 10-K and 10-Qs in XBRL? You have to create versions of your reports in this complex, expensive and time consuming standard. Are your current auditors briefing you on this requirement?”

And then they should reinforce the fright formula:

It is very complex, with things like ‘arcroles’ and ‘linkbases’ – things that I don’t understand, but that we have experts that have been working on this for years. Oh, and did I mention ‘detailed tagging’? And, our experts are some of the only people in the world that have actually provided any assurance over XBRL.”

As a Big 4 business development executive, I don’t want the minnows, only the whales. Then the partners go in for the kill…

“We’ve already helped a number of companies just like yours. Maybe a bit bigger, and more complex, but that ensures that our experts will be able to help you through this difficult transition.”

Now the rest of the FUD:

“Of course, your current auditor is a great firm, we know them well. I don’t remember though if they have been involved with this XBRL thing. Maybe you should ask them.”

At this point, it really doesn’t matter if the client does talk to their auditors, the Big 4 partner has already undercut them.  He or she has sown FUD and given the prospective client a great additional reason why the Big 4 just might be the firm for them now.

In summary, here’s how it works:

1. XBRL supported by the Big-4 for years

2. Limited participation by other firms

3. Assurance not well defined

4. SEC mandate not well communicated

5. Smaller audit firms might not be ready

6. Big 4 cherry pick the clients they want to poach, using XBRL readiness / advice as a way in

7. Big 4 cement concentration

And that is how something ‘new’, and, in reality, not that complex – and that does not need to be expensive – becomes another tool to expand Big 4 control. At a minimum, the largest audit firms ensure there is no erosion of Big 4 concentration.

But lets take a look at that FUD.

1. XBRL is not complex. Okay, it is a little complex. But we’re not building an airplane here. We’re producing reporting in a different format. There are lots of tools and processes to make it relatively easy. In addition, the SEC has a comprehensive site to help filers.

2. No human in the CFOs office (or anywhere other than a development shop somewhere) should be worrying about ‘arcroles’, and linkbases. They will be built automatically by any decent XBRL software.

3. Implementation of XBRL does not need to be expensive. The SEC’s estimate was $40,000 – $80,000 for the first year. It is very possible to outsource the production of good quality, SEC-ready XBRL for between $6000 – $9000. So shop around. With the right software, companies (smaller audit firm clients) can produce their own SEC ready XBRL for around $4000 – $5000 plus internal labor costs.

4. ‘Detailed tagging’ will be difficult, but is not required until a company’s second year of filing. By that time they will have more experience, and the software will be even better.

5. The smaller accounting firms have not been involved in the development of the XBRL taxonomies, but haven’t needed to be involved. However, there are people in those firms who do understand XBRL.

6. Finally, even the Big 4 have no real idea how to provide assurance that is cost effective, and today there is no requirement for assurance or an audit of the XBRL.

So while the SEC’s mandate for XBRL is real, and yes, all remaining SEC registrants really must provide XBRL this year, it is not a nightmare. Accounting firms other than the Big 4 have every opportunity to help their clients select the best options. Clients – SEC registrants – have a wide range of options, some very expensive and some very reasonable. The software has had a few years to mature and now is really very good.

But here is a real warning: The SEC estimated that 8700 companies will provide XBRL for the first time in 2011. If companies do not book the resources early, and if their accountants and auditors are not ready to give them options soon, this mandate will turn into a SOX-type cost. Companies – and their auditors – should be talking about, and planning for this, now.

Dan Roberts can be reached at,

Roberts is on Twitter as @Jovite

You can visit his site at or read his XBRL blogs at

The main page image represents Dan Roberts’ brand and is taken from an ancient coin representing a Punic horse.

8 replies
  1. Steve
    Steve says:

    I am heavily involved in growth initiatives at a Big 4 firm, and I have never heard anyone mention trying to use XBRL as a way to poach smaller firm’s clients. What an asinie suggestion. It’s a pain in the butt for our clients, but it’s a non-event for the auditors.

  2. Patrick Slattery
    Patrick Slattery says:

    @Steve — I would agree that for the average, line partner, your statement is likely a fair representation, aside from your retort about the pain in the butt.

    Let’s face it, the audit (‘assurance’, ‘compliance’, ‘happy-numbers’ or whatever euphemism the local flavor of grape punch induces) practitioners profit on manual effort. The more manual effort expended by the auditor at a rate-per-hour, the greater the revenue and profit. The only motivation for the audit community to change that would be some form of competitive threat, which, in such a concentrated market, can be more easily contained.

    After decades of personal experience in financial reporting in the US and globally, and as a consulting partner in the Big-4 community, it is my perspective that the technological threat of faster, less error-prone, automated reporting and the related efficiencies achievable in auditing that a standard such as XBRL would drive, are being slowed to realization through under-investment and benign neglect on the part of the audit community. That’s probably more the result of the lack of alignment of audit firms’ priorities and the social and ethical objectives of the standard.

    The investment community and regulatory stakeholders are better positioned to drive the adoption of the standard. As is typically the case, the audit community will follow, not lead. That is not to say that the audit community will not actively participate where it feels it can further its interests, but, let’s not rely on those narrow interests to move things forward.

    Thanks for the article, comments and opportunity to provide my own perspective.

  3. Tony Rezko
    Tony Rezko says:

    Actually Steve, I think it’s plausible and I could see this happening at my big four firm, if indirectly. I’m not involved in our growth initiatives, but lately we have put more focus on attracting the mid-sized or smaller companies that the Big Four was ditching in 2005-2006. These would naturally be companies currently audited by the lower-tier firms. And our marketing of services leaves no stone unturned, be it XBRL or IFRS.

  4. KT
    KT says:

    In order to meet the SEC filing needs Xteron has come up with an Online XBRL compliance solution which addresses all the SEC requirements in the most efficient manner. Our product with simple easy to use workflows is a low cost solution without compromising on Quality and is becoming highly popular among the XBRL user community.

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