Accounting Information Systems 1st

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Chapter 09 - Reporting Processes and eXtensible Business Reporting Language (XBRL)

Solutions – Chapter 9

1. Using Figure 9.2 as a guide, name three internal and three external databases that you
think should be included in a data warehouse for Bank of America, Wells Fargo or
your local bank. Support your answer.

Internal Databases might include the following:

General Ledger
Loan Portfolio (Including loan products)
Customer Database (and related demographics)

External Databases might include the following:

General Economy Information (GDP, Interest Rates, etc.)
Focal Customer Demographics
Banking/Finance Industry Information

Data warehouses are made for different purposes. The databases proposed
above presume an interest in selling new loan products to existing and potential
customers. We get profitability information of the various loan products from the
internal databases. We also get information on potential customers, economic and
industry trends from the external databases. In sum, these databases can spot trends
and opportunities for a bank.

2. Using Figure 9.2 as a guide, name three internal and three external databases that you
think should be included in a data warehouse for your university. Support your
answer.

Internal Databases might include the following:

Student Recruitment Database
Student Course Catalog Database
Student Performance Database (include ACT, SAT, high school grades, college grades)

External Databases might include the following:

General Economy Information (GDP, Interest Rates, etc.)
Focal Student Demographics
University Industry Information

Data warehouses are made for different purposes. The databases proposed above
presume an interest in gathering information to attract the highest quality students to a
university. Getting information on recruitment means, scholarships, grades, and courses
taken might all be helpful in attracting prospective candidates. Information can also be
gleaned from external databases to learn trends of universities, students (via focal student
demographics) and the general economy. All of this information might be helpful in
attracting students to a university.

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Chapter 09 - Reporting Processes and eXtensible Business Reporting Language (XBRL)

3. Name five items that you think would be included in a digital dashboard for ESPN or
for Disney. Why are these critical business processes for them?

A digital dashboard for ESPN might include the following:

• Current viewership/subscribers (Last two weeks and trends from recent months)
• Advertising Revenues (Last two weeks and trends from recent months)
• Current game/conference contracts in progress
• Current website hits/Fantasy Football, Baseball etc. game participation
• Status of negotiations with various cable subscribers.

This dashboard is meant to capture the status of operations, advertising and new
game revenues for ESPN.

A similar solution might be rendered for Disney.

4. Who will rely on XBRL data for decision making? Why is assurance needed on
XBRL data? Support your answer.

XBRL might be used by investors, financial analysts, regulators, and creditors

(banks, etc.). As these various XBRL users rely on the information to make
important decisions, it is important that the XBRL data be accurate. Thus, assurance
is needed for XBRL data in addition to the financial statements underlying that
XBRL data.
5. Why is there a different XBRL taxonomy for each country, including XBRL
Australia, XBRL Canada, XBRL Germany, XBRL Japan, XBRL-Netherlands,
XBRL-US, and XBRL-UK? What would happen if there were only one XBRL
taxonomy for all countries?
Different countries have different financial standards (IFRS, FASB, country-specific)
and have various practices that are reflected in their XBRL taxonomy. Moreover,
there are also tags and extensions that are company-specific to reflect the business
model used by that particular company.
As financial standards converge toward a harmonized standard (such as IFRS), there
is increasingly a chance that one XBRL standard emerge. However, since XBRL is
also used for regulatory purposes (such as taxes, banking, etc.) that is country-
specific, it is not realistic to expect that a single world-wide standard to emerge.
A sole XBRL taxonomy for all countries would allow users to be able to access data
from around the world in a similar fashion, allowing economy of effort, etc.
6. How would the XBRL style sheets be different for financial analysts as compared to
the Securities and Exchange Commission? How would XBRL style sheets be
different for a firm’s web site as compared to bank loan officers?

Style sheets for financial analysts would be more interest in models supporting
earnings and cash flow predictions. The SEC, in contrast, would be more interested
in protecting investors as well as disclosure and regulatory issues. The style sheets
supporting these models would thus be quite different.
The XBRL style sheet for a company web site might only access the highlights for
the retail investor. In contrast, the XBRL style sheet for bank loan officers would

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Chapter 09 - Reporting Processes and eXtensible Business Reporting Language (XBRL)

attempt to assess ability to pay back a loan and would tailor their style sheet to access
that information that allows them to monitor liquidity and solvency.
7. Why is XBRL needed in the financial community? In your opinion, why did the
Securities and Exchange Commission mandate its usage? What does it provide that
was not available before XBRL?
XBRL is needed as a means to rapidly and efficiently information to the investing
public, including all financial statement users. An explanation as to why might the
SEC might be interested is that it quickly and efficiently allows the SEC to gather
data for its own usage to ensure that a thorough disclosure is available to the
investing public.
8. Why would XBRL be used for internal uses such as management accounting? Hint:
See Figure 9.5.

Just as information is useful for external purposes, XBRL allows management to

collect an extensive amount of disaggregated that might be used for internal
purposes. As the firm’s financial and non-financial information is automatically
tagged by either the enterprise system (e.g. SAP) using XBRL GL or tagged
manually by professionals knowledgeable of the business, this information
might be used for managerial accounting purposes. Moreover, XBRL might be
the means of organizing management accounting information.

PROBLEMS

1. Using Figure 9.1 and 9.2 as guides, name four internal and four external databases that
you think should be included in a data warehouse for marketing function of Procter and
Gamble or the consumer packaged goods company with whom you are most familiar.
Procter and Gamble has products like Gillette razors, Tide detergent and Pampers
diapers. Why are these eight databases you recommend critical to the effective
functioning of the marketing department to sell more products? Support your answer.

Internal Databases might include the following:

General Ledger – to help determine basic profitability of various products
Customer Database (and related demographics) – to learn more about who buys
Point-of-Sale Sales Data (who purchases, where and at what price points)
Inventory Data (What products are available for sale, which have new innovations, etc.)

External Databases might include the following:

General Economy Information (i.e., GDP, Interest Rates, etc.)
Focal Customer Demographics (what are important product characteristics for the
consumer)
Competitor Information (e.g., Unilever, Nestle, Kraft, etc.)
Retail/Consumer Packaged Goods Industry Information

2. Which of the four predicted assurance needs in the near future do you believe is most
critical to ensuring XBRL accuracy? Support your answer.
The four predicted assurance needs in the near future include the following:

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Chapter 09 - Reporting Processes and eXtensible Business Reporting Language (XBRL)

• The most current, standardized XBRL taxonomy is used,

• The underlying financial and nonfinancial data that is used in XBRL tagging is
reliable,
• The XBRL tagging is accurate and complete, and
• The reports generated using XBRL are complete and received on a timely basis.

While all are four are important and require assurance to ensure XBRL accuracy, the
third one with assurance that XBRL tagging is accurate and complete is arguably the
most important to ensure XBRL accuracy.

Answers will vary.

3. XBRL allows disaggregated data to be presented to interested external parties. Financial

analysts often predict one-year ahead earnings and then suggest whether an investor
should buy, sell or hold a stock. Which type of disaggregated data do you think financial
analysts would be most interested in receiving when predicting one-year ahead earnings?
Detailed sales data, detailed expense data, detailed asset data and/or detailed liability
data? Support your answer. In your opinion, which disaggregated XBRL data would be
most useful information in predicting whether an investor should buy, sell or hold a
stock?
Answers will vary. It is arguable that to come with up with a prediction of year-ahead
earnings, the detailed sales and expense data would be most relevant as they would most
directly lead to predictions of year-ahead data. Of course, depending on the nature of the
underlying company and the balance sheet implications of the company, the detailed
asset and liability may also be of importance.

4. In the text we mentioned that data mining is often used to analyze stock prices and stock
returns. A Wall Street Journal article titled “Data Mining isn’t a Good Bet for Stock-
Market Predictions” (dated August 8, 2009) by Jason Zweig mentions that data mining
has revealed that you can predict stock returns by tracking the number of nine-year-olds
in the U.S. Another data mining exercise predicts that stocks are more likely to go up on
days when smog is not as bad.1 While the statistical correlation may be valid, there must
be a logical reason why a particular factor will predict stock returns.
Required:
a. Give your opinion on whether the number of nine-year olds in the U.S. should or
should not predict stock returns.
While there may be a statistical association between the number of nine-year olds
and stock market returns, such an association is a spurious correlation. Common
sense suggests that smoggy days do not predict stock market returns.

b. Give your opinion on whether a smoggy day should or should not predict stock
market returns.

1 http://online.wsj.com/article/SB124967937642715417.html, accessed July 2010

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Chapter 09 - Reporting Processes and eXtensible Business Reporting Language (XBRL)

While there may be a statistical association between smoggy days and stock
market returns, such an association is a spurious correlation. Common sense
suggests that smoggy days do not predict stock market returns.

c. Give your opinion on what does predict stock returns, if anything.

Macroeconomic forces and accounting earnings are associated with annual stock
market returns. A company that produces incremental profits in the current or
unexpected prospects of profits in the future years, those companies will
generally experience positive stock returns.

5. XBRL touts as its primary advantage that it increases efficiency for the firm and those
interested in its business reports.

Required:
a. How is XBRL more efficient for the firm that reports its business performance?
Does the use XBRL GL in a firm’s accounting software make XBRL more or
less efficient than when XBRL GL is not used?
XBRL in and of itself may not make the reporting company more efficient in
how it codes the data. However, the ultimate ability of XBRL to put the XBRL
database in one location and let others access it for their particular needs will
make it more efficient.
The use of XBRL GL makes it so the company will only have to code its
information once directly into the XBRL GL package.
b. How is XBRL more efficient for those using its business reports for regulator,
investing or other purposes?
The users (such as regulators, investors, etc.) simply need to develop a style sheet
to extract their reports from various companies via the GL. Developing one style
sheet for multiple companies is much more efficient than inputting specific
numbers from many company and then analyzing them separately.
c. Are there any cases when it is less efficient to use XBRL?

6. How would Coca Cola use business intelligence to monitor Pepsi Cola’s operations in
Russia? What sources of data need to be gathered? How would it be analyzed?

Coca Cola could monitor Pepsi’s marketing campaigns, business operations, production,
new factory production, capital expenditures, pricing structure, and sales (among other
things) via its business intelligence. Business intelligence might be gathered using a web
crawler, which systematically browses the Internet including such sources as press
releases, internet chat rooms, web sites, google hits, blogs, annual reports of bottlers,
electronic commerce web sites, etc.

Once the information has been gathered, the data should be analyzed to discern patterns
or trends. Are prices of PepsiCo products increasing? Are they looking at new locations
to build a factory, etc.? Based on the information gathered, decisions can then be made by
Coca Cola as a strategic response to what Pepsi is doing in Russia.

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McGraw-Hill Education.