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XBRL Research
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The Impact of XBRL on Financial Reporting
Submitted in Partial Fulfillment of Course Requirements in
Accounting 8230
Summer 2010
Timothy M. Coleman
By submission of this paper I certify that this paper is entirely my own work. Further this paper has not been submitted for credit in another course.
Timothy M. Coleman
THE IMPACT OF XBRL ON FINANCIAL REPORTING
ABSTRACT
The purpose of this paper is to tout the benefits of a relatively new technology called Extensible Business Reporting Language (XBRL). This revolutionary system of tagging financial documents, using a modified version of XML, allows for data to be integrated and interactive, using a common language or platform. The current method of exchanging financial data from multiple and disparate streams is not only cumbersome and error-prone, but potentially costly, in terms of missed business opportunities, due to the excessive time factor. This paper will reveal the elements of financial reporting that are profoundly impacted by XBRL and how companies can position themselves on the leading edge of financial reporting processes.
INTRODUCTION
Extensible Business Reporting Language (XBRL) is a cutting edge technology that
allows financial statements and related data to be prepared and transmitted in a user friendly
format. This formatting uses standard taxonomies that are used to tag individual line items on the
financials. XBRL taxonomies are an extensive list of compiled, agreed upon tags for all of the
elements contained in a financial or business report, and can be universally interpreted by all
computers. XBRL is an “extensive taxonomy that can be modified to meet the unique needs of
each organization” (Kernan, 2009).
XBRL technology, which is based upon the more common extensible markup language
(XML) and closely related to hypertext markup language (HTML), was first developed by
Certified Public Accountant, Charles Hoffman. Anders (2008) notes that when reporting in the
XBRL format, all individual data items are tagged using the standard taxonomies. “The
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Timothy M. Coleman
interactive data can then be selectively transferred into a spreadsheet or other document for
analysis, exchange, or presentation” Anders (2008).
Microsoft Office is XML compliant, as well as, most AIS systems. This allows for XBRL
tagging of financial documents that can be quickly updated in a spreadsheet, as new financial
data are introduced. According to Tribunella & Ttribunella (2010), these XML-based documents
can be quickly uploaded to the internet, where most browsers can interpret these tagged
documents.
XBRL can dramatically increase the functionality of Excel when it is integrated. XBRL
can automate Excel spreadsheets and allow the user to customize them. It will also let prior
period financial information to be seamlessly merged with current data, which allows for
comparison purposes. According to Willis & Sinnet (2008), “XBRL integrated spreadsheets
function like a virtual dashboard, which allows users to employ a greater level of control”.
These thoughts are echoed by Alles (2009). He states that “Computers can treat
XBRL data intelligently. They can recognize the information in a XBRL document, select it,
analyze it, store it, exchange it with other computers and present it automatically in a variety of
ways for users”.
XBRL makes data interactive and places it in an open format standard that permits
financial data to be interpreted on a global basis. Although XBRL is extensible, as far as
allowing companies to modify its taxonomy to suit the company’s individual needs, it does not
override the basic tenants of the U.S.GAAP or IFRS. It allows for a single standard for the
processing of business data and textual recognition that allows the user to instantly manipulate
and reuse data. This financial information can be posted to the internet and instantly accessed
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Timothy M. Coleman
and analyzed. Kernan (2008) predicts that XBRL will have pay great dividends to anyone who
has the need to view or analyze financial information.
SEC MANDATE
The SEC required the top 500 “Fortune 500” companies to start publishing their financial
statements with them, using XBRL, for fiscal years ending in the last quarter of 2008. All other
publically traded companies will have an additional two years to comply with this mandate
(Barlas, 2008). According to Felden, Ochock, Piechocki & Piechocki (2009), this SEC mandate
released in the United States was labeled the “Securities Exchange Commission Rule 33-9002”.
According to the AICPA, (XBRL, 2010), on February, 2009, the Securities and Exchange
Commission (SEC) agreed to the final rules requiring publically traded companies to start filing
their financial statements, using the format of XBRL. According to this ruling, “companies with
a market capitalization above $5million were required to file using XBRL in 2009. All remaining
filers that use GAAP or IFRS must begin with their compliance in 2011” (XBRL, 2010).
Investors have long been subjected to the arduous task of manually searching through the
disclosure documents filed with the SEC. In addition, these documents are typically prepared in a
plain text format, making it almost impossible to utilize any meaningful search function. With
the use of interactive data, such as with XBRL, investors are able to focus their search for any
“fact or figure”, and use it to compare it to compare the information of various companies.
Information, such as performance data from previous years or industry averages can be quickly
gathered and analyzed. This ability to act quickly is not only cheaper and easier, but it could also
give the investor a financial advantage in a market where time is of the essence (What is
Interactive Data and who is Using it?, 2010).
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Timothy M. Coleman
THE GROWTH of XBRL
The growth of XBRL has been attributed to several factors. The first and most significant
factor to this growth is the Sarbanes Oxley Act. This Act uncovered the weaknesses inherent in
financial reporting and created a perplexing situation for management. Management was now in
a mandated position where they needed to find cost-effective solutions to meet the SOX
guidelines. These guidelines include the improvement of the “efficiency and effectiveness to
reduce associated costs” (Gray & Miller, 2009). XBRL technology has the ability to facilitate
these needs in a cost-effective manner.
It is interesting that a large number of accounting professionals feel that XBRL is a
reaction to the recent Sarbanes-Oxley Act (SOX) of 2002. They believe that it was strongly
advocated to increase “corporate transparency, accountability, and earnings management
( Pinsker & Li, 2008).
Another factor in the growth of XBRL is the fact that XBRL is based upon XML
technology, which is already in widespread use in many companies. So, adoption of XBRL is
more easily transitioned to. The learning curve is greatly reduced, allowing for more efficient
utilization (Gray & Miller, 2009).
XBRL ADOPTION RATIONALE
The benefits of incorporating XBRL into the company’s current systems early are
numerous. With the SEC mandate insisting on the filing of financials with their agency using
XBRL, companies would be wise to get their staffs up to speed on the intricacies of this
technology. The evidence of the SEC’s commitment to this change is in the fact that they have
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Timothy M. Coleman
recently invested in a “$48 million” upgrade on the EDGAR system to accept interactive filings”
(Stantial, 2007). Early adoption can allow companies to work out the “bugs” while in the interim
phase of this change, and take full advantage of the positive financial impact XBRL will have on
their bottom lines.
According to the research by Stantial (2007), it takes approximately “845” hours to
prepare a 10Q filing with the SEC using current technology. This same 10Q filing, using XBRL,
takes, on average, approximately “700” hours. This is just one of the cost–saving benefits of
implementing XBRL technology into the financial statement preparation process.
XBRL and REPORTING EFFICIENCY
Stantial (2007) concurs with the ability of XBRL to locate and analyze specific data. He stated
that “XBRL has been likened to a bar code for financial statements”. A bar code can reveal the
type of product as well as its cost and other various product characteristics. This bar-coding
system is analogous to the tagging process of financial statements with XBRL. XBRL can reveal,
for example, the name of a specific financial line item, the particular time-period, and the
company associated with the statement. In addition, users can search for tagged data and rely on
its accuracy and process controls (Stantial, 2007).
Willis & Sinnet (2008) have discovered the same analogy between the bar code system
and XBRL. They reminisce that back in the mid 1960’s, when the Universal Product Code
(UPC) or barcode technology was introduced, the majority of retailers were highly skeptical.
They feared that it would be costly to implement and would create confusion, as to the
interpretation of the system. This perception quickly changed, however, when these same
retailers began to reap the financial benefits. Currently, the use of the bar code system is saving
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Timothy M. Coleman
retailers an estimated “$17 billion annually”, due in part to its ability to compare and assess the
products by both the retailers and consumers. The use of XBRL has revolutionized retailing. It
enables management to lower the overall cost of compiling and analyzing data.
XBRL and DATA INTEGRATION
There are several key problem areas in financial reporting that are addressed with the use
of XBRL. The first area of interest is “systems integration”. One of the most frequent problems
endured by financial executives is the need to frequently integrate financial information among
various computer systems. The standard solution for this situation was to implement an
enterprise resource planning software application (ERP). Although this system was effective in
merging the disparate computer systems, it was found to be very costly in the planning and
implementation phases. The benefit of XBRL in regard to integration of systems is that it creates
a standardized format that is universally recognized by all internal applications. This ability of
XBRL to enable dissimilar systems to “speak the same language” creates a more efficient
environment for processing data. Evidence of these benefits comes from the assistant controller
of United Technologies (UTC), John Stantial. He reports that “using XBRL reduced the cost and
time of external reporting processes by more than 20 percent” (Willis& Sinnet, 2008).
The utilization of XBRL is typically thought of as an external reporting tool. It is also
extremely useful for preparing internal financial documents. XBRL is adept at improving the
internal controls that protect the integrity of documents (Willis& Sinnet, 2008).
XBRL and COST SAVINGS
Improving data quality is a prime objective of forward thinking companies. With the
exponential growth in data availability, companies require the ability to process this multitude of
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Timothy M. Coleman
information efficiently, in order to remain competitive. Companies also require that information,
particularly from financial reports, be quickly accessed and evaluated (Strader, 2007). In fact,
according to Farewell & Pinsker (2005), in 2002, “companies paid $ 404 billion to workers to
find and rekey information”. This process is undoubtedly error –prone and quite costly.
The cost-effective benefit of XBRL is supported by Hoffman (2008). He states that, in
2008, for example, “the FDIC reduced errors from 18,000 to zero, the Netherlands expects to
save $345 million annually as a result of implementing XBRL, Australia expects to save AUD
$780 million and Wacoal was able to implement a consolidation system using XBRL five times
faster and at a third of the cost of an ERP system, which was their next best alternative”.
Extensible Business Reporting Language will allow investors to compile large amounts
of data without the needless and time-consuming manual process currently in use. The data they
extract will enable greater comparability and accuracy, and the relationships among the numbers
will be more readily available and interpretable. The primary benefit of XBRL, in this scenario,
would be a dramatic cost reduction, due to the elimination of the manual process (Gray & Miller,
2009).
Pinsker & Li (2008) Conducted interviews with several managers of publically traded
companies, who had fully adopted XBRL, regarding their perceptions and level of cost savings.
These countries consisted of South Africa, Canada, Germany and United States. The goal of their
research was to help finance and accounting professionals achieve a greater understanding of the
benefits of XBRL implementation.
The survey conducted with these four managers indicated, for starters, that the
implementation process was relatively easy. A second reported benefit was less data redundancy
and more expedient processing of financial documents. At least one of the respondents indicated
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Timothy M. Coleman
a “30% reduction of bookkeeping staff…and the time needed to complete financial statements
was reduced from five to six days per statement to 15 minutes or less” (Pinsker & Li, 2008).
XBRL and ERROR REDUCTION
XBRL dramatically improves the data error rate that is typically seen with the manual
processes. The impact of this is evident on the Federal Deposit Insurance Company (FDIC) in
their exchange of information with the banking system using XBRL. The results demonstrated,
as reported by the FDIC, that “the data error rate dropped from over 68 percent to under 5
percent” The FDIC also experienced significant decreases in processing time “from 45 days to
less than 2 days and a reduction of analytical personnel from more than 1,000 to fewer than 200”
((Willis & Sinnet, 2008).
XBRL and TRANSPARENCY
The investment community has become increasingly jaded by the recent corporate
scandals. Their sense of trust in the financial reports that are presented by publically traded
companies has diminished. The need for transparency in these financials is one key to begin to
regain the trust of the investment community. The implementation of XBRL allows companies to
publish financial data that is more easily interpreted by the public, in general. “An XBRL
document maintains the data context while being able to meet the needs of different information
consumers” (Farwell & Pinsker, 2005). These benefits are also acknowledged by Lamoreaux &
Bonner (2009). They state that the communication and transparency benefits of XBRL enable
companies, domestic and foreign, to readily share information in an open-sourced format that
includes the ability to share textual information, such as footnotes and disclosures.
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Timothy M. Coleman
In the 1980’s, a system was introduced called EDGAR, a text –based system that stored
financial information on publicly traded companies. Since this system is text –based, it is not
able to retrieve specific line item information from a financial report. The use of XBRL tagging
around each element in the financials allows for a focused search of these line items. According
to Tribunella & Tribunella, (2010), “XBRL allows analysts to drill down to the transaction level
of the financial reports”.
IMPACT of XBRL on INTERNATIONAL REPORTING
The use of XBRL taxonomy has greatly facilitated the symmetry of information sharing
among the international community. With the presence of many different financial reporting
formats around the world, interpretation of these documents has led to economic inefficiencies
and distorted evaluations. This has been the case with (IFRS) International Financial Reporting
Standards (Apostolu & Nanopoulos, 2009).
The primary work of investors and analysts is to evaluate a company’s financials, in
order to evaluate current and future prospects for investment decisions. Using the current system
of reports and spreadsheets, specific information, such as the “concept of residual value, even
though it can be understood by an accountant or financial analyst, an information system is not
able to verify either the accuracy or relationships of this variable to net value, amortization, and
other items on the balance sheet”(Apostolu & Nanopoulos, 2009). Although this lack of
comparability has been somewhat mitigated by the IFRS, with its standard reporting format, it
does not, however, allow for the automated process of comparing the relationships of the data.
(Apostolu & Nanopoulos, 2009).
One of the issues with IFRS is that it does not document its “additional disclosures” in
any particular format. This presents serious challenges to analysts who may need to amend some
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Timothy M. Coleman
items on the balance sheet, for example, based upon the information provided. These
interpretation and comparability issues are successfully addressed with the use of XBRL
(Apostolu & Nanopoulos, 2009).
International countries who have adopted IFRS as their reporting standard, have reported
many benefits. For example, XBRL allows for a single secure web-based log-on to the various
required reporting agencies. This can allow for companies to utilize their own software to
automatically fill-in government forms, allowing for the direct reporting to these agencies.
These agencies, in turn, would subsequently, provide a receipt to validate the agency’s
submissions (O’Kelly, 2009).
XBRL INTERNATIONAL SUCCESS STUDIES
Recently, XBRL International engaged in a number of case studies of various institutions
around the world. The purpose of these studies was to provide validation to the positive
acclamations of XBRL implementation. On such company was the Microfinance Information
Exchange (MIX). This organization, based in the United States, provides financial advisement
and aid to the poor. MIX implemented the XBRL system in 2006.
MIX reported that XBRL allowed them to provide a greater level of product detail and
target specific information from regional sectors “such as tracking agricultural lending, gender
breakouts, and regional distributions” (XBRL.org, 2010). They also reported that XBRL allowed
them to be alerted to data errors early in the collection process. In general, according to the MIX
study, the integration of XBRL had provided the flexibility to integrate and manage diverse
groups of data. These data can then be organized and utilized in multiple formats.
The Bank of Japan (BOJ) was another case study XBRL.org conducted. The BOJ had
also realized the potential of XBRL decided to take full advantage of its capabilities. They
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Timothy M. Coleman
particularly were impressed with its adaptability feature. When the BOJ initially began to
implement XBRL, they felt that its tools were not user-friendly for novices. In that case, they
decided to merge their own customized tools into the existing XBRL toolset. This allowed them
to ensure a more efficient learning curve for the product.
The BOJ reported that, as a result of XBRL, they now have the ability to expand their
coverage of data. This includes “10,000 data items compared with about 3,500 handled under
current monthly reporting” (XBRL.org, 2010).
XBRL.org also studied the Federal Financial Institution Examination Council and the
U.S. bank regulators. These agencies reported that the utilization of XBRL provided more
accurate data at a greater speed. This allowed for a more rapid analysis and validation of
financial data. They further state that XBRL has decreased costs and increased efficiency. In
regard to productivity, these financial institutions reported that their analysts “can now cover
550- 600 banks compared with 400-500 previously, an increase of about 20%, reflecting
improved data quality and analytical ability” (XBRL.org, 2010).
The use of XBRL in the processing and distribution of financial statements has multiple
potential uses. One of these uses involves the publication of financial statements on their
company websites. Publishing these documents using XBRL allows investors to quickly analyze
and compare the data of the company, as well as that of other companies (Gray & Miller, 2009).
CONCLUSION
As the business community continues to grow and evolve the nature and sheer magnitude
of information and financial data continues to expand with it. Errors in interpretation and
confusion with the financial documents companies produce have proven costly for many
investors. With the introduction and evolution of XBRL over the last decade, companies now
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Timothy M. Coleman
have a system of “smart” tags, which provide structure and coherence among many diverse and
disparate reporting standards. These tags will provide the viewer the opportunity to perceive the
relationships and increase the comprehension among select data on any given document. The use
of XBRL has already proven its worth for many large companies and institutions around the
globe. They have experienced, first hand, the ease of XBRL implementation and the direct
impact it contributes to their respective bottom lines.
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Timothy M. Coleman
REFERENCES
Alles, M.. (2009). Special issue: XBRL and the future of disclosure. International Journal of Disclosure and Governance: Special Issue on XBRL: Implications for Reporting and, 6(3), 184-185. Retrieved July 21, 2010, from http://proxygsu-ken1.galileo.usg.edu/login?url=http://proquest.umi.com/pqdweb/?did=1786093971&sid=2&Fmt=2&clientId=16627&RQT=309&VName=PQD
Anders, S. B. (2008). Website of the month: Try XBRL. CPA Journal, 78(8), 72-73. Retrieved July 16, 2010, from http://www.nysscpa.org/cpajournal/2008/808/essentials/p72.htm
Apostolou, A., & Nanopoulos, K.. (2009). Interactive financial reporting using XBRL: An overview of the global markets and Europe. International Journal of Disclosure and Governance: Special Issue on XBRL: Implications for Reporting and, 6(3), 262-272. Retrieved July 24, 2010, from http://proxygsu-ken1.galileo.usg.edu/login?url=http://proquest.umi.com/pqdweb/?did=1786094001&Fmt=2&clientId=16627&RQT=309&VName=PQD
Babcock, C.. (2008, May). XBRL Gets Bigger. InformationWeek,(1187), 18. Retrieved July 24, 2010, from http://proquest.umi.com.proxygsu-ken1.galileo.usg.edu/pqdweb/?did=1494854971&sid=1&Fmt=1&clientId=16627&RQT=309&VName=PQD
Barlas, S. (2008). SEC Moves Forward on XBRL. Strategic Finance, 90(1), 22-61. Retrieved July 17, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=15&hid=105&sid=520a226f-6a35-463b-bc53-d4a7eecabac8%40sessionmgr113&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=32854424
Farewell, S. (2009). XBRL for Interactive Data: Engineering the Information Value Chain. Journal of Information Systems, 23(2), 83-84. Retrieved July 17, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=22&hid=110&sid=f2f1241d-ef13-4986-9d51-a793c40a740d%40sessionmgr104&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=44458104
Farewell, S., Pinsker, R. (2005). XBRL and Financial Information Assurance Services. CPA
Journal, 75(5), 68-69. Retrieved July 16, 2010, from http://www.nysscpa.org/cpajournal/2005/505/essentials/p68.htm
Gray, G., & Miller, D.. (2009). XBRL: Solving real-world problems. International Journal of Disclosure and Governance: Special Issue on XBRL: Implications for Reporting
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and, 6(3), 207-223. Retrieved July 24, 2010, from http://proxygsu-ken1.galileo.usg.edu/login?url=http://proquest.umi.com/pqdweb/?did=1786094031&Fmt=2&clientId=16627&RQT=309&VName=PQD
Hoffman, C. (2008). What CFOs Need to Know about XBRL. UBmatrix, Retrieved July 24, 2010, from http://xbrl.squarespace.com/storage/WhatCFOsNeedToKnowAboutXBRL-2008-03-16.pdf
Kernan, K.. (2008). XBRL Around the World. Journal of Accountancy, 206(4), 62-66. Retrieved July 24, 2010, from http://proquest.umi.com.proxygsu-ken1.galileo.usg.edu/pqdweb/?did=1569074391&Fmt=3&clientId=16627&RQT=309&VName=PQD
Lamoreaux, G., Bonner, P. (2009). Preparing for the Next Opportunity. Journal of Accountancy, 208(5), 28-31. Retrieved July 17, 2010, from http://www.journalofaccountancy.com/Issues/2009/Nov/20091441
MIX XBRL Case Study. (2010). Whitepaper by Microfinance Information Exchange, Inc. Retrieved July 18, 2010 from http://www.xbrl.org/CaseStudies/MIX%20XBRL%20Case%20Study%2003.03.10.pdf
O’Kelly, C. (2009). Jurisdictional Developments in XBRL: July 2009. XBRL International, Retrieved July 18, 2010 from http://www. slideshare .net/xbrlplanet/xbrlglobal-adoption- 20090731
Strader, T. (2007). XBRL Capabilities and Limitations. CPA Journal, 77(12), 68-71. Retrieved July 16, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=4&hid=105&sid=520a226f-6a35-463b-bc53-d4a7eecabac8%40sessionmgr113&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=28099608
Stantial, J. (2007). ROI on XBRL. Journal of Accountancy, 203(6), 32-35. Retrieved July 17, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=8&hid=110&sid=f2f1241d-ef13-4986-9d51-a793c40a740d%40sessionmgr104&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=26165238
Tribunella, T., Tribunella, H. (2010). Using XBRL to Analyze Financial Statements. CPA Journal, 80(3), 69-72. Retrieved July 16, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=4&hid=105&sid=520a226f-6a35-463b-bc53-d4a7eecabac8%40sessionmgr113&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=51431763
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What Is Interactive Data and Who's Using It?. (2010). Whitepaper by U.S. Securities and Exchange Commission. Retrieved July 18, 2010, from http://www.sec.gov/spotlight/xbrl/what-is-idata.shtml
Willis, M., Sinnet, W. (2008). XBRL: Not Just For External Reporting. Financial Executive, 24(4), 44-47. Retrieved July 17, 2010, from http://proxy.kennesaw.edu:3221/ehost/detail?vid=20&hid=105&sid=520a226f-6a35-463b-bc53-d4a7eecabac8%40sessionmgr113&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aqh&AN=31896623#db=aqh&AN=31896623
XBRL. (2010). Whitepaper by AICPA. Retrieved July 18, 2010 from http://www.aicpa.org/Advocacy/Issues/Pages/XBRL.aspx
Research Paper Check list:
1. Did I do the cover page the way Dr Capozzoli requested?2. Did I start the first page the way Dr Capozzoli requested?
a. Is the abstract single spaced?
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Timothy M. Coleman
b. Does the Introduction start two lines after the abstract and text is double spaced for the rest of the document?
c. Does page numbering start at 1?d. Does the paper have at least 12 pages of text, excluding the Cover and Reference pages?
3. Did I follow the APA style for citations and references?a. Dr Capozzoli wants you to use the APA style for references except he would like to see
each reference single spaced with a single space between references. Did I do that?b. Do I have at least 10 journal article references?c. Are my journal references from academic sources like the Journal of Accountancy,
Journal of Information Systems etc...?4. Did I cite every reference? You must do that! Do not put a reference in that you do not cite.5. Are my margins one inch top-bottom-left-right?6. Some don'ts:
a. use more than 6 lines of examples of XML make sure it is single spacedb. use big graphs or picturesc. copy large blocks of text from an article like the two pages associated with the "Six steps
to XBRL with Dragon Tag" articled. have spellink or gramar errors in your document e. have paragraphs longer than 1/4 to 1/2 of a page? If so this is bad.
7. Is my writing clear and logical? 8. Does the writing flow and read well? 9. Is my paper structured with:
a. Abstractb. Introduction- why the paper is important- how you will present the material etcc. Section headings like XBRL- SEC Mandate - Issues- etcd. Conclusione. Reference page and this checklist at the end. Failure to include this checklist is -5
points.
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