The role of accounting values in the relation between XBRL and forecast accuracy

• Pages: 297-313
• Published date: 21 October 2013
• Date: 21 October 2013
• DOI: https://doi.org/10.1108/IJAIM-03-2013-0023
• Author: Chunhui Liu,Grace O'Farrell
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

The role of accounting values

in the relation between XBRL

and forecast accuracy

Chunhui Liu and Grace O’Farrell

Department of Business and Administration,

University of Winnipeg, Winnipeg, Canada

Abstract

Purpose – This study aims to examine the role that cultural dimensions at the accounting subculture

level play in the relation between XBRL mandate and quality of f‌inancial information environment.

Design/methodology/approach – Analyst forecast accuracy with empirical data of f‌irms from six

nations is assessed.

Findings – Results show that accounting values across nations play a signif‌icant role in inf‌luencing

information quality change from XBRL mandate.

Originality/value – This research paper is the very f‌irst in assessing the role of national culture in

realizing information quality improvement value of XBRL.

Keywords Culture, Cross-cultural IS studies, XBRL,Accounting, IT diffusion, IS evaluation

Paper type Research paper

Introduction

Ranked as one of top ten technologies for accounting and auditing professionals by the

American Institute of Certif‌ied Public Accountants (Peng and Chang, 2010), eXtensible

Business ReportingLanguage (XBRL) is pledged to enhancethe accuracy, reliability and

eff‌iciency of electronic communication of business f‌inancial data (Yoon et al., 2011).

XBRL is an information technology that provides an identifying tag for business

information such as total sales to create an unambiguous way to identify and compare

information of one company to another (Hoitash et al., 2006). The tags are based on a

systematic classif‌ication scheme called a taxonomy that def‌ines business reporting

concepts and their relations according to specif‌ic legislation or standards (Lester, 2007).

Quality of information is improvedas XBRL streamlines f‌inancial statement preparation

(Taylor and Dzuranin, 2010) and facilitates the automatedproduction of large volumes of

business performance information. Errors from duplicative data entry are removed

(Yoon et al., 2011).Eff‌iciency of communication is improvedas a result of the immediacy

and reach of the web, the ability of information consumers to incorporate corporate

information directly into their data warehouses and decision models (Debreceny et al.,

2010), and the ability of the engine to f‌ind and return specif‌ic relevant information

enabled by the tag def‌initions and taxonomies that allow machines to understand the

context data and relation among data types (Vasarhelyi et al.,2012).

By separating content from format, XBRL benef‌its all members of the f‌inancial

information supply chain by making information exchangeable between different

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1834-7649.htm

The authors thank Guest Editor Yiuman Tse and anonymous reviewers for their insightful

review.

Received 14 March 2013

Accepted 18 March 2013

International Journal of Accounting

and Information Management

Vol. 21 No. 4, 2013

pp. 297-313

qEmerald Group Publishing Limited

1834-7649

DOI 10.1108/IJAIM-03-2013-0023

The role

of accounting

values

297

applications and systems and easy to extract, search, and reuse by users ( Jensen and

Xiao, 2001). Quinlan (2010) says that XBRL will make it easier for analysts to identify

the best-performing stocks, for executives to monitor competitors, and for regulators to

identify potential problems in a company’s f‌inancial data. Yoon et al. (2011) f‌ind XBRL

to reduce information asymmetry for investors.

Due to such expected benef‌its (Estebanez et al., 2010; Bovee et al., 2005), XBRL is

quickly becoming the reporting standard for f‌inancial information worldwide (Taylor

and Dzuranin, 2010). Many countries such as Belgium, China, Germany, Italy, Japan,

Luxemburg, Singapore, Spain, South Korea, and the USA have mandated XBRL

adoption for listed corporations. XBRL has been used in a variety of contexts, such as

loan application, business to government reporting, and SEC f‌ilings.

However, a single set of standards may not be suitable for all settings and thus may

not uniformly improve accuracy, reliability, and eff‌iciency due to differences among

countries (Liu et al., 2011). It is thus critical to identify factors inf‌luencing XBRL impact

across nations. For instance, different cultural values can contribute to remarkably

different usage of information and communication technology in various nations of the

world (Bagchi and Kirs, 2005). Culture has been shown to play a fundamental role in

determining reactions to new information technologies (Fang et al., 2011).

This researchinvestigates the role of culturaldimensions at the accountingsubculture

level as a moderating factor inf‌luencing the global impact of XBRL on the quality of

f‌inancial information environment as ref‌lected in analyst forecast accuracy. Financial

analysts in the capitalmarket are good proxies for informed tradersas well as signals of

information asymmetry because of their superior information processing capabilities

(Roulstone, 2003; Yu, 2010). Platforms like EDGAR-online’s IMetrix, Morgan Stanley’s

Modelware platform, and PwC’s iDP platform facilitate analysts’ use of XBRL. Willis

(2012) of PricewaterhouseCoopersreports that over 50,000 retail analystsuse IMetrix and

that iDP has 65,000 monthly users. Thus, examining how the adoption of XBRL affects

analystforecast accuracyacross nations contributesto a better understandingof the role of

culture in the inf‌luence of XBRLon the quality of information environment.

Firms from six nations that have completed mandatory adoption of XBRL by 2009

are analyzed to assess the adoption’s impact on analyst forecast accuracy across

different cultures. The research is among the f‌irst to empirically test the role played by

cultural values in understanding the impact from information technology (IT) adoption

of XBRL. Building on contingency theory, this paper proposes that cultural values play

a signif‌icant role. Findings can be informative to regulators, investors, and potential

adopting f‌irms.

Literature review and hypotheses

One major expected value of improved corporate disclosure from a new technology

like XBRL is the reduction of information asymmetry and an improvement to the

quality of information, which can be ref‌lected in improved analysts’ forecast

accuracy (Yoon et al., 2011). Financial analysts are among the most important,

sophisticated and visible users of f‌inancial reports (Yu, 2010). Analysts play

important roles as information intermediaries and economic agents whose actions

affect security pricing (Rock et al., 2001). Many studies reveal positive association

between the quality of disclosures and forecast accuracy (Hope, 2003). Many expect

XBRL to reduce re-keying information, diminish errors in duplicated data entry,

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