BLOG: Digital Financial Reporting
This is a blog for information relating to digital financial reporting. It is for innovators and early adopters who are ushering in a new era of digital financial reporting.
Much of the information contained in this blog is summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the three documents on this digital financial reporting page.
Here are several additional and improved working prototypes that I created in order to communicate some things to people. You can expect this sort of functionality in commercial software eventually. If you use a little imagination you can start to see the possibilities structured information enables.
All of these prototypes relate to disclosures and examples of disclosures which appear in financial reports. The prototypes were created in order to test metadata and communicate ideas to software vendors:
- Disclosure viewer: A financial report is a set of disclosures provided by an economic entity. This is a list of about 1000 such disclosures which might appear in a financial report.
- Understanding Concept Arrangement Patterns: Each disclosure can be categorized into what I call a "concept arrangement pattern". These are the concept arrangement patterns:
- Roll Up: A + B + C + N = Total
- Roll Forward: Beginning balance + Changes = Ending Balance
- Adjustment: Originally stated balance + Adjustments = Restated balance
- Hierarchy: Concepts are related, but not mathematical.
- Text Block (Level 1 Note): A Level 1 Text Block is something that the SEC specifies that public companies provide. Basically, an entire note is provided within a Level 1 Text Block.
- Understanding Relation Between Level 3 Disclosure Text Block and Level 4 Detail Disclosure: Public companies are required to provide a Level 3 Text Block and Level 4 Detail for each disclosure.
If you have any ideas of additional demos and prototypes please send me an email.
This is what Niccolo Machiavelli said about creating new systems back in the 1500's. Just as applicable today:
It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than a new system. For the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who gain by the new ones.
Another version of the same quote:
It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries, who have the laws in their favour; and partly from the incredulity of mankind, who do not truly believe in anything new until they have had the actual experience of it.
A new order of things for financial reporting has been arising. The pieces are slowly falling into place. The ability to structure information using the XBRL format is only one piece of the puzzle. Here are other pieces as I see it:
- US GAAP: If US GAAP did not exist, digital financial reporting would not be possible because the necessary agreed upon standard financial reporting semantics would not exist. US GAAP is that agreement and has been a work-in-progress for a hundred years. IFRS is another effort to create standard financial reporting semantics. IFRS was significantly influenced by US GAAP.
- Internet: Without the low-cost connectivity and standards of the Internet, digital financial reporting could never be possible. My personal view is that "the Web" is not nearly as important as the internet.
- Machine-readable Version of Key Portions of US GAAP: The US GAAP XBRL Taxonomy is a machine-readable version of the portions of US GAAP necessary for digital financial reporting. The US GAAP XBRL Taxonomy is also readable by humans.
- Machine-readable Business Rules: Article 9 of The Business Rules Manifesto states that business rules are "Of, By, and For Business People, Not IT People". Article 9 has three important sub sections:
- 9.1. Rules should arise from knowledgeable business people.
- 9.2. Business people should have tools available to help them formulate, validate, and manage rules.
- 9.3. Business people should have tools available to help them verify business rules against each other for consistency.
- Software Tools that Understands Business Rules: You can have all the machine-readable business rules that you want; but if you don't have any machines to read the rules, the value of the rules is hard to understand.
More and more machine-readable business rules are becoming available. For example, the Financial Report Ontology is a working prototype of some of those rules. For example, the machine-readable information about financial statement disclosures (and human-readable) summarizes many common sense, logical, mathematical, and other obvious business rules.
To the extent that financial information is consistent with business rules, that financial information will be reusable by automated machine-based processes of all sorts. Information which is not consistent with established business rules indicates inconsistencies within the system.
In a distributed system such as financial reporting where you have thousands and perhaps millions of financial reports being created by millions of reporting entities taking the time to create formal, standard, well-thought-out business rules to control the system is essential to making the system work correctly.
None of this happens by accident. It takes intension, conscious effort, discipline, rigor, skillful execution, and persistence. The result does not need to be complex, the system can be sophisticated and also simple and elegant.
Here is an interesting little prototype that I created. Lots of good things to come! I still need to merge that with this other little working prototype.
Here is an IMPROVED version of this prototype.
In another blog post I mentioned whole-part relations. With the help of some others I have come across some additional resources for understanding whole-part relations. Here is a summary of those resources:
- A Taxonomy of Part-Whole Relations: I mentioned this resource in another blog post. Basically, this paper points out that part-whole relations can be broken out into different groups:
- component-integral object: for example (pedal – bike)
- member-collection: for example (ship – fleet)
- portion-mass: for example (slice – pie)
- stuff-object: for example (steel – car)
- feature-activity: for example (paying – shopping)
- place-area: for example (Everglades – Florida)
- Mereology: Mereology is the theory of parthood relations: of the relations of part to whole and the relations of part to part within a whole. (Stanford Encyclopedia of Philosophy) This is a pretty technical piece, but it does help understand the moving parts of whole-part relations.
- Knowledge Representation in the Social Semantic Web:
- Parts and Momements: Study in Logic and Formal Ontology: (Wholes, Parts, and the Objectivity of Knowledge)
- Parts and Wholes in Semantics: This book develops a unified account of expressions involving the notions of "part" and "whole" in which principles of the individuation of part structures play a central role. Moltmann presents a range of new empirical generalizations with data from English and a variety of other languages involving plurals, mass nouns, adnominal and adverbial modifiers such as as a whole, together, and alone, nominal and adverbial quantifiers ranging over parts, and expressions of completion such as completely and partly. She develops a new theory of part structures which differs from traditional mereological theories in that the notion of an integrated whole plays a central role and in that the part structure of an entity is allowed to vary across different situations, perspectives, and dimensions.
That is a lot of information, I have not digested it all yet. Basically, there is a lot to whole-part relations.
Someone from IBM created My Blue Mix which makes XBRL-based public company financial information from the SEC available. Here are two samples: