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.

Quarterly XBRL-based Public Company Financial Report Quality Measurement

The graphic below shows the results of my quarterly fundamental accounting concept relations continuity cross checks of XBRL-based financial reports of public companies which are submitted to the SEC.

I have been measuring specific fundamental accounting information of public company XBRL-based financial reports being submitted to the SEC for going on four years now.  The quality of the information reported continually increases each time measurements are taken, which is a good sign.

But now in addition; what I am seeing is a specific set of filing agents/software vendors which have repeatable processes which are beginning to consistently yield high quality results per my specific measurements.  In the graphic below you can see that Merrill, Thunderdome (RDG Filings), Donnelley Financial Solutions, and DataTracks each are creating 99% of the XBRL-based public company financial reports which are completely consistent with my full set of fundamental accounting concept relations continuity cross checks.

Those four filing agents/software vendors represent almost 30% of all public company filings to the SEC. Another four filing agents/software vendors are closing in on 99% of all their XBRL-based reports being consistent with these basic accounting relations.

This is NOT to say that entire reports are correct or that 99%, which is only approaching Sigma Level 4, is sufficient.  My view is that the appropriate quality target is Sigma Level 6 which equates to 99.99966%.  The important piece of information, I believe, is that reliable and repeatable processes are beginning to appear from multiple software vendors/filing agents.  That statement is verifiable using empirical evidence of 100% of the filer population.  This provides good information about what it takes to get XBRL-based reporting which uses the full power of extensibility offered by XBRL to work reliably and predictably.

People might want to reach out to these software vendors/filing agents to see how they achieve these results.

(Click image for larger view)

Beginning in one or two quarters I will be adding additional measurements to my battery of testing. Ultimately, the goal will be to measure an entire report so that defects can be reduced to that Sigma Level 6 target.

Additional Disclosure Analysis Brainstorming

So I am in brainstorming mode, trying to figure out how to communicate the information I am trying to communicate.  Here is a disclosure analysis summary which contrasts how different public companies reported the Level 3 Disclosure Text Block and the Level 4 Disclosure Detail for various disclosures.  Currently I only have 2 disclosures, but I will build that up to around 75.

This is the summary of which disclosures I will be testing in machine readable form. This blog post explains things in more detail.

I will leave it at that for now.  More information coming soon.

Posted on Saturday, August 19, 2017 at 08:45AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint

XBRL Contributed to Detecting and Correcting Accounting Error

So here is a documented case where XBRL contributed to detecting and correcting an accounting error. Click on the image below to get a larger image after you read this.  In this public company's March 31, 2017 income statement (on the LEFT) they ordered their income statement line items one way.  Then, in the June 30, 2017 income statement (on the RIGHT) they ordered them a different way.

The NEW way is consistent with literally all public companies that report these line items and consistent with the US GAAP Financial Reporting XBRL Taxonomy.  The OLD way was not.

(Click image for larger view)This inconsistency was detected using the fundamental accounting concept relations validation continuity cross checks. Now, they still don't have their XBRL-based representation correct.  They have some concept selection issues that need to be fixed.

XBRL-based Public Company Reports to SEC are 88% Correct Per One Measurement

A measurement of XBRL-based public company financial reports to the SEC that I have made indicates that those reports are about 88% consistent with what I would expect.  That said, the measurement is per a sampling of 65 disclosures for all 6,023 public company 10-K filings for 2016 and I cannot call this a verifiably scientific set of results.  However, if anyone has a better measurement I would love to see that measurement.

Here are the details:

(Click image for larger view)I am just starting a journey that will be very similar to the measurement of the fundamental accounting concept relations that I have been taking.  Those measurements are more precise and indicate that 99.19% of those relations are consistent with expectation.  There are currently 5,271 of 6,000 reports or 87.9% of all reports that are consistent with all 22 of the fundamental accounting concept relations.

Right now I am calling this measurement the "Disclosure Mechanics" of a disclosure.  If you want to understand this in detail, please go read Understanding the Mechanical Rules of Disclosures.  Here is the crash course.  First, I create logical, structural, and mathematical relations information in machine-readable XBRL format.

That rule in human-readable form looks like this:

(Click image for larger view)There are similar rules for 65 disclosures.  Software uses the rules (currently there are two commercial implementations) to check disclosures.  Here is the explanation mechanism provided by one of the commercial implementations:

(Click image for larger view)The results are summarized and either a disclosure is consistent with expectation or inconsistent with what was expected.  There are THREE REASONS an inconsistency might occur:

  1. The filing has an error that needs to be corrected.
  2. The US GAAP XBRL Taxonomy has an error that needs to be corrected.
  3. My test or the software algorithm has an error that needs to be corrected.

How do I know I am getting the results right? Observed empirical evidence from the XBRL-based reports themselves.  Here is an example of that for the inventory components disclosure.  I have some really good tools that I have created and perfected.  Also, there are commercial tools that are becoming available.  I helped XBRL Cloud create this tool for checking Disclosure Mechanics rules.  Tools will continue to improve and evolve.

Over time these errors are corrected and the consistency rate increases, just like they did for the fundamental accounting concept relations.  Harmony increases in the system, information quality goes up.  What is the quality goal?  In my view, the goal is Sigma Level 6 which is 99.99966% consistent with expectation. Right now we are between Sigma Level 2 and 3.

If you want to know more about creating zero-defect XBRL-based reports, please read Blueprint for Creating Zero-Defect XBRL-based Digital Financial Reports.

If you have some tool ideas, please send me an email.


XBRL is Pulling the Institution of Accountancy into the Present

It is not so much that XBRL is anything really revolutionary.  XBRL is an idea similar to ideas that has been used by many industries to structure information to make things more efficient.  For example, electronic medical records and digital blueprints are similar ideas that have existed for years.

XBRL is enabling the institution of accountancy to catch up to the present.

Now, will XBRL and other technologies change the institution of accountancy?  Absolutely.  Ask yourself a question.  "What if all financial reports were digital?"  What exactly would that mean?

If you want to catch up to the present, consider reading Getting Ready for the Digital Age of Accounting, Reporting and Auditing: a Guide for Professional Accountants.

Old school approaches to creating financial reports have been inefficient for years.

Posted on Tuesday, August 8, 2017 at 08:50AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint
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