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Business Rules: What are they?

My blog has a page which is dedicated to business rules.  What this post and the next several posts does is help business users understand what business rules are and why they are important.  I am in the process of updating the XBRL Formulas information from the candidate recommendation (CR4) to the actual released version of XBRL Formulas.  This will be done over the next several weeks.

The ability to express business rules is probably the single most powerful feature of XBRL (other than the fundamental ability to express business information in a standard structured format).

The term "business rules" can be defined in many ways. A good resource for understanding exactly what business rules are is the Business Rules Group.  You can see this URL for more information.

There really is no standard definition for what a business rule is.  Here are some definitions which others use to help you get a sense for what business rules are:

  • A formal statement that defines or constrains some aspect of a business that is intended to assert business structure, or to control or otherwise influence the behavior of the business
  • A way of expressing the business meaning (semantics) of a set of information
  • A formal and implementable expression of some business user requirement
  • The practices, processes, and policies by which an organization conducts its business

Business rules exist in the form of relationships between pieces of business information. Some examples can help you better understand exactly what they are:

  • Assertions: For example asserting that the balance sheet balances or Assets = Liabilities + Equity.
  • Computations: For example, calculating things, such as Total Property, Plant and Equipment = Land + Buildings + Fixtures + IT Equipment + Other Property, Plant, and Equipment.
  • Process-oriented rules:  For example, the disclosure checklist commonly used to create a financial statement which might have a rule, "If Property, Plant, and Equipment exists, then a Property, Plant and Equipment policies and disclosures must exist."
  • Regulations: Another type of rule is a regulation which must be complied with, such as "The following is the set of ten things that must be reported if you have Property, Plant and Equipment on your balance sheet: deprecation method by class, useful life by class, amount under capital leases by class . . ." and so on.  Many people refer to these as reportability rules.
  • Instructions or documentation: Rules can document relations or provide instructions, such as "Cash flow types must be either operating, financing, or investing."

Today, it is quite common that business rules are application specific.  But what if business rules were not locked into a specific software application? What if these rules could be exchanged along with the information.  That is the power of business rules.  What the exchange of business rules allows is the efficient and effective automation of information exchange across business systems.

If you have ever received an Excel spreadsheet from someone and had to rely on the information in that spreadsheet for something important but you really were not sure about all those cell formulas in the spreadsheet you will understand what I mean.  Imagine if you could have insight into all those formulas in your terms, rather than rely on formulas provided by the spreadsheet creator.

More to come...

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