Digital Financial Reporting

Business rules are critical to creating quality XBRL.  They are not sufficient, but they are necessary.  And creating quality XBRL is important.  Consider the article X Marks the spot, for Errors published by CFO.com which says:

Early results indicate that filing financial statements in XBRL is far from simple.

Well, I see this slightly differently.  XBRL actually can be quite simple, if you understand the process (i.e. what the process is) and have good software to help you through that process and supports that process.

Today, most people don't seem to understand that process and software does not support that process in a workflow which is very helpful to business users.  I think that this is just part of the normal evolution which XBRL has to go through.

So, what is the process?  Well, I have a little work in progress which will eventually be articulated in a blog post.  You can see what I have so far at this URL. I will explain this in more of a narrative form later, but fur now if you choose to, you can figure out the entire process.  There are plenty of examples.

But the focus here is business rules and the role they play in the validation process. This is number 3 on the list above.

Business rules are expressed in XBRL using XBRL Formula. People have been discussing the need for XBRL Formula since the beginning of XBRL.  Over the years there have been proprietary versions of XBRL Formula and even some prototype implementations.  But now XBRL Formula is a global standard.

But, XBRL Formula and the business rules you can create with XBRL Formula is not used extensively in many XBRL taxonomies as of yet.  For example, the US GAAP Taxonomy does not provide business rules, yet anyway.  But, you do need them because whether you realize it or not, you have computations which XBRL calculations cannot handle.

For example, take a look at and consider the Movement in Property, Plant and Equipment [Roll Forward]in the US GAAP Taxonomy. This reconciles the beginning balance, the period increase or decrease to the ending balance of Property, Plant and Equipment.  The reason XBRL calculations cannot validate this computation is because XBRL calculations only work if every concept participating in a calculation is in the exact same context.  With a roll forward, you have three different contexts as each concept in the computation is in a different period.  Thus, you need XBRL Formulas to express this business rule.

I forget the number of [Roll Forward]s which exist in the US GAAP Taxonomy, but it is a substantial number as these types of reconciliations are common in financial reporting.  There are other types of computations which XBRL calculations will not handle, the [Roll Forward] is only one example to make the point.

You can see a more specific example of a roll forward (another term for roll forward is movement analysis) here in this set of examples.  Look at number 4.  Here is a PDF rendering of a simple movement (or roll forward) example in PDF, in the XBRL instance, the XBRL Formula, and the detailed validation output.

The XBRL Formulas looks complex, but because, for example, the US GAAP Taxonomy has a consistent way to express the information model for a [Roll Forward], a software developer can actually automate the process of creating a formula for every [Roll Forward] in the US GAAP Taxonomy.

There really is no reason to have to verify computations like these manually, computers are much more accurate than humans.  XBRL US will likely provide XBRL Formulas for every [Roll Forward].  Until they do, you still need to verify your computations.  You really don't want to show up with this type of error in something like XBRL Cloud's list SEC filer errors now would you.

Further, people have been talking about using business rules to automate as much of a financial statement disclosure checklist as possible for years.  Thing like "If you have the line item 'Property, Plant, and Equipment, Net' on your balance sheet, then you must have...."  You get the idea.  These types of "if-then" statements are quite easy for an automated process to check.  You will never be able to automate the detection of every possible error, but you can leverage XBRL to both improve the quality of what you do today, and you certainly can reduce the cost of getting to that quality level.

Business rules will even become more powerful as taxonomies become more like ontologies.  But that story is for another blog post.  Stay tuned for details!