The following is my list of the top ten things which someone using XBRL information should keep in the forefront of their mind. This list might be looked at as the biggest challenges one needs to overcome when using SEC XBRL information. These are all decisions which the domain stakeholders of financial reporting needs to make in order to get XBRL to work how they want it to work. The best way to make these decisions is to understand how XBRL works for SEC XBRL flings today, what the alternatives are, and what alternative best fits your stakeholder group needs.
My definition of user of SEC XBRL information would include analysts, investors, regulators, data aggregators, and software developers building software for these types of users.
Keep something in the back of your mind as you take a look at this list. Financial reporting practices used today were developed in an era where paper was the medium for distributing information. There may have been minor inconsistencies in certain financial reporting practices, but these minor inconsistencies where easily overcome by the humans reading the financial reports. In a new era where elimination of many of the mundane tasks such as re-keying information is possible, these minor inconsistencies become insurmountable issues as we try and get computers to do these mundane tasks. Processes must be reliable. This new electronic medium, XBRL, is different than the paper-based medium of the past. Certain changes can make achieving some desired characteristics significantly easier. These historical choices should be reconsidered as to not hold back the possibilities offered by the new mediums.
To understand what you want it is best to understand your options. The options when it comes to XBRL are the characteristics of how XBRL works. These are business domain stakeholder decisions. Knowledge can give you the power to make a case for what your stakeholder group needs from XBRL.
One final thing to consider. Keep in mind how computers "think". This thought experiment can help you understand how to look at financial information. There is a simple goal here as I see it: to make XBRL work the best it can. Of course "best it can" is subjective. Are certain changes in the interest of financial reporting? Maybe they are, maybe they are not. That is not for me to say. All I am doing here is providing information so that the right discussion takes place. All financial reporting domain stakeholders should push for what they want from the strong position of knowing how XBRL actually works.
In looking at SEC XBRL filings, this is what I see:
- Accounting inconsistencies or errors: This analysis details my point here. I don't want to make any judgements, I am just delivering a message. Is it an accounting error to have two different ways of computing net change in cash, as pointed out by this set of SEC XBRL filings? The answer could be "yes" or it could be "no". That is not the point. The point is this. If the vast majority do it one way, why can't everyone do it the same way? What is so unique for those 8 compaines that they need to calculate the value differently? Of course you can see that if there are two ways, adjustments need to be made to convert one approach to the other approach when analysis uses these numbers. Should analysts really need to do this? What is the reason for not only using one way? This issue is not just about this area of the XBRL taxonomy, there are other areas. The fact patterns are different for different areas of the US GAAP taxonomy, but what rule do you apply to determine whether alternatives in different areas are helpful or hurtful?
- Filers adding concepts unnecessarily: When should SEC XBRL filers add new concepts in their extension taxonomies? If you look at the SEC XBRL filings being submitted, there are many inconsistencies in where and when concepts are added. This analysis of the statement of cash flows shows many of the inconsistencies in this area, the same sort of issues exist in other areas of filings also. Unnecessarily added concepts can may querying the information significantly more challenging. What exactly the rule which determines if a concept should be added and who enforces that rule?
- Filers not following the US GAAP Taxonomy Information Model: By information model I mean things such as the [Table] structure, the [Roll Forward] structure, and other such structures in the US GAAP Taxonomy. The US GAAP Taxonomy is very consistent in how it uses, for example, [Table]s and [Roll Forward]. But company extensions to the US GAAP Taxonomy are not. See this analysis of how filers are constructing [Table]s. The reason is that there are no validation rules which point out inconsistencies when SEC XBRL filings are submitted. Is this randomness beneficial, or should the free-for-all be constrained in order to realize better comparability across SEC XBRL filings?
- Locating networks to make comparisons can be challenging: SEC XBRL filings each use their own set of networks to identify sections of the financial filing such as the balance sheet, income statement, or a specific disclosure. See this analysis for more information. Now, you may look at the filings and say, "Hey, this is no problem, I can read the network descriptions just fine." But can a computer read the networks and then make a comparison across multiple companies, say comparing the balance sheets of each company? How will a computer know WHICH network to grab? A computer might be able to determine from the concepts within the network what the network is to a degree. Another way of understanding this is to say that if filings use common structures, in this case network roles, to identify pieces of a financial filing, finding those pieces and comparing them would be more reliable and certainly easier to program. Is it best if everyone uses different network identifiers or would it be better if specific network identifiers were used for common things such as "balance sheet", "income statement", certain specific disclosures in order to enhance cross filer comparability? Or, are networks meaningless, and it is really the [Table] which provides the comparison point?
- Inconsistent use of concepts and relations at "higher levels": Financial reporting in the US is dynamic meaning that financial report creators can create reports which reflect their unique organizations. Basically, creating a US GAAP financial report is not filling out a form, nor should it be. The dynamic nature makes US financial reporting better. But, should dynamic mean "free-for-all"? SEC XBRL filings are many times, at least in my view, changing concepts and relations at high levels where changes probably should never occur. Case in point is the cash flow statement, this analysis provides information about how SEC XBRL flings are changing concepts such as "us-gaap:CashAndCashEquivalentsPeriodIncreaseDecrease". Another way to look at this is that if the higher level concepts and relations were more solid with extension points more clearly specified, then US financial reporting keeps it's dynamic nature, provides areas where extensions are quite reasonable, and avoids a free-for-all which a computer will simply not be able to deal with when trying to analyze SEC XBRL filings. For example, a balance sheet has "Assets", "Liabilities" and "Equity" (and sometimes temporary equity). Do you really want filers changing those high levels? Why? Be aware that they can at this point.
- Calculation inconsistencies and unexpressed computations: Many SEC XBRL flings have calculations which don't properly "foot and cross-cast". See this analysis which discusses this in more detail. There are those who believe that calculation inconsistencies cannot be made to go away. I personally don't buy that and that has not been my experience. Think about this though. Would you want to use a financial report where things don't add up? Would you trust the information? How would you distinguish something which does not add up because of an error and something which is not supposed to add up? Further, many times there are important computations which are not articulated by the SEC XBRL filing. These should be explicitly articulated for two reasons in my personal view: so the information creator knows that things add up and so that the consumer of the information knows what is supposed to add up and how. What should the rules be for computations?
- Improper modeling of information characteristics: People have different interpretations about what XBRL Dimensions provides in the US GAAP taxonomy and therefore they are used in different ways by different users. Even the US GAAP Taxonomy itself has different interpretations, sometimes using XBRL Dimensions and sometimes not to model information. People will eventually realize that consistently and correctly using XBRL Dimensions makes easier. There are four major classes of things to realize when trying to interpret the US GAAP Taxonomy relative to XBRL Dimensions: (a) Confusing and inconsistent: When SEC XBRL filers create their extension taxonomies their presentation relations and definition relations can be inconsistent, usually the definition linkbase is missing things. This impacts how the dimensions work because the definition linkbase really controls the workings of the dimensions, it is not the presentation linkbase. This can occur because there are two ways of articulating the same information: the presentation linkbase and the definition linkbase. The solution to this issue is have only one way of articulating the information model, not two. (b) Calculations don't work: Improperly modeled information can result in computations which don't add up correctly or you may struggle to figure out exactly how things add up. For example, consider this calculation validation report which shows that the balance sheet does not add up (look for the red in the last column on the right). If you look at all of these calculation reports (use the links to the calculation reports on the right hand side of the page), you can see that each of these SEC filers was able to get its balance sheet to calculate properly. (c) Drill down: A financial statement generally consists of summarized information in the primary financial statements such as the balance sheet and detailed information from many of the line items on the primary financial statements within the disclosures. If the dimensional information is created correctly, "drilling down" from the primary financial statements to details in the disclosures is easy to do. If they are not constructed correctly, a computer cannot correctly understand the links and therefore cannot possibly navigate between the primary financial statements and the details in the disclosures. (d) Mixing dimensional and non-dimensional information: Mixing XBRL Dimensional and non-dimensional information simply will not work correctly. For example, XBRL Formula has two aspect models: dimensional and non-dimensional. People will figure these things out when software improves, but just be aware if these issues.
- Irregular shaped hypercubes: Information reported in an SEC XBRL filing has different dimensions. For example, a consolidated balance sheet summarizes information for the consolidated entity for two period of time, the current period and the prior period. Whereas the segment breakdown of the balance sheet information has a different shape because it has different dimensions, usually one period and the breakdown is by business segment. The two dimensional nature of paper limits how certain information, which may have three or more dimensions, can be presented. Mismatches between the dimensions of information (i.e. the shape of the information) can make information harder to view. This situation can be rectified simply by reorganizing the information into the proper [Table]s. Exacerbating this situation even more is the fact that not all information is broken down into [Table]s and many of the "chunks" of information in the US GAAP Taxonomy are quite large. It might be better to have many smaller chunks of information which fit together, rather than the huge pieces which exist currently in the US GAAP Taxonomy. How the US GAAP taxonomy is modeled is a choice which you can influence.
- Extension concepts with poor descriptions: Not providing quality descriptions for concepts added by an SEC XBRL filer makes it harder to understand the filing and harder to determine if the filer is creating a concept which actually already exists in the US GAAP Taxonomy. Part of the point of XBRL is to make the meaning of things explicit, rather than have the user of the information guess.
- Fiscal periods: This is more of a nuisance than a significant issue, but it is something to be aware of. As you know, not all companies report on a calendar year end. When you manually go through paper reports and do comparisons, humans can pick the right periods to compare quite easily. When you try and automate this process, it becomes a little more challenging. There is no fiscal period information in SEC XBRL flings, so computer programs have to figure this out in automated processes. Different software may do this in different ways. Analysts have been dealing with this for years so they are use to it. But be aware, this can be automated reliably, if fiscal period information is included in the meta data.
Understanding this list of ten things will help you better understand the SEC XBRL filing information that you are working with. It will also help you understand what you should expect and therefore request from those trying to figure out how to make XBRL work within the financial reporting supply chain. The points are made not to be value judgments about what XBRL should be, rather they try and point out the spectrum of options which are possible. It is up the the domain of financial reporting to make the decisions. If you don't understand how things work and you are a stakeholder in the financial reporting supply chain, how are you going to know what to ask for from SEC XBRL filings?
The CFA Institute published a white paper, eXtensible Business Reporting Language: A Guide for Investors. They outline five guiding principles for what the CFA Institute wants to see from XBRL. The CFA Institute's white paper articulates what their stakeholder group desires from XBRL. What does your stakeholder group want to see? How is your stakeholder group making sure you get what you want?
The issues pointed out here, while specifically relating to the SEC XBRL filings, are actually issues which any system which uses XBRL's extensibilty features will need to address. For processes to be automated, the information must be unambiguous and the semantics must be clear and consistent. Even when you have unambiguous information and clear and consistent semantics, you still have some choices as to how you want your system to operate. Understanding these points helps business domain users make these choices.