In my popular video How XBRL Works (pushing 12,000 views) I did my best to explain three important notions needed to properly understand XBRL. This is a better articulation of that information. Watching the video can also be helpful in gaining a better understanding of these important key terms. If you don't have a proper understanding of these terms, it is doubtful that you have a proper understanding of XBRL.
Unstructured versus structured information
Digital information comes in two forms:
- Unstructured which means the information contains no identifiable structure and therefore it is unrecognizable and therefore not usable by computer software. Further, no controlled navigation within the pieces of the unstructured information is possible due it its lack of structure.
- Structured which means the information has identifiable structure which can be recognized and utilized by computer software. Further, because of the structure navigation within the pieces of structured information is possible because of the structure.
Truth be known, everything that a computer works with has to be structured at some level and the level of structure determines what a computer can do with that digital information.
Structured for presentation versus structured for meaning
There are two approaches to structuring information digitally:
- Structure for presentation. An example of that is a Word processor document which is structured using headings, sub headings, paragraphs, tables and lists. An Excel spreadsheet is also an example of structuring for presentation, it uses worksheets, columns, rows, and cells.
- Structure for meaning. An example of that is database or a taxonomy or other type of classification system. A database structures the presentation into rows and columns, but the rows and columns are associated with defined names which have specific meaning.
Syntax versus semantics
More often confused are the two parts of structured information. Both parts are important, but for different reasons:
- Syntax describes the form of the information and is generally not relevant to a business person. This is syntax: <Name>John Doe</Name>. Syntax is important to technical people.
- Semantics communicates the meaning of the information. For example, "the balance sheet balances" is semantics. Business meaning is key to the digital world.
Interoperability = Business benefits
What does all this mean to you? More than you might think. Properly weaving business systems together provides significant business benefits. For example, SAP says in this article that its customers have sharply cut costs of creating regulatory reports by 75 percent. If you are not experiencing that magnitude of benefit you may be confusing some of these terms.
As his video about HL7 points out (see slide 4) you need three things to create useable business system interoperability:
- Technical interoperability is concerned with the conveyance of payload. This is syntax, what physically gets transferred.
- Semantic interoperability communicates meaning unambiguously. Semantics are domain specific. The business systems on both sides of the transfer need to have the same understanding of the meaning for the transfer to work effectively.
- Process interoperability enables shared human understanding that is needed to coordinate work processes and enable business systems to interoperate. Basically, the work flow needs to be understood.
Think "Semantic Spreadsheet"
This short 6 minute video helps you see the world differently (the first video, "Basics of Quantrix Modeler"). In the video the narrator makes up the terms used in his matrix, "Net Income", "Revenue", "Expenses". For financial reporting use of that semantic spreadsheet or what the narrator calls a "matrix", you would generally not create the concepts used yourself; you would generally pick most of them from the US GAAP or IFRS taxonomy.
We are not there yet. Business software is not what it needs to be. For example business intelligence software is too focused on OLAP, it does not handle text well preferring to work with numbers, and it is "read only", you cannot write information back to the database generally. The US GAAP Taxonomy is modeled like a the documents accountants are used to, not like the data model that it should be. Each implementation of the XBRL standard is unique to that implementation, for example the SEC and FDIC implementations of XBRL don't interoperate.
All these issues will be worked out over time. Don't make the mistake of confusing the moving pieces to this puzzle. The better you understand the moving pieces, the fewer mistakes you will make in working with new technologies such as XBRL.