Properly Differentiating Important Key Terms Helps Understand XBRL
Tuesday, April 26, 2011 at 07:03AM
Charlie in Creating Investor Friendly SEC XBRL Filings, Modeling Business Information Using XBRL

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:

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:

Syntax versus semantics

More often confused are the two parts of structured information.  Both parts are important, but for different reasons:

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:

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.

Evolution

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.

Article originally appeared on XBRL-based structured digital financial reporting (http://xbrl.squarespace.com/).
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