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Updated Definition of Fact: for the Purpose of Interpretation

I stumbled upon something which I find rather important.  It may sound subtle, but I believe the distinction is important.

Someone provided feedback related to the definition of a fact.  They felt that I did not have the definition quite right.  So, I looked into this.  I knew that the XBRL Abstract Model 2.0 had to define a fact, so I thought I would have a look at their definition to see if there was any thing there which I could leverage (...er...ah...steal).

The XBRL Abstract Model 2.0 uses the term "DataPoint" rather than "fact".  It also uses other different terms such as "aspect".  See here for a reconciliation of this terminology.  This is their definition of DataPoint:

The DataPoint metaclass defines a reportable item of business information contextualized by a set of aspects that identify or describe the item (this is an XBRL primary item fact), and a corresponding data point value (the reported item of business information).

The key word here is contextualizedThis dictionary defines contextualized as:

to place (a word, event, etc.) into a particular or appropriate context for the purpose of interpretation or analysis

"For the purpose of interpretation of analysis."  THAT is exactly how one should look at defining information, so that the information can be property interpreted!

And so, this is my revised definition for a fact as used in my digital financial reporting model:

A fact defines a single, observable, reportable piece of information contained within a financial report, or fact value, contextualized for clear interpretation or analysis by one or more characteristics.  Numeric fact values must also provide the additional traits "units" and "rounding" to enable appropriate interpretation of the numeric fact value.  Facts may have zero or many parenthetical explanations which provide additional descriptive information related to the fact.

(If you don't understand the term characteristics, please see here for specific examples and the Financial Report Semantics and Dynamics Theory for more information.)

Why is this important?  That is exactly what creators of financial reports should be thinking when they create those reports: how the information within the report will be interpreted.  This is why any important characteristics must be articulated along with values and also why it is better to explicitly state what you are saying rather than leave it up to users of the information to imply meaning because they may imply the wrong meaning.

Another term for this is disambiguate which is defined here as:

to establish a single semantic or grammatical interpretation for

Ambiguity, the enemy of automated reuse, is

"doubtfulness or uncertainty as regards interpretation" or "vagueness or uncertainty of meaning".

Unambiguous is:

admitting of no doubt or misunderstanding; having only one meaning or interpretation and leading to only one conclusion

Please don't make the mistake of confusing the need for and the freedom to exercise professional judgment in the creation of a financial report.  That is not the point or the issue here.  Accountants alone determine what should be communicated within a financial report.  What information to report is not the issue here.

What is at issue here is if accountants do say something, what they said should be interpreted the same by all computer software applications or their users.  What I am talking about here is the objective facts, the information level.  The information should have the same meaning to all users of the information.

How reported facts are used, whether reported facts are used at all, the implications or ramifications of that meaning the facts hold, and such is up to the user of those facts, the users of the reported information.  That is a different level of interpretation, more on the level of knowledge.

The point here is that all users of any financial report information set should fundamentally interpret the fundamental facts, the core building blocks, base meaning of the reported information, in the same way:  Assets as of December 31, 2012, for the consolidated entity is $100,000.  Facts such as this are objective, not open to interpretation, the fact itself has one meaning.  Is having $100,000 in such assets good or bad?  That is a different question, certainly open to interpretation.

This distinction is important to understand.

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Reader Comments (1)

The term "Unambiguous" would be better than the term "clear" in the definition of a fact.
August 18, 2012 | Unregistered CommenterJoe

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