The formulae are part of the model, not an afterthought
Thursday, September 13, 2012 at 06:23AM
Charlie in Digital Financial Reporting, Modeling Business Information Using XBRL

In discussing something on the XBRL Formula Working Group list the following statement was made which I wish more people creating taxonomies and software vendors understood:

"the formulae are part of the model, not an afterthought"

Business rules expressed using the two global standard means available, XBRL calculations and XBRL Formula, are key to creating a quality XBRL taxonomy.  Business rules define/document important relations and other information.  Without this information, those using taxonomies to express financial information in an XBRL instance will have holes in their knowledge of how to properly model reported information and holes in their ability to verify that the information they expressed was correctly expressed.

Those creating XBRL instances can get around this problem by creating their own business rules, and in fact this is the only practical way to help them be sure that the information they are expressing has been correctly expressed.  But the down side is that each business user creating what amounts to their set of proprietary business rules does so in a vacuum on their own and there is no guarantee that any two business users will consistently express relations which should be consistent across all XBRL instances or classes of XBRL instances.

People will eventually figure this out.

Lack of business rules causes another problem: poor renderings.  These business rules contain information which could be leveraged to detect patterns and leverage those patterns to render the information contained within a financial report expressed using XBRL.  Software developers complain about how flat XBRL is.  Well, it is actually not the case that XBRL is flat.  The relations are just not expressed in  the XBRL Schema, they are expressed in other places.  These missing relations which would exist if the business rules were expressed using XBRL Formula would reveal how un-flat financial information is.

Don't understand what I am talking about or want more detailed information? Explore these disclosure templates.  Each has an XBRL taxonomy, XBRL instance, and business rules expressed using XBRL Formula and explained in the form of a brief narrative.  An example is below:

Well modeled XBRL taxonomies yield very good renderings.  Providing a complete set of business rules in the form of XBRL Formula forces good modeling.  The business rules expressed using XBRL Formula makes semantic information explicit, exposing it to software vendors, allowing the information to be leveraged by software.

Today, well modeled digital financial reports have these semantics.  People just are not seeing these semantics. Not business users or software developers.  But just because you cannot see the semantics does not mean that they do not exist.  These metapatterns prove that.

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