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Seeing the Treasure Trove of Value from SEC XBRL Financial Filings

While those SEC XBRL financial filings are far from perfect and not really good enough for automated reuse of the information by financial analysts and investors; that financial statement database is a literal treasure trove of value to professional accountants. And I don't mean just external accounting managers of public companies.  I mean the hundreds of thousands of CPAs who create private company financial statements.

There is already one commercial application that I am aware of which makes use of the XBRL-based database of public company financial reports: GAAPWatch which was created by XBRL Cloud. I tried GAAPWatch and even created some videos which shows the sorts of things you can do with GAAPWatch.

I created a tool which is based on the same web service as GAAPWatch. I took that tool which was origionally created for analyzing the quality of the XBRL-based financial information and tweaked it a little bit and now I have an incredible research tool. To do queries, I cached some other information locally on my computer so that I could search through individual digital financial reports using some techniques which I created.

Similar to GAAPWatch, I can view the pieces of a financial report and get to those individual pieces by searching on the characteristics of reporting entities or by searching for specific disclosures contained within a financial report.

But what I can also do is search for individual facts which are reported in a financial report and find filers who reported those facts, see how and where they were reported, compare and contrast how different reporting entities provided those disclosures, and compare the relationships between reported facts. Those queries are done against the locally cached information to make the queries run significantly faster.

So here are some fairly rudimentary examples that I think provides insight to the possibilities which are available right now. (This ZIP file contains Excel spreadsheets which has the information I pulled from the set of SEC financial filings I am working with.)

  • Say you wanted to see how environmental site loss contingencies were being disclosed. First, you would have to find reporting entities which had such disclosures.  Then you have to find the disclosure within the report.  Then you can read through the disclosures and see how specific filers approached the disclosure.  My query discovered 120 such disclosures and the specific location within the report which contained the disclosure.  Press a button, and I can see the disclosure in my application.
  • Suppose you wanted to see the relationship between having the line item "Income tax expense (benefit)" on the statement of operations and having an income tax policy provided or whether it is more common to provide the reconciliation between statutory tax rates and the effective tax rates using percentages or amounts.
  • Imagine that you wanted to understand the specific sorts of things which are disclosed in the nature of operations for reporting entities who operated within a specific industry.

Research can be done during the process of creating financial report disclosures where, say, private companies can leverage the high-quality financial disclosures within financial reports submitted to the SEC.

The closest thing that I can think of which exists today which is similar is what used to be called Accounting Trends and Techniques which was renamed U.S. GAAP Financial Statements - Best Practices in Presentation and Disclosure which is published by the AICPA.  The benefits of using the SEC XBRL financial filings is that

  • the entire process of creating the resource can be 100% automated
  • you can have a different version of this disclosure research resource for specific industries as the marginal cost is so low because of the automation
  • you don't need to limit the resource to 500 reporting entities or some specific subset of disclosures because it is just as easy to grab information from every reporting entity

But the ability to search through specific reported facts and other information goes far, far beyond what the AICPA's product provides. Eventually software vendors who make software for the creation of financial reports will realize the utility of having this research information directly within software applications used for creating financial reports.  The software vendors will also realize that any aspects of the tools such as the disclosure guides used to jog your memory to make sure you did not miss a disclosure can be automated.  And obiously software can watch over external financial reporting managers to make sure they did not make other mistakes such as computations which don't add up correctly.

Besides making the human readable copies of financial reports better, all those SEC XBRL financial filings will help the general quality of XBRL also improve.

(Here is a video of the application I used to get this information.)

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