Digital Financial Reporting

Prototype theory is something I picked up when I read David Wenberger's very insightful book, Everything is Miscellaneous.

The book has two key points.

• That every classification scheme ever devised inherently reflects the biases of those that constructed the classification system.
• The role metadata plays in allowing you to create your own custom classification system so you can have the view of something that you want.

Several years ago I summarized what I learned about prototype theory into this document, Understanding Prototype Theory and How it Can be Useful in Analyzing and Creating SEC XBRL Filings. The document also pulls information together about Concept Learning and Prototype and Exemplar Theory of Concepts.  If you are working with SEC XBRL financial filings, trust me...this information is incredibly helpful.

A fundamental problem of the US GAAP XBRL Taxonomy, in my view and in the view of many others that I talk to, is that it was (a) admittedly designed to be a "pick list", (b) the pieces are too big, and (c) the pieces which people generally work with are not physically identified.

This is what I mean, this is one section of the US GAAP XBRL Taxonomy (2011 Version), Debt. (That is an older version but there is not really much of a change in the 2013 version in terms of its organization.  I am using the older version because I remodeled the 2011 version, you will see why in a minute.)

If you look at that section of the US GAAP XBRL Taxonomy, you can clearly see that it can be categorized by it network which identifies it as "460000 - Debt". That network can be differentiated from every other network by the title and identifier of the network.

But, tell me what is in that network?  Or rather, you can read it and tell me what is in it.  But have a computer tell you what is in that network.  It cannot.  Why? A computer cannot identify what is in that network because it cannot identify the pieces which make up the network because the organization is inconsistent.  You can identify sum pieces, for example each of the [Table]s.  But, because not everything is in a [Table] and there is not really any other way to latch on to a specific piece because the representation is inconsistent, a computer cannot identify "the pieces".

Contrast the US GAAP XBRL Taxonomy representation to my remodeled version of exactly that same information. Note that everything in that remodeling is represented within a [Table].  I used US GAAP XBRL Taxonomy [Table]s where they existed, and where they did not exist I created a [Table].

But SEC XBRL filers don't use the information in the US GAAP XBRL Taxonomy at the [Table] level.  Look how big many of those [Table]s are.  Consider, say, the "Long-term debt maturities" disclosure which is a very common disclosure provided by SEC XBRL Financial filers which tends to look like this:

The above example of how long-term debt is disclosed. How do I know? Because I analyzed SEC XBRL financial disclosures, see this analysis of Long-term Debt Maturitieswhich I created for another project I am doing, and that is how the US GAAP XBRL Taxonomy is used generally by filers. This analysis has even more information on how small these disclosures really are.

So, if you look closely at my reorganization of the US GAAP Taxonomy you will see two things: (1) If you look within each [Table], you can see that the pieces are at the level SEC filers tend to use the information and each of those pieces is identifiable and (2) each one of those pieces follow a defined accounting concept arrangement pattern which I have made explicit.

This is what you should be looking at:

So now, because I have specifically identified each of the pieces of the US GAAP XBRL Taxonomy and I know that SEC filers create filings at that level, I can put the two things together and identify every report component of ever SEC XBRL financial filing.

How?  Well, consider this little XML file. That is a fragment of this larger file to make reading the file easier.

Click for a larger image

So, I have prototypes for EVERY piece of the commercial and industrial companies portion of the US GAAP XBRL Taxonomy.  I got them by reorganizing the taxonomy into a useful form, each disclosure.  Those disclosures match what SEC XBRL financial filers are disclosing.  I have exactly the same XML representation for every SEC XBRL financial filing.  I use the prototypes to identify the SEC XBRL financial filing report components, and the SEC XBRL financial filings to help me create prototypes.

Why do I go through all this effort? Well, that is how I do this:

• I can query SEC XBRL financial filings and grab the exact disclosure that I want.
• I can view individual report components within one filing or across SEC filings.

A proper organization of the US GAAP XBRL Taxonomy is very useful for all sorts of things!

When I originally started using prototype theory, I thought that what I was trying to do is convince the FASB and the SEC to provide specific "handles" on every disclosure so that I would not need to go through all this effort.  But I think that I have convinced myself that those handles are not necessary.

My idea was for the FASB to provide a specific [Table] for every disclosure so each disclosure could be identified easily by anyone using SEC XBRL financial filings. They already provide [Table]s for some things, the idea is simply to provide a [Table] for everything.  Why is this possible?  Disclosures don't change.  The presentation of disclosures can be fiddled with by SEC filers, but what they can disclose cannot.  Look at the long-term debt maturities again.  What is disclosed does not change significantly, it is "the law".  There is some variability, but not much.  Now, this is not the case for EVERY disclosure, for example qualitative disclosures have more variability. However, qualitative disclosures are not random; patterns do exist.

But while providing specific identifiers for each disclosure is possible and may even be desirable and even a good practice for those creating taxonomies; it is not necessary.  The fact that I can get to whatever disclosure I want using prototype theory is proof of that.