Detecting Accounting Choices Using XBRL
Monday, April 15, 2013 at 07:25AM
Charlie in Becoming an XBRL Master Craftsman

The utility of a high-level computer-readable fundamental accounting model is becoming more clear to me. In a prior post I discussed the notion of fundamental accounting relations. In another post I showed a screen shot of an application I am using to figure out these relations. This post builds on that other information and tunes the information for what I am actually finding in SEC financial filings.

This post also points out that this model can be used to be clear of the accounting choices made by reporting entities.

You can see my updated visual model by clicking on the image below:

I have summarized the relations on this wiki page. Definitions which would add additional clarity are forthcoming.

The model is based on my understanding of financial reporting, the US GAAP Taxonomy, and 7,160 SEC XBRL financial filings (10-Ks) that I am looking at.  What I am noticing is this:

Now notice that none of the issues above have anything to do with XBRL really.  These are accounting issues.  Using all that XBRL-based information turns the SEC XBRL financial filings into a treasure trove of useful information.

Now, are these high-level categories also useful for working with the XBRL-based information.  Yes, very much so.  For example, in terms of concept selection having these categories and knowing which concept relates to which category is very useful in avoiding concept selection mistakes.  For example, let me point out two clear mistakes. (Not to pick on these filers, they are just two very good examples.)

Procter & Gamble, in their 10-K filing, created a balance sheetand on that balance sheet they did not include a total for noncurrent assets. No big deal, having a total for noncurrent assets is not required on the balance sheet.  However, notice the line item "OTHER NONCURRENT LIABILITIES" within the balance sheet.  Using the XBRL Cloud viewer, if you click on the report element or fact a dialog box appears and you can see from that dialog box (go to the "Occurrences" tab) that the line item is detailed in another section of the report, "2403402 - Disclosure - SUPPLEMENTAL FINANCIAL INFORMATION (DETAILS)". Go to that section and you see a listing of the pieces which make up that total.  In that list of details you see the line item "Other Non-Current Liabilities" which has the US GAAP taxonomy concept "us-gaap:LiabilitiesNoncurrent".  Oops!  That is clearly a mistake in concept selection.  You can see for yourself that in the US GAAP Taxonomy, this means something different than how P&G is using it.

3M, in their 10-K filing, created an income statement and in that income statement they provided the line item "Total interest expense - net".  The US GAAP Taxonomy concept used to express that line item is "Nonoperating income (expense)". Now, I guess that is not so bad, but perhaps "Interest and debt expense" could be another choice. HOWEVER, look closely what is going on.  See the 3M line item "Interest expense".  That concept is the US GAAP Taxonomy concept "Interest and debt expense". What 3M did was use one high-level total concept, repurposed it, and included that high-level concept into the category "Nonoperating income (expense)".  That is a bad, bad thing in my book.  Under no circumstances should a high-level concept be used as a line item within some other high-level concept.  Further, it is a very bad idea to take a concept from one category and use that concept within another category.

As a side note, I know how this sort of error occurs.  What happens is accountants creating SEC filings are presented with a flat list of concepts in software applications when they are trying to find the correct concept to use.  The accountants fail to examine the concept relative to other concepts before they make their selection of concepts.  It is always best to take a look at a concept within its context to other concepts in the US GAAP Taxonomy prior to making your final choice.

There is one final thing worth mentioning about this set of fundamental accounting relations.  Take the term "Assets".  Pretty straight forward, I bet you know what that concept means.  And in the US GAAP Taxonomy, there is exactly one concept which could ever be used to express that fundamental accounting concept, "us-gaap:Assets". And that is the way it should be: one fundamental concept, one  representation of that fundamental concept within the US GAAP Taxonomy.  This is supported by the fact that all 7,160 SEC XBRL financial filings either DID use the concept "us-gaap:Assets" or SHOULD have used that concept (i.e. they had a modeling error, see here for detailed information).

Liabilities also works this way.  As does current assets, current liabilities, noncurrent assets, noncurrent liabilities, commitments and contingencies, and numerous other concepts which fit into this pattern.

However, this is not alwayshow the US GAAP Taxonomy works.  Look at the concept "Liabilities and equity".  You used to have "Liabilities and Stockholders' Equity" and "Liabilities and Partner Capital".  That is 2 US GAAP concepts which represents only one fundamental accounting concept.

Now, evidence of this idea (multiple US GAAP concepts represent one fundamental accounting concept) is the fact that the 2013 US GAAP Taxonomy fixed that problem! If you go to the US GAAP Taxonomy (2013 version) you see that the concept "Liabilities and Stockholders' Equity" was changed to "Liabilities and Equity" and the concept "Liabilities and Partner's Capital" was deprecated and can no longer be used.

Other areas of the US GAAP Taxonomy have not been corrected.  For example, there are multiple "Equity" concepts (stockholder, partner, LLC).  There are other areas where this occurs.

And so now think about querying SEC XBRL financial information and you want to find the concept "Equity" and you don't care whether the entity type is corporation, partnership, LLC, membership organization, proprietorship, or that ever.  You can see how such a query can be complicated by multiple different US GAAP Taxonomy representations of the same fundamental accounting relations can cause issues.

This points to another example of why the fundamental accounting concepts and the relations between those concepts can be useful.  They can make querying the information easier.

Do you see other ways this fundamental accounting concepts/relations layer can be useful?  If you do, please let me know.

Article originally appeared on Intelligent XBRL-based structured digital financial reporting using US GAAP and IFRS (http://xbrl.squarespace.com/).
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