Digital Financial Reporting

I have mentioned the notion of the "semantic spreadsheet".  This blog postsays that it is time for a new take on spreadsheets. The author of the blog also points out that Microsoft Excel is by far the leader in the world of electronic spreadsheets, but the needs of the tablet PC and moble devices could open an opportunity to dethrone Excel.

Don't get me wrong, I love the Excel.  There is really a lot to like. If anyone is going to dethrone Excel as the king of the electronic spreadsheet hill, they better have some really good ideas because business users are quite attached to their Excel spreadsheets.

But I don't see this as an either-or situation.

People point out the flaws of the electronic spreadsheet. For example, this web page points out the following 10 disadvantages of spreadsheets as being:

1. Vulnerable to fraud
2. Susceptible to trivial human errors
3. Difficult to troubleshoot or test
4. Obstructive to regulatory compliance
5. Unfit for agile business practices
6. Not designed for collaborative work
7. Hard to consolidate
8. Incapable of supporting quick decision making
9. Unsuited for business continuity
10. Scales poorly

The blog post about the new take on spreadsheets provides this wish list of features which I have paraphrased:

• Don't intermingle "Grids, values, formula and style" (i.e. separate the "model" and the "view" of the information)
• Terser, more readable source forms (better file format)
• Backing with Source Control (better versioning or collaborative use)
• Live data
• In-Browser editing of content, via plugins (i.e. lighter weight client)

This is my take on what is wrong with current electronic spreadsheets is this list of 5 fundamental problems that I see:

1. Information is presentation oriented rather than meaning oriented: Today's electronic spreadsheets, all of them, are made up of sheets which contain rows and columns which intersect to form cells. Information is entered into cells. All these rows, columns, and cells are presentation oriented.  What if the information were meaning oriented instead? (If you don't understand what I am talking about, watch this Quantrix tutorial)
2. Business rules combined with spreadsheet information: Spreadsheets today have the data within the spreadsheet combined with the business rules such as formulas for how information adds up, tests to make sure there are no errors, and other information mixed within the data of the spreadsheet.  This can make it very hard to check a spreadsheet for errors or missing business rules.  To look at this another way, imagine a spreadsheet which is verified using an external set of business rules.  Sometimes the business rules could be publically available, other times the business rules would be securely available to a select group of users of the spreadsheet.  The basic premise is that you can separate the business rules used to check the spreadsheet from the actual information which provides more control over both the business rules and the information. Plus, this means that the same set of business rules can be used across multiple spreadsheets to verify that the spreadsheets do not contain errors. Considering #1 above, the information, the business rules, and how the information is presented all really need to be separated to make the spreadsheet more flexible.
3. Multiple copies of the same spreadsheet: A big problem is multiple versions of the same spreadsheet and you lose track of which version is the correct version to be using. Many people refer to this issue as spreadsheet hell. More and more people are addressing this by storing spreadsheet information in a database and exposing the information view Excel, but saving the information into a database.  The problem with this is see #1 above, the information stored is still presentation oriented and not meaning oriented.
4. Comparing information between spreadsheets can be a challenge: If you have ever given a spreadsheet to two or more different people, had each person put information into the spreadsheet, and then tried to compare spreadsheet information you understand this situation. Reusing information contained in spreadsheets effectively can be a big challenge.
5. Proprietary format, forced to use one software application: Excel is a great software application for working with spreadsheets. But if you don’t have Excel or someone you want to share information with does not have Excel and you want to exchange information, this can be problematic.  The interoperability between Excel, Google Spreadsheets, and Apple Numbers spreadsheets is OK some times, but other times problematic.  Standard formats such as Open Documents helps, but the standards focus on formatting of information, not the semantics of the information.  Also, business rules are still embedded within the application.  Further, Excel is a very "heavy" client.  With tablet PCs and mobile devices growing in popularity, that becomes more and more of a problem.

So what is the solution?

In my view the solution is an XBRL-based global standard semantic spreadsheet. The truth be known, the global standard semantic spreadsheet already exists.  "Say what?", you ask.  If you go to any SEC XBRL financial filing and look at it, say by going here to the XBRL Cloud Edgar Dashboard, and look at any financial filing you can see a semantic-oriented spreadsheet.  That semantic spreadsheet is dynamic in that you can pivot the information.

What you don't have is three things: (1) good representations of the information (i.e. the models are poorly created), (2) all the business rules to prove that the information is correct, and (3) good software which allows you to see that this is really a bunch of little semantic spreadsheets all connected to form a financial statement.

Now, the XBRL Cloud Viewer is close in my view.  But, it is only a viewer. But I believe that people will ultimately realize that business information in general is more similar to the information contained in financial statements and that the Financial Report Semantics and Dynamics Theory can be applied more broadly to business reports.

Concepts such as "report component", "fact", "characteristic", "property" are very general. I have mapped these terms to the XBRL International Abstract Model 2.0. If you compare these terms to the terms used in the Quantrix tutorial above, they have the same things, they just call them different names.  For example, they use "Matrix" where the XBRL International Abstract Model 2.0 uses "Cube", and Financial Report Semantics and Dynamics Theory uses "Report Component".

What is the bottom line here? Digital semantic spreadsheets already exist. What is missing is good software which allows business users to:

• Separate information reported, representation (or model) information, business rules, and presentation information: represent information in that form correctly,
• Rules prove information is correct: verify that the information represented is represented correctly via business rules (syntax and semantics)
• Neutral human readable view: view the information in a manner which is understandable by humans driven by business rule driven rendering algorithms of the domain
• Global standard syntax: do all of these things using a global standard syntax such as XBRL
• Proven to work: effectively exchange the meaning of the information with other software applications (business user to business user)
• Numbers, text, and rich text: the software works with both number, text and rich text information formats, not just numbers
• Useable by business users: do all of this using an open taxonomy which business users manage

Some software applications do some things on the list above, other software does other things. But there is not one software application which does ALL of these things on that list.  That is what will help business users realize that alternatives to exchanging information using something like Excel or CSV (comma separated values) do exist.

The best solution for business users would be for this functionality to exist within Excel (because that is where a lot of information is created) and outside Excel in other software applications business users make use of. A true global standard digital semantic spreadsheet format owned by no specific software vendor but supported by all business applications used to create or consume business information.  That would be ideal.  Having islands of information in some new software application or only having one software vendor supporting a digital semantic spreadsheet such as this helps nothing really.

The digital semantic spreadsheet will help accountants in this new world of big data.