XBRL's Sweet Spot: Aggreed Upon Fidelity
Friday, January 10, 2014 at 06:09AM
Charlie in Becoming an XBRL Master Craftsman

A while back I did a post where I mentioned XBRL's "sweet spot".  I am trying to zero in on the unique characteristics offered by XBRL. This is an updated list of that sweet spot, where XBRL seems to excel when compared with other alternatives for exchanging business information:

When everything is condensed down to its essence, the XBRL global standard is about enabling one business user users to exchange information with another business user or users without the involvement of the information technology department.  A key piece of this is what I called an "open taxonomy" type information exchange.  It was pointed out to me, and I agree, that it is more about domains which require flexible taxonomies.  You cannot really have "open".  Open means a hole.  There cannot be holes in information exchanges.  That leads to ambiguity and information quality problems.  Flexibility needs to be carefully controlled.  Different implementations of XBRL are taking different approaches.  I don't think anyone has figured out all the moving pieces quite yet.

So few people understand how to tame the XBRL beast today.  Some are zeroing in on it though.  It is my observation that most approaches used today either throw out XBRL's most important feature which is its extensibility or use an approach which leads to a dead end because they are focused on thee wrong problem elements.  Few craftsman understand how to appropritaly employ XBRL as it was intended to be employed.

The best opportunity to understand all the moving pieces is the SEC XBRL financial filings which are all publically available.  They offer many, many clues of what to do and what not to do.

Someone was trying to wrap their head around all this and they wrote a narrative which tried to explain the moving pieces as they needed to understand them.  I modified that narrative and this is what I came up with which attempts to explain the problem XBRL is trying to solve: 

Automating the exchange of information between two or more internal business systems has traditionally required an expensive manual integration process via tightly coupled custom interfaces and secure networks. Integration with business systems external to one's organization was extremely rare.  Integrations were often expensive, fragile, and handled only small, rather unsophisticated payloads of data from transactions.

The creation of the public internet changed that dynamic. The internet expanded the need to exchange information because more business systems were now connected.  The public internet lead to the need for publicly available standards such as XBRL.

Modern integration methods support looser coupling but require standards or negotiated syntax and standard protocols and workflow rules.  As information becomes more sophisticated and rich, semantic rules can be used to increase the fidelity of the information exchanged between sending and receiving systems.

Standards offer preexisting technical syntax, domain semantic, and workflow rules which enable the exchange of information that is not only readable/understandable to human business users but also is machine readable. 

These higher-fidelity information exchanges allow for entire supply chains to be integrated by business users themselves, removing the information technology department from the equation.  This allows for business users to control business processes, adjust the processes as deemed necessary, and otherwise avoid expensive 'point solutions' in favor of much less expensive but just as reliable standard, loosely coupled, dynamic, high-fidelity integrations internally and external to an organization and therefore across entire supply chains.

 This is a work in progress.  If you care to comment to improve this description please send me an email.

Article originally appeared on Intelligent XBRL-based structured digital financial reporting using US GAAP and IFRS (http://xbrl.squarespace.com/).
See website for complete article licensing information.