Digital Financial Reporting

XBRL-US announced a new product yesterday, the US GAAP Pension Analyzer.  This tool, made available for free to public company reporting managers, is announced in this press release, XBRL US GAAP Pension Analyzer Identifies Significant Errors in XBRL SEC Filings for Q1 2014.

This tool is a sign of things to come.  This is what I mean.

First, the pension disclosure(s) is only one of many disclosures made within a financial report. Here is a prototype list of disclosures required by US GAAP. Why couldn't disclosure analyzers be created for every disclosure? If you read the press release, it describes the US GAAP Pension Analyzer as performing the following:

The rules check each concept and combination of concepts to identify incorrect sign (negative or positive), invalid axis/member and axis/line item combinations, problems in roll forwards, missing values and incorrect dates, among other potential problems.

Second, while XBRL US started at one end of the problem, I started at the other end.  What I mean is XBRL US has their consistency suite which checks an SEC XBRL financial filing. Now they have their US GAAP Pension Analyzer.  Is that everything necessary to validate an SEC XBRL financial filing to be sure that filing is correct?  Certainly not and they are not holding these validation steps out as being comprehensive.

Now I started on the other end.  I have my seven minimum criteria which I use to verify the usability, and therefore the fundamental correctness, of an SEC XBRL financial filing. Are my criteria sufficient to be sure that everything about an SEC XBRL financial filing is correct? No, I make it clear that they are likewise not comprehensive. However, meeting each of my criteria are necessary for working with any reported information. More comprehensive business rules (criteria) are necessary to be sure the entire report is created correctly.

You need both what I created, which is a framework and high-level criteria, plus what XBRL US created which is more lower-level detailed criteria, plus you need those "analyzers" for all the other disclosures which might exist in an SEC XBRL financial filing. It is the combination of all these things which is significantly closer to what is truly necessary to get all the details of these digital financial reports correct so that the information within the reports will be usable.  You likely need even more.

Third, I cannot speak to precisely what the US GAAP Pension Analizer does, but I can safely say that it goes far beyond XBRL technical syntax validation.  Go back and read the quote above.  "Problems in roll forwards" has nothing to do with syntax, that is semantics (meaning). "Incorrect dates", that is meaning. "Invalid axis/member combinations", meaning.  There is a lot of US GAAP related stuff which can be verified because of the structured nature of the information reported in an SEC XBRL financial filing.  That has tremendous value to external reporting managers.  Detecting accounting anomalies will start to show the power of XBRL-based digital financial reports over traditional financial reports.  When this happens, external reporting managers of not only public companies will value XBRL-based digital financial reports.  Private companies will also, whether they press the "save as XBRL" button in the application or not.

Fourth, back in the 1970's the way automobiles and other things were made change dramatically because of two things: a guy named Deming and Toyota. Toyota adopted Deming's principles, I learned them as "World Class Manufacturing Techniques", and changed the auto industry forever.  The old way was: build, find mistakes, fix mistakes.  The new way was: fix processes, build, (i.e. don't make mistakes).

The point is this: why would you want to build your financial report incorrectly and then validate that report after-the-fact and correct the report for errors detected?  Why not use the business rules to not let you create the mistake in the first place?

It is the integration of the sorts of validation offered by things like the US GAAP Pension Analyzer into the financial report creation workflow which will change accounting work practices.  Just as a CAD (computer aided design) program understands the relation between a window and a wall; a digital financial reporting software application will understand the relation between assets, liabilities and equity, and a balance sheet.  Does your current financial report creation software understand these sorts of relations?

That is why the US GAAP Pension Analyzer is a sign of things to come.