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Data and Reality: What is the Purpose of SEC XBRL Financial Filings?

What is the purpose of an SEC XBRL financial filings? (Or any digital financial report really)

  1. To define one absolute reality: To arrive at some one absolute definition of "true and fair representation of financial information"?
  2. To create a shared reality to achieve a specific purpose: To arrive at a shared common enough view of "true and fair representation of financial information" such that most of our working purposes, so that reality does appear to be objective and stable. So that you can query information reliably, predictably, repeatedly, safely.

Many people seem to believe that the answer is one forced absolute reality is being thrust on them.  That is why they tend to think that everything is involves judgment and that everything is subjective.  But this is to miss the point. A shared view of reality which is clearly interpretable and understood to achieve the purpose of meaningfully exchanging information so that time is reduced, costs are reduced, and information quality improves.

The goal is to arrive at some equilibrium, to balance the duality, as the author states, to recognize that there is no singular objective reality but in spite of that, we create a common enough shared reality to achieve some working purpose. To make reality of the financial reporting domain appear to be objective and stable in certain specific and agreed upon ways in order to fulfill some higher purpose.

From what I can see, the accounting profession has yet to agree on the purpose and they have not successfully communicated that purpose to IT professionals because (a) they have not agreed on the purpose and (b) they don't even understand that they need to agree on and communicate that purpose so accountants have not taken the time to agree on or define that purpose.

The book Data and Reality: A Timeless Perspective on Perceiving and Managing Information in Our Imprecise World, 3rd Edition, by  William Kent, helps understand issues related to getting machines such as computers to work with information.  This describes the book:

This book addresses timeless questions about how we as human beings perceive and process information about the world we operate in, and how we struggle to impose that view on our data processing machines. The concerns at this level are the same whether we use hierarchical, relational, or object-oriented information structures; whether we process data via punched-card machines or interactive graphic interfaces; whether we correspond by paper mail or e-mail; whether we shop from paper-based catalogs or the web. No matter what the technology, these underlying issues have to be understood. Failure to address these issues imperils the success of your application regardless of the tools you are using.

Data and Reality gracefully weaves the disciplines of psychology and philosophy with data management to create timeless take-aways on how we perceive and manage information. Although databases and related technology have come a long way since 1978, the process of eliciting business requirements and how we think about information remains constant. This book will provide valuable insights whether you are a 1970s data-processing expert or a modern-day business analyst, data modeler, database administrator, or data architect.

This provides more information about and excerpts from the book. Under the section "A View of Reality", the author describes the equilibrium which must be struck to create useful machines: (I made the important pieces bold)

In addition, there is a question of purpose. Views can be reconciled with different degrees of success to serve different purposes. By reconciliation I mean a state in which the parties involved have negligible differences in that portion of their world views which is relevant to the purpose at hand. If an involved party holds multiple viewpoints, he may agree to use a particular one to serve the purpose at hand. Or he may be persuaded to modify his view, to serve that purpose.

If the purpose is to arrive at an absolute definition of truth and beauty, the chances of reconciliation are nil. But for the purposes of survival and the conduct of our daily lives (relatively narrow purposes), chances of reconciliation are necessarily high. I can buy food from the grocer, and ask a policeman to chase a burglar, without sharing these people's views of truth and beauty. It is an inevitable outcome of natural selection that those of us who have survived share, within a sufficiently localized community, a common view of certain basic staples of life. This is fundamental to any kind of social interaction.

If the purpose is to maintain the inventory records for a warehouse, the chances of reconciliation are again high. (How high? High enough to make the system workably acceptable to certain decision makers in management.) If the purpose is to consistently maintain the personnel, production, planning, sales, and customer data for a multi-national corporation, the chances of reconciliation are somewhat less: the purposes are broader, and there are more people's views involved.

So, at bottom, we come to this duality. In an absolute sense, there is no singular objective reality. But we can share a common enough view of it for most of our working purposes, so that reality does appear to be objective and stable.

But the chances of achieving such a shared view become poorer when we try to encompass broader purposes, and to involve more people. This is precisely why the question is becoming more relevant today: the thrust of technology is to foster interaction among greater numbers of people, and to integrate processes into monoliths serving wider and wider purposes. It is in this environment that discrepancies in fundamental assumptions will become increasingly exposed.

If you like Data and Reality, you might like Everything is Miscellaneous and Models. Behaving. Badly. also.

Posted on Monday, July 28, 2014 at 07:49AM by Registered CommenterCharlie in | CommentsPost a Comment

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