Digital Financial Reporting

Computers are machines.  They are tools.  Computers have the four basic strengths:

• Storage: Computers can store tremendous amounts of information reliably and efficiently.
• Retrieval: Computers can retrieve tremendous amounts of information reliably and efficiently.
• Repetitive processing: Computers can process stored information reliably and efficiently, mechanically repeating the same process over and over.
• Ubiquitous information distribution: Computers can make information instantly accessible to individuals and more importantly other machine-based processes  anywhere on the planet in real time via the internet, simultaneously to all individuals.

To harness the power offered by these useful machines, four major obstacles need to be overcome:

• Business professional idiosyncrasies: Different business professionals use different terminologies to refer to exactly the same thing.
• Information technology idiosyncrasies:  Information technology professionals use different technology options , techniques , and formats  to encode information and store exactly the same information.
• Inconsistent domain understanding of and technology’s limitations in expressing interconnections: Information is not just a long list of facts, but rather these facts are logically interconnected and generally used within sets which can be dynamic and used one way by one business professional and some other way by another business professional or by the same business professional at some different point in time.  These relations are many times more detailed and complex than the typical computer database can handle. Business professionals sometimes do not understand that certain relations even exist.
• Computers are dumb beasts:  Computers don’t understand themselves, the programs they run, or the information that they work with.  Computers are “dumb beasts”. What computers do can sometimes seem magical.  But in reality, computers are only as smart as the metadata they are given to work with, the programs that humans create, and the data that exists in databases that the computers work with. (Andrew D. Spear, Ontology for the Twenty First Century: An Introduction with Recommendations)

Standard taxonomies, such as the US GAAP Financial Reporting XBRL Taxonomy, help to overcome those obstacles. Computers need to be able to grab onto a piece of information and standard taxonomies provide these "identifiers" or "handles" to grab onto or "addresses" for each specific piece of information.

In this age of "digital", business professionals need to understand how to create good taxonomies that provide these important identifiers.  All too often, business professionals tend to confuse the following three distinct, different things:

• Notion, idea, phenomenon: something that exists in reality.
• Name: identifies some notion/idea/phenomenon.
• Preferred label: alternative ways used to refer to name.

The importance of quality identifies or "handles" or ways of addressing information correctly is hard to over-state.  In an article they published, Barcodes of Finance, Allan D. Grody and Peter J. Hughes, explains the importance of these sorts of identifiers.

"Unique and standard identifiers, and standard data sets accessible by computer means through a tagging convention for both is the pre-requisite for financial stability objectives of the regulators. It is also a pre-requisite for fulfilling the promise of real-time straight-through-processing, significant infrastructure cost reduction and operational risk mitigation made to the industry by regulators."

In a webinar (about an hour in length) of the same name, Barcodes of Finance, Allan goes into details related to an initiative to create a global legal entity identifier scheme.  The presentation helps you understand the importance of these identifiers and some of the work that is going on to create these identifiers for finance.

More information:

• Ultimate parent