XBRL-based structured digital financial reporting - Blog: Digital Financial Reporting (using XBRL)

The Merriam-Webster dictionary defines anarchy:

a situation of confusion and wild behavior in which the people in a country, group, organization, etc., are not controlled by rules or laws.

Simply put, business rules prevent anarchy.

Ronald Ross, the father of business rules, tells a great story of how he figured out what business rules are. The Business Rules Manifesto defines in detail what business rules are using 10 very specific articles. The most succinct definition of business rules that I have come across is this:

Business rule: A formal and implementable expression of some business user requirement.

This definition of what a business rule is comes from the Business Rules Group which is a good source of information about business rules, particularly their Business Rules Manifesto.

Business rules can be grouped. Different people group business rules into different groups such as "structural rules" or "behavioral rules". Others break them down into "quality logic" and "business logic". At their essence, business rules articulate information about something or about the relationship between one thing and some other thing. Some examples that can help you better understand exactly what they are:

Assertions: For example asserting that the balance sheet balances or "Assets = Liabilities + Equity".
Computations: For example, calculating things, such as "Total Property, Plant and Equipment = Land + Buildings + Fixtures + IT Equipment + Other Property, Plant, and Equipment".
Constraints: For example, specific behavioral consraints that control when it is appropriate to create, update, or remove information.
Process-oriented rules: For example, the disclosure checklist commonly used to create a financial statement which might have a rule, "If Property, Plant, and Equipment exists, then a Property, Plant and Equipment policies and disclosures must exist."
Regulations: Another type of rule is a regulation which must be complied with, such as "The following is the set of ten things that must be reported if you have Property, Plant and Equipment on your balance sheet: deprecation method by class, useful life by class, amount under capital leases by class . . ." and so on. Many people refer to these as reportability rules.
Instructions or documentation: Rules can document relations or provide instructions, such as "Cash flow types must be either operating, financing, or investing."
Relations: How things can be related, such as whole-part relations. For example, how the business segments of an economic entity are related.

Business rules shape or influence behavior. Business rules outline mandates, define policies, and provide guidelines.

Don't make the mistake of thinking that business rules are completely inflexible and that you cannot break rules. Sure, maybe there are some rules that can never be broken. Maybe there are some rules that you can break. It helps to think of breaking rules as penalties in a football game. As Article 9 of the Business Rules Manifesto states, business rules are of, by, and for business people; not IT people.

9.1. Rules should arise from knowledgeable business people.
9.2. Business people should have tools available to help them formulate, validate, and manage rules.
9.3. Business people should have tools available to help them verify business rules against each other for consistency.

There are many different ways of expressing business rules. The more expressive the business rules are and the more business rules are represented in machine-readable form; the more reasoning capacity a software application can provide to its users. Express enough information in the form of machine-readable business rules and you can create an expert system. Expert systems are tools that provide benefits.

One specific benefit of expert systems is the automation of certain manual tasks. Not all tasks can be automated, but some can. I talk about automating accounting and disclosure checklists which are used in the process of creating external financial reports or other regulatory reports. Today, these sorts of checklists are human readable memory joggers. Tomorrow, they will be machine-readable business rules that improve information quality and reduce the risk of noncompliance while decreasing the cost of compliance.

XBRL is an enabler. To understand more about what XBRL is enabling, read my Conceptual Overview of an XBRL-based, Structured Digital Financial Report. Realize that digital financial reports is just one example of what XBRL is enabling.

Become an XBRL master craftsman. Apply business rules appropriately and prevent anarchy.

Oh, and one more thing. Noticed how many times I linked to the Business Rules Manifesto? Please be sure to read that. It's important.