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Understanding Accounting Logic Representation Issues in XBRL-based Digital Financial Reports

I created a document, Issues in XBRL-based Digital Financial Reports, which summarizes accounting logic representation issues within XBRL-based public company financial reports submitted to the SEC.  The document contains about 50 easy to understand errors which are explained so that a reader can use the document to understand the error.  Additionally, there is a link to the filing so that anyone can go to the filing and confirm (or refute) the information that I have provided.

There are two pieces of information that help you understand how helpful that document is.  First, here we are five years into the mandate for public companies to file XBRL-based financial information with the SEC.  FIVE YEARS!!!  Software vendors and filing agents are still getting these 22 basic, fundamental accounting concept relations incorrect.  But, if you look at a comparison of periods you see two things: (a) that there are filing agents and software vendors that are getting a high percentage of the financial filings they create consistent with these basic accounting concept relations; and (b) that consistency with these relations are slowly improving: March 2014: 93.92% , March 2015:  97.00%, , March 2016:  98.75%, August 2016: 98.90%.

Second, why did those 8 software vendors/filing agents understand and then correct those errors?  Because I have been providing infomation such as what is in that PDF to as many filing agents/software vendors as I can to help them understand, detect, and correct those sorts of errors.  (No one really ignores the information, some are faster to fix errors than others.) Basically, the PDF is an excellent learning tool for accountants creating XBRL-based digital financial reports.

Public companies and the SEC are the "canary in a coal mine" for digital financial reporting.  The SEC is being pretty tolerant as software vendors, filing agents, accountants, financial analysts, and auditors figure out how to make digital financial reporting work appropriately.  The CFA Institute has an excellent vision of what they call structured data can provide.

Keep in mind that these accounting logic relations need to be checked in every report, for every period.  I am checking only 22 relations between about 40 concepts.  There are probably 1000 to 5000 such relations in the typical 10-K financial statement.  That is way too much to check manually, automated processes are necessary.  To automate processes, you need machine-readable business rules.

XBRL-based digital financial reporting is not likely going away.  Fact is, its use will likely only increase.  Reading the PDF will help you tune your digital financial reporting skills. Want to really understand digital financial reporting?  Here you go!

Posted on Wednesday, September 28, 2016 at 04:20PM by Registered CommenterCharlie in | CommentsPost a Comment

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