Digital Financial Reporting

I am leveraging the success of my informal campaign to improve the high-level fundamental accounting concept relations of XBRL-based financial filings submitted by public companies to the SEC.  I am starting a new informal campaign to improve the quality of disclosures.  This is a great learning opportunity.

Between March 2015 and August 2017 filing agents and software vendors were able to reduce the number of errors related to the reporting of basic, fundamental high-level accounting concepts in XBRL-based financial reports from approximately 4,463 to 1,059.

These errors related to reporting high-level facts such as Assets, Liabilities and Equity, Revenues, Net Income (Loss); about 75 or so facts on average. During that period, there were four filing agents/software vendors which had tuned their processes to deliver 99% or better consistency with my basic set of business rules that uses automated processes to detect logical, mathematical, consistency, and continuity related issues within and between these high-level fundamental accounting concepts.

The errors I detected are generally not disputed because they relate to logical and mathematical relations between concept defined by US GAAP, evidence exists within public company financial reports of these relationships, about 99.02% of the actual reported facts within XBRL-based reports are consistent with and therefore support the machine-readable business rules used in my processes, and 88.2% of public companies are consistent with and support all of the business rules used to evaluate reports.

All of this information is publically available on my blog.  Anyone can verify or dispute issues by simply looking at any XBRL-based financial report of a public company. I have created summaries that professional accountants can use to examine and understand these errors.

The most important benefit realized from taking these measurements, building rules, and detecting these errors is an excellent understanding of XBRL-based financial reports and what makes them work. Currently, the best understanding of these reports seems to exist within the processes and procedures of four institutions that have been able to create repeatable, reliable processes of creating financial reports that are 99% or higher in consistency with these fundamental accounting concept relations: 

• Merrill
• RDG Filings (Thunderdome software)
• Donnelley Financial Solutions
• DataTracks  

There are several other software vendors/filing agents that are closing in on repeatable processes that yield high-quality results. How to build repeatable processes that yield high-quality results can be learned.

Building on what I have learned from the measurement of the fundamental accounting concept relations; I am embarking on the next step in my systematic, methodical, deliberate, rigorous journey to understand and be able to create high-quality XBRL-based financial reports: the disclosures.

A grass-roots, market-driven, informal effort to improve the quality of about 65 specific disclosures in the 10-K financial reports of public companies which are submitted to the SEC in the XBRL format will take place during this years "10-K filing season" during December 2017, January 2018, February 2018 and March 2018.

A few software vendors/filing agents already have a jump on others and are improving 10-Ks which will be filed during Q4 of 2017.

What I am trying to do is disseminate information to as many professional accountants, particularly certified public accountants, as possible so that they can better understand the subtleties and nuances of XBRL-based financial reports. This will help the institution of accountancy leverage this useful tool which the SEC has helped to create and is helping to make a real, reliable, working, knowledge media. Analysts also need to understand the subtleties and nuances of such reports. Software engineers creating software need to understand.

The use of this knowledge media will go beyond financial reporting but will be built upon the successful use of XBRL for financial reporting.

Here is information that is helpful in understanding this campaign: 

• Summary Information about Campaign: The document Campaign to Improve Disclosure Quality of XBRL-based Public Company Financial Reports Submitted to the SEC summarizes information related to this informal campaign.
• Summary of 65 Disclosures Tested: This is a DRAFT of the disclosures that I will initially target for my campaign. Current measurements show that on average about 85% of these disclosures are consistent with logical, mechanical, structural, and mathematical expectation.
• Details about 65 Disclosures: The document Disclosure Best Practices provides additional details about the 65 targeted disclosures.
• Understanding Business Rules: A big part of this campaign is understanding the role that business rules play in specifying how XBRL-based financial reports should be created.  The document Supply Chain Agreeing on Disclosure Business Rules walks you through the process of understanding and revising business rules.
• Creating High Quality Digital Financial Reports:  The document Blueprint for Creating Zero Defect XBRL-based Digital Financial Reports helps you understand how to create high quality XBRL-based financial reports.
• Getting ready for the future of financial reporting:  The document Getting Ready for the Digital Age of Accounting, Reporting and Auditing: a Guide for Professional Accountants helps you understand that financial reporting will be going through a transformation and helps you understand that you need to get ready for that new paradigm.
• Disclosure Effectiveness: This guide by EY, Disclosure Effectiveness, What companies can do now, provides a helpful framework for thinking about financial report disclosures.
• Commercial Tools Available:
  • Disclosure mechanics and reporting checklist
  • Fundamental accounting concept relations
  • Reporting Checklist, Disclosure Mechanics and Fundamental Accounting Concepts
• XBRL US Statement of Cash Flow Guidance
• Disclosures by Topic (Prototype)

This is a HUGE learning opportunity.  You will get out of this in proportion to what you put into it.  Because Donnelley Financial Solutions, Merrill, RDG Filings and DataTracks did so well to get their filings free from the fundamental accounting concept relations continuity cross check errors, I am very motivated to help them continue on and get their disclosures to the same 99% consistency that they were able to achieve.  But, I will help anyone that shows true effort.

What I am doing here in no way takes away from what the XBRL US DSC is doing.  It supplements that work.  The more rules the better because the more rules, the more than can be automated.  The more that can be automated; the more machines can augment human effort…just like a calculator augments a humans capabilities to do math.

If you are unclear where I am going, I would suggest that you read or reread this document:  Getting Ready for the Digital Age of Accounting, Reporting and Auditing: a Guide for Professional Accountants.

The enemy is not each other.  The enemy is the status quo.  If you want to expand your market from the 10,000 public companies that are REQUIRED to use XBRL-based digital financial reporting, to the 26 million private companies in the US that might WANT to leverage XBRL-based digital financial report capabilities; you MUST make it better than the current old school approaches that they use.  If XBRL-based reporting does not fundamentally work, that will never happen.

Once the initial batch of 65 disclosures are tuned; I will add the next batch of 500.  Then the next batch of 2,000.  I really have no idea how many unique disclosures there are, but I will find out.  I suspect somewhere between 2,000 and 5,000 perhaps.  But between now and March 31, 2018 I will focus on the 65 easy targets.

If you want to join the XBRL-based digital financial report study group, please contact me.

If you want additional information, feel free to contact me.  Follow my blog for information flowing from this grass roots campaign.

Analysis summaries:

• Disclosure analysis set 1
• Disclosure analysis set 2