Digital Financial Reporting

I was talking with a software engineer that said he had an epiphany.  The epiphany was that an XBRL-based report and the discoverable taxonomy set plus XBRL instance is actually a directed acyclic graph.

Backing up a moment; most people talk about the relations in an XBRL taxonomy as a "tree" or hierarchy.  The relations are much more than trees, they are graphs.  There is a big difference between a tree and a graph.

Further, cycles can cause problems.  The biggest problem is "loops" that you cannot escape from.  Having loops or infinite loops can have catastrophic consequences.  They want to be avoided.  Directed acyclic graphs don't have those sorts of problems.

To understand the power of directed acyclic graphs, you first need to understand the power of tree structures.  First, a tree is a special type of graph.  And so, a tree is a graph; but a tree has specific limitations.

A graph provides additional functionality than a tree.  But if you go too far with graphs, you run into the issues of cycles.  Directed acyclic graphs are the "sweet spot" where you get all the advantages of trees, some of the advantages of graphs, but without the catastrophic consequences that can be caused by cycles.

Why is this important?  Basically, if you get your fundamental model of an XBRL-based report wrong you will limit yourself.  Secondly, you can add new information in the form of metadata to the discoverable taxonomy set and expand what your system can achieve leveraging the global standard nature and functionallity of XBRL.

Want to understand more?  Read Computer Empathy.  Need something more technical?  See The XBRL Book: Simple, Technical, Precise.

When you combined the ideas of the structured XBRL-based report which is a directed acyclic graph, the notion of triple-entry accounting, and accounting process automation using XBRL you get a compelling set of features which can be turned into powerful tools.

Stay tuned!