Power of Symbiotic Collaboration of Facts and Models
Sunday, August 12, 2018 at 09:01AM
Charlie in Becoming an XBRL Master Craftsman

An XBRL-based report is made up of facts (i.e. the "data" reported) and a model (i.e. the structure and other relationships between the facts).  An XBRL instance articulates the facts; an XBRL taxonomy articulates the model.

The accounting equation is an excellent example of the power of a symbiotic collaboration of fasts and a model.  The accounting equation seems simple: assets = liabilities and equity.  But don't under estimate that simple model.  Accounting rules created over the years have built upon that fundamental model:

One could go on building out those relations. For example, I have.  Here are high-level relations for US GAAP and IFRS. You can see human-readable and machine-readable versions of those high-level relations.

Now, not every company has exactly the same high-level relations.  For example, both US GAAP and IFRS have the notion of a classified balance sheet which breaks down assets and liabilities into their "current" and "noncurrent" categories.  Banks and other companies don't use the current/noncurrent distinction; they use an unclassified balance sheet or also called an order of liquidity balance sheet presentation.

I addressed those different approaches to organizing these high-level financial concepts in the model I created by introducing the notion of a "reporting style".  A reporting style is simply patterns of how companies report their financial information.  I have the reporting styles for US GAAP and IFRSThis document related to IFRS reporting styles is the best documentation for understanding exactly what a reporting style looks like.

Now, I did not make this stuff up.  All I did was observe empirical evidence and organized things.  Here is my evidence for US GAAP and for IFRS.

On the one hand, one of the most unfortunate distinctive peculiar features of both the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy is that they were both created to be "pick lists" of 'tags".  There were a lot of reasons this happened.

On the other hand, neither the FASB (maintainer of the US GAAP XBRL Taxonomy) nor the IFRS Foundation (maintainer of the IFRS XBRL Taxonomy) had the benefit of thousands of XBRL-based financial reports that are machine-readable when they initially created their taxonomies.

However, now they do.  Both IFRS and US GAAP XBRL-based reports have been submitted to the SEC and are just sitting their waiting to be used for all sorts of things.  One really good use of those XBRL-based financial reports is feedback on how to create XBRL taxonomies.

The FASB and IFRS Foundation should take advantage of this opportunity.

But the most unfortunate consequence of the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy being "pick lists" is a bunch of software vendors that have been led down the wrong path.  Rather than being able to leverage the XBRL taxonomies for US GAAP or IFRS; software has to "fight" the taxonomies to overcome the deficiencies.

That costs software vendors dearly in terms of functionallity that these vendors could offer the users of the software, quality problems in the financial reports created, increased software development costs, among other issues.

The FASB, IFRS Foundation, SEC, ESMA, software vendors, XBRL International, investors, data aggregators, and the public/listed companies that have to all interact with XBRL-based reports don't act as if they had an interdependent relationship where cooperation serves everyone.  How unfortunate.

The losers?  Basically everyone.  Increase costs, quality problems, unsatisfied potential users of the information.  How very unfortunate.

The solution?  Recognize the interdependent nature of the relationship and cooperate.  Maybe I am being naive.  But I would rather be naive than participate in this problem.  So, I just build my own metadata to work around the dysfunction.

Article originally appeared on Intelligent XBRL-based structured digital financial reporting using US GAAP and IFRS (http://xbrl.squarespace.com/).
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