Understanding the Utility of a Logical Theory

Tuesday, January 29, 2019 at 07:29AM

Charlie in Digital Financial Reporting

Charlie in Digital Financial Reporting

A **theory** is a formal statement of rules about some subject that describes and otherwise explains the nature of that subject.

A theory describes some aspect of the world and tries to describe the principles by which that aspect of the world operates. A theory can be right or wrong, but a theory is characterized by its intent: the discovery of essence. A theory does not simplify. A theory describes absolutes. A successful theory can become a fact. A theory is a tool for contemplating something with an intent to gain insight or understanding.

**Logic** a set of principles that form a framework for correct reasoning. Logic is a process of deducing information correctly. Logic is about the correct methods that can be used to prove a statement is true or false. Logic tells us exactly what is meant. Logic allows systems to be proven.

Logic is the process of deducing information correctly; logic is not about deducing correct information. Understanding the distinction between **correct logic** and **correct information** is important because it is important to follow the consequences of an incorrect assumption. Ideally, we want both our logic to be correct and the facts we are applying the logic to, to be correct. But the point here is that correct logic and correct information are two different things. If our logic is correct, then anything we deduce from such information will also be correct.

In logic, a **statement** is a sentence that is either true or false. You can think of statements as pieces of information that are either correct or incorrect. And therefore, statements are pieces of information that you apply logic to in order to derive other pieces of information which are also statements.

A **logical theory** is a set of logical statements that formally describes some subject or system. **Axioms** are statements that describe self-evident logical principles that no one would argue with. **Theorems** are logical deductions which can be proven by constructing a chain of reasoning by applying axioms and the rules of logic in the form of IF…THEN statements.

A **rule**, or business rule or assertion, is a true statement with respect to some model of the real world that could possibly exist given some logical theory. You cannot create rules that are true in worlds that can never exist. A rule can be a mathematical expression. A rule is a type of logical statement.

The * Financial Report Semantics and Dynamics Theory *is a logical theory that explains how the mechanical aspects of a financial report work. The

There are many different approaches to describing logical systems: taxonomies, ontologies, UML, conceptual models, or logical theory. But logical theories are the easiest form of describing systems that is approachable by business professionals.

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

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