Digital Financial Reporting

A general purpose financial report (or business report) is a type of man-made logical system (a.k.a. logical theory).  There is nothing natural about a general purpose financial report (or business report), it is an invention of man.  A general purpose financial report is a high-fidelity, high-resolution, high-quality information exchange mechanism.

Logic is a set of principles that forms a framework for correct reasoning. Logic is a process of deducing new information correctly so that a chain of reasoning can be created.  Logic is a systematic way of thinking. 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 a tool. Logic is a common language that can be agreed upon, understood by all parties, and which therefore enables precise communication.

Something is logical if it works according to or agreeing with the principles of logic.

A system is a cohesive set of interrelated and interdependent parts that form a whole.  A system can be either natural or man-made. Changing one part of a system usually affects other parts and the whole system with predictable patterns of behavior.

A logical system is a type of formal system.  To be crystal clear I mean a finite deductive first-order logic system. The point is to create a logical system that has high expressive capabilities but is also a provably safe and reliable system that is free from catastrophic failures and logical paradoxes (world view): axiomatic (Zermelo–Fraenkel) set theory; directed acyclic graphs; model theory; closed world assumption; negation as failure; unique name assumption; Horn logic. (a.k.a. logical theory, strong ontology; see the ontology spectrum)

There are many different ways to describe formal systems in human-understandable and machine-understandable terms.  ISO/IEC 11179-3:2013 describes this sort of information in global standard but technical terms.  It is my observation that each different approach to describing a formal system tends to have its own terminology for explaining what seems to be exactly the same thing, the explanations tend to not always be complete, and the explanations tend to be harder than necessary for a business professional to understand.

OMG's Ontology Definition Metamodel (ODM) tries to reconcile many different ways to represent logical systems.

This is my current best shot at explaining how to express the semantics of a logical system and map those semantics to the XBRL technical syntax in terms understandable to a business professional.

A logical system enables a community of stakeholders to agree on important common models, structures, and statements for capturing meaning or representing a shared understanding of and knowledge in some universe of discourse where specific flexibility/variability is necessary.  Because flexibility/variability is allowed in this sort of logical system, that flexibility/variability must be managed so that it can be controlled.  Models, structures, and statements allow for this necessary management and control.

• Theory: A theory is a set of models for a universe of discourse (a.k.a. domain of discourse, domain)
• Model: A model is a set of structures. A model is an interpretation of a theory. (model theory)
• Structure: A structure is a set of statements.  A structure provides context. (a.k.a. container, group)
• Statement: A statement is a proposition, claim, assertion, belief, idea, or fact about or related to the universe of discourse. (a.k.a. expression)
  • Assertion: An assertion (a.k.a. rule) is a type of statement which specifies a permissible manipulation within a structure within a model for a theory. (Abox)
    • Axiom: An axiom is a statement which describes a self-evident logical principle related to a universe of discourse that no one would argue with or otherwise dispute.
    • Theorem: A theorem is a statement which makes a logical deduction which can be proven by constructing a chain of reasoning by applying axioms or other theorems in the form of IF…THEN statements.
    • Restriction: A restriction is a statement that is a special type of axiom or theorem imposed by some authority which restricts, constrains, limits, or imposes some range.
  • Term: A term is a type of statement that specifies the existence of a primitive (a.k.a. simple, atomic) or functional (a.k.a. complex, composite) idea that is used within a universe of discourse.  Terms are generally nouns. (Tbox)
  • Association: An association (a.k.a. relation, predicate) is a type of statement that specifies a permissible structure or specifies a property of a term.  A assiciations are generally a verb. (a.k.a. association)
    • Is-a: An is-a association specifies a general-special or wider-narrower or class-subclass or type-of type relation between terms. (class)(generalization)
    • Has-a: A has-a association specifies a has-part or part-of type relation between terms. (meronymy)(composition)
    • Property-of: A property-of association specifies that a term has a specific quality, trait, or attribute. (property)
  • Fact: A fact (a.k.a. instance, individual) is a type of statement that specifies a piece of information about circumstances that exist or events that have occurred that is reported by an entity "as of" or "for a period" of time and otherwise distinguishable from one another by one or more distinguishing aspects.

The models, structures, and statements of a theory relevant to a particular universe of discourse generally allows for some certain specific system flexibility/variability and as such must be consciously unambiguously and completely as is necessary and practical in order to achieve a specific goal or objective or a range of goals/objectives.

A logical system can have high to low precision and high to low coverage.  Precision is a measure of how precisely the information within a logical system has been represented as contrast to reality for the universe of discourse.   Coverage is a measure of how completely information in a logical system has been represented relative to the reality for a universe of discourse.

The level of precision and coverage expressively encoded within some logical system depends on the application or applications being created that leverage that logical system.

Further, a properly functioning logical system will have the following characteristics all of which should be demonstratable: 

• Consistent: No statement (assertion) of the logical system contradict another statement (assertion) within that logical system.
• Valid: No false inference (logical deduction) from a true premise is possible.
• Complete: If an assertion is true, then that assertion can be proven; i.e. all assertions exists in the system.
• Sound: If any assertion is a theorem of the logical system; then the theorem is true.
• Fully expressed: If an important term exists in the real world; then the term can be represented within the logical system. 

Saying this in another way specifically for a financial report: (note that the term "statement" as is being used as defined by the components of a logical system, this is not the same as statement defined in terms of financial reporting)

• Completeness: All relevant models, structures, and statements have been included within the financial report representation.
• Existence: No model, structure, or statement exists which should not be included in the financial report has been included.
• Accuracy: The models, structures, and statements which are included in the financial report are accurate, correct, and precise.
• Fidelity:  Considered as a whole; the models, structures, and statements provide a true and fair representation of reported financial information. 
• Integrity: The model, structure, and statements that describe each part of a financial report provide a true and fair representation of such part and no parts are inconsistent with or contradict any other financial report part.
• Consistency: The models, structures, and statements are consistent with prior periods and with the reporting entity’s peers as is deemed appropriate.
• True and fair representation: The structures, models, and statements of a financial report are a true and fair representation of the information of the reporting economic entity.

All that is above relates to specifying the permissible semantics of a logical system.  The terms below tend to be related to the expression of those semantics in the form of some technical syntax:

• Constant: A constant is the physical representation of a static term.
• Variable: A variable is the physical representation of a dynamic term.
• Vocabulary: A vocabulary is a system of physically representing formulas, terms, structures, and models using a specified syntax.
• Tree: A tree is a physical representation of a statement to define a structure or specify a property.
• Sentence: A sentence is a grammatical unit of a statement.
• Formula: A formula (a.k.a function) is a well formed physical representation of a statement.
• Predicate: A predicate asserts something about a subject.  A predicate is a verb.
• Connectors: A connector is used to join one or more sentences into a complete and well-formed statement.
  • Implication
  • Disjunction (or)
  • Conjunction (and)
  • Negation (not)
  • Logical equivalence (if and only if)
• Qualifiers: A qualifier is used to extend propositional logic into predicate logic.
  • There exists (existential qualifier)
  • For all (universal qualifier)

Again, this is my current best attempt to represent this information.  Any feedback that improves this representation will gladly be considered.

Here is a comprehensive example of expressing the above semantics using the XBRL technical syntax.

Also, consider this.  If accountants do not bother to gain basic literacy in this information which inevitably will affect their lives; then they abdicate control over their future whether they like it or not. Check out this Ted Talk by Eli Pariser, Beware Online "Filter Bubbles".  Accountants need to pay attention. If you are stuggling to understand this information, I suggest reading this document.