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Financial statements tell a story.  It is a milestone in an accountant's career when the accountant can weave together a logical, cogent, true and fair narrative from information provided and tell a story about an economic entity in the form of a financial statement.  With the ability to perform that task, an accountant has achieved accounting literacy.

That is precisely what an accountant creating an XBRL-based report must do.  But instead of doing this with Microsoft Word, Excel and typing a bunch of stuff into applications that don’t understand accounting; with XBRL-based structured information, accountants need to learn a new approach to telling stories about an economic entity.

Authors Dean Allemang and James Hendler say it well in their book Semantic Web for the Working Ontologist (page 1):

“In the hands of someone with no knowledge, they can produce clumsy, ugly, barely functional output, but in the hands of a skilled craftsmen, they can produce works of utility, beauty, and durability. It is our aim in this book to describe the craft of building Semantic Web systems.”

A brick wall is made of exactly two things: bricks, mortar.

But a brick wall created by a master craftsman, or mason, and a brick wall created by a “weekend warrior” with no knowledge of masonry will be very different. Master craftsmen are created and that process takes time and effort.

The term “mason” can be further broken down in to more detailed distinctions. In the Middle Ages, the terms rough masons, row masons, stone setters, layers and freemasons were used to signify differences in skills. Freemasons who were the most skilled were paid the best .

Masons built our physical world. Knowledge engineers working with subject matter experts will construct our digital world.

Financial reports are rich with associations. Representing that rich set of associations in the form of machine-readable metadata creates the capabilities for software applications that can read and understand those associations to perform what seems like magic.

Information wants to be free from imperfections.  Good tools in the hands of master craftsmen using good methods can produce information that is understandable, useful, durable, and perhaps even beautiful and elegant truly sets information free!

Even smart software applications appear “dumb” if they are not provided the right information. “Dumb” includes information that is wrong, contradictory, inconsistent, disconnected, and is not otherwise synchronized. On the other hand; properly organizing information enables sophisticated software applications to perform to their potential.

This information is provided in the form of machine-readable models and other metadata that help accountants perform their work effectively. How exactly to create those associations and what the associations might look like are up to debate. Regardless of how that debate might turn out; associations are important.

Below is a set of associations from a rather small financial reporting scheme:

David Weinberger points out in his book Everything Is Miscellaneous two very important things: 

  • That every classification scheme ever devised inherently reflects the biases of those that constructed the classification system.
  • The role metadata plays in allowing you to create your own custom classification system so you can have the view of something that you want. 

Mr. Weinberger continues in his book by pointing out the notion of the three orders of order: 

  • First order of order. Putting books on shelves is an example the first order of order.
  • Second order of order. Creating a list of books on the shelves you have is an example of second order of order. This can be done on paper or it can be done in a database.
  • Third order of order. Adding even more information to information is an example of third order of order. Using the book example, classifying books by genre, best sellers, featured books, bargain books, books which one of your friends has read; basically, there are countless ways to organize something.

Associations and classification are two very important tools of the information age. Those that understand how to use tools and techniques and create this metadata, those who are craftsmen and perhaps the information age equivalent to a freemason will construct our digital world.

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My blog archive has 1,692 posts. My suggestion is that you start here if you are working to understand.  I have tried to summarize everything important from this blog into the document(s) Mastering XBRL-based Digital Financial Reporting.  Eventually, everything will end up there.  The following are additional helpful resources that have not yet been incorporated into those documents:

 

Posted on Tuesday, March 29, 2022 at 06:07PM by Registered CommenterCharlie in | CommentsPost a Comment

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