Digital Financial Reporting

This blog post briefly explains the notion of the intelligent business document. See this PDF for more details. For even more details, follow the links in that PDF to the details in the straw man implementation of the Business Reporting Logical Model.

I wish I could take credit for the term intelligent business document.  But I can't. Like is said, "Good artists borrow, great artists steal." I have used many different terms to describe this notion: neutral format table, interactive information hypercube, pivot table, data cube, etc. This has evolve since about 2006 or 2007.

So what is an intelligent business document? It is:

• Something that business users can create, without the help of the IT department, so that they can share business information with other business users without having to rekey the information.
• It has unambiguous business semantics.  As such, it can reliably feed information into and generate outputs from automated processes which can then be fed into other automated processes.
• It is 100% compliant with the XBRL syntax. But it can be serialized into any syntax because the semantics are unambiguous.
• It leverages something like the Business Reporting Logical Model, that is what enables the unambiguous business semantics.
• It leverages the flexibility of the multidimensional model.
• It makes is easy for the average business user to use.
• It is a global standard protocol, not a proprietary solution. It allows one business system to communicate with another business system effectively. (Keep in mind bullet point one; a business person achieving this integration without the help of the IT department.)
• It is dynamic. It is "interactive data" to use the term coined by the US SEC.  I prefer "interactive information" because it is really about information, not about data. You can pivot the information to suit your needs like an Excel pivot table or a Business Intelligence application allows you to pivot information.
• It could just be a boring form, but it is a form based on a global standard that every business system (literally, every business system) can both generate and consume.
• It will save business users time, money, and it will make their processes more effective and efficient.  It will improve the quality of their business information because information integrity is enhanced.
• It will allow drill down from top to bottom of an information "stack".
• It will provide an audit trail as information moves from point to point within that information stack.
• It works for financial reports, which are a form of business report. But non-financial information can also be expressed within an intelligent business document.

Take a look at the PDF which explains this in further detail.

Take a look at the straw man implementation which shows this is possible. I realize that is a lot of information, but it will be worth your while.

That is my vision for what XBRL could become.  You have a better vision?

I think that I have definitive proof that SEC XBRL can be made vastly easier than it is today. So what is the proof? OK, here you go:

• SEC XBRL Logical Model:  The SEC has no real official logical model of the business semantics used in XBRL filings.  But, that does not mean that a model cannot be created. In fact, anyone desiring to make XBRL easier for business uses to make use of will implement a logical model. Creating or extending XBRL taxonomies and building your SEC XBRL filings at the XBRL syntax level in your application? That is because your software vendor has not implemented a logical model.
• SEC Semantics and Business Reporting Logical Model Semantics Mapping to the XBRL Syntax: This is a mapping of the semantics of SEC XBRL filings (cross referenced to the Business Reporting Logical Model) to the XBRL syntax implemented by the SEC.
• Straw man Implementation of the Business Reporting Logical Model: This may be hard for people to grasp, but let me do my best to explain.  This straw man implementation of the Business Reporting Logical Model basically implements the "stuff in the boxes" of that logical model.  I made the straw man implementation work the way I would expect to work in my prototypes.  The SEC XBRL Logical Model simply changes two things: the names of the boxes and the XBRL syntax used to implement it.

Truthfully, I don't know if most people will see what I am getting at here.  I am going to go one final step. That step is to modify my hypercube viewer application (see the straw man implementation) and then run one or two of the better SEC XBRL filings (i.e. they are building [Table]s correctly) and see what it looks like in my hypercube viewer.  I may not even need to modify the hypercube viewer.

The only problem with this is that now each vendor who implements a logical model to make XBRL easier for business users will do so in a proprietary manner because there is no global standard business reporting logical model yet. Well, it just may be that this is part of the evolution XBRL will need to go through.

Another thing that the Business Reporting Logical Model does is enhance comparability and interoperability. Or to be more precise, the Business Reporting Logical Model minimizes the effort required to achieve comparability and interoperability. It opens the possibility of a business domain to create comparability, should they desire to do so. Interoperability means easier to use software and less costly software for business users.

Here is why.

Comparability

(Here is a link to a PDF of this graphic.)

Today, there is no logical model below the XBRL syntax level. The only model any business domain has to work with is the XBRL syntax or some model they create. Creating that model and all the infrastructure to enforce that model takes time and costs money.

Or, another way of looking at this is that each company desiring to use XBRL for, say, financial reporting could create their own model using XBRL. That model could be 100% XBRL compliant (i.e. comply with the global standard).  Each company would have to deal with all the "stuff" in the middle such as which GAAP (accounting standards they would use), create their own XBRL taxonomy, and so forth.

The "middle ground" needs to be created.  The US GAAP Taxonomy created some of this middle ground.  You can see that middle ground in the US GAAP Taxonomy Architecture. But, the US GAAP Taxonomy is not enough.  That is why the SEC had to create a boatload of additional EDGAR XBRL Validation tests (see this list of errors, here is the test suite). Of course, the SEC would probably never want XBRL International to deal with 100% that that specific regulator needs to deal with, nor would XBRL International members do that; it would be like everyone agreeing to do business reporting exactly like the SEC does it, that would become the XBRL standard.

Business information exchange is a balancing act. Where agreement is achieved has ramifications for business users. Too much flexibility has its issues, too much comparability (or requiring things too high in the stack) has its issues. Where comparability exists within the "stack" (the diagram above) is up to the business domain's implementation of XBRL.  XBRL itself does not control this. How XBRL is used does.

Interoperability

There is another piece to this puzzle.  XBRL is a standard. What a system needs to make business information exchange work properly, it seems to me, is a protocol.  There is a difference between a standard and a protocol. A difference worth understanding. Erez Ascher (Ascher Consulting & Development) articulates the difference between a protocol and a standard as: 

• A protocol is a series of prescribed steps to be taken, usually in order to allow for the coordinated action of multiple parties.  In the world of computers, protocols are used to allow different computers and/or software applications to work and communicate with one another.  Because computer protocols are usually formalized, many people consider protocols to be standards.  However, such is not actually the case.
• Standards are simply agreed-upon models for comparison, such as the meter and the gram.  In the world of computers, standards are often used to define syntactic or other rule sets, and occasionally protocols, that are used as a basis for comparison.  Some good examples include ANSI SQL, used to compare derivations of the SQL database query language, and ANSI C, used to compare derivations of the C programming language. 

In other words, it seems to me that protocols can be standards, but standards may not contain all that is necessary to "allow different computers and/or software applications to work and communicate with one another". Therefore, every business system, such as the SEC XBRL filings system, must add "stuff" to XBRL to turn the standard into a protocol it seems. For every system to have to do this is both inefficient and ineffective because you really don't get cross business system interoperability. What you get is what we have today - many point solutions or one-to-one integrations.

So not only does the Business Reporting Logical Model enhance comparability, it also enhances interoperability. The Business Reporting Logical Model can provide the pieces which can turn the XBRL standard syntax into a business reporting protocol. I am not sure if it is all the pieces, time will tell. But I am sure XBRL alone is not enough to give business users what they need from XBRL.

The Bigger Picture - Financial Reporting in the Age of the Semantic Web

There is a bigger picture here.  Consider this blog post titled "Why the Semantic Web Will Fail". The post is pretty good, but what is really interesting are the comments to the post. The way I read that post and all the comments is that the Semantic Web is inevitable, but no one knows when it will arrive.

I contend that the Semantic Web is already here. The US Securities and Exchange Commission (every US public company financial in XBRL by July 2011), XBRL US (US GAAP Taxonomy), Tokyo Stock Exchange, Japan Financial Services Agency, Korean Stock Exchange, China Securities Regulatory Commission and Shenzhen Stock Exchange, Japan's EDINET, the Commission of European Banking Supervisors, the US Federal Deposit Insurance Corporation, the International Accounting Standards Board (IFRS, standardized financial reporting meta data expressed in the XBRL syntax) among others have already created pieces of it for financial reporting. The US SEC, Japan FSA, and IASCF are already reconciling their implementations of the XBRL standard to make them more interoperable. The Business Reporting Logical Model will make it so others don't have to go through this reconciliation process.

Is XBRL perfect? Certainly not. But XBRL is not RDF/OWL. Who cares, both XBRL and RDF/OWL are just syntax. On can convert from one syntax to another easy enough. The hard part, agreeing on the meta data and getting vendors to support the idea, is done (for US GAAP and IFRS). The IASB started on IFRS in the 1970's, even before the Internet existed. Most countries have either switched to IFRS already or will. Even if they all don't (i.e. the US will converge, but may not convert), reconciling US GAAP to IFRS is not that much of a challenge really. Oracle, SAP, and IBM all support XBRL within their software.

Maybe I am wrong, but it seems to me that a better question might be "When will others catch up to how the financial reporting business domain has embraced the Semantic Web?" That may by an over statement, financial reporting has a ways to go. The Business Reporting Logical Model will help others get into the Semantic Web easier than the early pioneers.

How did XBRL International get to where it is? Back in 2003 Joan Starr wrote an article Information politics: The story of an emerging metadata standard. Here is the article's abstract:

Information politics: The story of an emerging metadata standard by Joan Starr

This is the story of how one commercial metadata standard — XBRL, or Extensible Business Reporting Language — has attracted the participation and support of some of the world’s most powerful public and private organizations. It begins with a look at the nature and use of financial information in today's Internet-enabled environment and discusses three information use patterns: Transaction, retrieval, and reporting. While numerous, sometimes competing standards have been developed for transaction information, XBRL alone has emerged to address reporting formats. Today, the XBRL specification has wide support across the accounting, financial, and regulatory communities. This has come about largely through the efforts of the standards’ governing board, which has pursued a strategy of careful definition of market scope, deliberate courtship of important allies, and establishment of a culture of aggressive outreach for members. The results are impressive. Members of the organization are now positioned to take greatest advantage of a number of new entrepreneurial opportunities that have been created by the organization. Additionally, some participants are now representing the XBRL metadata standard as a key tool for the restoration of public confidence in the scandal-rocked accounting and investment industries. This may create a serious problem for researchers and investors as unaudited financial statements formatted in XBRL proliferate on the Web sites of corporations anxious to demonstrate a commitment to what some are calling "the new transparency."

XBRL seems to have achieved the right mix of technical and business participation. While what the technical people did was very good and very important, I think that what the business people who participated in XBRL created was perhaps even more important. Business users of XBRL should try and understand and push for the Business Reporting Logical Model to be standardized within XBRL International.

This will provide the flexibility where flexibility is needed, but also the things needed for a protocol to work well, be effective, and be efficient. Having every implementation of XBRL undertake this task will hurt XBRL, making comparability of XBRL based information more challenging and interoperability of XBRL software and different implementations near impossible.

So that is what I see. How do you see it?

This post begins a series of posts where I point out the benefits of the Business Reporting Logical Model.  If you are unfamiliar with the Business Reporting Logical Model, be sure to check out my straw man implementation of this model.

In my straw man implementation of the Business Reporting Logical Model, I created a prototype application in Excel called the "Hypercube Viewer" which allows you to extract and render XBRL instance information. The prototype application does not actually read XBRL, rather it reads an info set generated by an XBRL processor which supports the Business Reporting Logical Model.  The prototype starts by reading an RSS feed which contains links to XBRL instances.  My straw man implementation uses this RSS which points to two XBRL instances: ACME Company and Sample Company.  Here are the info sets for those two companies:

• ACME Company: Fact Groups, Measure Relations, XBRL instance
• Sample Company: Fact Groups, Measure Relations, XBRL instance

If you follow my blog, you may have heard about the State Fact Book prototype which I had created to test some things. I created this prior to the Business Reporting Logical Model being available. I did use XBRLS in creating the State Fact Book which has many characteristics of the Business Reporting Logical Model.

What I wanted to do is refactor my State Fact Book XBRL example to use the Business Reporting Logical Model. To do that, I made two changes to my State Fact Book XBRL implementation.  First, I corrected the data I was using to fix the error in the US Census Data which I had discovered and the Census Bureau subsequently adjusted. Second, I modified the State Fact Book taxonomy to use the Business Reporting Logical Model. I then generated the info sets for the three XBRL instances I was using which you can see here:

• Population Trends: Fact Groups, Measure Relations, XBRL instance
• General Information: Fact Groups, Measure Relations, XBRL instance
• Financial Information: Fact Groups, Measure Relations, XBRL instance

Next, I organized those three XBRL instances with the XBRL instances above into a new RSS feed which you can see here. This RSS contains all 5 XBRL instances, all created using the same Business Reporting Logical Model. I then pointed a new version of the Hypercube Viewer to that new RSS feed to see if the Excel application would read those new info set files generated by the XBRL processor.

After fixing a few bugs in the State Fact Book XBRL taxonomy and the application, my Excel application would read all five sets of information and render the sets consistently in the way I would have expected the information to be rendered.  You should consider trying this for yourself.

For the intellectually curious who understand a little about Excel, you may want to consider reverse engineering the Excel application to create something which reads those info sets.  In doing so you will realize the benefits of the consistency enabled by the Business Reporting Logical Model.

Even if the Business Reporting Logical Model never becomes an XBRL International standard, everyone creating an XBRL taxonomy will have to use something to ensure consistency in the XBRL taxonomies created. This is less important if you do not use taxonomy extensions, it is vital if you do allow extensions. Those creating extensions have to be guided to create extensions which are consistent with the taxonomy they are extending.

What I learned from this exercise is that some of the things I thought were important are not really important at all. I have always tried to keep taxonomies consistent by using the presentation linkbase.  It is clear to me now that that is the wrong approach.  I also thought that you would never get consistency unless you ditched a number of the pieces of XBRL such as typed members and tuples.  That really is not necessary. You do need to control those pieces and others, but you don't necessarily need to ditch them all together.

Consistency is key.  The Business Reporting Logical Model does allow for creating consistency.  There are certainly other alternatives. While smart software engineers can figure out all the ins and outs of XBRL and generate an info set with information similar to the ones generated for my straw man implementation of the Business Reporting Logical Model, the "channeling" of XBRL syntax which the model does makes it significantly easer to process the XBRL syntax to generate that info set. Once you have the right info set, you can convert that into whatever syntax you might like. The syntax is really unimportant.  It is the consistency of the business semantics which is important. The Business Reporting Logical Model is one way to achieve that consistently.  There are others.

In order to both test the Business Reporting and Financial Reportin Logical Models and demonstrate how to implement SEC XBRL filings using those models, I created a mapping from the logical models to the SEC XBRL implementation.  You can get that mapping here. If you wanted to contrast that to the mapping of my straw man implementation, that mapping can be found here.

What is easy to see from the mapping I created is that it is very possible to use these logical models in creating SEC XBRL filings and their related XBRL taxonomies.  What is harder to see is why that is beneficial.  To see the benefits, one would need to use a software application which leverages the logical models, making it so you don't have to struggle with XBRL at the syntax level.