Digital Financial Reporting

One of the most misunderstood aspects of the US GAAP Taxonomy and in SEC XBRL Filings is the [Table]. This blog post is a step toward de-mystifying the [Table] and showing that it is the solution to making the US GAAP Taxonomy and SEC XBRL Filings easier, not the cause of complexity. One major cause of complexity of SEC XBRL filings is the inconsistent use of [Table]s. This inconsistency is caused by a lack of understanding of the multidimensional model by most business users. Further, the multidimensional model is used by business intelligence systems (BI) and performance management systems (PM) which are becoming increasingly popular. BI and PM are part of a larger trend toward model-based business reporting. It is increasingly important that business professionals understand the multidimensional model if only to help software vendors appropriately hide that model from business users in their software applications.

Here are two resources which can be used to further study this topic.  This PDF provides more details for the information summarized by this blog post.  This basic example of an SEC XBRL filingcan be used by those who have the intellectual curiosity to dig into the details and further explore this material.

As Ralph Kimball states, the principle attraction of the multidimensional model is its simplicity:

The central attraction of the dimensional model of a business is its simplicity.... that simplicity is the fundamental key that allows users to understand databases, and allows software to navigate databases efficiently

So if the attraction of the multidimensional model is so simple, then why is the [Table] of the US GAAP Taxonomy and SEC XBRL filings so complicated? The US GAAP Taxonomy Architecture, section 4.5, states how a [Table] is implemented. That is not very helpful to business users creating SEC XBRL filing.  It is not intended to be helpful to those business users, it is intended to be helpful to software vendors building software which is used by business users.

Here is why [Table]s are so complicated and how to get rid of the complexity:

• Inconsistent use of [Table]s: The first question one might ask is, "When should I use a [Table] and when should I not use a [Table]."  The US GAAP Taxonomy sometimes uses [Table]s and other times does not.  Yet everything is in essense a [Table], be the [Table] explicitly constructed as a [Table] or be the [Table] implied.  Every piece of information articulated in an SEC XBRL filing has at least two dimensions: the entity identifier and the period. A [Table] does nothing more than add one or more additional dimensions. If everything in the US GAAP Taxonomy where either modeled explicitly as a [Table] or if the taxonomy was better organized so that people could realize that all the things which are not modeled as [Table]s really are [Table]s anyway, then the [Table] would disappear into the background within software applications. Focusing on the XBRL Dimensions syntax is noise and distracts one from seeing the real opportunity to make things easier for business users.
• Software not leveraging the US GAAP Taxonomy's consistency: Current software applications for SEC XBRL filings don't leverage the consistency of the US GAAP taxonomy and expose [Table]s to business users at the XBRL syntax level, rather than hiding XBRL.  This is do, in part, to the US GAAP Taxonomies inconsistent use of [Table]s. Another reason for this is that structure of the US GAAP Taxonomy and documentation does not help see the consistency. If you don't understand the leverage, wait until you see software that does leverage the consistency.  Then you will get it.
• Few large general [Table]s rather than many specific [Table]s: Many of the [Table]s in the US GAAP Taxonomy are huge.  Take the Derivative [Table] as an example. Many specific use [Table]s would be easier to use than the fewer general and larger [Table]s.
• Mixing presentation characteristics and business semantics: The best example of this is the Statement of Changes in Equity.
• Improper [Axis]: The Statement of Changes in Equity is likewise a good example of improper [Axis] used on [Table]s.  The balance sheet is another.  This blog post discusses the balance sheet [Axis].  (Or simply look at this image and this imagewhich shows what [Axis] SEC filers are actually putting on their balance sheets.) The balance sheet in the US GAAP Taxonomy says, by having a Class of Common Stock [Axis] , that every balance sheet line item is associates with a class of common stock which is simply not the case.
• Confusion caused by default dimensions: What default dimensions actually does is confused by two things.  First, the mix of concepts being used in [Table]s and not in [Table]s. This is not only a very bad idea but there are known bugs in XBRL which can surface as a result of this.  The clearest example of why this is a problem is the fact the XBRL Formulas has two explicit models: dimensional and non dimensional.  What is the US GAAP Taxonomy? It mixes the two.  Second, there was a lot of pressure to make the use of XBRL Dimensions and the definition linkbase optional to "make things easier for business users".  This thinking is misguided. This Excel spreadsheet shows the dimensions information for this Basic Example of an SEC XBRL filing. Compare the Excel spreadsheet to the XBRL instance. The Fact Table shows the same thing.
• General confusion, misinterpretation, and erroneous "projection" as to how [Table]s actualy work: It may be the case that one wishes that [Table]s worked in a certain way. Or, one may believe or project into [Table]s how they might work. It is really not that hard to understand how they actually do work: testing.  For example, this Comprehensive Example and this Comparison Exampleshow quite clearly how XBRL actually works. If different software applications reacted to XBRL [Table]s in different ways, we have bigger problems.  But, that is not the case.  The examples respond the same in the four different software applications I tested the examples against. XBRL is consistent.  Users, who generally don't bother to test, reach conclusions as to how XBRL works without the benefit of actually testing. How does one solve that problem? Test.

You can already see that SEC XBRL filers are solving the problems of [Table]s. As you can see on this blog post back in March 2010, one filing agent is putting everything in the taxonomy into [Table]s. This viewer toolhelps you see that the company extensions are modeling everything as a [Table] and consistently with the US GAAP Taxonomy architecture.  I disagree with the use of the "Statement [Table]" as the actual hypercube for every [Table]; I personally believe that each hypercube should be unique and have a unique name. But, the approach of making everything a [Table] with one hypercube is better than mixing the dimensional and non dimensional models.

This can be hard to explain at this point, one has to dig into the details to see that what I am seeing is true.  But this will become easier and easier to see as more and more software vendors do what the software vendor on the link above did.  Once that happens, and it will, things will become easier for business users and understanding the [Table] will be significantly easier.

The XBRL International Standards Board (XSB) published a document summarizing six strategic initiatives which they say will help prepare XBRL for the future. I agree. This is a summary of those six strategic initiatives.

1. Create an abstract model. An abstract model provides a conceptual framework for understanding XBRL and gives developers a strong foundation for implementing XBRL solutions.
2. Produce training materials. High-quality training materials lend support to developers and those new to XBRL.
3. Define standard API signatures. API signatures assist developers with their implementation of XBRL solutions.
4. Reorganise existing specification. A reorganisation of the XBRL specification will make the specification easier to understand.
5. Enhance data comparability. Data comparability widens the applicability of XBRL data across project and international boundaries.
6. Develop application profiles. Application profiles reduce the scope of XBRL implementations by breaking up the XBRL specification into components.

This document and the strategic initiatives are a great piece of work by the XBRL International Standards Board. It is my view that the initiatives summarized in this document are critical for XBRL. Several of the strategic initiatives are absolutely necessary for XBRL to move to the next level in its evolution.

The two key pieces are number 1 (Create an abstract model) and 6 (Develop application profiles). This will lead to number 5 (Enhance data comparability).

Since I learned about the notion of an application profile and logical model from my work on the team which created the US GAAP Taxonomy Architectureand the result of that work which was a paper Rene van Egmond and I put together in 2008, XBRLS: How a Simpler XBRL Can Make a Better XBRL, I have been pushing the idea of using a logical model above XBRL's syntax and application profiles to make using XBRL easier for business users.

Work with the XBRL Taxonomy Arhitecture Working Group resulted in a draft Business Reporting Logical Model and Financial Reporting Logical Model.  I created a straw man implementation of those two models. I have further expanded on that straw man implementation creating a set of meta patterns, business use cases, comprehensive examples, and comparison examples to help prove those two  logical models and better understand these ideas.  You can find summaries of this information here.

Taking this to the next level, I have applied these models to SEC XBRL filings and the US GAAP Taxonomy.  You can find summaries of this information here: Meta patterns, basic example, basic comparison.

Both of those sets of resources are helpful in understanding the business benefits of an abstract logical model and an application profile.

While I am not a software architect, I don't know exactly how to document an application profile.  I do understand a little better how a logical model can be expressed using UML (Unified Modeling Language) or RDF/OWL. I do understand from my detailed work with XBRL over the past 11 or so years that application profiles and logical models which will hide the XBRL syntax which will cause fundamental changes to how business reporting applications which generate XBRL will be created. These changes will result in an order of magnitude improvement is usability of this software for business users.

So kudos to the XBRL International Standards Board for taking this important step. This step moves us significantly closer to the possibility broad use of XBRL by business professionals. I would point out that it was the XBRL International Standards Board, not the XBRL International Best Practices Board which issued this strategic initiative. What that means to me is that these logical models and application profiles will have more teeth to them: standards, not best practices.  Time will tell for sure how all this will play out, but I see the strategic initiatives as a big step in the right direction.

The Basic Comparison, SEC XBRL Filing exampleshows issues relating to comparing SEC XBRL filings. If you understand how to read the XBRL instances and XBRL taxonomies or if you dig into the Measure Relations and Fact Groups (Fact Tables), comparability issues jump out at you.

Now granted, the issues will be better seen within a software application actually trying to do a comparison; but I cannot show such an application currently.

Don't be fooled by the simplicity of this example.  It is simple, but it is not simplistic.  The information in the XBRL taxonomy and XBRL instance is concise, but it serves its purpose.

For example, imagine that you want to compare the accounting policies of these three basic SEC XBRL type filings.  How would you do this?  First off, you might try and find the extended link which contains the accounting policies, using that to grab all the accounting policies.  Well, that will not work.  EFM rules state that company extensions cannot use extended links from the US GAAP Taxonomy.  There is an extended link, but each filer needs to create their own extended link. Look closely at the Measure Relations of the ABC Company, XYZ Company, and QQQ Company and you will see what I mean. So, you cannot use extended links for comparisons at all.

OK, the next level down in the taxonomy after the extended link is the [Table].  Just grab the Accounting Policies [Table], use that as the basis for comparison.  This is a great idea, but that will not work either.  The reason is that there is no Accounting Policies [Table] in the US GAAP Taxonomy.  Now, I created one in these three example filings, but although they have the same name, they are from different namespaces (abc:, xyz:, qqq:); they are not the same and will not be seen as the same by software applications.  Another way to understand this is to look at the Nonmonetary Transactions, by Type [Table]. Now that [Table] is comparable as (a) it does exist in the US GAAP Taxonomy, and (b) each filer used that [Table].  A rather simple program can be written to get that [Table], all the concepts in that [Table] (as that is clearly defined in the definition linkbase) and you have your comparison.

But you don't have that [Table] to use.  You may think that you do because in this example you could ignore the namespace prefix but then you would be missing the point here.  Although I named the elements the same in each taxonomy, there is nothing which will ensure that SEC XBRL filers will do this in their filings.  So, perhaps there is some concept that everyone uses in their taxonomy, use that and the presentation relations to find all the accounting policies.  If you go look at real SEC XBRL filings you will see that that will not work.

The bottom line here is that there is no dependable way to do a comparison of accounting policies.  You could spend time and money creating a pretty good software algorithm, but why not make the problem go away so you don't have to spend the time and money to write that algorithm.  Just add an Accounting Policies [Table], require that everyone use that [Table], then compatibility can be easy.  Same deal for other portions of the taxonomy.  This is not to say that everything needs to be required, but base areas such as the accounting policies seem to be something everyone should really have.  Same for the balance sheet, income statement, cash flow statement, other specific disclosures, and other areas.  What might be contained in those [Table]s may be different, but the place to look in each SEC XBRL filing would be the same.  How else would comparability be achieved?

This is just one example, there are many other clues in this basic example.  As is said, the proof will be in the pudding: in actual and useful comparability.  Where the comparability will exist is a decision for the financial reporting domain.  But clearly there should be some comparability at some level.

Have a look at the Basic Comparison example and see what you come up with.  Or even better, load these three simple SEC XBRL filings into your favorite comparison tool and see what you come up with.

To me this blog is a bit like a lab notebook you would keep in science. I endeavor to figure things out, test things, see how things are working and take notes making those notes available on this blog.

As a CPA, I am interested how technologies like XBRL will impact financial reporting. As a business person I am also interested in how XBRL will impact general business reporting.

Over the last three years I have put a lot of focus on the US GAAP XBRL Taxonomy, SEC XBRL filings, and figuring out what it might take make cross business system information exchange work for the average business user. I have many, many posts on my blog relating to this.

In this blog post, what I am doing is going back through my lab book, examining my prior posts, consolidating that information, and trying to better understand the bigger picture and how the pieces of the puzzle fit together. I have summarized my thinking here:  http://www.xbrlsite.com/US-GAAP/.

You can read through that if you wish. I have provided links to details and you can drill into those details should you have that desire.  In the rest of this post, I am trying to make sense of these details, trying to figure out how the future might play out.

Vision

The vision I have is for financial reporting and other types of business reporting to work as elegantly and be as well integrated as an iPhone, iTunes, iPad, iPhoto, iMac.  If you have ever created an iBook you probably understand what I mean. While not perfect, Apple has done a marvelous job of hiding the technology from users while exposing useful functionality.  I would describe how this works as elegant. That is the world I want to work in and do financial reporting.

Imagine external reporting, internal reporting, ad hoc reporting, audit schedules which support the information, analysis of the information, all integrated.  Minimum of re-keying of information, technology helps the process where it can, humans do what they need to do.

Roadblocks

The way I tend to achieve things is to understand where I am going, figure out what is in the way, and eliminate all the things that are in the way and then you end up where you desire to be. What roadblocks exist which need to be removed for my vision to exist? 

• Software: Well first, to make this vision work we need software. Pretty much every piece of software which touches a financial report (or other business report for the bigger use vision) has to be able to exchange information with ever other piece of software. For this to happen, software vendors need to figure out where to cooperate/collaborate and where to compete.
• Standards: The software vendors are going to need to agree on the standards, things like XBRL but XBRL is not enough, which enable this interoperability. This HL7 video (slide 4) points out that for the business benefits of interoperability to occur you need three types of interoperability: technical, semantic, and process.
• Protocols: You can have standards, but within the processes or workflow there needs to be agreed upon protocols. Think about the steps of making a hotel reservation. That is a protocol. Calling the hotel, seeing what is available, getting prices, providing your credit card to hold the room, obtaining a confirmation number.  Similarly protocols are needed in the processes of business reporting.
• Motivation: Why would the average business person want to achieve this vision? Business benefit. Why would a software vendor desire to achieve this vision.  Business benefit. Why would an auditor want to achieve this vision? Business benefit. The business benefit is being seen and will be better seen as more software which shows the vision becomes available. But what would motivate a software vendor to support a standard? Big Business Intelligence (BI) vendors such as Oracle, SAP, IBM, Microsoft. Well, Oracle, SAP, and IBM already support XBRL. Others do also.  But, do they support it enough? Do they have the right standards and protocols?

Interoperability is not rocket science.  Or, heck, actually it is.  The more I dig into all this stuff, the more complex I realize this vision is. But we have plenty of rocket scientists, or rather IT experts, to make this work. If they can make the OSI model work, I figure these IT people can make interoperability of business systems work.

Levels of Interoperability

How much interoperability is enough interoperability? I looked at the paths I saw towards XBRL adoption in the past. This is another take at articulating the spectrum of possibilities of adoption of XBRL:

• Proprietary systems, little interoperability: There are lots of different approaches to implementing XBRL and there are many missing puzzle pieces. There are some benefits to software vendors because of this such as customer lock in to their proprietary systems; but little benefit to business users.  We, in fact, already have this today. There is nothing that XBRL does that a proprietary software solution cannot do.
• US financial reporting system, good interoperability: For, say, the SEC to be successful, comparability between information in the SEC XBRL database needs to be achieved. The SEC seems well down that path. The SEC has the hardest use case of XBRL that I have ever come across.  They use extensibility heavily, the domain is complex, the stakes are high, US GAAP is appropriate for paper-based reporting but needs changes to maximize what XBRL can provide.  Once the SEC use case is figured out by software vendors, the FASB, the SEC, and other parties; what prevents those software vendors from using what they have learned from making the SEC system work and applying those techniques in other US business domains? Nothing really. A de facto set of standards and protocols could be created between the SEC implementation and other implementations of XBRL. This seems highly likely, particularly if the financial reporting domain uses US GAAP.
• Global financial reporting system, good interoperability: What prevents the US SEC implementation from being copied globally? Well, if software exists and that software can be modified to support not just the SEC implementation of XBRL but other similar implementations; software can be leveraged across different implementations.  The SEC seems to be past the point of no return.  I cannot see major changes happening any time soon.  I do see the possibility of the SEC going to inline XBRL (sometimes called iXBRL). If the US adopts IFRS or if the SEC allows IFRS and a lot of US companies adopt IFRS, this could improve the chances of one global financial reporting standard used globally.
• Global business reporting system based on global financial reporting system: What if global use of XBRL is achieve in the financial reporting domain, and then because the benefits are seen and motivation for other domains rises, and then those other business domains simply leverage the approach financial reporting has used to make XBRL work in that domain.  That way, the same financial reporting software applications can be used in other business domains.

Is financial reporting's adoption of XBRL a done deal?

While I don't think that use of XBRL for all financial reporting is a done deal quite yet, it seems to me that we are getting closer and closer to that point. I think that I would be ready to declare victory if the SEC is happy with XBRL, the SEC filers are happy with XBRL, and analysts/investors making use of the SEC XBRL filing information are happy XBRL. Since there is a lot of investment being poured into software for SEC XBRL filings, it seems to me that turning back now is out of the question. While there are some rough edges to be polished, I really think the financial reporting domain will continue to be a leader in using XBRL.  Will other financial reporting domains use XBRL? Likely.  Will financial reporting's use of XBRL inspire other business domains? That is harder to say.

Continuing on with my endeavor to better understand XBRL as used in financial reporting, I have put together a Basic Example of an SEC XBRL Filingwhich is both compliant with the SEC XBRL rules and leverages the Business Reporting Logical Model.

What I am working toward is creating a Comprehensive Example-type modelof an SEC XBRL filing.

The truth is that the US GAAP Taxonomy inspired a lot of what went into the Business Reporting Logical Model. The Basic Example contains Hierarchy, Roll Up, Roll Forward, and a Compound Fact information models. Each of these information models is quite common in the US GAAP Taxonomy.  It is not surprising that the information models in the Business Reporting Logical Model map to the US GAAP Taxonomy; they actually come from the US GAAP Taxonomy.

If you are interested in taking a look at the Basic Example of an SEC XBRL Filing, follow the link above and just work from the top of the page to the bottom.

Why would you be interested in this Basic Example of an SEC XBRL Filing?

• To help you get good renderings in the SEC previewer and in the interactive data rendering in the EDGAR system.
• To help you train business users to create proper XBRL.  The Basic Example condenses the entire US GAAP Taxonomy into a hand full of meta patterns.  These meta patterns help hide the complexities of the XBRL syntax from business users. The example is simple, but it covers 90+ percent of what you would ever run up against in creating SEC XBRL filings.  If you can create this example, you can move to the next "level" of XBRL expertise.  If you cannot create this Basic Example, your foundation is not solid.  This example helps build the right foundation.
• This example is a great use case to test software.  The example is small enough to be able to be created in a short period of time, yet it has enough complexity to exercise software applications. Rather than use a software vendor's canned demos, ask software vendors to model this basic information in an XBRL taxonomy and XBRL instance.  It will help you see how that software will work.
• For professors teaching XBRL in their accounting classes, this is a good, solid example which will help your students get their heads around XBRL.

The meta patterns, business use cases, comprehensive example, and comparison exampleare coming for US GAAP Taxonomy and SEC XBRL filings. While the Business Reporting Logical Model Examples are quite useful, many people cannot make the leap from those examples to how the same ideas can be applied to using the US GAAP Taxonomy and creating SEC XBRL filings.