Digital Financial Reporting

I explained in detail in this PDF why the SEC XBRL financial filing information is so hard to use and how to resolve that issue.  This document is helpful to that end, using the information; but it is also helpful to those designing or otherwise creating XBRL taxonomies because it helps them avoid the same problems.

Fundamentally, getting to the information is trivial and I walked you through how anyone with Microsoft Excel who can write rather basic macros can get at 100% of the information from all those SEC XBRL financial filings.  I even point you to a number of prototype applications you can download, reverse engineer, and create your own applications.  And frankly it is near magical how someone with even my limited understanding of programming can get to each piece of information and there is a lot that you can do with that information.

However, when you try to compare information you run into troubles. As I see the facts you run into so much trouble that you basically have to do a one-to-one mapping between each filing you want to use and some target you desire to use in order to compare two or more filings.

What this means, it seems to me, is that the only way an individual investor is going to get to use that information is if they buy it from some third party data aggregator who sorts all that data out for them, inuring substantial costs in the process and therefore having to charge hefty fees for the use of the information.

Is that really what the SEC intended?

If you look at why the information is hard to use by reading that PDF you will realize that solving this issue is really quite simple.  The FASB and SEC need only do a few rather easy things to do and the information will be easily comparable at a level which would make most people happy, it seems to me.

This is not to say that all comparability problems will be solved.  Those issues will take decades to figure out and relate to the nature of US GAAP and financial reporting in the US as practiced.  The easy way to make the information comparable is to turn US GAAP into "a form".  Then comparisons would be trivial, but the information would not be that rich or meaningful.  At the other end of the spectrum is to continue to give the users free reign to do whatever they desire, extend anything they want, report exactly how they see fit.  That will maintain the richness of and I believe highly valued style of financial reporting as practiced in the US today. Clearly what is reported could use some improvements, what I am talking about is the fundamental nature of public companies reporting to the SEC to tell their story, their way.  That is a highly prized characteristic of financial reporting as I see it.

Is it the case that some hybrid solution can be arrived at?  Some information is closer to that of a form and very comparable, but other sections of the report can be more ad hoc so companies can tell their story, their way.  Can some workable balance be struck between the two extremes?

What do you think the right balance should be?  How do you see the facts?

The FEI Committee on Corporate Reporting (CCR) sent a comment letter to the SEC November 4, 2011 in which the concluded:

CCR believes thatthe changes in requirements proposed above would substantially lower the burden of preparing XBRL filings and bring the costs of preparation more in line with benefits. We note that application of existing protocols for detailed XBRL tagging will be effective for approximately 10,000 SEC registrants, including subsidiaries that follow limited disclosure, in July of 2012. All of the issues that large filers have experienced with detailed tagging could potentially be magnified when smaller, less-sophisticated companies attempt to comply. We therefore believe that action by the Commission is urgently needed.

FEI also published a survey SEC Reporting and the Impact of XBRL: 2011 Survey with these key findings of that survey:

• The most significant challenges mentioned in complying with the XBRL mandate are getting educated on XBRL and addressing the review process.
• XBRL had a limited impact on respondents’ SEC filing dates:
• 72% of large accelerated filers (Tier 1 and Tier 2) reported one day or less delay due to XBRL; and
• Over 90% of Tier 3 filers reported one day or less delay due to XBRL.
• The majority of respondents found that XBRL was either somewhat or significantly easier the second time around.
• Tier 1 and Tier 2 XBRL filers predicted a higher likelihood than Tier 3 XBRL filers of changing their XBRL process, with the vast majority of companies anticipating a change opting for an in-house software solution.
• In-house and built in solutions continue to increase their significant market share.
• Registrants using built-in solutions (software solutions used by in-house reporting teams in which the creation of the EDGAR document and XBRL instant report are fully integrated) are significantly more satisfied than those using other approaches.

Is it just me, or does the survey seem to contradict the comment letter? What do you think?

If you follow this blog you know that I post quite a bit of information. I have taken information relating to working with SEC XBRL financial filings and consolidated it into a single resource: Understanding SEC XBRL Financial Filings which you can get to here.

This resource is useful for more than creating SEC XBRL filings. As this HL7 video points out (see slide 4) you need three things to make interoperability work: technical interoperability, semantic interoperability, and process interoperability. XBRL provides the technical interoperability, the XBRL technical syntax. If used correctly XBRL can provide the semantic interoperability also it seems. Process interoperability I don't really grasp well yet. I don't think XBRL provides that.

So check out this resource whether you work on SEC XBRL filings or not. This resource is not for the XBRL novice. But, it can help beginners or those with intermediate or advanced skills add to their skill set. I know that over the three years that it has taken me to accumulate and grasp this information I have learned quite a lot. Hopefully this will help you.

This is a great Gartner research report: The 21st Century Disclosure Initiative will Reprioritize Your Business Intelligence and Performance Management Strategies. The punch line is:

Publicly traded companies should use these regulatory reforms to gain a competitive advantage, rather than treat them as a cost of doing business.

The research report discusses how the "last mile of finance" will change, the benefits of the change, and approaches to implementing these changes within your organization.

In my view these changes will not be limited to public companies. Private companies reporting to their financial institutions in support of commercial loans is the obvious next step.

Further, the report points out the benefits structured data provides internal information systems.

Many people make the mistake of asking, "What it costs to add XBRL to a business report." The equation has two parts: cost and benefit.  Another logical question one might ask is, "What is the cost of not having XBRL tagged business information." As more and more information becomes available in an XBRL format, comparing the true costs and benefits will become easier.

As these net benefits are seen, more and more organizations will realize that the "outsource" and "bolt-on" options are less favorable than an embedded or integrated approach to implementing XBRL.  Perhaps not for everyone, but for many.

I have been struggling and struggling trying to figure out the best way to communicate some things I have been trying to communicate and have settled on a number of model SEC XBRL filings to articulate the message.  You can find the first model SEC XBRL filing here. (If the site is slow, check back; the hosting people are doing an upgrade or something and the site has been slow.)

The key thing that I am trying to achieve is to show CPAs how to correctly model an SEC XBRL filing from an information model integrity perspective. The message is that:

• the balance sheet, income statement, cash flow statement, statement of changes in equity are tightly intertwined
• the policies and disclosures provided details which sometimes are stand alone, but sometimes are details of the aggregated summaries on those primary financials
• properly expressing these relationships from an information modeling perspective allows for features such as "drill down" and moving from one area of the statement to another area
• paper-based and document centric notions such as "presented on the face of the financials" get in the way of getting the most from XBRL

We are rapidly moving from the two dimensional medium of paper and electronic paper to a more feature rich model which leverages things like the multidimensional model. I have heard a few people use the term "model driven reporting".

What I am trying to do is point to specific issues in order to highlight the issues so CPAs and others in the financial reporting supply chain can figure out the best way to apply XBRL to financial reporting.  How XBRL is used is a choice. Information about the possibilities helps get to the appropriate answers, all things considered.

So, I am creating a series of model SEC XBRL financial filings to point out some things. I am starting with a "semi well modelled XBRL SEC filing" to make some specific points.  That is the model above.

This PDF file describes the model SEC XBRL filing.  It provides a narrative which shows how things are tied together and certain choices which must be made by SEC XBRL filing creators.  I submitted the model to the SEC Previewer which shows the resulting renderings.

You can make your own way through the model, here are some suggestions on getting the most of the model and the key points I want to articulate:

• The financials are intertwined.  This XBRL formulas validation report results shows how interrelated. You can go look at the XBRL formulas themselves, but they can be hard to read without a good application.
• Look at the financial as the interrelated fact tablesthat they are. The meta data of one fact table needs to correctly relate to other fact tables in order for the validation report to show no errors.  Every SEC XBRL filing needs to be properly articulated for the information in the filing to be useful.
• Properly articulated information results in properly rendered SEC XBRL filings. Walk through this Excel spreadsheet to see how a fact table is turned into a human readable rendering.
• These relations will be much easier to see when good software exists for viewing and comparing SEC XBRL filings.  By looking at these details you can see the impact.  If you are not comfortable at the detail level of XBRL, try and use the Firefox XBRL viewer addon to read the XBRL instance. It does not render the model very well, but it does show you some of the drill down capabilities and how a financial report will be more dynamic in the future.
• Go grab the ZIP file (line "I") from the model's home page and run it through the SEC previewer yourself.  Edit the XBRL taxonomy and XBRL instance and see how the SEC previewer rendering changes. Notice how the rendering is better if you have many small pieces rather then fewer larger pieces.

(Note that this model consciously points to some label linkbases where others should be used for an actual SEC filing.  I have to do this due to the taxonomy editing software I am using.  That causes one EFM validation error, I realize that. The final version will have that adjusted to use the proper label linkbase files.)