Digital Financial Reporting

XBRL US has announced that the 2009 version of the XBRL taxonomy forUS GAAP is available for public review.  Information about the taxonomy, the review process, and downloads for the taxonomy can be found here.

The finalized version of this taxonomy is slated to be available by February 2009.

I was helping my daughter do a project for school and came across a really good example of what is wrong with business reporting today.  Now, this "report" example is not from a business.  It is from the U.S. Central Intelligence Agency (CIA).  But the same shortcomings of this example exist for business reports.

The project my daughter has to do is a report on a country for a geography class.  The teacher of the class provided this resource to use on the project, the World Factbook.  My daughter picked the country of Bulgaria for her report.  Information about Bulgaria in the CIA's World Factbook can be found by clicking here.

This is a phenomenal set of information!  I won't spend time describing the details of the information, you can go look at it yourself.  Let me just say that it includes both numeric and textual information about a country and data exists for every country in the world.

Now, this information has a taxonomy.  This describes the "fields" of information, providing a description (or in XBRL terms "documentation" for the concept).  Each country has a "report", again here is the report for Bulgaria.  In addition it has comparisons, such as this one for GDP for each country.  All these listings are provided here and called rank order pages.  You can even download "the publication" and use it locally.

And that is sort of the problem.  You can "download the publication" or "view the publication", at least from the perspectives for the specific reports provided by the creators of the information.

But what if you want something else?  Suppose you wanted to compare, say, GDP with the number of cell phone users in a country?  That would mean rekeying information.

What if this information was made available in XML, say even in XBRL?  If the information were available in XBRL one could literally write queries and populate, say, an Excel spreadsheet with data from the World Factbook and do whatever comparison one might desire, rather than being limited by the existing reports due to the effort it would take to rekey the information to get what you desired.

Governments generate vasts amount of information.  It has to be the case that the data which makes its way to the CIA's World Factbook is housed in some sort of database.  That database has some application which generates the HTML files which make up the fact book.

The CIA's wonderful World Factbook is just one publication of the U.S. government.  There are hundreds of agencies and departments which generate other information using taxpayer dollars.  It would be a trivial thing to take this data and generate it as XBRL (or some other XML format).  There would be benefits of the government standardized on XBRL, but I won't go down that path here.

All this is similar to situations which exist in pretty much every business around the world.  Users within a company gets what they are given and they typically have to rekey information to get something different.  Business Intelligence (BI) applications solve this problem to a degree.  BI applications store all this information in multidimensional formats, providing for flexible access to information.

Now if the U.S. government standardized on, say Pentaho because it is open source, as its BI front end which every U.S. taxpayer; then all this data could be made available in the Pentaho GUI.  However, it would likely be the case that IBM, Oracle, Microsoft, and other BI software vendors would prefer that their tool be used.  So, that probably won't happen.

But what if the data was made available using XBRL?  I would speculate that all the BI tools would then rush to support XBRL, allowing for importing XBRL into each BI application.  Taxpayers using the information could pick the BI application they prefer.  Or, user could simply use Excel or some other tool to grab all this data made available.

Some would say that the XBRL data would not be helpful as the XBRL is too hard to use.  Well, it may be harder to use the information if it is ONLY provided in an XBRL format.  But it is impossible to reuse the information using automated processes in existing formats (like the World Factbook's HTML format) and certainly time consuming to rekey data to get the view you desire.

Anyway, I hope the point that I am trying to make comes through.  To summarize it again, current business reporting practices makes it extremely difficult to use information outside the formats provided to business users.  XBRL, particularly when used with the multidimensional model, enables more flexible access to information.

Perhaps with Barack Obama's understanding of technology and interest in using technology, his administration might perhaps make use of XBRL for sharing information such as the CIA's World Factbook or other U.S. Federal Government publications, enabling easier reuse of that information.

Something occurred to me the other day which provides an interesting way to look at the notion of "patterns" in taxonomies.

There seems to be only two possibilities as to whether you use the notion of patterns to create a taxonomy:

• Random (i.e. you don't use patterns)
• Patterns (i.e. patterns exist in your taxonomy, it is not random)

So whether the creators of taxonomies use patterns or not is really not important.  I would contend that all creators of taxonomies use some sort of patterns to construct the concepts and relationships within the taxonomy.  It is simply not the case that taxonomies are random.

As such, one could say that "patterns" exist within a taxonomy.

Now, taxonomy creators can choose to do one of two things when they create taxonomies.  They can document those patterns or they don't document those patterns.  If the creators of taxonomies are not even conscious of following patterns, they are unlikely to document those patterns.

There is another choice taxonomy creators can make.  If they document those patterns, then they can make the documentation available to the users of the taxonomy or they don't make that documentation available.

So, the full spectrum of possibilities when creating a taxonomy appears to be something like this:

• Random (theoretically possible, but unlikely)
• Use patterns, patterns undocumented (no possibility of making documentation of patterns available because there is no documentation)
• Use patterns, patterns documented, documentation not made available to taxonomy users
• Use patterns, patterns documented, documentation made available to taxonomy users

Why is this important you might ask?  Well, consider the following questions.

• What is more likely to be understood by a user of a taxonomy, one that is totally random or one which has some patterns within it to help a user understand the taxonomy?  (Clearly randomness is harder to understand)
• If the creators of a taxonomy did not document their patterns, how are they following the patterns which they are trying to follow?
• If the creators of a taxonomy did follow patterns, do they expect those extending the taxonomy to also follow those patterns and if so, why would they not make that documentation available to the users of the taxonomy?
• How do creators of taxonomies prove to themselves that they have followed the patterns (whatever they may be) within their taxonomy?  (Meaning, how do they prove to themselves as they build the taxonomy that the taxonomy is internally consistent with respect to itself.)

None of these questions have anything to do with any specific set of patterns used to model a taxonomy.  These are all general statements which apply to any taxonomy really.

Something worth mentioning is the notion of a "generated approach" to creating a taxonomy.  What this means is generating the actual taxonomy using software.  Many times taxonomies are created by having people adding concepts and relations into a taxonomy via the use of a taxonomy creation tool.  But another approach is to collect information in some other form and then generate the taxonomy itself from that information.  That is done, you guessed it, to follow patterns consistently.

Finally, suppose that you want to leverage someone Else's patterns when creating your taxonomy.  For example, what if you like the XBRL Simplified Application Profile or the XBRL Application Profile for OLAP and rather than invent your own approach to creating consistency within your taxonomy, you just wanted to borrow someone Else's approach.  It would help if there were documentation for how to construct these patterns, tests which could be run against a taxonomy to see if it complied to those rules, a way that those extending the taxonomy could test to be sure they are also following the patterns of the base taxonomy.

Conclusion

If you are building a taxonomy yourself or managing a taxonomy project you may want to ask yourself:

1. Am I following some sort of patterns when creating my taxonomy to make sure the taxonomy is internally consistent?
2. How am I proving to myself that the taxonomy is, in fact, internally consistent (i.e. doing the same things in the same way throughout the taxonomy)
3. Am I having to rely on humans to check for this consistency, or do I have automated tests I can run against the taxonomy to be sure it is consistent?
4. What am I doing to ensure that those extending the taxonomy will also follow the patterns which I am using within their extensions.
5. Is there an existing set of patterns, documentation, and tests which I can simply leverage rather than reinvent and how appropriate is that set for my system?

Call for Papers:  Special Issue on XBRL: Implications for Reporting and Governance

In mid-2009 the International Journal of Disclosure and Governance will publish a special issue on XBRL and its impact on financial reporting and national and corporate governance worldwide. There will be a combination of invited papers from high profile members of the XBRL community and submitted papers from leading accounting practitioners, user groups and academic researchers.

More information can be found on the journal's website.

Some of the ideas they suggest for papers includes:

• The SEC mandate for XBRL usage by US public companies
• The new XBRL taxonomy and its implementation
• The nature and future of XBRL-GL
• "Simplified" XBRL
• The ways in which XBRL will impact corporate governance
• XBRL and National Standard Business Reporting projects
• The benefits and costs of XBRL adoption
• The future of tagging in financial reporting and analysis
• The role of accountants in implementing and auditing XBRL
• Training and skill requirements for preparers, users, internal and
  external auditors and boards of directors in XBRL adoption and usage

OK, so I cannot figure this out.

In their 2008 magic matrix for BI platforms, Gartner does not mention XBRL (Magic Quadrant for Business Intelligence Platforms, 2008).  This was published in February 2008.

In a research publication dated in April 2008, Gartner touts XBRL (XBRL Will Enhance Corporate Disclosure and Corporate Performance Management).  There are two particularly interesting statements in this publication, interesting to me at least:

By 2011, the use of XBRL to deliver real-time financial information to business managers will be cited by CEOs in management surveys as a Top 5 contributor to their organization's success in managing the business.

And:

Perhaps more importantly, the XBRL specifications (called "taxonomies") handle the complex financial semantics (such as assets, liabilities, income, expenses, debits and credits) that cause problems when reporting financial data using business intelligence (BI) reporting tools. This means that it is easier to build sophisticated financial reports, such as a profit and loss statement, using XBRL. For example, it is estimated that the average Fortune 1000 company used more than 800 spreadsheets to prepare its financial statements for regulatory reporting. XBRL offers a solution to significantly reduce this number and improve internal controls over financial reporting.

Now, I cannot figure out if Gartner is saying that in some cases XBRL is better than BI solutions.  I doubt that this is the case (that they are saying it, or that this is true).

If you search through that magic matrix, you see the term OLAP used all over the place.  OLAP is a major enabler for BI, seems to me.  I personally see a connection between OLAP and XBRL.  OLAP is a way of organizing data/information.  XBRL is a way of expressing and exchanging information.

So, there is some sort of connection between OLAP and XBRL.  There is a connection between OLAP and BI.  It seems to me that there is a connection between BI and XBRL.

What I am trying to figure out is two things:

1. The connection between BI and XBRL.
2. The connection between BI and financial information.

Be sure to check out this blog post:  XBRL and OLAP.

And this is somewhat interesting also.  I became aware of this blog a few weeks ago.  The author of the blog stated that he was changing his focus from BI to XBRL.  Maybe this is nothing, but it is a bit curious.

More to come...