Digital Financial Reporting

If you went to business school like I did, you probably read the classic Harvard Business Review article by Theodore Levitt, "Marketing Myopia". The article explores the question of a business trying to figure out what business it is in.  It points out one tale of how railroads were devastated by the trucking industry because railroads thought they were in the "railroad" business when they were really in the "transportation" business.

"How is this applicable to XBRL," you ask? Many times people take a myopic view of the landscape. Another term commonly used for this is "tunnel vision".  Another is not seeing the forest for the trees.

What is XBRL? XBRL has been described as:

• A standard for exchanging business information.
• An XML language.
• A mandate from regulators.
• A means of modeling business information.
• A global initiative.
• A better approach to exchanging business information.
• A revolution for small investors.
• One of the Semantic Web's most successful metadata formats.
• The most revolutionary change in financial reporting since the first general ledger.
• A transformational technology.
• A market-driven global consortium trying to solve a business problem.

Which is it?  Well, XBRL is probably all of those things. But what does XBRL mean?  Here are some questions you may want to consider asking yourself.

• What does it mean if financial information used to be published in an unstructured form not readable by computers, but now with XBRL this information is published in a structured form which computers can understand?
• What does it mean for the US GAAP XBRL taxonomy and the IFRS XBRL taxonomy to organize financial reporting concepts in a manner that a computer can read and understand those concepts and relations. (As compared to historically this information is only understandable by humans.)
• What does it mean if business information exchange was made so easy it could be effectively automated on a massive scale?
• What does it mean if an entire body of knowledge for a business domain can be expressed in a standardized electronic format and exchanged with others?

Think about that last point.  An XBRL taxonomy contains the experiences, insights, rules, conventions and other knowledge of professionals who operate within a business domain. XBRL taxonomies today, such as the US GAAP and IFRS taxonomies, are filled with information.  As they mature they will contain even more information, making them more like ontologiesand less like the simple dictionaries which most XBRL taxonomies are today.

I personally had never heard the term taxonomy or ontology until about 10 years ago when we started building a taxonomy for XBRL.  Now CPAs are building taxonomies such as the US GAAP and IFRS and tomorrow they will be even more sophisticated than they are today.  Are CPAs going to need to be ontology engineers?

No one really knows what will happen in the future for sure, but there are clues.  Anyone who was paying attention when the Internet came into being saw the changes that technology can bring, many of the changes totally unexpected.

The point here is that sure, understanding what XBRL is can be rather important to business people.  But even more important is understanding what a world with XBRL in it will look like.  What business are you in?