Digital Financial Reporting

Continuing on with my analysis of the first set of 408 SEC XBRL filings, here I will summarize what I saw when I looked at XBRL calculations relating to those filings.  This web pagepoints provides a summary of these results and a viewer which lets you look at the results of checking these XBRL instances against the calculation relations provided by the filer.

• Of the 408 filings, every one provided a set of calculation relations.
• Of the 408 filings, 302 had no calculation inconsistencies. (Actually, in the validator I was using 285 had no inconsistencies and 18 had a reported inconsistency relating to an inferred precision issue being addressed by the XBRL specifications working group.  This was deemed not to be a calculation inconsistency.)
• That left 106 with calculation inconsistencies reported.  Of those: 12 filers had only one inconsistency; 38 filers had two inconsistencies (usually the same issue in two periods); 8 filers had 3 inconsistencies; 18 filers had 4 inconsistencies, and 49 filers had more than 5 inconsistencies.
• The maximum number of inconsistencies was 34.

You can get a PDF or an Excel spreadsheet with this information from that summary page.

On the report the generator software used for creating the filing is provided, this comes from XBRL Cloud (as does the list of filings).

So, an obvious question was WHY the inconsistencies existed and where the inconsistencies were within the XBRL instance.

As to where, this is the breakdown:

• Various: This means that the inconsistencies related to a number of different areas.  There were 29 of these which inconsistencies impacted multiple areas. Here is an example.
• Stray calculations: There were 2 of these. What this means is that calculations were being fired because of concepts provided by the XBRL instance.  The network did not have a full set of concepts.  This needs more analysis to see exactly why this is occurring, usually this relates to problems in constructing the XBRL taxonomy. Here is an example.
• Income statement: There were 9 relating to the income statement.
• Balance sheet: There were 22 relating to the balance sheet.  This is a little surprising, the balance sheet is generally pretty easy because all the concepts have a balance attribute (i.e. debit or credit).
• Cash flow statement: There were 28 which had cash flow statement inconsistencies.  Generally, these look like polarity issues.  This is where the filer entered a positive number but should have entered a negative number (or the other way around).  This is usually because the preparer is obsessed with presentation of the number and does not seem to understand that for comparability reasons one way needed to be agreed on.
• Changes in equity: There were 2 of these.  Frankly I would have expected more.
• EPS: There were 12 relating to EPS (earnings per share for you non-accountants) not footing.  Now this is interesting.  Seems like this should definitely foot.  Not sure what the deal is.  But, it this is NOT supposed to foot, then why are the calculation relations provided?

It has been my observation over the years, and I see nothing which changes this in the calculation validation results that I see, that if a filer cannot get to the point where they cannot get rid of all the calculation inconsistencies it is typically because the filer refuses to grasp how XBRL works.  Basically, if the XBRL taxonomy says things should add up, then they should add up.  If things are not supposed to add up, then don't put the calculation relations in the taxonomy.  That is pretty straight forward.  Presentation of the numbers in a rendering for humans is a totally separate issue and has absolutely nothing to do with calculations.

In general what I see is pretty encouraging.  For 302 filers to get this right in the first filing period with the SEC not even checking these calculation relations is pretty favorable.  Add the 76 who had less than 5 inconstencies which were very similar issues, that brings the total to 378, which is 92 percent of the total.

Here is a PDF which walks you through a few calculations inconsistencies and shows you how to compare the calculation report with the SEC rendering.

If you look at the consistency by generator you see that every generator application both has filings with inconsistencies and without inconsistencies.

In order for automated reuse of the XBRL information provided by the SEC EDGAR system, clearly the data cannot have calculation errors of any sort. XBRL calculations are not sufficient to prove that all computations in an XBRL instance work correctly, see the discussion of business rules in other posts on my blog such as this one.

I am pretty confident that accountants who create XBRL filings will eventually realize that they have a gold mine here in XBRL, rather than just yet another SEC rule that they need to comply with. Pressing one button to make sure that everything adds up, rather then have to put on those green eye shades! What is not to like about that.  Further, using business rules to automate the disclosure checklists used to create a financial statement.  These are not liabilities folks, they are assets.  Pretty soon software will exist which shows this to be the case. Then it will be much easier for business users to understand why XBRL is so useful for not only external reporting, but more importantly for internal reporting.

I am getting more and more questions about how to learn XBRL.  Most people want some sort of self study option.  Here are several steps which will get you well on your way to gaining XBRL expertise.

The probability that XBRL will be part of your future is increasing every day.  If you believe that XBRL will be part of your future, you can make the investment of learning about XBRL and gain expertise which not a lot of business people currently posesse and you can use this to set you apart.

If you want to learn about XBRL, I would recommend following these steps:

1. Read XBRL for Dummies.  Chapter 1 is a must, it provides in about 20 pages a comprehensive explanation of XBRL.  Chapter 4 provides an XBRL Primer.  There is a lot there for both business readers and technical readers.
2. If you want more detail, read Financial Reporting Using XBRL.  This book is a little dated, but it provides the next level of deal for understanding XBRL. You can get a printed version (for the price of shipping) or download PDFs.
3. Get your hands dirty.  Chapter 11 of Financial Reporting Using XBRL is called Modeling Financial Reporting Concepts in Taxonomies. If you build each one of these rather simple fragments of XBRL you will really begin to see what XBRL is all about and how to use it. You can see each of these small samples here.
4. If you need XBRL tools, see this web page. (See the section on XBRL software).
5. If you want to implement XBRL in production systems, be sure to read about XBRL Simple Application Profile. This helps you understand some realities about working with XBRL. These issues are also summarized in XBRL for Dummies, see Chapter 2 and Chapter 12 in particular.
6. Follow this blog.  This blog is a source for the most current information, ideas, understanding issues, working around problems, etc.  It may be a lot of work, but that is what it takes to become expert in anything: hard work.  There are no short cuts.

If you want more or options when it comes to learning XBRL, check out Mastering XBRL.

SEC filings are providing good information relating to a question which has been asked and answered with differing views in the XBRL community for years: If I change a network, do I need to add a new concept?

Continuing on with my analysis of the cash flow statements of 408 filing to the SEC, this is what I see:

1. Of 408 filers, 358 follow the US GAAP Taxonomy exactly as provided to provide information relating to the change in cash in the cash flow statement. I created an XBRL Formula to test the computation of the change (beginning balance + changes in cash = ending balance) are properly satisfied by the XBRL Formula.  Further, the calculations add up correctly (i.e. there are no calculation inconsistencies) for the net changes in cash for operating activities, investing activities, and financing activities. Two examples of these are 3M CO and ABBOTT LABORATORIES.
2. There were 5 filers (Allstate Corp, Citigroup Inc., The Chubb Corporation, Cablevision Systems Corporation, The Hartford Financial Services Group, Inc.) who added an extension concept to REPLACE the net changes in cash concept provided by the US GAAP Taxonomy.  Of these 5: (a) 2 filers changed the concepts involved in the calculation, (b) 3 filers did NOT change the concepts involved in the calculation. (The question being, so why did they feel the need to add the concept in the first place?)
3. One filer (BIOGEN IDEC INC.) did not change the changes in cash concept, but DID reconfigure the placement of the effect of exchange gains on cash, moving it outside the net increase concept provided by the US GAAP taxonomy.
4. Of the filings I looked at here, only 1 filer (BIOGEN IDEC INC.) had calculation inconsistencies within the net changes in operating, investing, and financing cash flows. (Why couldn't they get things to add up, but everyone else could?)
5. One filer (DTE Energy) added a reconciling line item "Cash and Cash Equivalents Reclassified from Assets Held for Sale" and did not add any extension concepts. Seem like that concept is missing from the US GAAP Taxonomy.
6. One filer (Enterprise Products Partners L.P.) moved the effect of exchange rate changes but did NOT change the changes in cash concept. (i.e. this now adds up differently than what the US GAAP Taxonomy specifies.)

Basically, there is a lot of consistency in that 358 filers seemed to be able to make things work as is.  However, there is inconsistency in the way filers where changing the US GAAP Taxonomy via their company specific extensions. Sometimes extension concepts were added but calculations did not change, sometimes calculations were changed and extension concepts were NOT added, sometimes calculations were changed and extension concepts were added in this one specific area of the taxonomy.

This begs the following questions:

• When exactly should a new concept be added to an XBRL taxonomy and when should an existing concept be used.
• If a calculation is changed, does that mean that a concept should be added because by changing the calculation you could be redefining the concept. For example, for the filer above who moved the impact of the effect of foreign exchange gains from the total net impact of changes in cash flows, has the user redefined "net impact of changes in cash flows"?
• Should filers be allowed to redefine all calculations, or only certain categories of calculations?  If so, why or why not and how does the desire for analysts to make comparisons across filers come into play here?
• In the specific case of the cash flow statement, if the filer uses some other concept than "us-gaap:CashAndCashEquivalentsAtCarryingValue", should the filer use that concept from the balance sheet in the cash flow statement as the concept being reconciled?  Some filers don't report that concept, but rather report the concepts "us-gaap:Cash" or "us-gaap:CashCashEquivalentsAndShortTermInvestements" or some other cash related concept.

Peer pressure could get the practices of filers more consistent, but it will probably take definitive guidance from someone on when it is appropriate and when it is not appropriate to add a new concept to a taxonomy.  The examples of inconsistencies in the cash flow statements of filers is only an example of the issue, the issue really relates to every area of the US GAAP Taxonomy and this issue is not exclusive to the US GAAP Taxonomy - basically all taxonomies have this issue.

Some concepts in a taxonomy are defined by what they are.  For example, "Assets".  Other concepts are defined by how they are calculated, such as perhaps "Cash and Cash Equivalents, Period Increase (Decrease)".  How are the two distinguished in the US GAAP Taxonomy?  Is there a way to distinguish the two?

Here are some more specific examples of situations which might be encountered which points out many points in the spectrum of situations which might arise:

• Say a filer adds a new balance sheet line item under current assets which does not fit into any of the other existing high-level balance sheet line items.  Should the filer redefine the concept "us-gaap:AssetsCurrent".  Probably not.  Should filers even be able to add high-level balance sheet line items, or should they be limited to adding lower level line items only?
• What if a filer does not agree with the way the income statement is organized and chooses to move things around.  Would that impact those subtotals provided in the US GAAP Taxonomy which have specific meaning which is implicitly defined by the nature of the line items which they contain.
• The disclosures of a financial statement have many, many different types of summary and detail concepts.  How does one know when they are defined by what they are and when they are defined by how they are calculated?

Again, if you are an accountant or an auditor and you want to understand these issues better, send me an email and I can send you the details of the analysis which I created.

I had this idea for an analysis to perform on the SEC XBRL filings in order to see what they were looking like and to test some things I was fiddling with.  The analysis vastly exceeded my expectations in terms of information it provides and it is incredibly useful to seeing the types of issues accountants are going to have to deal with.  This blog post summarizes the results of that analysis.  I have a detailed document which provides additional insight, if you want a copy of that send me an email and I may be able to get that detail to you.

The analysis looks at 408 SEC filings of 10Q's all filed after July 1, 2009.  This is the complete list of filings: http://www.xbrlsite.com/demos/console/console.htm. This list came from XBRL Cloud's list of SEC filings.

I established a hypothesis that if I ran an XBRL Formula through each SEC XBRL instance (10Qs) that the formula (business rule) should either support the fact that cash reconciles or there should be some reason that the formula does not support that and there would be a specific reason as to why.  Another way to state this is to say that "beginning balance of cash + changes in cash = ending balance of cash".  The US GAAP Taxonomy states this, although implicitly; you can see that here in the US GAAP Taxonomy CI entry point.  (What I mean by implicitly is that there is no official business rule which states this and there is only the implicitly way that a [Roll forward] is created which unofficially implies this, it could be explicit though.)

So, I created this business ruleusing XBRL Formulas.  One of the first thing I recognized was that filers were using two different US GAAP Taxonomies (2009 and 2008) so I had to create another XBRL Formulafor the second taxonomy.  I then used the complete list of SEC filings (mentioned above) and created a little batch file which grabbed the SEC XBRL instance from the list, applied the business rule, and spit out a validation report in XML which I then converted to HTML.  I did this using the UBmatrix XBRL Processing Engine.  This is a summary of the raw validation results.

The really interesting thing is that of the 408 filings, 358 passed validation first time through! I was truly amazed.  That mean that 358 of the 408 filers provided the concepts specified by the US GAAP Taxonomy, that the numbers added up correctly, and that there were two periods reported.  This part took very little effort to set up, it is just creating the formula, getting the list of filings to run the formula against and generate the batch file to automate the entire process.

The hard part was figuring out why the other 50 did NOT validate.  That was the really interesting part o this analysis, but also rather time consuming.

Before I get to the observations there is something that I want to point out.  While I did this analysis for the cash flow statement, the same type of analysis could be performed in other areas of the taxonomy.  But if the analysis were to be performed, I speculate that the types of issues you would discover would be quite similar to the issues uncovered by my simple analysis.  Keep this in the back of your mind as you read these observations.

High level observations

Here are the observations which I made:

1. Of 408 filings, the cash flow statement was extremely consistent at this high level.  For example, all but 6 filers of the 408 total filings had used the concept "us-gaap:CashAndCashEquivalentsPeriodIncreaseDecrease" specified by the US GAAP Taxonomy for net increases or decreases to cash reported on the cash flow statement.
2. Of the 408 filings, the vast majority of the filers followed the US GAAP Taxonomy which calls for the concept "us-gaap:CashAndCashEquivalentsAtCarryingValue" to be used on the cash flow statement. (358 plus, did not to an actual count)
3. Filers who did NOT use the concept "us-gaap:CashAndCashEquivalentsAtCarryingValue" generally used another US GAAP concept which generally included one of the following: us-gaap:Cash (5 filers), gaap:CashCashEquivalentsAndFederalFundsSold (1 filer), us-gaap:CashAndDueFromBanks (8 filers), us-gaap:CashCashEquivalentsAndShortTermInvestments (4 filers).
4. Only 5 filers created extension concepts for the balance of cash.  Of those, 4 created extension concepts which were different for the beginning and ending balance. (i.e. one concept for the beginning balance, a different concept for the ending balance).  This is a big no-no in my book and the fact that only a hand full did this and that this is NEVER done in the US GAAP Taxonomy itself is pretty good evidence that creating two different concepts for the beginning and ending balance is not the way to go.
5. The vast majority of filers followed the US GAAP Taxonomy calculation and included the changes in cash related to exchange gains and discontinued operations within the concept "gaap:CashAndCashEquivalentsPeriodIncreaseDecrease"; however, there were a hand full which did not include cash changes from exchange gains or discontinued operations within that concept, rather they were additional reconciling items in calculating the total change.  In is hard to believe that calculating this total change in cash should be done in two different ways, but that my just be me.
6. One filer had an additional reconciling item for VIE related changes to cash (PAPA JOHNS INTERNATIONAL INC).  It may be the case that this concept needs to be added to the US GAAP Taxonomy.
7. Two filers (DTE Energy, PPL Corporation) has "Assets reclassified as held for sale" included in changes to cash. This may need to be added to the US GAAP Taxonomy.  I do recall from my work with the IFRS taxonomy that this concept is part of the cash flow statement as these to filers reported.
8. Two filers (Symantec Corporation, NVIDIA Corporation) had a 52/53 period year end and used the wrong startDate which did not match to the instant reported, therefore the XBRL Formulas did not fire. When the startDate was corrected and the validation was rerun, the validation worked correctly.  These are pretty obvious errors.
9. Of the 408 filings, only 2 filings had "rounding issues" which caused the computations to not add up correctly for this one formula. Personally, I belive that filers should make all these adjustments BEFORE they put their numbers in the XBRL instance because sure, it may be some additional work for the filer, but it will be even more work for all the analysts who make use of this information, trying to deal with these rounding issues.  Again, that is my personal view.

It seems that comparability would be extremely easy to achieve for the high level of the cash flow statement.  The biggest issue to comparability are (a) the use by a minority of filers of different concepts to represent the balance of "cash" than the US GAAP Taxonomy calls for and (b) where the exchange gains and discontinued operations really should be in the computation of the net change in cash.  These are both accounting issues, not technical issues.

Further, looking one level deeper into the cash flow statement, a high percentage of filers (over 95%) report the concepts: us-gaap:NetCashProvidedByUsedInInvestingActivities, us-gaap:NetCashProvidedByUsedInFinancingActivities, us-gaap:NetCashProvidedByUsedInOperatingActivities.  I may do some additional work to see more precicely what is going on with these concepts.

Example of Issues Accountants Will Have to Deal With

OK, so now to the example of issues accountants will need to deal with.  I have my personal opinion on these, but clearly this is not my call.  Someone will need to deal with these issues however.  Not doing anything is an option, but I don't really thing it is the best option.

• Take the issue of where the exchange gains and losses realating to cash are totalled, there seem to be the following options: (a) Force everyone to use the US GAAP Taxonomy computation, (b) allow for filers to change the computation but clearly document that change, (c) do nothing which is really implying that option "b" is the right choice. What sort of comparability should be provided? Who decides?
• If someone does move the computation of "us-gaap:CashAndCashEquivalentsPeriodIncreaseDecrease", should they create a new concept or simply change the definition of the existing concept? This debate has existed for years in the XBRL community.
• Should prepares be required to report the concept "us-gaap:CashAndCashEquivalentsAtCarryingValue" in their cash flow statement, even though they use some other cash concepts on their balance sheet and don't show that concept at all?
• Should the concepts for the changes in assets held for sale and VIE related changes be added to the US GAAP Taxonomy?

Again, those are just a few examples.  And remember from the point I made above, while the concepts you might be looking at and the considerations will be different in different areas of the US GAAP Taxonomy, these issues from the cash flow statement are likely quite similar to issues which will be discovered in other areas of SEC XBRL filings.  These issues are not just for specific concepts, but more over arching principles which should be applied throughout the entire US GAAP Taxonomy.