Digital Financial Reporting

(A downloadable PDF version of these recommendations and the results of the analysis refered to can be obtained here.)

Helping to create XBRL, helping to create multiple XBRL taxonomies including the US GAAP Taxonomy, helping to create the US GAAP Taxonomy Architecture, helping to test the US GAAP Taxonomy, creating XBRL instances with the US GAAP Taxonomy, and being a CPA gives me a unique perspective when I look at XBRL instances and XBRL taxonomies.  I used this perspective to have a look at SEC XBRL filings.

This is a set of the  top 10 categories of errors found in SEC XBRL filings which you should consider avoiding.  This information comes from two sets of analysis of SEC XBRL filings.  You can see a summary of the latest analysis here on my blog.

But let's get right to it.  These are common mistakes which are seen in SEC XBRL filings and how to avoid them:

1. Don't use concepts when you should be using contexts to differentiate fact values: Specifically, you don't want to do something like creating the following two concepts: my:CashBeginningBalance and my:CashEndingBalance.  Bad, bad, bad.  You never see this in the US GAAP Taxonomy.  Of 403 filers, about 9 made this mistake.
2. Don't use concepts to differentiate where a concept is used:  Specifically, don't create concepts like this: my:Cash and then my:CashCF (meaning one cash concept for the balance sheet and another concept which represents the same thing for the cash flow statement).
3. Stick with US GAAP Taxonomy concepts where appropriate: There are some filers defining their own terms for things like "cash" and "net change in cash".  See this blog post for more information.  Only 4 of 403 filers defined a concept to replace the US GAAP Taxonomy cash flow statement which is supposed to contain the value for the net change to cash.  That is a pretty good clue (4 of 403 creating a custom concept) that the US GAAP Taxonomy is most likely the way to go.  This may not be true in 100% of situations, but from what I saw from those filings, I cannot see why they had to create a new concept.  If you do not follow the pack and you create a new concept, a good idea would be to make it clear in the documentation for that concept why you felt that was necessary.
4. Check your calculations: When you create your XBRL filing, be sure to run the filing through an XBRL processor which checks the calculations. You can see what the results of these checks looks liike here. This is an example of a clean filing with no calculation inconsistencies. This is an example of a calculation inconsistency which indicates which, if compared to the HTML filing, is really an error.
5. Prove all your computations: Prove to yourself that all the computations add up correctly.  This means not just the XBRL calculations, but also the [Roll Forward]s which cannot be validated by XBRL calculations.  Another category of computations which XBRL calculations cannot validate relate to aggregations across dimensions.  You need XBRL Formulas in these cases.  Use both of these, XBRL calculations and XBRL Formula, to prove that 100% of your computations are correct.
6. Follow the US GAAP Taxonomy: If you look at the US GAAP Taxonomy you will notice that it is constructed quite consistently and a in very specific ways.  You should follow that guidance within your filer extension taxonomy.  The SEC or XBRL US do not provide rules to enforce this currently, but they will eventually.  An example of what I am talking about here can be seen in this analysis. What this analysis did was to look at one specific area of the US GAAP Taxonomy information model: the [Table].  Per the US GAAP Taxonomy Architecture (see section 4.5 Implementation of Tables on page 38 of that PDF), a [Table] must always have at least one [Axis] and it must have exactly one [Line Items] concept.  Further, since the US GAAP Taxonomy uses [Table]s to express every primary financial statement, you would expect that there would be a [Table] for each of those.  This is what the test results would look like for a well prepared filing. This is what the test results would look like if you you are not following the US GAAP Taxonomy structure for a [Table]. If you want extra credit, model EVERYTHING within a [Table].  There are about 10 filers who already do this.  In my view, that is where the US GAAP Taxonomy will be moving to in the future. I will stop with that recommendation for now, if you want further information on this send me an email or read my blog.
7. Avoid rounding within the XBRL instance, take care of this when creating the filing: Of 403 filings that I looked at, only one showed a computation error as a result of rounding.  It is far better for filings to add up correctly within the filing than to force investors and analysis to deal with these rounding issues.
8. Don't stand out in the wrong areas:  Sure, if you have a great financial statement you obviously do want to stand out to analysts.  But you don't want to be a stand out for the wrong reasons. For example, of 403 SEC XBRL filers all but 8 followed the US GAAP Taxonomy computation of net change in cash.  These 8 seem to be making a mistake from what information I have accumulated.  You can decide if this is, or is not, an error for yourself, see this blog post. Far be it from me to say whether the 8 are correct, or the other 395 are correct.  Whether this is truly an error or not is not my point.  The point is, if you are not following the pack, you really should be able to explain and justify why.  If you are comfortable with that explaination you are OK.
9. Push for software interoperability: One software vendor, XBRL Cloud, says that 28 filers have filing errors, per the Edgar Filer Manual, in their filings.  Yet, the SEC accepted the filings.  How is that possible?  XBRL Cloud publishes its validation results that they on the web.  The SEC publishes a test suite. Other vendors have software and they test their software against the SEC's test suite.  Other vendors may disagree with the SEC test suite, I cannot tell for sure because they don't publish results on the web.  It will take time for all the software vendors and the SEC to get on the same page in this regard. Eventually, all software vendors and the SEC will all have the same validation results.  For now, just go for the least common denominator.  Check out the errors which are being reported.  If you can make them go away by fixing something, then I would suggest fix them.  Talk to your software vendor and ask them if they feel the errors are valid.  I predict that these differences in validation results will get resolved over the next six months or so.
10. Help investors use your information: In general, do things which make it easier for investors, analysts, and others to use your information.  Not quite sure what those things are?  Well, this list is a good starting point.  Asking analysts is another idea, help them automate their analysis models rather than throw things in that make it harder to automate their analysis.  Clearly you don't want to change the meaning of what you are reporting, you still need to properly reflect your financial information, don't change that.

For those of you who are not SEC XBRL filers or support those filers, these same errors should be avoided in other uses of XBRL also generally, not just in SEC XBRL filings.  The point is that even if you have nothing to do with SEC XBRL filings, the list above is good information to know.

Want more details?  See here and here.

Analysis of the details of why the roll forward computations of the cash flow statement shows some very interesting results.  Also, the results are very encouraging because they show a very finite and solvable set of issues.

The details of my analysis can be found here. This test is explained on this page, it is item "C" on that list. To quickly summarize, what I did is create an XBRL Formula to test the cash flow roll forward to see what would happen.  That formula is "beginning balance of cash + changes in cash = ending balance of cash" per the cash flow statement.  I ran this against 403 filings.  I expected two "satisfied" results from each filing. If I did not get that expected result, I then went on to find out why.

Here is what I found for the 403 filings:

• 348 filings showed two satisfied formulas, which is what I would have expected
• 15 filings used some other concept than the concept provided by the US GAAP Taxonomy cash flow statement (us-gaap:CashAndCashEquivalentsAtCarryingValue).  These included: us-gaap:CashAndDueFromBanks, us-gaap:Cash, us-gaap:CashCashEquivalentsAndShortTermInvestments, us-gaap:CashCashEquivalentsAndShortTermInvestments
• 9 filings put the concept us-gaap:EffectOfExchangeRateOnCashAndCashEquivalents in a different place than the US GAAP Taxonomy in the calcuation (see this blog post)
• 8 filings did something really nasty, a bad practice in my book, but creating distinct concepts for the beginning and ending cash balances, rather than following what the US GAAP Taxonomy does literally hundreds of times which is creating one concept and using context to differentiate the balances at different periods
• 4 filings created custom concept for net changes in cash, replacing the US GAAP Taxonomy concept
• 4 filings changed the computation relating to cash flows relating to discontinued operations
• 3 filings added a concept for cash flows relating to assets held for sale (which probably should be a taxonomy fix)
• 2 filings had tagging errors
• 2 filings added VIE related cash flows (again, this probably should be an adjustment to the US GAAP Taxonomy
• 2 filings created custom concept for cash balance concept
• 1 filing had a zero balance for cash and did not put in a concept that cash balance
• 1 filing had a funky presentation of cash which I would have never anticipated and is different than all other filers
• 1 filing had a rounding error in both their human readable version and their XBRL
• 1 filing had cash classified as a liability because they had a bank overdraft, which was done correctly but I did not anticipate
• 1 filing did not disclose the balances of cash on their cash flow statement; they did have balances on the balance sheet, but a beginning balance which was needed to get two roll forwards was no where to be found
• 1 filing needs additional work, I cannot figure out what is going on, but something is causing the formula to not work correctly

Again, you can see the specific filings here and that page also provides links to the rendering, formula validation report, the XBRL instance, and some other information so you can take a look at these for yourself.

For me, this information yields good insight on how to create and analyse filings as well as how to build taxonomies.

The following analysis points out that of 403 SEC filings, at least 345 (could be more) calculate the net changes to cash and cash equivalents on the cash flow statement one way, 8 filers do this in a different way.

345 use this equasion: Beginning balance in cash + Net changes in cash = Ending balance in cash (i.e. exchange gains in cash are included in the net change in cash, this is also the approach used by the US GAAP Taxonomy)

8 filers use this equasion: Beginning balance in cash + Net changes in cash + Exchange gains (losses) from cash transactions = Ending balance in cash

The difference between the two approaches relates to whether the effect of exchange rate changes on cash and cash equivalents is included in the net changes in cash and cash equivalents.

To me, this raises several questions:

• Are there really two (or maybe even more) ways of computing the net change in cash?
• If so, why?  What benefit does this have to anyone?
• If there are two ways, what would it hurt to use only one way in order to have better comparability?
• Will peer pressure possibly motivate the 8 to follow the approach followed by the majority?
• Are the 8 filers correct and being more progressive than the other 345?  Should this "progressiveness" be encouraged?  Is this being progressive?
• Should the FASB or the SEC or someone address issues like this? Or, should the capital market deal with this in some manner?

This specific financial line item is really not that big of a deal.  And frankly it is pretty easy to do some things to make the 8 consistent with everyone else.  But focusing on this one line item would miss the bigger point which is that this type of issue exists not only where I pointed this out here, but in many other areas of the US GAAP Taxonomy and in SEC filings.  The fact patterns are different for the different areas of the taxonomy.

In some cases different ways of computing things is very important and does, in fact, differentiate one company from another.  In other cases, and I think in this case, the difference is not a significant differentiator.

Understanding graphs is important to understanding how to use XBRL. This is particularly true if you build XBRL taxonomies with any level of sophistication.

When I say "graph", I am not talking about an "Excel graph" or "chart", those pretty pictures which display information graphically.  Although, it seems to me that there is a relation between "graph" and information which is presented graphically. (But, let's not go down that path.)

A graph is defined by Wikipedia as:

Mathematical structures used to model pairwise relations between objects from a certain collection.

Key terms from above are "model" (i.e. build an XBRL taxonomy), "pairwise relations between objects" (i.e. such as accounting concepts), and "from a certain collection" (i.e. XBRL taxonmoy).

I am far from an expert in graphs.  In fact, I am a novice really.  But, I have been listening to technical people talk about graphs and graph related terminology for many years in creating XBRL that I have picked up a few things.

These are the key things that I have picked up:

• XBRL networks (presentation, calculation, definition) are graphs.
• What most people think of as a "tree" is a type of graph.  Not all graphs are trees.  But, all trees are graphs.
• This is a Wikipedia article with a good summary of graph theory.
• This tutorial is a great little tutorial which will help you understand the fundamental concepts of graphs. It helps you understand terms used in XBRL such as graph, cycle, path, and so forth.
• Here is a glossary of graph related terminology.
• Graphs are a way to represent relations.  Showing those in a "tree view control" is only ONE way to represent that information.  It is definitely not the ONLY way.  Most software developers building XBRL applications have not figured this out yet.  Some have.  Help them understand this, it will help the usability of XBRL software.
• Terminology such as cycles, directed cycles and undirected cycles become more meaningful when you understand graphs.
• You cannot build good XBRL taxonomies if you don't understand cycles.
• XBRL is part of the Semantic Web.  Realize that RDF expresses graphs.  For right now, just keep the term RDF (Resource Definition Framework).  You will want to know about that, but let's not get into that now. You will also want to know about OWL (Web Ontology Language).  I will get into these later, again, just keep these in the back of your mind and realize that they are important.

Feel a little overwhelmed and confused?  That is always the beginning point of learning, feeling overwhelmed and confused.  Just realize that if you really want to understand XBRL to be good enough to create quality information models with XBRL, you need to understand what graphs are.  Take the time to read the information above and work through the tutorial.

Not every business user needs to understand graphs, but if you want to build good XBRL taxonomies, you definitely need to understand graphs.  Hopefully this information will help you towards that end.  I don't have the expertise to explain this to others in detail at this point, that is why I am just  pointing you to other information.