Digital Financial Reporting

The Financial Accounting Foundation (FAF), a not for profit entity of which the Financial Accounting Standards Board (FASB) is a part, will be charged with maintaining the US GAAP Taxonomy, per the following WebCPA post and FAF press release.  When the SEC began funding the US GAAP Taxonomy it originally started at the FAF but was transferred to XBRL US as the progress progressed.

This is an interesting twist.  The first thing that came to my mind is the potential switch to International Financial Reporting Standards (IFRS) by US companies.  I think there will, at least for the foreseeable future, be a US GAAP Taxonomy going forward if this occurs.  The US GAAP taxonomy adds information for many industries, details not found in the IFRS taxonomy, and SEC rules which will never be covered by the IFRS taxonomy.

The fact that the FAF maintains the US GAAP Taxonomy could cause even more "market provided support" for things which make the US GAAP Taxonomy usable by reporting entities.  This is similar to the fact that the FAF publishes the accounting standards, but Wiley and others publish books which explain and make the standards easier to use. 

Also, the AICPA publishes things like Accounting Trends and Techniques.  When this SEC XBRL filing really gets going, I think people will realize that using the US GAAP Taxonomy as the starting point is not the way to go, rather there will be XBRL templates which are better starting points.  The end result will be valid XBRL which can be submitted to the SEC.  It is just that the market will be able to better decide what is useful.

I do find the timing of the next update interesting:

The FAF and FASB plan to assemble a small team of technical staff who will be dedicated to maintaining the taxonomy and will work towards the release of the next taxonomy update in early 2011.

Users need better search capabilities in taxonomy creation software so they can FIND the right concepts.  The use of synonyms to help identify concepts would be very helpful to users.

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There are two incredibly useful free software applications which are helpful in modeling things in general.  My specific interest is to help me model some things related to XBRL.

• ArgoUML: This is a tool for modeing UML.
• VUE (Visual Understanding Environment): This is a tool for modeling pretty much anything visually.

Thank you to the people who made me aware of these tools.  Both are of these tools are quite useful!

OK, you need to use your imagination here but this will give you an idea of what life could be like.

Take a look at Digital Photography Review side-by-side comparison of cameras.  (Me, I did a comparison of the Nikon D200, D300s and the D700 which you can see here.)

I am not saying that the comparison of digital cameras has all the desired characteristics of a comparison of financial information.  You can look at this as perhaps a benchmark.  Think about how you might change the interface to be the "dream financial comparison tool" which an investor might like?  Imagine that the initial lookup list is a list of companies.  Imagine that the list of camera features is rather a list of financial ratios, financial concepts, and other information.  Imagine the "our in-depth review" being the complete rendered financial statement.  What stands in the way of having this? 

This is somewhat similar to the prototype SEC XBRL viewer worked.

This digital camera side-by-side comparison can be used in many ways to help determine what a comparison of companies financial information might look like.  Ask yourself what might be needed to make your "dream comparison" work.  We have lots of the pieces, but no one has done all the things necessary to wire things up in a useful way yet.  But, as more and more pieces of the puzzle fall into place, I am sure that financial comparisons will be as easy as comparing digital cameras on this Digital Photography Review web site.

Take this one step further.  Imagine a business user being able to put together their comparison, any comparison they want, making it available to whomever they want, all without the help of the IT department. That is what XBRL is really about, in my view.  

These comparisons really are not that difficult to create.  It is more challenging to create the things you need in order to create the comparisons. For example, if the world has 80 different sets of financial  reporting standards it would be challenging to have one tool which compares companies which use different reporting standards.  No problem, just create IFRS.  Now we have the possibility of having global comparisons.  So we have IFRS and we need a way to generate the information into a structured format.  If every company used a different format, comparisons are harder.  Along comes XBRL and we have the possibility of standardizing on one format.  XBRL + IFRS expressed using XBRL (the IFRS Taxonomy).  Those were the two big challenges.  Everything else is details really.

Imagine!

I am trying to sort some things out in my mind.

UML (the Unified Modeling Language) is communication tool which is used in designing software systems.  I have long wondered why there was no UML model created for XBRL.  What I think I should have been thinking is why there has not been a UML model created for financial reporting.  While a UML model for the XBRL syntax would be helpful in understanding the XBRL syntax, a UML model for financial for financial reporting can help communicate the "moving parts" of financial reporting.  Once those moving parts are accounted for and documented in UML, then one can apply the XBRL syntax or any other syntax really to that model.

(Most business users don't really understand what UML is. If you want to understand UML, here is a nice little tutorial. I can recommend a great book that is helpful in understanding UML, UML Explained by Kendall Scott. Understanding UML will take some effort, but it is worth the investment if you are involved in architecting systems which use XBRL, architecting XBRL taxonomies, etc.)

It is not that nothing has been done with UML relating to XBRL.

The US Corporate Actions Taxonomy has UML diagrams.  See this presentation by Taku Hasegawa (NTT DATA Corporation) in July 2009.

In what looks like about 2002 a paper Augmenting XBRL Using UML: Improving FInancial Analysis was written by Joseph Callaghan, Arline Savage, and Vijayan Sugumaran of Oakland University. The paper makes the following statement in its abstract:

UML provides a conceptual framework to capture more meaningful semantics, particularly among related, collaborating objects.  [CSH: by collaborating objects I think they mean relationships.]

UML capturing semantics? I thought that is what XBRL and OWL were for.

If you do a search in Google on "UML +XBRL" you get 895,000 hits. Many of these documents seem to relate to XBRL GL. From Wikipedia you can go to a UML Profile for XBRL Global Ledger created by OMG.

One thing I don't seem to understand is how OWL relates to UML and XBRL.  Is OWL another way to model the domain of financial reporting, or is OWL another syntax just like XBRL is a syntax?  Here are some OWL ontologies for XBRL and the US GAAP Taxonomy which seem to model more the XBRL syntax than financial reporting.

Currently all this is somewhat confusing to me.  But, it does seem that there really needs to be a UML model for financial reporting.  Some people refer to this as a "logical model" I think.

One thing which I do think I am realizing is that the value of XBRL is not the XBRL syntax, the value seems to be the semantics of business reporting and financial reporting and the XBRL taxonomies which are being created such as the IFRS and US GAAP taxonomies for financial reporting.

XBRL, OWL, RDF, UML all seem to be ways to instantiate semantic information relating to financial reporting. PDF, HTML, Word and Excel are other ways but those are for presentation of the information.