Digital Financial Reporting

The ITA (Interoperable Taxonomy Architecture) project has published a global filing manual for financial statement-type XBRL filings to regulators. You can read more about The Global Filing Manual here.

If you recall from a blog post around May 2009, the ITA is a joint initiative between the US SEC, the Japan FSA, the European Commission and the IASC Foundation XBRL team, and aims to converge the XBRL architectures of three taxonomies: EDINET, IFRS and US GAAP. The announcement states of The Global Filing Manual:

The manual contains a set of rules which provide guidance on the preparation, filing and validation of XBRL filings created using the IFRS Taxonomy, the EDINET (Electronic Disclosure for Investors’ NETwork) Taxonomy or the U.S. GAAP Taxonomy.

I have not been through the 65 page manual yet, and I don't know if the SEC is going to require the manual.  What I speculate is that if you are compliant to the EFM (Edgar Filer Manual), then you will likely be compliant to The Global Filer Manual. If that is the case, then while I would see is global manual as insufficient, it shows an attempt to move toward one global syntax for financial reporting. Key to achieving global financial reporting is how close the US will move toward IFRS (International Financial Reporting Standards).

What is interesting is the trend I see. CFO: 18,000 Tagging Errors in XBRL Filings So Far, XBRL for the Future: XSB Releases Strategic Initiatives calling for abstract models in UML and application profiles, the investment roadmap published by FIX, FPL, FpML, ISITC, SWIFT, XBRL and FISD. The trend: People seem to be getting more and more interested in the quality of XBRL.

I predicted a lot of this in my book XBRL for Dummies. For example, I explain and promote the use of application profiles in my book.

All this will result in XBRL which is easier to use for business people. I also see this as another step closer to achieving a global standard financial statement not for just public companies, but for all companies: public and private.

CFO Today in Finance in an article, 18,000 Tagging Errors in XBRL Filings So Far, errors in SEC XBRL filings are pointed out. But that is better than expected, say the SEC and XBRL US, the article points out.

The article is talking only about errors reported by the XBRL US consistency suite.  There is a list of the types of errors included in the list of 18,000 within the article.  It is worth having a look at the list.

No suprise here.  In fact, there are other types of errors which I am seeing in the SEC XBRL filings.  See prior blog entries for those.

I suspect that the SEC will eventually tighten the reins.  No idea when.

I created a prototype or a concept model of something which has been thrown around for years by CPAs in the XBRL community.  I call it XBRL Trends and Techniques. As you look at this, remember that this is a prototype; use your imagination as you consider what this might offer SEC XBRL filers.

The idea comes from a very popular publication of the AICPA: Accounting Trends and Techniques. That web page says that version is its 63rd year of publication. The publication is basically a survey of about 600 companies create their financial statements.  The survey looks at what is disclosed, how it is disclosed, terminology, etc.

My XBRL Trends and Techniques is a similar idea, only it uses XBRL instead of paper or PDF or DVD.

Imagine what amounts to a searchable database of templates which one could use to create their SEC XBRL filing.  It would work like this.

• Step 1: The templates are created (I will get back to this key step in a moment). OK, so some accountant who understands both financial reporting and XBRL puts together high quality XBRL instances, XBRL taxonomies, business rules (XBRL Formulas), and all the other things one needs.
• Step 2: All the templates are organized into an RSS feed.  Here is my prototype RSS feed. I would likely expand the fields in that feed, modeling it after the iTunes format which is becoming a well accepted standard which is well documented and supported. So, this page is just for looks really. The template library is intended to be read by computer applications, such as SEC XBRL filing software.
• Step 3: SEC XBRL filing software reads this RSS feed. It uses the "Title", "Description", "Keywords" within the software application to help the user find what they need. This supplements the complete US GAAP Taxonomy, it does not replace it.
• Step 4: The SEC filer starts with the template(s) of their liking to create their SEC XBRL filing. They could start with a complete model financial statement, or they could pull together pieces.  They could already have a filing and just need another piece from one or two templates for a new disclosure they need to make.
• Step 5: They complete their SEC XBRL filing.

This is somewhat of a no-brainer idea. Accountants can even make money creating templates for complex areas of financial reporting and sell them.  Heck, there could be a marketplace created to connect those who know how to create templates with those who need them.

I said I would get back to how templates are created.  Remember how I said Accounting Trends and Techniques did a survey of 600 financial statements? Why do they limit the survey to 600?  Well, this is because the survey is done by hand and all the pieces are put together by hand.

You know what the best database of these templates is?  Actual SEC XBRL filings. The templates are good because someone has actually used them. This is how financials are created today, using existing SEC filings to see how someone else approached a disclosure scenario.  Both accountants and attorneys who participate in creating filings do this, but they use the HTML versions or even worse, paper.

A great application which has been discussed for years is an interface into the SEC XBRL database of filings, organized by industry, type of disclosure, filing characteristics, etc.  When filers start seeing this sort of functionality within SEC XBRL filing creation software, then they will start to "get" what XBRL is really all about and see some of what is in it for them.

Consider smaller SEC filers, private companies, auditors or accountants who are creating a financial within an industry they do not have a lot of experience with, etc.  These templates can come from anywhere on the Internet.  This is the way iTunes works.  iTunes is an aggregator.  It pulls all the pieces together into a very useful database of music, video, and other media.  Anyone can create an RSS and submit something which will show up in iTunes.  I have done this.  Why can't the same thing be done for XBRL templates for taxonomies, business rules, etc?  After all, it is all in a standard format, XBRL!

Do you have any ideas for how XBRL can be used in the process of creating financial statements?

I started my career the summer that my office of Price Waterhouse, as the international public accountancy firm was called back in 1982, received its first IBM personal computer. Quite a lot has changed since then.  We used these huge paper spreadsheets for audits which provided me with lots of motivation to learn first Visicalc (the first electronic spreadsheet I had seen) and then Lotus 1-2-3. The benefits of electronic spreadsheets were pretty clear to me and I used them, other accountants took years to make the shift. So it goes.

If you are looking at the SEC XBRL filings that you have to create as a nusiance that the government regulators has thrust upon you, you are missing a trend which has been picking up steam.

Between 1982 and about 1998 what I did for work amounted to applying technologies to the financial reporting process to make those processes easier.  My technologies were Excel, Access, the Internet when that became available and in 1998 a thing called XML.  My understanding of XML led to XBRL. The SEC and others thought this was a good idea, the SEC mandated it, and now people bolt on another step to their processes to generate the XBRL so they can give it to the SEC.

My techniques worked in the 1980s and 1990s, but today there are more robust solutions and the problems and their solutions have been given names:

• Business Intelligence
• Performance Management
• B2B Automation
• Business Process Automation
• Enterprise Information Management
• Enterprise Search
• Customer Facing Buiness Intelligence

There are lots of other terms, that is only some of them.  These terms can be hard to get your head around, but Information Builders, a vendor of such solutions, has provided a nice summary of 2 minute videos which explains both the problems and their solutions to the problems.

Information Builders is a partner of the company I work with, UBmatrix. We have other partners, three other stand outs are Oracle, IBM, and SAP.

My point here is that the bolt on processes used today are a short-term solution in the evolution to the longer term solution to not only SEC XBRL filings, but to financial reporting and business reporting in general.  If you are a CPA, this is a great opportunity to figure out what financial reporting is going to look like five to ten years from now.  And I am not talking about just public companies reporting to the SEC, I am talking about financial reporting in general.

Watch the videos I mentioned above. Consider the pain points the videos show. Think about whether you have any of these pain points.  I specualte that you probably do.  Everyone does pretty much.

See SEC XBRL filings as something you may want to consider paying attention to whether you are an SEC filer or not.  There is much to be learned from those SEC XBRL filings should one look.