Digital Financial Reporting

In an article published for Chesapeake System Solutions, Standardize to Streamline - The Implications of Supply Chain Standards for Accountants; Mike Willis, Partner, PricewaterhouseCoopers and Chairman, XBRL International; summarizes the benefits standards offer to streamline processes.

Standardize to Streamline
The benefits of supply chain standardization in the retail grocery segment accrued to producers, distributors, retailers and consumers. The entire supply chain benefited from a six-fold increase in product diversity.

Yesterday I posted an entry on this blog, Road Work Ahead: Last Mile of Finance, which delivers a similar message. Accounting and financial reporting processes are changing. These changes are not unique to accounting and financial reporting, other industries are being impacted.  Mike gives the example of the retail grocery supply chain. In another blog postI pointed out some things health care are up to in this area.

It looks like there is road work ahead for the "last mile of finance". In an FSN article, "Tagetik goes head to head with Oracle and Clarity (now IBM) in the ‘Last Mile’ of Finance" the IBM acquisition of Clarity is hailed as a wake up call:

The IBM deal is a wakeup call to the market – expect to see much activity in this space over the coming year.

I am hearing terms that I have never heard before: Disclosure Management and Collaborative Disclosure Management (CDM). This seems to be a new class of software.

While business intelligence (BI) software was generally used for consuming information, this new class of software is for creating information. Enterprise Performance Management (EPM) seems to be the buzz word for consuming financial information.

As I mentioned in a blog post several months ago, Oracle Hyperion Disclosure Management and Oracle Hyperion Financial Close Management work in conjunction with other Oracle EPM applications such as Hyperion Financial Management or can be deployed directly with ERP General Ledger systems.  SAP has its offerings for reporting. IBM with their acquisition of Clarity means they are in the game.

Those names I have heard before. It seems like every day I get the name of another software product that either can be used to create financial information or consume financial information.  Here are some: Information Builders, Tagetik, Quantrix, WebFilings, Trintech and Longview Solutions.  There are likely many others.

In 2008 Gartner and Ventana Research white papers described ineffecient corporate reporting process which they predicted would change. (See Gartner's XBRL Will Enhance Corporate Disclosure and Corporate Performance Management and Ventana's Selecting the Right XBRL Solution: Addressing Compliance Requirements and Automating the External Reporting Process.) This is Ventana's description of the process:

Thus, the current close-to-file process is structurally prone to error. It poses a risk that mistakes and misstatements will occur.  Most companies deal with this potential for errors and the risks they pose with a brute-force approach, using well-paid professionals (who could be doing more productive things) to check and double-check the documents.  This might be a workable approach today, but it becomes increasingly difficult and costly as the amount of required tagging increases.

These large number of spreadsheets and word processing documents and the highly manual, time consuming and error prone process they require is the approach of today.  It is like a dirt road. The tools of the future will be more like an interstate freeway.

While external financial reporting and regulatory reporting are paving the way, the change which will occur will impact all business reporting, not just financial reporting.

XBRL is only part of the change, I guess I would call it a trend.  I am hearing the term "model based reporting" come up.  This is a new way to think about business reporting. The electronic spreadsheet was a significant improvement over the paper-based spreadsheet. These new tools will be an improvement to the electronic spreadsheet.

So get your hard hats. Road work ahead.

I have been struggling and struggling trying to figure out the best way to communicate some things I have been trying to communicate and have settled on a number of model SEC XBRL filings to articulate the message.  You can find the first model SEC XBRL filing here. (If the site is slow, check back; the hosting people are doing an upgrade or something and the site has been slow.)

The key thing that I am trying to achieve is to show CPAs how to correctly model an SEC XBRL filing from an information model integrity perspective. The message is that:

• the balance sheet, income statement, cash flow statement, statement of changes in equity are tightly intertwined
• the policies and disclosures provided details which sometimes are stand alone, but sometimes are details of the aggregated summaries on those primary financials
• properly expressing these relationships from an information modeling perspective allows for features such as "drill down" and moving from one area of the statement to another area
• paper-based and document centric notions such as "presented on the face of the financials" get in the way of getting the most from XBRL

We are rapidly moving from the two dimensional medium of paper and electronic paper to a more feature rich model which leverages things like the multidimensional model. I have heard a few people use the term "model driven reporting".

What I am trying to do is point to specific issues in order to highlight the issues so CPAs and others in the financial reporting supply chain can figure out the best way to apply XBRL to financial reporting.  How XBRL is used is a choice. Information about the possibilities helps get to the appropriate answers, all things considered.

So, I am creating a series of model SEC XBRL financial filings to point out some things. I am starting with a "semi well modelled XBRL SEC filing" to make some specific points.  That is the model above.

This PDF file describes the model SEC XBRL filing.  It provides a narrative which shows how things are tied together and certain choices which must be made by SEC XBRL filing creators.  I submitted the model to the SEC Previewer which shows the resulting renderings.

You can make your own way through the model, here are some suggestions on getting the most of the model and the key points I want to articulate:

• The financials are intertwined.  This XBRL formulas validation report results shows how interrelated. You can go look at the XBRL formulas themselves, but they can be hard to read without a good application.
• Look at the financial as the interrelated fact tablesthat they are. The meta data of one fact table needs to correctly relate to other fact tables in order for the validation report to show no errors.  Every SEC XBRL filing needs to be properly articulated for the information in the filing to be useful.
• Properly articulated information results in properly rendered SEC XBRL filings. Walk through this Excel spreadsheet to see how a fact table is turned into a human readable rendering.
• These relations will be much easier to see when good software exists for viewing and comparing SEC XBRL filings.  By looking at these details you can see the impact.  If you are not comfortable at the detail level of XBRL, try and use the Firefox XBRL viewer addon to read the XBRL instance. It does not render the model very well, but it does show you some of the drill down capabilities and how a financial report will be more dynamic in the future.
• Go grab the ZIP file (line "I") from the model's home page and run it through the SEC previewer yourself.  Edit the XBRL taxonomy and XBRL instance and see how the SEC previewer rendering changes. Notice how the rendering is better if you have many small pieces rather then fewer larger pieces.

(Note that this model consciously points to some label linkbases where others should be used for an actual SEC filing.  I have to do this due to the taxonomy editing software I am using.  That causes one EFM validation error, I realize that. The final version will have that adjusted to use the proper label linkbase files.)