Digital Financial Reporting

The folks working on the FINREP (FINancial REPorting for financial institutions) have provided a prototype XBRL taxonomy and related documentation which provides insight into how to model information using XBRL. Serious students of XBRL should consider taking a look at that they have done which you can find here:

• FINREP taxonomy main page
• Proof of concept taxonomy files
• Proof of concept taxonomy architecture documentation
• Bank of Italy "Matrix Schema" documentation (see page 25 onward), referenced

There is one very unique aspect of this taxonomy worth pointing out because it helps to answer a big question that I, and others, have. The FINREP taxonomy has only one hypercube which it uses over, and over, and over to express information. This was done intentionally to force the business semantics of the dimensions and primary items pulled together by the hypercube onto the network containing the hypercube.

This is not to say that I like that approach (i.e. using one hypercube for everything as compared to making each hypercube unique and the hypercube contains the semantics of what the hypercube defines).

What this basically points out is the two extremes of creating hypercubes:

• make each one unique (and each has meaning)
• create only one (and the hypercbue has ZERO semantics, the network contains the semantics which describes what the network/hypercube means)

What is not good is mixing those two approaches.  It makes no sense if one hypercube has multiple meanings (i.e. hypercubes should not be polymorphic).

In discussing the characteristics of the FINREP taxonomy on the Eurofiling news list someone made the following statement about XBRL:

The flexibility and extensibility of XBRL provides numerous solutions which is a double-edged sword.

I could not agree with this statement more. Particularly today because the dust has not settled from the experimentation of trying to figure out the best approaches to use XBRL and the best approaches are not coded into software applications to help guide those making use of XBRL; a cautious "buyer beware" type attitude is quite appropriate.

The benefits of semantic, structured authoringover the unstructured approach to creating financial statements (i.e. packing information into Microsoft Word which understands nothing about financial reporting) seem quite obvious and clear to me. It seems that even if you created your financial statement using this semantic, structured approach leveraging XBRL and never gave XBRL output to anyone, it would still be worth considering a semantic, structured authoring approach.

This may seem like a rather odd statement, but hear me out.

Structured authoring of documents has been around for quite a long time.  I visited the company called Arbortext back in 1998 when SGMLwas the structured text of choice. SGML offered many benefits, but it was hard to use.  A few years later I visited a company called SoftQuad Software in Vancouver, BC (just up the street from me) who had a product called XMetaL.

(A quick history; XMetal was purchased by Corel, then Corel sold it to Blast Radius, and then Blast Radius sold it to JustSystems)

XMetaL was am XML editing tool with an interface which was much like a word processor.  It was a business user tool, rather than an XML tool for developers like most other XML editors. The useful thing which XMetaL did was control what you could enter using a schema.  The bad thing was that the schema was more syntax related than semantics related. XMetaL got into XBRL but I never did see XMetaL allow a business user "interact" with a financial statement the way I thought that the interaction could be like.

There are others taking a structured authoring approach to creating financial statements. SAP, Oracle, and IBM to name three. All of these companies are working to change the "last mile of finance" as are others. Many of these companies started down this path long before XBRL even existed.

There are lots of different terms for structured authoring: model based reporting, digital financial reporting, 21st Century financial reporting.

But let me take a step back and say that there is an even better approach that structured authoring. This approach is called semantic, structured authoring and is defined as:

Semantic, Structured Authoring

"to compose information content semantically structured according to some ontology"

THAT is what I'm talking about.

The paper Semantic Authoring and Learning Thereofby Kôiti Hasida talks about semantic structured authoring in more detail. It points out how this approach can be more productive and improve quality using things such as (most of which I don't really understand):

• discourse connectives
• reusable patterns of discourse structures
• lexicographical and lexical knowledge
• frequent combinations of argument types of discourse relations
• ontologies containing concepts appearing in graphs
• credibility and importance of parts of graphs
• who may be interested in parts of graphs

It seems like semantic structured authoring is a marriage between ideas of structured authoring and ideas of the semantic web. Add to this business intelligence, then you see financial reporting done in a totally new way.

The way I see it is that taking a model-based approach to constructing financial statements will be as different as using a paper spreadsheet as contrast to building an electronic spreadsheet. The best visualization I can provide is a video of the Quantrix Modeler (the first video on this page, 6 minutes that will change your view of the world).

Imagine a digital financial report viewer which works like how you interface with songs on iTunes. I prototyped this in iTunes and you can watch the video here.  (Here are a couple of other options if that does not work for you: Flash video, Screencast.com. Also, you can watch the imbedded version below, but part of it is cut off.)

Imagine:

• The "flipper" thing what allows you to flip between songs as flipping between the different sections of a financial report.
• Being able to change the view from an actual image, an image with a list of the pieces, or just the list which you can sort.
• Being able to filter for different pieces of the report
• Being able to organize your different reports like you organize a play list in iTunes.
• And clearly all this stuff would work not only on our PC, but also on your iPad.
• You double click on an image and up pops something which looks and works like a pivot table which allows you to reconfigure the information.
• You can compare financial reports as easy as dropping any number of reports on top of one another
• Your interface to the SEC EDGAR system was like your interface to the iTunes store

All this is very possible.  The more consistent, explicit, and well modeled the US GAAP Taxonomy and SEC XBRL financial filings, the easier this is.  Heck, if you can do this for the Beattles music, why can't it be done for Boeing financials?