Digital Financial Reporting

The their book The Value Reporting Revolution, Robert G. Eccles, Robert H. Herz, E. Mary Keegan and David M. H. Phillips explain how executives who report on corporate performance, investors, governing boards, accounting firms, security analysts, regulators and others will have their worlds rocked by radical improvements in corporate reporting.

The authors explain that the revolution will happen. Well frankly, I think we are in the midst of the revolution. Of XBRL, the authors say:

Companies that do not arm themselves with XBRL, and rely instead on the increasingly outmoded arsenal of corporate reporting media and practices, will compare to those who eschewed the telephone in favor of carrier pigeons.  Providers of capital want to align with companies that look to the future, not those that cling to the past.

I recommend this book to anyone trying to wrap their heads around this radical change in corprate reporting.

Diving into analyzing more textual information and information included within the policies and disclosures, I looked into how filers were reporting organization information, consolidation information, basis of presentation/reporting, and nature of business.

Of the 5525 filings in the set which I have analyzed, 5296 (96%) used one of the following concepts in their filing to report some permutation/combination of such information:

• us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock 2774 (53%)
• us-gaap:SignificantAccountingPoliciesTextBlock 796 (14%)
• us-gaap:NatureOfOperations   614  (11%)
• us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosure AndSignificantAccountingPoliciesTextBlock  278  (5%)
• us-gaap:OrganizationConsolidationBasisOfPresentationBusinessDescriptionAnd AccountingPoliciesTextBlock   227 (4%)
• us-gaap:BasisOfAccounting 211 (38%)
• us-gaap:BasisOfPresentationAndSignificantAccountingPoliciesTextBlock 199 (4%)
• us-gaap:BusinessDescriptionAndBasisOfPresentationTextBlock 114  (2%)
• us-gaap:BusinessDescriptionAndAccountingPoliciesTextBlock  57 (1%)
• us-gaap:QuarterlyFinancialInformationTextBlock  26  (<1%)

The remaining 229 filings used some other concept, created an extension concept, or did not report organizational information, basis of reporting, or nature of their business. Not unexpectedly, of the 229 filings which did not utilize one of these concepts, every one was a 10-Q.

A fair amount of filers packed the organization information, consolidation policies, basis of presentation/reporting and nature of business information within the concept us-gaap:SignificantAccountingPoliciesTextBlock along with the actual significant policies. 

A fair amount of filers also created an extension concept as the permutation/combination which they apparently felt they were providing did not match the permutations/combinations provided in the US GAAP taxonomy.

Disclosing this type of information raises the question in ones mind as to the benefit of an endless qualtity of different permutations/combinations as contrast to creating totally seperate "boxes" and requiring specific information to be placed within a specific box. Each approach has its pros and cons.

Another analysis I did was to check how the companies which make up the Dow Industrials report their organization information and basis of reporting. You can see the results of this analysis here.

To summarize, this is what I see (note that of the 30, there were 28 10-Q filings and 2 10-K filings):

• 14 companies, about half of the Dow, use the concept us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatements DisclosureTextBlock
• 9 companies use the concept us-gaap:SignificantAccountingPoliciesTextBlock
• 2 companies used the concept us-gaap:BasisOfPresentationAndSignificantAccountingPoliciesTextBlock
• 1 company used the concept us-gaap:NatureOfOperations
• 1 company used the concept us-gaap:QuarterlyFinancialInformationTextBlock
• And finally 3 companies chose to add an extension concept which they created

An interesting side note is that it seems that all 3 companies who chose to create an extension concept used the same filing agent.

The information shown on the summay page of the analysis is for only one fact.  If you look at the information within the fact for the concept reported, it tends to contain information about the organization, basis of reporting, nature of operations, and significant policies all packed into that one concept. I did not look at every financial report closely, you can examine that if you are interested.

This packing of information into one big box brings up a point which will likely lead to discussion. In the past when reporting information in say an HTML or document format, you could combine the information as one saw fit.  With XBRL you basically need to put the individual pieces of information into some "box", people call these "tags", a term I try and avoid using because the information is not "tagged", it is reported for a fact using a specific concept. I will leave that point alone for now.

But, so here you have specific concepts in the US GAAP taxonomy.  The "flow" of the financial report which a company had created in the past does not necessarily follow the "flow" offered by the US GAAP taxonomy.  What I mean is that there tends to be exactly four cases:

1. One-to-one correlation. There is a one-to-one correlation between what a company reports and what the US GAAP taxonomy provides.
2. Company groups, US GAAP taxonomy decomposes. The company groups things together, but the US GAAP taxonomy decomposes that same set of information into individual pieces. For example, the company has one specific set of information which the US GAAP taxonomy decomposes into three specific pieces.
3. US GAAP taxonomy groups, company decomposes. The US GAAP taxonomy groups something, but the company chooses to decompose that one group into individual pieces. For example, the US GAAP taxonomy has one set which the company chooses to decompose into three individual pieces.
4. Mismatched sets. The final option seems to be where the US GAAP taxonomy and the company have what amounts to mismatched sets. In this case the pieces simply don't really correlate nicely.

Lots of discussion will likely occur over the coming years as those used to having full control over information presented try and put that information into what amounts to little boxes.  It will likely be the case that in 80 percent of the cases there will be no issues really.  But in 20 percent of the cases, there might be some issues.

What is occurring is similar to trying to convert an analog record into a digital CD. Some information is lost in the process, but that information lost is deemed no relevant.  I had a friend to swears he can hear a significant difference between a record and a CD.  Me, I cannot really tell the difference.

I anticipate that there will be many, many discussions during the coming years as these sorts of questions are resolved.