Understanding XBRL-based Digital Financial Reporting
A framework is a set of principles, assumptions, ideas, concepts, values, rules, laws, agreements, and practices that establishes the way something operates. A theory is a tool for understanding, explaining, and making predictions about a system. A financial report is a logical system.
What is conspicuously missing from the minds of most professional accountants and auditors are a set of principles, a framework, and a theory relating to how to think about XBRL-based digital financial reports. This page points you to resources for understanding XBRL-based digital financial reporting.
First, what exactly is an XBRL-based digital financial report and how does it work? Perhaps start to understand with this self guided tour. Understand that curated metadata is the new gold. The XBRL-based Digital Financial Reporting Principles helps you form a basis for thinking about these digital financial reports. The essence of a general purpose financial report is explained as follows:
A general purpose financial report is a high-fidelity, high-resolution, high-quality information exchange mechanism. The report is a compendium of complex logical information required by statutory requirements and regulatory rules plus whatever management of an economic entity wants to voluntarily disclose. The report represents quantitative and qualitative information about the financial condition and financial performance of an economic entity. There are a number of different financial reporting schemes: US GAAP, IFRS, IPSAS, GAS, FAS, etc.
This blog post makes the case for machine-readable financial reports. Here is a blog post that provides you with everything you need to know to have an intelligent conversation about XBRL.
The Financial Report Semantics and Dynamics Theory is what Rene van Egmond and I created to provide this framework and theory. We created the first version in early 2012. We have tuned the framework and theory over the past several years.
The Logical Theory Describing a Business Report generalizes the framework, theory, and principles of a financial report, which is really a special type of business report, to the more general use case of business reporting.
A CFA Institute paper calls for broader and deeper use of structured data (page 5). In the paper the point out that the currently inefficient system of creating financial reports (page 5) is focused on human consumption of the information, not machine-readable information (page 1). In the paper they call for increased education of professional accountants and auditors (page 16). The CFA Institute calls for structured data to be applied earlier in the financial report creation process to achieve the promised benefits of such machine-readable information (page 3).
Deloitte created the notion of that they call The Finance Factory to "package" these ideas. The notion of the Finance Factory is a more specialized version of the more general Information Factory. A Financial Report Factory is a specilazed piece of a Finance Factory. All of these are essentially knowledge based systems.
To understand these ideas it is important to have the right background information. The document Computer Empathy provides that background information.
If you know of a better framework for understanding XBRL-based digital financial reporting mechanics, please send the information my way. I am always trying to improve.
Want to understand more? Read the archives of my lab notebook.
