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.

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?  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.

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.

Overall, the CFA Institute paper is excellent and provides a good vision for the future.  One thing the paper does not provide is an explanation of exactly what a machine-readable structured data report is.  I provide that explanation here, Conceptual Overview of an XBRL-based, Structured Digital Financial Report.

One mistake people tend to make is to look at a structured digital financial report from the perspective of what they know today and how financial reporting works today.  Another approach is to learn a few new things which allows a better perspective.  The document Comprehensive Introduction to Knowledge Engineering for Professional Accountants is a synthesis of all the things I have learned which I found helpful in getting my head around XBRL and how to use it properly.  This involved a lot of poking and prodding of what others have done to see what works, what does not work, and figure out how to put all the pieces together and create something that is useful. This document helps professional accountants and auditors understand the increased education they need. Don't fall for the "Learn to code" hysteria.

There are four pieces that are so critical to gaining a proper understanding that I went into additional detail in these three areas. 

The first area is business rules.  The document Comprehensive Introduction to Business Rules for Professional Accountants summarizes this information. This is important because it shows the vital role business rules play in making machine-readable information usable.

The second area is artificial intelligence and intelligent software agents.  The document Comprehensive Introduction to Intelligent Software Agents for Professional Accountants summarizes that information.  This is important because it helps you see the true potential of artificial intelligence. Overly optimistic or overly pessimistic views both problematic.

The third area is expert systems.  The document Comprehensive Introduction to Expert Systems for Professional Accountants summarizes that information. This is important because it help you see the true potential of artificial intelligence.  Again, overly optimistic or pessimistic views are both problematic.

Finally, understanding what a problem solving logic helps you understand what you need a computer to do for you.  The document Comprehensive Introduction to the Notion of Problem Solving Logic for Professional Accountants summarizes this information.  XBRL and XBRL Formula processors should use common, standard problem solving logic.  Also, XBRL Formula processors need to support common problem solving logic.

If you want to understand the fundamental difference between structured and unstructured information, watch the five minute video, How XBRL Works.

I will add one final piece for those that want to dig in a little deeper.  If you want to understand the XBRL technical syntax, a very good overview of that is provided in Chapter 4, An XBRL Primer in XBRL for Dummies.

I thank all of those who helped me accumulate this information. What is next? As Henry David Thoreau says: "Simplify, Simplify".  Per the Law of Conservation of Complexity, complexity cannot be removed from a system; but it can be moved.  Good software will hide the complexity of XBRL-based structured data.

All of this information is organized and synthesized into one resource, Intelligent XBRL-based Digital Financial Reporting.

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.