Digital Financial Reporting

For the first two quarters of SEC flings of XBRL documents I have taken a look at those documents to learn more about XBRL. What I am learning is quite helpful and the filings provide a lot of insight into the realities of using XBRL for financial reporting. I hope to document what I have learned to help those who desire to create quality XBRL filings.

Accounting Trends and Techniques, published by the AICPA, is a survey of the accounting and disclosure characteristics of corporate annual reports. Accountants have a notion called common practice which guides how some aspects of financial reporting are carried out, even though there are no laws pushing the practices.  Technical people refer to these sorts of things as best practices.  These practices are important to get the most out of XBRL. Accounting also has what is called a model financial statement which helps financial statement creators understand how to best put together a financial statement.  We need model XBRL filings also; this is the closest to such a model that I can point to today.

So I started asking myself what these practices might be, what are the criteria one might use to evaluate these SEC XBRL filings and how might those criteria be communicated.  One of the first things to pop into my mind was the Gartner Magic Quadrant.

I thought about what the axes of the magic quadrant might be.  Perhaps technical interoperability/usability on the vertical axis and information comparabilityon the horizontal axis.  What I mean by technical interoperability/usability is can best be seen by looking at one filing.  Looking at one filing ask yourself, "How well can this filing be used across different software applications."  By information compatibility look at a number of different filings and ask yourself "How well can one filing be compared to another filing."  Maybe those are not the correct axes of the magic quadrant, I am sure that the correct axes will reveal themselves as this is looked at more.

I believe that the criteria for evaluating an SEC XBRL filing can be boiled down into one key notion: investor friendliness. How "friendly" is the XBRL filing?  How easy is it for an investor to make use of to achieve what they desire to achieve?

But to really understand what I mean by investor friendliness, technical interoperability/usability and information comparability, it is best to look at some detail.  Passing the minimum hurtle of passing the SEC XBRL submission validation is really only the beginning.  First off, that minimum set of validation provides no real differentiation of XBRL submissions.  Further, the SEC and in general most everyone is still learning about XBRL and how to best use it.  The SEC use of XBRL pushes XBRL into new frontiers because of how the SEC is making use of XBRL's extensibility features. The SEC has added new validation rules each submission period, trying to understand the new rules which will most certainly be implemented is helpful.

So what might some of these criteria for evaluating investor friendliness be?

• How easy is it for an investor to compare a filing with other filings?Some things make comparing information easier, others make them harder.  For example, adding a bunch of new high level concepts to replace existing US GAAP Taxonomy concepts make comparability harder.  Not doing so makes comparability easier.
• Do the numbers add up?Trying to build a benchmarking model using information where the numbers don't add up because XBRL calculations have inconsistencies make is harder to use a filing, having consistent calculations make automating processes easier.
• Do ALL the numbers add up?It is not possible to test all computations using XBRL calculations.  XBRL Formulas are necessary to validate cross context computations such as those in a [Roll Forward]. Even if the SEC does not require or does not allow the submission of XBRL Formulas yet, it is almost a sure thing that they will.  And even if they never do, creating such validation used in the creation of an SEC XBRL filing is prudent to be certain that all the numbers do, in fact, add up.  It may be a good thing to take this one step further and make these validation rules available on the filer's web site.
• Are filer extensions consistent with the underlying US GAAP Taxonomy?What reason would a filer have for not being consistent with the base US GAAP Taxonomy? Why would the US GAAP Taxonomy go through so much effort to, say, make the [Table]s in that taxonomy always have at least one [Axis] and always have [Line Items]; but then it be a good thing for an SEC XBRL filer to break that rule?  This is not a good thing, even if the SEC does not have a validation rule requiring this practice.  The same is true for [Roll Forward]s and other modeling patterns found within the US GAAP Taxonomy.  Having a free for all in terms of how to model a taxonomy is not a good thing.
• Are extension concepts well documented?This falls into the category of consistency with the US GAAP Taxonomy but is worth specifically pointing out.  The US GAAP Taxonomy does a nice job explaining the concepts within that taxonomy using documentation and references to the US GAAP literature.  The documentation is helpful in understanding the taxonomy.  Seems logical that an SEC filer who adds an extension concept would document the concept they added and in certain cases explain why the concept they added was different than the existing US GAAP Taxonomy concepts.

So those are the fundamental criteria which I might suggest as appropriate in evaluating investor friendliness of SEC XBRL filings.  There are probably others. 

What criteria do you see?  Do you see some other overarching criteria which is even better than investor friendliness?  If you were to create a magic quadrant, what would your axes be?

(Note that I have added a new category to my blog: Creating Investor Friendly SEC XBRL Filings. Watch for information on how to create high quality, investor friendly XBRL!)