Digital Financial Reporting

In a previous post, I mentioned the notion of a "disclosure object". Others agreed with this notion and the possible need to connect the disclosures made via a [Text Block] and the same disclosure made via a [Table].  Basically, both a [Text Block] and a [Table] are two ways of disclosing the same information.

Additionally, it seems to me that a "disclosure" made within a financial report is something that is required by law or deemed to be necessary per the professional judgment of an accountant.  Once one understands that some disclosure must be made, those creating a disclosure or presenting information on the face of a financial report have options as to how they can make that disclosure or present that information.

For example, SEC rules say that a public company needs to provide a cash flow statement; but the reporting entity can decide if they want to use the direct or indirect method for providing that cash flow statement.  This choice can be driven by preference or professional judgment.  Other disclosures work the same way.

The point here is that there is a difference between a disclosure which is required or deemed necessary and how that disclosure is made. They are two different things, it seems to me.

And so, for a specific required or necessary disclosure, there are many different approaches to satisfying the need for a disclosure.

Therefore, it seems to me that there is yet another notion which is necessary here when working with financial reports in addition to a disclosure or disclosure object.  That piece is the actual "implementation" of the disclosure or disclosure object.

I refer to this implementation of a disclosure as a disclosure template.  Further, I have created a prototype of disclosure templates which you can use to understand what I am trying to get at here.

Now, I may be using inappropriate terminology at this point, I am still thinking through these ideas.  But, what I can clearly see is the difference between a something like the US GAAP taxonomy which contains all possible options for a disclosure (theoretically, that is what I think is trying to be achieve), the actual approach to make a disclosure or present information, and the actual disclosure itself.

Another way of looking at this is through the lens of how accountants review a financial statement today.  When I was an auditor, we always read through a disclosure checklist to make sure that a financial statement contained all the things that it was supposed to contain.  For example, here is a link to a disclosure checklistprovided by Deloitte.

Imagine a physical link between the disclosure checklist and the actual financial report via the implementation of that disclosure in the financial report.  Literally, a physical link which can be navigated by a computer software application.  How useful would that be?  Really useful, I believe.

Or how about taking this even deeper into the workflow during the creation of the financial report.  For example, imagine an application like this CCH AutoCheck Disclosure Checklist integrated with your financial report creation software application.

Basically, imagine that all this workflow was connected.  You would physically move from the instantiation of a disclosure or presentation of information within a financial report back to the accounting system and other information used to create the report; everything is connected.  You can do this today but the connection is not a physical connection, it is mainly information which is contained in an accountant or more likely an entire accounting teams collective brain(s).  The only way to navigate these links is manually because a computer cannot navigate the links.

But what if they could?

In fact, I think that is exactly how financial reports will be created in the not to distant future.  The role a disclosure template plays in this process is that it is a 100% correct disclosure.  Those creating financial reports don't change templates, they change the properties of a template.  Disclosure templates are defined by folks like the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), maybe even the SEC, etc.

Those instantiating a disclosure within their financial report do so by determining if they need to make a specific disclosure, picking an approach to disclosing the information per available options, and then they change the properties of that disclosure to fit their reporting entity.

Think of a template in Visio.  If you want to put a circle in your Visio diagram, you don't re-invent a circle each time.  You pick a shape template for a circle, you drag in onto your Visio diagram, and then you change the properties of the circle template, setting the background color, the size of the circle, etc.  Same idea for creating a PowerPoint presentation.

Users can still create their own disclosure objects from scratch if they need to make a disclosure which is totally unique.  No problem, they can do that also.  But they will not do this for every disclosure.

Not sure if this makes sense to you now, I have to think about this some more and figure out how to articulate it better.  A working software product which actually does this would go a long way toward explaining what I am trying to communicate.