Digital Financial Reporting

As part of my efforts to understand SEC XBRL financial filings, I analyzed 7,160 such SEC XBRL financial filings, all 10-K filings, looking at a set of 51 fundamental accounting concepts and the relations between those concepts I would expect to see in those filings.

What do I mean by "fundamental accounting concept" and "relations between those concepts"? Well, you can get all that information here on this Fundamental Accounting Concepts Wiki. Examples of fundamental accounting concepts include: Assets, Current Assets, and Noncurrent Assets.  An example of a relationship is: Assets = Current Assets + Noncurrent Assets.

And this is not about requiring a filer to report noncurrent assets or thinking that if a filer does not report noncurrent assets that you cannot figure out what noncurrent assets is.  If assets is reported and current assets is reported, a child with a calculator can figure out that noncurrent assets = assets - current assets.

And this considers that some filers report a classified balance sheet and others provide an unclassified balance sheet.  Also, some filers have a single-step income statement and others report a multi-step income statement.  Some filers combined their income statement and statement of comprehensive income into one statement, some report that information in two statements.  That does not matter. Some filers don't even report comprehensive income.  Why?  Because it is zero, it is not because they don't have to; it is implied to be zero.

Now, don't confuse these fundamental accounting concepts with the US GAAP XBRL Taxonomy concept used to express that fundamental accounting concept.  A simple example will show what I am talking about. So for example, the 2012 US GAAP XBRL taxonomy or earlier allowed Liabilities and Equity to be expressed using one of two different concepts: us-gaap:LiabilitiesAndStockholdersEquity or us-gaap:LiabilitiesAndPartnersCapital.

In the 2013 US GAAP XBRL Taxonomy deprecated (retired) the concept us-gaap:LiabilitiesAndPartnerCapital. The fact that the concept is deprecated shows two things.  First, that the US GAAP XBRL Taxonomy expresses many fundamental accounting concepts using multiple taxonomy concepts.  Second, that these issues will likely be corrected over time as this issue was corrected.

However, until such time one needs to map concepts used by SEC filers to a set of fundamental accounting concepts in order compare information appropriately.  That is exactly what I have done.  You can see that mapping here in this computer readable XML file. And here is all this metadata you can read in Excel.

If you look through the mapping file you start to understand why something like the fundamental accounting concepts are necessary. Analysis software does not understand these relations unless you tell the software about the relations.

So are these fundamental accounting concepts correct?  Are the relations correct?  Well, 97.6% of SEC XBRL financial filings say that the concepts and relations are correct.  See this summary:

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This information helps you see that these fundamental accounting concepts and the relations between those concepts are correct:

Here is the same information above shown graphically:

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The data and the chart of the data show that 91% of all SEC XBRL financial filings have 3 or less anomalies (i.e. they follow the 51 fundamental accounting concepts and the relations between the concepts in all but 3 cases within their filing).

What does this mean? Well, it means a number of things.  First, as I mentioned in another blog post; automated testing of things like this can help improve information quality of SEC XBRL financial filings. Second, the fundamental accounting concepts and relations seem to be correct.  If they are not correct, then what?  Change them until you get a set that everyone agrees are correct.

Are these the only relations which exist in SEC XBRL financial filings? Certainly not.  These 51 concepts and 21 relations are a beachhead.  If this information is correct then EVERY SEC XBRL financial filing can be compared at this level. If they can be compared at this high level, then one can drill down into lower levels and both see the concepts and relations, write the business rules, and improve the quality at the next level down.

The many different disclosures have business rules which are followed.  For example, a disclosure of the components of inventory would always have total inventories, should always foot, and would always exist if the line items inventories existed on the balance sheet.  And so it is with the 1000 to 2000 (I don't know what the number is, but it is not infinite) other disclosures.

All these business rules make up a knowledgebase of information which will be useful for many things. One thing that this knowedgebase will be used for is making sure SEC filers create their digital financial reports correctly. This is not about changing US GAAP or telling filers how to report.  This is about common sense, rational, sensible use of XBRL to express the information you want to express.

Balance sheets balance.  These concepts and relations are fundamental.