XBRL-based structured digital financial reporting - Blog: Digital Financial Reporting (using XBRL)

More and more people seem to be understanding the potential of software agentssuch as what the media has dubbed the SEC's "RoboCop". For example, "Robocop" on the Beat: What the SEC's New Financial Reporting and AQM Initiative May Mean for Public Companiesexplains what RobCop is and offers the following prudent advice for staying off of RoboCop's radar:

Get your XBRL reporting right the first time. There are many reports that public companies are continuing to make numerous XBRL coding mistakes. It is likely the AQM will not be able to identify an innocent coding mistake. Such mistakes, however, may land a company on the top of SEC's "Needs Further Review" list. Though the audit firms have apparently steered away from giving advice on XBLR, there are numerous experts and boutique firms that can help provide guidance to registrants. Making errors in this area, even if innocent, is simply not an option in this new era.
Consider all of your financial disclosures. The AQM focuses on identifying outliers. One easy way to become an outlier is to be opaque with disclosures where other companies are transparent. Take a fresh look at your financial disclosures for transparency and comparability across your industry.
Listen to the SEC's guidance. As we have noted above there are a number of new SEC programs and initiatives focused on detecting financial reporting irregularities. Stay current on SEC activity to avoid surprises.
It is not just the SEC. XBRL is available to the public. As a greater library of XBRL financial statement data is created, analysts, investors, other government agencies, media outlets and others will build their own versions of the AQM. Be prepared for greater scrutiny and inquiries from these groups.
Be conscious of red flags. For example, a change in auditor is thought to be a significant red flag that might warrant further attention from the SEC.

Sure, I think those five key points are very good advice. But don't miss the real message here: business opportunity.

Ask yourself, how will RoboCop and other similar software agents work? What makes them work? There are two key things that I am trying to get people to see here.

Software: Sure, software algorithms make these software agents work. So yes, you need software. It is not the type of software which most business users are generally accustom to such as, say, Excel. Excel is actually pretty dumb in terms of understanding the information that is represented in Excel. What I am talking about is software which DOES understand the information it is working with.
Metadata: If you have the right type of software but you don't have the metadata you need that software will not be able to do much. If you articulate knowledge in books or even web pages that computers cannot read and therefore they cannot possibly understand; then you don't get much either. However, if you properly connect the right metadata or domain knowledge with the right software applications then "magic" will occur. It is not really magic, it will just seem like magic to those using the software.

Only domain experts can create the correct metadata. Only domain experts understand what the correct metadata is. Until one understands what the correct metadata is, the correct software cannot be built. Now, there are some general tools out there which generally solve problems but because these are general tools they are extremely hard to use. In other words, they are not practical.

The business opportunity is to put these two pieces together correctly: software and metadata. It will take both technical professionals and business professionals working on this together to build the correct software. Once the software exists, then business professionals will construct and configure metadata to make the software act the way they want. THAT is what will drive software agents such as RoboCop. Metadata created by business users.

Most business users don't understand what metadata is though. Nor do they understand why it is important. But it is. Understanding what metadata will drive software such as RoboCop and how that software works is a business opportunity. Understanding RoboCop and creating counter measures to make sure a companies report stays off the RoboCop radar is also a business opportunity.

If you think about the digital financial reporting paradigm and are bound too strongly to the current paper-based financial reporting paradigm, you won't understand this.

Paradigm shift.

Take a good look at that bullet list from the blog post referenced in the first paragraph. That is a good starting point. Take a look at this blog post related to detecting accounting anomalies. This is not about XBRL errors, this is about accounting anomalies. The structured nature of the information enables the paradigm shift.

While financial reporting may be leading other business domains, this paradigm shift is not limited to financial reporting.