Digital Financial Reporting

XBRL UK has published a paper, Company Reporting in the UK – an XBRL Success Story, which discusses the use of XBRL-based financial reporting by HMRC (the tax authority) and Companies House (the business register) in the United Kingdom.  Approximately 1.9 million companies are said to be using this system.

The document is worth reading and the implementation approach used is worth understanding. XBRL UK and others have clearly put a substantial amount of thought and effort into what they have created. Anyone trying to implement XBRL using any approach could learn a lot from their publication.

CoreFiling, a software vendor, seems to be making this information available in an organized format.  You can see what CoreFlings has provided here.  I have not figured out how or where to get this information from the Companies House web site.

The document says that companies report using UK GAAP and sometimes IFRS.

While I think this UK approach is worth understanding and the document points out very important considerations when creating a system for exchanging information, I think that the approach is limiting in that it does not support reporting entity extensions.

There are two significant limitations that the UK approach has:

• Adding new information:  Say a reporting entity wanted to provide some specific disclosure that the UK taxonomy does provide for.  For example, what if a reporting company wanted to break out revenues by some criteria not provided for in the taxonomy.  This could not be handled.
• Changing or amending disclosures such as qualitative disclosures:  Say a reporting entity had a complex derivative that they need to provide important qualitative information for that did not fall into the existing organization of the UK taxonomy.  This could not be handled.

These sorts of very company specific disclosures are not provided for under the UK taxonomy approach.  However, the only gap between the UK approach and say the US GAAP XBRL Taxonomy approach which does provide for those sorts of very company specific disclosures is a very thin layer which could be exposed by the UK taxonomy.

That thin layer exposes the taxonomy construction rules and taxonomy building blocks, opening up just a minimal amount of very specific flexibilty for those who need to create extensions.

Providing these openings or what I call "slots" does not have to turn the fairly simple and successfully implemented approach created by the UK into something that is complicated and which cannot be handled by business professionals creating this information.

Using known patterns, templates, metadata, well articulated rules, and other means such as those pointed out in this document, Understanding Blocks, Slots, Templates and Exemplars, the complexity of creating extensions can be moved from being handled by business professionals to being handled by the software applications business professionals use.  It is hard to see this because the complexity involved in creating extensions is being judged by today's poorly created software.  Today's software tends to force business professionals to deal with technical syntax and complicated knowledge engineering issues.

And so, while I think that what the UK is doing is a very reasonable moderate step for a regulator to take; I also believe that the institution of accountancy need not be seduced by an approach that tends to try and simplify the problem by making the problem more simplistic.  Rather, empowering business and accounting professionals with good software and basic knowledge engineering skills and the ability to therefore create rock-solid extensions can also work, I believe.  XBRL was engineered to be extensible for a reason.

This is why I believe what the SEC and FASB are doing in the US, taking a significantly bolder leap, is still the right path.  While it is true that public companies are struggling with this approach currently, I believe a lot is being learned by going through these struggles.

Again, this is my vision of digital financial reporting.  I am not the only one that seems to have this vision.

I think that XBRL implementation in the US could learn a lot from the UK approach; but I also think the UK and others can also learn from the approach used by the FASB and SEC.  As the UK approach points out, collaboration and cooperation of all those in the financial reporting supply chain is critically important.