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

In a prior blog post, I pointed out a resource that helps you see some of the types of errors that exist in XBRL-based financial reports. In this blog post I want to help you see the difference between an error and issues caused by ambiguity.

When a public company reverses the concepts that they use to report "Equity attributable to parent" and "Equity" (the total including the parent and noncontrolling interest) it is not really that hard to see that the filer is making a mistake. Additional evidence is provided by the 99% of public companies that do not reverse their equity concepts and everything works as expected. That is one end of the spectrum, the end where it is clear that the filer is making a mistake.

The balance sheet inconsistency analysis that I provided in that prior blog post focuses on that end of the spectrum: clear errors.

The other end of the spectrum I will call ambiguity. Here is an example of ambiguity as to what is right and what is wrong. This analysis of operating and nonoperating income and expense provides a good example. In that analysis of 83 companies that report using the same style where one total for "Revenues" is provided, another total for "Expenses" is provided, and then "Income (loss) before taxes" is the difference between the two. There are FOUR WAYS these 83 public companies report this information:

Use the existing US GAAP XBRL Taxonomy concepts for both REVENUES and EXPENSES, usually "us-gaap:Revenues" even when the line item includes other nonoperating income and "us-gaap:CostsAndExpenses" to report even though nonoperating items are included.
Creating an extension concept to report the line item "Total operating and nonoperating revenues" but use the existing concept "us-gaap:CostsAndExpenses" to report total expenses, even if nonoperating items are included in that line item.
Use the existing US GAAP XBRL Taxonomy concept "us-gaap:Revenues" even though nonoperating revenues or other income are included, but then create an extension concept for "Total operating and nonoperating costs and expenses".
Create extension concepts for BOTH "Total operating and nonoperating revenues" and "Total operating and nonoperating costs and expenses".

It seems highly unlikely that allowing all four of those alternatives provides any sort of benefit to either those creating financial reports or analyzing the reported information. Now, it can be tricky to understand if a line item is operating or nonoperating in nature.

The US GAAP XBRL Taxonomy is pretty clear on the following relationship:

(+) Revenues (us-gaap:Revenues)

(-) Costs and Expenses (us-gaap:CostsAndExpenses)

(+) Other Operating Income (us-gaap:OtherOperatingIncome)

(=) Operating Income (Loss) (us-gaap:OperatingIncomeLoss)

Further, the US GAAP XBRL Taxonomy is pretty clear that nonoperating income (expense) (the concept us-gaap:NonoperatingIncomeExpense) and interest and debt expense (the concept us-gaap:InterestAndDebtExpense) are not part of any of the above concepts as far as I can tell from the taxonomy.

So why are all these filers using the concept us-gaap:Revenues to represent what appears to be operating and nonoperating revenues? Same question for using us-gaap:CostsAndExpenses to represent what appears to include nonoperating expenses?

And, why do some filers create extension concepts along the lines of "my:TotalOperatingAndNonoperatingRevenues" and/or "my:TotalOperatingAndNonoperatingExpenses"? Seems pretty clear that those include both operating and nonoperating items.

It is very hard to understand exactly what is right here given these moving pieces. My bet is that there are two concepts missing from the US GAAP XBRL Taxonomy:

Operating and nonoperating revenues and other income
Operating and nonoperating costs and expenses

Another situation can be seen with an analysis of the line item income (loss) from equity method investments when reported as part of the income tax provision. The facts at work are very straight forward. The moving part is ONLY the reporting of the line item "income (loss) from equity method investments". Of the 45 filers in the analysis, there are exactly two ways this is done:

Using the existing US GAAP XBRL Taxonomy concept us-gaap:IncomeLossFromEquityMethodInvestments. (41 filers do this)
Using an extension concept. (4 filers do this)

Now, not once does the US GAAP XBRL Taxonomy show the concept us-gaap:IncomeLossFromEquityMethodInvestments organized in the manner that the 41 filers use the concept. As such, if one moves a concept from the US GAAP XBRL Taxonomy from one position to another position; should the concept be extended because the meaning of the concept has changed?

So, the answer to this one is on the tricky side. I don't thing filers are allowed to randomly move US GAAP XBRL Taxonomy concepts where ever they want. Further, when some things like property, plant and equipment and long-term debt and net cash flows have different relationships because of the items which make up the total include or exclude specific line items; the US GAAP XBRL Taxonomy provides alternative concepts to use.

I won't specuate on how this will be resolved (but I do have my opinion). But this is certainly ambigous with no one clear cut answer obviously being the right answer.

What is very clear is that consistency is a very good thing.