XBRL-based Digital Financial Reporting

Electronic spreadsheets have been referred to as "the backbone of the enterprise" and "the quiet engines of a modern economy". Gartner points out  (page 2) that the typical Fortune 1000 company uses 800 spreadsheets to prepare its regulatory compliance report. Those 800 spreadsheets are connected together with what amounts to duct tape, bailing wire, and band aids. Spreadsheets are systems, not documents. Spreadsheets just look like documents . As pointed out by Matt Wood of PWC in his article, The Inversion , (paraphrasing) a spreadsheet is a "network of dependencies" and that "meaning lives in the relationships between cells not in any sequence of words" and  "thousands of logical gates that connect input to output". But to a software application that does not understand the information clothed in that document, the information remains "dark matter" that is "present, consequential, but invisible" to software agents...

Financial statements are designed to be analyzed . Analyzing financial statements should not be a guessing game; rather, clarity is better . The threat of inaccuracy should be minimized. A document is a " costume " which a financial statement wears. But don't be fooled by the appearance; just beneath the surface is a rigorously designed logical substrate. I pose a hypothesis and I have reached a conclusion that my hypothesis was correct and I now have my Theory of Financial Analysis . Here is some of the empirical evidence that has led me to believe that there are patterns within financial analysis and those patterns can be explained by a theory . Financial modeling is an approach to financial analysis . Financial modeling is a tool to understand financial information for one or more economic entities and to perform analysis and to guide decision-making. There are patterns of financial modeling and financial analysis.  Here are some of the common financial analysis pat...

This article is inspired by an article by Georg Philip Krog,  Why AI Can’t Read Your Contracts — And What To Do About It , where he explained why artificial intelligence cannot read legal contracts.  I am applying similar thinking to why artificial intelligence cannot read financial statements. The metaphor of a "costume" is excellent. Popular AI systems built on large language models (LLMs) face a fundamental limitation when confronted with something like a financial statement . LLMs can often extract and correctly summarize much of the information, say perhaps 87%.  The key point is, it is never 100%.  However, "much" or even "most" is not sufficient in a domain where precision is non negotiable. You never know which 13% is wrong, and that uncertainty makes the entire output unreliable. LLMs excel at the capability of predicting the next plausible word. That is their core competency. But interpreting a financial statement requires logical reasoning, not...

What does it mean to trust? ONTrust: A Reference Ontology of Trust is a paper which provides an ontology of trust and a rigorous discussion about trust. The paper is described as , "This paper is the culmination of a long-term research program of providing a solid ontological foundation on trust, by creating reference conceptual models to support information modeling, automated reasoning, information integration and semantic interoperability tasks." Additional Information: Procedural Knowledge Ontology (PKO) ValueFlows

Accounts, auditors, and analysts are about to get a significant  productivity boost ; complements of XBRL . Hard to believe, right? That hard to use, complicated monstrosity the regulators force you to use. If you don't know what SKOS, XBRL, OIM, and SBRM are; you are way, way behind the curve. The purpose of this blog post is to think about US GAAP metadata.  United States Generally Accepted Accounting Principles (US GAAP) is the financial reporting framework used by public companies, private companies including small and medium sized organizations, not for profit organizations, and other such organizations. Like most, if not all financial reporting scheme; US GAAP is "grounded" in the fundamental accounting equation  which is the basis for double entry bookkeeping  (a.k.a. double entry accounting). Information for every financial related business event is recorded in the form of a balanced financial transaction similar to the financial transaction shown below (...

To effectively understand an XBRL-based digital report , you need to understand how to decompose and compose such a digital report.  In this article I am going to focus on decomposition . Decomposition is simply about taking the one big piece that is the report model and report and breaking that larger "whole" into physical, logical, and functional "parts". I am going to use a financial statement as an example, but these same ideas relate to reports at all levels of granularity including transaction level granularity, what I call the " mezzanine level " or working paper level granularity, financial statement level granularity, or financial analysis model level of granularity.  So, the explanation of the decomposition and composition of a financial statement also works for the other levels of granularity. As I have pointed out, a financial statement is a knowledge graph . What I mean by this is that whether the financial statement is on a clay tablet, o...