Describing Financial Reporting Rules Using Ontology-like Thing

The contemporary approach to representing a financial reporting scheme or the conceptual framework of a financial reporting scheme has been to publish that information in a book.  For example, AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities and the related conceptual framework are represented in that manner.

But is there a better way?  Well, this academic paper, An analysis of fundamental concepts in the conceptual framework using ontology technologies, thinks there is.  Other papers think this is a good idea also, see the "Additional Information" section below. And I also think this is a good idea.

In fact, I have been representing that sort of information using XBRL for a number of years now.  Here is an example of the key aspects or essence of AASB 1060 represented using XBRL.  All that information is machine readable and it can be rendered informally in human readable form.

Something like an ontology tightens up the loose description or specification of "things" and associations between things that you find in books or other such artifacts.  Plus, ontologies are machine-readable so software can be used to assist humans in figuring out what is being described/specified, what it means, if there are mistakes.

But what if that information were represented more formally using something like an entity relationship model.

Below is a prototype that I created using Mermaid. In the prototype I am representing aspects of SFAC 6 - Elements of Financial Statements.  I also represented the same portion of SFAC 6 using XBRL.  I created that prototype below manually in order to experiment with using the different types of Mermaid diagrams. (Here is a larger version of the image below. Here is the web page containing the Mermaid syntax used to generate that image.)

But rather than creating that Mermaid class diagram manually; what if the Mermaid was autogenerated from the machine-readable XBRL representation? And this might not need to be a "entity-relationship model" or "class diagram" or other technical oriented artifact.  What if the format was more understandable to business professionals.

Here is some additional prototyping I have been doing.  Here are AASB 1060 Topics and Disclosures that I have represented using XBRL and then used existing software to generate human readable versions of the information.

Some additional experimentation has been done using a prototype XBRL taxonomy I have created for the NAIC (National Association of Insurance Commissioners) who is evaluating whether to make us of XBRL.  (Here is one version of that NAIC prototype XBRL taxonomy and related information.)

Why on earth would anyone take the time to represent information about a financial reporting scheme using some sort of machine readable format such as XBRL or RDF+OWL+SHACL or other ontology-like things?  Well, there are several reasons.  First, one could then evaluate things like the conceptual framework of a financial reporting scheme or the standards represented by the financial reporting scheme.  Second, software could be created that leveraged that machine readable metadata to help accountants created financial reports.  That is the objective of this expert system for creating financial reports. Third, those analyzing reported financial information could use the provided metadata to verify that reported information was correct and extract information from those reports to use the information in down stream financial analysis processes.

So even better; imagine the body of knowledge of a financial reporting scheme, the standards and interpretations of those standards in the form of an LLM and then that being connected to an XBRL taxonomy for that financial reporting scheme (LLM + knowledge graph). Or even better; imagine a FRAMEWORK for connecting accounting standards and XBRL taxonomies such as the framework provided by the Seattle Method.  Here are examples of financial reporting schemes represented using that framework. The reporting schemes start small (i.e. Accounting Equation) and then get progressively larger and larger.

In my view, that is where financial reporting is going.  Tools like entity relationship models or class diagrams are excellent tools for describing financial reporting rules and verifying that those rules are represented according to what was intended.

Additional Information:

• USING FORMAL ONTOLOGIES FOR THE DEVELOPMENT OF CONSISTENT AND UNAMBIGUOUS FINANCIAL ACCOUNTING STANDARDS
• What is an Accounting Ontology? Discussion Paper
• A Financial Reporting Ontology Design According to IFRS Standards 
• The Conceptual Framework for Financial Reporting as a Domain Ontology
• Universal Technology for Accountability
• Digital Twin for Financial Status and Performance of Economic Entity
• Example of Types and Subtypes: Machine Readable | Human Readable
• Example of Topics, Subtopics, and Disclosures: PDF
• Example US GAAP Topics, Subtopics, Disclosures: XBRL
• A Benchmark to Understand the Role of Knowledge Graphs on Large Language Model's Accuracy for Question Answering on Enterprise SQL Databases
• PROTOTYPES (works in progress): Accounting Equation, SFAC 6, SFAC 8, Common Elements, MINI Financial Reporting Scheme, PROOF, AASB 1060
• Interesting New Book on Modeling of Data and Information (This book on Amazon)