XBRL-based Digital Financial Reporting

Traditional accounting systems are imperative in nature.  Effectively, what this means that you tell the accounting system what to do step-by-step. But what if an accounting system were declarative in nature?  Declarative accounting is a way of setting up accounting systems where you focus on what you want the system to do, rather than how the accounting system should do the work. You can understand the difference between imperative and declarative by, say, thinking of how a self driving car might work.  There are perhaps two approaches to giving instructions to a self driving car to, say, get to the airport: Using an imperative approach you're telling the car "Turn right at the next light, then go straight for two miles, then turn left..." You're giving step-by-step instructions to get from where you are to the airport. Using a declarative approach you're telling the car "Take me to the airport." The car figures out the best route, handles the turns, an...

Per Anna Sciortino, Senior Policy officer at the European Single Market Authority (ESMA) in a post on LinkedIn , the Implementing Technical Standards on the Markets in Crypto Assets (MICA) white papers were adopted by the European Commission and published in the EU Official Journal.  That means, MICA crypto-assets white papers will need to be prepared using the Inline XBRL global standard based on a taxonomy ESMA is currently developing and on the templates included in the implementing regulation. This is a big win for the XBRL global standard. For more information, see: ( click here for other languages ) Official regulation in English   Blog Post about Markets in Crypto-assets (MiCA) How SBRM Enables Digital Asset White Paper Compliance Under the EU's MiCA Regulations Prototype MiCA white paper published by Pacioli.ai Introduction to the Markets in Crypto-Assets Regulation  (Watsonlaw) ESMA MiCA White Papers PoC As I understand it, MiCA is a new regulation that will im...

A general purpose financial statement is a logic system designed by humans. As far as I know, there has been no theory, formal or informal, published that describes the mechanical aspects and dynamics of a general purpose financial report. But in order to digitize a general purpose financial statement effectively, one does need a theory or theories to describe such mechanics and dynamics. Here are a series of what I would call a necessary set of "micro-theories" that describe the important mechanics and dynamics of a financial statement.  Note that this set of micro-theories relates to the statement itself, not the financial reporting rules of the financial reporting scheme that describes the specific information contained in that such financial statements.  These micro-theories help one understand my Seattle Method for creating XBRL-based financial statements. This set of eight micro-theories is a minimum bar for any general purpose financial statement. Theory of Physic...

Years ago I posed a hypothesis that financial statement logic should be consistent no matter what the physical format used to provide that financial statement information.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of physical format independence. Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Hitchhikers Guide to Metapatterns Neutral Format Templates  (2007 prototype) Neutral Format Tables (2007 prototype) Many Different Data Formats, Why XML? Sensemaking PROOF rendering (auto generated by computer) AASB 1060 rendering (auto generated by computer) Interactive Information Hypercube Sample Instance Proof (PDF) Interactive Information Hypercube (PDF, Prototype) Comprehensive Example (2013) A financial statement tells a story.  That story should be the same story whether the financial ...

Years ago I posed a hypothesis that financial statement had, or should have, mathematical integrity.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of mathematical integrity. Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Gaining an Appreciation of XBRL's Power to Express Business Rules WIP Table Mathematical Computations WIP Table Mathematical Computations (XBRL Formula Testing Result) WIP Table Mathematical Computations XBRL Formula Linkbase Reference Implementation of XBRL-based Financial Report (2013) Understanding Articulation PROOF Articulation Microsoft Mathematical Assertions Mathematical Rules Appended to Microsoft 2017 10-K Fundamentally, much of a financial statement (but not all) comes from information that flows through a general ledger which follows the double entry bookkeeping mathemati...

Years ago I posed a hypothesis that financial statement disclosures had logical patterns of reportability.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of reportability. Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Reporting Checklist (XBRL Cloud) Agenda Improved Reporting Checklist, Natural Language Rules Reporting Checklist Prototype Automating Accounting and Reporting Checklist So, I have said that a financial report contains disclosures . But when specifically is a particular disclosure required to be provided?  Some times,  disclosures are always required.  For example, a balance sheet, income statement, cash flow statement, statement of changes in equity tend to always be required (per an analysis of 6,751 actual financial reports that were provided to the SEC by public compa...

Years ago I posed a hypothesis that financial statement line items had logical types and parts.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of types and parts. It is worth mentioning that others us different terminology to describe the same sorts of things as what I call "types and parts".  Those other terms include "wider-narrower" relations, "general-special" relations, "class-subclass" relations, "has-part" relations, "whole-part" relations, "part-of" relations, "broader-narrower" relations.  Also used to discuss types and  parts is the notion of "anchoring". Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: US GAAP Types and Parts IFRS Types and Parts US GAAP Classes Common Elements of Financial Statement (Four S...

Years ago I posed a hypothesis that financial statement report models of XBRL-based reports follow specific logical patterns.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of model structure. Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Analysis of 6,751 XBRL-based Public Company 10-Ks Submitted to SEC Note that the XBRL technical specification provides no information with respect to the organization of the report model of an XBRL-based report when it comes to XBRL presentation relations. An analysis of 6,751 XBRL-based reports  (see page 23) submitted to the SEC, all of which were 10-Ks, had a total of 6,142,578 associations between report elements in the report models which were used to represent the information reported in the XBRL-based financial report.  Of that total, 99.99% of the ...

Years ago I posed a hypothesis that financial statements could be broken down into blocks of information.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of blocks. Here are many of the best details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Analysis of 6,751 XBRL-based Public Company 10-Ks Submitted to SEC Comparison of Renderings for Concept Arrangement Patterns Concept Arrangement  Patterns Member Arrangement Patterns Information Model Identification (Block Identification) XBRL-based Digital Financial Reporting Conformance Suite Tests Microsoft 2017 10-K Blocks Understanding Blocks, Slots, Templates, and Exemplars Analysis Summary 2014 - Pieces of Report Evolution of Patterns When interacting with a financial report, sometimes you want to interact with the lowest level of detail witch is the "fact".  A fact is a singl...

Years ago, I posed a hypothesis that financial statements contained as set of high-level financial accounting concepts and that those concepts were related to one another according to some reporting style being used by a reporting economic entity.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of fundamental accounting concepts and reporting styles. Here are many of the best details related to my testing, poking, and prodding related to the fundamental accounting concepts are reporting styles hypothesis: Microsoft Fundamental Accounting Concepts Verification Report Quarterly XBRL-based Public Company Financial Report Quality Measurement (March 2019) Analysis of 6,751 XBRL-based Public Company 10-Ks Submitted to SEC US GAAP Test Data - 2017 10-Ks IFRS Test Data Reporting Style Examples (Comparisons) Fundamental Accounting Concepts for US GAAP and IFRS US GAAP Consistency Rules US GAAP Im...

Years ago I posed a hypothesis that financial statements contained disclosures.  After significant testing, between 2015 and about 2018, I have reached the conclusion that my hypothesis was correct and now I have my theory of disclosures and disclosure mechanics. Here are many of the details related to my testing, poking, and prodding and prototypes that I constructed to test my hypothesis: Analysis of Disclosures (10-K financial filings as of March 31, 2016) Analysis of 6,751 XBRL-based Public Company 10-Ks Submitted to SEC Intermediate Accounting Resource Best Practice Examples of Disclosures Disclosure Viewer By Topic (Prototype) US GAAP Disclosures Disclosure Best Practices (US GAAP, Prototype) Microsoft 10-K Analysis of Disclosures Disclosure Mechanics Validation Result (Provided by XBRL Cloud) IFRS Disclosures Results from Analysis of 65 Common Financial Disclosures An XBRL-based report contains facts.  Those facts are organized into what XBRL refers to as "networks"....

Systems thinking  is a framework for seeing wholes and for seeing interrelationships rather than individual things. Systems thinking offers many philosophies, techniques, and practices for constructing sound, scalable systems. For more information on systems thinking see Peter Reier's article, Systems Thinking Skills and Insights to Solving Wicked Problems . In his book, Data and Reality , it's author William Kent points out this duality. On the one hand, there is no one single objective reality. On the other hand, a group of people with a common, shared interest can share a common enough view of reality for most of our working purposes, so that reality does appear to be objective and stable.  But the chances of achieving such a shared view become less when we try to encompass broader purposes, and to involve more people. George Box is credited with the statement, "All models are wrong, but some are useful."  Business people are practical people, they seek utility....

Here is one possible project for graduate level accounting students that can help them understand the moving parts of XBRL-based digital financial reporting using off-the-shelf state-of-the-art software. Imagine a regulator.  The regulator (the professor of the class or a graduate assistant) publishes a financial reporting scheme that is used to collect information from a set of regulated economic entities (each of the students in the graduate level accounting class).  Each economic entity submits a report to a repository of XBRL-based reports maintained by the regulator, soft of like the Securities and Exchange Commission's EDGAR system. Here is what I hold out as a high-quality PROTOTYPE of a financial reporting scheme used to collect financial information, my PROOF financial reporting scheme which I use for testing ideas, software, creating XBRL-based reports, etc. Here is an example of a report created using that PROOF financial reporting scheme: Here are different versio...

XBRL-based digital financial reporting has, in my view, transitioned from a technical challenge to a communications challenge. Here is why I say that. In my book XBRL for Dummies which was published January 1, 2009, I pointed out that the global consultancy firm Gartner classified XBRL as a transformational technology.  Gartner defines transformational as something that " enables new ways of doing business across industries that will result in major shifts in industry dynamics ." Personally, I believe that XBRL, along with RDF, will be a foundational change, not just transformational.  Harvard Business Review describes foundational as something that is highly novel and is highly complex. XBRL-based digital financial reporting is obviously not an incremental (a.k.a. sustaining) innovation; it is at least a disruptive innovation as described by Clayton Christensen in Innovators Dilemma .  Personally, I believe that model-based reporting and semantic spreadsheets qualify a...

Excel and other electronic spreadsheets tend to be used for some jobs they are not intended for.  " If the only tool you have is a hammer; then everything looks like a nail. "  Every tool has pros and cons and the right tool should be used for a job. Excel is not the only possible tool for every job.  Also, not every knowledge graph tool is the same. So what exactly are the differences? Think about something.  What exactly are you trying to do with your spreadsheet?  Is your spreadsheet the right tool for the job? What are the wrong jobs for spreadsheets? Microsoft Excel and Google Sheets are excellent tools but they are not knowledge graphs.  They are not relational databases either. In fact, there are lots of use cases where they are not the best tool given the many Excel knockoffs available  that are trying to displace Excel. Personally, I have used Microsoft Access just as much as I have used Excel in my career as an accountant. Not all knowledge g...