Theory of Reportability

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:

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 companies.  There are some exceptions such as when an economic entity is liquidating.  But for a going concern, all the primary financial statements are required.

What is also required is a basis of reporting.  Not disclosing the basis of reporting in some form makes no sense. Nature of operations is also a required disclosure.  Revenue recognition policy is a required disclosure.  There are a handful of others.

Other disclosures are required if a specific line item appears on one of the primary statements.  For example, if say "Inventories" exists on the balance sheet, then there is a need to break down the components of inventories within some disclosure.

Other disclosures are required if a specific type of business event occurs.  For example, if a business is acquired; then information about that business acquisition is required to be reported.

Not all required disclosures can be determined by a computer because software does not have access to all  the facts necessary to determine if a disclosure is required.  For example, there is no way to know that a specific commitment or contingency is required to be disclosed; only a human can make that determination.

Additional Information:

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