In This Chapter
Looking at business reporting and its objectives Realizing business reporting is part of business information exchange Examining the business drivers that impact business information exchange Seeing new possibilities and approaches to exchanging business information
Wondering what business information exchange really is? Answering that question is the topic of this chapter. Business reports and reporting are a subset of the bigger area of business information exchange.
Don’t limit yourself by thinking of business information exchange only as the exchange of reports.
In this chapter, we look at what business information exchange is all about, how it’s practiced today, what its objectives are, dynamics impacting business information exchange from a business and technical perspective, and how all these things work together to impact business information exchange. We end the chapter by painting a picture of a new model of business information exchange.
Streamlining Cross-System Exchanges
Businesses have been doing cross-system information exchanges for years. If you’ve ever been on a business trip or vacation in a foreign country and wanted to get cash from an automated teller machine and wondered how that happens, you’re experiencing the results of years of effort and billions of dollars to make these types of transactions possible with just a few button pushes or clicks of a mouse by you. After all, as Arthur C. Clarke’s third law of prediction states, “A sufficiently advanced technology is indistinguishable from magic.”
But due to the complexity and expense, using such cross-system information exchanges have been out of reach for most companies. No more. Today, more and more businesses can benefit from the magic offered by the technologies that make transactions possible.
This chapter shows you that what many consider a business report is really a business information exchange. With the volume of information exchanged being so large, many people face increasing pressure to perform these exchanges more efficiently and effectively. The ubiquitous connectivity of the Web helps us see how inefficient many information-exchange processes really are. Before we were connected via the Web, we never really needed to consider whether there might be a better way. But because of the Web, the inefficiencies are now easy to see. Fortunately, the same technologies that are exposing the problem can also be a solution to the problem.
These changes can represent an opportunity because they provide a competitive advantage for you (if you use them and your competitors don’t). On the other hand, these changes can represent a threat because they create a competitive advantage for others who use them if you don’t.
Business Information Exchange Is More Than Just a Report
Just to be clear, when we discuss exchanging business information, we’re including business reporting. A business report is a type of business information exchange, but other types also are business information exchanges, such as when accounting information of one business system is exported from that system and imported into another system. We’re talking about the broader category business information exchange, not just business reporting or a report. Reports are only one way of achieving the objective of exchanging information.
Three distinctive traits make something a business information exchange:
Information exists within one business system of some sort, and that information needs to exist within another business system.
The business system providing the information understands the context of the information, but the receiving system doesn’t understand how the providing business system manages this context (and vice versa).
A lossless transfer or relocation of the information from the providing business system to the receiving business system occurs. (In other words, the original context isn’t lost — it’s guaranteed to be interpreted correctly and validated in the receiving system, or the meaning is otherwise correctly understood.)
Humans are good at relocating, so to speak, this data, plus the data’s context from one business system to another business system, because humans can figure out how each system stores the context of the data. However, when humans are involved, transfers are expensive and error-prone, and they take too much time.
What we’re not talking about here is what most people think about when you mention exchanging information, which is a business-to-business transaction. The most successful business-to-business transaction protocol is Electronic Data Interchange (EDI). The two primary EDI formats, X12, which is used in the United States, and EDIFACT, which is used in Europe, handle billions of dollars worth of transactions between banks, retail establishments, shipping companies, and more to enable everyone to do business. EDI is how business gets done. Although these transaction-based systems provide an example of the possibilities, we’re not talking about that type of business information exchange; we’re talking about the ones that XBRL enables. Business reports fall into that category, but XBRL isn’t limited to just business reports.
One significant difference between transactions and what XBRL is meant to do is the flexibility of what is being transferred. Transactions tend to be smaller and change less often (if ever). Other types of business information exchanges may be larger and tend to change more often. One of XBRL’s sweet spots is its flexibility in the right areas, thanks to its powerful extendibility mechanism. Another is its ability to handle large information sets.
Business reports, such as external and internal financial statements, are a good example of business information exchanges, but the category also includes the following:
Internal and external audit schedules that support the financial statements
Spreadsheets that contain information used to process and track all sorts of financial and nonfinancial information
Reports submitted to regulators, governmental entities, and so on
Tax filings and their supporting information
Trial balances of subsidiaries used to create consolidated reports
All the different “layers” of the preceding types of information, which is used to aggregate layers on top or drill down into supporting layers of information
Employee lists and other information provided to an insurance company in support of your group medical insurance policy
Combined information from multiple business systems after a business acquisition, such as a merger
A holding company or parent company that provides autonomy to its subsidiaries in terms of operating their business segments (different financial-reporting systems), but that still needs to consolidate the financial information from the many systems to create a financial report
Statistical indicators, such as gross domestic product per capita, unemployment levels, competitiveness indicators for manufacturing, and other labor-related indicators, particularly if the information is a mixture of numeric and alpha-numeric (or textual) information
Business reports have been done on paper for most of our lives. To think about business reports always in terms of what can be done on paper limits your thinking. Try to think outside the box. What if you could exchange business information using a better way than paper? And we don’t mean spreadsheets, word-processing documents, PDF, or HTML, which are all simply electronic versions of the same paper reports. What if we got rid of the notion of a document altogether? Impossible? Well, maybe not.
Examining the Characteristics of Business Information Exchange Today
In the past, people have exchanged information verbally or by using mediums such as stone tablets, papyrus, parchment, vellum, and eventually paper. Sometimes seeing the possibility of change is hard.
Times have changed, and the following list looks at the characteristics of business information exchange today:
Proprietary and fixed formats that inhibit reuse: Business information is generally locked into proprietary formats of one software application, such as Microsoft Excel, Microsoft Word, or other proprietary formats or locked into HTML and PDF. These formats make reusing information within another software application difficult. Although these formats often have functionality that lets you import or export information from one application to another, these processes typically don’t meet information-exchange needs. Further, these formats tend to be fixed. After the information is in one of these formats, getting information into a different presentation format is challenging and generally results in expensive, time-consuming, human-intensive, and therefore error-prone processes.
Application-specific reporting concepts and contexts: Many concepts and contexts are common to businesses. However, each business system implements these concepts and contexts in different ways. A business system understands the context and concepts used within that system. It doesn’t understand the concepts and contexts of other business systems. Thus, moving information across business systems is a problem, particularly if the information that provides the context is stripped away during the exchange process. This lack of standard approaches to implementing and exchanging information makes the exchange process more difficult.
Physical location used to define information: Analytical formulas articulated in spreadsheets and other proprietary software are described based upon the physical location of the data (for example, the cell at the intersection of column A and row 12). Managing connections that are physically defined can be challenging and costly, particularly if someone changes the spreadsheet by adding a row or column. Just because you can move information from one place to another doesn’t necessarily mean that the system receiving the information understands what to do with that information. Remember, computers aren’t that smart.
Application-specific business rules: Similar to the limitations of physically defined information, business rules and controls are embedded within applications that can’t exchange them because the business rules and controls are expressed in different proprietary formats, making it impossible or, at best, complex to exchange this information with another software application. (Business rules are things like formulas and computations that explain how one concept relates to other concepts. Controls are processing and workflow rules.)
Enterprise environments contain different business applications that hold operational and reporting data. These different applications require duplicate sets of rules for these different systems because no one standard rule set is centrally maintained and then shared between these different applications. This duplication and the resulting inevitable errors cause inconsistencies between the multiple rule sets.
Implicit relationships: Relationships between reporting concepts and the relevant reporting standards, auditing standards, instructions, regulation, company policies, and so on are all implicit. Further, these relationships evolve over time as new standards are written to replace old standards. For example, experienced CPAs have developed their understanding of which GAAP standards, regulations, and Generally Accepted Auditing Standards (GAAS) requirements relate to specific reporting concepts based on years of experience. Inexperienced CPAs, investors, creditors, and other users with limited knowledge may be confused by their personal lack of knowledge of these implicit relationships, or they may imply relationships incorrectly.
Documents, forms, and presentation focus: Documents are used to communicate data and therefore the data tends to be locked inside a document. Forms also lock data within the documents. All these physical characteristics, which are appropriate for paper-based communication, get in the way of reusing the data contained within the physical form or the physical document.
Spreadsheet hell: The electronic spreadsheet solved many problems. If you ever had to construct a paper spreadsheet, you can really appreciate the benefits of the electronic spreadsheet. But electronic spreadsheets also caused many problems. Because of electronic spreadsheets, we can do more analysis, which results in a higher volume of spreadsheets — no way we could have the volume we have today if we were still using paper spreadsheets. Spreadsheets are difficult to check for mistakes. Linked-together spreadsheets can best be described as brittle; links are easily broken. Hundreds of spreadsheets are wired together into a process that has all the characteristics described earlier in this list. Spreadsheet users refer to this as spreadsheet hell.
Multiple versions of “the truth:” Because there are multiple copies of information, particularly with spreadsheets, multiple versions of the same information exist. Keeping the different versions synchronized is challenging. This duplication leads to errors, which leads to work trying to figure out why the differences exist and which version of the truth is correct.
Clarifying the Objectives of Exchanging Business Information
To make decisions, we need information. We exchange information because someone knows something that someone else either wants to know or needs to know to make decisions. A manager needs to know the financial health of the department he manages. His boss needs to understand the financial health of the department because it’s one of the many departments he is responsible for. The CEO wants to know because he’s responsible for everything in the company. The bank wants to know because the company has borrowed money and it prefers to be repaid, so it keeps tabs on how the company is doing. Company investors need to know because they want to monitor how their investment is performing. Each of these people uses different information, but each person has similar needs for the business information they use.
Information exchanges need to meet the following fairly basic objectives in order to be effective. Inaccurate, untimely, or irrelevant information misses the mark:
Accuracy, quality, and data integrity: How accurate is the information? You can generally only reduce errors, not totally eliminate them. What is the error rate of your information: 1 percent, 2 percent, or maybe 5 percent? What is the marginal value of dropping the error rate from 2 percent to 1 percent?
Timeliness: How important is timeliness of the information? How much more valuable is data received in 1 day versus 30 days or 90 days?
Relevance: How relevant is the information to the decisions you need to make? Do you have to sift through too much information to find those pieces of relevant information?
Completeness: How complete is the information or data set you have for the decisions you need to make? Are you missing pieces of information that, if considered, may lead to a different decision?
Third-party verification: At times, verification by an independent third party is important. Is the transaction that generated the information a real, valid, transaction, or is it fraudulent or manipulated in some way? Is the transaction that generated the information arms-length in that no one party can control both sides of the transaction, or could someone possibly manipulate the transaction by controlling both sides? Has the information been verified by an independent third party, such as a CPA providing an independent opinion on financial or nonfinancial information? Has the information been tampered with or altered in some way? Are controls, processes, and procedures in place to eliminate tampering with information?
Comparability: How comparable is information created by two different companies? How comparable is one company’s information across time periods? How much effort does comparing the information take?
Flexibility: How flexible is your system in terms of change to your information models? If you want to collect additional data points or if you want to drop some data points currently being collected, how easily can you do it within your systems? Can you reconfigure prior information easily for comparability purposes? How easily can the user of your system reconfigure information to see it how they want to see it, rather than how you decided to present it? In other words, is the information, as Christopher Cox of the U.S. SEC says, “interactive”?
Simple presentation: Is the information communicated in understandable language, as opposed to jargon and legalese? Is the information available in languages the users understand? Are the formats of the information helpful in ensuring a clear understanding, or is it confusing?
Usable format: If an information user is blind, presentation of that information isn’t useable to that person. Computers need different formats than humans.
Minimize total cost: Another goal is to minimize total cost during the entire life cycle of the information. You need to consider many factors when determining total cost, including training, maintenance, software, and so on. For creators of information, total cost of creation is the issue. For information consumers, total cost of capture, validation, reuse, and analysis are the concerns.
Recognizing Business Environment Changes
The only constant in business is that things change. These changes require you to adapt. The process is a lot like the survival of the fittest: Fail to adapt, and you may not be able to survive. Understanding these dynamics help us adapt to the changes. Business information exchange is changing.
Take a look at the drivers impacting business information exchange:
Globalization: Goods, services, capital, and people move across borders more easily than in the past. Companies operate in multiple countries with different compliance and reporting rules. The global economy is also tied together more than ever before. The global impact of the financial institution crisis that materialized in 2008 is an example of how interconnected we all are.
Increase in information volume: The volume of information that we have to deal with is increasing at an overwhelming rate. Some estimates put the increase at a rate of 30 percent per year!
Shift from the industrial age to the information age: We’re moving from the Industrial Age, where manufacturing was king, to the Information Age, where your ability to process information is king. The largest retailer in the world, Wal-Mart, doesn’t make one product. Wal-Mart is a conduit through which other people’s products flow via an incredibly efficient physical-supply chain and information-supply chain. Many products these days aren’t even physical, but rather digital. For example, CDs are no longer required to physically distribute music.
Moving to IFRS: Eighty different sets of accounting standards exist around the world. Many of these financial-reporting standards are country-specific. Imagine doing business across countries and having to report to, say, the 27 different countries in Europe in 27 different languages. IFRS is trying to change all that. What if every country in the world used the same robust set of financial-reporting standards? This trend is blanketing the globe. Already more than 100 countries have adopted or will converge with IFRS.
A need for differentiation, not normalization: Many people try to deal with a lack of comparability in information by creating standard slots to in which they try to fit the information into to normalize it. In many cases, this approach is typically the exact opposite of what needs to occur. For example, companies spend vast amounts trying to differentiate their companies for investors, only to have data aggregators normalize their data, removing key differentiators. Much of the normalization occurs because the cost of parsing and rekeying data is high. And with increasing amounts of information and the desire for more timely information, rekeying information simply is no longer economically viable.
Non-analyzed and underanalyzed information: So much information exists that much of it isn’t even analyzed or is underanalyzed. For example, of all the public companies in the United States, only about 20 percent of these companies have consistent coverage by sell-side analyst firms. Why? It’s because of the high cost of parsing data from company reports, rekeying data into analytical models, and managing these concepts across companies.
Market reaction to lack of transparency: With the crisis of investor confidence comes the need to rebuild and regain trust in capital markets. In a digital global economy, information — or more importantly, electronically exchanged information — is the lifeblood of business. Flexible, dynamic, timely, accurate, interactive data is more transparent because it’s easier for users to use. “Sunlight is said to be the best disinfectant,” wrote Louis Brandeis in 1913 before he became a U.S. Supreme Court Justice. When information is relevant, standardized, and publically available, it fosters intelligent decision-making. The markets are demanding more transparency from businesses these days.
Market’s demand for customization for differing users: End-users of information have differing definitions of what is relevant to them. Users should be able to easily obtain relevant information without laboriously sifting through irrelevant information. In an era of mass customization, one-size-fits-all products are hard to justify. Information technology has made customization easy and expected.
Stresses resulting in system failures: There are no better examples of the stresses on information systems these days than a few highly publicized failures. Individual company scandals and failures that rocked high-profile American companies Enron and WorldCom and Satyam Computer Services (India) and Parmalat (Italy) are raising questions about current financial reporting and auditing models. The global mortgage crisis and related financial failures raise questions about how well current practices are meeting investor’s needs for information.
Increased complexity: New financial products are created using financial engineering. Derivatives, collateralized debt obligations, and mortgage-backed securities are good examples of this financial engineering. The mortgage crisis of 2008 was a good example of the problems these hard-to-understand securities cause. Computers are helping to create these new, hard-to-understand financial products. These types of products put even more pressure on the already hard-to-understand financial reporting standards.
Increased options through use of technology: More and more options exist to those who need to exchange business information. New techniques, such as pivot tables and graphs, are overcoming the limitations of reporting on physical paper. Just as paper replaced stone tablets, other approaches to exchanging business information will likely replace paper.
New social structures: New social structures are replacing old social structures, and one example is how blogging has impacted news reporting. Today, everyone is a reporter, or can be, if they want to. The successful Barack Obama campaign during the 2008 U.S. presidential election demonstrates the power of networking. The rise of social networking models on the Internet has driven the shift to a new development model — one that relies on open-source models along with mass collaboration or peer production to solve problems, analyze information, examine impact, make recommendations, and explore alternatives.
Enabling Technologies to Impact Business Information Exchanges
Technical drivers impact business information exchange, and new technologies are allowing new approaches. Some technologies have a small impact, while others, such as the Web, have a larger impact. The following technical drivers will have a big impact on business information exchange:
Ubiquitous connectivity: The ubiquity and affordability of the Web has enabled management to use the Web to achieve its business strategies and execute tactics. Whether or not you make use of the Web, it has impacted our lives. The push for online bill paying, online banking, and online reporting will become stronger because of the massive amount of cost reductions that result. The Web of today will seem like a black-and-white TV compared to the big color screen and surround sound of Web 2.0 and Web 3.0 or the Semantic Web that is to come. Take what you can imagine and quadruple it. It’s bigger than that.
Standardized structured syntax: When everyone is connected via the Web, one of the first things you may think about is exchanging things between all those connected people. Structured is the key word. Hypertext Markup Language (HTML) was one of the things that made the Web take off. Although HTML was a way of presenting information, it wasn’t the best way to exchange information. XML filled that gap, making information easier to exchange. XBRL is the XML language for exchanging business information.
Standardized semantics: A great example of standardized semantics is the financial-reporting community’s move from 80 different sets of financial-reporting standards to one set, the IFRS. Think about standardized semantics from the perspective of an investor who wants to find a good investment or a global conglomerate who has to report multiple regulators. Or, look at it from the perspective of a regulator who has to monitor the global banking system. More standardized semantics, or standardized metadata, are being created to make our lives easier. After this meaning is widely agreed upon, XBRL and other technologies offer ways to express the metadata in a form understandable not only to humans, but also to computers.
XBRL’s Role in the Semantic Web
The Web is a tremendously useful technology for business. The first incarnation of the Web, Web 1.0, provided the key ingredient: the cheap, ubiquitous connectivity that anyone can leverage. Web 1.0′s HTML pages and the HTTP protocols for viewing the pages in browsers helped the Web take off. We’re not really sure when Web 1.0 got upgraded to Web 2.0, but Web 2.0 is generally considered to be when highly interactive sites, such as blogs and YouTube, allowed anyone to break a major news story, scooping the big networks and newspapers.
You know what people say about version 3 of software: That’s when the software vendor’s generally really get things right. Well, Web 3.0 — what is hailed as the Semantic Web — is what people are calling the third major version of the Web. The truth is, however, that Tim Berners-Lee, the inventor of the Web, says that Web 3.0 is more aligned with his original vision of what the Web should be.
We can’t go into a detailed explanation of the Semantic Web here — that would take a whole topic. In fact, Jeffery T. Pollock has already written Semantic Web For topic . But because some people are calling XBRL the Semantic Web’s most successful metadata format, know that XBRL and the Semantic Web are connected.
The Semantic Web can be thought of as all the stuff necessary to make the Web a big database in the sky. The Semantic Web provides a superset of metadata that ties specific metadata to the Semantic Web. It’s not that everything will change and be different. It’s more that something that doesn’t exist today will exist in the future: one way of accessing all the data on the Web together as if it were one big database. Today, the data is there, but it takes many different formats, and much of the data isn’t in a form that computer applications can easily reuse. The Semantic Web bridges these gaps and makes using all these databases as one big database in the sky possible.
We explain the Semantic Web and XBRL’s role by walking you through a tangible example. The example we want to use is what has become one of the most valuable databases of information made publically available by the United States federal government: the EDGAR database of public company financial filings. EDGAR was made available during the rise of Web 1.0, and the U.S. SEC is now replacing it with the Next-Generation EDGAR system. (For more on the Next-Generation EDGAR, see Chapter 13.) Explaining what XBRL provides and explaining the differences between EDGAR and Next-Generation EDGAR can help you get a good grasp of why the Semantic Web is such a dramatic change and how XBRL helps enable this change:
XBRL is a database or structured publishing format. Although EDGAR is considered a database, it really isn’t a database; it’s more of a big electronic file cabinet in the sense that you can’t get information out of those documents contained in the database using any automated process. Just ask EDGAR Online, Inc., which has spent millions of dollars and has still been only somewhat successful in parsing the data to extract useful information from financial documents files and placed into the EDGAR system. Mostly, people who use this information simply rekey information to reuse it. Truth is, if EDGAR Online was successful in parsing the information to reuse it, we wouldn’t need XBRL. In fact, we wouldn’t need XML either; we could just keep doing what we’ve been doing, and automated parsing processes could automatically generate the structured information needed to turn the documents into a database.
Fact is, successfully parsing and reusing all the information from the EDGAR database is impossible, which is why XBRL does exist. Contrast EDGAR to the SEC’s replacement for EDGAR: the new Next-Generation EDGAR system. The Next-Generation EDGAR system was designed and built to be a database, allowing easy access to the information within filings so that anyone can reuse that information easily and inexpensively. So, unlike the electronic filing cabinets of EDGAR, the Semantic Web will be more like the database provided by Next-Generation EDGAR. XBRL will be the structured format of the data inside Next-Generation EDGAR. Information will be retrieved out of Next-Generation EDGAR using queries, much like you query a database. The query results will be reliable, and therefore the query results will be useable in other processes.
XBRL is metadata. Even if you have a standard database, if you don’t have standard metadata, retrieving information is somewhat pointless because you can’t compare the information with other information. This is where metadata comes in. XBRL, in the form of the US GAAP Taxonomy, and articulates common metadata that allows enhanced cross-company and cross-period comparisons. XBRL contributes to the Semantic Web by providing both a standardized approach to creating this metadata (the XBRL Specification for creating taxonomies) and the metadata itself (things like the US GAAP and IFRS financial reporting taxonomies). For example, if you wanted to do a cross-company query and find the Total Assets of all public companies as of a certain period, you can easily execute this query by using the Next-Generation EDGAR database, the common US GAAP Taxonomy term Assets, and the other common metadata.
XBRL is a transfer protocol. The Semantic Web is more about reading information across databases. But you need to enable the other parts of CRUD (Create, Read, Update, Delete) to keep the data current. Although not directly a Semantic Web technology in this way, XBRL indirectly enables the information to exist in the form of a database. By being a transfer protocol, XBRL allows the information to be moved from, in this case, a regulated company to the regulator and from the regulator to analysts and investors like you. So, you can look at XBRL as the transaction protocol for business-reporting transactions. These transactions are complex, not like a general ledger entry, and require the flexibility offered by XBRL. The transactions need to be correct; they need to be sure the integrity of the information is there in order to automate processes. XBRL provides the ability to both express semantic information and validate the transactions against that semantic information, which allows XBRL to effectively enable automated information exchanges.
There will be only one Semantic Web just like there is only one Web, but internal-use-only semantic Webs will exist within an organization, just like internal-use-only Webs called intranets exist. Business partners will likewise share semantic Webs similar to what is known as an extranet.
Chapter 8 explains what all this means for you. Fundamentally, think transformational technology. The Semantic Web allows you to do old things in new ways and achieve new things that were once impossible. Missing this boat can put you at a competitive disadvantage.
Envisioning New Possibilities in Business Information Exchange
Throughout this chapter, we talk about what a business information exchange is. We show you the objectives required by business information exchanges, and we outline changes that have occurred within the business
environment in which you operate. We even discuss enabling technologies that are being brought to bear in the task of exchanging information these days. And we give you insight relating to the Semantic Web and XBRL’s role in the Semantic Web. But what does all this information mean? How will all these moving pieces impact business information exchange? What new possibilities do you have to work with? What characteristics might business information exchange have? Well, you’re in luck. We have a list:
New business information exchange model Format as a choice, rather than as a limitation Transparency and visibility Information that is self-validating Interactive information System flexibility Metadata-driven system changes Information portability One version of the truth Semantic Web of information Plug-and-play information exchange
We drill into each of these topics in more detail in the following sections.
New business information exchange model
Enabling technologies, which includes XBRL, offer new possibilities, a new model for meeting the changing needs of business information exchange of today’s world. What will this new business-information-exchange model look like? It’s hard to say exactly, but you can accurately predict characteristics based on the developments over the past 50 years of using computers:
Digital: It’ll be digital, not physical (not paper). But, the information can be turned into something physical when needed or preferred.
Global electronic distribution (enabled by the Web): It will be transmitted over the Web (not via the postal service), connecting everyone in the world across the manmade political boundaries that act as a constraint.
Structured, accessible information (enabled by XML syntax and XBRL semantics): The information won’t appear as an unstructured document, but rather structured information that a computer application can get into and understand.
Interactive, flexible (enabled by a multidimensional model): Information can be cast by creators of the information or recast by any user. The information will likely follow the flexible multidimensional model, which provides for interactivity.
Open standard metadata (enabled by XBRL and domains expressing metadata using XBRL): Business applications will be able to exchange shared, rather than proprietary, metadata.
Format as a choice, not a limitation
For yesterday’s business report, the report creator determined the report’s format when the report was created, with limited thought to how others in the business and financial reporting-supply chain would consume and use the data. This approach is a significant limitation to users of information contained in that report.
Business information in XBRL will be able to be formatted in any number of formats as chosen by both the creator and the consumer of the information. The creator of the business information can make the report available in a format they prefer, but the users of the information can take advantage and control of that or use their own formatting to achieve their desired goals. Business-report formatting will be more like getting ice cream from Baskin-Robbins, with your choice of 31 flavors! You can change from one presentation format to another with just a click or two of your mouse.
Transparency and visibility
Sunlight will shine on information like never before for a wide variety of reasons. For example, flexible formatting by users of the XBRL information makes the information easier to use on the user’s terms, as opposed to how the creator may have desired. For example, if information is provided to you in an inflexible format and you have to search for the nugget of information you want within a mountain of other information, the information can be hard to understand.
But if the information format is flexible, you can organize it to your liking. You don’t have to search through the report because you can simply tell the software application what you want to see and how you want to see it. Crowd sourcing occurs. Crowd sourcing is harnessing the power of the masses, much like blogs harness the masses, making everyone a news reporter who can post information to the Web about what they know or something they may have observed. Many believe that the market is the best regulator. The market is you, part of the crowd. If the information is there to be used, someone in the market or crowd will find it and can use that information to make a point they want others to see. The Web, XBRL, and lots of people like you looking at all this information make it harder for unscrupulous people to get away with nefarious deeds that they’ve been able to get away with in the past.
Just like blogs turned everyone into an investigative reporter, XBRL helps turn everyone into a regulator. This transparency is similar to the transparency created by standardizing the underlying technology that allows blogs. The development of blogs has had a huge effect on the way people obtain their news.
Information that is self-Validating
You can use business rules to verify exchanged information (see Chapter 16). XBRL won’t necessarily detect fraudulent information: That’s impossible. You can classify business rules into two general categories:
Computations: Rules that check computations — for example Assets = Liabilities + Equity.
Reportability rules: Rules that check information based on other information — for example, if a specific line item exists on a balance sheet, certain policies and disclosures must also exist.
Today, you can do many of these types of validation and verification using paper-based disclosure checklists and manual processes. Imagine being able to automate the process of verifying all the computations and reportability rules within a financial statement! XBRL can achieve this goal.
Further, with XBRL you can exchange rules because they’re separated from the applications that generate the information. The rules are within the XBRL taxonomy, part of the metadata needed to effectively exchange the information just like the name of a concept, its definition, and so on. As a result, the creator and consumer of the information can share the same business rules, which makes the structure of the information more clear.
Interactive information
The best example of interactive information is a Microsoft Excel pivot table. The data isn’t locked into a specific spot within a document; rather, the user of the information can pivot the information, slicing and dicing it as they see fit. If more information were structured for meaning as opposed to being locked within documents, you could make more information interactive.
And if information uses the same or similar XBRL taxonomies, comparing information is a cakewalk. Drag information from multiple companies into an interactive information pivot table, and it’s automatically lined up for comparison. You can do this task by using metadata from the XBRL taxonomy and XBRL instance.
Another metaphor to help you understand interactive information is a Rubik’s Cube. Consider a financial statement as an example. Think of the slicing and dicing of a pivot table. Rather than being in one fixed format like the financial statements you see today, imagine having a financial statement that you can easily reorganize just as you would the colored squares of a Rubik’s Cube. Give the financial Rubik’s Cube a twist, and you can see the numbers that you want, where you want to see them, formatted as you desire. You can put numbers, accounting policies, and detailed disclosures of the financial statement notes together just by a metaphoric flick of your wrist! You can do this reorganization because you’re not constrained by the one fixed format previously provided by the creators of financial reports.
System flexibility
In Chapter 1, we discuss some XBRL benefits and point out that one of the primary benefits the U.S. FDIC sought was the flexibility to verify and adjust information that must be reported by filing banks. The FDIC wanted the ability to add concepts for additional disclosures and drop unneeded information easily.
Prior to the implementation of XBRL, these types of system changes were challenging. One example of a challenge was the communication of the metadata to software vendors who created software for filing banks. The FDIC provided the metadata in a variety of different formats, including Microsoft Word, Microsoft Excel, HTML, and PDF. Importing this metadata into systems wasn’t reliable. With the FDIC’s change to XBRL, the changes are now a breeze because all metadata is communicated using one format: XBRL. The systems are updated, rules are checked to ensure that they work correctly, metadata is generated, and software vendors can reliably read all the metadata. All these characteristics make changing the information model against which financial institutions report to the FDIC effortless.
Metadata-driven system changes
Another area of flexibility relates to extensibility. Suppose that someone creates an information definition (that is, an XBRL taxonomy) that is 80 percent or even 99 percent of what you need to create your business reports. Today,
that form is useless to you because, of course, you want 100 percent of what you need. XBRL allows for additional information, the tweaking of relationships, and other modifications. XBRL taxonomy models are extensible: Users can add concepts, change relationships, and, in many other ways, tweak the XBRL taxonomy or otherwise adapt it without breaking it or having to create a totally new XBRL taxonomy.
XBRL’s extensibility isn’t the same as XML’s extensibility (see Chapter 2). XBRL’s extendibility is predictable. XBRL software is written expecting these changes, and it understands where the changes will occur and what to do with new concepts or new relations. Programmers don’t need to write code in order to handle new concepts or relations because XBRL information is always in the same predictable shape. As such, adjusting a system is as simple as adjusting the systems metadata; you don’t need to write new code. All you do is adjust the XBRL taxonomy.
The need to write code or adjust computer programs to adjust for changes causes many problems. First, it creates a situation where business users don’t have control over their processes; they need to rely on programmers in the IT departments to make adjustments and prepare reports. The rise of the personal computer and the electronic spreadsheet are evidence that business users don’t like having to go to programmers in order to change something. Additionally, if you must go to the IT people to make a change, the system is less adaptable and less flexible because it takes longer to make any change to the system.
XBRL changes the dynamics of business system modifications, keeping business users in charge of their processes without needing to resort to spreadsheets, which cause other problems. So, the IT department gets what they need (robust rather than brittle systems), and the business users get what they need (flexibility and control).
Information portability
If all we needed to do was exchange data, CSV (comma-separated values) or XML would work just fine. Exchanging data today isn’t rocket science. But data portability isn’t what we need; information portability is what is needed. A business system understands its data model; it doesn’t understand the data model of every other business system.
But what if every business system understood one format, and systems could exchange that information because every system understood that model? That is exactly what XBRL is: that common denominator. XBRL is standard, and it keeps information in context, enabling reliable automated exchange of information between different business systems that understand XBRL.
One version of the truth
The more copies of information you have, the more versions of the truth exist, and the harder it is to keep multiple versions of the truth in sync. Spreadsheets are the epitome of multiple versions of the truth.
Spreadsheets are great tools when used appropriately. Used the wrong way, they can cause significant problems. (See the section “Examining the Characteristics of Business Information Exchange Today,” earlier in this chapter.) Imagine having hundreds of copies of the same database. That is exactly what exists with spreadsheets. Auditing spreadsheets has major challenges. One benefit of paper-based spreadsheets as compared to electronic was that creating paper-based spreadsheets was such a time-consuming process that not as many copies of information existed. But going back to paper isn’t really the best way to solve this problem!
Semantic Web of information
We talk about the difference between the U.S. SEC’s EDGAR system and its new Next-Generation EDGAR system earlier in the section “Semantic Web.” Contrasting these two systems fundamentally shows the difference between the functionality of a digital filing cabinet (EDGAR) and an intelligent database (Next-Generation EDGAR).
The SEC EDGAR system is a document repository, but you can’t get information out of the documents reliably or inexpensively unless you read the document or cut and paste information manually (that is, rekey). The new SEC Next-Generation EDGAR system is a database. You can get to the documents, and you can get inside the documents and get information out of the documents, automatically and reliably.
Next-Generation EDGAR fits nicely into the vision of the Semantic Web. EDGAR was a fantastic system in its era, but it’s more like Web 1.0 than Web 3.0, the Semantic Web. Future repositories of information will have the characteristics not of EDGAR, but rather of Next-Generation EDGAR.
Plug-and-play information exchange
The ultimate goal, which may or may not be achievable in all cases, can be described as plug-and-play business information exchange, similar to how the Universal Serial Bus (USB) standard allows for plug-and-play hardware. Imagine the ability to integrate one application with another application by dragging and dropping icons using your mouse.
An absurd goal? Maybe for some things, but very possible for others. And this vision isn’t some science-fiction fantasy. For many business information exchanges, this goal is quite achievable today.
We’re not saying that all systems that exchange business information will be, or should be, plug-and-play data exchanges. A transaction system used to process automated teller machine transactions may not be a good use case for XBRL. XBRL is designed more for business information exchanges, such as financial reporting. It’s also designed to handle the hundreds of little information exchanges, such as financial reports, that you participate in creating each day during your normal part of doing business. Reducing the net cost of implementing an information exchange and making information exchanges easier makes it more economical to automate more and more of these types of large and small business information exchanges.
When EDGAR got a facelift
See for yourself: Go to the EDGAR systems (www.sec.gov/edgar/searchedgar/ webusers.htm) and then to the new Next-Generation EDGAR systems (www.sec.gov/ idea/searchidea/webusers.htm). Doing a simple comparison of information for different time periods of one company or comparing information across company shows the difference between the two systems. EDGAR and Next-Generation EDGAR are both publically available systems that anyone on the Web can access. To get the full flavor of the difference between Web 1.0 (EDGAR) and Web 3.0 (Next-Generation EDGAR), we encourage you to experiment using both approaches. (To avoid having to type these long links, go to www.topic. com/go/xbrl. This takes you to a landing page where you can click the link you need.)
