Friday, March 23, 2012

Verifying XBRL Inconsistencies

One of the questions we get frequently is:  "I have many inconsistencies in my filing, are these okay or not?"  Unfortunately, the answer to this question is not an unequivocal "yes" or "no".  You must verify each inconsistency and determine if that inconsistency is acceptable.

First of all, due to the way calculations are specified in the XBRL Specification, it is entirely possible that different sections of a report reference the same calculation.  For example, a disclosure might provide detail on a primary financial statement.  The detailed disclosure might foot; and some of that detail "bleeds" into, say, the Balance Sheet.  So, if you are looking at a statement like the balance sheet, and see inconsistencies, it is entirely possible that these are acceptable, because there is no way to avoid them.

With the above as background, it is very important to realize that many inconsistencies today are not correct.  The key reasons that inappropriate inconsistencies appear are:
  1. It is possible in intend a particular calculation on the financial statement, but have missing or extraneous concepts in the corresponding XBRL calculation.  An example of this is a missing item.  Suppose on your financial statement you have:

    Total Current Assets = Cash and Cash Equivalents + Inventory + Accounts Receivables

    but you have an XBRL calculation that looks like:

    Total Current Assets = Cash and Cash Equivalents + Accounts Receivables

    [Note:  "Inventory" is missing].   This type of error might occur if the software you are using does not force the "presentation linkbase"to be in alignment with the "calculation linkbase"
  2. Incorrect use of negative values or "negated" labels.  Some values (say "Treasury Shares") should always be a positive number.  These might be subtracted, however, from Stockholder Equity.  A common error is to make the number negative (negative shares makes no sense), instead of negating the label (so it is rendered as a negative number) and subtracting the number in the corresponding XBRL calculation.
There are no doubt other numerous reasons why you might see XBRL calculation inconsistencies.  The key point is that you must verify each and every inconsistency to ensure that the XBRL accurately reflects the intent of your report.

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