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.

Friday, March 16, 2012

Terminology: Verify

Lots of people creating XBRL ask questions like, "Is my XBRL valid"?  Before any other discussions, it's important that we are all using the same terminology.

When you create a business report you want it to be as accurate as possible.  For financial documents (ignoring XBRL), there are various workflows and terminology to help you accomplish this.  You want to check your footing, tick-and-tie, run through checklists, or have someone audit the document.  All
of these activities ultimately have the same goal: to verify that the content of your report is correct.

Automated validation is important--imperative--but it is far from sufficient to completely verify your document.

You can verify an XBRL document via a combination of several disparate processes:
    * Automated Validation
    * Computer-Assisted Review
    * Manual Review

Automated Validation

XBRL was designed to incorporate built-in validation mechanisms such as the "calculation linkbase" which to some extent can check your footing.  Because of the semantic nature of XBRL, there are now additional suites of checks (such as the EDGAR Filing Manual, the Global Filing Manual, the Financial Reporting Taxonomy Architecture [FRTA], and more) which can be fully automated.

Computer-Assisted Review

The goal of computer assisted review is have the computer pick out anomalies, or show you pointed lists.  For example, you might wish to view a short list of the set of unique dates that you used in your filing.  Or perhaps you want to look at concepts that are used in more than one report section (a.k.a. "network", or "extended link").

Computers are also good for searching.  Therefore, you might want to ask questions like "Let me examine all inconsistencies", or "Highlight all negated concepts"

Manual Review

Sometimes you just want to look at, say, the Balance Sheet for a visual review.  It is important to be able to render XBRL documents in your favorite format (like Excel).  Even more important is the ability to interact with the document, since it's hard to see the inter-connectedness of XBRL in a two-dimensional medium.  For example, "Show me the calculation behind this number", or "what does this text block really look like?"

Welcome to the XBRL Cloud blog!

My plan is to provide extremely valuable pointers on how to create accurate
XBRL-based business reports.  Each blog entry will address one specific topic
in detail.

I look forward to any and all feedback on how to improve my messaging or
suggestions for topics that you would like to see covered.

Stay tuned!

Cliff Binstock
XBRL Cloud