How are accountants verifying that their SEC XBRL financial filing is a true and fair representation of their entities financial information? As the
- Completeness: Having all necessary or normal parts, components, elements, or steps; entire.
- Correctness: Free from error; in accordance with fact or truth; right, proper, accurate, just, true, exact, precise.
- Consistency: Compatible or in agreement with itself or with some group; coherent, uniform, steady. Holding true in a group, compatible, not contradictory.
- Accuracy: Correctness in all details. Conformity or correspondence to fact or given quality, condition. Precise, exact. Deviating only slightly or within acceptable limits from a standard.
- Fidelity: Where accuracy focuses on the details of one fact; fidelity is accuracy of all facts considered as a whole in the reproduction of something as compared to actual facts.
- Integrity: Holistic accuracy, accurate as a whole. The quality or condition of being whole or undivided; completeness, entireness, unbroken state, uncorrupt. Integrity is a concept of consistency of actions, values, methods, measures, principles, expectations, and outcomes.
- Validity: Complete, correct, consistent, accurate, has fidelity, has integrity.
I have come up with some obvious characteristics which I believe that a financial report should possess, whether that report is formatted on paper, in HTML, PDF, XBRL, or any other format for that matter: I provide this detailed set of characteristics of a quality financial report here:
- True and fair representation of financial information: The objective of a financial report is to provide a true and fair representation of the entity which issued the financial report. A financial report is a true and fair representation if it is complete, correct, consistent, accurate, has fidelity and integrity. Validity.
- All financial report formats convey the same message: A financial statement can be articulated using paper and pencil, Microsoft Word, PDF, HTML, XBRL, or other format. But while the format may change, the message communicated, the story you tell, should not change. Each format should communicate the same message, regardless of the medium used to convey that message.
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Information fidelity and integrity: A financial statement foots, cross casts, and otherwise "ticks and ties". As accountants we understand this and many times this fact disappears into our unconsciousness because it is so ingrained. Of course things foot and cross cast; of course the pieces tie together. Said another way, a financial statement must be correct, complete, consistent, and accurate. Only trained
accounting professionals who understand how the XBRL medium works can tell if all financial statement computations are properly articulated and verified to be correct. - Justifiable/defensible report characteristics: Facts reported and the characteristics which describe those reported facts should be both justifiable and defensible.
- Consistency between periods: Generally financial information expressed within one period should be consistent with the financial information expressed within subsequent periods, where appropriate. Clearly new information will be added and information which becomes irrelevant will be removed from a financial report. Changes between report elements which existed in both periods should be justifiable/defensible as opposed to arbitrary and random.
- Consistency with peer group: If your company chooses one approach and a peer chooses another report element selection choice; clearly some good reason should probably exist. This is not to say differences would not or should not occur. Rather, why the differences exist should make sense. Generally financial information between two peers should be more consistent as compared to inconsistent.
- Information renderings make logical sense: Renderings of facts and characteristics which make up the components of a financial report should make logical sense. The financial report rendering should make logical sense without regard to the format of the financial report.
- Clear business meaning: A financial report should be unambiguous. The business meaning of a financial report should be clear to the creator of the financial report and likewise clear to the users of that financial report. Both the creator and users should walk away with the same message or story. A financial report should be usable by regulators, financial institutions, analysts, investors, economists, researchers, and others to desire to make use of the information the report contains.
As accountants look for software to help them verify that their SEC XBRL financial filings have these characteristics, keep these characteristics in the back of your mind as you discuss your needs with these vendors.
For more information on verifying SEC XBRL financial filings, see my blog post.
