Every now and then it’s useful to go back to basics to refresh your thinking on a topic. That’s why it’s worth reminding yourself of section 24 of the IASB’s Framework for the Preparation and Presentation of Financial Statements, which discusses the 4 qualitative characteristics of financial statements, namely:
- Understandability
- Relevance
- Reliability
- Comparability
The XBRL community is somewhat energized about the real practical difficulties of ‘guaranteeing’ report data reliability and comparability given various taxonomy flavors, erroneous use of elements to tag report data by inexperienced filers and extension ‘creep’. And so they should be. Reliable and comparable data is supposed to be one of the key deliverables and benefits of XBRL taxonomy-based reporting. But here I want to focus a little more on ‘understandability’ and ‘relevance’ as these are what tend to energize software developers – closely connected to industry terms such as ‘fit for purpose’ and ‘usability’ that businesses who buy software should care about.
Understandability is primarily driven by presentation. It’s hard to describe a stunning landscape in words and communicate the impact it had on you but it’s a lot easier to do by just showing someone a single photograph. So the way reports are presented and presentation of different perspectives of the same report data, preferably in-context and interactively via charts or drilldowns, facilitate deeper understanding of the numbers. Of course you can learn a lot from a ‘traditional’ report presented as a PDF – perhaps 80%+ of what you need to know. But it maybe that 10-20% of what you can’t ’see’, without an interactive presentation, contains what you really should understand about the numbers.
A simple example of how interactive presentation helps understandability is by making it easy to confirm who a report relates to and what exactly a report line is actually presenting. Rivet CrossView does this using popups, as shown below:
Fig. 1: Report understandability
Relevance is partly driven by role and intention. Who are you and why are you here? For example: Are you an individual investor or a professional financial analyst? Are you thinking of buying or selling stock? What role and intention do is provide a frame for delivering relevant data. CrossView helps you manage a report to suit the role and intention by providing the means to chart and export the report or view the content of any report section you are interested in:
Fig 2: Report relevance
Role and intention-based report framing may require the presentation of financial statement formats that are non-standard, that mix and match elements from conventional statement formats, in order to create new perspectives. Something that taxonomy-based reporting has the potential to facilitate by using XBRL elements as building blocks, unlike traditional PDF or even spreadsheet-based reporting that depends on error-prone cut and pastes.
