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What is the Context of that Number?

April 6, 2009

Suppose I delegate a research project on Mercury to an employee. If that’s all I tell the employee, then I haven’t done a very good job of delegating. The employee doesn’t know what I have asked him to research. I could have assigned research on a planet, a type of automobile, a NASA space program, a chemical or some other type of “Mercury”

The contents of an instance document could be likened to my Mercury example above. A lot of business and financial information, like amounts from a balance sheet, might be in an instance document. Without the contextual information, the instance document is just a bundle of business facts. Without the contextual information there is no way to know what a balance represents.

Taxonomies on the other hand are full of contextual information. The taxonomy’s contextual information consists of elements with definitions, presentation descriptions and similar contextual information. Taxonomy elements also have relationships to each other. For example, the U.S. GAAP taxonomy knows that Raw Materials inventory, Work in Process inventory and Finished Goods inventory are all part of the broader category “Inventory”. In addition, taxonomy elements can be a calculation of other taxonomy elements (i.e. Total Inventory). Using inventory as an example, the inventory portion of the taxonomy could be visually represented this way.

  • Inventory
    • Raw Material
    • Work in Process
    • Finished Goods
      • Total Inventory

Business information may only be tagged or mapped to the elements Raw Material, Work in Process and Finished Goods. The Inventory category header is only an “accumulator”. The Total Inventory at the bottom is a calculated amount.

Relationships between taxonomies and business information are created by tagging or mapping data to individual taxonomy elements. Business information is tagged to the basic taxonomy elements, but not the “accumulators” or calculated totals. The accuracy of the tagging process is critical to correctly communicating business and financial result to the SEC, investors, analysts and the general public. For example, if the Raw Material amount is tagged to Finished Goods, it would look like Finished Goods to instance document recipients.

Are you ready to correctly report the context of your XBRL SEC filings?

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