As we know, XBRL, solves two significant problems for companies who prepare financial statements along with analysts, investors, regulators, financial publishers and data aggregators:
- The first problem is that preparing a financial statement for printing, for a Web site, and for filing today means that a company could typically enter information three times
- The second problem is that today (if the report is not in XBRL), extracting specified detailed information from a financial statement - for e.g we still can't ask questions like "Give me depreciation expense from 2003 a financial report."
So what is the problem? Why do we need Semantic Technology in this context? While XBRL allows for more accurate consumption and interpretation of financial information, there is still a need to connect to the authentic source of the document and to recombine the XBRL content with other data sources. The fundamental issue here is that XBRL document working with other dat source doesn't understand anything about the semantics of data. There is just no meaning associated with the nesting of tags. The limitation of XBRL becomes more obvious when you have to use/analyze/query XBRL reports along with other sources of data which is not XBRL compliant.
If you read this article in Wall Street Jornal on Toxic assets then it will make you think more clearly about importance of "semantics" in reporting in the world of derivatives.. The key points are:
- Ever since humans started trading, lending and investing beyond the confines of the family and the tribe, we have depended on legally authenticated written statements to get the facts about things of value
- Derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them.
- Every financial deal must be firmly tethered to the real performance of the asset from which it originated.
- All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries
- Governments can encourage assets to be leveraged, transformed, combined, recombined and repackaged into any number of tranches, provided the process intends to improve the value of the original asset
- Financial institutions will have to serve society and fully report what they own and what they owe -- just like the rest of us -- so that we get the facts necessary to find our way out of the current maze
- Governments can no longer tolerate the use of opaque and confusing language in drafting financial instruments. Clarity and precision are indispensable for the creation of credit and capital through paper.
There are various techniques to convert an XBRL document to RDF. I will not go into those details in this blog. One example - GoodMorningResearch.com machine automates XBRL tagging of Excel data in RDF format with one-click Save As XBRL functionality.
I believe that long-term (probably very long-term) vision of XBRL reports should be to publish it as RDF triples and make it a part of Linkedata cloud. This will help in achieving all linkages, transparency and verification as far as financial reporting is concened. I would like sceptics to know that by April 2009, more than 600 XBRL reports, approx. 1,3 million RDF triplets, were already part of Linked data cloud. But at the same time, you need lot more governance, regulations and process behind this effort to get real value. Also, there has to be some kind of incentives for financial organizations to do this.