When applied to the practical application of XBRL, “transparency” has more layers of meaning than is immediately obvious.  To make my point, let me take us back to our elementary school days when “New Math” was part of our curriculum.

Historically, “transparency” has largely been a synonym for “available”.  So in “Old Math” terms, the formula for transparency is:

Transparency = Availability

On the Internet, many material facts may be publicly available and yet economically impractical to access for a wide range of information users and analysts.  Locating critical information embedded in long narrative text and explanatory footnotes – and then subjecting it to manual access, parsing, and reuse processes – may require many hours of work from highly skilled professionals.  Despite information’s public availability, the high cost of access and reuse essentially renders the information opaque, not transparent.

If availability were the sole consideration, some might suggest disclosure of the information via chiseled stone tablets placed in the corporate parking lot.  The information is available, just not very accessible or reusable.  This is commonly the experience of many investors and analysts who attempt to access and reuse current electronic paper based disclosures – the level of effort required to reuse the disclosures puts them economically out of reach.

Reuse requires context for each information element to convey the material concepts so that information consumers can pull it apart and reconstruct it for their own analysis. Extensible Business Reporting Language (XBRL) makes this process possible without the loss of context.  An XBRL taxonomy defines the context for all information elements it covers and typically provides a hierarchy for related extensions. It also provides a specific definition – similar to how the UPC or bar code defines retail products – for each information element. Because taxonomies relate coded elements to one another, each element can be quickly accessed and analyzed without distorting the context of the overall communications that it was created within.

For decades, prior to the Internet, business reporting developed manually under different principles – U.S. GAAP, IFRS, and other jurisdictional-specific statutory standards. In the last few years, the SEC and IASB have provided XBRL taxonomies that are the basis for new regulatory reforms expected to both increase transparency and lower costs by enabling more automated preparation and reuse.  In a form of “supply chain standardization,” automation will replace manual efforts to access, populate, develop, and maintain analytical applications.

As a result of this standardization, the New Math for transparency becomes:

Transparency = Availability + Accessibility + Reusability

In lowering the cost of accessibility and reusability, XBRL enhances information transparency and enables consumers to analyze the disclosures more effectively.   Many preparers may want to consider that they are initially consumers before they are preparers and this enhanced transparency is also beneficial to their assembly, analysis and reporting efforts as well.

A specific analytical benefit provided by XBRL is the standardization of formulas and models that can be collaboratively developed, shared, and used across a broad range of individuals.   For enterprise analytical processes, this provides a standardized abstraction layer for more effective management of the firm's analytical intellectual property.  For individual analytical processes, this provides a Wikipedia-like environment for the collaborative development and reuse of models.  As a result, the costs associated with deploying, maintaining, and managing analytical concepts are lower due to their enhanced transparency, creating another New Math outcome of standardization.

What are other New Math benefits that might be realized from the XBRL enabled standardization of the business reporting supply chain?