Monday, July 9, 2012

Negation Made Simple

By: Nathan Summers, Software Engineer
CompSci Resources, LLC

One aspect of XBRL that seems to perplex many people who generate XBRL exhibits is negation.  While to many accountants negation may seem wildly mystifying, it is an idea that every accountant tacitly understands.  Previous to XBRL, the term negation was rarely (if ever) used in accounting circles, however its utilization was widespread.  In preparation for the new influx of companies completing their first detailed tagging, let's take a time out to demystify the role of negation in XBRL.

XBRL concepts are generally defined so that the vast majority of numbers should be positive.  This is in order to make the utilization of these numbers much easier.  Being a computer-readable language, XBRL is limited in its ability to interpret numbers as positive or negative, as the human mind will naturally do.  For example, on a financial statement, if you see Net Loss followed by a positive number, the human mind will immediately realize this as a negative number (since the label itself implies negativity).  However, with XBRL, this line item would be assigned the concept "us-gaap:ProfitLoss".  If this concept was followed by a positive number, a computer reading this line item would incorrectly interpret its value as being a profit instead of a loss.  Thus, the preparer needs to explicitly tell the computer that this concept actually represents a negative number, since the computer lacks the ability to interpret this on its own.

Take a look at the below table for examples of when, and when not to, negate.  Source refers to the label from the financial statement, and Taxonomy refers to the concept in the XBRL taxonomy.

Label Example Values Negate?
Source Profit 123 456 789 no
Taxonomy Profit (Loss)
Source Profit (Loss) 123 (456) 789 no
Taxonomy Profit (Loss)
Source Loss 123 456 789 YES!
Taxonomy Profit (Loss)
We negate here because the source label is the opposite of the taxonomy concept.
Source Loss (123) (456) (789) no
Taxonomy Profit (Loss)
We don't negate here because it's unlikely that the document author really meant a negative loss (which would be a positive profit). Instead we tag it as a loss, which is a negative profit.
Source Gain (loss) on trading baseball cards (123) 456 789 no
Taxonomy Gain (Loss) on Trading Baseball Cards
Source Loss (gain) on trading baseball cards (123) 456 789 YES!
Taxonomy Gain (Loss) on Trading Baseball Cards
We negate here because the label for the taxonomy concept is the opposite sense from the label on the source document.
Source Other Expenses 123 456 789 no
Taxonomy Other Expenses
Source Other Expenses (123) (456) (789) YES!
Taxonomy Other Expenses 
We negate here because it is very unlikely that the company actually had negative expenses. Instead the most likely explanation for the parentheses is that they are indicating that the expenses are subtracted instead of added in the subtotal that they are taking part in. By using negation, the XBRL correctly reports that the expenses are positive numbers, but the rendering of the XBRL still shows the parentheses.

As you can see from the table above, you only want to negate when the value is opposite from what the taxonomy element insinuates.  So if the concept represents a gain, but the label says the figure is a loss, then you would negate if that number is represented as a positive number.  Many times in XBRL, you will not have separate elements for Gains and Losses for the same concepts, so you would use negation to convey the opposite meaning.  Again, this is something accountants implicitly know and are able to overcome by using logical interpretation, whereas computers lack this exact logical interpretation and must be explicitly told.