Concepts (Fundamental Accounting Concepts)

The notion of "concept" or basic, fundamental accounting concepts means that there are concepts that are reported in a financial report. We are focusing on the concepts reported on the primary financial statemements which included: balance sheet, income statement, statement of comprehensive income, and cash flow statement. Below is a list of fundamental accounting concepts.

Another idea is that there are "sets" of concepts. For example, the concept "Current Assets" is different the concept "Revenues". These different "sets" or "categories" of concepts are referred to as classes. The FASB defines some of these classes of concepts in CON 6.

Relations Between Concepts

Concepts are related to other concepts in specific ways. These relations can be observed in XBRL-based financial reports submitted to the SEC. These relations are observable and can be tested.

Mappings (Mapping Between Fundamental Accounting Concepts and US GAAP XBRL Taxonomy Concepts)

The US GAAP Financial Reporting XBRL Taxonomy provides concepts that are used in XBRL-based financial reports submitted to the SEC. Sometimes, more than one US GAAP Financial Reporting XBRL Taxonomy concept could be used to represent a line item of a financial report. As such, one needs to MAP the possible US GAAP Financial Reporting XBRL Taxonomy concepts which might be used by public companies to the fundamental accounting concepts Below is a list of those mappings used to test the fundamental accounting concepts; the mappings are unique to each different reporting style used by public companies:

Impute Rules

Public companies explicitily report many line items in their financial report. Other line items are reported by some public companies but not by others. For example, the line item "Liabilities" is sometimes explicitly reported but other times omitted. However, using known relations between financial statement line items, the values of unreported line items can be imputed using the rules of logic. For example, if the line item "Liabilities" is not reported, it can be imputed using three pieces of information: (a) Liabilities = Current Liabilities + Noncurrent Liabilities; (b) the value of "Current liabilities"; and (c) the value of "Noncurrent Liabilities". (If you don't understand the rules of formal logic, see this crash course in formal logic. Below is a list of rules used to impute or imply unreported line items based on line items that have been reported:

Consistency Rules

A reporting entity can be consistent with the fundamental accounting concept relations or they can be inconsistent with those relations. If they are inconsistent, there should be a specific reason for the inconsistency. The consistency checks which help determine the consistency or inconsistency with these rules is provided below:

Reporting Styles (also called report frames or reporting palettes)

Not all public companies report all information in exactly the same way. For example, a bank such as Bank of America does not report the same as a software company such as Microsoft. Further, economic entities have some flexibility in, for example, whether they report gross profit (i.e. multi-step income statement) or not (i.e. single-step income statement). And so, economic entities use different styles of reporting. A list of different reporting styles and how many public companies use that style is provided here:

Public Company Quality

And so, XBRL-based financial reports of public companies can be evaluated as to the consistency with or inconsistency with a set of fundamental accounting concept relations. All this information including the list of fundamental accounting concepts; the relations between the concepts, the impute rules, the consistency check rules, the reporting styles; can be represented in machine-readable form and that information can be used to evaulate the consistency/inconsistency of every such relation in an XBRL-based financial report submitted to the SEC by a public company.

Generator Quality

Public companies use different software products to create XBRL-based financial reports which are then submitted to the SEC. The one measure of the quality of an XBRL-based report is to measure the consistency of the report to the set of fundamental accounting concepts. I measure the quality of XBRL-based financial reports submitted to the SEC each month. Some filing agents/software vendors are better than others as can be seen by the data. XBRL Cloud also measures the quality of XBRL-based financial reports.