BLOG:  Digital Financial Reporting

This is a blog for information relating to digital financial reporting.  This blog is basically my "lab notebook" for experimenting and learning about XBRL-based digital financial reporting.  This is my brain storming platform.  This is where I think out loud (i.e. publicly) about digital financial reporting. This information is for innovators and early adopters who are ushering in a new era of accounting, reporting, auditing, and analysis in a digital environment.

Much of the information contained in this blog is synthasized, summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the chapters of Intelligent XBRL-based Digital Financial Reporting. If you have any questions, feel free to contact me.

Federal Energy Regulatory Commission (FERC) Adopting XBRL 

The U.S. Federal Energy Regulatory Commission (FERC) announced that they are adopting XBRL for utilities reporting.  See the final rule for more information.

Posted on Thursday, June 20, 2019 at 10:34AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

XBRL Taxonomy Information Retrieval

Software vendors are providing a pretty poor level of functionality when it comes to finding information within an XBRL financial reporting taxonomy.  What is the state-of-the-art? Text search.

But I think there is a significantly better way, so I created this prototype to brainstorm and solidify my ideas.  I then created this prototype wizard. This is a web service where you provide an element name and it returns information for the requested report element name. This is the same information in machine-readable form.

But this is the best working prototype that I have for now.  That is for US GAAP, it does not incorporate the more advanced graph-type searching.  But, what this will allow me to do is communicate with software engineers and others better.

This prototype combines a bunch of things together and has a nicer user interface.

Not sure where to put these roll up relations. Ah!  I just had an idea.

The idea is that the search would leverage metadata and other information in order to provide a significantly more precise information retrial mechanism.

So the US GAAP XBRL Taxonomy has 17,077 elements.  That is a lot to work with.  But, you can break that full set into lots of different groupings.  For example, those 17,077 elements are comprised of:

  • 325 Tables
  • 251 Axis
  • 1,783 Members
  • 330 LineItems
  • 2,537 Abstracts
  • 183 Level 1 Note Text Blocks
  • 311 Level 2 Policy Text Blocks
  • 474 Level 3 Disclosure Text Blocks
  • 10,883 Concepts

Further, some of those groupings are still quite large so you can break them down by data type, period type. balance type, authoritative reference, etc.

If you did a raw text search on say "Cash" (you can try that here) you get 552 hits.  Somewhat helpful, but not quite what is needed.

But what if you could do a search and specify:

  • The concept contains the text string "Cash".
  • It relates to ASC topic "230"
  • You want only concepts
  • The concept is a "credit" and has a period type of "duration"
  • The concept is monetary in nature.
  • And it relates to the disclosure "CashFlowStatement"

I think you get the idea.  Lots of different ways to specify what you might be looking for.  Financial reporting concepts and terms, such as the US GAAP, are filled with a rich set of relations.  If you put that information into machine-readable terms, then the machines can perform what seems like magic.

Posted on Monday, June 17, 2019 at 10:04AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

McKinsey: An Executive's Guide to AI

McKinsey provides An Executive's Guide to AI:

Staying ahead in the accelerating artificial-intelligence race requires executives to make nimble, informed decisions about where and how to employ AI in their business. One way to prepare to act quickly: know the AI essentials presented in this guide.

Posted on Monday, June 17, 2019 at 07:29AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint

Propositions and Inference

Artificial Intelligence: Foundations of Computational Agents,  2nd Edition, by David L. Poole and Alan K. Mackworth is an excellent resource and freely available online.

The resource methodically and precisely explains the details of artificial intelligence in understandable terms.

In particular, I found the chapter on Propositions and Inference quite helpful.

 

Posted on Sunday, June 16, 2019 at 09:29AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Curated Machine-Readable Information (also Human-Readable) is the Future

The future of accounting, reporting, auditing, and analysis will depend heavily on curated machine-readable knowledge that is also readable by humans. Think digital ecosystem.

While the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy are necessary for the future; what they provide is not sufficient for this inevitable future.  As such and as I pointed out, these two critically important XBRL taxonomies will be supplemented with additional metadata and will become high-quality, highly expressive ontologies, on the right side of the ontology spectrum.

As I have been able to show, it is very possible to represent the US GAAP Financial Reporting Ontology and the IFRS Financial Reporting Ontology using the XBRL technical syntax. I used this method to create highly expressive ontologies for four different reporting schemes.

As I have tried to show with this cross reference, with this prototype, and with this prototype; information can be both machine-readable and generated into human-readable information that the average professional accountant can relate to.

So, who will create and maintain these highly expressive machine-readable ontologies?  Just as important as knowing who it will be is understanding who it will not be.

It will not be the FASB or the IFRS Foundation.

The FASB and the IFRS Foundation has for about 15 years created little more than what I would characterize as human-readable "picklists".  The IFRS Foundation has religiously aligned the XBRL taxonomy that they create with "the bound volume".  "This appears to be the IFRS Foundation's comfort zone," as one professional colleague put it.  The IFRS Foundation could change their mindset, but history has shown that is probably doubtful.  The FASB provides more common practice information, but the US GAAP XBRL Taxonomy is still a low-function picklist.  The FASB seems comfortable with this.

If you think about this and ask yourself if the FASB and IFRS Foundation can provide the following you will likely reach the conclusion similar to what I have reached:

  1. Do the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy provide what is necessary to implement XBRL-based internal reporting within the enterprise? Nope, not even close.
  2. Do the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy provide what is necessary to leverage those XBRL taxonomies for AI assisted audits?  Nope, not even close.
  3. Do the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy provide what is necessary to leverage AI in other ways for automation of accounting, reporting, auditing, and analysis?
  4. Do the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy enable the creation of high-quality XBRL based financial reports.  Well, the quality problems that persist in XBRL-based reports submitted to the SEC yield the answer of a resounding no.
  5. If an audit requirement for XBRL-based reports were mandated today; would the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy be up to the task?  Definitely not.  There is zero probability that an auditor could withstand the scrutiny enabled by automated processes that exist today.
  6. Do the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy provide what is necessary to enable Deloitte's vision of "the finance factory".  Nope. What about the expanded vision that I see?  Again, nope.
  7. Are the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy up for the vision of "Audit 4.0" as outlined by Rutgers University? Not even close.
  8. Are the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy sufficient to enable the replacement of paper-based reporting with XBRL-based reports, could quality be maintained?  Very doubtful.
  9. Are the US GAAP XBRL Taxonomy and IFRS XBRL Taxonomy up for Blackline's vision of the modern finance platform or DFIN's vision or PWC's vision? Unfortunately not.
  10. Can you use only the US GAAP XBRL Taxonomy or IFRS XBRL Taxonomy to create an expert system for constructing a financial report.  Nope...and that is why I created what I created.

All this begs the question as to whether XBRL itself is even up for the tasks above.  Based on my testing and based on the Method of Implementing a Standard Financial Report using the XBRL Syntax which I have developed; I can prove that XBRL is up to the task if it is implemented correctlyIf you look at the evidence, you can see that six filing agents are capable of achieving high-quality.

Curated machine-readable metadata that are high in the ontology spectrum will improve quality even more.  In fact, curated machine-readable metadata will supercharge what has already been achieved. Folks, all this is based on science. If people stop making four common mistakes and if they took the time to understand what XBRL actually is; then people will figure this XBRL-based digital financial reporting out.

But again, I still have not answered the question: curated by whom? Will the Big 4 finally figure out that there is, in fact, a business model here and each create their own curated ontology?  Will the AICPA?  Maybe CCH/Wolters Kluwer?  A second tier CPA firm?  Perhas a university.  Maybe an institute.  Will I successfully complete the versions of the metadata that I already have for US GAAP and IFRS?  Maybe a software vendor like Intuit maybe?  Will there be a multitude of curated versions of the US GAAP and IFRS Financial Reporting Ontologies?  Will it be an individual effort, a collaborative effort, or a mixture of both?

Will the US GAAP Financial Reporting Ontology and the IFRS Financial Reporting Ontology be free or will you have to pay for it's use?  Probably a mixture.

I am quite confident that one or more curated versions of these important financial reporting ontologies will  be created.  As I pointed out before, the existing US GAAP and IFRS XBRL taxonomies are like crude oil. Some will refine them into gasoline, but others still will refine them more and create high-octane racing fuel.

If I can figure this out, others can also.  The answer will be revealed over the coming years.  Heck, the answer might not even be XBRL it could be RDF + OWL + SHACL or some other rules mechanism.  Or, it could be both XBRL and RDF/OWL/SHACL, some at OMG prefer that syntax.  What technology stack will prevail?

Regardless of who or what syntax, the future of accounting, reporting, auditing, and analysis will be machine-readable curated knowledge.

Anyone think otherwise?

Posted on Friday, June 14, 2019 at 03:34PM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint
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