Digital technology has become an integral part of society and culture. If you have a camera, it is likely to be digital. If you are into music, you probably listen to it on your digital music player. You probably record your television programs on your digital video recorder and watch them whenever you want. You are likely to read your digital book on your Kindle or iPad. You probably look up information more on Wikipedia than you do in Encyclopedia Britannica. Internet stores like Amazon.com are changing how we buy, consume and research products. Social networking like Facebook.com and LinkedIn.com are changing how we relate to customers and colleagues. Google changes what we know and how we learn. Blogs change where we get our news from. Groupon has changed the way we think about coupons.
Digital Financial Reporting
Financial statements too are going digital.
Very soon every public company in the US, about 12,000 companies, will be submitting its financial information to the U.S. Securities and Exchange Commission (SEC) using the structured digital format XBRL (eXtensible Business Reporting Language). Over 5,000 mutual funds are submitting their financial reports to the SEC digitally. Approximately 9,000 banks submit their financial statements to the Federal Deposit Insurance Corporation (FDIC) digitally. This trend toward digital financial reporting is gaining momentum as the XBRL digital financial reporting format is being adopted by many different financial reporting channels around the world in Europe, India, China, Japan, Australia, South America, Canada, and many other locations around the world. While the number of digital filers is not known, it is in the millions and rising.
Yes, the undeniable reality is that financial reporting is going digital.
Paper, to Electronic, to Digital
Changing to the digital medium has ramifications. Digital financial reporting and electronic financial reporting are not the same thing. Where electronic financial reporting is about transferring what amounts to an electronic version of a paper document from the creator of the document to the user of the document; the electronic document is created in pretty much the same manner as it had been for a hundred years.
Digital financial reporting is different than a paper or electronic financial reporting. A digital financial report can be read and understood, to a degree, by a computer software application. While computers will never replace the judgment of CPAs, there are many things that computer software can do to assist CPAs. Processes for creating financial reports and many aspects of auditing will change significantly. They are already changing.
Digital Financial Reporting Means Change
Yet not enough accountants are engaged in this conversion process, thinking through the many relevant issues and there is a risk the accounting profession will not get what it desires as a result. The question is, what should moving from paper or electronic paper to digital mean for the public accounting industry and the CPAs/auditors who make up that profession.
Just like the change from film to digital photography meant big changes to what type of cameras were made, the workflow of creating a photography, and the skills needed to be a photographer; changing to digital financial reporting will mean change.
Understand Digital Financial Reporting to Remain Relevant
Over the coming months on my blog I will summarize information helpful to certified public accountants and chartered accountants to help them better understand digital financial reporting. In these articles I will bring to light the important aspects of this change which all public accountants need to consider. It provides a framework for understanding digital financial reporting and the impact it will have on your world.
Digital financial reporting is here to stay. To remain relevant, CPAs need to adjust their thinking about how to appropriately modify financial reporting to keep up with the digital revolution. The value standardization offers business is undeniable: lower costs, increased leverage, and improved quality. CPAs need to better embrace changes which are inevitable to products CPAs offer and processes CPAs use to deliver those products. In doing so, CPAs can continue to contribute to the market, their clients, and their enterprises.
Watch the category Digital Financial Reporting on my blog for more information. Upcoming posts will include articles such as:
- Coming of Age - The History of XBRL as an Enabler of Digital Financial Reporting
- Key Terminology and Knowledge Important for the Digital Financial Reporting Age
- Understanding the New Digital Financial Reporting Medium
- Interactive Data: Understanding New Features of the 21st Century Digital Financial Report
- Auditing Digital Financial Reports
- Last Mile of Finance: How Digital Financial Reporting will Change Enterprise Software and Financial Reporting Workflow
- XBRL Global Ledger Changes Business Reporting
- Digital Financial Reporting by Private Companies, Governmental Entities, Not for Profit Entities, Federal Grants and Others