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AI and the Future of Financial Reporting

Artificial intelligence seems to be making a turn.  I mentioned a TED Talk video by Jeff Hawkins, How Brain Science Will Change Computing.  Stephen Wolfram in his video, AI and the Future of Civilization, seems to be saying many of the same sorts of things Jeff Hawkins is saying.

What is possible using artificial intelligence? While it is a mistake to over-state what might be possible; it is likewise a mistake to understate the possibilities.  What would an expert system related to financial reporting look like?  What would that expert system do?

The objective of general purpose financial reporting is to provide financial information about companies that is useful to capital providers in making decisions.  A little more specifically, the goal of financial reporting is to communicate the financial position and financial condition of an economic entity.

There are two types of processes that can be used to execute that objective: (1) manually, (2) automated.  I know that a human can perform 100% of the process of creating a financial report.  But what portion of report creation can be automated?

Creating a financial report is part symbolic-analytic service and part routine production service to use Robert Reich's perspective of work/jobs or tasks.  A financial report is not a random collection of stuff.  There are many, many patterns that exist in financial reports.  In fact, the financial report itself is purely mechanical.  Deciding what should go into the report and how to measure what goes into the report is not mechanical at all, that requires judgement.

What sorts of things go into a financial report?  Disclosures.  Disclosures have patterns.  If you compare the income statements of an insurance company you see patterns. The income statement of banks have patterns also.  Lots of patterns exist in other income statements.  Are financial reports uniform?  Of course not. But financial reports are not random either.

My document Understanding Slots, Blocks, Templates and Exemplars points out a lot of these patterns.  How to describe a system formally is pretty well understood.

What if you took all the pieces that relate to a financial report and you put all that information into machine-readable form.  What if you structured all the pieces of a financial report so that a software application could interact with the pieces, and you had a piece of software that served as an engine that understood all of those structures.

If you had all of that, what portion of the mechanical aspects of creating a financial report could be automated?  What would be the benefits of such a financial report creation process.

Is any of this possible?  Who knows.  But as you might be able to tell from my Digital Financial Reporting Manifesto, I will try and find out.

Posted on Saturday, April 23, 2016 at 07:38AM by Registered CommenterCharlie in | CommentsPost a Comment

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