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Automating Accounting and Reporting Checklists

The global consultancy firm Gartner classified XBRL as a transformational technology.  Gartner defines transformational as something that:

"enables new ways of doing business across industries that will result in major shifts in industry dynamics"

As I pointed out in my book, XBRL for Dummies, major shifts means lots of change and some winners and some losers.

One shift will be related to what professional accountants call the "disclosure checklist".

Accountants creating financial reports often use accounting and reporting checklists or "disclosure checklists" as memory joggers to help them get the reports right.  Where can you get these disclosure checklists?

My point being: accountants use accounting and reporting checklists.

But, as wonderful as all these checklists, models, and examples are and as much as people say they streamline the process of creating financial reports; the checklists are memory joggers used by humans in the manual-oriented process of creating financial reports.  These disclosure checklists were created in an era when financial reports were unstructured.

What if there was another way? What if the work practices of professional accountants changed.  What if financial reports where machine-readable structured information? What if software used to create financial reports actually understood what a financial report is?

If you don't know what a digital financial report is or how they work, read this Conceptual Overview of an XBRL-based Structured Digital Financial Report.

OK, so you read the conceptual overview. You read the part which talked about CAD/CAM.  Let me go over that again:

Architectural objects have a relationship to one another and interact with each other intelligently. For example, a window has a relationship to the wall that contains it. If you move or delete the wall, the window reacts accordingly.

In addition, intelligent architectural objects maintain dynamic links with construction documents and specifications, resulting in more accurate project deliverables. When someone deletes or modifies a door, for example, the door schedule can be automatically updated. Spaces and areas update automatically when certain elements are changed, calculations such as square footage are always up to date.

How is it possible for CAD/CAM software to understand a blueprint and that windows go into walls?  Because the CAD/CAM system is an expert system.  How does software actually interact with the user of the software?  Well, you have two primary things: (a) a business rules engine which reads machine-readable metadata which enforces relationships of objects, and (b) you have the metadata itself which expresses the knowledge to the software.

Microsoft Word and Excel, which are used to create 85% of all financial reports, know absolutely nothing about what a financial report is. But what if you had the business rules engine and the metadata and the application you were using did understand the mechanics and dynamics of a financial report. The business rules engine works together with a finite-state machine to help the software user create financial reports correctly.

You put all this stuff together which is basic knowledge engineering and you get an expert system for creating financial reports. Now, you do have to put the pieces together correctly. That takes deliberate, conscious effort, skillful execution, and attention to detail.

Will this actually work?  Will artificial intelligence have an impact on financial reporting?  Well, here is a prototype of the disclosure metadata.  That is piece "(b)" above.  I know of at least two software vendors actively working on piece "(a)".  The metadata without software won't do much; software without metadata won't do much; but put the two together the result will seem like magic.  But it really is not magic, just knowledge engineering basics.

This provides an overview of the metadata (that creates the magic):

That should give you a pretty good idea of how the mechanical stuff works.  Of course, the computer has no judgement so a professional accountant still needs to do the hard stuff.  But the routine, mechanical, repetitive, mundane tasks; the computer can handle that. No magic.

Some people call this disclosure management. Others call it structured digital reporting.  I call it digital financial reporting.  Digital financial reporting is the future of financial reporting for many reasons.  Digital isn't software, digital is a mindset.

There is a risk to noncompliance to accounting and financial reporting rules. Automating the routine, mechanical, repetitive, mundane tasks related to accounting and reporting checklists saves time and money.  Can everything be automated?  Certainly not.  But many of the routine, mechanical, repetitive, mundane tasks involved in accounting and financial reporting can and more importantly will be automated.

WHAT MORE DETAILS?  Consider this one specific rather complex disclosure. This helps you see the business rules. This helps you understand the metadata for enforcing the business rules. This blog post walks you through the details for this one disclosure.

Posted on Thursday, May 5, 2016 at 01:02PM by Registered CommenterCharlie in | CommentsPost a Comment

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