« Excellent Learning Opportunity: Creating IFRS Templates, Examples, Metadata | Main | Accountants and auditors are financial doctors; We’ve just given them penicillin »

Modernizing Accounting and Auditing: Three Technology Trends

There are three specific new technologies that can be leveraged to significantly improve accounting and financial reporting.  Those technologies will transition into the mainstream, modernizing accounting and auditing over the coming years.  Those three technologies are:

  • XBRL-based structured digital financial reports: The general purpose financial report is getting a face lift for the digital age.  In the past, general purpose financial reports were readable only by humans.  In the future, general purpose financial reports will be human-readable and machine-readable.
  • Knowledge-based systems and other application of artificial intelligence: Who is the world chess champion today; a computer or a human?  In 1997, IBM's Deep Blue  took the title.
    Today, a computer is no longer the world chess champion.  Neither is a human. Today, a team of computers and humans working together can beat any computer or any human working alone.
    That is how the power of computers will be harnessed in the Digital Age; by human and computer teamwork.  Humans are good at some tasks; not as good at other tasks.  Computers are good at some tasks; not as good at other tasks.  Teaming humans and computers together and leveraging the strengths of each is how work will get done in the future. In the first industrial revolution, steam engines amplified the power of or muscles.  In the fourth industrial revolutions, computers will amplify the power of our brains. 
  • Blockchain-based digital distributed ledgers: Many people say that blockchain will enable "triple-entry" accounting.  So what is a digital distributed ledger?  A digital distributed ledger is an indestructible and uneditable decentralized computer record, or ledger.  It provides a full and complete history of transactions in that ledger.  Ledgers can be as public and open or private, limited, or confidential as the use case demands. Ledgers can be permissioned or permission-less in determining who can add new transactions. Different approaches can be used to determine how new transactions are authorized (proof-of-stake, proof-of-work, consensus, identity mechanisms) before they can update the ledger. Ledgers can be interlinked with one or more other ledgers.

Double-entry bookkeeping was the invention of medieval merchants and was first documented by the Italian mathematician and Franciscan Friar Luca Pacioli. Double-entry bookkeeping is one of the greatest discoveries of commerce and its significance is difficult to overstate.  Which came first, double-entry bookkeeping or the enterprise?  Was it double-entry bookkeeping and what it offered that enable the large enterprise to exist; or did the large enterprise create the need for double-entry bookkeeping?

Accounting practices, processes, and procedures evolve over time.  Accounting was first done using clay tablets.  Today, we use electronic spreadsheets.

Whether you consider the changes that are occurring the Fourth Industrial Revolution, or the Digital Industrial Revolution, the rise of artificial intelligence, or refer to these changes as something else; call them what you want be the change is real.

Don't remain an information barbarian.  Don't wait for robots make you irrelative.  Don't wait for the change to be done to you.  Adapt.  Innovate.  Lead.  That is what professional accountants do.

Posted on Saturday, May 27, 2017 at 06:47AM by Registered CommenterCharlie in | CommentsPost a Comment

PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
All HTML will be escaped. Hyperlinks will be created for URLs automatically.