Digital Financial Reporting

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 correctly.  If 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?