Digital Financial Reporting

This is just a collection of thoughts at this point.  This information will be better organized at some point later.  If you have any thoughts or ideas, please send them to me.

First, remember that double entry accounting is a mathematical model. Second, before now, there is some accounting and reporting metadata that exists within an accounting system and in report writers but that metadata tends to be (a) not very well organized and (b) incomplete. What I mean is sure, you have a "chart of accounts" within an accounting system; but that is not enough to be able to automatically generate a proper balance sheet, income statement, cash flow statement, and statement of changes in equity.  For example, Workday created a feature in their product called "work tags" for precisely that reason. Work tags is somewhat of non-standard, informal method of getting additional metadata necessary to enable the auto-generation of a complete set of financial statements (balance sheet, income statement, cash flow statement, statement of changes in equity).

So, what if an accountant were to: 

1. Create a well organized chart of accounts.
2. Map that well organized chart of accounts to the higher level items which make up a proper financial report.
3. Formally add "tags" to transactions at time time of transaction entry.  Preferably these "tags" are standard.
4. Do all of the above in machine-readable form that is also readable by humans.
5. Create an automated process that enables the generation of proper financial reports (balance sheet, income statement, cash flow statement, statement of changes in equity).
6. Append that process to similarly create accounting policies and disclosures using a controllable process rather than ad hoc Excel spreadsheets which are then cobbled together to generate a complete financial report (primary statements and all the notes).
7. Audit that controllable and far more automated process and the resulting report using similar automation mechanisms; coordinating the "accounting" and "reporting" and "auditing".
8. Leverage the control, coordination, machine-readable metadata, and other aspects of digital to make the bookkeepers and accountants that enter transactions smarter so that there are fewer mistakes that need to be fixed.  This is done by making accounting systems more similar to software like Intuit's TurboTax; reviewing work and pointing out problems.

So how do you achieve increased automation?

Automation is about removing friction, driving costs down, speeding processes up, and improving efficiency and productivity.  Automation is about improving processes in order to deliver better value for less cost, faster than other known alternatives.

We want to create ongoing repeatable processes that are reliable because the processes can be controlled thus achieving verifiable high-quality.  Because the repeatable process is reliable this enables effective automation. The effective automation is the result of the control over the process.  That control is enabled by the machine-readable rules. 

It is these rules that enable control which enables quality which enables effective automation. So, who creates the rules and what are the rules that need to be created?  There are rules that control the "delivery mechanism" or physical representation of the rule.  Those are technical oriented rules, they are not the concern of business professionals.  Those rules simply need to work effectively; these technical oriented rules are buried deep within the system to make sure the system is working effectively and as expected.  Computer scientists and information technology professionals manage and maintain these technical oriented rules.

Accounting professionals create, manage, and maintain the logical rules related to accounting, reporting, and auditing.  As such, these rules need to be "self-service".  Accounting professionals must be empowered by software applications to effectively perform these creation, management, and maintenance tasks.

With the implementation of self-service rules, accounting and business professionals can control their processes, the process logic.  Rules provide control; control leads to high-quality; high-quality enables effective, reliable automation; effective automation makes tasks and processes better, faster, and cheaper.  Productivity gains result.

Why would professional accountants reject better, faster, and cheaper processes?  Why would they not want productivity improvements?

Promises of better, faster, and cheaper processes mean nothing.  Software vendors need to deliver the goods; that is when things will start changing for professional accountants.  Partial solutions will not do.  Complex solutions that are too hard for accounting professionals to use (i.e. not self-service) will not do.  Solutions that do not guarantee repeatable high-quality will not do.

I have a proven, best practices based method for guaranteeing high quality. While there are a number of software vendors that have implemented pieces of this method; no one can currently provide a complete solution.  Pacioli, XBRL Cloud, XBRL Query, and Pesseract come close.  Luca provides some good ideas.  Stay tuned to see how to deliver solutions that do actually work reliably.