Digital Financial Reporting

How do you actually make the "always on" audit work? Machine readable XBRL-based reports need to be provably properly functioning logical systems.

Luca is a proof of concept for creating XBRL-based financial reports using a logical model of a financial report (i.e. XBRL technical syntax is hidden).  Pacioli is the beginnings of a commercial quality, scalable, enterprise class logical "platform" or "toolkit" or "infrastructure" for working with XBRL-based financial reports.

As Stephen Covey says in his 7 Habits of Highly Effective People, "Begin with the end in mind." (Habit 2)

How can an external financial reporting manager, internal auditor, or third party auditor evaluate an XBRL-based financial report and be sure that the report (a) is a properly functioning logical system and (b) conveys the meaning that is intended to be conveyed? What tool would they use?

Well, that is the end game: that tool. As explained in this concept paper, Pacioli will be used to create that tool.

Here is my third draft of an interface idea brainstorming for that accountant/auditor tool.

Creation tools and the accountant/auditor report examination tool are tied together per my best practices based method for creating an XBRL-based digital financial report.  This method is proven with four software implementations: 

• Pesseract
• Pacioli
• XBRL Cloud
• XBRL Query

The bigger picture is effective automation of the entire record to report process to the extent that is possible. What is the extent that is achievable?  Somewhere between what exists now and full automation which is the theoretical objective, not sure if it is really attainable.

Per the notion of irreducable complexity and the law of conservaction of complexity, you cannot just leave necessary pieces out of a system but you can move the complexity around, hiding it.  Pacioli helps hide complexity.

Luca and Pacioli will be used to "connect the dots", pulling all the moving pieces together to create a complete system.  No silo mentality.  Sound engineering. All this builds on the ancient double entry accounting model documented by Luca Pacioli. It's all just math!

What will an XBRL-based digital financial report creation tool look like?  An analysis of existing financial reporting-type tools helps you get your head around that: 

• TurboTax: In the paper about computational law, Intuit's TurboTax is held out as a rudimentary expert system. If you have ever used TurboTax, then you know that it is pretty easy to use.  You can import information into TurboTax.  But the down side is that TurboTax is inflexible in that it is only for creating the tax forms created by Intuit and provided within TurboTax.  TurboTax does not let you adjust the model.  That contributes to making TurboTax easy to use, but limited in what it can do.
• CaseWare Financials: CaseWare Financials is held out as being "an end-to-end solution to fully automate financial statement preparation and financial reporting using best of breed statement and note examples that comply with" supported financial reporting schemes such as US GAAP, IFRS, ASPE (Canadian GAAP), GAS (governmental accounting standards in the US), IPSAS (governmental accounting standards around the world).  You can import general ledger transactions.  You can configure the presentation of reported information.  However, CaseWare Financials has a very steep learning curve (i.e. hard to use), it is incredibly hard to "extend" financial reporting schemes for things that might be missing or unique to a reporting economic entity.  You are stuck with the reporting schemes CaseWare supports because you cannot do things like import the entire US GAAP XBRL Taxonomy or IFRS XBRL Taxonomy.  CaseWare tends to be on the expensive side.
• Accurri: Accurri is somewhat similar to CaseWare. They provide a nice demonstration that helps you see how this sort of software works.
• Workiva: Workiva has been gaining market share over the past ten years. When I was familiar with it you could not import general ledger information (like CaseWare).  It tends to be hard to use and expensive, certainly not for reporting by smaller companies.  Workiva supports using XBRL but you cannot just create your own XBRL taxonomy, pull in into Workiva, and then use it.  That would be really nice.
• Blackline: Blackline talks about "smart close" and "continuous accounting" and hold themselves out as an automation platform.  But, it really does not have a reporting tool that I am aware of.  What is interesting is the Blackline + Workiva partnership.
• Excel + Word: Microsoft Excel and Word to create your own "system" for creating financial reports.  You can import anything that you want, but you have to build the import.  You can format reports pretty much any way you want.  But you have to do the formatting.  You can automate quite a few things, but you have to build all of the automation.  Last I heard, about 85% of external financial reports were created using Microsoft Excel and Word.

So what if you could take the best characteristics of each of these different products above or other products and synthasize all of those features into one product.  Could that product be created?  Cheap, easy to use, integrated with accounting system, generate XBRL, expert system that understands financial reporting, automate as much as possible, financial reports that look like you want them to look but are also machine-readable, high-quality.  How nice would that be?  You never know; perhaps the market will create that tool!