Digital Financial Reporting

A lot of people are talking about "continuous accounting" and "continuous reporting" and even "continuous auditing".  Some provide grand visions and buzz words to try and describe continuous accounting and reporting.  Some people even give you very broad brush strokes that help you understand what it means. Some provide high-level blueprints for implementing continuous accounting.

But think for a moment.  If you actually wanted to achieve continuous accounting, reporting, and auditing; exactly how would you do that? How exactly are you going to automate the tasks and processes involved?

First, what gets in the way of continuous accounting and reporting?  Here are some specific things that I see:

• Inappropriately set up chart of accounts.
• Inappropriate mapping between chart of accounts and financial report line items. (i.e. lead schedules)
• Information (metadata) used to correctly categorize report information missing from the accounting system therefore automation is impossible.
• Information that is unavailable to automated processes. (i.e. policies not in accounting system, qualitative disclosures not in accounting system)
• Errors.
• Complexity. (i.e. multi-currency, multi-gaap, multi-subsidiaries, multi-special ledgers, multiple accounting systems, etc.)

So all those things add up to the hurdles that need to be overcome to actually get continuous accounting and reporting to actually work.

Second, you actually have to physically implement something.  This video walks you through a basic implementation of continuous reporting.  So this fundamentally works.  Here are all the details of two implementations that have 100% of what is necessary for a basic working system where accounting tasks and reporting tasks are automated: Accounting process automation/record to report; Pixel perfect rendering.  (If you want the complete scope, you need all of this which is simply more volume of what is in the first two examples; but the two examples I point to really are complete.)

To make all of this work effectively, you must be able to control the system effectively.  And so, if you can overcome all of those hurdles and control the system effectively such that the system is reliable and predictable then you can use that system to perform useful work. Let machines do the grueling, gruesome, repetitive, mindless tasks.  Maybe not all tasks and processes will be automated, but certainly some will be automated.

All of this is about augmented intelligence.  Another term used is intelligence amplification.  In his book, Principles, Ray Dalio advises,

“By developing a partnership with your computer alter ego in which you teach each other and each do what you do best, you will be much more powerful then if you went about your decision making alone.”

Augmented intelligence is about computers and humans working together rather than machines replacing humans.  Augmented intelligence applications combine human and machine intelligence. This is important in systems there is low tolerance for error or where artificial intelligence is not evolved enough to take humans completely out of the loop.

That is essentially how continuous accounting, reporting, and auditing will be achieved.  Everything else is really simply a detail.