Digital Financial Reporting

National Public Radio (NPR) published a story, The Accountant Who Changed the World, that discusses how Luca Pacioli ran across double-entry accounting in a math book he wrote.

Luca Pacioli was a monk, magician and lover of numbers. He discovered this special bookkeeping in Venice and was intrigued by it. In 1494, he wrote a huge math encyclopedia and included an instructional section on double-entry bookkeeping.

That article seems to be based on information from a book written by Jane Gleeson-White, Double Entry: How the Merchants of Venice Created Modern Finance.

Luca Pacioli seems to have "discovered" the special bookkeeping method in Venice, but as I understand it that method was invented in Florence by banks.  But Pacioli seems to have perfected and documented the best practices used in Venice which became known as the Venetian Method.  The article says he was a monk, a magician, and a lover of numbers that hung out with the likes of Leonardo da Vinci!  How cool is that!!! (I have actually visited the house where Luca Pacioli lived in Venice.)

Note the subtitle of Gleeson-White's book, particularly the phrase "Created Modern Finance".  Modern finance seems to have been relatively stuck at that same point in many ways.  Well, we are in the midst of another big change in my opinion, "biggest in 500 years" one accountant called this. Someone else said triple-entry accounting is the most important invention in 500 years. Others call this the move to "modern accounting".

Let me tell you the story of another accountant.  About 20 years ago he worked at the regional public accounting firm Knight, Vale, & Gregory based in Tacoma, Washington.  (He got his initial start with Price Waterhouse.)  He read a book about XML, with some help of a friend and colleague named Wayne Harding, also a CPA, reached out to the AICPA, the AICPA bought into the idea and created what became XBRL International, and now there are 180 projects in 60 countries that leverage XBRL.

This is not the end of the story.  This is the beginning of the story.

We need to leverage the technologies that have been developed over the past 50 years and avoid possible pitfalls as we modernize accounting.  We need to break down accounting into its essence as we think about how to build it back better.  We need a good theory, principles, framework, and a method; digital financial reporting needs to work as good as or better than current financial reporting practices.

Financial reports are knowledge graphs.  Financial reports have always been knowledge graphs! What changed is that we have moved from an industrial economy to an information economy.  Financial accounting, reporting, auditing, and analysis need to pivot; to transition.  The tools that are causing things like "information overload" and ever increasing "complexity" are also the tools that can be used to solve those problems.

Double-entry accounting enabled organizations to grow into the large multi-national organizations of today. But now; audit is broken.  Reporting is a kludge. Accounting needs modernization. Financial instrtuments are unnecessarily complex.

Lost? Not sure what to do?  I don't have all the answers.  But, I have a lot of incredibly good questions that deserve answers.  If you are not sure where to start, I recommend reading the Seattle Method. That will get you to my best information.

Be the accountant who changed the world!