Digital Financial Reporting

The Graph is providing a plethora of information related to the economics of digital. In particular, there are three specific articles that explain the moving pieces of digital:

• The Graph GRT Token Economics
• The Graph Network in Depth - Part 1
• The Graph Network in Depth - Part 2

What I want to do is translate that information into something that a certified public accountant can relate to. This will very likely take several iterations.  This is my first attempt:

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In a prior blog post, Behold the Power of Metadata, I pointed out that the Economist said, "The world’s most valuable resource is no longer oil, but data." But others go on to say, "If data is the new oil, then metadata is the new gold." And then this article points out that data curation is how you weave raw data into "business gold". This article uses the following metaphor which I paraphrase to explain value:

A barrel of raw crude oil costs $62 per barrel; there are 42 barrels in a gallon so that is about $1.47 per gallon. Refined gasoline is about $3.89 per gallon.  High-octane racing fuel goes for about $25 per gallon.

High-quality curated models and metadata will supercharge artificial intelligence applications, enabling software to augment the skills of an accountant much like a calculator augments one's ability to do math. Storing information in a digital distributed ledger improves transparency and trust.

Now, the metaphor is not perfect. Clearly refinement costs come into play and you cannot get 42 gallons of high-octane racing fuel from 42 gallons of raw crude oil.  But, this does help to understand the notion of value and that you can transform something and change value.

OK. Let's talk about data curation.  If you look at the three articles about The Graph above you see that those articles break the digital economy into different roles.  Here are those roles and a brief description of each role to put the role into context: (these are participants in the digital economy) 

• Indexers (technical): Earn fees by converting human-readable information into machine-readable information. Competes with other indexers to provide the most relevant information. This role can also be fulfilled by curators using software applications.  Indexing also includes the representation of terms, structures, associations, rules, facts, and models.
• Consumers (non-technical): Pay fees to indexers to use machine-readable information.  Pay for the machine-readable information they use. Consumers might be CPAs, CFAs, regulators, data aggregators, investors, accountants, analysts, external reporting managers, software companies.
• Curators (semi-technical): Earn fees by working with indexers or using software applications to create machine-readable information. May pay fees to delegators for their assistance in indexing information. Middleman between indexers and delegators.
• Delegators (non-technical): Earn fees by providing human-readable information to curators and indexers. Tend to be domain experts (i.e. CPAs, CFAs, regulators, etc.). Get paid a commission by curators and indexers helping them understand domain rules.
• Fisherman (semi-technical): Earn fees. Paid to address quality issues and resolve disputes. Tries to find mistakes in machine readable information and correct the mistakes.
• Arbitrators (semi-technical): Earn fees. Paid to resolve disputes. Arbitrates disputes between the different categories of participants in the network.

This video explains the above roles in more detail. Fees are earned/paid using tokens or crypto currencies that can be converted to fiat currency (i.e. cash).  Staking is explained here.

Because information is very high quality, because rich models and metadata exist, and because information is transparent and trustworthy because it is stored in a digital distributed ledger; a well designed logic engine can process information and the results seem to be magic. Supercharged AI!

Creating and maintaining all the metadata that makes the digital economy work is too vast a task for any one single organization to do.  But, cooperation is necessary to make sure all the digital pieces fit together effectively and that information is, in fact, high-quality.  Some sort of "orchestra leader" is necessary to keep the instruments in this symphony synchronized. Said another way by the SWIFT Institute, harmony needs to be maximized and dissonance minimized. Because the system is decentralized there is no one single party in charge of running the system.  A clear set of rules is that orchestra leader.  But system participants still need to agree to the rules.

Financial accounting, reporting, auditing, and analysis is a part of digital finance. While certain aspects of financial accounting are obvious because they are simple, aspects can be complicated and even complex. Fundamentally, this is an information exchange problem. Information is exchanged from one process to the next process:

XBRL is a media for exchanging complicated/complex information in either human-readable or machine-readable form.  For example, the general purpose financial report is a payload of complex information:

That complex information, such as a general purpose financial report, is the payload in an information exchange:

The diagram above shows a general purpose financial report as a payload that is exchanged between an information bearer and an information receiver.  Both the information bearer and receiver share common background knowledge, common inference logic, and a common world view.

This system works because nothing is left to chance. A proven (fail-safe) documented theory, framework, and method document good practices. Clever software engineers leverage the theory, framework, and method models and metadata to make software easy enough for business professionals to perform the tasks and processes necessary to do their work in new and more efficient ways.  Rekeying information is minimized, often completely eliminated. A move to more modern approaches to accounting are enabled.

The Universal Digital Financial Reporting Framework is the result. CPAs can perform work in entirely new ways; freed from the grueling, gruesome, boring tasks commonly associated with accounting. As the Harvard Business Review points out, the transition to digital is not about technology; it is about talent.

Do you have the skills you need to thrive in the new far more digital economy?

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