Digital Financial Reporting

On March 13, 2008, I posted an article to my blog, Big Changes to the Global Financial Reporting Platform.  Well, the changes are going to be even bigger than I realized back then and they are going to happen sooner that I expected. It appears that the COVID 19 pandemic is moving up the timeline.

As reported by the Journal of Accountancy article, Automation to drive big shifts in corporate reporting, an EY survey says:

53% of finance leaders surveyed say that more than half of finance tasks currently handled by people could be performed by AI over the next three years.

54% said it is likely that blockchain-based systems will underpin finance.

63% have concerns about the risks of using artificial intelligence in finance and reporting

So it seems that now a majority think artificial intelligence and blockchain are going to "rock their world" but at the same time 63% are concerned about risks. The article goes on to say, "more than two thirds (68%) of responding finance leaders say that governance, controls and ethical frameworks still need to be developed and refined for AI."

Well, they SHOULD be concerned about risk. 

And that is what the Universal Digital Financial Reporting Framework is all about: understanding and managing that risk.  It provides a framework and method to control XBRL-based structured digital financial information which will be both inputs to and outputs from functionality provided by artificial intelligence software.

The general purpose financial report is part of a platform. This article, The 25 Greatest Business Innovations Of All Time, points out another innovation that is part of that platform; double entry bookkeeping. (And I would point out that the article goes on to say that the corporate balance sheet has not changed much in 500 years!)

What is happening is not an incremental innovation; it is a disruptive innovation and it very likely might even be a foundational or transformational innovation.

As I pointed out in that original post, a Business Week article, The Greatest Innovations of All Time, Larry Keeley points out that most of the greatest inventions of all time were platforms. He defines a platform as:

"broad capabilities that have the potential to cut across industries, markets, and applications. Platforms often have some proprietary capabilities at the core, but not always. Indeed, it is common for platforms to integrate many otherwise ordinary ideas into a whole that is collectively remarkable."

He goes on to say that "A sufficiently advanced technology is indistinguishable from magic."

This innovation is foundational and transformational.

And that platform is taking shape now.  That platform will provide an entire ecosystem for financial reporting and if it is done right there will be ONE ecosystem instead of MULTIPLE ecosystems. This is kind of like the video tape war between BETAMAX versus VHS, the electrical current war between AC and DC, the protocal wars between network protocols like X.25 and TCP/IP, and other such battles.

The ramifications of such battles determine how the world will work.  AC won, but you have both 110 and 220 and have to carry around adapters when you travel.  Both BETAMAX and VHS are gone, now we have MPEG4. The Internet is a really good example of ramifications as is the ISO standard shipping container and the Universal Product Code (UPC).

Standards make markets.

The Harvard Business Review article, The Globalization of Markets, the author asserts that "well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable-and low priced. Multinational companies that concentrated on idiosyncratic consumer preferences have become befuddled and unable to take in the forest because of the trees. Only global companies will achieve long-term success by concentrating on what everyone wants rather than worrying about the details of what everyone thinks they might like."

As is said, "The best way to predict the future is to create it."  Who knows how all of this will actually turn out.  What does the institution of accountancy want?

One thing for sure is that things will change.  Remember the movie The Graduate and the one word "Plastics".  A few candidates for today's graduates are "knowledge graph", "metadata", and "automation". If I had to pick on phrase, that phrase would be: Content is King.

Happy transformation!  A word of caution.  Beware of the snakeoil salesmen and the Four Horsemen of the Data Apocalypse. As The AI Ladder points out, 81% of all business leaders do not understand artificial intelligence.  Buyer beware!