Digital Financial Reporting

Warren Buffett is credited with coining the phrase, "Accounting is the language of business."  But as the Corporate Finance Institue points out, there are actually three languages of business: accounting, finance, and economics.

As is pointed out in the article by George Doris, KORZYBSKI AND GENERAL SEMANTICS*, communications is hard.  It is not the "traps in language" that cause communications problems, rather it is our ignorance of those traps that cause communications problems.

I am an accountant so I will stick with accounting.  I will use the example of the general purpose financial report whose purpose is to communicate the financial status and financial performance of an economic entity as an example.

The article states the following:

Certain very important relationships are illustrated by the analogy: 

1. Just as the map is not the territory, the word is not the thing. 
2. Just as the map cannot represent all of the territory, words cannot say all about anything. 
3. Just as we can make a map of a map, we can make a statement about a statement, and use words about words. 

We have been considering some of the problems arising from distorted relationships between ‘maps’ and ‘territories’. Yet the potential for error does not stop there – the relationship between the map and the mapmaker is important, and the latter may bring other distortions in creating his or her ‘meaning’, especially in interpersonal communication.”

A general purpose financial report is not the economic entity itself.  If the language used to describe the financial status and financial performance of the economic entity does not have good "semantic hygiene" that makes effective communications harder or even impossible.

At its essence, accounting is a mathematical model. Yes, financial accounting and reporting can be complex. Can that communication, the language of business, be digitized?  Sure it can, if the digitization is done correctly.  Computers are like babies.  Not like a child, like a baby.  A computer needs to be led by the hand using machine readable rules.  Those sentences and assertions can be articulated in the form of a knowledge graph. But if the rules are not clear because the language of accounting and reporting is not clear, the results will be less than satisfying.

It is time that the semantic hygiene of accounting, reporting, auditing, and analysis to be improved. First steps have been taken. Things like accounting oracles will be built. But all these incredibly useful tools will only be as good as the language that provides the underpinnings, the foundation, the keystones.

One final thing that article points out.  “We live in a world of process, change and dynamic structure, yet we map it with static words.” Folks, there are many other approaches.  Artificial intelligence is real, but if the semantic hygiene is not improved mistakes will be made.

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Financial Reporting Semantics