Digital Financial Reporting

Per the Data Coalition, the GREAT Act has now passed both houses of congress.

The Grant Reporting Efficiency and Agreements Transparency (GREAT) Act of 2019 mandates that federal grant reporting be modernized and use structured data.  The Data Coalition provides this one pager that explains the act.

As I explained in this blog post, essentially what this means is that the approximatly 300,000 not-for-profits that recieve federal grants over a certain threashhold which I think is $500,000 which are subject to the OMB A-133 audit or "single audit" requirement will be reporting digitally.  While XBRL is not explicitly named, XBRL could be used or OMG's SBRM might be used.  The technical syntax format really does not matter, what matters is that the reports will be digital and machine-readable.

Further, it appears that the information will be required to be audited.  SEC 5. SINGLE AUDIT ACT seems to say that these reports will be audited.

This modern digital reporting approach will begin in 3 years.  Reported digital information will be made available publically on a government portal that I would imagine would be something similar to the SEC's EDGAR system of XBRL-based reports.

This will be awesome!  I am assuming that the quality issues experienced by the SEC will be addressed and not repeated by this system.

PBS Frontline In the Age of AI. The more data, the better AI works. How do you make AI transparent and accountable? China is determined to catch the US by 2025 and lead by 2030.  AI will take white collar jobs.  Not being thoughtful about AI will be catastrophic.

There are few things that are as precise, elegant, carefully engineered, and lovingly put together than a Swiss watch.  And that is how an XBRL-based digital financial report should work - like a Swiss watch.

In their most current XBRL Taxonomy Development Handbook, XBRL US provided a picture of a set of gears working together (see page 64) and say that it is "vitally important to engage all relevant parties during the [taxonomy] development process".  I could not agree more.

via GIPHY

The SWIFT Institute used the metaphor of an orchestra and pointed out that the stakeholders need somewhat of an orchestra leader to put the music together.  The paper provides excellent definitions of "harmony" and "dissonance" and explains the relationship between stakeholder harmony and information quality. This is very similar to the gears metaphor.

There are leaders and there are those who lead.  Leaders hold a position of power or authority, but those who lead inspire us.

Be one of those who lead.

CPAs will play a significant role in making sure XBRL-based digital financial reports "work like a Swiss watch" and that the "gears" are not grinding or skipping but rather running smoothly.  CPAs will be the orchestra conductors in the digital era to help make sure the financial reporting supply chain "music" is what it needs to be.  I believe that financial reporting can be significantly improved in terms of both efficiency and effectiveness.  Why should accountants toil in the salt mines each month to get the important financial information out to those that need it?

Digital is both the problem of increased information volume, information complexity, and the resulting information overload; and the solution to that volume/complexity/overload problem.  Rekeying information might not become a thing of the past era, but it will be significantly reduced.  Human/computer collaboration will be the way accounting, reporting, auditing, and analysis is done in the future.  Can you imagine doing accounting without a calculator?

Digital financial reporting can work like a Swiss watch if you know now to do it. Learn how to do it right.  Practice does not make perfect; perfect practice makes perfect.  Up your digital maturity. Understand that this is a paradigm shift, not an incremental innovation.

Inspire someone!

via GIPHY

XBRL US has published the XBRL Taxonomy Development Handbook.

The Committee of European Audit Oversight Bodies (CEAOB) has issued guidance, Guidelines on audits' involvement financial statements in ESEF, related to the audit of both the human readable layer and machine readable layer of XBRL-based digital financial reports.  Here is that guidance.

To give you a flavor for the requirement, see page 5 section titled "Accuracy" which includes this guidance:

• The marked-up information does not correspond with the human-readable layer of the financial statements;
• Numbers disclosed in the primary statements of the IFRS consolidated financial statements have been marked-up with an inaccurate context (e.g. year or year-end, currency; debit/credit; scaling (i.e. millions/thousands));
• Inappropriate elements from the core taxonomy have been selected; 
• A misrepresentation of the accounting meaning of the number or disclosure being marked-up arising from selecting an inappropriate element from the core taxonomy; 
• An extension taxonomy element created to mark-up a number in the primary statements is not anchored to the core taxonomy element having the closest wider accounting meaning and/or scope to that extension taxonomy element of the issuer; 
• Where an extension taxonomy element combines a number of core taxonomy elements, the issuer has not anchored that extension taxonomy element to each of those core taxonomy elements.

 Here is information that I provided related to the audit of XBRL-based financial reports.