Digital Financial Reporting

As this O'Reilly article, Toward the next generation of programming tools, points out; software developers are used to bad tools.  Being able to use bad tools seems like some sort of hazing or right of passage necessary to become a computer programmer.

That is going to change.

Why does software for using XBRL have to be ugly, hard to use, and not produce a quality result that matches current quality levels of a financial report created using current processes?  Sure, the processes need to change in order to automate a significant portion of the currently far too manual processes.  But if the quality level is not maintained or improved, there is ZERO probability that modern approaches to accounting are going to be adopted. ZERO.

The point of accounting is to get things right. That is why two ledgers are used (i.e. double entry accounting) when one ledger could work but the probability of errors would increase.

Wired's article The End of Code helps you understand some of the possibilities.  The way I see it is that business professionals will configure logical rules and logic engines will do the work.

Around 1990 or so, I heard someone say that Microsoft Excel was the most used software development environment in the world. Using spreadsheet objects, Excel macros, and Visual Basic for Applications (VBA) people were building all sorts of software applications including full fledged accounting systems.

Per this article, Microsoft Excel Becomes a Programming Language, Microsoft is increasing Excel's power even more making it a true programming language. Apparently LAMBDA functions are being introduced making Excel Turing complete.  As I understand it, a LAMBDA function is an unnamed function that can be passed round to other functions and the function's logic able to be accessed. (Not really sure what that means frankly.)

Per the article, Excel has 750 million users around the world.  The article states, “Excel formulas are written by an order of magnitude more users than all the C, C++, C#, Java, and Python programmers in the world combined.”

Now, most accountants don't understand how to even write basic VBA; rather they stick to formulas and functions to get work done.  Average accountants likely will not create LAMBDA functions in Excel, but will more likely use LAMBDA functions or even function libraries created by others to get work done.

Ultimately, I believe Excel will suport "semantic spreadsheets" or essentially true multidimensional pivot tables that are grounded in logic rather than presentation oriented artifacts.

In the 1980s, the electronic spreadsheet put 400,000 accounting clerks out of work. But at the same time electronic spreadsheets also created 600,000 accounting jobs.  Over the coming years this scenario will likely play out again.  Repetitive data entry type work will disappear allowing higher value-added analysis type work to become cheaper to perform.  You just need to make sure you have the right skills.

An Area of Knowledge is a highly organized socially constructed aggregation of shared knowledge for a distinct subject matter.  An area of knowledge has a specialized insider vocabulary, underlying assumptions (axioms, theorems, constraints), and persistent open questions that have not necessarily been resolved (i.e. flexibility is necessary).

The knowledge framework is a device for exploring an areas of knowledge.  Connected knowledge forms knowledge neighborhoods.

All this knowledge can be organized into a human-readable and/or machine-readable knowledge graph. As I have pointed out, XBRL can be used to represent a knowledge graph in both human-readable and machine-readable terms.  Other approaches to representing knowledge exist also such as RDF+OWL+SHACL, Prolog, and graph databases.

Accounting is an area of knowledge.  You can explain aspects of the accounting area of knowledge, such as the nature of a financial report, using a logical theory.  A logical theory can be tested and proven by providing a proof. When all the details are worked out, you have a best practices based proven method.

Here is an easy to understand basic example for personal financial statements.

Welcome to the era of computational professional services and smart regulation!

It is time to properly organize shared accounting knowledge and leverage personal accounting knowledge for profit folks! Welcome to the fourth industrial revolution.

Software vendors have a "silo mentality" it seems.  None of these software vendors seem to understand the power of standards: 

• Uncat for categorizing uncategorized transactions in Quickbooks.
• Circit for bank confirmations
• Adapio for bank transaction analysis
• Autoreview for reviewing bookkeeping discrepancies
• Mindbridge for audit and assurance
• Engine B for audit common data model
• Quickbooks for accounting
• Logdeit for tax filing and XBRL generation
• Aoralaw for making tax decisions

I could list many others.  Not one of these application shares information with other applications, i.e. each essentially works in an individual silo (other than some interact with Quickbooks). 

Great perspective for each individual software application trying to lock in their customers; incredibly dumb perspective from the point-of-view of a business (i.e. customer) that needs to use those software applications and the functionality provided by each.

This silo mentality or application centric view of the world is outdated and it will not work for modern approaches to accounting.

Standards make markets. These people might want to read and understand "The Box" which explains how the ISO standard shipping container made the world smaller and the world economy bigger.

Today, there are a multitude of personal financial statement formats.  For example, here are a handful of different personal financial statements: 

• General Purpose Personal Financial Statement (From TemplateLab)
• U.S. Small Business Administration Personal Financial Statement
• U.S. Bank Private Banking Personal Financial Statement
• Universal Surety of America Personal Financial Statement
• TemplateLab 40+ Personal Financial Statement Templates
• Sample.net 34+ Sample Personal Financial Statement Templates

Imagine one high quality universal personal financial statement.  I talked about streamlining personal financial reporting in another blog post.

In fact, I created a personal financial statement XBRL taxonomy.  I did this for two reasons.  First, I think there needs to be a set of universal personal financial statements.  Second, this is an excellent learning tool for professional accountants that need to understand how to create a proper XBRL taxonomy for financial reporting.

The current US GAAP and IFRS XBRL Taxonomies are more "pick lists" that are intended for humans to use.  An XBRL taxonomy should be for both humans to use but also for computers to use and leverage.  I am thinking of holding some classes and help professional accountants understand what makes a good XBRL taxonomy and why.  If you are interested please contact me and let me know.