Digital Financial Reporting

Who is the world chess champion today; a computer or a human?  In 1997, IBM's Deep Blue took the title.  Today, a computer is no longer the world chess champion.  Neither is a human. Today, a team of computers and humans working together can beat any computer or any human working alone.

That is how the power of computers will be harnessed; by human and computer teamwork.  Human are good at some tasks; not as good at other tasks.  Computers are good at some tasks; not as good at other tasks.  Teaming humans and computers together and leveraging the strengths of each is how work will get done in the future.

This TED Video, Garry Kasparov: Don't fear intelligent machines. Work with them, helps you recognize that human-machine partnerships is the way work will be done in the future.  It also helps you recognize that you need to understand how to partner with machines.

I am working with a small group of people who are creating for IFRS what I created for US GAAP and for a general reporting scheme example that I created called XASB.

This is an excellent learning opportunity for professional accountants. Software vendors can also learn from this and test their software using the IFRS, US GAAP and XASB examples.

What we are going to do is create all the stuff that makes this expert systemwork for an IFRS-based financial report. To do that, we need to create what is described in this Blueprint for Creating Zero-Defect XBRL-based Digital Financial Reports.

I have a lot of the pieces already. The pieces just need to be more completely built out and tested.  Below are all the existing pieces that I have for IFRS and the equivalent pieces for US GAAP and the XASB prototype:

• IFRS template library: A template library is simply a set of example disclosures for fragments of a financial report.  (US GAAP equivlent; XASB does not have a template library).
• IFRS reference implementation: The reference implementation tests all the rules to make sure that everything works as expected. (US GAAP equivalent, XASB equivalent)
• IFRS model structure relations: The model structure tests the relationships between the Networks, Tables (or hypercubes), Axes (or dimensions), Members, Line items (or primary items), and concepts that make up the XBRL presentation relations of an XBRL taxonomy. (US GAAP equivalent, XASB equivalent)
• IFRS type or class relations: The type or class relations test how specific concepts are used relative to other specific concepts.  (US GAAP equivalent, XASB equivalent)
• IFRS fundamental accounting concept relations:  The fundamental accounting concept relations are continuity tests to make sure concepts are used correctly relative to other concepts in a report. (US GAAP equivalent; XASB equivalent)
• IFRS disclosure mechanics: The disclosure mechanics rules test the logical, structural, and specific mathematical relations related to specific disclosures. (US GAAP equivalent, XASB equivalent)
• IFRS reporting checklist: The reporting checklist rules test for the existence of specific disclosures relative to certain reported line items or relative to other reported disclosures. (US GAAP equivalent, XASB equivalent)
• IFRS disclosures: The disclosures is simply things that can be disclosed. (US GAAP equivalent, XASB equivalent)
• IFRS topics: The topics are simply ways of grouping disclosures. (US GAAP equivalent, XASB equivalent)
• IFRS disclosure exemplars: An exemplar is simply an example of how to create a disclosure. (US GAAP equivalent, XASB does not provide this)

I have been working with a software developer and we have a working expert systemthat is driven by the above metadata. The US GAAP and XASB metadata is all tested and works.  Some of the IFRS stuff works.

Another thing that I want to test out is digital distributed ledgers.  What I am going to do is offer POINTS or TOKENS to those that contribute to creating the IFRS metadata.  With those POINTS or TOKENS, you can get a license to the expert system software and software support.  I still have to work out details, but basically the more you contribute, the more you will learn, and the better the software license you can earn and you can get earlier versions of the expert system software.

Interested in participating and positioning your self well for the future?  Send me an email (Charles.Hoffman@me.com) and I will put you on my distribution list.  Slots are limited.

As is said, "The best way to predict the future is to create it." (Abraham Lincoln)

Also, "I skate to where the puck is going to be, not where it has been." (Wayne Gretzky)

There are three specific new technologies that can be leveraged to significantly improve accounting and financial reporting.  Those technologies will transition into the mainstream, modernizing accounting and auditing over the coming years.  Those three technologies are:

• XBRL-based structured digital financial reports: The general purpose financial report is getting a face lift for the digital age.  In the past, general purpose financial reports were readable only by humans.  In the future, general purpose financial reports will be human-readable and machine-readable.
• Knowledge-based systems and other application of artificial intelligence: Who is the world chess champion today; a computer or a human?  In 1997, IBM's Deep Blue  took the title.
  Today, a computer is no longer the world chess champion.  Neither is a human. Today, a team of computers and humans working together can beat any computer or any human working alone.
  That is how the power of computers will be harnessed in the Digital Age; by human and computer teamwork.  Humans are good at some tasks; not as good at other tasks.  Computers are good at some tasks; not as good at other tasks.  Teaming humans and computers together and leveraging the strengths of each is how work will get done in the future. In the first industrial revolution, steam engines amplified the power of or muscles.  In the fourth industrial revolutions, computers will amplify the power of our brains. 
• Blockchain-based digital distributed ledgers: Many people say that blockchain will enable "triple-entry" accounting.  So what is a digital distributed ledger?  A digital distributed ledger is an indestructible and uneditable decentralized computer record, or ledger.  It provides a full and complete history of transactions in that ledger.  Ledgers can be as public and open or private, limited, or confidential as the use case demands. Ledgers can be permissioned or permission-less in determining who can add new transactions. Different approaches can be used to determine how new transactions are authorized (proof-of-stake, proof-of-work, consensus, identity mechanisms) before they can update the ledger. Ledgers can be interlinked with one or more other ledgers.

Double-entry bookkeeping was the invention of medieval merchants and was first documented by the Italian mathematician and Franciscan Friar Luca Pacioli. Double-entry bookkeeping is one of the greatest discoveries of commerce and its significance is difficult to overstate.  Which came first, double-entry bookkeeping or the enterprise?  Was it double-entry bookkeeping and what it offered that enable the large enterprise to exist; or did the large enterprise create the need for double-entry bookkeeping?

Accounting practices, processes, and procedures evolve over time.  Accounting was first done using clay tablets.  Today, we use electronic spreadsheets.

Whether you consider the changes that are occurring the Fourth Industrial Revolution, or the Digital Industrial Revolution, the rise of artificial intelligence, or refer to these changes as something else; call them what you want be the change is real.

Don't remain an information barbarian.  Don't wait for robots make you irrelative.  Don't wait for the change to be done to you.  Adapt.  Innovate.  Lead.  That is what professional accountants do.

In a presentation at South by Southwest March 21, 2015, How Bitcoin will Disrupt Accounting and Auditing, LibraTax CEO Jake Benson summarized the impact of blockchain technology as follows:

"Accountants and Auditors are financial doctors.  We've just given them penicillin."

I did a post on digital distributed ledgers a while back. That is worth reading through.  Also, watch this video by Alex Tapscott, in particular between minutes 8:30 and 11:00 in the presentation.

I now understand specifically how accountants made the top 5 list of those who will be losing their jobs to automation.

More to come...

The FASB has issued an invitation to comment on the efficiency and effectiveness of the US GAAP XBRL Financial Reporting Taxonomy.

Norwalk, CT, May 10, 2017-The Financial Accounting Standards Board (FASB) staff today issued an Invitation to Comment (ITC) designed to allow it to assess the efficiency and effectiveness of the U.S. GAAP Financial Reporting Taxonomy (GAAP Taxonomy).

The ITC, U.S. GAAP Financial Reporting Taxonomy-Efficiency and Effectiveness Review, addresses potential improvements to the usability of the GAAP Taxonomy and to the processes that support taxonomy-related activities. It is intended to obtain feedback from stakeholders at an early stage in the Board's review of the GAAP Taxonomy. Interested parties are asked to provide input on the ITC by June 15, 2017.

Here is the press release.