Digital Financial Reporting

In the past I have referred to "my method".  I have re-branded "my method" to be the Seattle Method.

The Seattle Method is inspired by and builds on the Venetian Method which is a good practices approach to double entry bookkeeping created and documented by Luca Pacioli.  The Seattle Method is:

Proven, good practices, standards-based pragmatic approach to creating provably high quality XBRL-based general purpose financial reports that builds on the Venetian Method of double entry bookkeeping and adapting it for the information age

The Venetian Method has adapted to serve society many times over its 500 year history serving commerce.  The Seattle Method supplements the Venetian Method, better tuning it to serve the need for "digital" as we transition from the industrial age to the information age.  Welcome to the Fourth Industrial Revolution!

The focus of the Seattle Method is financial reporting using financial reporting schemes such as US GAAP, IFRS, UK GAAP, and other schemes where the preparer of a financial report is permitted to modify the report model.  Because modification of the report model is allowed, those modifications must be controlled to keep the modifications within permitted boundaries.

New name, but nothing about the method has changed.  Join the increasing number of software vendors that are using the Seattle Method to create effective XBRL-based digital financial reporting.

Here are resources for helping you understand the Seattle Method: 

• Build Up of Examples
• Logical Theory Describing Financial Report (Terse)
• Examples
• Conformance Suite

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If you are interested in the history of all this, check out XBRLS from 2008, the Financial Report Semantics and Dynamics Theory, the original submission to OMG, and my blog archive. Before all that there was "the patterns document".

This article, Are DAOs the future of DeFi?, by Mikhail Goryunov is worth reading. Here is the conclusion of the article: (emphasis is mine)

At this point, decentralized virtual communities and groups are essentially a big experiment in applying a new concept of interaction and governance. DAOs can offer innovative approaches to doing business, project development, collaboration, and coordination. The development of affordable ways to create DAOs and incorporate them into decentralized protocols is essential to reach widespread adoption. As this type of organization becomes more popular and accepted, communities will grow, forming both micro-economies and billion-dollar projects.

Worth considering.

A DAO is a great way to build a product and bring it to market.

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What is a DAO and What is it Used for?

Decentralized Autonomous Organizations (DAO)

Where to Pay Attention to Blockchain in 2022

ConstitutionDAO

DAOhaus

How to Create a DAO

Chapter 1 of her book, Double Entry: How the Merchants of Venice Created Modern Finance, Jane Gleeson-White titled Accounting: Our First Communications Technology.

In that first chapter, which you can read online, Gleeson-White discusses the research of French archeologist Denise Schmandt-Bessersat who discovered that the origin of writing was the farmers of Mesopotamia (now Iraq) keeping track of their crops and animals.

There seems to be three primary aspects of the communications technology of accounting: 

1. Medium used to represent information.
2. Number system used to represent information itself.
3. Accounting method used to maintain quality of information.

Based on Gleeson-White's book and some other sources I put together this timeline that combines those three aspects: (click on image to see timeline)

The medium is in GREEN; the number system is in BLUE; and the accounting method is YELLOWISH.  Accounting always seems to adapt for the times.  While specific technologies used to implement the "institution" of accounting change, the institution itself presses on.

It is time for accounting as practiced in the industrial age to transition into the information age.

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Accounting, auditing, and reporting has been out paced by financial innovation. Auditing is broken. Old school financial report creation processes are very inefficient. Processes are inefficient from end-to-end. There is far too much rekeying of information.

As LibraTax put it in a presentation on the future of accounting, "Accountants and auditors are financial doctors."  They go on to say, "We just gave them penicillin."

This is what I believe LibraTax means...

Accountants and auditors use tools to perform the tasks and processes that they need to perform to get their work done.  Those tools evolve.  In the past the tools have been things like clay tablets as the media, Roman numerals, the invention of the 0, Hindu-Arabic numerals, paper as the media, the double-entry bookkeeping model, the calculator, the electronic spreadsheet, the computerized accounting system.

Innovations occur and new tools are invented such as artificial intelligence, immutable digital distributed ledgers, knowledge graphs and other structured information, rules/reasoning/logic/knowledge/insights engines, triple-entry accounting (bookkeeping), cryptocurrency, NFTs, smart contracts, decentralized autonomous organization (DAOs) and such. Add to this the process and quality control techniques of Lean Six Sigma and things are even more reliable. 

These new tools, technologies, and other innovation will have an impact on accounting, reporting, auditing, and analysis that will be similar in nature to the impact the invention of penicillin had on the practice of medicine.

The change will be disruptive, transformational, perhaps even considered foundational.  With any such transformation there will be winners and there will be losers.

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History of Early Materials

Roman Numerals

History of Hindu-Aribic Numerals

Timeline of Numerals and Arithmetic

Mesopotamain Economics and Money

History of Accounting out of Egypt

The Guardian article by Jonathan Watts, Are accountants the last hope for the world's ecosystems?, says:

So it has come to this. The global biodiversity crisis is so severe that brilliant scientists, political leaders, eco-warriors, and religious gurus can no longer save us from ourselves. The military are powerless. But there may be one last hope for life on earth: accountants.

Wow.  Eco-accounting.  Well, as is said..."If you cannot measure it, you cannot control it."

The story ends with, "Accountants as agents of revolution? Now there's a thought."

Become the accountant who changed the world.

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United Nations Green Economy

United Nations Situation Room

Auditchain has announced the release of its testnet.  This is one step closer to a commercial launch and availability of Auditchain.

Auditchain Labs AG, the developer of the world’s first decentralised accounting, financial reporting, audit and analysis virtual machine for assurance and disclosure, has launched its network client “Pacioli” on the Goerli Ethereum test network.

I have mentioned Pacioli in the past, specifically the Pacioli Power User Tool.  Pacioli is a specialization of PROLOG for use in financial reporting.  Basically, you take the general functionality of PROLOG, add to that a global standard logical model of a business report and financial report, and then the power of PROLOG is easy for accountants to make use of.

Be sure to read up on NFT basics. Auditchain says they will be paying accountants royalties: 

Accountants. reporting managers, CFOs, controllers, and financial analysts will now be able to use the Auditchain Protocol to write, validate and own logic-based accounting and disclosure control “assets” that substantially automate accounting, financial reporting, audit and analysis processes using a global standard syntax on the Auditchain Protocol.

Non-fungible tokens representing the controls are issued to the curators, and royalties are allocated between curators and validators who audit and provide assurance that the machine-readable logic works correctly. Royalties will be allocated in AUDT, the settlement and Auditchain Protocol governance token.

Want to join a process control NFT creation study group? Ping me.  Here is a document I am creating to help accountants create NFTs, Process Control NFT Creation for Novices. 

ACCZIOM appears to be using Auditchain already.

You will want to keep watching Auditchain. Be an accountant that changed the world.

Here are a few additional articles about Auditchain and what they are doing: 

• Auditchain Will Use NFTs For Accounting And Disclosure Controls
• AuditChain pioneers a system for Accounting and Disclosure Control Development
• Can Bitcoin style validation solve financial statement fraud?
• AUDITCHAIN IS DISRUPTING A $550 BILLION A YEAR INDUSTRY
• Auditchain One Page Explanation

Keep an eye on what is going on here.