Digital Financial Reporting

A California bill would require public agencies to report using XBRL. The bill, SB-598 Open Financial Statements Act, is summarized as follows:

LEGISLATIVE COUNSEL'S DIGEST:

This bill would enact the Open Financial Statements Act. The bill would establish the Open Financial Statement Commission, consisting of 7 members appointed by the Governor. The bill would require the commission to contract, through an open and competitive request for proposal process, with vendors possessing the necessary software development expertise to build one or more interactive extensible business reporting format (iXBRL) taxonomies suitable for public agency financial filings and create a software tool that enables a public agency to easily create iXBRL documents consistent with these taxonomies. Commencing with an unspecified fiscal year, the bill would require that any financial statement required by other law to be submitted or filed by a public agency be filed in iXBRL and to meet the validation requirements of the relevant taxonomy. The bill would make conforming changes to various other laws requiring state and local agencies to file or submit financial statements or reports. However, if the commission fails to adopt a prototype iXBRL taxonomy software and filing system for implementation by an unspecified date, the bill would dissolve the commission and make the requirement that a public agency file financial statements in iXBRL inoperative. The bill would appropriate an unspecified sum from the General Fund to the commission to be used for purposes of the Open Financial Statements Act, subject to specified restrictions.

The Reason Foundation provides additional commentary.

Remember that the State of Florida has a similar bill that has become law.

Here is information relating to the XBRL taxonomy that is being created.

I have updated the documentation of the conceptual model of an XBRL-based digital financial report. The model itself really has not changed, the documentation has just been tuned and explained a bit better.

The tuning is the result of work that I am doing with the OMG Standard Business Report Model working group.

The objective of all this work is to enable the creation of easy to use software that can be used to create high-quality XBRL-based financial reports.  Today, most software used to create XBRL-based reports is too hard to use and does not provide for the creation of high-quality (i.e. error free) financial reports.

Proof of this claim that software is not up to the task is the fact that most XBRL-based reports are created by filing agents and the number of flaws in even the high-level financial concepts being reported per my quarterly measurements.

Further, there are no real process improvements from the approach that is currently being used.  The structured nature of XBRL is not really being leveraged to improve processes.  What is happening is that additional work is "bolted on" to existing processes to generate the required XBRL-based reports.

There is a better way.

The video, The Xerox Thieves: Steve Jobs and Bill Gates, explains one of the dumbest things a big company has ever done and how two smaller companies took advantage of that big mistake.

Proverb:

There are none so blind as those who will not see.

Xerox is not the only company to make a really dumb mistake.  There have been plenty of others.  Here are a few.

The ESMA created a nice little video, ESEF 2020: Implementation support for preparers, that provides information related to creation of the Inline XBRL documents to be required in 2020.  Included in this video is a good explanation of "anchoring".

Also provided is a tutorial for creating these reports.

In a prior blog post I mentioned Deloitte's Notion of The Finance Factory.  I studied Deloitte's vision and put my summary in this document, Exploring the Notion of The Finance Factory.

I found another document that Deloitte has published called Finance 2025 where they make 8 predictions.  Here is a summary of the predictions Deloitte is making with my commentary:

1. The finance factory

Transactions will be touchless as
automation and blockchain reach
deeper into finance operations.

[CSH: So this notion of "the finance factory" is a way Deloitte "packages" what others call automation of accounting, reporting, auditing, and analysis tasks.]

[CSH: Deloitte erroneously uses the term "blockchain" when they really should be using "digital distributed ledger".  There are lots of technologies which can be used to implement digital distributed ledgers, one is blockchain.  Another is hashgraph, another is a hyperledger, another is semantic blockchain, etc.]

2. The role of Finance

With operations largely
automated, Finance will double
down on business insights and
service. Success is not assured.
The skills required by finance
professionals will change, likely
dramatically, as new combinations
of technology and human
workforces permeate the
workplace.

[CSH: I completely agree that for like 70% of financial professionals, the skills they need will change. The best example of this is how humans partner with calculators such that the humans can do math faster and more accurately.]

3. Finance cycles

Finance goes real time. Periodic
reporting will no longer drive
operations and decisions-if it
ever did.

[CSH: So, current financial reporting processes tend to be "batch" type work processes.  You have monthly batches, quarterly batches, and yearly batches.  Like manufacturing which tries to get the batch size down to ONE (i.e. every batch is unique), accounting departments will do the same because of automation of many tasks.]

4. Self-service

Self-service will become the norm.
Finance will be uneasy about this.

[CSH: Seems like what they are saying is that because finance cycles are "real time" and things are automated, if you want information you just "click" and then get the information you need when you need it.]

5. Operating models

New service-delivery models
will emerge as robots and
algorithms join a more diverse
finance workforce-think about
the integration of freelancers, gig
workers, and crowds. Companies
will assess the benefits of
automation against onshore and
offshore operations.

[CSH: Basically, there is lots of competition/options as to how work can get done.]

6. Enterprise resource planning

Finance applications and
microservices challenge traditional
ERP. Big vendors will be prepared.

[CSH: So what they seem to be saying is that you can cobble together a bunch of subsystems together to get the sort of functionality you get from SAP and other ERP systems.]

7. Data

The proliferation of APIs will drive
data standardization, but it won't
be enough. Companies will still be
struggling to clean up their data
messes.

[CSH:  People tend to use the term "data" too much, and the term "information" too little.  There is a big difference between "data" and "information".  Most accountants barely understand "data", they really don't comprehend the very significant difference between "data" and "information".  Information is what will make all this automation magic happen.]

8. Workforce and workplace

Employees will be doing new
things in new ways, some of which
will make CFOs uncomfortable.

[CSH:  "Doing new things in new ways" is really hard to believe or understand if you don't understand the difference between "data" and "information".]

BOTTOM LINE:

So the bottom line is this.  If you read Computer Empathy, you can understand that a lot of the things Deloitte is talking about are very, very possible.  Deloitte's vision is probably the best articulated vision that I have run across.  Deloitte's articulation of their vision has helped me to tune my vision.

Clearly giant consulting firms like Deloitte want to sell you stuff.  I don't think Deloitte actually understands how to achieve a lot of this stuff at this point.  People are still experimenting.  I know that I have spent literally thousands of hours trying to figure all this stuff out.  These changes will not happen over night.  Many of these sorts of changes will happen.  Overstating the possibilities is not helpful.  Ignoring change or understanding the possibilities of change is also not helpful.

What I am going to do is take Deolitte's articulation of a vision and combine it with my vision and see what I come up with.