Digital Financial Reporting

The American Institute of Certified Public Accountants (AICPA) publishes a financial reporting framework, Financial Reporting Framework for SMEs.  Documentation for the framework can be found here.  I created a prototype XBRL taxonomy for this framework way back in 2013.  I might have another look at that.

• Framework
• Introduction to FRF for SMEs
• Illustrative financial statements
• Disclosure checklist

OK, so here is the beginnings of a machine-readable ontology that describes how to create a report using FRF for SMEs.

Much more to come, so stay tuned! Follow this blog category to stay informed. (Note that this US GAAP Financial Report Ontology is an example of where the FRF for SMEs is going)

Patricia Benner created a model for the professional development of nurses in an American Journal of Nursing article, From Novice to Expert.  That model is generalized to other professionals and is summarized here: 

• Novice: Has no professional experience.
• Beginner: Can note recurrent meaningful situational components, but not prioritize between them.
• Competent: Begins to understand actions in terms of long-range goals.
• Proficient: Perceives situations as wholes, rather than in terms of aspects.
• Expert: Has intuitive grasp of the situation and zeros in on the accurate region of the problem.

This model is depicted graphically as the following:

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Here is another graphic related to moving from novice to expert.

Janet Salmons is an independent scholar and provides a pedagogy of book and chapter organization.  She points out that readers look for different types of knowledge:

• Factual: Basic terminology, major ideas and thinkers in the field.
• Conceptual: Interrelated principles and theories.
• Procedural: How-to steps.
• Metacognitive: Strategic and self-knowledge (awareness of one's own thought process; thinking about thinking).

This is summarized graphically here:

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Pedagogy is the science and art of education and learning theory.  Pedagogy is about creating an educational process that will lead to knowledge transfer to a learner. Andragogy is the art and science of teaching adults.  Open pedagogy is that set of teaching and learning practices only possible in the context of the free access and the "4Rs" (reuse, revise, remix, redistribute) permissions characteristic of open educational resources.

Pedagogy has to do with the strategy of how content is presented to the learner, the assets needed to present the content, creating a cognitive psychology based learning process, evaluation of the learning process, which yields feedback useful in preparing new content for learning:

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In order to teach a learner effectively, an understanding of the content to be taught plus a knowledge of how o teach is necessary.

(See slide 8 in the presentation)

Vanderbuilt University Center for Teaching provides a plethora of resources related to teaching.  I think I will use these resources to improve Mastering XBRL-based Digital Financial Reporting.

Imagine something.  What if the accounting standards as written by standards setters (such as the ASC), books for working with the accounting standards (such as this book published by CCH), other interpretations of the accounting standards (such as this Wiley US GAAP Guide), chart of accounts (such as this chart of accounts in CCH Audit Accelerator), the chart of accounts used by AI assisted audit software (such as this MindBridge software), XBRL-based taxonomies published by standards setters (such as the US GAAP XBRL Taxonomy), Intermediate Accounting Textbooks (such as this textbook), other resources created by Big 4 CPA firms and others (such as USGAAP Plus created by Deloitte), dynamic audit solution metadata (see here), reporting checklists (such as this), the reports themselves (such as this), and other such things (here is a cross reference I created) were all CONNECTED via machine-readable metadata.

What if all these things that are connected were not created in individual silos, but where interconnected using machine-readable metadata.

What if things that were published using books were published using a media that was human-readable and machine-readable.

What new sorts of products could be created?  How might functionality provided by existing products be enhanced?

How would all this impact accounting, reporting, auditing, and analysis workflow?

Here is some brainstorming and testing I am doing in this regard.

These are some of the sorts of changes that the fourth industrial revolution will bring.

We are in the midst of the fourth industrial revolution.  Here is a list of the all four industrial revolutions:

1. Mechanization, water power, steam power.
2. Mass production, assembly line, electricity.
3. Computer and automation.
4. Cyber physical systems.

There is plenty of information in mainstream media that explains what the fourth industrial revolution is (Wall Street Journal; Forbes; NPR podcast; McKinsey). What the fourth industrial revolution means from a macro perspective is that transformative technologies will change industries.  Accounting, reporting, auditing, and analysis will not receive any sort of exemption from these transformative changes.

Each of the Big 4 CPA firms is providing information about the fourth industrial revolution and general information about risks and benefits and what you might want to do to adapt:

• PWC
• KPMG
• Deloitte
• EY

In their book The Technology Fallacy, authors Gerald C. Kane, Anh Nguyen Phillips, Jonathan R. Copulsky, and Garth R. Andrus dispel the myth that technology is behind digital transformation and shows how people are the real key.  The authors define digital maturity:

Digital maturity is primarily about people and the realization that effective digital transformation involves changes to organizational dynamics and how work gets done.

Society shapes technology's trajectory.  Humans employ technology.  Understanding only technology will get you no where really.  People try and project what all these changes mean.  For example, Deloitte articulates their vision of this transformation related to accounting in The Finance Factory.

But know one really knows exactly what will change, how the changes will unfold, or exactly what the end result will look like.  Everyone will tell you that they have a unique understanding in order to get you to purchase their products.  How do you avoid these snake oil salesmen?

The best way to understand what the fourth industrial revolution will bring is to replace ignorance with knowledge.  I have summarized what I have learned about all this in two documents.  The best and most current is Artificial Intelligence and Knowledge Engineering Basics in a Nutshell.  The second, and very similar to the first, is Computer Empathy.  I am not pushing any specific product, I am not even pushing any specific technology.  I am simply laying out the moving parts of the puzzle as I have come to understand that puzzle and providing information you can use to reduce ignorance and increase knowledge.

My personal focus is in the area of accounting, reporting, auditing, and analysis.

Make no mistake, change is not only inevitable it is imminent.  Human-machine colaboration is how work will be done in the future.  Machine-readable general purpose financial reports are a reality today. Accounting bots already perform useful work. AI assisted audits are real now and will improve even more over time. Accounting workflow is being reshaped. How to audit an organization is being rethought.  Automation of analysis is being explored. Pretty much everyone needs to improve their digital maturity.

What are you doing to avoid becoming road kill?

Accounting Today: Accounting in the fourth industrial revolution

World Economic Forum: The Fourth Industrial Revolution: what it means, how to respond

World Economic Forum: The Fourth Industrial Revolution (Video)

The Fourth Industrial Revolution: The Future of FinTech