XBRL-based Digital Financial Reporting

In a private group email related to  the creation of the Standard Business Report Model (SBRM) , a colleague from the Object Management Group (OMG) mentioned the notion of "fail loudly" which is one of the most brilliant statements I have heard in years. And the notion of "fail loudly" is connected to other notions related to failure: Fail Loudly Masked Failure Prevent Failure Define Failure Control Failure Cost of Failure Avoiding Failure In the rest of this article I will elaborate on each of the above ideas as they relate to the work performed by professional accountants in the creation of financial reports or performing internal or third party financial audits. Fail loudly "Fail loudly" means that instead of allowing mistakes to accumulate and show up unexpectedly later in a process; software proactively monitors and detects invalid inputs, unexpected states, and violations of assumptions and expectations in real time. If something goes wrong, software...

The Office of Comptroller of Currency (OCC) is a small working proof of concept regulatory and financial reporting scheme that I created for experimentation, testing, training of others, and such. This working proof of concept was inspired by this Wikipedia article on financial statements  which has a JPEG image of a financial statement created by Wachovia National Bank created in 1906. Based on that example financial statement, I created what I call the Office of Comptroller of Currency (OCC) financial reporting scheme.  That very basic financial reporting scheme looks like this when viewed by a human : And here is a screen shot of a digital financial report created using that financial reporting scheme above and viewed within a software application: What is really cool is you can take that raw XBRL and convert that into any number of different forms to view or work with the report model and reported facts.  Here is one example, a basic digital report viewer created by ...

Epistemic risk relates to the risk of being wrong. Requisite variety relates to every possible way of being wrong. To manage epistemic risk, your epistemic "inspection process" or methods of checking, validating, and governing risk must have enough variety to match the possible errors which could occur. As was pointed out in this blog post , "completeness" is not produced by reasoning; what is considered "complete" must be declared or governed in some way.  That is one thing that the Seattle Method provides, a definition or declaration of completeness. What authority do I have to define what is complete? Well, I am not really defining what is complete, I am defining eight indisputable things that are necessary for a financial statement to be considered correct. What I am prescribing is necessary to be considered correct, but it might not be considered sufficient . The ways one can be wrong when creating something like an XBRL-based report when a report m...

This article by Nicolas Figay,  When Knowledge Graphs Fail, It's Not the Ontology — It's the Epistemology* , is spot on.  It is critically important for business professionals to understand the following notions. First, toward the end of the article, the following statement is made, " Completeness is not produced by reasoning — it must be declared or governed. " That statement is spot on. As I have tried to point out in  articles I have written , there needs to be a conscious matching between possible perturbances and control.  This is the Law of Requisite Variety . Full stop. Second, there is a difference between " data ", " information ", and " knowledge ".  Most people seemed to be mentally locked in the world of data.  But that is not where you want to be.  You want to be working with information because you can use information to create knowledge; data will not get you where you want to be. Third, I never could really get my head aro...

The Future of Accounting is a forthcoming book by Dave McComb and Cheryl Dunn.  This is worth checking out. "This book ushers in a sea change in the practice of accounting and the implementation of accounting systems. We are not tweaking the status quo. This book is the product of rethinking accounting from first principles. This is what accounting would look like if we designed it anew, based on what has been learned in information systems over the last 50 years." Additional Information : The Future of Audit: What Will Audit Firms Look Like in 2030? Seattle Method Overview Building a Mindful Machine for Accountancy Brainstorming a Collaborative Work System for Reporting and Audit Teams Rethinking Financial Reporting: the Model-driven Financial Statement Financial Statement and Audit Quality Understanding Model-driven Standards based Semantic-oriented AI-powered Financial Reporting Understanding Global Open Industry Standards Based Model-driven Semantic-oriented Artificial I...

In my view, the currently employed work systems used by a reporting team to generate a financial statement and by an audit team to perform and audit of a financial statement that has been generated should be completely destroyed (i.e. use the approach of idealized design ) and reconstituted.  Alternatively, currently employed systems might be supplemented or augmented to include additional new capabilities.  These new capabilities would take the following form: A model-driven approach  similar to XBRL-based digital financial reports as opposed to the current document oriented approach to creating accounting and audit working papers and schedules Global open standards based rather than proprietary Semantic oriented " things " as contrast to strings Software allows for the creation of and enforcement of good and best practices and canonical templates and leveraging standard work approaches Open-core model  software shared by all accounting and audit firms (i.e. proprie...