Benedikt Kotruljević: "Humans can Often be Shifty and Immoral"

Benedikt Kotruljević pointed out that humans can often be shifty and immoral. So, who the heck was Benedikt Kotruljević?

As the article, So, Who Invented Double Entry Bookkeeping? Luca Pacioli or Benedikt Kotruljević?, points out; Benedickt is one of those credited with "inventing" double-entry bookkeeping.  As I understand it, the first documented use of double-entry bookkeeping was by a Florentine bank in 1211 (per this source). As I understand it, Luca Pacioli was the first to thoroughly document best practices of double entry bookkeeping in 1494, the best universal technology of accountability available at the time.  As I understand it, Benedikt Kotruljevic (a.k.a. Benedetto Cotrugli Raguseo) wrote a book The Book on the Art of Trading (available on Amazon) which included a description of double-entry bookkeeping, in 1458 (per this source).

Notice how providing information can enable you to reach your own conclusions?  That, in my view, is how reporting should work.

Seems like a lot of people have contributed to this important universal technology of accountability.  I have a proposed contribution. Theory-driven Semantic-oriented Financial Report Construction System.

This contribution to the institution of accountancy can enhance clarity, reduce the monotony of accounting and reporting, and make accounting information systems better, faster, and/or cheaper.  These improvements are achieve using rules-based artificial intelligence, structured information, and Lean Six Sigma techniques, principles, and philosophies.

A financial reporting scheme represents the rules of financial reporting for that scheme.  The financial reporting scheme defines terms, explains relations between those terms, rules, and what is otherwise permitted or not permitted.  Economic entities use that financial reporting scheme to create financial reports in accordance with that financial reporting scheme.  And so this is a high level summary of the tasks:

  • Description: The financial reporting scheme is used to create a report model.  In this way, a financial reporting scheme is a specification of what is permitted.  As such, that description should be a clear, complete, and unambiguous description.  Standards setters and regulators should be responsible for creating these descriptions.  That description is essentially a specification.
  • Construction: That description is then used for construction of a financial report that is consistent with that financial reporting scheme description.
  • Verification: After the financial report is constructed; what amounts to quality control is performed to provide verification that what was constructed is consistent with the description. Those creating the report scrutinize what they created to verify it is what they desired to communicate, it is a true and fair representation of the information for the reporting economic entity, it is consistent with the description provided by the financial reporting scheme, and that it is otherwise logical.  Sometimes additional verification work is provided by an independent third party in the form of an audit, a review, or a compilation.
  • Extraction: Ultimately, information will be extracted from the financial report that has been constructed to evaluate the economic entity.  That same description of the financial reporting scheme is used by those financial analysts to extract and utilize the reported information. Regulators, data aggregators, and other interested parties also might extract information.

The classical/traditional approach to performing the above tasks was to perform all this work on paper or now what amounts to "e-paper".  Because the paper or e-paper cannot be read and understood by computer based processes, the vast, vast majority of these tasks were traditionally performed manually.

An emerging approach is to perform those tasks using computer-based tools to augment the skills of accountants and analysts performing these tasks and to even automate the performing of those tasks where possible and where the automation is reliable.

What I am describing above is a human-made system of ideas.  A theory can be used to explain this system of ideas. A theory explains the logic of the human-made system of ideas.  You can even use a proof to verify the theory has no contradictions or inconsistencies within the system.  And the thing is, both the theory and the proof can be represented in machine-readable form.

Here is an example of a very basic theory and proof of that theory; the accounting equation.  The accounting equation (a.k.a. the balance sheet equation) theory can be represented thus: (this is a pseudo-theory, many details are left out to keep the explanation simple)

  1. There exists a type of thing referred to as "Assets".
  2. There exists a type of thing referred to as "Liabilities"
  3. There exists a type of thing referred to as "Equity".
  4. There exists a rule that specifies that "Assets = Liabilities + Equity".
  5. There exists structure referred to as a "Balance Sheet" which is used to represent Assets, Liabilities and Equity.
Here is the above accounting equation theory represented using the global standard XBRL technical syntax and applying the Seattle Method approach: Accounting Equation Theory.

Here is an instance of a report that follows that theory:  (Human readable | Machine Readable)

Here is the verification that the instance is consistent with the theory: Human Readable Verification Report.

Here is an analysis of the types of things that can go wrong with the logical system and examples of software detecting those things: Impediments to a Properly Functioning Logical System

And finally, here are progressively larger and more complex theories that build on the ideas of the accounting equation example: Creation of Base Financial Reporting Scheme Models and Report Models

BOTTOM LINE: An entirely new modern approach to creating financial reports is possible, perhaps even preferable.  Both human-readable and machine-readable reports can be created.  While this approach was created for general purpose financial reporting; the approach can also be used for special purpose reporting, internal management reporting, tax reporting, and such.  Enhanced clarity is possible.  The universal technology of accountability can be improved using these capabilities. 

More information is forthcoming; so stay tuned.

Additional resources:

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