The Great Transmutation of Financial Accounting, Reporting, Auditing, and Analysis

My document The Great Transmutation explains the "great upheaval" and "great progression" that we are living through as the world transitions from where we were to what is being referred to as the Fourth Industrial Revolution.  No one knows exactly where we will end up, but there are many clues if you are paying attention.

Part of this transitions will be humans applying artificial intelligence.  It is the combination of artificial intelligence (AI) plus human intelligence (HI) that will cause this transformation (AI + HI = Transformation).  Humans need to understand these new tools that they have at their disposal.

The transition is well underway; the status quo is doomed.  Humans need to understand these new tools, their real capabilities, and how to pick the right tool for the job.  There are different types of artificial intelligence.  There tends to be three different types of artificial intelligence that offer different "baskets" of capabilities: (if you don't understand the difference, watch this video)

Professional accountants need to understand the different approaches to artificial intelligence, be able to differentiate the capabilities of each approach, and understand that the approaches can be combined into a hybrid approach.  Professional accountants need to develop the skills and abilities to represent information digitally.

Accounting is a technology. Accounting is a universal technology of accountability that society has found important for over 7,000 years and will very likely continue to find important and valuable.  But the tools that accountants, auditors, and analysts use to practice accounting are going to change.  If one pays attention, one can predict the changes that will take place to a degree.

When I started my career as an auditor with Price Waterhouse, we used paper spreadsheets.  I personally helped to pioneer the use of electronic spreadsheets like VisiCalc, Lotus 1-2-3, and ultimately Excel for things like audit lead schedules, working trial balances, audit working papers and schedules.

Now I am helping to pioneer the use of more modern spreadsheets.  These more professional spreadsheets will not be used for everything.  But they are useful and they could end up being a universal global standard logical spreadsheets.  This does not mean that your favorite electronic spreadsheets like Excel or Google Sheets are going to go away.  Modern spreadsheets will supplement traditional spreadsheets, they are another tool with different capabilities.

If you think about it, this makes complete sense.  Spreadsheets tend to be very arbitrary because they are presentation oriented because different people have different preferences.  How exactly are you going to make something like "algorithmic regulation" work using only traditional presentation oriented spreadsheets? A new approach to creating spreadsheets is necessary.

Financial reports are only one example of complex "packages" of information.  Financial reports are knowledge graphs and methods are necessary to make certain that the information in those knowledge graphs are high quality.  The Seattle Method does exactly that.  So will the forthcoming OMG Standard Business Report Model (SBRM).  The digital general purpose financial report is only one example of what is possible.  These same ideas can be used to create digital working trial balances, accounting and auditing working papers and schedules, financial models, and other such artifacts of financial accounting, reporting, auditing, and analysis.

These same ideas that I have applied to financial accounting, reporting, auditing, and analysis are also applicable to other areas such as tax and management/cost accounting and even general business reporting.  They could even be useful to, say, create something like electronic medical records.  The common denominator is the words, numbers, and logic.

Don't think of all this in individual silos.  There are new rules at play.  A new paradigm is unfolding. You need a new map to understand this new territory.

A financial report is a knowledge graph. And so are accounting and auditing working papers, financial models, general business reports, and other such artifacts.

Additional resources:

Comments

Post a Comment

Popular posts from this blog

Relational Knowledge Graph System (RKGS)

Image
Relational Knowledge Graph System (RKGS) is an interesting idea that combines the relational paradigm and the knowledge graph paradigm.  This documentation, Why RKGS , explains the idea. This gets even more interesting with the notion of "relational AI".  RelationalAI is described as follows by the company of the same name, Relational.ai : “RelationalAI is a cloud-based relational knowledge graph management system, with state of the art probabilistic processing and declarative reasoning at scale to make developing Data Applications a superpower for your business.” This notion of knowledge graphs represented in relational databases fits into my belief that knowledge graphs have two aspects: the expression SYNTAX and the logic of what is expressed or SEMANTICS. While the LOGIC of a knowledge graph is always the same regardless of technical syntax used to express that logic; there are many, many different technical syntaxes that can be used to represent a knowledge graph. There
Read more

Getting Started with Auditchain Luca

Image
The Innovator's Dilemma points out that disruptive innovations often look like toys that are doing everything wrong. Auditchain Luca , which is part of the Auditchain Suite , is a unique approach to creating a knowledge graph .  To experience using Auditchain Luca, have a look at the Getting Started with Auditchain Luca instructions. Be sure to grab the Excel and JSON import files used for this getting started exercise.   This getting started exercise uses one of several different approaches to getting information into a tool for constructing and viewing professional quality knowledge graphs .  Additional getting started guides will be made available over time. Auditchain Luca might not make sense to you if you don't understand the paradigm shift that is occurring and if you have not shifted your mental map. For the next step in your journey, consider trying creating a report using a financial reporting scheme template . If you are struggling to figure out how to register or
Read more

Evaluating the Quality of XBRL-based Financial Reports

Image
From the time public companies started submitting XBRL-based financial reports to the U.S. Securities and Exchange Commission, I have been looking at those reports, trying to understand the XBRL-based reports, and trying to figure out how to get them right.  That information was used to figure out how to create software applications that help professional accountants get these reports right. Here is information that summarizes my testing and results which I stopped doing March 31, 2019: Analysis of the high level accounting relationships in the 10-Ks of about 5,716 financial reports  (5,063 public companies, about 89.1% got all these high level accounting relationships consistent with expectation, 623 were inconsistent and manual confirmation revealed the inconsistency was an error) Documentation that helps you understand 26 different types of errors in XBRL-based reports High quality documentation of hundreds of errors in XBRL-based reports submitted by public companies to the SEC Doc
Read more