Logical Twin of Financial Statement

As I have previously pointed out, there is a difference between "digitisation" and "digitalisation":

  • Digitisation involves converting data from an analogue to digital format (e.g. taking a paper report and converting it to a pdf).
  • Digitalisation, on the other hand, is about transforming entire business processes to be digital. It is about using technology to change the way that business-as-usual is conducted.
To effectively transform an entire process,  one needs to understand the difference between the notion of a "digital twin" and the notion of a "logical twin".

A digital twin is digital model of an  actual real-world physical system that serves as the effectively indistinguishable digital counterpart of that physical system. For example, representing information in RDF could be considered a digital twin.  But how do you know that what was represented within the RDF is right?

A logical twin (a.k.a. logical digital twins) takes the notion of a digital twin one step further.  A logical twin is digital machine-readable and machine-understandable sematic model of an actual real-world physical system plus a machine-readable and machine-understandable logical schema in the form of machine readable rules that proves that the logic of that digital twin replica is consistent with expectation and therefore can be considered a logical twin.

Here is an example of a logical twin of a financial report.  On the left you see the physical financial report, a traditional representation of a historical financial statement. On the right you see its logical twin.

That logical twin of the financial statement plus the rules that explain and can be used to verify the financial statement are provided using the global standard XBRL technical format.  The provided verification information that shows that the logical replica is consistent with expectation per the facts and rules provided by the machine-understandable XBRL format helps the creator of the report and the user of report information understand that the logical replica can be trusted.

The only thing better than a logical twin is a global standard logical twin. The following seems to be a spectrum of approaches to expressing logic: (think of digital twins and logical twins in terms of "levels" similar to the 5 levels of autonomous vehicles)

  1. Physical artifact such as on paper. (not machine readable, terms used are probably not standard, logical rules that prove system are likely not provided or are also not machine readable)
  2. Presentation oriented electronic (digital) artifact such as PDF, HTML, electronic spreadsheet which is readable by humans who need to extract the logic.
  3. Meaning oriented electronic (digital) artifacts such as a knowledge graph of some sort but with "local" metadata to the specific artifact and no supporting logical schema that proves the electronic artifact is properly functioning. (Local semantics need to be mapped, humans need to verify logic)
  4. Meaning oriented electronic (digital) artifacts with global standard metadata and a complete logical schema which proves the electronic (digital) artifacts are a properly functioning logical system.
There are many technical approaches to implementing such systems (knowledge based systems or problem solving systems) but the implementation approach tends to fall into three buckets: semantic web stack, graph database, logic programming.  Such systems need to be complete in order to prove that they are properly functioning logical systems.  There tends to be a spectrum of approaches to representing knowledge for an area of knowledge (taxonomy, ontology, theory, etc.) with a "theory" being the most expressive.  There tends to be a spectrum of logic for expressing knowledge with DATALOG being the best balance between expressive power and processing safety (avoiding catastrophic failure).  There tends to be three types of reasoning approaches or tools (deductive, inductive, and abductive) and the right tool needs to be used for the task. An area of knowledge can be "kind" or "wicked".  The art is to balance these dynamics with the goal(s) and objective(s) of the system.

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