Digital Financial Reporting Proficiency

Proficiency is the capability, skill, and knowledge that you might have for doing something.  Proficiency is a progression.  There are general levels of proficiency: literacy, fluency, mastery.

A paradigm shift is occurring. This shift is caused by the difference between how "realspace" (the real world, analog) and "cyberspace" (the internet, digital) operate.  Lawrence Lessig explains the difference in his book, Code and Other Laws of Cyberspace.  The book outlines what is called the Theory of Regulation or the Pathetic Dot Theory; the four forces that constrain our actions:

  • Laws and regulations:  The law threatens sanction if the rules are not obeyed.
  • Norms: Social norms are enforced by the community.
  • Markets: Supply and demand set a price on various items or behaviors.
  • Architecture: The “social architecture” whether natural (made by nature) or designed (manmade) constrain our actions.
"Digital" is a thing, it is causing many changes, and not understanding what will change, why, and how is risky. Accountants must choose what type of "cyberspace" they want.  The great transmutation to digital, things like algorithmic regulation, will cause the world to work in different ways than it has worked in the past. To achieve this, you need to understand not just your domain of knowledge; but also technology as it might be applied to your domain of knowledge.

To choose, accountants need to have digital proficiency.

Given that the IFRS Foundation is now talking about “digital financial reporting”; one could conclude that the era of XBRL-based digital financial reporting is here.  The FASB talks about digital business reporting and XBRL.

In the document, Digital Financial Reporting: Facilitating digital comparability and analysis of financial reports; in the section "What is needed to realise the benefits of digital financial reporting?" the IFRS Foundation provides four points for users of financial reports to realize the full benefits of XBRL-based reporting:

  • be a complete and accurate representation of reported information;
  • be structured in a digitally comparable format; 
  • be publicly available at the same time as reported information; and
  • be centrally accessible in an easy-to-use format.

In that same section the IFRS Foundation has a call to action:

Over the past 10 or 15 years, some accountants have built up a proficiency in constructing rather poor XBRL taxonomies and XBRL-based reports that have far, far too many quality issues (i.e. errors).  That really needs to be fixed, and it will be fixed over time.  Perhaps this might take 5, 10, maybe 25 years; but it will be fixed.

What accountants new to XBRL-based reporting do not want to do is repeat the same mistakes as the early adopters of XBRL-based reporting.  Rather; learn from those mistakes and avoid making those same mistakes.

Early on, I make the same mistakes that others made.  But what I did differently was to figure out that I was making a mistake and I struggled to fix my processes and avoid those mistakes.  This struggle led me to the creation of what I call the Seattle Method which offers guidance on how to create high-quality XBRL-based digital financial reports.

Over the past 20 years, I have kept what amounts to a "lab notebook" of my work. The information is not particularly well organized; but I will fix that.  A first attempt is to try and put the information into helpful buckets.  Here is a first pass at those buckets and specific resources that might be helpful to other accountants trying to wrap their head around digital financial reporting and digital business reporting:

Fundamental Awareness (basic knowledge, literacy)

Novice (limited experience, literacy)

Intermediate (practical application, fluency)

Advanced (applied theory, mastery)

Expert (recognized authority, mastery)

Eventually, I will organize this into somewhat of a "skills framework".

Additional information:

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