First Time Capability in 7,000 Years of Accounting

For the first time ever in about 7,000 years of accounting, a financial statement can be exchanged between two parties and portions of the information within that statement can be effectively understood by a machine.  Today, both humans and to some extent machines can understand financial statements and work with that information.

As Denise Schmandt-Bessersat in her video on the origin of writing, between 5,000 and 10,000 years ago farmers in Mesopotamia, where agriculture was born, used physical object to count crops and animals . The distinction between types of crops or animals was made by using different types and shapes of objects pressed into clay.  It was around that time, in about 3200 BC, around 5,000 years ago, the first spreadsheet was invented. Below you see an example, a Cuneiform tablet with seal impressions: administrative account of barley distribution with cylinder seal impression of a male figure, hunting dogs, and boars:

These farmers replaced the pressing of objects into clay with the marking of clay by scribes using styles, writing using Cuneiform.  The clay tablets eventually gave way to papyrus which was lighter than the clay.  Papyrus gave way to other mediums like bamboo stalks in some cases, linen, parchment, and paper.  Accounting using this mechanism was our first communications technology.

That all changed in July 2002 when 27 Dutch Association of Water Boards provided the first ever public implementation of XBRL. (See here for more information.) Today, as of this writing, there are 216 regulators that have implemented XBRL based reporting systems. Millions of companies report using the global standard XBRL technical format.

What is different now is that machines, such as computers running software, can to a degree read and understand the meaning conveyed by an XBRL-based digital financial statement.

The era of digital financial reporting has begun. Financial reporting standards setters are beginning to leverage machine-readable semantics. Proficiency of accountants is not where it needs to be yet, but it will get there.

Consider the implementations of this for a moment. What does this mean for financial accounting, reporting, auditing, and analysis?  A general purpose financial statement is effectively an information product; maybe even a knowledge product that might even be convertible into a decision product or service.  Hype aside; This same idea developed by accountants for financial reporting have implications for general business reporting and information exchange.

Refer to these reports as XBRL-based reports, logical twins, digital twins, mirror worlds, holographic financial information system, or whatever.  This has profound implications for the institution of accountancy globally.

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