Financial Statement Designed to be Analyzed
A general purpose financial statement has a formal structure that varies only slightly from industry to industry, country to country, and therefore from reporting economic entity to reporting economic entity. This regularity is by design. The trend is toward even more standardization. Examples of that standardization include International Financial Reporting Standards (IFRS), United States Generally Accepted Accounting Principles (US GAAP), and the Extensible Business Reporting Language (XBRL).
In fact, general purpose financial statements are so formal and predictable as to be literally mechanical.
Over the past 50 years, these general purpose financial statements have grown in size and complexity. And yet, the general mechanism to construct and analyzed has not changed that much for these important artifacts of the global capital markets.
The general purpose financial statement is a designed system; it has been created by humans for a purpose. The global capital markets use the general purpose financial statement as one of many inputs to value an economic entity. Arguably, general purpose financial statements help the global capital markets function better.
Arguably, a better functioning general purpose financial statement would help the global capital markets function even better.
General purpose financial statements were designed for systematic computational analysis. General purpose financial statements were designed to be analyzed. Financial statements are knowledge graphs.
General purpose financial statements are comprised of a set of disclosures. Each disclosure is likewise designed for systematic computational analysis. This systematic computational analysis is achieved by leveraging the disclosure design patterns of a disclosure.
The mechanics of this formal, predictable, mechanical nature of a general purpose financial statement can be described using various mechanisms. In the past, that description tended to be paragraphs and sentences of a document. But technologies available today, such as UML models, ontologies, and machine-readable theories expressed using PROLOG are far better suited for describing the mechanics of this very mechanical designed system. Other tools such as logic programming can be used to effectively perform that systematic computational analysis.
Quantitative analysis is an obvious first step toward systematic computational analysis. Qualitative analysis is another step. Strategic analysis is another step. Competitive analysis is another step. Landscape analysis is another step. What I am doing with the Seattle Method is only the beginning.
Models, frameworks, and standards are tools. One needs to be sure they are using the right tools for a job. The tools of "realspace" (think industrial economy) and the tools of "cyperspace" (think information economy) are different. It takes skills and experience to be able to pick the right tools for a job.
Accounting, the universal technology of accountability, is arguably one of the most important technologies invented in the history of human civilization and has been around about 7,000 years. Accounting was invented before writing and before the invention of numbers. The global multinational organization simply could not exist without double entry bookkeeping and accounting.
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