Roadmap to Digital Financial Reporting

Someone suggested the need for a roadmap to master digital financial reporting.  To master digital financial reporting, it seems to me that digital financial reporting first needs to exist. To determine if digital financial reporting exists, you have to know what exactly digital financial reporting is.

So, what is digital financial reporting? The IFRS Foundation describes digital financial reporting in an introductory paper they wrote, Digital Financial Reporting -Facilitating digital comparability and analysis of financial reports.

In that paper, they describe a digital financial report thus,  "A digital financial report is a financial report in a computer-readable structured data format."  Digital financial reporting, then, would be financial report creation using a computer-readable structured data format.

I use the term model-driven financial reporting to describe digital financial reporting. In my view, digital financial reporting is model-druven, global standards-based, semantic-oriented, and artificial intelligence-powered.

And so, for digital financial reporting to exist, you need the following to exist in order to make digital financial reporting actually work:

  • The high-level report model. (The Financial Statement Mechanics and Dynamics is one model)
  • The global standards. (XBRL, RDF, GQL are global standards for representing high-level report meta models and the things that go into those meta models to represent individual economic entity financial report models and reports.)
  • The financial report semantics. (Includes financial reporting schemes such as US GAAP, IFRS, GAS, ASIC IFRS AU, IFRS for SMEs, FRF for SMEs, and other such financial reporting schemes.)
  • The artificial intelligence. (Includes rule-based, probability-based, LLMs and such.)
  • And software that is easy enough for the average accountant to use to create a digital financial report using the model, leveraging the global standards, which understands the semantics, and effectively leverages artificial intelligence to assist accountants creating such reports.
  • All this has to work better, faster, and/or cheaper than current processes for creating financial reports.
To master all of the above you would do so at one of two levels of understanding: (1) using the software or (2) building the software based system.

Think about it this way.  You don't need to be a mechanic or have all the knowledge of all the factory workers that built a car in order to drive a car.  If the car is designed well, someone can figure out how to drive the car on their own or perhaps have someone show them how to drive the car.  But you need to have somewhere to drive the car, you need roads.  A car without roads can work, but having the roads is obviously better.

And so, there are two roadmaps to digital financial reporting depending on if you only want to (a) only create digital financial reports or if you want to (b) design and build entire digital financial reporting systems.

To build digital financial reports, the roadmap is simply to learn to use software that exists.  That software understands the model, uses global standards, understands how to read and more importantly interpret semantics, and includes the appropriate artificial intelligence capabilities.  This is currently a rare commodity. Here are resources to do that:
To build digital financial reporting systems, the roadmap is to understand the model, understand the global standards that are available, understand how to represent the financial report semantics, understand how to leverage artificial intelligence effectively, and how to put all this together effectively within software to provide something that is better, faster, and/or cheaper than traditional and currently available capabilities. Here are resources to do that:
Remember, that digital financial reporting is not about building a bolt on solution that enables a reporting company to satisfy a regulator mandate of XBRL-based digital financial reports.  Yes, digital financial reporting can be used to satisfy a regulator mandate to supply XBRL-based reports.  Model-driven and digital financial reporting as I contemplate it is about a paradigm shift towards more modern approaches to accountancy.  It is not an incremental innovation, it is a disruptive innovation; a true paradigm shift.


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