Agile Accountancy

Agile is a framework, philosophy, and principles.  Agile accountancy is applying that agile framework, philosophy, and principles to accountancy.  I define "accountancy" as meaning accounting, reporting, auditing, and analysis; as well as financial, management, cost, tax, and compliance accounting.

The Agile Manifesto was created in about 2000 by a group of software developers trying to do a better job of creating software.  The agile manifesto has four key values:

  • Individuals and interactions over processes and tools
  • Working software over comprehensive documentation
  • Customer collaboration over contract negotiation
  • Responding to change over following a plan
Those four key values as applied to software development are broken down into 12 principles:

  1. Our highest priority is to satisfy the customer through the early and continuous delivery of valuable software.
  2. Welcome changing requirements, even late in development. Agile processes harness change for the customer’s competitive advantage.
  3. Deliver working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale.
  4. Business people and developers must work together daily throughout the project.
  5. Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
  6. The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.
  7. Working software is the primary measure of progress.
  8. Agile processes promote sustainable development. The sponsors, developers, and users should be able to maintain a constant pace indefinitely.
  9. Continuous attention to technical excellence and good design enhances agility.
  10. Simplicity–the art of maximizing the amount of work not done–is essential.
  11. The best architectures, requirements, and designs emerge from self-organizing teams.
  12. At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.
I have explained Lean Six Sigma before.  Agile and Lean Six Sigma are a match made in heaven. Think of Agile and Lean Six Sigma as complementary philosophies that can intersect strategically depending on the context.

There is one very specific practice of Agile that I want to focus on.

One part of Agile is something called extreme programming. One of the practices of extreme programming is something referred to as "Test-First Programming" or "Test Driven Development (TDD)".  When you program using the practice of test first programming, instead of following the normal path of:

"develop code -> write tests -> run tests"

The practice of Test-First Programming follows the path of:

"write failing automated test -> Run failing test -> develop code to make test pass -> run test -> repeat"

Basically, you write software to pass tests.  Those tests are referred to as a conformance suite.  You follow this practice to always maintain control of the software that you are creating.  Test-First Programming decreasing the number of bugs that get introduced into production software code.  This is done by always maintaining control of the software using software tests and testing.

That same philosophy can be leveraged when you make use of model-driven financial reporting.

But rather than driving and controlling financial disclosure using "tests"; model-driven financial reporting drives and controls using "rules".  Step 1 is to create the rules that guide the creation of a financial disclosure.  Step 2 is to create the financial disclosure in order to make sure you are following the specified rules.  This is what is behind my, Theory of Disclosures and Disclosure Mechanics.

This rules-driven financial reporting approach could not have been used in the past for two very specific reasons: (1) there were no machine-readable rules and (2) reports were unstructured documents and where likewise not machine-readable.

When model-driven financial reporting leveraging XBRL or RDF is employed, entirely new possibilities reveal themselves.  Rather than spending time on remediation and dealing with the consequences of mistakes, you focus on preventing those mistakes from occurring in the first place.

I am working on creating a graphic that is inspired by James Freeman-Gray, founder of Mutomorro, graphic of the Cynefin Framework.  I am still working on the graphic but here is the current draft: (this is another input to the graphic below)


Financial statement disclosures are not all novel art projects akin to how highly skilled craftsmen assembled cars by hand prior to Henry Ford’s innovations that include the assembly line and standardization of parts. Think interchangeable parts.

Yes, some financial statement disclosures are novel.  But even those novel practice disclosures can be described by rules and those rules can be used to make certain that the instance of a disclosure created conforms to the specification of the provided rules.

Additional Information:

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