Financial Report is Special Type of Knowledge Graph, a Holon

As I have previously mentioned, a financial report is a knowledge graph.  But it turns out, a financial report is not just a knowledge graph...it is a special type of knowledge graph referred to as a holon.  Kurt Cagle has been posting some exceptional information about holons. If you are an accountant you may want to keep an I on this.

Effectively, a holon is something that is simultaneously a whole in and of itself, as well as a part of a larger whole. Read this post to understand more.  As Kurt Cable point out, a holon is not just one knowledge graph, it is four graphs. Kurt explains these four graphs in general terms; I want to explain these four graph in more specific terms as they relate to the financial statement.

This explanation is based on Kurt Cagle's article, What Is a Holon? Part 1: The Graph as State Machine, as specifically applied to general purpose financial statements.

The Scene Graph (i.e. interior state)

The "scene graph" (a.k.a. interior state) is the state of the world at a point in time and changes in that state. As this relates to a financial statement, which is effectively a state machine, balance sheets communicate state or what are called "stocks".  The income statement, the statement of changes in cash flows, the statement of changes in equity, and roll forwards of balance sheet line items communicate changes in state or what are often referred to as "flows".

The policies and disclosure notes provide additional details for what is provided within those primary financial statements that communicate stocks and flows or state and changes in state.

The scene graph or the interior state communicates what exists right now and is the informational substraight upon which the next three knowledge graphs operate.

(In XBRL, the report model and the report provide the scene graph)

The Boundary Graph

The "boundary graph" articulates the conditions the scene graph must take.  The boundary graph communicates the conditions or rules (a.k.a. assertions, restrictions, constraints) the scene graph must satisfy.  The boundary graph is used to validate and otherwise verify that the scene graph is constructed within the boundaries of what would be expected.

The financial reporting framework such as US GAAP, IFRS, or other financial reporting framework specifies the boundary graph of the financial statement created by a reporting economic entity.

The boundary graph makes sure the report model (i.e. that balance sheet, income statement, statement of changes in cash flow, statement of changes in equity, and all other artifacts) of the reporting economic entity are consistent with financial reporting framework.

(In XBRL, the base taxonomy of a reporting framework provides the boundary graph.  MINI 2026 is my best example of a complete boundary graph)

The Event Graph

The "event graph" is the detailed record of what changed and all the related details and provenance, traceability, and trackability information.  This information is what yields the new state..

The business events and the financial transactions spawned by those business events is the event graph which generates the changes in state of the reporting economic entity which are then reported by the financial statement provided by a reporting economic entity.  Now, this information is generally now provide to parties external to the reporting economic entity.  But this event graph is what generates the scene graph.

Think of it this way.  The general ledger and subsidiary ledgers that feed the general ledger have (or should have) all the information that is used to generate a trial balance, the lead schedules that map the internally used chart of accounts to the standard financial reporting framework standard line items a reporting economic entity provides, per some financial reporting frameworks.

(For XBRL, the event graph would be a set of general ledger transactions or a set of business events)

The Projection Graph

The "projection graph" is the information necessary to take the scene graph information and project that information into a human readable document type format which a human can consume.  The projection in not a different version of the scene graph information, there are not two copies of information.   The projection graph facilitates the conversion of the machine interpretable scene graph into a human interpretable document such as a spreadsheet or software interface such as a software application or pivot table.

In terms specific to a financial statement, the projection graph are the common practice rules of, say, formatting the total of a roll up, the actual state and changes in state information of the reporting economic entity, all verified to be consistent with the boundary graph and containing the business information from the event graph.

(In XBRL, the projection includes information from the conceptual framework, from the report model, from common knowledge)

* * *

There are some other important ideas which will help a reader understand and a specific example you can explore can help you get your head around these ideas.

First, Agile and Lean Six Sigma principles, practices, and techniques can be used to manage the information in those four graphs.  Techniques such as "poka yoke" mistake proofing and the "1-10-100 rule" which helps one see how fixing processes as contrast to fixing mistake or fixing the ramifications of mistakes, can be used in conjunction with these knowledge graph based holons.

Second, if you look at a digital financial statement submitted to the SEC for, say Microsoft; you will see that the financial report (the whole) is made up of 192 blocks of information (the parts of the whole). Now, the Microsoft or most others, XBRL-based reports are not particularly well represented.  What I did was reverse engineer XBRL-based reports and figured out a framework and method, which I call the Seattle Method, which enables the scene graph and the boundary graph to be well articulated, see these reference reporting frameworks and example financial statements. One of the best examples is this model financial report created for IFRS for SMEs.

If you understand accounting and reporting, then you will understand how these pieces can be put together and even create industrial processes in new ways. This offers a new approach to solving old problems more effectively and efficiently.

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