Introducing the Global Open Industry Standard Digital Closing Book

This blog post introduces you to what I am referring to as a global open industry standard Digital Closing Book.  

Here is my working proof of concept digital closing book that I will be referring to in this blog post.

To understand what a digital closing book is; it is helpful to first understand the problem that I am trying to solve. The consultancy Gartner estimates that currently the typical Fortune 1000 company used more than 800 electronic spreadsheets to prepare its financial statements for regulatory reporting.

The current approach becomes increasingly problematic when you know that a 2024 multi‑university study found that 94% of spreadsheets used in business decision‑making contain errors, many of them critical. This is only one of many, many studies that point out spreadsheet error pervasiveness in operational environments.

The third thing to understand is that electronic spreadsheets are effectively documents and LLMs have a really hard time understanding spreadsheets and a PWC study shows that the maximum understanding level is about 84%.

The forth thing to understand is that every one of those electronic spreadsheets is an individually crafted work of art which, therefore, depends on the individual skill, experience, judgement, and memory of the person creating each specific spreadsheet.

Finally, this is important information.  So important that the Sarbanes-Oxley Act was enacted to require public companies to be able to, essentially, explain how those 800 spreadsheets tie together to support their regulatory compliance report.  But Sarbanes-Oxley only addresses the symptoms of the problem, it does not address the conditions that cause the problem (i.e. those 800 spreadsheets).

And so that is the current context of creating a financial compliance report or even an internal management/cost accounting report using lots of traditional electronic spreadsheets: (a) there are lots of them, (b) they have a lot of mistakes, (c) they are nonstandard and therefore are not controllable or industrialized, and (d) artificial intelligence does not understand them very well.

Enter a completely new paradigm (this is the vision) for creating financial reports for regulatory compliance or management/cost accounting where there is a zero tolerance for error: the global open industry standard, model-driven, semantic powered, artificial intelligence enabling digital closing book.

My working proof of concept digital closing book works and proves this idea.  Let me explain the core pieces.

First, rather than using the traditional document centric approach; my approach is "graph first".  I have separated the document and the information.  This thinking beyond the document enables numerous interesting and useful capabilities. Yes, you can obviously create documents that are interpretable (i.e. readable) by humans.  But this is done by automatically generating that human readable information from  the machine interpretable information (i.e. rather than trying to get a computer to figure out how 800 different humans created their traditional spreadsheets).

Second, because a global open industry standard is used you are not locked into one software vendor.  Here is that same report fragment shown in a different software application: (note that this application generates a dynamic pivot table)

Third, a high-level conceptualization of a business report which is another global open industry standard (two aligned standards actually) is used to construct software interfaces that business professionals can relate to. And so, nothing is particularly technical; accountants within their area of knowledge which is accounting, reporting, auditing, and analysis.

Fourth, and this is where things get really, really interesting; because of the nature of accounting as a deterministic system and because of the use of global open industry standards; industrial processes can be created to replace those non-routine craft-based processes.

A simple metaphor can help you understand the difference. If you cook a meal from memory, that’s craft. If you write a recipe that anyone can follow, that’s standardization. If you build a kitchen that can reliably produce 500 identical meals a day, that’s industrialization.

What is now possible is that using what amounts to information "Legos"; processes can be fixed using Lean Six Sigma and Agile principles, philosophies, and techniques such as the mistake proofing technique called "poka yoke".  This means that rather than fixing mistakes or dealing with the ramifications of errors; processes can be fixed.  The current expensive and labor intensive information bucket brigade can be rethought and replaced.

There is way more but I will stop here for now.  Check out the working proof of concept.  This is no parlor trick.  And this is not a simplistic system.  This system is simple and elegant.  This system is based on my Seattle Method. Read the executive summary or the more extensive overview to understand the Seattle Method framework and theory.

Or, explore the digital closing book working proof of concept or any of the other reference reporting frameworks or other examples which show the capabilities. While what I have created used the XBRL global standard; there are other implementation approaches which are possible.

My digital closing book (described using my logical theory) is made up of 359 elements, 1067 connections between those elements, which create 42 structures, which are composed of 794 facts, and 51 conditions which must be satisfied. Those 42 technical structures (i.e. XBRL Networks and hypercubes) represent 66 logical structures (i.e. information blocks).  All that information is compostable into other representations simply by reconfiguring the model.

All this can be governed to minimize epistemic risk.

These same ideas can be used to create "digital audit bundles" or "digital analysis models" or "digital financial statements".  Accountants can transitions from their role as "data janitor" to other roles where they add more value.

Although a very technical oriented tool, the open source software Arelle also verifies the XBRL (i.e. this): (this is not intended for accountants; in addition to Arelle, you might want to check out BREL)

What is going to happen to accounting, reporting, auditing, and analysis will be very similar to what happened to architects and engineers with their "blueprint".  Blueprints went from paper to CAD/CAM; then from CAD/CAM to BIM.

Additional Information:

• XBRL Will Enhance Corporate Disclosure and Corporate Performance Management
• Smart Closing Book
• Smart Audit Bundle
• Old School Processes Inefficient
• Interchangeable Parts: Information Lego Blocks
• Getting XBRL in LLMs for as-filed research