Digital Financial Reporting/Introduction

Introduction edit

The general purpose financial report is getting a face lift, being updated for the 21st century. It is hard to say exactly when this process began. In the early 1900's financial disclosures became more standardized. In the 1970's efforts began to create a set of international financial reporting standards. In the last part of the 20th century the XBRL technical specification was created, establishing a global standard technical syntax usable for business and financial reporting. In the early 21st century the US Securities and Exchange Commission funded the creation of the US GAAP XBRL Taxonomy and mandated that public companies report to the SEC using the XBRL technical syntax.

But public companies who report to the SEC amount to only about 10,000 entities that are regulated by the SEC. There are still approximately:

  • 90,000 state and local governmental entities in the US
  • 360,000 not-for-profit entities in the US
  • 28,000,000 private entities in the US

Similar numbers of state and local governmental entities, not-for-profits, and private entities likewise exist in other parts of the world. All these entities could benefit from the digital financial report. But what are the benefits of a digital financial report as contract to current paper-based or electronic financial reports? Think about something. Today, how much does the tool you are using to create a financial report understand about financial reports? Two primary tools used are Microsoft Excel and Word. What do those applications understand about financial reports or the process of financial reporting? They understand nothing. What if software did understand the financial reports with which they are interacting?

Contrasting Digital Financial Report to Digital Blueprints edit

Digital financial reporting has the opportunity to do for the financial report and the financial reporting supply chain what CAD/CAM did for not only the blueprint, but for the entire product design and manufacturing life cycle . The following is a brief explanation of CAD, commuter aided design:

CAD software is used to increase the productivity of the designer, improve the quality of design, improve communications through documentation, and to create a database for manufacturing. CAD output is often in the form of electronic files for print, machining, or other manufacturing operations. In CAD/CAM software architectural objects have relationships to one another and interact with each other intelligently. For example, a window has a relationship to the wall that contains it. If you move or delete the wall, the window reacts accordingly.

In addition, in CAD/CAM software machine-readable architectural objects maintain dynamic links with construction documents and specifications, resulting in more accurate project deliverables. When someone deletes or modifies a door, the door schedule is automatically updated in your local application's database and perhaps even in the database of the door supplier. Spaces and areas are update automatically when the size of a room is changed and calculations such as total square footage are always up to date. That means, say, that the amount of paint necessary to cover a room or an entire building is always updated. Blueprints can be sent directly to numerically controlled (NC) machines.

Well organized machine-readable information has other uses as well. Domains of knowledge articulated in machine-readable form can leverage the power of computers to more rigorously communicate that information. For example, ambiguity can be reduced from the US GAAP conceptual framework which is the basis for financial reporting in the U.S. Today, less reliable humans are used to remove ambiguity. Research of a domain of knowledge, such as the FASB Accounting Standards Codification (ASC) , can be made easier and more reliable leveraging machine-readable semantic information. Both text-based search but even more compelling is semantic-oriented search.

But to make digital financial reports usable, digital financial reports need to work. Defining "work" can be subjective. What "work" means must be decided by the participants of the financial reporting supply chain, the ultimate creators and users of such financial reports. Other aspects of defining work are less subjective or even completely objective and even mechanical.