Provenance

Accounting is one of the strongest, oldest, most mature, and most rigorously enforced provenance preserving systems humans have ever build.  Every accounting system is a provenance machine for economic activity of an economic entity. Part of that provenance machine is the double-entry bookkeeping (a.k.a. double entry accounting) mathematical model.

The first documented use of double-entry bookkeeping was in 1211 by a bank in Florence. This meant that for the first time, a trusted family member did not have to keep the books.   Around 1300 double-entry bookkeeping came of age. In 1494 during the Renaissance, Venetian mathematician and Franciscan friar Luca Pacioli  published a book, Summa de arithmetica, geometria. Proportioni et proportionalita (Sum of Arithmetic, Geometry, Proportion and Proportionality) which formally documented and standardized double-entry bookkeeping.

Accounting records where economic events came from, documents who performed them, preserves how a business event changed assets (owned resources), liabilities (obligations to third parties), and equity (obligations to owners of the economic entity). Accounting, the universal technology of accountability, maintains an unbroken chain of custody through journals, ledgers, audit trails, and controls. A financial statement is not simply a report; it is the final node in a provenance chain:

  • Situation
  • Business event
  • Source document
  • Journal entry
  • Ledger posting
  • Trial balance
  • Adjustments
  • Report writer
  • Financial statements
  • Financial analysis models

If you break provenance at any point; you cannot audit, you cannot verify, and therefore you cannot trust the numbers. Break the chain of custody and you lose the basis for  trusting what the numbers say. Double‑entry bookkeeping is a quality control and internal controls mechanism that enforces:

  • Cause and effect (business event and financial accounting entry)
  • Traceability (every debit has a corresponding credit)
  • Integrity (the system detects breaks in the chain)

An accounting information systems internal controls are provenance controls. Accounting is one of the few domains where provenance is legally enforced.

Provenance relates to the origin of something. If you don't know where your information came from; then you can't know how much trust to bestow on that information. In accounting the term "audit trail" is used to refer to provenance.  The audit trail tracks the journey of financial information from initial entry, through processing, to final reporting, and even to financial analysis. Internal auditors and third party independent auditors verify or attest to a provenance chain or audit trail by inspecting, testing, and providing an opinion as to whether that chain is reliable. The audit trail needs to be tamper proof.

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