Accounting & Audit by Design (A&AD) Framework

The Accounting & Audit by Design (A&AD) Framework is about freedom from drudgery for accountants, auditors, and analysts. A&AD is about achieving important business outcomes such as an artificial intelligence enabled ecosystem and next-generation information products. It is about streamlining processes. A&AD is about eliminating the waste of time and energy that goes into transaction chasing. A&AD is about fixing processes that allow mistakes rather than spending time fixing mistakes a process allowed or dealing with the consequences of a mistake escaping from the system undetected.

The following sections will help you understand what the Accounting & Audit by Design (A&AD) Framework is at a high level and what it enables in a manner that is approachable to the average accountant, auditor, and/or analyst. The explanation is grouped as such:

  • Environment
  • What is A&AD?
  • Why A&AD Now?
  • How does A&AD Work?
  • Business Outcomes
Fifty to seventy five years ago it would have been impossible to contemplate something like A&AD; it just was not feasible. We did the best we could to implement accounting information systems using computers and software that we had at the time.  That gave us the paradigm, the normal science per The Kuhn Cycle, that we have today. So, let me explain what A&AD is by starting with the changes in the environment that enabled A&AD to be created and what makes it necessary.

Environment

Fifty to seventy five years ago we did not have the internet, computers were rare, artificial intelligence had not been invented, there was no such thing as a blockchain, mobile phones did not exist, electronic spreadsheets did not exist.

During those fifty to seventy five years, these technologies that we know today did become available and we did the best we could to use the technologies to create the tools we use today for accounting, reporting, auditing, and analysis.

But there really was not an over arching plan.  The typical enterprise implemented software and systems to meet their immediate needs.  And, we did not even have the knowledge of the technologies that would eventually become available.

And now artificial intelligence (AI) is becoming available and intuitively we all know it truly will provide profound benefits; but we don't quite understand all the moving parts of the puzzle right now, but we do understand some of the things that are causing problems related to maximizing what artificial intelligence and the machines that leverage AI can provide.

We did not design our current existing accounting information systems to guarantee that all the data we put into those systems stays consistent by design.  As a result, we have to build processes (a.k.a. pipelines) that continually checks, fixes, adjusts, and reconciles inconsistencies because they will occur.  Humans are too involved in a lot of those processes which increases costs, increases the potential for human error, and makes it so humans have to perform mundane tasks.  This is one mindset.  That is one paradigm.

What is A&AD?

Fundamentally, A&AD is a change in mindset. A&AD is a new paradigm.

Per the A&AD consistency is expected and enforced, truth is not assembled because it is inherent, errors are prevented from ever entering the system, the system is perfect per a "fenced boundary" enforced by machine interpretable rules. The result is a virtuous cycle; a causal chain that yields trust.  Accountants go from performing the drudgery of "data janitors" to curators of the machine interpretable rules that feed this virtuous cycle. Accountants manage governance.  Accountants manage epistemic risk.

This is not hype.  This is not magic.  All this is possible because of careful attention to detail by professional accountants, clever software, proper use of the right artificial intelligence tools, leveraging Lean Six Sigma quality control principles and techniques such as poka yoke mistake proofing, and employing Agile philosophies. These "freemasons of the information age" have consciously crafted new tools that enable this new paradigm. This is not a cheap parlor trick; everything is provable today.

But all that is really only a by product. The real value is the opportunity to maximize the utility of artificial intelligence.

A framework is stabilizing scaffolding or essential supporting structure which provides leverage and scalability. A framework is a structured set of guidelines, libraries, conventions, components, best practices, and tools that provides a foundation for building and stabilizing applications or systems. Frameworks are useful because they save time, enforce consistency, and avoid reinventing solutions to common problems.

Fundamentally, A&AD is an open framework that can be leveraged so you don't have to reinvent the wheel. There is no vendor lock in. No specific software vendor is necessary or required. Detailed information is available here on GitHub:

With A&AD a new platform and ecosystem can be created. Completely new type of work systems can be created which leverage the A&AD framework. And these new tools can be created at scale which enable industrial processes to be created. These new tools can effectively and reliably leverage the characteristics of accounting.

Why A&AD Now?

What people have referred to as the semantic web has matured and is deemed enterprise ready. Other standards such as REA via the ISO/IEC Accounting and Economic Ontology, ACTUS, FIBO, XBRL, OIM, SBRM, and other standards are free and openly available.

It would be a big mistake for each enterprise to implement accounting, reporting, auditing, and analysis in different proprietary ways.  This would yield increased costs, decreased interoperability, and suboptimal outcomes.  A&AD now is an opportunity to create and even better version(s) of A&AD down the road by collaborating, coordinating, and orchestrating A&AD to serve the needs of all enterprises; large, medium, and small.

The proper fenced boundary could not have been created seventy five years ago, or even fifty years ago, or even 25 years ago. But technology has matured and, while perhaps not perfect or perfectly understood; the time does seem right.  And for enterprises to maximize benefits from artificial intelligence, current enterprise accounting information systems need to be adjusted. Semantic fragmentation needs to be minimized, and preferably eliminated.

How does A&AD Work?

A&AD leverages the characteristics of the double-entry bookkeeping mathematical model. But it is not limited to that model. Financial and nonfinancial information can be processed.  Fundamentally, A&AD is a conceptualization per the triangle of meaning. Representations of A&AD can be implemented in different ways.  Currently, A&AD leverages as much of the W3C semantic web "layer cake" that would make a complete system.

Business Outcomes

A&AD is about maximizing the opportunities enabled by artificial intelligence. A&AD is about maximizing the opportunities enabled by the double-entry bookkeeping mathematical model in terms of quality, traceability/trackability, and information provenance. A&AD is about replacing many current craft base process with industrialized alternatives which are more reliable.  A&AD helps enterprises better manage and control the every increasing volume of information, the pace that information is moving, and the complexity of that information.


A&AD is an open standard.  Standards make markets. Think of A&AD as being similar to the standard ISO shipping container, the standard UPC code, cell phone standards, standard light bulbs, standard electrical outlets. The A&AD framework provides you with the business outcomes you need from your technical architecture without software vendor lock in.

Additional Information:

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