Origins of bookkeeping
Whenever there is a need for detailed, defensible records of how a financial state of affairs (such as a company balance sheet or a profit and loss statement) came to be, we employ Pacioli’s concepts without even thinking about them anymore. Of course, you need ledgers of transactions as the raw material from which to derive the financial state of affairs at whatever chosen point in time is of interest. How else could you possibly do it?
Back in Pacioli’s day, there was nothing convenient about ledgers. After all, back then, all ledger entries had to be painstakingly made by hand into paper volumes. Care was needed to pair up the debits and credits. Ledger page totals and sub-totals had to be checked and re-checked, which was very labor-intensive and time-consuming. But, then computers came along and transformed everything: rigorous audit trails could be enjoyed without all the hard work.
the digital evolution of audit trails
Doubtless, somewhere along the line in the early days of the computerization of financial ledgers, it occurred to somebody that ledger entries need not be immutable. That is to say, there is no technical reason to carry forward the “limitation” that pen and ink imposes on ledger writers, that an entry – once made – cannot be changed without leaving marks on the page that evidence the change.
Indeed, bookkeeping has long had the concept of a “contra-entry” to handle the immutability of pen and ink. For example, if a debit of a dollar is made to a ledger by mistake, then another ledger entry is made – this time a credit – for a dollar to counter-balance the mistake while preserving the completeness of the audit trail.
There is no technical reason to carry forward the “limitation” that pen and ink imposes on ledger writers, that an entry – once made – cannot be changed without leaving marks on the page that evidence the change.
Ensuring transparency
Approaching legislature through the lens of an accountant
Likewise, lawyers can adopt the same approach. The world of legal corpus management is closer to the world of financial accounting than one might assume at first glance. Legal corpus management in a legislature can be conceptualized in accounting terms.
From the perspective of an accountant, the statute would be the “opening balance” inventory of the business. There is a time concept called a Biennium which is an “accounting period”. All changes to the statute that happen in the accounting period are recorded in the form of bills. Bills are basically accounting transactions. The bills are accumulated into a form of ledger typically known as Session Laws.
At the end of the accounting period – the Biennium – changes to the statute are rolled forward from the Session Laws into the statute. In accounting parlance, this is the period-end accounting culminating in a new set of opening balances (statute), for the start of the next Biennium. At the start of the Biennium, all the ledger transactions are archived off and a fresh set of ledgers is created; that is, bill numbers and session law numbers are reset, the active Biennium name changes, and so forth.
For many hundreds of years we have had ledger-based accounting. For hundreds of years the courts have taken the view that, for example, that a company cannot simply announce a Gross Revenue figure to tax officials or to investors without having the transaction ledgers to back it up. Isn’t it interesting, then, that we do not do the same for the legal corpus?
We have all sorts of publishers in the legal world, from public bodies to private sector, that produce legislative outputs that we have to trust because we do not have any convenient form of access to the transaction ledgers. Somewhere along the line, we seem to have convinced ourselves that the level of rigorous audit trail routinely applied in financial accounting cannot be applied to law. This is simply not true. We can and should fix that. The prize is great, the need is great and the time is now.
We have all sorts of publishers in the legal world that produce legislative outputs that we have to trust because we do not have any convenient form of access to the transaction ledgers. Somewhere along the line, we seem to have convinced ourselves that the level of rigorous audit trail routinely applied in financial accounting cannot be applied to law.
Digital authenticity
All around us, institutions are ceasing to produce paper copies of critical legal materials in the interests of saving costs and streamlining workflows. But, going paperless needs to be managed properly: it still needs to document a comprehensive audit trail of who changed what and when. This kind of enterprise-level ledger-based approach is what is needed for the creation of a fully digital, yet fully authenticated and authoritative, corpus of law.
Ledgers – Luca Pacioli’s great gift to the world – are the true source of authenticity for any artefact derived from the ledgers. Digital authenticity of balance sheets or Statute sections does not come from digital signatures or thumb-print readers or any of the modern high tech-gadgetry of the IT security landscape.
Authenticity comes from knowing that what you are looking at was mechanically and deterministically derived from a set of ledgers and that those ledgers are available for inspection. What do financial auditors do for a living? They check the authenticity of financial statements. How do they do it? They do it by inspecting the ledgers. Why is authenticity of legal materials such a tough nut to crack? Because there are typically no ledgers!
Thanks to computerization, we do not have to limit the application of Luca Pacioli’s brilliant insight to things that fit neatly into little rows of boxes in paper ledgers. If lawyers apply the concepts that make up an accounting system, they will reap the rewards.
Everything from tracking bill status to the engrossment of committee reports becomes significantly easier once all the transactions are recorded in legislative ledgers. The ledgers then become the master repository from which all reports are generated. The reduction in overall IT moving parts, reduction in human effort, reduction in latency, and the increase in information consistency that can be achieved by doing this is striking.
