Explaining Financial Results

CROSBY III automatically constructs explanations for financial results. The key elements of the program are 1 a body of raw financial data to be explained, 2 an extensible knowledge base of financial relations expressed as algebraic constraints, 3 a selection of possible explanatory variables and information about the relative likelihoods of individual hypotheses, 4 an algorithm for generating consistent, adequate, plausible and parsimonious interpretations of the data, 5 a facility for explaining how a particular interpretation supports the data and 6 a facility for explaining why one interpretation is preferred over another. This paper focuses on facilites 5 and 6. CROSBY III is an implemented but undeployed prototype that has been tested on historical data and financial models of a small high-technology company along with its closest competitors, on more than ten divisions of a large company and on a collection of large banks.