Accountants live in the Past

A family milestone was recently achieved when my nephew received his CA designation. Great to see when a lot of sweat and effort ultimately leads to a personal and professional goal.

Chris Cairns CA

The blog heading is not meant to be derogatory; it’s just what accountants primarily do. Their job is to record company history in financial terms, according to GAAP (generally accepted accounting principles). According to Wikipedia, the rules and procedures for reporting under GAAP are complex and have developed over a long period of time. Currently there are more than 150 “pronouncements” as to how to account for different types of transactions. GAAP is slowly being phased out in favour of the International Financial Reporting Standards (IFRS).

Not all CAs stay in the accounting field. In many cases it’s a foundational step that will lead to a successful business, management, IT career.

IMO, the biggest contribution a CA just starting out can make is busting through the “yellow bubble.”  That means not being trapped by existing paradigms but challenging them. The world needs CAs in leadership roles to enable new perspectives and ways of thinking emerge and flourish. Obviously the disruption must be respectful and tactful to avoid ticking off senior CAs who may not realize they have become professionals trapped in their own expertise. In the following video, Dave Snowden explains the phenomenon.

What are some of these accounting paradigms we should challenge?

One of the oldest and most durable (resistive?) paradigms in an organization is the financial system that runs on a fiscal year. It is so strong that other systems such as HR, Planning, Marketing, and Supply Chain align their activities to fiscal quarters. If the fiscal year ends on 31 March, a phenomenon called “March madness” takes place. Cautious for the preceding 11 months, a manager will madly spend to minimize year-end budget variance or in fear of having next year’s budget allotment reduced. To avoid this annual ritual, managers are directed to curve budgets; that is, guess when they expect expenses to be charged.

Anyone who has managed a project extending over one year has encountered accrual accounting. It’s spending time guesstimating what your expenditures will be on a particular date. Think about the times you wanted to proceed but we’re told you had to defer due to budgetary reasons. Alternatively, you were surprised and told to spend money now as there were surplus funds. However, you couldn’t pull it off due to lead time issues.

Why is the 12-month fiscal year a sacred cow? Consider the annual employee appraisal. Does it make sense to reward or punish employees according to some fiscal time schedule? Agile companies don’t; they formally recognize performance immediately.

In companies that have installed an IT ERP Financial systems, the Control of Information paradigm is significantly reinforced. Many CAs and CIOs struggle with the advent of social media software, products of the Complexity/Sense-Making S-curve. It will be fascinating to observe those who try to control information and those to choose to unleash the power of networks. Professor Robert Plant in his HBR article “IT Has Finally Cracked the C-Suite” wrote about a new leadership title Chief Business Technology Officer (CBTO). It’s a paradigm shift for technology leaders who still refer to themselves in terms of “working with the business” rather than using technology to drive business strategy.  “You can tell the ones who will thrive and survive and the ones who won’t,” he says. “It may be a year, it may be four, but many are not going to make it because they are so focused on old-school stuff that their competitors will focus on differentiating them and beat them eventually.”

How might one improve business agility? Small ideas include removing the accruals burden on the project manager and putting the onus on the accountants to estimate the dollars spent. A bigger shift is to dispense with a fiscal year operation and run the total business on a Gantt chart. Adam Laskinsky in his book Inside Apple revealed that the Apple culture has only one budget held by the CFO. Managers are not encumbered by dollar watching and focus full attention on getting their projects done.

The future belongs to companies, to organizations,  and to governments who recognize the need for strategic agility. And there’s a strong possibility they will be led by smart CAs.