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November 04, 2019

Creativity and Art in Accounting

Do you understand the language of business?Part 3

“The chief enemy of creativity is good sense.” – Pablo Picasso

Well, well, Mr. Picasso. You aimed that at accountants, didn’t you?

For an accountant, creativity and good sense simply don’t go together. They are indeed mortal enemies. (See how I killed that beautiful quote with my unimaginative clarification? This is one of the exasperating things that accountants do, unfortunately!)

Back to the topic – Who wouldn’t like to be creative? I feel awe and more than a tinge of envy when I meet a truly creative person or come across some inspired piece of work.

But for an accountant, creativity is considered bad. Really bad. And that is not necessarily because

“Creativity is intelligence having fun.”

as Albert Einstein apparently said, irrespective of what you think about accountants and fun.

Pablo Picasso once, very dramatically, pointed out that

everything you can imagine is real.

Accounting is definitely one place where you don’t want that. Nor the other way round, i.e., you don’t want anything real to vanish due to an accountant’s imagination. Hence, anything to do with imaginative bends and creative mindsets and artistic tendencies – when it comes to accounting – please leave them at the door, thank you very much.

Or handle with super-extreme care and caution.

Which is why creative accounting and ‘window-dressing’ are such dirty words.

But if double-entry book-keeping is pure science, where is the scope for creativity in accounting?’ – you may ask.

The answer lies in the ‘some more’. Remember the definition of accounting in Part 1 of this series?

Accounting = book-keeping + some more

Alright, so let’s explore the ‘some more’ some more.

Actually, an accountant sets the ground work before before the bookkeeping begins; and then continues from where the bookkeeper’s job ends. Hence, the definition should more logically be something like:

Accounting = some + bookkeeping + some more

Let’s first look at the initial ‘some’.

Even before a bookkeeper sits down to record a transaction, there are a number of questions to be answered. Such as,

Which transaction(s) should I record?
When, i.e., in which period, should I record them?
At what amounts should I record them?
Hidden in these questions are many ways in which accounting could possibly be “managed.”

Say, there’s a legal case against your company and it looks like you may end up paying some hefty fines which could range anywhere from $100 million to $500 million. (With the amounts of fines that the likes of Facebook and Google are paying, this is not unrealistic at all.)

(“Also, technically, this is an event, not a transaction. Accounting is recording not just transactions, but also events.” – Clarification from my boring accountant self)

Back to the case at hand – The first dilemma from an accounting point of view is when should you record this fine in your accounting books. Do you record it only if and once the court has ruled on the amount of the fine? If yes, what if you decide to appeal? Would you delay it further? Alternatively, do you record the fine when you know there is a likelihood to be slapped with one? If yes, what level of likelihood should you consider? How do you measure that likelihood?

Remember – recording that fine means a serious dent to your profit especially if you are having a bad year already.

So, a creative accountant will try to push that into another year – at least partly. This is one of the games that creative accountants love to play. Push entries into or pull entries from another year depending on how you ‘want’ your numbers to look for this year.

Yes, that’s right. Creative accountants always play with a purpose. No wonder Abraham Maslow said that

Almost all creativity requires purposeful play.”

And almost always, the purpose is to show the company in better lights – hence, the term ‘window-dressing.’

Accounting standard setters tend to be rather prudish and prudent about such things. Hence, they will try to force you to record such fines earlier rather than later. But therein lies the next dilemma. Until the court decides, you may not know exactly how much is the fine. So what amount do you record?

In these and similar dilemmas lie plenty of opportunity for dazzling displays of creative skills by the fun-loving super-intelligent accountants.

Like the opportunities to decide:

– when to record an income,

– when to record an expense,

– whether to record an item as an asset or expense,

– whether to record an item as an income or liability,

– whether to record a transaction at all or keep it out of the books,

– whether to write off something,

– whether to write back something,

– how much to record,

– etc. etc. etc.

Mind you, the bookkeeper hasn’t even begun his/her work yet.

And the creative accountant has only begun… because, the ‘some more’ is still waiting.

Lurking gleefully. Just around the corner.

In the next part of this series, we will explore the ‘some more’ opportunities for the creative accountants to enjoy themselves…

Meanwhile, if you are one of those who struggle (or don’t care) to understand accounting, know that you are not alone. Such apathy and ignorance are common enough and that’s why firms like ours are in business. Whether you are a small or large company and whether you are a start-up or well established, we are just a phone call or email away if you need any guidance, support or assistance with any aspects of accounting or bookkeeping. In fact, call us even if you are not sure what it is exactly that is bothering you. We are experts in diagnosis, detection, prevention and treatment of all your accounting issues. We promise not to act elitist when we speak to you. We will step down to your level, and won’t show our innate arrogance and “know-it-all” attitude one bit! In fact, our modesty will blow your minds away – just give us a try.

Cheers

Nish

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