A question of balance….

It was the accountants what done it you know. Pushed the world into recession that is. If they had not forced the banks to value their more esoteric financial assets at market prices they would not have got into the mess that they did. They should have simply let things be.

However accounting standard setters are definitely not letting things be any more. Over the past few weeks I have attended Finance Director briefing sessions from accounting firms Smith and Williamson and Crowe Clark Whitehill, and have been updated on the latest proposals to “improve” financial reporting, proposals which to me as a qualified accountant seem mind blowingly complex. These include a brand new set of accounting standards for SMEs based on international accounting standards (FRSME), and the prospect of short term leases for items such as photocopiers being treated as finance leases and therefore creating additional balance sheet liabilities.

What all this will mean to the average businessman who is just trying to work out how well his business, or that of his competitor, is performing heaven only knows.The government may be trying to operate a “one in one out” policy as regards regulation but the world’s accounting standard setters seem determined to load even more burdens on companies large and small.

And yet it all used to be so simple. When the father of accounting, Franciscan friar Luca Pacioli developed double entry bookkeeping in the fifteenth century, it established a balanced approach to accounting that has served businesses well for centuries. Goethe, no less, described it as “one of the most beautiful discoveries of the human spirit.”

Today Pacioli would be spinning in his grave at the horror of what financial reporting has become. For example HSBC’s annual report is now around 400 pages long and frankly there is no way even the most diligent highly paid analyst can grasp everything that is in there let alone distill it into an easily digestible investment note for public consumption. Hence the lazy headlines that tend to accompany most profit reports nowadays as journalists latch onto the number that best illustrates the point they want to make.

Accounting should always aim for simplicity. If double entry cannot handle a transaction without stacks of rules and guidance then one has to question if it is actually an economically worthwhile transaction. Perhaps if this has been the attitude during the boom times some of the economic fall out of the past few years could have been avoided.

Meanwhile back to those poor bankers. Must be tough being blamed for something that isn’t their fault eh? Still, at least they have this year’s bonuses to console themselves with……

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