Not long ago, I played audience to a founder-CEO who was showing off his latest toy, an app on his iPad that showed him the sales rung up at each of his retail stores across the GCC up to date, together with the analyses by product, category, brand, salesman and geography. He was mighty pleased with his IT team for this POS-to-pie-chart tool that bypassed the sales ledgers and the associated waiting involved in compilation and dissemination. I thought to myself, “hang on, where were his accountants in all of this?” After all, don't we pride ourselves as being the prime purveyors of such financial information? Clearly, his technology team had stolen a march on his accountants. The astute CEO must have sensed my thoughts, for he went on to say that he would like it even more if he could see the profit figures on a similar near-real time basis, but his accountants were unable to figure out how.Â They could at best provide him with month-end (periodic) cost information.
You can see that our age-old concept of periodic financial information is proving to be a limitation, especially in this ”anywhere, anytime” world where technology has successfully shrunk the time between happening and getting to know. Technology also seems to have shrunk space, in that it has enhanced communication to a point where what happens thousands of miles away is conveyed to us in nanoseconds. Applying this two-fold capability of technology to the basic human need for instant gratification, we can see why the competitive edge is now about shrinking the time- and space- gap between the time a need arises and its fulfillment.
The accounting profession has been around for at least 6,000 years, dating back to the Mesopotamian civilization, where temples have known to have recorded their income. Since then, the profession gradually built upon its cumulative knowledge over centuries to evolve from book-keeping to accounting. From time to time, enterprising accountants would come out with a new discovery, and enterprising users would come out with new uses for the accounting information. These were all, by and large, accretive in nature. Obsolescence was not a word the profession had to grapple with. Until the 1970's.
The developments in the last 40 years have been so many and so rapid that the incremental changes alone in each decade since have outstripped the cumulative development of all time until then. Amidst all this metamorphosis, we have clung unshakably to our ”periodic” and ”historical cost” conventions in defining our role.
In the information era, success was reformulated as mass customization - customized Dell laptops, customized cars, customized web content, and so forth. This is in effect delivering a different product- or service to every single customer. However, our financial statements are still in the "one size fits all" mould even though they are used by a wide variety of users, ranging from owners to potential investors to the tax man to analysts to employees and so on.
Our accounting systems were built for the industrial age, a time when the formula for success was mass production. This era was also marked by the predominance of physical assets in the production process. Thus, brick and mortar was the order of the day and intellectual property was neither talked about nor recognized commercially. Today, it's a world dominated by intellectual property - brands, patents, trademarks, franchises and licenses have become important assets that generate value to their owner and to those that work these assets. As an example, when we pay AED 400 for a branded T-shirt that costs AED 20 to produce, we are paying much more for the IP content embedded in it than for the base product itself. This is true of most products we consume today. We prefer buying branded rice to an unbranded rice even if it is a basmati. Similarly for milled wheat and a host of other commodities. The same goes for services, even those that are as basic as the hair dresser's, where branded salons have increasingly replaced their traditional counterparts.
The collective result of such permeation- and subsequent perpetration - of IP content in every industry is gradually but surely giving rise to an increase in the role of "intangibles" in every balance sheet, and indeed, collectively in the economy.
In the face of such morphing of balance sheets across the world, the question we accountants have to ask ourselves is: How well are we as a profession equipped to handle intangibles in our historical cost financial statements? The only time we seem to be willing, or rather able, to acknowledge an intangible asset on the balance sheet is when we have paid for it, by terming it as goodwill. While I am not suggesting that we hasten to put a price-tag on all intangibles monetarily and show them on our balance sheets, I strongly feel that knowingly keeping them out of our financial statements is a big omission, and we are likely to pay a price for it. The price could include unwittingly yielding space to some other profession that is better able to figure out a system of generating more "complete" financial statements. While on this note, we may want to include some other assets, such as human capital.
My third concern is with the notion that the accounting profession should remain tied down to financial information. Today, our self-styled mandate keeps us tied within the domain of financial data, to the exclusion of non-financial data. However, in today's data-driven era where all kinds of data is available in an instant, the decision-maker we seek to support is relying more and more on non-financial indicators to help base his decision. This then effectively constitutes a loss of ”market share” for us in the decision-making zone. (See adjoining figure).
Summing up, the cumulative effect of all three phenomena outlined above points to a scenario that may well see Accounting (as we know it) eventually edged out of the mainstream and having to give up the “prime slot” it has hitherto enjoyed. A scary prospect, but not beyond fathoming. Contemporary writings too allude to this possibility (Robert K. Elliot, The Saxe lectures in accounting). If we are to stave off marginalization, we need to quickly find answers to all these posers. We need to redraw our mission as a profession. Or else we might go the way of the comptist.