Accounting's New Math

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Most accountants have heard the old question of how much is two plus two? The accountant’s punch line is, “How much do you want it to be?”

It speaks somewhat to the moral suppleness that underlies the CPA culture and led to the Enron era. But more importantly, it speaks directly to the passive role that many accountants take in regards to their clients. It’s the old historical-looking role of the accountant that the profession’s leadership says needs to be changed to a forward-looking role.

Technology is forcing this change because computers can add the numbers and manipulate them better than can be done by hand. However, technology also provides tools for reaching the new world, many of which are discussed in our June issue in the story, “Analyze This.”

Partner Insights

Among those making progress is ProfitCents, whose parent Sageworks has struck deals with Creative Solutions, AccountantsWorld, BNA, Intuit, CPA2Biz, and Best. We’re not going to judge that it’s the best of the lot, but Sageworks has been successful at getting these alliances and links to the products offered by these companies.

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The intriguing thing about ProfitCents is that much of what it does seems so simple. It calculates key ratios and generates reports that discuss the resulting changes in terms of what they say about a business’ condition. Many of those measurements, such as a quick ratio, can be determined by college students using calculators and about all it takes to come up with a plain-language explanation can be solved by taking a semester of financial analysis. So why are companies serving accounting professionals so interested in something so apparently simple and why do CPAs need this at all?

Certainly, the scoring that ProfitCents provides is something that saves users time because they would otherwise have to factor all the ratios and weight them. But there is apparently something else involved here. When Sageworks president Brian Hamilton first visited our offices, he explained that accountants simply haven’t thought in these terms, and while ProfitCents’ analyses sound simplistic, a mindset can send us down certain roads and keep us from going down others.

It is certainly time for much of the accounting community to go down that other road, and perhaps that is why products such as ProfitCents, Accpac’s Business Analysis Suite, and the latest version of CPAnalyst are emerging at this time.

Of course, measurements are one thing. Action is another. It’s quite easy to read a current ratio or see that a company has negative working capital. It’s easy to suggest that collections be improved or that inventory turns be accelerated. Instituting the processes needed to speed up collections or move goods faster, getting the systems and people in place to accomplish these things, is a much different story. Ultimately, analysis must lead to study of workflow and business processes and how to change these to fit the business plan.

But, moving towards the often-discussed proactive approach to business, towards a forward looking approach starts with small steps-steps such as the ability to provide plain-language descriptions of common business metrics. And these steps lead to a change in attitude, one that does not try to answer the question of what is the answer to two plus two, but rather raises the issues of whether it is the right question to begin with.

Robert Scott - Editor

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