Should/can accountants be creative?

Martin Quinn wrote an interesting blog last week about accountants’ creativity.  He infers that accounting might actually obstruct good decision-making:

Of course, financial accounting (the external reporting of results basically) is less helpful (or “completely useless” as one business owner told me a few weeks ago) in situations where decisions need to be made. And sometimes, these decisions involve a lot of brave and bold creativity and innovation which accountants seen to have a reputation of pouring cold water on.

Tom Selling wrote on a similar theme last week, giving a story of how a GM CEO made a bad decision because of wrong-headed advice from an accountant, the very decision that may have led to GM’s ultimate demise.

The CEO next consulted with his accountant, who informed him that current profits would suffer if the union’s offer were accepted: the additional wages called for would be reflected in expense immediately. On the other hand, if GM were to keep the responsibility (and risk) of paying the pensions, recognition of the associated expense under extant GAAP would be delayed for decades – until retirees were actually paid. 

The CEO chose to disregard the economist’s advice and to decline the UAW’s offer.

Martin also writes about Steve Jobs, and how accountants need to keep an open mind when dealing with his “kind:”

Steve Jobs was an obviously brilliant innovator – and eventually made Apple one of the richest firms in the world. In the article the author (Rana Foroohar) makes a strong claim, but she is probably fairly correct. She states ” Jobs stands out as an exceptional leader not so much because of his in-your-face style, but because American business has become dominated by bean-counters focusing on hyper-efficiency rather than by innovators focused on real growth”. I suppose this is a classic case of too much focus on short-term financial goals over longer-term business development and growth.

Good accountants understand when to follow the rules, and when to be creative.  A good accountant doesn’t compromise on GAAP, nor on GAAS.  However, like a detective, a good accountant can develop creative ways to test controls and audit financial statements.  A good accountant will know how to create good management accounting information that will help make better decisions.  This requires creativity.

Don’t get me wrong.  Here in New Jersey, calling an accountant “creative” is a great way to get your sheet spread, if you know what I mean.  Creative accounting implies breaking the rules, or, worse yet, following the rules in a disingenuous way so that the company’s financial statements mislead investors.  Whatever you do, don’t accuse accountants of being creative.

Now, what is there to say about the bean counters who bankrupt GM or pour cold water on geniuses like Steve Jobs? Perhaps such bean counters are not very good accountants.  They don’t properly understand the underlying transactions, and can hardly render quality advice about them.  On the other hand, innovators like Steve Jobs sometimes need people to stop them, before they do too much damage.  If that role is filled by accountants and regulators, then so be it.

On the one hand, accountants must follow the rules.  On the other hand, accountants should creatively think about presenting information in ways that they are most useful and clear to users.  Balance.

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

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