The Accounting Wizard Revisited

This was originally published in 2002. The Accounting Wizard, itself, was published on Aug 18, 1999 (ten years ago!!)

In which the Street Strategist revisits his accounting invention

The Accounting Wizard Revisited

“I

n 500 years, the teaching of accounting has not changed considerably but this paper seeks to revolutionize that, by attempting to explain accounting to non-accountants in 30 minutes. In this paper, the three basic financial statements namely, the balance sheet, the income statement and the statement of cash flows, are presented in a very simple and intuitive manner. The conceptual approach to understanding debits and credits used in this paper has been described by certified public accountants as very original and useful. Finally, the author invents six codes, not found in accounting books, showing what transactions are to be debited and credited. Written in a conversational style, by a non-accountant for non-accountants, this paper describes the personal travails of the author in learning accounting and how he invented the six codes.”

This was the abstract of the paper I presented at an international conference sometime ago.

I asked a friend to drive me over to the conference hall. Throughout the ride I repeatedly told him I was anxious how many delegates are going to attend my presentation given the simultaneous sessions. It would be embarrassing if there were less than ten. This conference was not about finance, accounting, or investment banking. It was the largest conference on the electricity industry in the Pacific Rim held every two years, attended by the major players from Europe and the USA peddling their latest technologies.

The vanishing award

Scheduled at the most unholy hour of 12:00 noon, my presentation suffered minor problems. As expected I only prepared the previous night and therefore unlike other presenters who used the multimedia room for practice, I didn’t even know the proper controls of the notebook computer I used.

Thus, the hungry attendees which included Europeans and Americans in addition to the Pacific Rim delegates failed to see my slides for about 10 minutes. I had to improvise my talk.

The panelist introduced me quickly as I only had about five sentences of biodata. While I was at the podium but before I could speak, the panelist made an unexpected comment – that my paper was very good and provided a new and easy way to learn accounting and that indeed you can learn accounting in 30 minutes.

I smiled. Many of the seated delegates smiled, too, at the amusing slogan of learning accounting in half an hour. That caught their attention.

Then the panelist said something that shocked me: “By the way, I tried to nominate the author of this paper for an accounting award for young professionals because of this paper, The Accounting Wizard, but I realized that the award was given only to CPAs.”

Great. That was no ordinary endorsement. Here was this panelist who is the CFO of the largest corporation by assets in the country, who thinks that my paper was worth an award. And I didn’t even realize the panelist recognized me at all.

Wait, if the paper contributes to the understanding of basic accounting, and deserves recognition, in the judgment of an expert in the field, why disqualify it because of the non-affiliation of the author? The situation was probably similar to John Nash writing a paper on economics (game theory) when he, in fact, was a mathematician; and that the Econometrics Society debated against electing him a fellow.

Indeed, come to think of it: If the author was in fact a CPA he could never have written that paper in the first place because CPAs follow the teaching style of the textbooks.

This paper turned the textbook around, squeezed out the six basic codes in the same manner as Euclid reduced geometry to only basic five postulates

In other words, the paper could only have been devised by a non-CPA and yet the paper itself is worthy of recognition by CPAs. Yet, it cannot be recognized because it was written by a non-CPA. There must be a catch somewhere.

SRO

Given the problems with the slides, I was not able to present smoothly, and under time pressure I was not able to finish the presentation. The audience laughed a few times during my impromptu comments such as “Look at this illustration here, look carefully because CPAs don’t understand this.”

As I finished my presentation, I beamed a big smile. I exceeded my targeted audience of ten. The room was SRO and I estimated about 120 delegates. Earlier sessions did not even fill up the seats.

Again, this proves something. If rules are bent to accommodate a new idea, it might pay off. Bear in mind, that this was a conference on power systems and the organizers accommodated a crazy idea.

Later that night, while I was in a corner waiting for actress-singer Pops Fernandez and singer Lani Misalucha to entertain the delegates, a man approached me. “Your presentation was very good. We enjoyed it.” It turned out he was one of the high ranking treasury officials of the largest private utility in the country, who sat throughout my presentation. I found out from other people that most of those who attended my presentation were actually CPAs and finance officers. They were probably curious about the nerve of a non-CPA attempting to revolutionize the intuitive approach to accounting.

Unexpected feedback

The Accounting Wizard first appeared on print on August 18, 1999. It was intended to be an exercise in introducing a fresh insight into accounting, an exercise in amusement. It was never intended to be useful.

Unlike Strategy Myopia, the feedback was unexpectedly astonishing. I mean, with Myopia, I expected some kind of positive feedback because of the novelty of the concept. But with Accounting Wizard, I did not even expect BusinessWorld to publish it, telling the broadsheet that I wrote this for the benefit of my friends who are going into MBA but since I had already written it, it’s up to the editors to accept or reject it.

And the most astonishing event of all: The CPAs who were at the top of their fields were the one who fully appreciated the utility of the invention of the Street Strategist’s Six Codes.

Here was the letter that probably represents the CPAs typical reaction:

“Dear Sir:

Your Strategy Myopia and Accounting Wizard articles are very good, concise, layman friendly and down-to-earth! I am a CPA (married to another, much smarter CPA) and working for an energy company. I confess that the brevity and wit displayed in Accounting Wizard was superior to the already brilliant teaching skills of my Auditing professor, Mr. Rustico Murillo of L.C. Diaz & Co.

I passed the Accounting Wizard piece to our Corplan staff (most of whom are industrial engineers yet are quite capable of generating long-term financial projections and interpreting the results for our management). I have to admit, you boiled the whole accounting essence (4 semesters worth) in your piece. (Should be required reading for students).

I just have a simple request. Why not do a sequel to Accounting Wizard, but this time focus on the common financial ratios that everybody encounters. You know, the Liquidity, Debt-Structure & P/E indices that the so-called finance literate mumble all day but which they could not simplify for the common folks.

Your piece would really clear all the clouds and mystique on finance, and make more people really comfortable with their gut instincts.

All the best for you! More power!

Robert Punsalan

CORPLAN Coordinator

PNOC Energy Development Corporation”

For accountants, too?

Even the CPA organization in Saudi Arabia joined the fray by serializing the article in its newsletter, which seems ironic because the target readers are all CPAs.

From their gazette: “Starting with this issue, we are reproducing (with permission) as attachment a number of articles written by the Street Strategist for the BusinessWorld. These articles are very relevant to our profession, and could be good subjects of our future CPE seminars. But what makes these articles quite different is the informal and very friendly style of the writer in presenting the subject – entertaining. We will give them all to you along with future issues of the Gazette. For the starter, we are attaching "The Accounting Wizard: How to become one in 30 minutes" where it's quoted "The secret to understanding debits and credits is not to understand them at all.”

Lawyers and all

Wait, even the lawyers jumped into the fire:

“I'm a lawyer, member of Syquia Law Offices, and I enjoyed reading your article. Translating your practical accounting techniques to real problem situations, I have a problem for you to solve…” and she went on to describe a property deal.

I replied that her situation was not an accounting one and I suggest using legal principles to apply to her case, although unfavorable to her case.

The lawyer replied: “Thank you for your advice/reply, I was just asking for an equitable formula applying sound accounting principles. By the way, you sound like a lawyer, too.”

Sound like a lawyer? There must be a punch line somewhere.

“Thanks very much for the wonderful article on being an accounting wizard. Helped me brush up on my Accounting 123,” wrote a lawyer –CPA.

Stockbrokers

On the other hand, the investment bankers were having a field day reading and distributing the Accounting Wizard worldwide.

“Brilliant: probably picked up more in ten minutes worth of reading than one year’s worth of studying from textbooks,” said James Tan of Pesaka Jardine Fleming.

“This is an excellent summary of general accounting principals. However, this seems to me how I learned accounting, 25+ years ago. Does this greatly differ from the early lessons in traditional accounting education? Also, for what purpose are you teaching accounting? That is, in what sense does one become an accounting wizard? To pass an introductory accounting course? To pass the CPA or CFA exam? Do bookkeeping? Analyze financial statements for credit or equity analysis? This looks like, to me, the key issue -- not discussed in your article. Accounting differs from art appreciation, in that I would not learn it for its own sake,” wrote Larry Kummer, CFA, Senior Portfolio Manager, Portfolio Management Program, PaineWebber, USA.

I think the reader missed the point of the intuitive approach of the article which addresses the different frame of mind of non-accountants facing accounting for the first time.

Malaysia

“I find the article very useful especially to share with my colleagues, highlighting the few areas of balance sheet, income statement and cashflow for a trip back to basic in an area made out to be complicated at times. Thanks and keep up the good work,” wrote Jerry Yeoh, Head of Debt Markets, HSBC, Malaysia

Singapore

“This is most interesting. I graduated with an accounting major believing that accounting is just a bunch of nonsense (and still do). How do I explain accounting to non-accountants? That's a problem that I face constantly, for I cannot even explain it to myself. While still holding on to my belief that accounting is nonsense - supported by academics in accounting theory - and a waste of resources, the article has given me some interesting insights on how to explain accounting concepts to others who need to subject themselves to it. Thank you,” wrote Kai Weng Ho, Treasury Officer, Singapore Telecommunications.

“Hi, It’s straight after lunch and I thought I finally found something that can dramatically change my life and enhance my career prospects perhaps. I am very keen to get my hands on your 101 sure ways to be accounting savvy notes. Thank you very much,” Low Horng Han, Investment Analyst, Singapore.

London

“Hi, Accounting Wizard. I was interested in this article to see if it had a good explanation of debits and credits from the point of view of books of first entry, general ledger. I haven't finished reading it yet (busy times!) but it seems the article is intended to describe how financial statements work and it seems to do this pretty well” wrote Dermot Joyce, Fund Manager, ILEX high yield Fund London

USA

“Could you please send me the Accounting Wizard article. I would like to pass it on to a few comrades?” wrote Brad Kowieski Business Development Associate, The Heck Group, Rhinelander, WI USA

Belgium

“This could provide insights that would be useful for my next CFA exam. Thanks,” Michael Garcia, Senior Financial Analyst, General Motors European Regional Treasury Center, Brussels, Belgium.

Investment bankers

Overall, I guess more than 200 executives worldwide contacted me regarding this article. They represent the biggest banks and brokerages. While I cannot name them all, there were several director level executives who read and asked copies of the article including John Milton, CEO, ABN Amro Equities, Hungary; Terence Wright, President, Wright & Co. England; Michael Greenall, Chief Representative BNP Paribas Peregrine Malaysia; Robert Appleby, Managing Partner, Asia Debt Management Hong Kong. Kj Kim, Managing Director, Bbk Capital Partners, Seoul; Robert Mclaughlin, Director, Cantor Fitzgerald, Hong Kong; Anant Patel Managing Director, Bear Stearns London; George Johnston, Director, Barclays Capital, London; Mark Fuchs, Director, CSFB Securities Thailand; Antonio Klapkam, Director, ABN AMRO Brazil; and Spencer White, Director, Merrill Lynch, Taiwan.

Training and Seminars

“Thank you for your article. Your article is good and simplify all the things; How about training? I thought that it is still useful beside the simple knowledge that you have offered. I'm come from Indonesia; I have experience in my job about 15 years doing various kind of analysis for the company from accounting and strategies. Thank you very much for your article. Regards,” wrote Heru Maliksyah, Taspen.

“Please let me know if there is a paper or presentation on this topic available. Thanks,” wrote Yangki Kim of Tellus Advisors.

I have been thinking of conducting the Accounting Wizard Seminar as I hinted in the original article but I’m waiting for a good company to use as guinea pig.

The accounting expert

Once in while some readers, most recently a banker, tell me that they have memorized my codes and it helped them understand accounting better. I guess to I have to agree with them because exactly it helped me. An MBA student in Kuala Lumpur passed it around the campus. A fund manager in California said it refreshed his rusty accounting done 20 years ago.

Then the accounting experts, like the CFO of the largest company who wanted to nominate the article for an award, found the Accounting Wizard very helpful.

And then there’s one more expert. He is the moderator of biz.comp.accounting internet newsgroup. He is a tax lawyer who has won oral arguments in the US Supreme Court. His accounting and tax consultancy is famous. And he contacted me asking permission to publish the Accounting Wizard on their website and to be given to his clients. This expert must have been convinced that paper was the easiest manner to introduce accounting to his clients.

I replied that he can use the article for non-commercial purposes only. I mentioned that if he gives the article as a handout in one of their seminars, or when he gives it to a client, that is already considered commercial use. He did not come back to me.

Anyway, I know it’s been another boring ride with me today. But for me the Accounting Wizard is one proof that you don’t have to trust the experts right away, that no matter how deeper a topic is studied, there may still be other ways to solve the problem.

In the case of the Accounting Wizard, it is a culmination of years of embarrassing incompetence and failure to understand accounting the way accountants teach them. The simplicity – not the complexity – of the article is deceiving. It looks very simple now that the complexity has been eliminated.

There must be a lesson here somewhere: Do not copy the way experts think, rather discover your own capacity to think. If you fail, you can always go back and follow the experts. The most important thing is to think.

(Thads Bentulan, April 4, 2002)

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