Let’s talk accounting and dieting

publication date: Feb 20, 2014
 | 
author/source: Bill Kennedy

Bill Kennedy photoWant to watch someone’s eyes glaze over? Start talking about accounting internal control objectives and it’s sure to happen. At the same time, they act as protection against errors and fraud. So, instead of talking about controls over cash receipts and disbursements, let’s talk about something everyone can understand: dieting.

My wife says she’s been chasing the same five pounds for ten years and I could stand to lose a few more pounds (maybe five times that amount). We have our work cut out for us!

The model

The model we are following says that the body is balanced by calories consumed versus calories expended. Just as the accounting model is a simplification of the complexity of the economic effects of the transactions an organization enters into; this dieting model is a simplification of the way food affects the human body. It says that if we consume less calories than we expend, we will reduce our weight.

Budgeting

It is easy to find a web site that can calculate your daily calorie budget by tracking food intake against weight. Not only does it give us a goal for each day, but it also calculates the number of calories consumed. For this article, I’m ignoring the effects of exercise, but the web site will calculate that too. 

As you count your calories and record your weight, you can compare them to the budget and track your progress. Where you stray from the plan, you can look into what happened. In accounting, that’s called variance analysis and it can provide valuable insight into your organization.

Completeness

Completeness is the idea that all transactions must enter the system without gaps or duplications. In dieting, that means you have to record everything you eat, even that Starbucks cookie that you added to your coffee order. If you don’t, then the results become unreliable to the point where you might not achieve your goal. Over time, those unrecorded cookies add up. You know what I’m talking about!

Accuracy

Accuracy is the concept that transactions need to be entered without error. If my calorie count is wrong or my scale doesn’t work well, the results will be meaningless or may even lead to making the wrong choices or decisions. 

Reconciliation

When the same transactions are entered in different systems or calculated in different ways, reconciliation is the process that ensures the results are consistent and that the two systems or calculations come to the same overall results. It’s one of an accountant’s most effective tools for finding errors — particularly when one of the systems is external to the organization, like a supplier or a bank.  When I reconciled the results from my scale with my calorie budget, I got a surprising result. 

The report

All this analysis is useless unless it is reported to the people who can act upon it.  Even then, in order to act, they need to understand what the accountant is saying. Unfortunately, this is an area where the language of accounting can get in the way. If the report uses the language of control weaknesses, variances, timing differences and accruals, there is a danger that the readers won’t understand and act upon the results. We accountants need to use language our readers can understand and readers need to push back when they don’t understand the significance of the report; communication is always a two way street.

My diet analysis had two significant results. One was to be expected, but the other was a complete surprise. I had thought donuts were my nemesis, but it turns out that peanut butter eaten daily (which I thought basically harmless) was having a much greater impact on my diet than the occasional donut. 

The surprising result came when I reconciled my calorie budget with the results from my scale.  According to the scale, one day I was down three pounds and the next I was up two, despite eating approximately the same number of calories on both days (and measuring my weight at the same time, on the same scale, etc.). My weight should have stayed the same or gone down less than one pound.  That led me to researching my scale; I had thought that replacing a scale that used springs with one that was electronic would increase the accuracy of my system. It turned out that electronic scales are very sensitive to how you stand on them. When I weighed myself three times in a row I got three different results; something that was not an issue with my old scale.

Take action

Armed with that knowledge, I now understand the frustration of how I could appear to gain weight after a ‘good’ day and lose weight after a ‘bad’ day. That knowledge will help me stick to the plan. Alternatively, I could buy a better scale!

Accounting reports should have that kind of practical result. They should lead to a better understanding of the organization and support good decision making. 

Bill Kennedy is a Toronto-based chartered accountant with Energized Accounting, focusing on financial and reporting systems in the charitable sector. He blogs at www.EnergizedAccounting.ca/blog/. Find out more at www.EnergizedAccounting.ca; follow Bill @Energized



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