#04 Accounting – part two

There has been a longstanding misconception about accountants. That we are boring [not interesting or exciting], we are bland [without anything attractive], we are blue [sad, melancholic, depressed]. I see many of my counterparts beginning to line up here to cast doubt on these aspersions. What we are is bright, beautiful [or handsome if you prefer], and behaved. Very well behaved for that matter! Our behaviour, for most of the part, is instinctive. The other part is governed by the International Code of Ethics for Professional Accountants which requires that all accountants:

• act with integrity i.e. are straightforward and honest in all professional and business relationships
• remain objective and do not compromise professional or business judgments because of bias, conflict of interest or undue influence of others
• are professionally competent and carry out their work with due care. This means that we must attain and continuously maintain professional knowledge and skill at the level required to ensure that employing organizations receive competent professional service, and that we act diligently and in accordance with applicable technical and professional standards
• respect the confidentiality of information acquired as a result of professional and business relationships
• display professional behaviour i.e. comply with relevant laws and regulations and avoid any conduct that might discredit the profession

In short, we are gatekeepers and must keep watch over the financial resources of the organisation. Others refer to us as guardians; a way of emphasising the fiduciary duty we have in safeguarding the interests of all stakeholders.

It all begun in the Shakespearean era where drama was everything and everything was drama. The playwrights, the thespians, the singers, the instrumentalists cared for nothing more than their performance and popularity. They were making money; loads of it! But they also seemed to be losing money, most of it! Roles of administrators and bookkeepers started springing up. Investment advisors and insurance providers also rushed to the scene. With time, the situation eased and things were less messier. The need for standardisation, regulation and a focus on industry best practices, however, became urgent and was soon the norm. Sounds mythical? Well that’s how the good professor explained it in our introductory Theory of Accounting class.

Some of the other things that business school kept on highlighting is that an accountant can be a bookkeeper or a treasurer, an analyst or an auditor, a tax consultant or a finance manager, an actuary or a liquidator, a comptroller or a CFO. In today’s article, I give you a snippet of how you can be your own personal accountant. But first what exactly do accountants do? They prepare and monitor budgets, they keep books of accounts, and they prepare reports to various stakeholders on business performance. Lets take a look at these 3 roles in more detail.

Budgeting or financial planning is a step-by-step approach to achieving one’s immediate, short-term and long-term money goals. I will be writing more on this subject as the topic deserves more than a minute’s mention.

Bookkeeping is something we all can do. We can keep invoices together with their corresponding receipts. We can keep copies of our monthly financial statements including loan agreements. We can keep our title deeds or log books alongside our life insurance policy documents. If you do this, you will begin to realise that you’re not merely taking part in a mundane documentation exercise but establishing a strong foundation for the legacies we are all trying to build. In fact, examining the books (and here I am talking documents) is one of the primary tasks that auditors carry out when they walk into organizations. They know that therein lies the true value of an entity. While birth and marriage certificates cannot be classified as financial instruments, these like all other identification documents are integral to ownership and must be kept securely.

I am happy to report that in the Personal Finance and The Pandemic (PFTP) Survey that was a precursor to this blog, 93.7% of the respondents indicated that they had a good hold on their financial records. An additional 75% confirmed that they kept regular track of their financial transactions. Half of the group, however, were oblivious of what is recorded in their monthly mobile-money and bank statements.

Business performance. Just like corporations, it is difficult for individuals to make significant incremental progress without reviewing our continued financial performance. ‘I don’t have any cash’ is one of the most common excuses of not paying attention to our financial situations. We’d rather bury our heads in the sand than be reminded of our desperate circumstances. It is in times of crisis, however, that we can make the best financial decisions as we are unromantic about what we need. Here are a couple of suggestions on how to kickstart the personal review process:

1. Income. List down all the monies that come into your mobile wallet or bank account. Salary, business cashflows, rental income, dividends, name it all. When you see these figures, you will either get excited about how much you are making or be prompted to think of how you can improve the state of your affairs. If you are in a space where nothing is flowing through your account, list down 50 business ideas that you could attempt. Dream, I tell you! Dream… As you transcribe your thoughts onto paper, your passions will begin to speak out and you will soon find a good business idea to work with.
2. Expenditure. I am convinced that if you track every single coin you spend for a period of 3 months, you will be able to determine not just your spending patterns but the average amount you need to survive each month. This data will allow you to identify areas where you need to cut back on or amounts that could be put to better use/invested. If you are dependent on someone else’s income, an expenditure listing will help them attend to your most urgent needs and plan for future obligations.
3. Assets. Assets are items that put or can put money in your pocket. Take an inventory of everything that you have. Property, equipment, and any other investments. Do the returns received from these items make sense or is it more profitable to dispose them? How can benefit be accrued from idle assets? Are all legal documents for properties acquired in place? Take a look at your cash reserves and determine whether you need to move a chunk of that dough to interest bearing accounts. Follow up on debts. You’d be surprised to find out what a gentle reminder can do; a harsh one too. Goodwill. Do not underestimate the power of goodwill. There is a reason why it appears in the financial statements of some organisations. It works!
4. Liabilities. Are you in debt? Whom do you owe and how much do you need to pay back in totality? What are the repayment terms? When do you need to make the payments? What interest rates are pegged to these loan covenants? Where should you begin? Was the debt really necessary? These probing questions will definitely come in handy for anyone trying to resolve complex or overwhelming debt situations.

Sounds doable? Be encouraged to know that just one positive action can spark a ripple effect through out your financials. Here is an additional encouragement on taking stock of your financial affairs.

Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever, and a crown is not secure for all generations. When the hay is removed and new growth appears and the grass from the hills is gathered in, the lambs will provide you with clothing, and the goats with the price of a field. You will have plenty of goats’ milk to feed you and your family and to nourish your servant girls. Proverbs 27:23-27

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I hope this article has convinced you that accountants are not boring [we are very cool peeps!], neither are we bland [we have so much to offer], and the reason we still don our ‘blue’ suits is to signal to you that we are here to serve. Have a wonderful weekend 🌻 🌻 🌻