To clear of uncertainty and confusion ,
Provide an interpretation that removes obstacles to achieving results
What is it that you do exactly?
I maximise the economic and social benefits generated by business and government through effective allocation of resources.
That’s pretty grand. What does that translate into on a day to day basis?
I eliminate the fear people have of accounting and finance so they can meet their responsibilities to their shareholders, employees, and other stakeholders including the broader community.
So you run workshops and courses?
No. I am not interested in simply giving people knowledge. I want them to have the capacity to use that knowledge to make better decisions. While I am not against training courses per se I don't think people can truly understand a concept until it's practical and relevant. Using your own financial statements, budgets and reports gives longer last results.
In fact most of my sessions are more a facilitation exercise than an information session.
What do you mean by facilitation?
Before I work with a client I review their financial statements and write down a number of questions I would have about the organisation. I then review the accounting policies, notes and management commentary to see if contain the answers to my questions.
Before you go on can you give me an example?
Sure. Recently I looked at a set of financial statements for an airline. I noticed that they had a net profit of $22m. One of the expense line items was related to ineffective cash flow hedges reported at $38.4m. Obviously I was interested in finding out more about this “cost”. Going to the relevant note I found that the cash flow hedges consisted of $10.1m realised and $28.3m unrealised. This compared to $6.4m and $21.8m for the previous year. I imagine this was, from an accounting viewpoint, the true and correct figures however to me, as an uniformed reader, they were absolutely meaningless.
In working with the board and manager’s my task is not to explain the figure but to ask the board what this figure means. After all ,this one line reduced profit from $60.4m to $22m (a 63% decline). Was it related to hedges on aviation fuel, landing rights, what exactly? Given that there had been a loss in at least 2 consecutive years what is their strategy for this forthcoming year? To keep hedging? To change the hedge?
By taking this approach the board realises their task is not to know all the answers but to ask questions, analyse the responses and decide what actions they may need to take in the future.
Do you often find people don’t know the answers to your questions?
Yes. But then again these people have invited me in to help them so really I would expect there to be issues. And remember, each organisation is unique. It’s impossible to develop a simple concise checklist for reviewing financial statements that would suit every organisation.
Is there a typical problem people should look out for?
It’s not so much a common financial problem as it is a common confidence problem. Generally the figures aren't hidden, in fact they are in plain sight. The hard part is sorting the rubbish from the gems and then not being scared of asking the stupid question. I have been doing this for years and my value added is in asking the obvious.
However I am also reminded of what someone, I forget who, said…
The world is a complicated place, which is strange, seeing as how most of the laws of the universe are amazingly simple. The best creative ideas too can often be simple. You know, the ones that, when other people show you, seem obvious. But why, then, didn't you think of them?
Sometimes you just need to bring another person in to clarify things so you can get on with what you do well.
Can you give us another war story to close?
Sure. During a recent review I highlighted a fairly large provision for doubtful debts. Next day I happened to be facilitating a group of senior executives from the organisation. I took the opportunity to ask whose business unit had contributed the most to the provision. While all the operating units were represented no one knew whose debts they were. During a break I spoke to the CFO who gave me specific details. I approached the relevant executive and explained the provision. He was aghast. No one had ever approached him about the write off – it was a book entry by the accounting team at the end of the previous financial year. Since no one had questioned the amount and what he was going to do about it in the future he had not given it any thought. Another case of we do what we do because we've always done it.