I am not sure how many times I have had to say over the last two days that accounting data is CRAP, which stands for:
Completely
Rubbish
APproximations
The context was the amazing two day seminar on creating a database on country-by-country reporting organised by Open Data for Tax Justice.
Time and again I was asked if it was possible to aggregate data from different countries, sometimes prepared on different bases, and sometimes on what looked to be quite different assumptions. As I had to make clear, this was simply indicative of three things.
The first is that all accounting data is, at best, very approximate because of the vast number of (usually unspecified) assumptions inherent in it.
Second, even if the extent of these assumptions within a set of accounts were known the assumptions underpinning different sets of accounts can be substantially different, meaning that even when both will claim to be prepared within one accounting framework (e.g. IFRS) they can adopt quite significantly differing positions on some issues.
Third, there are far too many generally accepted accounting principles in the world: even the UK offers a choice of two, and they are, of course, different.
The result is that vast quantities of accounting data is technically not comparable but the reality is that we ignore this within the accounting profession, and more generally. The fact only becomes starkly apparent when a bunch of really quite experienced data users are confronted with what appear to be glaring anomalies and I had to assure them that to carry on is acceptable despite this, and that dealing with this CRAP is what we have to do all the time when using accounting data because the fact is that this CRAP is all we've got to work with.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Personally I view this as the end result of the accounting mindset.
I have had audits conducted by people and when you point out errors in their figures they will happily tell you that error “isn’t material” and charge you more if you want to make sure the figures are right.
This is a profession that rounds all the figures in a set of accounts and then has to go through the additional step of fudging the figures to make sure they add up at the end because of the rounding errors they just created.
Crap in crap out it can only be assumptions based on experience and the interpretation of the user. The intention of the data originator is the only true answer if this data gatherer can be trusted. It is like the budgets that the governments bandy about they are only intentions and not reality which can be entirely different
If this were an essay in a GCSE economics exam paper the candidate would get an “F”. Your writing style is cringe making and the notion that the whole world should change their accounting systems so that you can make an easy comparison between them is alarming. Can we have proof that you are a university professor, please?
http://www.city.ac.uk/people/academics/richard-murphy
Bizarre! You actually teach people?
Oh yes
I also have offered evidence as an expert in many places around the world
I will be in the UK House of Commons on 15 November
The problem of understanding is all yours
Sir you are rude and should apologise
Thanks Rodney
But some think this is what argument now is
I completed an MBA in 2014 and the module that I scraped through was the finance one that dealt with company accounting methods. I used my assignnment to poke what I saw as big holes in the way financials are allowed to be portrayed. My tutor was not very empathetic with my POV (being an accountant by trade).
My POV was as an operator who has to report his figures to an external group (in my case my customers as part of a feedback loop about complany performance).
All I saw were novel ways to bullshit people. In the accouting world, if you asked how many shades of grey there were, I’m sure the answer would be ‘As many as you like’.
The last is most pertinent
In which case how can the term “an accounting identity” possess any meaning, let alone an exact, conclusive, one?
Yet all devotees of MMT (whom you count yourself as among) constantly use just that phrase to trump all dissenting argument:- “(such and such) is an accounting identity” they chant in unison, “therefore ipso facto it must be indisputable, a given”.
But we have your word for it that all acounting data is CRAP.
Something doesn’t add up. But then it wouldn’t, would it, given your premise.
I believe in sectoral accounting
I have reservations about some aspects of MMT
And you are mixing identities with data
The result is you are adding apples and oranges
The result is a fruit salad and not CRAP
The identities hold even if the data is poor
And I never said we should not use the CRAP data: I argued it was the best we had got and so necessary for analytical purposes. All we had to realise was our limitations in assembling it
If the same degree of intelligence had been used by so-called stock market ‘analysts’, Enron would have been found out much sooner.