Principles of Accounting and Life itself...

Came across some principles of accounting in a course and got thinking about them, so thought I will share.

Many of us remember our interviews and the favourite question of “Strengths and Weaknesses”, but how many remember a question about your “Values and principles”? Are they just words or Do they define you as a person?

How many times the principle of “convenience” over ridden the value that you stood for, I care a lot about cost that I manage as long as it is convenient.

How you can almost automatically associate some personalities with the “values” they stood for, imagine our “father of the nation” and values of the man come to mind even before his achievements.

Have you heard that “Results count” “Efforts hmmm”? 

Are results truly in your control or you control only efforts??

So let’s get going, the idea is for you to reach out and understand what you stand for, hopefully some thoughts below will help you identify the same.

What is a principle?

A principle represents values that orient and rule the conduct of persons in a particular society. To "act on principle" is to act in accordance with one's moral ideals.

Some interesting accounting principles: 

Principle of “Conservatism” : The conservatism principle is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. i.e. account for the downsides immediately and don’t report upsides until you are sure of them.

In our day to day work life we almost always report the upsides first, I am doing well on 80% of the cases for instance.

If I am not doing well on plan, am I doing well on Y-o-Y, then my narrative is based on YOY.

How we leverage “Headwinds” and “Tailwinds” depending on the audience and narrate the upside of the story.

How intuitively our children start with the subjects where they have scored well and not in the ones where there is room for improvement.

Principle of “Relevance and Reliability” : Information that is reported needs to be useful and reliable ( Valid, Verifiable and unbiased) ,based on facts learnt during the course of the business.

The key word there is “unbiased”, our professor says that there is no “black and white”, there are shades of grey and given that valid and verifiable are two unquestionable variables, we need to focus on bias in our approach and understand its implications.

So many times, we believe that if we report everything, I will not miss anything, boss will be completely updated, does the boss really want to know that you took 2 hours to reach site because of a traffic jam. On a lighter note, I have had a review on a project where people were concerned about cockroaches being visible in areas of a canteen instead of focussing on the actual delvierables.

Principle of “Historical cost”: According to the cost principle, transactions should be listed on financial records at historical cost – i.e. the original cash value at the time the asset was purchased – rather than the current market value.

A friend told me once that “No matter what the property appreciation in your area is, as long as you are staying in the property, it does not mean anything”.

How many of us actually act on the basis of our historical information? I was short of socks as a child and often the big toe would tear a hole and would cause embarrassment, do I have 20 pairs today, some of them not even opened to manage that historical tear?

Principle of “Consistency”: The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods. Only change an accounting principle or method if the new version in some way improves reported financial results. 

Humans have mood swings, have their own demons to fight, I think as we interact with people, we need to make allowance for their behaviour, you cannot control a bad reaction from someone that is having a bad day, you need to be consistent in your approach, try and finish the interaction quickly, sometimes even silence might communicate enough.

Principle of “Materiality”: Materiality Principle or materiality concept is the accounting principle that concern about the relevance of information, and the size and nature of transactions that report in the financial statements.

What am I responsible for ? Am I letting the noise/level of detail defocus me from my responsibility?

I have always believed that the true experts explain things with a level of simplicity that can only come from very deep understanding of the subject, the better you get at your area of expertise the higher the level of simplicity in communication, you will not need props of jargons or acronyms to drive home a point.

Learnt it from my dog, when it is meal time, nothing else will come in the way, will add a drool to drive home the point.

Principle of “Entity”: The economic entity principle is an accounting principle that states that a business entity’s finances should be keep separate from those of the owner, partners, shareholders, or related businesses.

A significant portion of our perceived value comes from the organisation that we work for and represent, if he/she works in the leader of Networking, he/she must definitely know something about networking, let me listen to him/her talk about the next generation of networking, remember that the entity gives you a platform, leverage it and use it well..

Principle of “Measurability”: Money Measurement Concept in accounting, also known as Measurability Concept, means that only transactions and events that are capable of being measured in monetary terms are recognized in the financial statements.

Measure progress or the lack of it, even it is in very small increments…still waters often stagnate….

Principle of “Revenue Recognition” : In accrual accounting, the revenue recognition principle states that companies should record their revenues when they are recognised or earned (regardless of when the cash is actually received).

Deliver first and put your “asks” backed by that delivery.

Principle of “Going Concern” : Business will continue to operate in the foreseeable future.

This one is the most relevant for me, it fundamentally says that relationships, people, work revolve around the fact that there will be indefinite continuum, we cannot plan for a hardstop/shutdown, we have to work on improving and learning as we take this journey and believe in the principle of a healthy going concern.

Thank you for reading and if you got to this point in share, inspired by Sameer G on this one, when he took office a few years back, in his introduction to the team, he did not talk about his achievements or his work experience, he had spoken about his values and the genetics behind those values..did not make sense then, rationalised it but guess a little bit of it makes sense now.