5/9/2012 Portland, Oregon – Pop in your mints…
Today we continue our brief trip back to one of the origins of the agitation which is The Mint: The Subtle Change from Principles to Rules.
The following is another excerpt from our soon to be released ebook. It will be offered for free through Smashbooks.com in all common ebook formats in the coming months. Enjoy!
From Eden to Woodstock
We recently attended a brief seminar which was titled “GAAP Update.” This title, to anyone who is not an accountant, may sound like some sort of fashion show. While I had hoped to observe some of the latest models of pocket protectors, the only thing that any reasonable person (that is you and I, “deer” reader) could observe to be “in fashion” was a decreasing reliance on professional judgment and increasing scrutiny, oversight, and more rules in the accounting profession.
In order to properly understand the above observation, we must first attempt to understand what GAAP is. GAAP, while not addictive, should be taken in small doses. As such, I will proceed to administer it in as small of doses as possible so that we can avoid the common side effects of confusion, drowsiness, and its other less understood attacks upon the human psyche.
GAAP, for those of you who have been fortunate enough to avoid the acronym thus far, stands for “Generally Accepted Accounting Principles.” According to Wikipedia, “GAAP is the standard framework of guidelines for financial accounting. It includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.” Wikipedia goes on to list the principles by which GAAP is guided by as the principles of sincerity, permanence of methods, non-compensation, prudence, continuity, and periodicity.
The presenter at the seminar, a brilliant local CPA, alluded to what we are now calling the “subtle change from principles to rules” when he mentioned that the words “should” and “must” were now explicitly defined in the new accounting guidelines in such a way that it had all but eliminated professional judgment from his profession.
His statements referred to the new requirements which Statement of Accounting Standards 102, entitled “Defining Professional Requirements in Statements on Auditing Standards,” enjoined upon those condemned to his chosen profession. Where the word “must” appears, the accountant is to understand that the requirement is unconditional and must be performed. This is straightforward enough, and even highly trained professionals would have trouble arguing this definition.
It is the stated definition of the word “should,” which has from time immortal been the fallback for the imprudent when explaining why something was not done, which took the man aback. For the word “should,” from now to eternity, shall indicate a “presumptively mandatory requirement,” which for practical purposes, makes it just another spelling of the word “must.”
On the surface, this sounds like a simple and presumably necessary clarification made in the name of making the writings of accountants more accessible to the general public and the ethics of the general public more accessible to accountants.
The deeper truth, the one that our brilliant local CPA alluded to, is that trust in professional judgment has disintegrated and the need for specific, carefully worded instructions that remove the need for “flawed” professional judgment is taking its place. This should alarm us all, as the accounting profession is by no means the only field that this subtle change is taking place in.
[Editor’s note: If you would like to witness for yourself the alarming rate of the expansion of rules written by agencies of the Federal Government, a peek at regulations.gov at any given time will give you a general idea of the proliferation of rules in society.]
Any institution that is organized by human beings, such as a company, a religion, a government, or a football team, follows a pattern. Observe closely, “deer” reader, and see if you can pull an example from your own experience. These institutions begin with some sort of principle or set of principles. The person or persons, whom we will call the founders of the institution, understand the principles upon which they were founded and tacitly operate according to these principles.
When something is in its genesis, it is fresh and exciting. Possibilities bound about, like deer in a meadow in early spring. It is a thing to behold. People flock to this bounding, this life, to simply breathe it in and to somehow be a part of it.
“Let it always be this way!” they say, “I love this! How can I join?”
The founders may or may not have decided how one can join. In the beginning, at the genesis of the institution, it hardly matters. If people are not allowed to join formally, they will do so by imitation. Such is the charismatic nature of an attractive institution which is run on sound principles.
At this stage, whether formally invited or not, people flock to the institution in great multitudes. Everyone wants to bound with the deer, drink from the stream, to lie in the grass.
Then, something begins to happen. The people, who were not there at the genesis, do not understand why the deer are bounding. And when the deer try to explain this to them, the people may not understand or perhaps may disagree with the reasons given for their joyful bounding. In this miscommunication, the principles get lost or distorted.
Nevertheless, the people agree that the bounding must continue, and increase, by all means. They continue to flock to the meadow. Soon, because of the crowds, the bounding area becomes a mosh pit, the water in the stream becomes undrinkable, and the grass turns to mud.
Yes, the once fair meadow full of bounding deer has quickly turned into a scene from Woodstock.
Stay tuned for further sections and Trust Jesus.