Don’t you feel privileged to have been alive when humanity first observed two neutron stars collapsing into each other? I was awestruck to read last week of the collision 130 million years ago.

Two Manhattan-sized stars, each with a mass more than that of our sun, spiraling into each other and sending ripples into space… incredible.

Artist’s illustration of two merging neutron stars.
National Science Foundation/LIGO/Sonoma State University/A. Simonnet., CC BY-SA

We accountants look to the universe for metaphors to explain our own science. Like the Big Bang marked splitting of matter from antimatter, accounting has its own duality. 

Every accounting story is told from the point of view of an entity. You can think of this entity as a box, which always starts empty. 

Then the box fills with assets and liabilities, analogous of how matter and antimatter filled the universe. That’s what every balance sheet is… a container of assets and the matching obligations to the funders of the assets.

It’s really very simple.

Having a clear conception of the origin of the balance sheet lays down what we call a 'platform of understanding' for business acumen education. We can then go on to explain all sorts of applied business matters. For example, how valuation of assets is subjective.  

The neutron stars reminded me of that fact. Their collision sprayed out more gold than the mass of the earth. The precious metal's not so scarce after all! 

Value truly is in the eye of the beholder.

Peter

An artist's impression of gravitational waves generated by binary neutron stars. 
Credits: R. Hurt/Caltech-JPL

The rule in accounting is that you don’t put on a balance sheet any asset which; a) isn’t controlled by you, or b) you can’t measure the value of. 

That leaves some pretty valuable assets unlisted on a company’s financial statements. Reputation, or "goodwill," is one such oft-omitted asset. And yet, our reputation is precious.

The Volkswagen emissions scandal started on 18 September 2015, when the United States Environmental Protection Agency issued a notice of violation of the Clean Air Act

Which is why it’s tragic to see so many stories in the media recently about corporations grossly damaging their reputations. Reputations that took decades to build were damaged in a minute. 

Volkswagen lied about the emissions coming from their diesel engines. They were busted, and so far the bill - as expressed solely in fines and legal judgements - is over $25 billion.

And now Kobe Steel, previously a Japanese icon for high quality metals used in aircraft and the like, has admitted its quality reports were faked. What this moral lapse will cost the company in yen is anybody's guess.

No matter the size of the checks these companies will write to pay penance for their sins, the true costs may never be measured.

While the value of goodwill cannot be found on a balance sheet, the tarnishing of these iconic companies' reputations will no doubt make an ugly showing on their income statements. 

Peter

Kobe Steel was founded in the Japanese port city in 1905

I'm aware of the irony that I speak for a company called Color Accounting when I concede that we're not all about accounting. Getting our clients to understand accounting is only a step on the way to the main game.  

That main game is business acumen. Accounting is merely a means to the end of building business acumen.

Is this how your team feels about budget meetings? Maybe it's a communication issue.

However, we strongly believe that teaching business acumen without creating a solid foundation of accounting literacy is building a house on sand. 

So it's important to keep accounting in the message, even if it makes the messaging harder. 

We recently created a short video which talks about accounting and business acumen. Please click this link, or either of the graphics in this email, to watch our 2:10 animated clip.

I'd really like to hear your comments after you watch it. Does it make sense to you? Have you seen people react this way?

I always love hearing back from readers of this weekly email. And if you hit reply with your comments, I'll be all ears as usual.

Best as always, Peter

Sharing a common language gives every team a better chance to succeed

James Dyson is a genius inventor, engineer and entrepreneur in the league of Elon Musk and Richard Branson.

Musk and Branson lead businesses building electric cars and rocket ships. Dyson on the other hand focuses on vacuum cleaners and hand driers. Not quite as sexy, you might think.

Sir James Dyson as seen on Dyson.com

But that's what we love about Dyson. He takes ordinary, and makes it sexy.

Not just pretty, his appliances work better too. The vacuum doesn't lose suction, the hand-drier dries quicker, and his fan (pictured) is quieter and elegant. Recognized for his achievements, Sir James takes the seemingly mundane and breathes a dynamic new sensibility into them.

That totally inspires us at Color Accounting. 

We want our learners to have more fun. We want them to grasp how business works, deeper and more profoundly. We want them to see finance and money matters with a simplicity and clarity they never thought possible. We want them to burst with a feeling of newfound power and sense of  "I can!"

And enough people tell us they do to keep us excited about turning the mundane into the magical. 

Best regards, Peter

The Dyson Ball Animal 2 has the strongest suction of any vacuum cleaner