It is a truth universally acknowledged that a business seeking better returns must be in want of women.  (Sorry, Jane Austen) 

You see, research has shown that businesses - and particularly investment managers - perform better with a balance of men and women in the workplace. ​

Too much testosterone can wreak havoc on financial behaviour. So here’s the conundrum: why are there not more women in executive leadership roles? 

“Women and minorities manage only 1% of the asset management industry’s $71 trillion in assets and only 15% of global mutual fund managers are women” says  Girls Who Invest.  It’s an organization that’s done the sums and exists to change them. 

Girls Who Invest selects about a hundred female students each year after a hard-fought application process. It then puts them through three-week summer camps at Wharton and the University of Notre Dame.  The women emerge prepped and inspired for a career in finance. 

Each year, after teaching the Color Accounting module at the camps, we leave uplifted.  The bright minds of the savvy up-and-comers, from widely diverse backgrounds, give us great cause for optimism.  

Clearly, balance shouldn’t only happen on balance sheets. 

Peter

​Albert Einstein, the greatest scientific genius of his time, changed the very way we understand the universe.  

He discovered the truths that led to the equation E=MC2 and the theory of relativity by conducting visual thought experiments. Famously, he imagined riding alongside a beam of light. 

Einstein had been unhappy at school in Germany where, in the late 1800s, schooling was rigid and all about rote learning. So he moved to German-speaking Switzerland and sought out a school in Aarau which followed the principles of Johann Pestalozzi, an educational reformer.  Those principles made all the difference and set him on the path to his breakthroughs.
 
Pestalozzi’s motto was “Learning by head, hand and heart”.  He wrote that “Visual understanding is the essential and only true means of teaching how to judge things correctly.”  The learning of numbers must be subordinated to first understanding concepts, he believed.
 
On so many levels, our worldwide community of Color Accounting educators are proud to call ourselves “Pestalozzians”.  Belief in the individual. Use of hands in the learning process. The power of the visual BaSIS Framework we use.  And even the priority of words over numbers as one learns to make sense of financial statements.  
 
200 years later we are unreservedly happy to take our hats off to you, Johann Heinrich Pestalozzi, with a deference you wouldn’t demand from us.

Peter

How accountants sort things can have serious consequences. And provide some fun.

In our business acumen workshops, managers talk about how they organize their kitchen or their clothes. There’s a lot of laughter as the obsessive-compulsives in the room get outed for their color-matching proclivities. 

Photo by Hannah Morgan on Unsplash

Applied to accounting, we ask questions like: should we classify the cost of a trip to meet with a client as Marketing or, perhaps, Travel? And if Travel, should we break out airfares from ground travel?

The important lesson is that we can obscure financial information by how we aggregate, slice and describe it.  

For example, when a mining company’s sales are reported on its income statement by type of mineral rather than by mining region, it can disguise how much of the company's activities happen in dodgy places.  
  
Back in the classroom, our recent favorite classification was a student who said she organized the novels on her bookshelf by how the authors would get along. Who needs alphabetic when you have that kind of insight?

Peter

Photo by Dmitri Popov on Unsplash

In 1954 Sam Sheppard was on trial for murdering his wife. The judge, explained to the jury that if they were to convict him there needed to be no “reasonable doubt".

But the judge's definition was so convoluted, the jurors likely misunderstood him. Ten years on, Mr. Sheppard was released after a second trial.

Photo by Peter Lloyd on Unsplash

Language matters. And that applies as much in the numeric world of accounting, as anywhere else. 

When we started Color Accounting twenty years ago, we thought color was the big thing. It still is integral to what we do. By color-coding financial statements we engage people's neurological response to color, thereby achieving accelerated learning.

But now we believe that our innovation around language and deliberate - and sometimes atypical - use of words is an even bigger deal. 

For example, when people grasp what  “revenue", “expense”, and “equity” really are (and are not), it opens a massive door to clarity of financial thought and access to powerful communication. 

The lawyer of an accountant on trial for revenue shifting told me that, even when handing down their guilty verdict, the jury didn’t clearly know what “revenue” was. They thought it was money. And vaguely thought he'd nefariously put it under a mattress or similar. The lawyer believed that his client may have been imprisoned because of this confusion.

If the jury had better appreciated how gray rather than black and white the issue of revenue recognition is, they may have had reasonable doubt. 

Clearly, words change lives. 

Peter

Photo by Nicholas Kwok on Unsplash

Color Accounting Partners from around the world assembled last week in London to discuss our quest to advance accounting literacy globally.  

With participants from Australia, China, Canada, India, USA, South Africa, Greece, the Caribbean and UK, it was also an opportunity to observe another color spectacle, Trooping The Colour.

Photo by Mosa Moseneke on Unsplash

This British tradition of Trooping The Colour, which goes back to the 1600s, has hundreds of marching and cavalry troops in their finest, presenting themselves to the British sovereign and marking her birthday.

Today of course, it is an excuse for pomp and ceremony which the Brits do like no other. 

The assembled Color Accounting trainers had the pleasure of watching the parade from a vantage point near Trafalgar Square, capped off by a flyover from the Royal Air Force, Spitfires and all. 

While the armies of yore used color to enable soldiers to recognize their own companies, we use color to logically code concepts of company finance.

And while the empire has long since shrunk, the quest to spread accounting literacy to the world continues to expand, and took a big, fun and fabulous leap forward last week. As you can see below.

Peter

Attendees to ColorCon18, our global Partners conference, assembled in London, England

Certainty can be comforting. Knowing where your next meal is coming from and where you will lay your head at night allows one to focus on other challenges throughout the day.

But do we similarly crave certainty when it comes to knowing the price of things? Are we better or more poorly served by a Prix Fixe economy?

A shelf full of peanut butter jars, all marked with the same price tag, may make our purchase decision easier but does it give us the best value? Does it limit the merchant's profit potential?

And has the humble price tag lulled us into a sense of certainty that things have a fixed value?

For most of history people would haggle for everything in the market. Then, in the mid-19th Century in the US, Quakers and others decided that charging different people (whom God saw as equal) different prices was immoral. Hence the fixed-price tag.

At first people were suspicious of the tags. But they got used to the idea and, over time, empires like Macy’s were born on the back of them. 

Now they might be on their way out again. Variable pricing is creeping back into our lives in some unexpected places. From Uber surge pricing to airlines that look at all sorts of factors to quote you a ticket price, including apparently whether you are browsing with a Mac or a Windows PC.

Variable pricing means you need to pay more attention. That's my advice, for what it's worth. 

Peter

When you say “accounting," many people immediately think “precision."

After all, famously, if you have $101.11 on one side of the balance sheet, you’ll have $101.11 on the other. That is an absolute truth. This 100% exact mirroring sets the tone.

But is accounting really precise?

In another respect, accounting isn't precise at all. At least not in the sense of being "certain" or "absolute."

On the way to coming up with the symmetrical numbers of the balance sheet, there's a whole lot of estimation and subjectivity.

For example, to decide what an asset is worth, should we refer to what we paid for it, what we could sell it for, what two reasonable people think it’s worth, what the market thinks it’s worth, or perhaps the cash that will flow from it? Some might arrive at larger numbers, others smaller.

There's no single truth and you might say it's an informed guessing game.

Like asking how long is a piece of string, the closest you'll come to a truly precise answer is: "Twice as long as half its length."

Peter

Accounting suffers a "can’t see the forest for the trees" problem. 

We accountants are so immersed in the language and practices of accounting, which have evolved over hundreds of years, that we’ve lost sight of our bad habits.  

Here are five of them.

Photo by Toa Heftiba on Unsplash

1. We Use Different Words for the Same Thing
For example, earnings, profit, net profit, income, and net income are all used to mean the same thing. 

2.  We Use the Same Word for Different Things
In the UK “Income” means revenue, the top line. In the US “Income” usually means profit, the bottom line. But not when you’re talking about Rental Income, or Interest Income.

3.  We Use Weird Words
Like debit and credit - which have less meaning than people believe. (That’s why Color Accounting uses color instead.)

4.  We Use Paradoxical Words
Prepaid Expenses aren’t expenses, they’re assets.
Deposits (such as those received by Tesla for future Model 3 deliveries) aren't revenue. They are liabilities.

5. We Collapse the Duality
There’s an inherent duality in accounting. The duality captures on the one hand what we do with our resources, and on the other where those resources come from. For example, we put cash in our bank account, which came from our work revenue. The bad habit is describing the revenue as the cash. 

To boost the confidence of our students to engage powerfully in financial conversations at work, we show them that “The confusion isn’t your fault, it’s ours. So ask away.”

We accountants have a lot to account for. 

Peter