 |
| David Cuykendall Click for Index Page |
However, under conventional accounting rules, unless intangibles are made "tangible" through outright purchase, they are not identified in your balance sheet nor amortized through your income statement.
Consequently, your enterprise's real capital value, largely intangible and proprietary, is not accurately reflected in your books.
Hence, the cash, receivables, inventories, plant and equipment, payables, credit lines, and other financing carried on your balance sheet, along with the capitalization rates and profitability measures computed from your income statement, are second order, indirect manifestations of the actual, intangible proprietary value of your enterprise.
Conventional statutory accounting and reporting primarily serves the needs of tax authorities, regulators, and financiers
Conventional statutory accounting and reporting aims at accurate disclosure of assets that can be legally levied through covenants, statutes, and regulations, and the liabilities that encumber them. That is why statutory accounting and reporting is also called “fiduciary” accounting and reporting; it is concerned with the disclosure and identification of legal claims and claimants on your enterprise.
In contrast, the purpose of managerial and entrepreneurial accounting and reporting is the proprietary regulation and coordination of your enterprise’s operational and strategic piloting. If done competently, it addresses your enterprise’s hidden intangible value equation that decides your enterprise's actual, going concern, capital value.
Long ago, before IT deskilled financial management, it was understood that a thriving enterprise needed three sets of books
One set of books was for the tax man, another for the financiers, and the the third set, the real books, the proprietary books (for the owners' eyes only) was used to entrepreneurially guide and monitor your enterprise. In other words, there were three bottom lines, one bottom line for each set of books.
At that time, the knowledge bases underlying each of the three sets of books were kept separate from each other and financial management's tripartite dimensionality (i.e., its three bottom lines) was clear; accounting and reporting work was separated according the unique purpose of each of your three sets of books and reports, and your three separate bottom lines.
Later, the IT centric robot that we wrestle with today ascended the throne of financial management
A bad philosophy then developed overemphasizing the role of transactions reporting in financial governance — giving "short shrift" to the proprietary and entrepreneurial aspects of financial management. The designers, manufacturers, and vendors of standard packaged financial management systems shoehorned in the unique purposes of your three sets of books and reports into a single model — creating a problem of "combinatorial optimization" that conflated the tripartite dimensionality of your financial management, along with its three bottom lines.
This was never done effectively, and cannot ever be done effectively, even for the most sophisticated and advanced systems. Complex and difficult to manage charts of accounts came into being as a result — along with complex, difficult to manage, and labor intensive electronic report libraries. Much of the clarity of financial management, and the traditional skills associated with it, were lost.
