The confusion experienced by Steve Harvey in announcing the wrong winner the 2015 Miss Universe contest is similar to confusion experienced by industry accountants.
Mr. Harvey experienced what is referred to as “Simon Says” confusion in the “The Industry Accountant’s Intelligence Briefing.” This confusion can occur due to (i) bad labeling, (ii) inconsistent presentation, (iii) comingling different data-types, etc.
Accountants experience similar confusion in many instances including the following:
- The chart of accounts is not logical and sequential. For example, most revenue accounts start with “4” but contra-revenue accounts like sales discounts and sales returns are placed in the “9” series. This caused a new division controller to flash inflated revenue on each of her first four weeks on the job. Breaking the bad news to the CEO and CFO was unpleasant.
- The utilization of prepaid expenses such as prepaid software support is erroneously labeled as software support amortization instead of software support expense. When this occurs, accountants might inadvertently include it as an add-back to net income in an EBITDA calculation, whereas, only fixed asset depreciation and intangible asset amortization should be included. This confusion caused a new accounting director to erroneously inflate EBITDA provided to the CFO, and he subsequently had to break the bad news that EBITDA was $2 million lower than previously presented.
- Non-cash interest expense like the amortization of premiums, discounts and deferred debt issuance cost doesn’t include the word “amortization” in the account description, so it may not be picked up as a non-cash add back within the operating section of the cash flow statement. This confusion caused an accounting manager to miss this non-cash add back, and the external auditors caught and touted the mistake.
Consequently, accountants must be continuously on the lookout for “Simon Says” confusion and eliminate when they can.
When accountants have control to error-proof
When you have the ability to enhance the chart of accounts, upgrade GL account descriptions or improve the presentation style that results in consistency, you should do so.
When accountants do not have control to error-proof
When you don’t have control, you must stay aware to avoid falling victim to instances (i) when you are passed bad information, (ii) encounter bad labeling, and (iii) run into inconsistencies.
Thus, when a European co-worker who always provides a schedule in Euros, slips in a schedule in USD, your awareness will kick in and prevent you from mistakenly trying to translate the balances (already in USD) to USD. For more entertaining examples of “Simon Says” confusion that plague accounting and finance professionals as well as effective solutions, see http://www.pm4secr.com/ and consider purchasing a copy of the “Industry Accountant’s Intelligence Briefing” through Amazon at: http://www.amazon.com/Industry-Accountants-Intelligence-Briefing Trenches/dp/1634135008/ref=sr_1_1?ie=UTF8&qid=1432663820&sr=8-1&keywords=9781634135009.