• When It Come to Overcomplication, Accountants Take the Cake

    By | July 28, 2016

    According to Richard Thaler, “If you want to encourage someone to do something, make it easy.” Man, did accountants miss that memo. We really can’t deny it… it comes across in our nitpicky GAAP rules. More billable work for us, I guess, but, there has to be a better way.

    At least the FASB was (emphasis on the was) moving in the right direction by starting a simplification initiative in 2014. Per the FASB’s website:

    The objective of the Simplification Initiative is to reduce cost and complexity in financial reporting while maintaining or improving the quality of information reported to investors. The initiative involves identifying narrow scope projects that the FASB can complete fairly quickly. Any stakeholder may submit ideas for simplification.

    Bye, bye simplify

    Too bad that after only two years, FASB appears to be giving up. I don’t blame them — we can’t even make a “simplification” initiative simple…

    Lawrence Smith, a FASB member, alluded to the fact that resistance to change is crippling them from proceeding with the initiative in late June during a “GAAP Update” panel. Specifically, as quoted by Bloomberg blogger Denise Lugo, he said:

    When we started the simplification initiative we had a list of roughly 65 to 70 items that were suggested improvements–things that we could simplify. We probably did about five of them with relatively little resistance and everything we’ve tried to do since then has met with some resistance in one way or another.

    Maybe the problem is that we even made simplification complicated by trying to simplifying GAAP, one item at a time. Why do we do this to ourselves!? It’s ridiculous. It’s much easier to follow the KISS principle.

    Decades of weaving complex standards

    The root of the problem is that the accounting standards (and tax standards, for that matter) are supposedly the perfect place to shape and guide business decisions. It’s been decades of slapping a new rule into the standards every time accountants decided to get a little too creative. Bingo, problem solved. Who knew we were making more trouble for ourselves.

    How about a nudge?

    The Thaler quote above is from a recent TED talk that focuses on the topic of decluttering processes to encourage lazy people to do things. He calls it nudging. Thaler describes one example of a company that switched from a complex “opt in” 401(k) plan to an automatic 401(k) plan, requiring people to “opt out” instead. This nudge made saving so much easier (since people prefer to do nothing, obviously) and the company experienced a 49% to 86% enrollment jump.

    I like it… maybe if we could simplify the simplification process? Nudge the FASB? That seems like a good idea we should try. Oh wait… wasn’t that the whole point of the initiative in the first place? Ugh.

    What do you think: Is simplification hopeless? Why or why not?

    • SouthernCPA

      In the tax world, trust me, all the complexity is due to the politicians.

      • N.E.R.D.

        “HEY GUYS DID YOU KNOW IRC §179 IS PEGGED AT $500k/$2m FOR 2012? WE FORGOT TO DO OUR JOB THIS YEAR. LOL!”

        -Congress via The American Taxpayer Relief Act of 2012 (signed 01-2-2013)

    • dumpus

      Every principles-based system becomes a rules-based system due to the effects of social entropy. All it takes is one person with either too liberal or too conservative of an interpretation of a principle to ‘nudge’ the system from one of general agreement and honor of order to that of a spiderweb of rules and exceptions aimed at addressing every possible permutation. Simplicity naively assumes that no one will attempt to take advantage of the system to the point of violating the purpose of the very system itself – anyone who’s ever drafted a “Travel & Expense” policy for a company and then watched it function in the wild is all too aware.

    • CPA Judoka

      With a rule-based system, I wouldn’t expect anything to simplify overtime. To close off loopholes and to make the rules more black and white, I’d expect the rules to be more and more complex as time goes on.