June 23, 2018

When It Come to Overcomplication, Accountants Take the Cake

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?

Related articles

FASB Overseers Hope That Motley Crue-ish Tour Will Help Win Some Fans Back

Motley Crue.JPGThe Financial Accounting Foundation (“FAF”) trustees are going on a tour that will certainly rival the amount of groupie tail that Motley Crue was getting circa late 80s.
“The Financial Accounting Foundation trustees, who oversee the U.S. Financial Accounting Standards Board (FASB), will meet with small closed discussion groups of investors, auditors, academics and regulators in New York, Dallas, San Francisco, Chicago and Washington, D.C., as well as with the FASB’s standing advisory groups.”
It’s pretty clear that the FAF has the intention of spreading their seed knowledge around the country in order to win back some cred for the FASB.

FASB overseers to seek input on new strategic plan
[Reuters via Accountancy Age]

Why Do the FASB and IASB Always Insist on Mission Impossible?

Can anyone explain why accounting regulators have the annoying tendency to see a HUGE problem and insist on fixing it when the logistics are seemingly impossible to overcome? It’s commendable to try and solve big problems but it seems that the geeky egos of accountants often get in the way of reality.
CFO.com has a story about the FASB and IASB’s “dream” to get accounting standards down to one model for revenue recognition. ONE!
According to the article, the FASB’s revenue recognition rules are currently spread among 100 standards, so obviously there’s room for improvement but shrinking all that down to one model? Talk about herding cats.
We’re not hating on the standard setters (well, let’s face it, maybe a little) for considering this task but these dweebs can’t even get on the same page re: convergence timing so we’ll be taking the overs on the number of years when this single model pipe dream actually gets off the ground.

Revenue Recognition: Will a Single Model Fly?