by: Sigurd Rinde

Imagine this, you're out driving... [Reality references in brackets at the bottom of the post].

But the windshield is not there, instead you have a standardised set of reports [1] coming up on a "dashboard" in front of you [2].

The reports are supposed to give you an idea as to where you are heading and what dangers might lurk, or jump out from the kerb.

The reporters are not in the cabin, they're under the bonnet somewhere, peeking out through the grille [3] delivering information to your windscreen-replacing dashboard. And they're trained to interpret what they see, or think they see, armed with thick manuals of standardised interpretation methods. Every now and then an inspector [4] joins the ride to check if their reports last quarter more or less reflected the standardised interpretation manuals.

(Image from idashboard.com)

Obviously the lag is bad for your driving prowess, but luckily you're allowed to roll down the window so you can stick your head out every now and then and get a fleeting glimpse of what's happening [5]. Coming back to the "dashboard" again you're often able to correlate that with what you saw. The best drivers are often the ones that stick their heads out frequently.
 
Obviously the speed of your vehicle is seriously hampered by this and an Elk jumping out of the woods would often hit your windscreen in full force, an occurrence often termed a "Black Swan" these days despite the fact that Elks do this all the time. 

But you have masters, the owners of the truck [6], and they pay you well for speed and volume of goods delivered. This will inevitably lead to you convincing the masters that they should give you funds to buy a bigger van [7], preferably with a bigger engine and more refined dashboards to give at least an illusion of control. And the masters often comply while your driving expertise increases over time.

 
With speed and size Elks are flattened and other little wild animal corpses simply get stuck in the grille. But the size and speed increase makes sudden bends in the road harder to handle, although as long as the road is straight and the maps are good, it works. 

Some drivers are in the business of fuel delivery [8], and their trucks used to be small and nimble driving at low speeds where the driver would have his head out the window all the time [9]. In those days the dashboard was not electronic, it was paper-based [10] and delivered by hand, so keeping the head in the wind was a must.

But with new dashboard technology [11] the fuel trucks grew in size to huge juggernauts, the speed increased to warp speed [12] - and for awhile the masters were happy while the driver's [13] bonus made them very rich men (mostly men I'm afraid, manly business such truck-driving).

The inspectors being soon overwhelmed, cozied up to the masters and the drivers crossing their fingers and hoping the maps where good. The traffic cops [14] and some traffic analysts [15] on the other hands saw a different world out there, almost blown off the road when the juggernauts passed at warp speed. Some started complaining, but as things stood, few legislators [16] were keen to do much as the speed and volume of fuel distributed was overwhelming and all were happy and able to live in big mansions and drive big trucks themselves. And BTW, the police chiefs and legislators saw even less of the reality than the drivers or the traffic cops.

 
Until some mid autumn day when the first truck hit a tree [17] and went up in flames, then another were saved in the nick of time [18], and another [19] and soon all the fuel trucks went into a crawl. The other trucks, delivering normal goods soon realised that they too had to slam on the brakes to avoid the suddenly obvious dangers out there, then move slowly forward to save fuel that instantly increased in price [20].

The traffic cops blew their whistles, and some entered some of the biggest trucks and took over the steering wheels as the drivers had been reduced from cocky one-hand-on-the-wheel road cowboys to shaking bundles of nerves. Even a new and unblemished police chief [21] was called in, increasing hopes for a solution. We have yet to see if he'll be radical enough, perhaps we'll only see more traffic cops?
 
And that's where we are today. And now we're trying to find out what went wrong and what to do.

Would lower speed and smaller trucks been better? Of course. Would more traffic cops out there been helpful? To a certain degree, but only very limited unless they took over the wheels which might have reduced the interest of the masters to put up money for the bigger trucks.

Nope, the answer then as today can be found in the driver's (and everybody else's) ability to see reality as it is. The dashboard reporting system that was developed for paper based technology worked adequately at low speed, with small trucks with drivers hanging out the windows. But not anymore if we want to grow the economy.

What we need is a transparent windscreen where the driver can see reality without a filter. And we need it now.

So forget the discussion about "more traffic cops" or more "traffic rules" or even smaller trucks at lower speeds. The discussion must focus on the way the drivers are given access to reality.

The indirect representation of reality by proxy, the transactions, in today's reporting and management systems has to go, it must be replaced with a representation of reality directly.
[1] Accounting rules, GAAP, IFRS
[2] Management systems, accounting
[3] Accounting departments
[4] CPA
[5] Visit customers, people at the front lines and in the plants
[6] Shareholders
[7] Capital increase, IPO
[8] Financial institutions
[9] Your local bank that knew all the townspeople
[10] Good old bound ledgers
[12] Derivatives and other creative financial instruments
[13] Wall Street workers
[14] SEC et al.
[15] Analysts (duh)
[16] Washington, Brussels, Westminster etc. workers
[17] Lehman Brothers
[18] AIG
[19] Fannie Mae, Freddie Mac
[21] Barack Obama

Original Post: http://thingamy.typepad.com/sigs_blog/2008/11/the-story-of-our-times-time-to-abolish-accounting-as-we-know-it.html

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