The Wrong Mistakes

Accounting statements are like bikinis: what they show is interesting but what they conceal is significant.

––Abraham Briloff, Emanuel Saxe Distinguished Professor of Accountancy emeritus at Baruch College

I write this chapter, indeed this entire book, as a reformed sinner. To be sure, when I started my career as a CPA with one of the then Big Eight accounting firms, I might just as well have believed a business existed to keep fastidious books rather than creating wealth for its customers. An accounting education will foster the worldview that a business exists to close books, provide quarterly and annual financial statements, and allocate costs to every single product to ensure it is making a profit—like the mythological Greek King Midas—on everything it touches.

Part of the blame lies with management accounting, a thoroughly inward-looking discipline, from cost accounting to the DuPont return on investment (ROI) formula. It was not until I began seriously studying economics, with an emphasis on price theory, when I started to show contrition for my past cost accounting ways, and finally understood a comprehensive theory of value. It was a difficult road to travel, because as the Roman statesman and philosopher Seneca once said, “The mind is slow in unlearning what it has been long in learning.” Working with customers in my accounting firm illustrated just how irrelevant the financial statements were in running a business in a world of risk and uncertainty. ...

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