Adam Smith famously thought that all trade bodies were a conspiracy to defraud the public. That may be a little overdramatic but it is certainly true that trade jargon is an effective way to mystify outsiders and reduce transparency. The prize for the profession with the most obstructive jargon is very competitive, but I think accounting would be a strong contender.
Jargon can serve a useful purpose. In genuinely technical fields, such as engineering and IT programming, it acts as a practical shorthand. It can speed communication and allow for the invention of new terms not covered by everyday language. It is difficult to imagine medicine functioning without its huge lexicon of specialised words.
But jargon can also be lazy and non-intuitive. It is often used where plain language would suffice, and I suspect there is sometimes an illicit pleasure in excluding non-believers. Surrounding yourself with people who share a common professional language can be comforting, if a little elitist.
The best test of jargon is whether its absence would impede communication
Filling a gap
My general observation is that jargon is justifiable only when it fills a linguistic gap. Jargon that seeks to obscure a simple message, such as ‘collateral damage’ in army-speak, fails this test. Perhaps the best test of jargon is whether its absence would genuinely impede communication.
Somewhat perversely, I always enjoy the efforts of the Académie Française to invent new French words to staunch the flow of English jargon. Many of the new English words they resent are genuine linguistic developments and not just jargon.
With financial reporting arguably losing relevance as social and sustainability issues become more important, I think it’s time that the profession stood back and rethought how it uses language.
Goodwill could be renamed ‘acquisition premium’ – concise and descriptive
Modest proposals
My first suggestion is that we should keep it simple. There is nothing wrong with having a balance sheet and a profit and loss account. A ‘statement of financial performance’ may be theoretically more descriptive but the change serves no useful purpose. Accounting should be accessible, and renaming the goalposts – ‘score facilitation portal’ maybe? – is a bad idea.
My second suggestion is to change some existing terms. Goodwill for example could be renamed ‘acquisition premium’. This is concise, descriptive and immediately understandable. It would also make the interminable debate about amortisation look a little ridiculous. A layman would likely just ask why you would want to treat the premium as an ongoing cost.
My third suggestion is to stop inventing opaque phrases. ‘Other comprehensive income’ is possibly the least useful piece of jargon I have ever encountered. Maybe ‘things we can’t decide how to treat’ was already taken. Only the word ‘other’ can be said to be appropriate.
At heart, financial reporting should be about communication. Accounting may be based on standards and assurance, but the output is meaningless if it cannot be communicated effectively.
I’ve never wanted to see just two years’ history when I look at a company
The oddities
If we can agree that communication is a priority, then I have a couple of other, more radical, suggestions.
There are two things about accounts that I have always found strange. I don’t think I have ever wanted to see just two years’ history when I look at a company, yet that is the default. Why two years? Why not five? I am not aware of any rule that forbids providing the extra years. This would, at a stroke, make reports much more informative at zero additional cost.
Lastly, I have never understood why the prior year is to the right of the current year. This is a very long-standing convention that merits immediate defenestration. Ten-year summaries always read left to right and so should everything else. After 25 years of reading accounts, I still get caught out by getting the years mixed up.
What better way to prove Adam Smith wrong than by improving transparency?
