Stayman’s Law (December 2015)

My friend and colleague, Phil Stayman, Controller of Fitcorp USA, Inc. recently shared with me the following accounting axiom which he coined Stayman’s Law. “If you don’t know what an amount is, where it came from or why, any action you take will inevitably be wrong.”

I think Phil is “spot on” in his statement. In the accounting world, I see this far too often. Junior staff people, and unfortunately, sometimes senior ones as well, look to see how something was booked last month and follow the same example for the current period. There is nothing wrong with looking to the past, but stopping with that limited inquiry is simply insufficient. It is imperative that one seeks to understand where amounts come from, the nature of the transaction, and the effect that any posting or journal entry that they record will have on the financial statements. The downstream effect of limited understanding is often correcting entries and reversals (and sometimes reversals of reversals).  I have seen too much of this over the years and what pains me the most is that it is entirely preventable.

When I see this happening in any of my client organizations, I address the issue immediately.  My preferred approach is the Socratic method of asking the questions of the accountant that he or she should have asked themselves before arriving at the flawed conclusion. Or perhaps, more accurately, before simply doing what was done in the past.

For those that aren’t quite up to the rigors of the Socratic method, I take a somewhat gentler approach of explaining the proper process and leading them through it by example.  Either way, the goal is the same, which is helping them elude the perils of running into Stayman’s Law and avoiding the significantly larger amount of time required to fix the errors later in the process.

Curiosity and understanding are key to improving any process.  I have a longtime friend who, during a job interview, was asked about his lack of direct experience in a particular area. He offered that his lack of experience actually played to his advantage.  He said that he brought no bias with him about the specifics of the role and would make no assumptions about how things worked. Rather, he would bring his natural curiosity to the table and seek to understand the way things actually worked and how they might be improved going forward.

It is one thing to routinely perform a task, even in an excellent manner, but it is quite another to understand how that task fits into the larger picture. Yet, there is still a higher level of understanding required in order to comprehend both the task and surrounding environment with sufficient depth in order to make changes that either improve the efficiency of the process or obtain a better result.

Challenge yourself (and those around you).  Ask yourself if there are opportunities to better understand how particular activities fit into the larger picture.  Always seek to further your understanding and improve either the efficiency of the process or the result (or both).

Curiosity might have killed the cat, but for most of us, a healthy amount of curiosity is necessary for a productive work life.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you.  Please give me a call at (314) 863-6637 or send an email to [email protected] The archive of these monthly newsletters is posted at the Resources section of homza.com

your cash is flowing.  know where.®     Ken Homza    Copyright @ 2015 Homza Consulting, Inc.

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