If you’re a business leader or IT professional who’s wondered why accountants are so conservative, it’s for two primary reasons.
1. Conservatism is taught professionally to accountants
Accounts who are training to be CPAs are formally taught to be conservative. If anything is in doubt, they should present results that downplay the value of assets and revenue while overstating the value of liabilities and expenses. Accountants are taught to do this since this practice is in the best interest of those relying on financial statements. Curious interpretations help prevent losses and conserve resources. An investor in a company will always be happy if assets and revenue are better than expected. Yet, they’ll be angry, even likely to sue, if liabilities and expenses are greater than expected.
2. Accountants are likely to be blamed when financial goals are not met
When the CEO, CMO or VP of sales considers a bullish expansion in sales and market share for the company, the accountant or CFO must forecast where the company will be financially at the end of the plan. They’ll need to project profit margins, return on investment, and asset and liability balances if everything goes to plan. Even more importantly though, they must project finances if things do not go to plan.
Often, business doesn’t go as planned and the accountant will need to reconcile their projection for the management team and/or board of directors. If the accountant can’t explain why the results are off their projection, management could use them as a scapegoat. Saying the reason business is not going well is that they do not have a competent financial advisor.
Thinking Conservatively Sets Accountants Up For Success
To succeed, accountants strive to be accurate in their estimates and projections. It’s common for accountants to build contingencies and reserves into their financial plans for the unknown. There isn’t usually a penalty for the accountant if the business does better than planned but a landslide of problems if plans fall through. Trust me, you’d be conservative too if you were walking in the accountant’s shoes!
Practice Makes Habit
So accountants are typically conservative in nature by habit and training, as well as by being shaped by experiencing managers who shoot the messenger delivering bad financial results. Projections are simply expectations. If an accountant delivers insight that hopes for the best but plans for the worse, they’re doing their job protecting your finances as much as possible. They learn life is better with well-managed expectations, so they apply this principle to other areas of life too. Just like in the finance world, nobody is ever really upset when life’s events go better than expected!
A Strong Accounting System Fuels Stronger Results
Accountants can produce the best financial analysis, expectations, and results when they have the solution to do so. This is why we encourage you to learn more about Accounting Seed, the world’s first accounting technology platform. Be sure to check out our free buyer’s guide to learn more about our product and how it empowers stronger, effective business decisions.
Schedule a free demo today to explore how Accounting Seed helps you manage finances your way.