Financial Statements – riddles wrapped in mysteries inside enigmas.

by Malcolm Simister

Many non-financial managers and company directors find that Sir Winston Churchill’s famous quip about Russia is also applicable to Financial Statements. But, in business, numbers, er, count so they’re important.

I find that half the difficulty people have in reading financial statements is due to the jargon used. It’s not surprising that people are confused when we can’t even agree on a name for the Income Statement, or is that the Profit & Loss Account (yes) or Statement of Financial Performance (yes, again). Different names for the same thing. Why? Historical accident, sort of, and failed attempts at standardisation. Don’t ask.

Everyone’s heard of balance sheets but what are they and what on earth does that name mean? What sheets are balanced? Is it something to do with sharing the bedcovers equitably? The name isn’t very enlightening and if I told you it’s all to do with ALE you’d probably think accountants are obsessed with beer (not true. We like wine too).

At least the name Cash Flow Statement more or less describes what’s in it. No wonder many analysts focus on cash flow rather than profit. Maybe even they’re confused.

But if people realised that much of this is a smoke screen it would take away the mystique of Financial Statements and accountants would lose their mojo. It would be like lawyers telling us what the law really says without reference to benches (what?) or the medical profession speaking in English instead of Latin.

Accountants won’t like me for saying this but, really, when explained in plain English, Financial Statements aren’t that difficult to understand.

2 thoughts on “Financial Statements – riddles wrapped in mysteries inside enigmas.

  1. Harriet Cooper says:

    I do trust
    all of the ideas you have introduced for your post.
    They are really convincing and can definitely work.

    Still, the posts are too short
    for beginners. May
    just you please prolong them a bit from subsequent time?

    Thanks for the post.

    • malcolm says:

      Hi Harriet,
      Thanks for your comment and suggestion. It’s always a fine balance between being concise and comprehensive. What’s too short for some is too long for others! I’ll try to remember in future. (But you could always sign up for my courses if you want more…).

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