/

Anticipatory accounting and finance

Investors know the value of being anticipatory. In a world characterized by exponential change, the accounting industry has an opportunity to incorporate that same mindset into everyday practices and procedures — in more ways than one.

The Netflix paradox
The field of accounting has traditionally labored under a challenging paradox when it comes to reporting organizations’ financial activity — using past performance as one gauge of future prospects. An incident involving Netflix in 2016 illustrates that — and a broader issue — perfectly.

On the one hand, the entertainment giant turned in a relatively poor quarterly earnings report. Nonetheless, Netflix stock jumped a remarkable 18 percent.

Those steeped in traditional thinking were baffled. How could investors be so optimistic in the face of bad news?

The answer lay not in the past but in the future. For one thing, the company announced it had added 50 percent more subscribers than initially expected. Analysts projected that Netflix was on course for more than 60 million subscribers in the United States and about 100 million internationally by 2020. Further, the company also announced its intent to spend $6 billion on content next year, up $1 billion from 2016.

Therein lies the paradox of accounting practices — a focus on the financials of the past in a world that’s already moved on.

But that also encapsulates an even greater opportunity — in effect, to reinvent accounting by learning how to add strategic foresight to the numbers, become more anticipatory, and accurately leverage the dynamic of change.

New thinking, greater anticipation
In one respect, the opportunity to reinvent accounting could focus on procedures. As puzzling as it may appear — particularly with an anticipatory mindset — accounting methodology traditionally identifies value-creating investments as expenses. Granted, investment does mean expenditure of capital, but one issue with this methodology is that it often completely bypasses the future benefits of these investments.

That begs one obvious question: How can value be accurately measured when it’s not apparent in financial statements? Years of bad quarterly financials have not stopped investors from buying Amazon stock, and they have been well rewarded for ignoring those reports and looking instead at how Amazon was anticipating technological change and taking advantage of it.

But the opportunity to revamp processes and procedures isn’t limited to numbers on a spreadsheet. Like most every other profession, accounting is faced with being forced to do more with less and challenged by information overload and the necessity to do things faster. And in a world characterized by exponential change, those and other realties are only going to come faster and faster—a powerful form of outside disruption. And because technology is giving all of us the capability of doing more in less time every year, the majority of accountants who bill for time will find themselves making less every year unless they find new ways to add new value.

What’s the most effective strategy? Like the Netflix “paradox,” the best path ahead lies with being anticipatory rather than focusing on the past and reacting to change.

Research shows that accounting is ripe for this sort of shift. According to research by CPA.com, 92 percent of CPAs are not “future ready” — in other words, they don’t believe themselves to be well positioned to anticipate emerging trends in business, demographics and broad social developments.

Other studies further underscore the need for future-focused strategies. In another survey, 76 percent of small business owners said their CPAs are not proactive. It should be no surprise that 75 percent have changed firms because their CPAs are providing reactive services rather than proactive advice.

On one level, a greater capacity for anticipation involves using Hard Trends — those future events we know for certain will occur — and Soft Trends, those that may occur but are also open to influence. By learning how to separate these two types of trends, accountants have the opportunity to better serve their clients by helping them anticipate disruptions and predictable problems, including the future impact of regulatory change, to help guide companies and organizations in better planning and a greater overall emphasis on proactivity rather than simple reaction.

Further, new technology and tools will allow for greater productivity, collaboration and, ultimately, the game-changing opportunity to be a disruptor instead of settling for being disrupted and reacting to change time and time again.

Become anticipatory
I have developed The Anticipatory Organization Learning System: Accounting and Finance Edition in conjunction with the Business Learning Institute. This award-winning online learning program — specifically geared to finance and accounting professionals — is designed to help you develop anticipatory skills with which you can craft a professional mindset that balances traditional skills and values with the greater confidence that an anticipatory mindset can afford. By learning to anticipate disruptions, problems and game-changing opportunities, you can proactively shape the future of the profession from the inside out.

Did you find the article above helpful and / or relevant to your industry?

Contact us to schedule a demo of the Anticipatory Organization® Learning System for your organization today!

Subscribe

Get notified when we publish a new blog post.


Leave a Comment:

Your email address will not be published. Required fields are marked *