Accounting for Growth. By Terry Smith. Century; 226pp; £12.99. Review by Dennis Henry.
In 12 chapters Terry Smith describes a dozen cosmetic techniques that are widely used to massage annual accounts within the strict limits of the law. None of these practices is illegal. While any one of them may have a significant effect on the figures, the frightening impact comes when they are used in combination. The author identifies major companies which use them in combinations of up to nine. It was this naming of names which made him a celebrity.
It is extremely unlikely, though, that Smith foresaw his suspension from employment as head of UK company research at UBS Phillips and Drew as a result. He had only set out to produce a sound (and overdue) technical analysis of corporate accounting practices, written in plain English. Besides achieving this, and its other merits, the book is bang up-to-date, as far as Maxwell anyway.
There's a wealth of information for the ubiquitous non-financial manager. He or she will learn more about the backroom antics of their accountant colleagues than from many a five-day seminar. Engineers, who work with thous and microns, and nowadays to BS5750 standards, will have their eyes opened to the imprecisions and judgments that go to produce "true and fair" audited accounts. They will at last understand that the story about the boss who asks his accountant what the profit was - only to be asked in return what profit he would like - isn't really a joke at all.
Many people, including Lords Hanson and Weinstock, have preached that "cash is king". Smith holds to the same philosophy. Unfortunately, as the book describes, far greater short-term results can be obtained by creative accounting than by mundane attention to management principles. But in the longer term, many of those who have relied heavily upon creative accounting have come a cropper.
Perhaps this book will inspire someone to establish a prize for the "cleanest" set of annual accounts. If Anita Roddick were persuaded to sponsor "The Body Shop Award for Accounts without Artificial Additives", it would be of much greater public benefit than awards for the best presented accounts.
The final chapter and the three case studies which make up the appendices point the way to a DIY approach to financial analysis which uses only existing data.
I would like to have read Smith's suggestions for the structure and control of accounts, to make them more consistent and useful to those who need them. But this is a small point as - overall - he gives outstanding service. He has subtitled his book Stripping the Camouflage from Company Accounts. Perhaps we will now begin to see the exposed ICBMs being destroyed, and a sensible system put in their place.
Dennis Henry is a management consultant.