"The Philosophy of Accounting", by Isaac Cheifetz, Minneapolis Star Tribune, July 18, 2005

"My great ambition is to count all this, and possibly sort it into piles." - Grendel, by John Gardner

Grendel, the 1971 novel by John Gardner, tells the medieval Beowulf epic from the point of view of the monster, rather than the knight who slays him. Grendel, we discover, is terrorizing the hapless Norsemen out of frustration, torn between his own sense of purposelessness and loneliness and an attraction to the beliefs and community of the local people.

During a break from snacking on Danes, Grendel visits with the Dragon, an ancient, powerful creature who lives in a cave piled high with gold and jewels. The Dragon revels in his own cynicism and dismisses Grendel's existential angst. Life is indeed purposeless, he says, and it matters not whether Grendel does good, bad or nothing at all: "My advice to you, my violent friend, is to seek out gold and sit on it."

Modern corporate CFO's might disagree with the Dragon's solution of avoiding philosophical dilemmas through the counting of money. Accounting standards frustrate the well-intentioned by their ambiguity, and allow periodic scandals, such as those of the dot-com era, for those seeking loopholes.

Since the 19th century, consistent principles of financial reporting have enabled investments in businesses run by strangers. This, in turn, has led to the rise of publicly traded corporations. Why aren't Accounting regulations more straightforward?

A CPA's office is lined with volumes of GAAP regulations, the Generally Accepted Accounting Principles to which U.S. companies must adhere. John Wiley & Sons GAAP 2004: Interpretation and Application of Generally Accepted Accounting Principles; a Streamlined Format runs a “mere” 1,104 pages.

The reality is, Accounting does not measure how much money a company has; instead, it assesses the financial health of a business as an ongoing concern. But like a photo taken from a moving car, each "snapshot" of a company's financial status will incrementally describe different facts, assumptions and realities.

Accounting is a remarkably sophisticated discipline, which takes into account the difficulty of accurately assessing a complex, organic entity. It acknowledges a reality that philosophers have grappled with for millennia - that it is impractical, if not impossible, for humans to possess truly complete, truly current knowledge of dynamic living entities.

Consider the metaphor of medical care. A doctor monitors a patient's heartbeat, temperature, and blood pressure, and the ratios one with another, rather than rely on a single indicator of a patient's health.

Similarly, modern Accounting is a multidimensional system for financial record-keeping, a rigorous-yet-flexible "gestalt" framework for assessing the health of a business.

A financial statement records revenue, profits and cash flow in and out of the company. Any of these measures can be manipulated to deceive investors. The three together make it more difficult.

Accounting insists that transparency is achievable through this imperfect system, even if perfect visibility is not. In doing so, it implicitly rejects tired, post-modern notions that objective assessment is futile. (Gardner's Grendel was poking fun at the melodramatic existential philosophers of the late 20th century, particularly Jean-Paul Sartre, on whom he based both Grendel and the Dragon's worldview).

Indeed, the "pro-forma" Accounting practices of the dot-com era, which justified arbitrary calculations of profitability, were essentially post-modern Accounting. Though intellectually complex, the end goal was to blur the financial status of the company, rather than illuminate it.

Accounting's battle with complexity has had a direct connection to society's ability and willingness to assume risk in the face of the unknown. The counting of grain in ancient Egypt's storehouses facilitated the feeding of large-scale civilizations. Double-entry bookkeeping, first described by Italian writers in the 15th century, was critical to the management of large enterprises and investments during the Industrial Revolution three centuries later.

More recently, General Motors and DuPont's innovation of rigorous cost-benefit analysis nearly a century ago underpinned the rise of the 20th century multinational corporations. Today, XBRL, the embedding of Accounting standards in Web-based financial data, holds the promise of "financial bar coding."

The appropriate application of Accounting standards is not always obvious. Recent issues of contention include the expensing of employee stock options and how to assess the value of corporate intellectual capital. But the guiding principle is that the financial statement should enhance the visibility, rather than obscure, the fiscal status of the firm.

This sophistication contradicts Accounting's stereotype in popular culture as linear and tedious. There are few novels about bookkeepers, and fewer action movies with CPA heroes. When Accounting is in the news, it is often negative, such as the Accounting scandals that bubbled to the surface after the dot-com era.

In my college years, Accounting seemed a most unromantic subject, from this history major's perspective. The unsettled nature of debits and credits mystified me (the codependent relationship between protons and electrons in high school physics had a similar effect).

Now I find Accounting compares favorably in its pursuit of truth with many more prestigious academic fields of study, particularly in the Social Sciences. It acknowledges the cloudy nature of reality, but still wages the good fight for precision.