Faulty Sums and Accounting

I enjoy a good polemic and Keron Bhattacharya’s book on Accountancy is certainly that. A generation old now but many of the points remain (although the acronyms for the UK accounting standards and accounting bodies have all changed). As an accountant himself (member of CIMA) he isn’t very happy with the way accountants were doing their work and isn’t afraid to say it.

Substance Over Form

Bhattacharya targets the classic “get out” of accounting rules — substance over form. He explains, “…what this rule says is that you must follow the spirit of the Standards and not just the written word. Now if you ask: what is the spirit of a Standard? How will I know it? That is a sixty-four thousand dollar question” (Bhattacharya, 1992, page 29). Accountancy needs wiggle room and this is it — but it isn’t very helpful for those trying to understand what is going on.

Consequences of Accounting Choices

Bhattacharya believes that what accountants do matters (which is why it is worth criticizing them). He describes the fact that Rowntree, the UK confectionery firm, wasn’t allowed to account for brands such as Kit Kat and After Eight and so its accounts made the firm look not very valuable. He blames this for Nestle being able to pick up Rowntree as a bargain. (And, of course, because of the peculiarities of accounting rules having acquired (rather than built) the brands the Swiss firm could add them to its balance sheet).

He discusses at length the difference between “extraordinary” and “exceptional” items and how it matters what a firm chooses. He convincing argues that presentation choices are important despite the general notion that accountants are just straight shooters telling it how it is.


I liked his comment on growth. Too often I’ve heard marketers discuss growth without really worrying about what is growing. “The question is: What Growth?”  (Bhattacharya, 1992, page 156). I agree that growth is only good if it is something you want to increase, profits etc…, not growth for the sake of growth.

Accountancy had a bunch of problems showing it was relevant in the 1990s — it still does. Hopefully in a generation time we won’t be still having the same conversations.

Read: Keron Bhattacharya, 1992, Accountancy’s Faulty Sums, The Macmillan Press Ltd