Accountants vs. ICountants

by Jay Deragon on 01/29/2013

accounting for intangiblesInstead of counting and allocating money the Social Era will be about counting and allocating value. This will mean a shift from Accounting to ICounting.

An accountant is a practitioner of accountancy or accounting, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.  Accountants measure and categorize the outputs, financial results, of a business.

The American Institute of Certified Public Accountants (AICPA) defines accountancy as “…the art of recording, classifying, and summarizing in a significant manner and in terms of money…” transactions and events that are at least partly financial in character, and interpreting the results.  I’ve often told my accounting friends “You count everything that is consumed but you don’t account for what produces the value that is consumed“.  Most agree.

Counting Value That Produces Results

We live in an Era where producing value is more important than producing things. Value consumption is the engine that produces results which need to be accounted for, the role of accountants. However there appears to be a void in accounting for what produces value. Value is the source that produces results in the Social Era. The source of value creation for any business, institution and even individually rest within this fuzzy thing called “intangibles”. Intangibles represent four distinct kinds of capital that while recognized for centuries has never been defined, measured or accounted for.  The four distinct areas of intangible capital are:

  1. Human Capital: People, Experience, Loyalty, Learning etc.
  2. Relationship Capital: Customers, Suppliers, Brand, Market Sentiment
  3. Structural Capital: IT, Value Creation Processes, Knowledge Systems, Data, Technology, Intellectual Property, Management Processes such as Sales & Marketing, HR and Finance
  4. Strategic Capital: Business Model, Industry, Economy, Regulation, Competition

These four distinct areas of  intangible capital are unique to each organization, institution or even a country, state or city. The collective value of intangible capital typically represents four times (4X) the tangible value that has been measured by historical accounting practices.  Given the enormous under-utilized and under stated intangible capital we need a new professional practice, call it ICountants.

While accountants categorize, measure and track tangible capital ICountants categorize, measure and track intangible capital.Under current standards, accountants are limited in their ability to track the financial aspects of intangibles. In the coming years and decades, some of these standards will change. But there will always be significant non-financial aspects to intangibles.

ICountants are and will be needed to help business people identify, build and, yes, monetize the value of intangibles.. The act of managing by results has shifted to managing by values and the act of creating value has shifted from producing things to producing value. ICountants help organizations focus on measuring and using intangible capital which creates four times (4X) the value of tangible capital.

Smarter Companies  provides ICountants with the tools and training to produce more value. Are you a Smarter Company?

{ 1 comment }

Tom Hood February 10, 2013 at 10:41 am

Interesting view of CPAs in the Value-Creation age and the move from counting physical things to intangibles and value-creating things.

I like the “updated” definition of IC and the four components of 1) Human Capital, 2) Relationship Capital, 3) Structural Capital, and 4) Strategic Capital.

Also the links to Business as a Platform (HBR) and the “The Power of Pull” by John Seely-Brown.

And they missed the linkage to CPAs who have alrady developed significant thought in this area:

Reminds me of the CPA VIsion Project and the aspiration of CPAs to move up the value chain through a four-step process:

1) Communicating the total picture with clarity and oibjectivity (This would add these intangibles);
2) Translating complex information into critical knowledge;
3) Anticpating and creating opportunities; and
4) Designing pathways that transform vision into reality.

This was developed form a grassroots across the profession intitiative in 1998 (CPA VIsion Project) and reaffirmed in 2011 in the CPA Horizons 2025 Project.

These same intangibles are also talked about extensively by Ron Baker in his book, Mind Over Matter where he defines Intellectual Capital (IC) as three core elements: HC – Human Capital + SC – Structural Capital + SC – Social Capital.

Maybe it should be referred to as I-CPA to get the trust and commitment to the public interest that the CPA Profession adds to the mix. These skill sets and ideas are also incorporated into the new global management accounting designation, CGMA (Certified Global Management Accountant).

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