Jagdish's blog: March 2013

Sunday, March 10, 2013

On Language in Accounting.

A practicing accountant asked a question about stuff on the use of language in accounting, and here is my response:
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I am not sure you'll find anything there. Always engrossed in numbers, the accountants are notorious for using language loosely. The quality of writing in the academic accounting journals is exhibit 1.

Years ago, I used to teach a case in auditing dealing with mergers and acquisitions (I do not remember the name of the case, but Arthur Young was one of the parties, and the venue was Arkansas) that went all the way to the Supreme Court. The supreme court decision in this case is one of the most fascinating that I have read; thee justices were arguing over the interpretation of one word "control". You should read the arguments of Justice Souter in that case. Judge Frank Easterbrook once observed, “the choice among meanings [of words in statutes] must have a footing more solid than a dictionary—which is a museum of words, an historical catalog rather than a means to decode the work of legislatures.” (See Posner article cited below).

In the legal area, one fascinating recent book worth taking a look at is the following. I have partially read it and am sure I'll finish reading it soon.

Reading Law: The Interpretation of Legal Texts by Antonin Scalia and Bryan A. Garner

There are very few things on which I would agree with Scalia, but still it is worth reading. The same goes for the works of Posner, but he hasn't written that much on language. That is a tragedy, because Posner is one of the most fascinating writers I have known. Unlike Scalia, Posner does not have to get a hired hand lexicographer to write his books.

Since Scalia wrote the above, these two jurists have been at loggerheads. That should thrill any one interested in polemics in law. See Posner's comments at http://www.newrepublic.com/article/magazine/books-and-arts/106441/scalia-garner-reading-the-law-textual-originalism

Stanford Encyclopedia of Philosophy has excellent articles on law and language, which I would read. Another interesting read is http://lawnlinguistics.com/2012/07/13/three-syntactic-canons/

While none of the above provide guidelines for action, they do provide reasoning which is useful in the choice of words.

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Tuesday, March 5, 2013

On XBRL

Take for example the following. Imagine the amount of junk that is in this small snippet of one S-1 filing.

The payload in this snippet is less than 10 per cent, the rest being junk.

The average size of daily filings at SEC is close to a gigabyte. I have to look at probably a few terabytes of data, and only a few gigabytes are of interest. If this is "user-friendly" am I on some other planet?

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XBRL Instance Document (incorporated by reference to Exhibit 101.INS to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 31, 2012)</TD></TR>

<TR>

101.SCH</TD>

</TD>

XBRL Taxonomy Extension Schema Document (incorporated by reference to Exhibit 101.SCH to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 31, 2012) </TD></TR>

...

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The purpose of any Xxxx language is NOT human readability but machine understandability. A machine that has to process theis information or hat has to "understand" it does not need the formatting information (it has zero information content). That being the case, it makes sense to keep all formatting information aside someplace else (usually in some sort of a stylesheet).

Especially, in a depository, it makes no sense whatsoever for this sort of information to add to the clutter. It may not be XBRL junk as you charecterise it, but junk nevertheless.

This sort of clutter did not exist in the pre-XBRL era.

I realise it is not a part of XBRL, but it does waste precious resources of SEC, the data aggregators, as well as researchers. For example, I have to now write programs to remove the chaff from the grain. It should be very easy for the software that created this monster to be able to store just the content information in the database.

HTML should not even enter into the picture for filings. Simple text with just xml/xbrl tags and nothing else should suffice.

Theere are two basic reasons for isolating formatting and structure tags from the content. First, it makes possible store "once but deliver in many ways" possible. Second, it economises on storage, communication, and processing of data.

You can see the difference if you look at some of the recent filings with older filings. It is not very difficult to write programs to isolate the crap from these bloated filings, but it is just make work.

I did not mean to blame XBRL for this issue, but am just bringing up the consequences of blind following of whatever the software vendors fling at you without much thought.

Sunday, March 3, 2013

On the importance of Language in Accounting

I think languages are important not just to be accountants, but to be global citizens in this world. More importantly, it has benefits that transcend mere language learning. It is tragic that schools do not encourage bi- or even tri-lingualism.

Studies show these are some of the benefits of learning more than one language (see http://www.actfl.org/advocacy/discover-languages/for-parents/cognitive):

1. those who are bilingual develop the concept of "object permanence" (ie., that same object can be referred to differently) at an earlier age

2. foreign language learning is much more a cognitive problem solving activity than a linguistic activity, overall. Studies have shown repeatedly that foreign language learning increases critical thinking skills, creativity, and flexibility of mind

3. children who study a foreign language, even when this second language study takes time away from the study of mathematics, outperform (on standardized tests of mathematics) students who do not study a foreign language and have more mathematical instruction during the school day

4. longer sequences of foreign language instruction seem to lead to better academic achievement, overall

5. Because second language instruction provides young children with better cognitive flexibility and creative thinking skills, it can offer gifted students the intellectual and developmental challenges they need and desire.

On Management Accounting

The Wikipedia defines management accounting as:

"....concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions."

With the developments in operations management, optimisation, and information systems, the above definition makes management accounting little more than a clerical function: just "providing" information to management who make "informed business decisions". Since the providing is facilitated by information systems, and the informedf decision making is the management's business, management accountants become like the Maytag repairmen.

Just as financial accountants outsourced much of accounting information systems, the management accountants since the 1960s outsourced much of their work to a whole host of fields that emerged since the 1980s: cost engineering (http://en.wikipedia.org/wiki/Cost_engineering), quantity surveying (http://en.wikipedia.org/wiki/Quantity_surveyor), industrial engineers (http://en.wikipedia.org/wiki/Industrial_engineering), project management (http://en.wikipedia.org/wiki/Project_management), operations management (http://en.wikipedia.org/wiki/Operations_management) and so on. The management accounting curriculum today does not provide any value adding skills in practice. If I were running a business, the management accounting graduates would be the last persons I would consider hiring. Depending on the needs, one of the above would be the suitable candidates.

The wikipedia definition makes management accounting a very passive discipline if it is at all a discipline. Much of the developments in management accounting research the past 30 years or so has had to do a lot more "management" than management accounting.

Much of what is taught in management accounting courses has little relation to what is needed in industry, and unless the curriculum is revamped to reclaim much of the territory that was lost while we fiddled management accounting is sure soon to become a moribund field of study.. But that requires reintroduction of all the analytical tools that disappeared from the business school curriculum the past 30 years or so.

Saturday, March 2, 2013

A liberal education is important to be an informed citizen. However, I think it is always important to keep ones options open whether you know, as you graduate from high school, exactly what you want to do with your life or not. In the US and some countries it is possible, but im many it is not.

Let me give you two examples. A classmate of mine was a physics major as an undergraduate, but some how wanted to be a historian. He tried desperately to register for a PhD in History at the University of Calcutta (he had a masters in management from a prestigious school). The university flatly denied to accept him merely because his bachelors was from the faculty of science, not arts.

The poor chap had to go to Canberra, Australia to get his doctorate in history. He worked as a Professor at ANU, and a few years ago was invited by the University of Chicago (http://en.wikipedia.org/wiki/Dipesh_Chakrabarty) to hold an endowed chair in history (he is a labour historian).

The second example refers to a colleague and a friend of my father, T.A. Davis (who was my loco parentis in Calcutta), whose only qualification was a bachelors in Chemistry. He was vegetating at a research Institute (there was nothing non-chemical he could do in India those days, and that is true even today). Fortunately for him one of the greatest biologists of the 20th century, JBS Haldane, while visiting, took a liking for him and took him to the Statistical Institute in Calcutta. He completed his doctorate (the last student of the famed C.R. Rao) in statistics shortly before he retired, but made fundamental contributions to folial symmetry (which follows Fibonacci numbers), and even became one of the senior officers of the Fibonacci Society (also a visiting professors at Michigan, Berkeley, Chicago,...) (see http://www.genetics.org/content/185/1/5.full.pdf).

It is important that one have a choice either way. If you know precisely what you want to do, you should be able to do it, but if you realise you made a mistake you should be able to correct it. That is not possible in many countries even today.

The most important thing in education is to keep an open mind, and for the educational system to ensure that there are no obstructions to keeping an open mind. I'll close with the commencement address by the great mathematician Paul Erdos at the Indian Statistical Institute in 1984:

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Child Prodigies

Paul Erdos

Professor, Mathematical Institute, Hungarian Academy of Sciences

… let me illustrate this idea of having your mind open with a story. It seems to be a true story, though I have not examined the original documents. There were two men, one whose mind was open and another whose mind was not open. Now there was Rontgen – the German physicist who discovered X-ray in the U.S., they are known as Rontgen rays. Rontgen in 1891 noticed by accident that if you leave a photographic plate near a Crook's tube then the

photographic plate gets darkened. Now from this Rontgen somehow noticed that this must be an important phenomenon and for a few weeks he did not do anything else but work on this subject and these few weeks of course changed the world. After he finished work on X-rays, Rontgen rays were discovered for which a few years later he received the first Nobel Prize in physics. These rays have immediate applications in medicine. Rontgen noticed very soon that

one would take pictures of the internal organs an enormously important application. Very soon their curative effects for cancer were discovered, its dangers were realized very soon and that one must be very careful in working with these rays. Also next year radio-activity was discovered by Bequerel and then the Curies came along, and a few years later the atom bomb was discovered and now we are not yet sure that you will survive this discovery.

Anyway the world was never the same after Rontgen discovered X-ray.

Now let me tell the story of a man whose mind was not open. Crook – who

incidentally was a great physicist himself discovered the cathode rays and the Crook's tube – also noticed that the photographic plate gets darkened if you leave it near a Crook's tube, but he only deduced that you should not leave a photographic plate near a Crook's tube. He put up a warning in his laboratory for colleagues not to do so. As a joke, I sometimes call it the biggest mistake in the history of science. I could tell from my own career of some instances when my mind was not open; for example, Hajnal and I missed the discovery of the fact that the inaccessible cardinals are not measurable. There are a few other examples. I missed the discovery of the extremal theory of graphs which I should have done two years before Turan did so. Every mathematician will find cases where he really should have made the discovery and he did not make it. This is true of course for every subject in the world.

Source: http://www.isical.ac.in/~isiaa/ISIAA_Bouquet-of-Remembrances.pdf

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