In a recent post, I noted a couple of examples of how another writer, Jason Voss, focused on certain aspects of financial reporting as an indication of a reporting entity’s culture or character:

• Knowing that some companies report a bland “net revenues” while others report “customer sales” tells you something about the culture of the organization…
• …when you trace a unit of capital (rupees, yuan, yen, dollars, euros) through the financial statements, you once more get a sense of how straightforward and how consistent the financial reporting is at a business. This, in turn, is indicative of the character of the people that run the organization…

I was very intrigued by these observations, particularly the first one, in part for how it implies that the smallest aspects of financial reporting might carry meaning. I don’t think it’s always necessarily true of course that the distinction between “revenue” and “sales” provides a useful window on culture. If nothing else, one imagines lots of companies would choose to refer to “revenue” simply because IAS 18/IFRS 15/IAS 1 etc. use the term (IAS 18 in particular uses the term ‘sale” to refer to the underlying transaction rather than to the specific inflow of benefits resulting from it – IFRS 15 barely uses “sale” at all, and then just in some secondary contexts). Such mapping of the standards might sometimes be imposed on an entity’s reporting by a key influential individual – the CFO or the Chair of the audit committee – or by the auditors, regardless of the preferences of a less vocal majority.

One might take issue anyway with the apparent value judgment that detects a greater (say) warmth or sensitivity in the use of “customer sales.” I assume part of that judgment is based in the actual citing of “customer,” as if to emphasize regard for those on the other side of the transaction (“The customer’s always right”). But to “make a sale” or to be a “salesman” is also heavy with negative, manipulative cultural connotations. Take for example the famous monologue from the film version of Mamet’s Glengarry Glen Ross:

• Oh, have I got your attention now? Good. ‘Cause we’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anyone want to see second prize? Second prize’s a set of steak knives. Third prize is you’re fired.

Exactly because “revenue” seems like less personal a term, it’s hard to imagine Mamet would have considered substituting it there. That is, the focus on the customer cuts both ways, perhaps reminding you of their humanity, but perhaps only of their potential for being fleeced. To the non-technical reader, “revenue” may more likely carry connotations of taxation – as in Revenue Canada or the Internal Revenue or the Inland Revenue. Of course, that’s hardly a happy connotation in the mind of most, but at least it’s a mechanism that impersonally extracts its pound of flesh from everyone.

I’m not saying for a second that Voss’s observation is wrong or trite, only that such readings are heavily conditional on context, and may be susceptible to misinterpretation. Similar observations might apply to any other apparent revelation of character by an entity’s financial reporting. For one thing, an amoral character may conceal his nature under an apparently seamlessly virtuous surface (as the old saying goes: sincerity is everything – once you can fake that, you’ve got it made). Beyond that, the determination of “character” on an entity-wide level entails an almost impossible tangle of complexities, with no objective basis of resolution. To take just one example that reflects the current political divide in the US in particular, some might detect character in an oil company’s efforts to “green” its activities, to report openly on its impact on the environment, and so forth. Others might see such efforts as weakly hypocritical or outright pointless, and find character only in the proud assertion of independence and profit maximization. The Economist recently opined that “this week showed that (Donald Trump) does not have the character to change,” but others take the measure of his character exactly in the refusal to do so.

Still, it would surely be useful if every reporting entity (perhaps at the audit committee or disclosure committee level) were periodically to ask itself how it understands its own character, whether the tone and content of its corporate reporting fairly reflect this understanding, and what needs to be changed to clarify this (rather than, one hopes, to hide it). Such a project may focus on the MD&A and other communications more on the financial statements, but Voss is indicating how it shouldn’t be solely that. David Thomson wrote years ago that the films of director Howard Hawks reflect the principle “that men are more expressive rolling a cigarette than saving the world.” To observe that such expression of character may also be found in the nuances of drafting an accounting policy hardly carries the same ring, but perhaps we can hope for it to hold true once in a while…

The opinions expressed are solely those of the author