THE accounting literacy movement may not sound very revolutionary, however it is regarded as a breakthrough in the way people “talk” accounting. The main aim of the movement is to focus on the language of accounting and to communicate the correct use of terms.

If accounting is approached as a language it will become accessible to everyone, Colour Accounting International president Peter Frampton, who is a key driver behind the new movement, says.

He failed accounting while studying in South Africa, but immigrated to Australia and subsequently obtained his chartered accountancy qualifications there. He has an infectious passion to develop a new way of thinking about, and teaching, accountancy. “Accounting literacy means you are fluent and clear in the language of business,” he says.

Mr. Frampton aligns himself with a recently published discussion document about the role of accounting in SA by the South African Institute of Business Accountants. It argues that the present education and training model in SA is geared to developing “high-end” accountants for the needs of listed companies, without considering the accounting needs of the majority of businesses in SA — small-and medium-sized entities.

Research by the South African Institute of Chartered Accountants shows SA has a shortage of more than 20,000 accountants. Mr. Frampton says that this decline in interest — which begins at school — happens because people do not grasp the basic elements of accounting.

There are only five elements in accounting to learn and understand. Colour Accounting developed a single-page framework to explain the five elements: assets, liabilities, equity, expenses and income. It illustrates, using different colours, which belong on a balance sheet and which belong on an income statement. Expenses are “verb concepts” and assets are “noun concepts”, the framework explains.

Basic mistakes are made, even by accountants, when “talking” accounting, Mr. Frampton says. One of the most common mistakes is that income is “cash in” and expenses are “cash out”.

“The better definition for income is value generating activities, and a better definition for expenses is value consuming activities,” he explains in a telephone interview from his home in Geneva, Switzerland. “You cannot receive income. You receive cash. Overcoming this linguistic faulty wiring is the job of the new generation of accounting teachers in our accounting literacy movement.

“Expenses are value sacrificing or consuming activities. It is not cash flowing out of the business. That is the worst possible definition. It is the activity and not the cash that is important. Assets are valuable, liabilities are obligations to lenders or creditors and equity is an obligation — to shareholders.”

South African Institute of Business Accountants CEO Nicolaas van Wyk supports the new way of thinking about accounting as a language and not as abstract numbers. However, it will take time to catch on in mainstream thinking and teaching, he says.

“The use of colour and visualising the concepts makes the learning easy, less abstract and less intimidating. There are the purists who will remain sceptical, but there has to be room for different ways of teaching the same thing.”

Reproduced from an article in Business Day (South Africa) by Amanda Visser