Lawyers v Accountants: Differences in Thinking
Lawyers and accountants are two very similar professions. Indeed, in the area of tax law the distinction between a lawyer and an accountant can be rather semantic. However, it has struck me that there area number of interesting differences and thought patterns between accountants and lawyers. (This is not a dig at either profession.)
Growth v Risk Mindset
Lawyers typically spend a lot of their time dealing with problems that have occurred and the disputes that flow from them. Lawyers will often use their expertise in understanding problems to try and prevent them ahead of time. Lawyers will typically advise on documentation to help resolve potential conflicts and risks. Interestingly lawyers in personality tests will tend to have negative emotions and perceptions about risks than the population on average.
On the other hand, accountants typically deal with more positive (on average) clientele and mindset. When a business starts to become successful that is the time that they need to see their accountant. When they are making money they need to see their accountant on how to properly spend that money and make sure that it is not improperly taxed away. This will help them with projections and forecasts and planning for the future. Of course their accountant will be there as they go up and down but on the whole, and especially compared to lawyers people see their accountants for more positive related reasons.
Their accountant might advise them on the financial viability of a particular undertaking but it will be a combination of positives and negatives rather than just a summation of negatives. It is for this reason that I find that accountants tend to have more of a growth mindset than lawyers. That is to say they see more opportunities for improvement with clients and potential for deals to happen. Sometimes it seems like the client is driving a race car and the accountant is sitting in the navigator’s seat suggesting to them where they can go and the lawyer is the back seat screaming “we’re all going to die”. Of course “not dying” (metaphorically speaking) is an important thing.
God v the Animals
Another difference between accountants and lawyers can be seen in the way that they draw structural diagrams. Accountants will typically place a business at the top with the company that owns it underneath that and the shareholders underneath the company. The business is at the centre of their thought being the money producing object from which income flows down to the company and the company then pays dividends down to the shareholder.
Lawyers typically would draw this in reverse with the shareholders at the top, the company in the middle and the business below this. For the reason that lawyers consider who is in control and the shareholders control the company and then the company and its directors control the business which is below. This is akin to the medieval hierarchies of order which would put God at the top, the angels below, humans below the angels and animals below human. God is the ultimate controller and so is at the top. On the accountant’s way of thinking the hierarchy is inverted with animals at the top and God at the bottom. On the other hand it does seem rather strange to pay dividends “down” to shareholders that are above the company.
Cost v Value
How much is something worth? This creates a difference in approach between accountants and lawyers. Accountants typically start from the point of view of what has something cost. Lawyers are generally more focussed on what is something’s value. This difference can be seen most especially in the difference between accounting goodwill and legal goodwill. Accounting goodwill is the difference between the purchase price of a business and the cost of its assets. That is, it is the unexplained difference between cost and price. Legal goodwill concerned with the actions and intentions of the public towards a particular business. Legal goodwill is much harder to quantify and to ascribe a value to.
Of course each profession is familiar with both cost and value as seen when accountants undertake business valuations and lawyers tally up their costs. The general tendency though is for accountants and lawyers to think more of cost and value respectively.
Double v Single Entry Accounting
It can be a very amusing exercise to see an accountant explain how double entry accounting works to a group of lawyers. Typically, the lawyers will look confused for a while and then say something along the lines of “So for the Debit is that a plus or a minus?” (I admit to asking such a question in the past). Double entry is the foundational understanding of an accountant’s work. A system from which they know that their balance sheets balance (or don’t) that income and expenses have been properly accounted for.
For lawyers, whose foundational understanding is rights and obligations between parties, their world is single entries. A borrower and a lender. A payer and a payee. Assets and liabilities. It seems incongruous that there could be a change in a right to payment and in a change in level of assets. Sure these things both happen and there is some correlation but what lawyer would need to look beyond the ending of the immediate right? But for an accountant CR income and DR cash at bank is the most basic of statements. For a lawyer that reads more like titles and names: Counsellor Income and Doctor Cash. Perhaps they have entered into a contract?
Backdating
Another interesting difference between accountants and lawyers that I wish to raise is the concept of backdating. The income for a year can only really be determined after that year has finished. Transactions will be reconciled and their nature determined on a large part after they have been entered into. An accountant is constantly working on what has happened in the past and making determinations as to the characteristics of those things.
Lawyers are much more forward looking in terms of transactions. That is to say from this day forward legal rights are entered into. This can create an interesting conflict where accountants will see the need for some kind of legal right to have occurred and changed and come to the realisation that it should have happened after the event. This can cause problems for accountants who wish to effect a change of legal rights if they come to that determination after the fact. Backdating of transactions can seem a natural and perfectly reasonable thing to do. But a lawyer would say that the backdating is incorrect and false as the transactional rights were never entered into. Indeed for lawyers who have a duty to present truthful information to the court, the creation of backdated documents and presentation of them as truthful can be a strike off offence.
Proactive Accountants will think of the transactions that need to occur before 30 June and enter into them and document them ahead of time. Sometimes problems can occur that the precise numbers in a transaction cannot be known until after 30 June or at least after prudent time for entering into the documents. I have seen some innovative solutions to this through clever drafting. This includes ranges but enabling the amount to be determined and delegating authority to an accountant that acts for both parties. (Usually these such transactions are between related parties). Another solution is where the client instructs the lawyer that they had verbally created some rights (if those rights are able to be created verbally ie they are not creating an interest in land or some such) and then instructs the lawyer that they should merely document an acknowledgement agreement that details the verbal agreement that was entered into, but would be dated as of today.
Why does the Difference Matter?
What is there to gain by examining the general differences between accountants and lawyers? Accountants and lawyers are two very important professionals to clients and understanding differences to help understand how best to work together.
Further, a person’s disposition, their training, and their experience can have a subtle or significant effect on how they view the world. If we try and consider how to automate some type of rule, the experience of the person who is automating may have great import as to how they come to understand those rules. Given the subtle differences between two reasonably similar professions, consider the differences between, say nurses and programmers.
*No accountants were hurt in the making of this article. One lawyer got a little bit of wrist strain but he got better.
