Finding a Simpler Way to Communicate a Complex Topic

Everyone’s heard of the KISS principle, right? Keep It Simple Stupid! Now I don’t necessarily like to use the “s” word – if you’re a parent, you’ve likely gone to painstaking efforts to get your kids to not use this word – but I really like this principle, and it’s something to always keep in mind when preparing a presentation.

Last month I presented a 90-minute A&A update for the Arizona Society of CPAs and one of the subtopics dealt with consolidation (topic 810): principal versus agent analysis. Basically this section was addressing the proposed rules on the consolidation of variable interest entities (VIE). I’m not sure if you know this, but a variable interest entity comes from the French term meaning “damn you Enron.” There are hundreds of pages of guidance in the current codification on how to consolidate VIE. This guidance is very complex.

As I was preparing for this presentation, I knew that I needed to find a simpler way of explaining this new proposed update because I wanted my audience to understand and retain this information and – just as importantly – I wanted them to stay awake during the section of my presentation!  Just saying the words “variable interest entities” can put an accountant to sleep in a nano-second. Also, the demographics of this conference consisted of a few SEC filers with the majority being in public accounting with clients that are privately held entities.

So, after spending some time trying to figure out a simple way of explaining this very complex topic, I came up with a scenario that I thought my audience – at least a vast majority –could relate to.

Here is an example of the KISS principle in action …

Your mother-in-law is a VIE. She collects social security, some investments, and slot machine winnings (and losses) but she is primarily being supported by her six children. Some of the siblings are providing more than others, but your family is providing the most. Your spouse likes to be in control and likes to make decisions as demonstrated by her position as a school principal. Your spouse wants her mother – your mother-in-law – to move in with your family. That’s right, your mother-in-law will be living with you 24/7.

Does your mother-in-law consolidate and move in because your spouse is the decider and is using her power as a principal over your mother-in-law and related parties? Or, will an agreement be reached with the other siblings whereby your mother-in-law will spend equal time with everyone and your family will share power and thus have an agent relationship?

Under the current proposal, there is a qualitative test that I call “the feelings test” which consists of three questions, just like the three questions the bridge keeper asked in Monty Python and the Holy Grail. This is very different than the current quantitative test, a.k.a “no feelings, just the facts test.”

These “feeling” questions are along the line of:

  • Who else has rights? The other five children have rights and individually and collectively could be considered agents.
  • Has your family received compensation (chicken soup, knitted sweater, or season tickets to the Cincinnati Reds) from your mother-in-law?
  • If so, what is the magnitude and variability of the compensation?
  • Is this compensation different than the compensation she is providing to the other families?
  • Finally, are you seeing positive returns from your investment in her gambling habit or have you just help absorb the losses or both?

The answers to these questions, based on the judgment of the decider, will determine if your family is the principal or an agent. In other words, the answers to these questions will help determine if your mother-in-law will move in permanently or just visit for a couple of months.

I got laughs, engaged eyes, positive head nodding, reduced smart phone praying, active listening ears and just general interest in this very complex topic. So the next time you try to deliver complex information, just remember the KISS principle – use less technical jargon and more every day scenarios to demonstrate your point.