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Financial Expertise

Expertise in understanding financial reports is not merely demonstrating how to use mathematical operations to forecast, benchmark, etc. There are excellent computer-based tools (e.g., MSFT’s Excel) that guide the user in the manipulation of financial concepts and preparation of financial reports, and as in the case of doing (clothes) laundry in the 21st century in the U.S. – the machine does most of the work. Understanding of private, independent (e.g., NGOs), and public sector finance requires the ability to perform the following activities (not intended to be exhaustive):

  1. To read carefully and intelligently the (legal) agreements between and among the parties. A goal in this process is to recognize the contingencies of who gains | loses under what conditions;
  2. To interpret the legal language of contracts into the accounting language of debits, credits, and off-balance sheet items. A goal in this process is to measure the generally accepted outputs (cf. generally accepted accounting principles, GAAP);
  3. To reason by analogy, including applying the lessons of recent | remote history, to the interpretation of the financial arrangement at issue given by officials and other authoritative figures (e.g., investor relations). A goal in this process is to conceive of foreseeable, unfolding realities beyond those expressed and implied by the authoritative sponsors (and other cheerleaders) and infer what may be hidden for good reason (e.g., the exercise of undue influence, inadequately managed conflicts of interest). Cf. publication bias.

Finance that is understood as primarily a quantitative methodology is an undeveloped conceptual framework. Finance is the creation, transfer, and (re)allocation of rights and obligations that help | hinder specific individuals and organizations; the reduction of these rights and obligations to assets, liabilities, and other financial interests may answer the question of how much but not other significant issues such as why was the particular arrangement created, are there other solutions that accomplish as much with more fairness, how does the particular arrangement affect other decisions (e.g., a budget allocating significant current financial resources to Y by implication leaves less for other programs and functions), etc.

Finance is an expression of public (e.g., municipal debt) and private (e.g., initial public offering, IPO) policy that, if divorced from consideration of qualitative (and quantitative) outcomes, risks becoming a subjective exercise in predicting the weather without preparing for its foreseeable effects (cf. Hurricane Katrina).

Addendum: importantly, real expertise is not dependent on the source of education; i.e., deep proficiency and real independence, which are two of the most potent variables describing expertise, may be developed inside or outside of the Ivy League. A deficiency in either proficiency or independence may materially impair alleged expertise, whether the purported expert was educated at Harvard or CUNY. However, general education is essential, notwithstanding favorable / unfavorable statistical studies on predicted effects on occupational income, as a course of study and preparation contributing positively to depth in proficiency and genuineness in independence. Sound education lays the foundation for critical analysis that liberates the student from cliche, slogan, and other tired ideas.

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