Originally published on Forbes.com Sept 8th, 2014
I just read that Andrew Kay passed away at the age of 95. I never knew who he was, but the machine that his company made had a profound influence on tax and accounting practice, at least in my neck of the woods. Mr. Kay was responsible for the Kaypro. Prior to the Kaypro the most high tech machine in the hands of an ordinary accountant was a calculator that had all four basic functions and maybe something fancy thrown in like present value computations. Some people still had mechanical adding machines. They could also subtract and maybe even multiply, but I don’t think they could divide.
At Joseph B Cohan and Associates we did have a computer in a special room. Our “medical department” (mostly dentists really) had a full accounting services including general ledger. There was also a payroll service and the firm’s time and billing. We had a link to a tax return processing center, but it was rather expensive so we did most returns by hand. All those functions had administrative people between the computer and the accountants. We wrote things on paper and got back results on paper. More to the point, the bulk of our work was all paper. Long green sheets with columns. Staff accountants would copy the account titles from the previous years closing, prepare depreciation and prepaid insurance schedules so that the seniors would have less to do in the field. We called it lineups.
Kaypro vs Osborne
By buying a Kaypro, we were not on the cutting age. The first “transportable” or “luggable” computer to catch on was the Osborne. If I remember rightly there was something of a debate between partisans of the two machines. What sealed it for me was when somebody told me about a Florida realtor who had left her Osborne in a car. It melted. (I can’t rule out that story being apocryphal). The Kaypro weighing in at 29 pounds had a rugged metal case. Of course, bringing it on a plane was a bit of a problem. The one time I remember doing it, they let me put in the first class coat closet.
I was one of the early adopters of the Kaypro. When I told one of my coworkers that before long there would be something like it on every desk, he mocked me.
We had to convince our managing partner, Herb Cohan, who had boiled all business into two principles – Money coming is good. Money going out is bad. – to buy more of them. We did it by making a Kaypro a staff member with a $50 per hour billing rate. Herb thought that the microfiche reader I had convinced him to get was a computer.
The Technology
This is more reminiscing than a technical article, so please forgive me if I am a bit off on some of the details. Our first Kaypro came with two disk drives that took 5 1/4 inch “floppy” disks. The operating system was called CPM and had something called virtual memory architecture. The CPU (I’m not sure that is the right term, but that’s what we called it) had only 64k. So when it was feeling overburdened it would save things temporarily on the disks. This could be a little disturbing sometimes because things had a way of disappearing from large spreadsheets. One thing that I have retained from my Kayrpo days is a suspicion of very large spreadsheets.
In order to economize on that 64k things that we are used to having in operating systems, like the ability to see what is on a disk or copy files from one disk to another were handled by application programs. There was this ritual that you had to go through when you got a new box of disks. They had to be “formatted” and on about half of them, your “boot disks” you had to copy the utility programs PIP and Stat, so you could move files and see how much space you had on left on your disks.
Spreadsheets
We actually never started doing our core work on the Kaypros. We didn’t have enough of them for one thing and the rest of the technology to actually produce returns on small machines was not in place yet – laser printers and reliable software for example. (According to Robert Flach, the Wandering Tax Pro, there is still not reliable software, but that is another story.) For planning and preparing projections the Kaypro opened up a whole new world. You could have the loan amortization built into your projection and see the effect of interest rate changes and in those days interest rates changed a lot. As I think about it, it is really hard to explain the transition. In 1980, it was really accurate to refer to us as pencil pushers. Today, I don’t even have a pencil.
In some ways having most accountants enter into a really intimate relationship with computers through spreadsheets had some unfortunate results. Spreadsheets had this way of growing until they became pretty opaque. People not really trained to be programmers were programming without realizing that that is what they were doing. The engagement software that we used at CCR was, in reality, a bunch of linked spreadsheets. That mutli-column green paper lives on in virtual form and may sometimes be causing us to look at things in two dimensions, when another viewpoint might be more appropriate.
The other thing I’ve noticed is that workaper technique actually seemed to get a bit sloppier when done with spreadsheets. Explicit indexing and cross-referencing are often not as clear as it was when the workpapers were, well, papers. The assumption is that the right number is being pulled from someplace, God knows where, in the elaborate spreadsheet, which is great until somebody adds a column or a row or hard codes a number where there really should be a formula.
What Do You Do With An Old Audit Bag?
My first big purchase at the end of my first tax season was a classic audit bag. It was a clunky thing that could barely come on an airplane with me. It held folders with legal size papers held by metal clips. The really important ones folded out into thirteen columns. Then there was another smaller but still clunky case to carry the calculator. The Kaypro, of course, did not really change that, but it was the first step. I was pretty saddened when the Kaypro and CPM got blown away by the big boys. For a while I think the technology changed too fast, that you were better off skipping one or two iterations. I can’t remember how long it was before there was a PC on every desk, but it was less than a decade. The fellow who mocked me the most about my prediction ended up eating his words.
More On Andrew Kay
Mr. Kay’s effect on tax practice was profound, so I must note that he himself made one appearance in Tax Court. It was in 1971 and is memorialized in TCM 1971-173, which I cannot find a free link to. He sold an interest in another company to his wholly owned Non-Linear Systems (which became Kaypro), The IRS thought that he charged NLS too much and hit him with a constructive dividend, which the Tax Court approved. This reflects a chronic problem back then when high marginal rates made it very hard to get spendable dollars out of corporations. I remember looking at the offering when Kaypro went public and noting the disclosures that made it clear that it was a closely held company with the expected bells and whistles of something that was not likely to go public. Apparently the excitement about the Kaypro might have caught Mr. Kay by surprise.
Of course Mr. Kay’s contribution has much broader ramifications than the tax and accounting business, but his effect on us was profound. I’m thinking I should do something to honor his passing – like maybe burning some pencils. Only I can’t find any.