I've not been a huge fan of the Harvard Business Review ever since,
years ago, it refused to publish my technical corrections to an article dealing
with discounted cash flow and real estate valuation. Coincidentally the author
was a wealthy Harvard alumnus.
Be that as it may I still scan the HBR and its blog regularly. Here's a blog
item worth noting ---
"HBR's 10 Must Reads: The Essentials" ---
Click Here
http://hbr.org/product/hbr-s-10-must-reads-the-essentials/an/13292-PDF-ENG?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Your library might have hard copy versions in the stacks
and/or electronic access via database passwords.
Forced Savings in the Private Sector? The public sector is exempted in
this legislation!
In an effort to increase the number of Americans who are saving for retirement –
roughly 50 percent of employees have no retirement savings at all – the
Automatic IRA Act of 2010 has been introduced in the Senate by Sen. Jeff
Bingaman (D-NM) and in the House by Rep. Richard Neal (D-MA). The bill
establishes IRA accounts for all employees and sets up automatic payroll
deductions.
AccountingWeb, August 31, 2010 ---
http://www.accountingweb.com/topic/accounting-auditing/democrats-seek-legislate-retirement-savings
Clawback Teaching Case: Earnings Management and Creative Accounting
"Clawbacks: Prospective Contract Measures in an Era of Excessive Executive
Compensation and Ponzi Schemes," by Miriam A. Cherry and Jarrod Wong, SSRN,
August 23, 2009 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1460104
Abstract:
In the spring of 2009, public outcry erupted over the multi-million dollar
bonuses paid to AIG executives even as the company was receiving TARP funds.
Various measures were proposed in response, including a 90% retroactive tax
on the bonuses, which the media described as a "clawback." Separately, the
term "clawback" was also used to refer to remedies potentially available to
investors defrauded in the multi-billion dollar Ponzi scheme run by Bernard
Madoff. While the media and legal commentators have used the term "clawback"
reflexively, the concept has yet to be fully analyzed. In this article, we
propose a doctrine of clawbacks that accounts for these seemingly variant
usages. In the process, we distinguish between retroactive and prospective
clawback provisions, and explore the implications of such provisions for
contract law in general. Ultimately, we advocate writing prospective
clawback terms into contracts directly, or implying them through default
rules where possible, including via potential amendments to the law of
securities regulation. We believe that such prospective clawbacks will
result in more accountability for executive compensation, reduce inequities
among investors in certain frauds, and overall have a salutary effect upon
corporate governance.
Clawback in the Context of TARP ---
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
On October 14, 2008, Secretary of the Treasury
Paulson and President Bush separately announced revisions in the TARP
program. The Treasury announced their intention to buy senior preferred
stock and warrants in the nine largest American banks. The shares would
qualify as Tier 1 capital and were non-voting shares. To qualify for this
program, the Treasury required participating institutions to meet certain
criteria, including: "(1) ensuring that incentive compensation for senior
executives does not encourage unnecessary and excessive risks that threaten
the value of the financial institution; (2) required clawback of any bonus
or incentive compensation paid to a senior executive based on statements of
earnings, gains or other criteria that are later proven to be materially
inaccurate; (3) prohibition on the financial institution from making any
golden parachute payment to a senior executive based on the Internal Revenue
Code provision; and (4) agreement not to deduct for tax purposes executive
compensation in excess of $500,000 for each senior executive." The Treasury
also bought preferred stock and warrants from hundreds of smaller banks,
using the first $250 billion allotted to the program.
The first allocation of the TARP money was
primarily used to buy preferred stock, which is similar to debt in that it
gets paid before common equity shareholders. This has led some economists to
argue that the plan may be ineffective in inducing banks to lend
efficiently.[15][16]
In the original plan presented by Secretary
Paulson, the government would buy troubled (toxic) assets in insolvent banks
and then sell them at auction to private investor and/or companies. This
plan was scratched when Paulson met with United Kingdom's Prime Minister
Gordon Brown who came to the White House for an international summit on the
global credit crisis.[citation needed] Prime Minister Brown, in an attempt
to mitigate the credit squeeze in England, merely infused capital into banks
via preferred stock in order to clean up their balance sheets and, in some
economists' view, effectively nationalizing many banks. This plan seemed
attractive to Secretary Paulson in that it was relatively easier and
seemingly boosted lending more quickly. The first half of the asset
purchases may not be effective in getting banks to lend again because they
were reluctant to risk lending as before with low lending standards. To make
matters worse, overnight lending to other banks came to a relative halt
because banks did not trust each other to be prudent with their
money.[citation needed]
On November 12, 2008, Secretary of the Treasury
Henry Paulson indicated that reviving the securitization market for consumer
credit would be a new priority in the second allotment
From The Wall Street Journal Accounting Weekly Review on August 13,
2010
Clawbacks Divide SEC
by: Kara
Scannell
Aug 07, 2010
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Auditing, Executive Compensation, Restatement, Sarbanes-Oxley Act, SEC,
Securities and Exchange Commission, Stock Options
SUMMARY: During
the settlement with Dell, Inc. in which founder Michael Dell agreed to pay a
$4 million penalty without admitting or denying wrongdoing, Commissioner
Luis Aguilar raised the issue of "clawing back" compensation to executives
based on inflated earnings. "The SEC alleged Mr. Dell hid payments from
Intel Corp. that allowed the company to inflate earnings....Under [Section
304 of the 2002 Sarbanes-Oxley law], the SEC can seek the repayment of
bonuses, stock options or profits from stock sales during a 12-month period
following the first time the company issues information that has to be
restated." The SEC has been working on a formal policy to guide them in
cases in which an executive has not been accused of personal wrongdoing,
"but hammering out a policy acceptable to the five-member Commission...may
be difficult." The related article announced the clawback provision when it
was enacted into law in July and compares it to the previous requirements
related to executive compensation under Sarbanes-Oxley.
CLASSROOM APPLICATION: The
article covers topics in financial reporting related to restatement,
executive compensation topics, the Sarbanes-Oxley law, and the SEC's recent
enforcement efforts in general.
QUESTIONS:
1. (Introductory)
Based on the main and related article, define and describe a "clawback"
policy.
2. (Introductory)
Why will most publicly traded companies implement change as a result of the
new law and resultant SEC requirements?
3. (Advanced)
When must a company restate previously reported financial results? Cite the
authoritative accounting literature requiring this treatment.
4. (Advanced)
Describe one executive compensation plan impacted by reported financial
results. How would such a plan be impacted by a restatement?
5. (Introductory)
What is the difficulty with applying the new clawback provisions to
executive stock option plans? Based on the related article, how are
companies solving this issue?
6. (Advanced)
Is it possible that executives who are innocent of any wrongdoing could be
affected financially by these new clawback provisions? Do you think that
such executives should have to repay to their companies compensation amounts
received in previous years? Support your answer.
7. (Advanced)
Refer to the main article. Consider the specific case of Dell Inc. founder
Michael Dell. Do you believe Mr. Dell should have to return compensation to
the company? Support your answer.
8. (Introductory)
How do the new requirements under the financial reform law enacted in July
exceed the requirements of Sarbanes-Oxley? In your answer, include one or
two statements to define the Sarbanes-Oxley law.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Law Sharpens 'Clawback' Rules for Improper Pay
by JoAnn S. Lublin
Jul 25, 2010
Online Exclusive
"Clawbacks Divide SEC," by: Kara Scannell, The Wall Street Journal,
August 7, 2010 ---
http://online.wsj.com/article/SB10001424052748703988304575413671786664134.html?mod=djem_jiewr_AC_domainid
A dispute over how to claw back pay from executives
at companies accused of cooking the books is roiling the Securities and
Exchange Commission.
Commissioner Luis Aguilar, a Democrat, has
threatened not to vote on cases where he thinks the agency is too lax,
people familiar with the matter said. That prompted the SEC to review its
policies for the intermittently used enforcement tool.
"The SEC ought to use all the tools at its disposal
to try to seek funds for deterrence," Mr. Aguilar said in an interview on
Tuesday. "It's important for us to the extent possible to try to deter, and
part of that means using tools Congress has given us."
The issue of clawbacks came up during the SEC's
recent settlement with Dell Inc. and founder Michael Dell, people familiar
with the matter said.
The SEC alleged Mr. Dell hid payments from Intel
Corp. that allowed the company to inflate earnings. He agreed to pay a $4
million penalty to settle the case without admitting or denying wrongdoing,
but didn't return any pay.
Mr. Aguilar initially objected to the Dell
settlement, according to people familiar with the matter. It is unclear
whether the penalty—considered high by historical standards for an
individual—swayed Mr. Aguilar's vote or whether he removed himself from the
case.
In the interview, Mr. Aguilar spoke generally about
clawbacks and declined to discuss Dell or other specific cases.
A spokesman for the SEC declined to comment.
Section 304 of the 2002 Sarbanes-Oxley law gave the
SEC the ability to seek reimbursement of compensation from the chief
executive and chief financial officer of a company when it restates its
financial statements because of misconduct.
Under the law, the SEC can seek the repayment of
bonuses, stock options or profits from stock sales during a 12-month period
following the first time the company issues information that has to be
restated.
Last year, the SEC used the tool for the first time
against an executive who wasn't accused of personal wrongdoing.
In that case the SEC sued Maynard Jenkins, the
former chief executive of CSK Auto Corp., for $4 million in bonuses and
stock sales. Mr. Jenkins is fighting the allegations.
SEC attorneys have been working on a more formal
policy to guide them in such cases, people familiar with the matter said.
They were seeking to tie the amount of the clawback to the period of
wrongdoing, these people said.
Mr. Aguilar felt the emerging new policy wasn't
stringent enough and told the SEC staff he would recuse himself from cases
when he didn't agree with the enforcement staff's recommendations, the
people said.
Amid the standoff, SEC enforcement chief Robert
Khuzami has halted the initial policy and set up a committee to take another
look at the matter, the people said.
Hammering out a policy acceptable to the
five-member commission, which has split on recent high-profile cases, may be
difficult.
The divisions worry some within the SEC because the
absence of an agreement could affect cases in the pipeline, especially on
close calls where Mr. Aguilar's vote might be necessary to go forward.
Mr. Aguilar's hard line on clawbacks was bolstered
by the Dodd-Frank law, signed by President Obama on July 21. It says stock
exchanges need to change listing standards to require companies to have
clawback policies in place that go further than the Sarbanes-Oxley policy.
Section 954 of the law says that pay clawbacks
should apply to any current or former employee and instructs companies to
seek pay earned during the three-year period before a restatement "in excess
of what would have been paid to the executive under the accounting
restatement."
Since becoming a commissioner in late 2008, Mr.
Aguilar has called for a tougher enforcement approach, including a rework of
the agency's policy of seeking penalties against companies.
In a speech in May, Mr. Aguilar took up the issue
of executive pay in the context of the SEC's lawsuit against Bank of America
Corp. for failing to disclose to shareholders the size of bonuses paid to
Merrill Lynch executives. The bank agreed to pay $150 million to settle the
matter.
Mr. Aguilar said that penalty "pales" in comparison
to the $5.8 billion in bonuses paid during the merger.
"Perhaps what should happen is that, when a
corporation pays a penalty, the money should be required to come out of the
budget and bonuses for the people or group who were the most responsible,"
he said.
Bob Jensen's threads on outrageous executive compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
The Fed's New Theme Song: Behind Closed Doors
Was AIG viewed as really "Too Big to Fail?"
"Rare Fed Tightening The central bank wants to keep its AIG bailout debates a
secret," The Wall Street Journal, September 11, 2010 ---
http://online.wsj.com/article/SB10001424052748703597204575483903923110856.html
.
Federal Reserve Chairman Ben Bernanke is justly
famous for his loose-money policies. But when it comes to preventing
disclosure to taxpayers, Mr. Bernanke continues to tighten. In central bank
speak, you could say that Mr. Bernanke's operation is not "accommodative"
when responding to Freedom of Information Act requests.
This week we received a letter from the Fed
regarding documents we requested in February. Specifically, we asked the
central bank to release a 2008 staff memo entitled, "Issues Related to
Possible IPC Lending to American International Group." Soon after the memo
was drafted, the Federal Reserve Bank of New York began lending money to
AIG. This might suggest that the Fed staff favored this federal
intervention.
But in a CNBC interview last winter, Senator Jim
Bunning said that Mr. Bernanke's staff did not think AIG was too big to fail
after all. "His staff didn't agree with him," said the Kentucky Republican.
"I'm talking about an email that he sent his staff after his staff
recommended that the Federal Reserve not touch AIG."
Members of Congress have been able to see this
memo, though not to take a copy with them. We think taxpayers should be able
to see the staff memo, as well as Mr. Bernanke's response, since the
taxpayer exposure at AIG eventually reached $182 billion and the decision
may hold lessons for the future. But our request has been "denied in full,"
according to the Fed, because the documents contain "pre-deliberative
intra-agency analyses and recommendations."
This is exactly the type of information that the
Financial Crisis Inquiry Commission should be studying and making available
to the public. We urge the commission to shine a light on this central
episode in the history of the financial panic, allowing taxpayers to learn
the truth.
Jensen Comment
I think saving AIG was not the main thing on
Hank
Paulson's mind. As former CEO of Goldman Sachs, he wanted to save Goldman
and the only way was to save AIG and thereby channel $100 billion to Goldman and
other lesser CDS counterparties through AIG. Or am I just being too cynical in
my old age?
Credit Default Swap (CDS)
This is an insurance policy that essentially "guarantees" that if a CDO goes
bad due to having turds mixed in with the chocolates, the "counterparty" who
purchased the CDO will recover the value fraudulently invested in turds. On
September 30, 2008 Gretchen Morgenson of The New York Times aptly
explained that the huge CDO underwriter of CDOs was the insurance firm
called AIG. She also explained that the first $85 billion given in bailout
money by Hank Paulson to AIG was to pay the counterparties to CDS swaps. She
also explained that, unlike its casualty insurance operations, AIG had no
capital reserves for paying the counterparties for the the turds they
purchased from Wall Street investment banks.
"Your Money at Work, Fixing Others’ Mistakes," by Gretchen Morgenson,
The New York Times, September 20, 2008 ---
http://www.nytimes.com/2008/09/21/business/21gret.html
Also see "A.I.G., Where Taxpayers’ Dollars Go to Die," The New York Times,
March 7, 2009 ---
http://www.nytimes.com/2009/03/08/business/08gret.html
What Ms. Morgenson failed to explain, when Paulson eventually gave over
$100 billion for AIG's obligations to counterparties in CDS contracts, was
who were the counterparties who received those bailout funds. It turns out
that most of them were wealthy Arabs and some Asians who we were getting
bailed out while Paulson was telling shareholders of WaMu, Lehman Brothers,
and Merrill Lynch to eat their turds.
You tube has a lot of videos about a CDS. Go to YouTube and read in the
phrase "credit default swap" ---
http://www.youtube.com/results?search_query=Credit+Default+Swaps&search_type=&aq=f
In particular note this video by Paddy Hirsch ---
http://www.youtube.com/watch?v=kaui9e_4vXU
Paddy has some other YouTube videos about the financial crisis.
Bob Jensen’s
threads on accounting for credit default swaps are under the C-Terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#C-Terms
The Ballad of 'Large Loan' Verrone: During the boom, Wachovia
banker Robert Verrone made money by slicing and dicing billions of dollars in
commercial real estate loans. After the crash, he made money by restructuring
those loans before they blew up. What has he learned? by Devon Leonard,
Business Week, September 9, 2010 ---
http://www.businessweek.com/magazine/content/10_38/b4195070500566.htm?link_position=link3
Bob Jensen's Rotten to the Core Threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm
Bob Jensen's threads on the bailout mess are at
http://www.trinity.edu/rjensen/2008bailout.htm
Interesting Video (painfully slow loading) on How to Detect Accounting
Gimmicks & Fraud in Financial Reports
Financial Shenanigans: How to Detect Accounting Gimmicks &
Fraud in Financial Reports: How to Detect Accounting Gimmicks & Fraud in
Financial Reports … Dr. Howard Schilit pulls back the curtain on the current
climate of accounting
http://cfapodcast.smartpros.com/Take15/CFA_Institute_T15_063_Sm.mp4
Jensen Comment
I was disappointed in this video, but it might have some benefit for students in
the last third of the video where a brief summary of the bombshell Lehman Bank
Examiner's Report (2,200 pages) ---
http://dealbook.blogs.nytimes.com/2010/03/11/lehman-directors-did-not-breach-duties-examiner-finds/#reports
Bob Jensen's threads on the Lehman Bank Examiner's Report ---
http://www.trinity.edu/rjensen/fraud001.htm#Ernst
Equity Valuation
TAR book reviews are free online. I found the September 2010 reviews quite
interesting, especially Professor Zhang's review of
PETER O. CHRISTENSEN and GERALD A. FELTHAM,
Equity Valuation (Hanover,
MA:Foundations and Trends® in Accounting, 2009
ISBN 978-1-60198-272-8) ---
Click Here
This book is an advanced accountics research book
and the reviewer leaves many doubts about the theory and practicality of
adjusting for risk by adjusting the discount rate in equity valuation. The
models are analytical mathematical models subject to the usual limitations of
assumed equilibrium conditions that are often not applicable to the changing
dynamics of the real world.
The authors develop an equilibrium asset-pricing
model with risk adjustments depending on the time-series properties of cash
flows and the accounting policy. They show that operating characters such as
the growth and persistence of earnings can affect the risk adjustment.
What are the highlights of this book? The book
contains five chapters and three appendices. Chapters 2 to 5 each contain
separate yet closely related topics. Chapter 2 reviews and identifies
problems with the implementation of the classical model. In Chapters 3 to 5,
the authors develop an accounting-based, multi-period asset-pricing model
with HARA utility. My preferences are Chapters 2 and 5. Chapter 2 contains a
critical review of the classical valuation approach with a constant
risk-adjusted discount rate. As noted above, the authors highlight several
problems in estimating these models. Many of these issues are not properly
acknowledged and/or dealt with in many of the textbooks. The authors provide
a nice step-by-step analysis of the problems and possible solutions.
Chapter 5 contains the punch line. The authors push
ahead with the idea of adjusting risk in the numerator, and deal with the
thorny issue of identifying and simplifying the so-called “pricing kernel.”
Although the final model involves a rather simplifying assumption of a
simple VAR model of the stochastic processes of residual income and for the
consumption index, it provides striking and promising ideas of how to
estimate and adjust for risk based on fundamentals, as opposed to stock
return. It provides a nice illustration of how to incorporate time-change
risk characteristics of firms with the change in firms’ operations captured
by the change in residual income. This is very encouraging.
There are some unsettling issues in this book. Not
surprisingly, I find the authors’ review of the classical valuation approach
to be somewhat tilted toward the negative side. For instance, many of the
problems cited arise from the practice of estimating a single, constant
risk-adjusted discount rate for all future periods. This seems to be based
on the assumption that firms’ risk characteristics do not change materially
over future periods. Of course, this is a grossly simplified approach in
dealing with the issues of time-changing interest rates and inflation. To
me, errors introduced by such an approach reflect more the shortcomings in
the empirical or practical implementation, rather than the shortcomings in
the valuation approach per se. As noted by the authors, using date-specific
discount rates can avoid many of the problems. After all, under most
circumstances in a neo-classical framework, putting the risk adjustment in
the numerator or in the denominator may simply be an easy mathematical
transformation. In some cases, of course, adjusting risk in the denominator
does not lead to any solution to the problem. In that sense, adjusting in
the numerator is more flexible.
After finishing the book, I asked myself the
following question: Am I convinced that the practice of adjusting risk in
the discount rate should be abolished? The answer seems unclear, for a
couple of reasons. First, despite the authors’ admirable effort in bringing
context to it, the concept of “consumption index” still seems rather
elusive. As a result, it lacks the appeal of the traditional CAPM, namely, a
clear and intuitive idea of risk adjustment.
Professor Zhang seems to favor CAPM risk adjustment without delving
into the many controversies of using CAPM for risk adjustment in the real world
---
http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious
It would be interesting to see how these sophisticated analytical models are
really used by real-world equity valuation analysts.
Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster: The Formula That Killed Wall Street ---
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html
Some highlights:
"For five years, Li's formula, known as a
Gaussian copula function, looked like an unambiguously positive
breakthrough, a piece of financial technology that allowed hugely
complex risks to be modeled with more ease and accuracy than ever
before. With his brilliant spark of mathematical legerdemain, Li made it
possible for traders to sell vast quantities of new securities,
expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond
investors and Wall Street banks to ratings agencies and regulators. And
it became so deeply entrenched—and was making people so much money—that
warnings about its limitations were largely ignored.
Then the model fell apart." The article goes on to show that correlations
are at the heart of the problem.
"The reason that ratings agencies and investors
felt so safe with the triple-A tranches was that they believed there was
no way hundreds of homeowners would all default on their loans at the
same time. One person might lose his job, another might fall ill. But
those are individual calamities that don't affect the mortgage pool much
as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and
tranching still hadn't solved all the problems of mortgage-pool risk.
Some things, like falling house prices, affect a large number of people
at once. If home values in your neighborhood decline and you lose some
of your equity, there's a good chance your neighbors will lose theirs as
well. If, as a result, you default on your mortgage, there's a higher
probability they will default, too. That's called correlation—the degree
to which one variable moves in line with another—and measuring it is an
important part of determining how risky mortgage bonds are."
I would highly recommend reading the entire thing that gets much more
involved with the
actual formula etc.
The
“math error” might truly be have been an error or it might have simply been a
gamble with what was perceived as miniscule odds of total market failure.
Something similar happened in the case of the trillion-dollar disastrous 1993
collapse of Long Term Capital Management formed by Nobel Prize winning
economists and their doctoral students who took similar gambles that ignored the
“miniscule odds” of world market collapse -- -
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
The rhetorical question is whether the failure is ignorance in model building or
risk taking using the model?
Also see
"In Plato's Cave: Mathematical models are a
powerful way of predicting financial markets. But they are fallible" The
Economist, January 24, 2009, pp. 10-14 ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
Wall Street’s Math Wizards Forgot a Few Variables
What wasn’t recognized was the importance of a
different species of risk — liquidity risk,” Stephen Figlewski, a professor of
finance at the Leonard N. Stern School of Business at New York University, told
The Times. “When trust in counterparties is lost, and markets freeze up so there
are no prices,” he said, it “really showed how different the real world was from
our models.
DealBook, The New York Times, September 14, 2009 ---
http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/
Bob Jensen's threads on valuation are at
http://www.trinity.edu/rjensen/roi.htm
Also see controversies over validation of accountics research
http://www.trinity.edu/rjensen/TheoryTAR.htm
AECM active Richard Sansing has a new TAR hit in September 2010
Note that TAR articles are not open shared for free on the Web
A SSRN version of this paper can be downloaded free at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1050381
"FIN 48 and Tax Compliance"
The Accounting Review 85 (5), 1721 (2010); doi: 10.2308/accr.2010.85.5.1721
Lillian F. Mills
The University of Texas at Austin
Leslie A. Robinson
Dartmouth College
Richard C. Sansing
Dartmouth College and CentER, Tilburg University
ABSTRACT:
We develop a model to examine the effects of Financial Accounting Standards
Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), on the strategic interaction between publicly traded
corporate taxpayers and the government. Several of our findings contradict
conjectures voiced by members of the business community regarding the
economic effects of implementing FIN 48. Specifically, taxpayers with strong
facts obtain higher expected payoffs from uncertain tax benefits and some
disclosed liabilities understate the expected tax liability. Consistent with
the common conjectures, however, some taxpayers are more likely to be
audited or are deterred from entering into transactions that generate
uncertain tax benefits because of FIN 48. ©2010 American Accounting
Association
Jensen Comment
I think Amy Dunbar is revising her FIN 48 BNA book, but I'm not certain where
she stands on that revision
Teaching Case on Managerial Accounting: Accounting Assessments of
New Strategy Performance
From The Wall Street Journal Accounting Review on August 13, 2010
Macy's Tailored Merchandise Pays Off
by:
Veronica Dagher
Aug 12, 2010
Click here to view the full article on WSJ.com
TOPICS: Earnings
Per Share, Financial Accounting, Financial Analysis, Financial Reporting,
Interim Financial Statements, Management Controls, Managerial Accounting,
Product strategy, Revenue Forecast
SUMMARY: Macy's
Inc. is benefiting from a plan to tailor merchandise to local markets, an
effort that helped push its fiscal second-quarter earnings higher. But the
retailer Wednesday reiterated uncertainty about the economy even as it
raised its yearly earnings forecast. The department-store operator is
entering the fall-shopping season "with tremendous momentum," but the
economy remains uncertain, Chairman and Chief Executive Terry Lundgren said
in a statement.
CLASSROOM APPLICATION: This
article can be used in both managerial and financial reporting classes. The
managerial topic of planning and control is addressed through the Macy's
tailoring process for regional U.S. tastes. Resultant quarterly reporting of
earnings, gross margin, and comparison to analysts' estimates is then
discussed.
QUESTIONS:
1. (Introductory)
Macy's is tailoring its offerings across the U.S. Summarize how this
retailer is taking this approach.
2. (Introductory)
How has the company assessed whether its strategy is working?
3. (Advanced)
What accounting information do you think is necessary to do the planning and
assessment that you described in answer to the first two questions above? In
your answer, describe how you would code accounting data to provide the
needed information.
4. (Introductory)
What was Macy's most recent quarter end? How did the company perform during
that quarter? In your answer, include definitions of revenue, gross margin,
and profit.
5. (Introductory)
How did Macy's results compare to forecasted earnings? In your answer, state
who forecasts these earnings and define the earnings per share metric they
use.
6. (Advanced)
What fiscal year end date corresponds to the quarter end reported in this
article? Why do you think retailers typically have this fiscal year end
date?
Reviewed By: Judy Beckman, University of Rhode Island
"Macy's Tailored Merchandise Pays Off," by Veronica Dagher, The Wall
Street Journal, August 12, 2010 ---
http://online.wsj.com/article/SB10001424052748704901104575423072657062954.html?mod=djem_jiewr_AC_domainid
Macy's Inc. is benefiting from a plan to tailor
merchandise to local markets, an effort that helped push its fiscal
second-quarter earnings higher. But the retailer Wednesday reiterated
uncertainty about the economy even as it raised its yearly earnings
forecast.
The department-store operator is entering the
fall-shopping season "with tremendous momentum," but the economy remains
uncertain, Chairman and Chief Executive Terry Lundgren said in a statement.
Macy's typically kicks off the earnings season for
major retailers and is seen by many analysts as a barometer of consumer
spending.
The Cincinnati-based company raised its earnings
forecast for the year by 10 cents to between $1.85 and $1.90 a share. The
company also increased its estimate for same-store-sales growth to 4% to
4.2%, from 3% to 3.5%.
The retailer's shares jumped after its earnings
report, rising 4.5% to $20.25 in afternoon trading Wednesday on the New York
Stock Exchange. Its shares were a bright spot as global economic worries
weighed on the broader market and concerns about consumer spending helped
pressure competing retailers such as J.C. Penney Co.
The stock through Tuesday was up 25% in the past
year.
Macy's, along with its peers, continues to face
challenges due, in part, to low levels of consumer confidence and anemic job
growth. Some analysts worry retailers face rougher going during the second
half as results are compared with the prior year when the economy seemed to
be improving.
The company on Wednesday reiterated that the effort
to tailor merchandise to local tastes, dubbed My Macy's, is paying off, with
major changes behind it and the opportunity ahead to push hard at driving
sales. The company stocks items based on individual market needs as part of
the initiative, pilot-tested in 20 markets in 2008 and rolled out nationally
in mid-2009.
During the company's earnings call, Chief Financial
Officer Karen Hoguet said private-brand and exclusive products also are
helping drive growth. She added that all regions of the country did
"relatively well" in the quarter, with the only cluster of weakness
occurring in some parts of California.
Ms. Hoguet said that on a two-year basis, the
strongest regions for the department store giant were the North and the
Midwest, both of which were original My Macy's pilot regions.
Macy's has also increased its efforts in targeting
teens and their mothers. With teen unemployment at record levels, teens have
less money for new back-to-school clothes, which may put purchasing
decisions back in the hands of their parents.
Some analysts say moms may have more confidence
shopping at department stores compared with teen retailers, which may give
names like Macy's a boost.
To that end, Macy's recently rolled out the
Material Girl line inspired by singer Madonna and her daughter to lure in
teens, an effort Ms. Hoguet said is performing well.
The Material Girl line adds to other private
labels—now more than 40% of Macy's stock—that also include the American Rag
brand for juniors and young men and the Martha Stewart home-furnishings
line.
For the period ended July 31, the company reported
a profit of $147 million, or 35 cents a share, up from $7 million, or two
cents a share, a year earlier, which included 18 cents a share in
restructuring-related charges.
Analysts polled by Thomson Reuters forecast
earnings of 29 cents a share for the second quarter.
Gross margin edged up to 41.9% from 41.5%.
Macy's last week reported total sales rose 7.3% to
$5.54 billion and same-store-sales growth of 4.9%, compared with prior-year
declines of 9.7% and 9.5%, respectively.
Ms. Hoguet said sales were strong in most
categories, with the only notable weaknesses in women's traditional career
apparel and young men's. The best sales results in the quarter included
men's, fashion watches, updated women's apparel and seasonal categories like
swimwear, luggage, furniture and mattresses, she said.
Combined online sales for macys.com and
bloomingdales.com were another highlight in the quarter, rising 28.1%.
Macy's has been making strides in the digital area and has boosted its
spending on various types of online media this year.
Macy's operates about 850 department stores in the
U.S. and its territories. The company is opening three department stores in
the second half, including its Bloomingdale's in Santa Monica, which opened
last week, and is also planning to open its first four Bloomingdale's
Outlets.
Bob Jensen's threads on financial performance assessment are at
http://www.trinity.edu/rjensen/roi.htm
Update on Lanny Arvan: From SCALE Experiments to Blogs
Years ago economics professor Lanny Arvan directed the famous in a controlled
SCALE experiments comparing resident full-time students at the University of
Illinois taking onsite versus online courses from the same instructors using
common grade assessment procedures. Thirty courses across multiple disciplines
were examined across five years of experimentation ---
http://www.trinity.edu/rjensen/255wp.htm#Illinois
In spite of some technology glitches in those olden days, many students tended
to prefer taking the courses online. Typically, many more students moved from B
grades to A grades in online courses. However, there tended to not be much
difference for D and F students, indicating that lack of motivation and aptitude
cuts across online and onsite pedagogies in mostly the same way.
In one of my technology workshops Dan Stone (then from the University of
Illinois) gave us an overview that I still serve up his PowerPoint and audio
files ---
http://www.cs.trinity.edu/~rjensen/000cpe/00start.htm
"Teaching With Blogs, by Lanny Arvan, Inside Higher Ed, July
27, 2010 ---
http://www.insidehighered.com/views/2010/07/27/arvan
“It is my impression
that no one really likes the new. We are afraid of it. It is not only as
Dostoevsky put it that 'taking a new step, uttering a new word is what
people fear most.' Even in slight things the experience of the new is rarely
without some stirring of foreboding.”
--Eric Hoffer, Between The Devil And The Dragon
I tried the new in fall
2009,
teaching with student blogs, (look in sidebar and
scroll down) out in the open where anyone who wanted to could see what the
students were producing. The blogging wasn’t new for me. I’d been
doing that for almost five years. Having students
blog was a different matter. I had no experience in getting them to overcome
their anxieties, relaxing in writing online, learning to trust one another
that way. Normally I believe what’s good for the goose is good for the
gander. If I could blog comfortably and get something from that, so could
they. On reflection, however, I was very gentle with myself when I started
to blog. As an experiment to prove to myself whether I could do it, for
three full weeks I made at least one post a day, 500 to 600 words, a couple
of times 1,100 to 1,200 words. I didn’t tell a soul I was doing this. There
was no pressure on me to keep it up. It was out in the open, yet nobody
seemed to be watching. After those three weeks I felt ready. In the
teaching, however, at best I could ask the students to blog once a week. I
gave the students weekly prompts on the readings or to follow up on class
discussion. (See the
class calendar for fall 2009. The prompts
are in the Friday afternoon entries.) If I let them blog quietly to get
comfortable as I had done, the entire semester would expire before they were
ready to go public. There seemed no alternative but to have them plunge in.
The uncertainty about how
best to assist the students once they had taken the plunge created an
important symmetry between the students and me; we both were to learn about
how to do this well, often by first doing it less well. Though it was an
inadvertent consequence, of all my teaching over the past 30 years I believe
this course came closest to emulating the
Seven Principles for Good Practice in Undergraduate Education by
Chickering and Gamson. I learned to comment on the student posts, not with
some pre-thought-through response based on what I anticipated they’d write,
but rather to react to where they appeared to be in their own thinking.
(This
post provides a typical example. The student
introduced time management as a theme. My comment aimed to make her think
more about time management.) As natural as that is to do in ordinary
conversation, I had never done it before when evaluating student work.
Indeed, I didn’t think of these comments as evaluation at all. I thought of
them as response. In the normal course of my non-teaching work I respond to
colleagues all the time and they respond to me. This form of online
interaction in the class made it more like the rest of my interactions at
work.
Most of the students were
quite awkward in their initial blogging. Good students all, the class was a
seminar on "Designing for Effective Change" for the
Honors Program, but lacking experience in
this sort of approach to instruction, the students wrote to their conception
of what I wanted to hear from them. I can’t imagine a more constipated
mindset for producing interesting prose. For this class there was a need for
them to unlearn much of their approach which had been finely tuned and was
quite successful in their other classes. They needed to take more
responsibility for their choices. While I gave them a prompt each week on
which to write, I also gave them the freedom to choose their own topic so
long as they could create a tie to the course themes. Upon reading much of
the early writing, I admonished many of them to "please themselves" in the
writing. I informed them that they could not possibly please other readers
if they didn’t first please themselves. It was a message they were not used
to hearing. So it took a while for them to believe it was true. In several
instances they tried it out only after being frustrating with the results
from their usual approach. This,
as Ken Bain teaches us,
is how students learn on a fundamental level.
I'm crustier now than I
was as a younger faculty member. Nonetheless, I find it difficult to deal
with the emotion that underlies giving feedback to students when that
feedback is less than entirely complimentary to them. Yet given their
awkward early attempts at writing posts that’s exactly what honest response
demanded. It’s here where having the postings and the comments out in the
open so all can see is so important, before the class has become a
community, before the students have made up their minds about what they
think about this blogging stuff. Though both the writing and the response
are highly subjective, of necessity, it is equally
important for the process to be fair. How can a
student who receives critical comments judge those comments to be fitting
and appropriate, rather than an example of the insensitive instructor
picking on the hapless student? Perhaps a very mature student can discern
this even-handedly from the comments themselves and a self-critique of the
original post. I believe most students benefit by reading the posts of their
classmates, making their own judgments about those writings and then seeing
the instructor’s comments, finally making a subsequent determination as to
whether those comments seem appropriate and helpful for the student in
reconsidering the writing.
A positive feedback loop
can be created by this process. The commenting, more than any other activity
the instructor engages in, demonstrates the instructor’s commitment to the
course and to the students. In turn the students, learning to appreciate the
value of the comments, start to push themselves in the writing. Their
learning is encouraged this way. Further, since the blogging is not a
competition between the students and their classmates, those who like
getting comments begin to comment on the posts of other students. The
elements of the community that the class can become are found in this
activity.
Since on a daily basis I
use blogs and blog readers in my regular work, one of the original reasons
for me taking this approach rather than use the campus learning management
system was simply that I thought it would be more convenient for me. Also,
given my job as a learning technology administrator, I went into the course
with some thought that I might showcase the work afterward. Openness is
clearly better for that. However in retrospect neither of these is primary.
The main reason to be open is to set a good tone for the class. We want
ideas to emerge and not remain concealed.
Yet there remains one
troubling element: student privacy. Is open blogging this way consistent
with
FERPA? As best as I’ve been able to determine, it
is as long as students “opt in.” (I did give students the alternatives of
writing in the class LMS site or writing in the class wiki site. No student
opted for those.) My experience suggests, however, that is not quite
sufficient. If most students opt in, peer pressure may drive others to opt
in as well. More importantly, however, students choose to opt in when they
are largely ignorant of the consequences. Might they feel regret after they
better understand what the blogging is all about?
Continued in article
Bob Jensen's threads on blogs are at
http://www.trinity.edu/rjensen/ListservRoles.htm
"In Pictures: The 10 Highest State Income Tax Rates For 2010,"
Forbes ---
http://www.forbes.com/2010/08/19/tax-rich-bill-gates-personal-finance-highest-state-income-tax-rates-2010_slide.html
Teaching Case on the General Motors Forthcoming IPO
From The Wall Street Journal Accounting Weekly Review on August 27, 2010
GM Files for Long-Awaited IPO
by: Sharon
Terlep and Dan Fitzpatrick
Aug 19, 2010
Click here to view the full article on WSJ.com
TOPICS: Audit
Report, Auditing, Disclosure, Financial Reporting, Internal Controls,
Sarbanes-Oxley Act, SEC, Securities and Exchange Commission
SUMMARY: General
Motors. Co. filed registration papers Wednesday for an initial public
offering in a 734-page document the WSJ describes as "...the most detailed
portrait yet of GM post-bankruptcy....GM outlines a business plan that
intends to leverage its massive global scale, strength in fast-growing
emerging markets such as China and a balance sheet cleaned up by Chapter 11.
At the same time, the company warns it faces many risks, such as continuing
losses in Europe and a significant underfunding of its pension obligations."
The report also is tainted by a disclaimer due to material weakness in
internal controls.
CLASSROOM APPLICATION: Questions
ask students to understanding the nature of an IPO, its required SEC filing,
discussion of risk factors, and the impact of a weakness in internal control
on the overall report. It can be used in any financial accounting classes to
cover disclosure or stock issuances and in auditing classes to cover
weaknesses in internal control and forms of attestation reports.
QUESTIONS:
1. (Introductory)
What is an initial public offering (IPO)? What filing must be made in order
to sell shares of stock to the public in the U.S.? What entity regulates
these transactions?
2. (Advanced)
After having been founded in 1908, why is General Motors (GM) now
undertaking an IPO?
3. (Introductory)
What types of stock will GM sell in this offering? Explain the difference
between these two types of stock. Also explain the features that lead some
shares to "behave more like bonds than stock in the financial markets and
[possibly] attract different types of investors."
4. (Advanced)
Why do you think that GM must disclose myriad 'risk factors' it faces in the
registration documents filed for this IPO?
5. (Advanced)
Access the General Motors preliminary prospectus via the live link in the
online article or directly at
http://www.sec.gov/Archives/edgar/data/1467858/000119312510192195/ds1.htm#toc
Proceed to page F-228 by clicking on the last item in the table of contents,
"Controls and Procedures." What is the general nature of the weakness in
internal controls at GM? What impact does that weakness have on this
financial report?
6. (Advanced)
Access the auditor's reports on the consolidated financial statements by
returning to the Table of Contents, clicking on Index to Consolidated
Financial Statements, then clicking on the first two items, reports of the
independent registered public accounting firm. What types of reports did
this public accounting firm issue? What unusual items are included in each
of these reports?
Reviewed By: Judy Beckman, University of Rhode Island
"GM Files for Long-Awaited IPO," by: Sharon Terlep and Dan Fitzpatrick,
The Wall Street Journal, August 19, 2010 ---
http://online.wsj.com/article/SB10001424052748703649004575437351219441406.html?mod=djem_jiewr_AC_domainid
General Motors Co. filed registration papers
Wednesday for an initial public stock offering, laying the groundwork for
the car maker to begin cutting its ties to the U.S. government, its majority
owner.
The 734-page document is the most detailed portrait
yet of GM post-bankruptcy. In it, the company's management is alternately
confident about GM's progress since its near-death experience last year, and
cautious about its prospects.
GM outlines a business plan that intends to
leverage its massive global scale, strength in fast-growing emerging markets
such as China and a balance sheet cleaned up by Chapter 11. At the same
time, the company warns it faces many risks, such as continuing losses in
Europe and a significant underfunding of its pension obligations.
GM's plan to return to the public markets includes
preferred stock, which the company will sell to raise funds, along with
common shares, which will be sold exclusively by some of GM's current
shareholders, including the U.S. government. The company said no dividend is
currently planned to be paid on the common shares.
Preferred shares, which have a fixed return, behave
more like bonds than stock in the financial markets and may attract
different types of investors.
Journal Community The IPO will allow the U.S.
Treasury to begin selling the 61% stake it holds in GM after last year's $50
billion U.S. government bailout of the company.
Another holder of GM shares, the United Auto
Workers, also is expected to sell some of its stock during the IPO,
according to people familiar with the situation.
A Tumultuous Time View Interactive
See how GM's fortunes have changed since the
company received a government bailout.
More photos and interactive graphics The UAW shares
are held in an independent trust to pay for health care for retired auto
workers. The trust owns 17.5% of GM, a stake it received last year in
exchange for agreeing to cost-cutting concessions.
The size of the IPO wasn't offered in the filing.
That decision rests with Treasury officials, who have said they will make
the determination largely on the state of the financial markets and investor
sentiment.
People familiar with the matter said the IPO,
expected later this year, is anticipated to raise $10 billion to $15 billion
but possibly more. An expected price range for the shares will be determined
closer to the sale.
The U.S. and Canadian governments will give up
their right to nominate directors to the GM board after the stock offering,
GM said in the filing. The Canadian and Ontario governments became GM
shareholders after giving the company aid. The governments have said they
are considering whether to participate in the IPO.
As part of the 16 pages of "risk factors" in the
filing, GM warns that while the U.S. car industry has recovered this year,
"there is no assurance that this recovery in vehicle sales will continue or
spread across all our markets." GM also said its pension plan is underfunded
by $27 billion, $10.3 billion of which is in the U.S.
From the Archives Read The Wall Street Journal's
coverage of GM's 1916 stock offering.
General Motors Co. Recapitalization Plan (Sept.
27,1916) Gen. Motors Directors Recommend Financing Plan (Oct. 17, 1916)
General Motors Extend Time (Dec. 27, 1916) General Motors to Earn Over 40%
on New Common (Dec. 28, 1916) General Motors Reflects Dividend
Disappointment (Jan. 11, 1917) In addition, GM said it is unable to assure
the accuracy of financial details about its operations because of weaknesses
in its internal financial controls. GM said it has put in place steps to
correct the weaknesses, but won't be able to test them for effectiveness
until next year, when it can compare year-over-year financial results.
Other risks outlined by the company include
problems that could stem from global overcapacity in the car industry and
rising costs of raw materials.
General Motors filed registration papers for an
initial public offering Wednesday. GM said its market-share losses over the
past three years can be attributed to perceptions of its brand among
consumers. To address that, GM said it is moving to increase the fuel
efficiency of its vehicles, which it said will be critical to long-term
profitability.
The Obama administration would like to quickly
begin exiting the car maker's business, though GM executives feel the
company may need until late this year to prepare for the stock offering,
according to people familiar with the discussions.
The Securities and Exchange Commission typically
takes 30 to 90 days to review an IPO registration filing.
For the government to recoup its full investment GM
must achieve a stock-market value of $70 billion—10 times GM's market
capitalization before the company headed into bankruptcy-court protection in
June 2009, and at least $30 billion more than the market value of Ford Motor
Co.
Investors won't be surprised by the lack of a
dividend on the new GM shares since Ford doesn't pay one, said Linda
Killian, principal at Renaissance Capital LLC, which researches and invests
in IPOs. Still, she said, the lack of a dividend could be a hurdle for some
investors since "other cyclical companies have dividends."
Ms. Killian noted that the preferred shares will
likely add to overall demand for the deal, since she suspects GM will be
able to attract buyers who will take some common shares with the expectation
it helps their chances to get some of the more desirable preferred shares.
The preferred stock would be a type called
mandatory convertible preferred shares that will convert to common on a set
date.
David Dreman, a veteran mutual-fund investor and
chairman of Dreman Value Management, which manages about $5 billion in
assets, said he is "a little wary" of investing in GM. He said non-U.S. auto
stocks are more attractive to him because of how investors fared in GM's and
Chrysler's restructurings. But he is open-minded if the economy improves
before the IPO takes place.
To prepare for the stock sale, GM last week said
that Daniel Akerson, a former telecommunications executive appointed to the
GM board by the Obama administration, will become CEO on Sept. 1, replacing
Edward E. Whitacre Jr., who didn't want to keep the CEO job longer than a
year. The move is intended to give investors a clearer picture of GM's
management team.
Underwriters of the offering include Morgan Stanley
and J.P. Morgan Co. along with Bank of America Corp. and its Merrill Lynch
unit, Citigroup Inc., Goldman Sachs Group Inc., Barclays PLC, Credit Suisse
Group, Deutsche Bank AG, Royal Bank of Canada and UBS AG.
Corrections & Amplifications
General MotorsCo. filed a prospectus with the
Securities and Exchange Commission for a public-share offering. A headline
with a previous version of this article incorrectly referred to the filing
as a proxy.
As Found in Going Concern
GM filing warns on reporting [Detroit Free Press] This
may come as a shock but General Motors, despite filing paperwork for its IPO,
admits that they still don’t have effective internal controls ---
http://www.freep.com/article/20100820/BUSINESS01/8200329/GM-filing-warns-on-reporting
"Pension time bomb: The shadow hanging over GM's turnaround," The
Washington Post, August 27, 2010
PRESIDENT OBAMA has a riposte for
critics of his decision to rescue
General Motors and Chrysler: You can't argue with
success. And much good news has emanated from Detroit of late, especially
from GM. Having wiped out almost all of its debt through an
administration-orchestrated bankruptcy process, slashed excess plants and
streamlined operations, GM is once again
turning a profit: $2.2 billion so far in 2010.
Sales are up; promising new models are coming to
market. GM's aggressive
new management is
planning a public stock offering, which would let
the Treasury Department start unloading the 61 percent stake it bought for
nearly $50 billion. U.S. officials speak of escaping with modest losses -- a
small price for averting industrial catastrophe.
All true -- up to a point. But
the company's stock prospectus points to several reasons for caution,
including such obvious ones as the sluggish U.S. economy and overcapacity in
global auto manufacturing. And then there's a threat that the
Obama-supervised bankruptcy did not address: the precarious condition of
GM's immense pension plans.
With almost $100 billion in
liabilities, GM's defined-benefit plans for U.S. employees (one covers a
half-million United Auto Workers members, another, 200,000 white-collar
personnel) are the largest of any company in America. Yet they were
underfunded by $17.1 billion as of the end of
2009, and the underfunding had only slightly lessened, to $16.7 billion, as
of June 30. (Chrysler has a similar problem, on a smaller scale.) Having
been filled with borrowed money before Chrysler's bankruptcy, the funds can
limp along for a couple of years. But, as GM's prospectus acknowledges,
federal law will require it to start pumping in "significant" amounts by
2014 if not sooner. GM does not say exactly how much, but an April
Government Accountability Office report suggested
that a $5.9 billion injection might be required initially, with larger ones
to follow. In other words, any investor who buys GM stock is buying stock in
a firm whose revenue is already partially committed to retired workers.
When companies go bankrupt, their
underfunded pensions often are taken over by the Pension Benefit
Guaranty Corp. (PBGC), a government-run,
industry-funded insurance agency, which then pays retirees a fraction of
what they were owed. But that didn't happen in the GM-Chrysler bankruptcy.
The UAW resisted what would have been a huge reduction in the generous
benefits of its members, especially the many who retire before age 65. And
the Obama administration chose not to push back.
The net effect is that the
pension time bomb is still ticking. If GM earns robust profits, even more
robust than it is making now, the bomb won't detonate. Otherwise -- well, in
a worst-case scenario, GM winds up back in bankruptcy, with PBGC
intervention both unavoidable and more expensive than it would have been
last year. And that could necessitate a bailout from Congress, because of
the PBGC's own deficits.
We're not offering investment
advice -- just a dash of realism about a still-troubled industry, and a
warning that its dependence on taxpayers may not be ended so easily.
Bob Jensen's threads on pension accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#Pensions
Bob Jensen's threads on the bailout are at
http://www.trinity.edu/rjensen/2008Bailout.htm
At this point, GM’s balance sheet remains loaded
with fluff
"How GM Made $30 Billion Appear Out of Thin Air," by Jonathan Weil,
Bloomberg, September 8, 2010 ---
http://www.bloomberg.com/news/2010-09-09/how-gm-made-30-billion-appear-from-thin-air-commentary-by-jonathan-weil.html
It will be a long time before General Motors Co.
can shake the stigma of being called Government Motors. Here’s another
nickname for the bailed-out automaker: Goodwill Motors.
Sometimes the wackiest accounting results are the
ones driven by the accounting rules themselves. Consider this: How could it
be that one of GM’s most valuable assets, listed at $30.2 billion, is the
intangible asset known as goodwill, when it’s been only a little more than a
year since the company emerged from Chapter 11 bankruptcy protection?
That’s the amount GM said its goodwill was worth on
the June 30 balance sheet it filed last month as part of the registration
statement for its planned initial public offering. By comparison, GM said
its total equity was $23.9 billion. So without the goodwill, which isn’t
saleable, the company’s equity would be negative. This is hardly a sign of
robust financial strength.
GM listed its goodwill at zero a year earlier. It’s
as if a $30.2 billion asset suddenly materialized out of thin air. In the
upside-down world that is GM’s balance sheet, that’s exactly what happened.
Indeed, the company’s goodwill supposedly is worth
more than its property, plant and equipment, which GM listed at $18.1
billion. The amount is about eight times the $3.5 billion GM is paying to
buy AmeriCredit Corp., the subprime auto lender. Another twist: GM said its
goodwill would have been worth less had its creditworthiness been better.
Talk about a head- scratcher. (More on this later.)
Not Normal
This isn’t the way goodwill normally works. Usually
it comes about when one company buys another company. The acquirer records
the other company’s net assets on its books at their fair market value. It
then records the difference between the purchase price and the net assets it
bought as goodwill.
The origins of GM’s goodwill are more convoluted.
Shortly after it filed for bankruptcy last year, GM applied what’s known as
“fresh-start” financial reporting, used by companies in Chapter 11. Through
its reorganization, GM initially slashed its liabilities by about $93.4
billion, or 44 percent. Under fresh- start reporting, though, GM’s assets
rose by $34.6 billion, or 33 percent, mainly because of the increase to
goodwill.
GM’s explanation? The company said it wouldn’t have
registered any goodwill under fresh-start reporting if it had booked all its
identifiable assets and liabilities at their fair market values. However, GM
recorded some of its liabilities at amounts that exceeded fair value,
primarily related to employee benefits. The company said the decision was in
accordance with U.S. accounting standards on the subject.
Funky Numbers
The difference between those liabilities’ carrying
amounts and fair values gave rise to goodwill. The bigger the difference,
the more goodwill GM booked. In other instances, GM said it recorded certain
tax assets at less than their fair value, which also resulted in goodwill.
On the liabilities side, for example, GM said the
fair values were lower than the carrying amounts on its balance sheet
because it used higher discount rates to calculate the fair value figures.
The higher discount rates took GM’s own risk of default into account, which
drove the fair values lower.
Here’s where it gets really funky. If GM’s
creditworthiness improves, this would reduce the difference between the
liabilities’ fair values and carrying amounts. Put another way, GM said, the
goodwill balance implied by that spread would decline. That could make GM’s
goodwill vulnerable to writedowns in future periods, which would reduce
earnings.
Unexpected Outcome
A similar effect would ensue on the asset side if
GM’s long-term profit forecasts improved. Under that scenario, GM could
recognize higher tax assets and bring their carrying amount closer to fair
value, narrowing the spread between them.
So, to sum up, the stronger and more creditworthy
GM becomes, the less its goodwill assets may be worth in the future. An
intuitive outcome, this is not.
There’s a broader storyline here. Normally when
companies go public, they’re supposed to be prepared from a business and
financial-reporting standpoint to take on the responsibilities of public
ownership. GM’s IPO, of course, is a much different animal. Taxpayers
already own most of the company. Now the government is trying to unload its
61 percent stake back onto the investing public, though it may take years
before the government can sell it completely.
Fluffy Balance Sheet
At this point, GM’s balance sheet remains
loaded with fluff, as the goodwill
illustrates. GM said its August deliveries were down 25 percent from a year
earlier, so it’s not as if business is booming. Moreover, GM disclosed that
it still has material weaknesses in its internal controls, which is a fancy
way of saying it doesn’t have the necessary systems in place to ensure its
financial reporting is accurate.
This being the political season, the Obama
administration has made clear that it wants GM to complete the IPO this
year, so the president can claim a policy success. It’s bad enough GM needed
a taxpayer bailout. What would be worse is taking the company public again
prematurely.
This much is certain: The next time GM wants to
create $30 billion out of nothing, it won’t be so easy.
Jensen Comment
This reminds me of KPMG's unusual twist.
KPMG’s “Unusual Twist”
While KPMG's strategy isn't uncommon among corporations with lots of units in
different states, the accounting firm offered an unusual twist: Under KPMG's
direction, WorldCom treated "foresight of top management" as an intangible asset
akin to patents or trademarks.
See http://www.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud
Punch Line
This "foresight of top management" led to a 25-year prison sentence for
Worldcom's CEO, five years for the CFO (which in his case was much to lenient)
and one year plus a day for the controller (who ended up having to be in prison
for only ten months.) Yes all that reported goodwill in the balance sheet of
Worldcom was an unusual twist.
Bob Jensen's threads on goodwill are at
http://www.trinity.edu/rjensen/theory01.htm#Impairment
Joe Cassano ---
http://en.wikipedia.org/wiki/Joe_Cassano
A PwC Partner’s Scribbled Notes Helped Save Joe Cassano’s Hide ---
http://goingconcern.com/2010/07/a-pwc-partners-scribbled-notes-helped-save-joe-cassanos-hide/scribble_2/
July
23, 2010 message from Francine McKenna
[retheauditors@GMAIL.COM]
Here's what I wrote about the issue. In April.
And again in June.
http://goingconcern.com/2010/04/good-news-bad-news-aig’s-cassano-snitches-on-pricewaterhousecoopers/
http://goingconcern.com/2010/06/what-a-tangled-web-we-weave-aig’s-cassano-says-he-told-pwc-everything/
The stories in NYT and WSJ are coming out
because the documents that contain the evidence of the PwC
knowledge of Cassano's contentions in November, pre- the investors
meeting in December, have just been made public by the Financial
Crisis Inquiry Commission. They make for interesting reading for
anyone with the interest, aptitude and patience.
http://www.fcic.gov/hearings/06-30-2010.php
Francine
"With Cassano Off The Hook, Where Does PwC Hide In The AIG Case?"
by Francine McKenna, re:TheAuditors, July 27, 2010 ---
http://retheauditors.com/2010/07/27/with-cassano-off-the-hook-where-does-pwc-hide-in-the-aig-case/
Welcome to Episode 33 rpm of AIG and PwC and
the Big Bad Wolf, Goldman Sachs. In this episode we attempt to slow things
down and stop blaming our mother, I mean Goldman Sachs, for everything.
Let’s consider for a moment the unnaturally
close, preternatural relationship between AIG and PwC over the years. The
dramas these two have been through together evoke the classic dysfunctional
family, hell bent on destroying each other before they let anyone or
anything destroy any of them…
“For decades,”
Gretchen Morgenson tells us last Saturday in the
New York Times, “Goldman and AIG had a long and fruitful relationship, with
AIG insuring billions in mortgage-related securities that Goldman Sachs
underwrote. When the mortgage market started to deteriorate in 2007,
however, the relationship went sour…”
Goldman bought insurance against an AIG failure
from large foreign and domestic banks, including
Credit Suisse ($310 million),
Morgan Stanley ($243 million) and
JPMorgan Chase ($216
million). Goldman also bought $223 million in insurance on AIG from a
variety of funds overseen by
Pimco, the money management firm.
Back in 2005, during an earlier scandal, reporters
and plaintiffs like the
Ohio pension plans that recently settled with AIG and PwC
for more than $800 million, questioned PwC’s
independence from AIG:
The Washington Post, May 2005: “The
relationship between PWC and AIG stretches back decades to when the firm
still was called Coopers & Lybrand, before its 1998 merger with Price
Waterhouse. Former AIG finance chief Howard I. Smith, who left the
company earlier this year under pressure for failing to cooperate with
regulators, spent almost two decades as an auditor at Coopers before
joining AIG in 1984.
Steven Bensinger, AIG’s new chief financial officer,
also started his career at Coopers & Lybrand.
In the lawsuit filed earlier this spring in
U.S. District Court in Manhattan, Petro, the Ohio attorney general,
alleges that PWC’s independence was “impaired” by these long-standing
ties and by nearly $137 million in audit and consulting fees it received
from AIG between 2000 and 2003.”
They also didn’t buy the excuses AIG made for PwC
at the time – that PwC had been kept in the dark – and claimed there were
enough red flags to pin some of the liability on the auditor.
“In a boost to PWC, AIG in its release this spring also explicitly
told investors that auditors and board members had been kept in the dark
by management about some AIG accounting maneuvers, including the
company’s dealings with Capco Reinsurance Co. Ltd., a Barbados
reinsurance firm, and Union Excess Reinsurance Co. Ltd.”
In the latest scandal at AIG, we’ve seen PwC and
AIG’s most senior executives such as former CEO Sullivan and CFO Bensinger
attempt to divert attention from themselves. One example is the accusation
against Joseph Cassano. Mr. Cassano, albeit not the most likeable guy for
numerous reasons, seems to have done everything he could to get it through
the thick heads of PwC, Sullivan and Bensinger that there were wolves at
AIG’s door, even though
Cassano believes even now
that enough time and a suitably stubborn attitude could have fought them
off.
Everyone pointed at Cassano as an obdurate,
incorrigible, obfuscating guy at the root of all of AIG’s problems.
The Wall Street Journal, July 22, 2010:
Joseph Cassano was once portrayed as a villain
of our times.
Prosecutors… interviewed AIG senior management
and the company’s external auditor, and came away thinking Mr. Cassano
hadn’t properly disclosed multi-billion-dollar accounting changes that
drastically cut the size of estimated losses, these people said…In
interviews in 2008, Mr. Ryan told prosecutors he sometimes couldn’t get
straight answers from Mr. Cassano when he asked him to justify how AIG
accounted for the swaps, these people said…Senior executives at AIG’s
parent company voiced similar misgivings to prosecutors a couple of
years ago…However, Cassano was able to prove that he gave both PwC and
Sullivan/Bensinger enough of a heads up to make their own decision what
to tell investors in December.
{…}
The defense team rebutted the prosecution’s
allegations, presenting a version of events that portrayed Mr. Cassano
as repeatedly disclosing bad news to his bosses, investors and PwC…its
efforts helped focus prosecutors’ attention on an obscure set of
handwritten notes in their files, found scrawled on the bottom of a
printed spreadsheet…the annotations, which were made by a PwC partner at
a meeting with Mr. Cassano and AIG management a week before the key
December 2007 investor conference…Prosecutors realized the notes were
disastrous to their case… Mr. Cassano had in fact disclosed the size of
the accounting adjustments to both his bosses and external auditors.
It wasn’t really news when the
Wall Street Journal wrote about auditors’
“scribbled notes that scuttled the AIG probe” and the
New York Times Deal Book followed with a “me too”
blurb the next day. We’ve known since
late May that the Department of Justice no longer
had a case against Cassano. He had apparently told the auditors and his
bosses everything.
I wrote about Cassano’s apparent transparency in
early April and then
again at the
end of June.
The investigations went south
when,
“prosecutors found evidence Mr. Cassano did make key disclosures. They
obtained notes written by a PwC auditor suggesting Mr. Cassano informed
the auditor and senior AIG executives about the adjustment…[and] told
AIG shareholders in November 2007 that AIG would have “more mark downs,”
meaning it would lower the value of its swaps.” So who’s telling the
truth?
Why are we seeing more stories now with more color commentary
on the Cassano vindication story? There have been a
number of parallel investigations and inquiries occurring – criminal, civil
and congressional – of the entire AIG/Goldman Sachs affair as well constant
reminders of the financial crisis conundrums. As
Gretchen Morgenson so aptly put it this past
weekend:
“What did they know, and when did they know
it?” Those are questions investigators invariably ask when trying to
determine who’s responsible for an offense or a misdeed….a third,
equally important question must be asked: “What did they do once they
knew what they knew?”
All of these investigations are inevitably
producing reams of information – lots of it in electronic form via emails
and electronic records of conversations, meeting minutes, contracts and
calculations. But this information is being made available to journalists
and the general public on an intermittent and inconsistent basis. As the
information dribbles out in linkable, source-able, quotable form, the
journalists write more stories.
Emails documenting internal conversations at AIG from 2007
were available to some journalists at the Washington
Post as early as December of last year but were only recently posted to the
Financial Crisis Inquiry Commission’s (FCIC)
website for review by the general public.
The PwC documents proving Mr. Cassano’s contentions
of good faith were probably available to the Department of Justice early
this year. The substance of them was made available to some journalists in
April when they started reporting Cassano would
not face charges and then
later in May when
stories were written about charges being dropped. The actual documents show
clearly that PwC knew everything in advance of the December 2007 AIG
investor meeting. They were
recently posted to the FCIC and
House Oversight Committee sites.
The stories have been out there for a while. The
details are now well known. AIG was under pressure from all sides since late
2006 and PwC stood side by side with them throughout:
Every time a scandal such as this occurs,
earnest journalists believe the auditors will come
under closer scrutiny.
They don’t.
“American
International Group Inc.’s
admission this week that it engaged in improper accounting practices
is putting the nation’s largest independent auditing firm in the
spotlight: PricewaterhouseCoopers LLP…For now, the Securities and
Exchange Commission, which in February subpoenaed documents from the
firm about AIG, isn’t focusing on the accountants’ actions, people
familiar with the matter said. Instead, SEC investigators, working with
New York state officials, are trying to determine what AIG told its
auditors about deals under scrutiny and whether that information was
truthful, the people said. But at some point, investigators will press
PricewaterhouseCoopers to explain the reasons it missed the improper
accounting, the people added.”
Instead, in this case, PwC
was reappointed to their jobs with the help of
enabler Arthur Levitt.
PwC, as auditor also of Goldman Sachs, JP Morgan,
Bank of America, Barclays, Freddie Mac, PIMCO funds, and
two of the Big 3 ratings agencies – Moody’s (until
mid-2008) and Fitch – had a pretty good eye into both
AIG’s and
Goldman Sachs’ counterparty risk and the ratings
roller coaster ride they all were on.
From
Cassano’s FCIC testimony in June 2010: “In
light of the auditors’ heavy involvement in the fair-market-model
evolution generally, and their prior knowledge of the existence
and magnitude of the negative-basis adjustment in particular, I
also found the material-weakness finding surprising, to say the least. I
know AIG senior management argued strenuously against it.”
PwC, with KPMG, continues to allow their clients to delay asset markdowns,
thereby only delaying inevitable losses to
shareholders.
I asked
Tucker Warren, spokesperson for the FCIC, when or
if any of the audit firms – EY for Lehman, Deloitte for Bear Stearns, WaMu,
American Home and Merrill Lynch, KPMG for Citigroup, Fannie Mae,
Countrywide, Wachovia, and New Century or PwC for AIG, Freddie Mac, Goldman
Sachs or Bank of America – would testify before the Commission on the causes
of the financial crisis.
Continued in article
Bob Jensen's threads on PwC are at
http://www.trinity.edu/rjensen/Fraud001.htm
Shareholder auditor liability
case against PwC
September 10, 2010 message from Francine McKenna
[retheauditors@GMAIL.COM]
Two very
interesting cases regarding auditor liability for fraud and the legal
doctrine of "in pari delicto" will be argued in Albany in front of the New
York Court of Appeals on Tuesday September 14th. Coincidentally, this is
the anniversary of the Lehman failure.
I've
written about these cases regarding AIG and Refco.
http://retheauditors.com/2010/03/09/in-pari-delicto-are-auditors-equally-at-fault-in-the-big-fraud-cases/
The
attorney in the AIG PwC case cited my blog and this article in this press
release and, I'm told, will be mentioning it in their argument.
Francine
Begin
forwarded message:
From:
"Allan Ripp"
<arippnyc@aol.com>
Date:
September 10, 2010 9:51:52 AM CDT
To:
retheauditors@gmail.com
Subject:
Shareholder
auditor liability case against PwC to be argued in NY Sept 14
Grant & Eisenhofer to argue
pivotal case on auditor liability in NY Court of Appeals on Sept. 14 –
underlying suit against PricewaterhouseCoopers stems from failure to detect
bid-rigging fraud at AIG
Francine -
We want to alert you to a
hearing on Tuesday, Sept. 14 before the N.Y. Court
of Appeals in a case with significant implications for auditor malpractice
liability.
The auditor in this case –
PricewaterhouseCoopers – is accused of failing to detect
large-scale fraud at AIG related to alleged accounting
manipulations and sham transactions that go back to 1999. PwC won dismissal
of the suit in the trial court by arguing that because AIG employees
committed the fraud that PwC failed to spot, AIG was “in pari delicto” with
PwC (translation: at mutual fault) and therefore could not bring a claim.
Auditors have used similar
defenses to avoid malpractice liability in a number of other cases,
including a suit against Grant Thornton LLP by the
bankruptcy trustee of Refco, Inc., which will be addressed
at the same September 14 hearing. This will mark the New York high court’s
first opportunity to decide whether New York law recognizes this defense as
an outright bar to auditor malpractice liability. PwC knows well how high
the stakes are, and has engaged former U.S. Solicitor General Paul
Clement (now with King & Spalding) to plead its case.
Making the argument for
investors is Stuart Grant of leading shareholder and
corporate governance law firm Grant & Eisenhofer, who says
the outcome of the hearing will have significant public policy
ramifications. “Corporations hire accounting firms and pay them huge fees
to look for fraud by company employees. If an auditor can overlook fraud
but escape malpractice liability by blaming the company for committing the
fraud in the first place, then where is the accountability for the auditor?
The company would have no recourse against the auditor, no matter how
egregious the auditor’s conduct.”
The lawsuit against PwC
alleges professional malpractice and negligence over the accounting firm's
audits of AIG during a period of extensive chicanery at the giant insurer
that predated the financial collapse. Grant & Eisenhofer represents pension
fund Teachers’ Retirement System of Louisiana in the
shareholders’ derivative suit brought on behalf of AIG in the Delaware
courts. In their underlying case against PwC, the shareholders allege that
the Big Four accounting firm repeatedly failed to detect numerous red flags
indicative of massive fraud, including a $500 million sham reinsurance
transaction with Gen Re Corporation in 2000.
The PwC suit is drawing
intense interest from the accounting industry, with amicus curiae briefs
having been submitted by the American Institute of Certified Public
Accountants and the Center for Audit Quality in
support of PwC. The widely-read accounting blog re: The
Auditors recently posed the question raised by this case: “Are auditors
equally at fault in the big fraud cases?”
When the plaintiffs appealed
from the Delaware Chancery Court’s dismissal of the claims against PwC, the
Delaware Supreme Court in March 2010 passed the issue of auditor liability
to the New York Court of Appeals for determination, holding that “a
resolution of this appeal depends on significant and unsettled
questions of New York law…” The Delaware high court certified to the Court
of Appeals the question of whether under New York law corporate
shareholders’ derivative claims against an outside auditor for professional
malpractice/negligence are barred under the doctrine of in pari delicto.
The in pari delicto defense prevents a plaintiff who is also at
fault from recovering damages from a defendant.
Mr. Grant noted that
Tuesday’s hearing will provide the opportunity for the litigants to ask the
high court to declare what New York law is on this issue, as there has never
been a definitive ruling by the Court of Appeals.
“This case has huge
implications for the auditing industry as well as shareholder derivative
litigation,” Mr. Grant said. “What auditors are asking for is a
‘get-out-of-jail-free’ card that they can play every time their corporate
client sues them for failing to detect fraud by a corporate manager. But
detecting that kind of fraud is exactly what the client hired them to do.
There needs to be some accountability. If they acted properly, let them
have their day in court where they can prove it, but don’t foreclose the
company from bringing the suit in the first place.”
The case caption is:
Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP,
No. 119 (N.Y.).
Let us know if you’d like to
speak with Mr. Grant or need any additional details about the upcoming
hearing. If you would like to view a copy of the Delaware Supreme Court
opinion or the plaintiffs’ brief before the N.Y. Court of Appeals, please
let us know.
Allan Ripp
212-262-7477
arippnyc@aol.com
Ivan Alexander 212-262-7482
ivan.k.alexander@gmail.com
Bob Jensen's threads on PwC litigation ---
http://www.trinity.edu/rjensen/Fraud001.htm
"Yukos Slicks Accuse PricewaterhouseCoopers Of Succumbing To Kremlin
Pressure," by Francine McKenna, re:TheAuditors, September 10, 2010
---
http://retheauditors.com/2010/09/10/yukos-slicks-accuse-pricewaterhousecoopers-of-succumbing-to-kremlin-pressure/
“If only it were all so simple! If only
there were evil people somewhere insidiously committing evil deeds, and
it were necessary only to separate them from the rest of us and destroy
them. But the line dividing good and evil cuts through the heart of
every human being. And who is willing to destroy a piece of his own
heart?”
—
Aleksandr I. Solzhenitsyn (The
Gulag Archipelago: 1918-1956)
There’s quite a bit of bad news coming out of
Russia about PricewaterhouseCoopers and their client Yukos. Former Yukos
chief Mikhail Khodorkovsky and his business partner Platon Lebedev stand
co-accused in a new trial brought by prosecutors intent on preventing their
scheduled release from prison in 2011. Khodorkovsky and Lebedev
have decided to target PwC in their defense.
From the official
Khodorkovsky And Lebedev Communication Center:
(Yes! Still wealthy by any measure jailed
Russian oligarchs can afford dedicated global PR efforts!)
“…as reported in major features published in
today’s Wall
Street Journal
and The
Financial Times following separate
investigations conducted by both newspapers, PwC appears to
have succumbed to a woefully illegal war of intimidation
waged against them by Russian authorities who sought to cast doubt on
the reliability of the Yukos audits. PwC was subject to police raids,
partners were threatened with imprisonment for their work on Yukos, and
legal proceedings unrelated to Yukos were lodged by prosecutors against
the firm. These problems all disappeared after PwC withdrew its Yukos
reporting. A persistent threat echoed by authorities as PwC
adamantly defended its Yukos reporting – that the firm’s Russian license
could be revoked – has not been raised again since PwC backed down, and
Yukos-related investigations into PwC appear to have ceased.
The allegedly “new” information received by PwC was not only
supplied by the prosecution, but also never independently verified
before PwC withdrew their audits.”
The Wall Street Journal makes a double vodka,
straight-up, no chaser assessment of PwC’s problem:
PWC’s entanglement in the legal travails of Mr.
Khodorkovsky highlights the ethical and legal dilemmas that can face
auditors in emerging markets where corporate governance and judicial
systems are weak, industry observers say.
Yes, indeed.
Just ask PwC about its
India firm post-Satyam… Or about their Japanese
firm and the problems they had after some of their
partners were indicted for fraud along with their client, Kanebo.
The
Financial Times wants to talk about truth, as if
that’s still the currency global audit firms like PwC actually trade in.
Regardless of where the truth lies, what is
emerging is a situation where global audit firms operating in Russia may
all be vulnerable to the double jeopardy of auditing the books of
notoriously opaque companies, while being regulated by a government able
to launch arbitrary attacks. This lose-lose situation could call into
question the value of audits that have been hotly sought as a western
seal of approval ever since Russian companies began to access
international financial markets.
Correspondence between PwC and Yukos, as well
as PwC’s own internal memorandums and audit drafts, raises questions
over what the audit firm knew and did not know about certain
transactions stemming from the late 1990s…
This story has been out there for a while. I
started writing about it in
March of 2007. That’s more than three years ago!
Reports have been open and consistent in saying PwC was pressured.
Moscow raids PwC over Yukos back tax
“Russian investigators raided the Moscow office of
PwC on Friday, stepping up pressure on the “big four” audit firm ahead
of a crucial court case over allegations that it signed off on false
accounts by Yukos, the bankrupt oil company.
About 20 law enforcement officials from the
prosecutors’ office and interior ministry combed PwC’s
offices for documents relating to Yukos, and questioned
senior managers including Mike Kubena, head of PwC in
Moscow, the company said. Interior ministry officials also announced
they were launching a criminal probe into alleged tax
avoidance by PwC in Russia.
The search came as PwC prepared for a court
hearing on Monday in a lawsuit filed by Russia’s Federal Tax Service
alleging PwC concealed tax evasion by Yukos in 2002-04. PwC denies all
the accusations. The pressure against the audit group is
seen as a key element in the state campaign against Yukos
…Much is at stake for PwC. If found in violation of accounting
procedures, it could lose its Russian licence and valuable
clients including big state-controlled companies such as
Gazprom, the natural gas giant, Sberbank, the savings bank, Russia’s
central bank, and Unified Energy System, the electricity monopoly.”
Political contributions, the audit firms’ stock in trade, kept the dogs
at bay for a little while.
MOSCOW,
April 4, 2007 (RIA Novosti) – “The United
States expects Russia to treat U.S. companies doing business in the
country fairly, including embattled auditor PricewaterhouseCoopers
(PwC), the U.S. Commerce Secretary said Wednesday.
PwC, a respected international auditing
firm, has been accused by Moscow city tax officials of helping the
bankrupt Yukos oil company evade taxes, and it may as a result
lose its operating license in Russia. Carlos Gutierrez, who
arrived in Moscow Monday to discuss Russia’s bid to join the World Trade
Organization (WTO) and bilateral investment, said after a meeting with
Russia’s economics minister, German Gref, that Washington
expects any investigation into alleged violations of Russian tax
legislation by PwC to be even-handed.
By
June of 2007, PwC had caved to the pressure from the Kremlin.
Looks like PwC is claiming the “we
were duped” defense. (Do any of my attorney
readers know which firm that defends the Big 4 came up with this
brilliant strategy – make your client, who makes their money by selling
knowledge and expertise, look dumb?)
Must have been the price
they had to pay to placate
the Russians and pay back their Congressional
and Administration godfathers.
PwC withdraws Yukos audits
“PwC has
withdrawn its entire set of audit reports over 10 years for the bankrupt
Yukos oil group, in a move that marks a significant climbdown
by the global audit firm following months of Russian government
pressure.
PwC said on
Sunday it was withdrawing all its audit reports of Yukos from the years
ending 1995 to 2004 becauseRussian prosecutors had
unearthed new information that led it to believe statements provided by
Yukos management in the past “may not have been accurate”.
The sudden about-turn comes
after a government pressure campaign that included police raids in March
on PwC’s Moscow office and an ongoing criminal investigation into
alleged underpayment of taxes by PwC…
Continued in article
Bob Jensen's threads on PwC litigation ---
http://www.trinity.edu/rjensen/Fraud001.htm
"HP, Hurd, Deloitte and Tone At The Top," by Francine McKenna,
re:TheAuditors, August 8, 2010 ---
http://retheauditors.com/2010/08/09/hp-hurd-deloitte-and-tone-at-the-top/
What do HP, Boeing and Navistar have in common?
All three companies, over the years, have fought SEC investigations,
internal investigations, and shareholder lawsuits.
HP and Boeing saw their CEOs,
Mark Hurd this week and
Harry Stonecipher in 2005, resign in disgrace
because of “lapses in personal judgment” of the female dalliance kind.
Navistar’s CEO Dan Ustian has managed to hang on to
his job through all kinds of SEC troubles including
firing Deloitte after 99 years as their auditor
and a delisting. But Ustian, and his former CFO Bob Lannert, were
recently the targets of an up until now very rare type of SEC enforcement
action – use of the Sarbanes-Oxley Section 304 clawback provision
to force the return of millions of incentive
compensation received as a result of accounting manipulation.
Because, after all, “boardroom Puritanism
covers sex, but not greed. Where, oh where are the corporate ethics policies
prohibiting chummy boards from approving eye-popping pay packages for
C.E.O.’s whether or not they are doing a good job? Where are the solemn
mission statements promising a workplace free of executive pillaging? Whom
would you prefer: a C.E.O. who writes the occasional indelicate e-mail
message? Or someone like [Bob] Nardelli, who treats shareholders with
callous indifference? And which of the two executives really has worse
judgment?”
New York Times June, 25, 2006
Continued in article
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm
Is there any accounting professor in the Top 100?
These might be better termed the Least Influential in the Academic Community
"100 Most Influential Accountants (not ranked), Accounting Today,
---
http://digital.accountingtoday.com/accountingtoday/2010influential#pg1
Notably Absent from the List
David Albrecht
Ray Ball
Mary Barth (member of the IASB and Stanford Professor)
Denny Beresford
Richard Campbell
Susan Crossan
Amy Dunbar
David Fordham
Sid Gray
Don Keiso
Bill Kinney
Tom Linsmeier (member of the FASB)
Bob Jensen
Bob Kaplan (Oh my goodness)
Steve Kachelmeier (as Senior Editor of TAR no less)
Francine McKenna
Jim Peterson
Gary Previtts
Richard Sansing
Ed Scribner
Tom Selling
Shyam Sunder
Robert Bruce Walker
Patricia Walters
Jonathan Weil (Bloomberg)
Paul Williams
Fred Wu
Jerry Zimmerman
Every other accounting professor I can think of off the wall
Let's face it, accounting professors, researchers, journalists/bloggers, and
textbook authors just don't have much influence in accounting!
I take more comfort by not being in this list of people least known in the
accounting academy
A Starr for the Stars Fell Into a Prison Yard
"Financial Adviser to Stars Pleads Guilty to Fraud," by Julie Creswell
and Colin Moynihan, The New York Times, September 10, 2010 ---
http://www.nytimes.com/2010/09/11/business/11fraud.html?_r=2&dbk
Kenneth I. Starr, the New York investment adviser
who once counted Hollywood celebrities like Al Pacino, Martin Scorsese and
Sylvester Stallone as clients, pleaded guilty on Friday in Federal District
Court in Manhattan to charges that he diverted tens of millions of dollars
of his clients’ money to pay for his lavish lifestyle.
A money manager to the stars who frequented charity
events, high-profile parties and movie premieres in search of clients, Mr.
Starr, 66, wore a dark blue prison smock and appeared stooped and drawn as
he stood before Federal Magistrate Judge Theodore H. Katz and pleaded guilty
to one count each of wire fraud, money laundering and investment adviser
fraud.
Mr. Starr, who is not related to the special
prosecutor with the same name who investigated President Bill Clinton,
admitted that he stole $20 million to $50 million from his clients to use
for his own purposes.
Some of the money paid a multimillion-dollar legal
settlement with a former client while other money bought a sprawling $7.5
million Upper East Side condo complete with a lap pool and a 1,500
square-foot garden.
A plea agreement between Mr. Starr and the
government calls for a prison sentence of 10 to 12.5 years. But Federal
District Judge Shira A. Scheindlin, who is scheduled to sentence Mr. Starr
on Dec. 15, is not bound by that agreement and could impose a greater or
lesser penalty.
The government said it could also seek the
forfeiture of as much as $50 million in assets owned or controlled by Mr.
Starr and $50 million in restitution for his victims.
After the courtroom proceedings, a lawyer for Mr.
Starr, Flora Edwards, indicated that the forfeiture and restitution amounts
were under discussion but that they were likely to be “significantly less”
than $50 million.
“He’s assumed full responsibility for his conduct,”
Ms. Edwards said. “He made a colossal error in judgment that he recognizes.
He’s paying a very, very heavy price.”
In a statement, Preet Bharara, the United States
attorney in Manhattan, said, “Kenneth Starr’s is a tale of fiction and
fraud, in which he played the role of legitimate investment adviser to a
cast of unsuspecting victims.”
Mr. Starr was indicted in June on 23 counts,
including wire fraud, securities fraud, fraud by an investment adviser and
money laundering.
Clients relied on him to provide investment advice,
financial planning and even pay bills and help with tax filings, federal
prosecutors said in the indictment.
In federal court on Friday, Mr. Starr admitted that
his clients had “entrusted him” with their money, but that “from 2009 to
2010, instead of using my clients’ money as I promised, I knowingly used a
portion of the money for my own purposes,” he told the judge.
Continued in article
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Plagiarism Is Not a Big Moral
Deal: Yeah Right!
Although I admire Professor Fish, I don't quite share his views on plagiarism.
And even if you share his views, this may not protect you or your students from
the thunderbolts of wrath that sometimes strike plagiarists --- such
thunderbolts as loss of job, loss of a degree (yes your prized college degree
can be withdrawn), your publications may be withdrawn, you can be sued for your
life savings, and you may face a lifetime of disgrace.
The scarlet letter "P" around your neck is serious business and becomes even
worse with a record of addiction. Of course there are examples of plagiarists
who are highly regarded in spite of their plagiarism, including Martin Luther
King, Jr. and Vladimir Putin ---
http://www.trinity.edu/rjensen/Plagiarism.htm#Celebrities
"Plagiarism Is Not a Big Moral Deal," by Stanley Fish, The New York
Times, August 9, 2010 ---
http://opinionator.blogs.nytimes.com/2010/08/09/plagiarism-is-not-a-big-moral-deal/?scp=1&sq=Plagiarism&st=cse
During my tenure as the dean of a college, I
determined that an underperforming program should be closed. My wife asked
me if I had ever set foot on the premises, and when I answered “no,” she
said that I really should do that before wielding the axe.
And so I did, in the company of my senior associate
dean. We toured the offices and spoke to students and staff. In the course
of a conversation, one of the program’s co-directors pressed on me his
latest book. I opened it to the concluding chapter, read the first two
pages, and remarked to my associate dean, “This is really good.”
But on the way back to the administration building,
I suddenly flashed on the pages I admired and began to suspect that the
reason I liked them so much was that I had written them. And sure enough,
when I got back to my office and pulled one of my books off the shelf, there
the pages were, practically word for word. I telephoned the co-director, and
told him that I had been looking at his book, and wanted to talk about it.
He replied eagerly that he would come right over, but when he came in I
pointed him to the two books — his and mine — set out next to each other
with the relevant passages outlined by a marker.
He turned white and said that he and his co-author
had divided the responsibilities for the book’s chapters and that he had not
written (perhaps “written” should be in quotes) this one. I contacted the
co-author and he wrote back to me something about graduate student
researchers who had given him material that was not properly identified. I
made a few half-hearted efforts to contact the book’s publisher, but I
didn’t persist and I pretty much forgot about it, although the memory
returns whenever I read yet another piece (like one that appeared recently
in The Times) about
the ubiquity of plagiarism, the failure of
students to understand what it is, the suspicion that they know what it is
but don’t care, and the outdatedness of notions like originality and single
authorship on which the intelligibility of plagiarism as a concept depends.
Whenever it comes up plagiarism is a hot button
topic and essays about it tend to be philosophically and morally inflated.
But there are really only two points to make. (1) Plagiarism is a learned
sin. (2) Plagiarism is not a philosophical issue.
Of course every sin is learned. Very young children
do not distinguish between themselves and the world; they assume that
everything belongs to them; only in time and through the conditioning of
experience do they learn the distinction between mine and thine and so come
to acquire the concept of stealing. The concept of plagiarism, however, is
learned in more specialized contexts of practice entered into only by a few;
it’s hard to get from the notion that you shouldn’t appropriate your
neighbor’s car to the notion that you should not repeat his words without
citing him.
The rule that you not use words that were first
uttered or written by another without due attribution is less like the rule
against stealing, which is at least culturally universal, than it is like
the rules of golf. I choose golf because its rules are so much more severe
and therefore so much odder than the rules of other sports. In baseball you
can (and should) steal bases and hide the ball. In football you can (and
should) fake a pass or throw your opponent to the ground. In basketball you
will be praised for obstructing an opposing player’s view of the court by
waving your hands in front of his face. In hockey … well let’s not go there.
But in golf, if you so much as move the ball accidentally while breathing on
it far away from anyone who might have seen what you did, you must
immediately report yourself and incur the penalty. (Think of what would
happen to the base-runner called safe at home-plate who said to the umpire,
“Excuse me, sir, but although you missed it, I failed to touch third base.”)
Golf’s rules have been called arcane and it is not
unusual to see play stopped while a P.G.A. official arrives with rule book
in hand and pronounces in the manner of an I.R.S. official. Both fans and
players are aware of how peculiar and “in-house” the rules are; knowledge of
them is what links the members of a small community, and those outside the
community (most people in the world) can be excused if they just don’t see
what the fuss is about.
Plagiarism is like that; it’s an insider’s
obsession. If you’re a professional journalist, or an academic historian, or
a philosopher, or a social scientist or a scientist, the game you play for a
living is underwritten by the assumed value of originality and failure
properly to credit the work of others is a big and obvious no-no. But if
you’re a musician or a novelist, the boundary lines are less clear (although
there certainly are some) and if you’re a politician it may not occur to
you, as it did not at one time to Joe Biden, that you’re doing anything
wrong when you appropriate the speech of a revered statesman.
And if you’re a student, plagiarism will seem to be
an annoying guild imposition without a persuasive rationale (who cares?);
for students, learning the rules of plagiarism is worse than learning the
irregular conjugations of a foreign language. It takes years, and while a
knowledge of irregular verbs might conceivably come in handy if you travel,
knowledge of what is and is not plagiarism in this or that professional
practice is not something that will be of very much use to you unless you
end up becoming a member of the profession yourself. It follows that
students who never quite get the concept right are by and large not
committing a crime; they are just failing to become acclimated to the
conventions of the little insular world they have, often through no choice
of their own, wandered into. It’s no big moral deal; which doesn’t mean, I
hasten to add, that plagiarism shouldn’t be punished — if you’re in our
house, you’ve got to play by our rules — just that what you’re punishing is
a breach of disciplinary decorum, not a breach of the moral universe.
Now if plagiarism is an idea that makes sense only
in the precincts of certain specialized practices and is not a normative
philosophical notion, inquiries into its philosophical underpinnings are of
no practical interest or import. In recent years there have been a number of
assaults on the notion of originality, issuing from fields as diverse as
literary theory, history, cultural studies, philosophy, anthropology,
Internet studies. Single authorship, we have been told, is a recent
invention of a bourgeois culture obsessed with individualism, individual
rights and the myth of progress. All texts are palimpsests of earlier texts;
there’s been nothing new under the sun since Plato and Aristotle and they
weren’t new either; everything belongs to everybody. In earlier periods
works of art were produced in workshops by teams; the master artisan may
have signed them, but they were communal products. In some cultures, even
contemporary ones, the imitation of standard models is valued more than work
that sets out to be path-breaking. (This was one of the positions in the
famous quarrel between the ancients and the moderns in England and France in
the 17th and 18th centuries.)
Arguments like these (which I am reporting, not
endorsing) have been so successful in academic circles that the very word
“originality” often appears in quotation marks, and it has seemed to many
that there is a direct path from this line of reasoning to the conclusion
that plagiarism is an incoherent, even impossible, concept and that a writer
or artist accused of plagiarism is being faulted for doing something that
cannot be avoided. R.M. Howard makes the point succinctly “If there is no
originality and no literary property, there is no basis for the notion of
plagiarism” (“College English,” 1995).
That might be true or at least plausible if, in
order to have a basis, plagiarism would have to stand on some philosophical
ground. But the ground plagiarism stands on is more mundane and firm; it is
the ground of disciplinary practices and of the histories that have
conferred on those practices a strong, even undoubted (though revisable)
sense of what kind of work can be appropriately done and what kind of
behavior cannot be tolerated. If it is wrong to plagiarize in some context
of practice, it is not because the idea of originality has been affirmed by
deep philosophical reasoning, but because the ensemble of activities that
take place in the practice would be unintelligible if the possibility of
being original were not presupposed.
And if there should emerge a powerful philosophical
argument saying there’s no such thing as originality, its emergence needn’t
alter or even bother for a second a practice that can only get started if
originality is assumed as a baseline. It may be (to offer another example),
as I have argued elsewhere, that there’s no such thing as free speech, but
if you want to have a free speech regime because you believe that it is
essential to the maintenance of democracy, just forget what Stanley Fish
said — after all it’s just a theoretical argument — and get down to it as
lawyers and judges in fact do all the time without the benefit or hindrance
of any metaphysical rap. Everyday disciplinary practices do not rest on a
foundation of philosophy or theory; they rest on a foundation of themselves;
no theory or philosophy can either prop them up or topple them. As long as
the practice is ongoing and flourishing its conventions will command respect
and allegiance and flouting them will have negative consequences.
This brings me back to the (true) story I began
with. Whether there is something called originality or not, the two scholars
who began their concluding chapter by reproducing two of my pages are
professionally culpable. They took something from me without asking and
without acknowledgment, and they profited — if only in the currency of
academic reputation — from work that I had done and signed. That’s the
bottom line and no fancy philosophical argument can erase it.
Jensen Comment
The really sad fact about professors who plagiarize or otherwise cheat is that
their employers may be tougher on student plagiarists than on faculty
plagiarists ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Bob Jensen's threads on cheating and plagiarism are at
http://www.trinity.edu/rjensen/Plagiarism.htm
Question
Can you believe a highly respected corporation would over-value an asset just to
spruce up its financial statements?
Gormbley said he was punished for challenging the
valuation of silicon-maker Momentive Performance Materials, an investment asset.
GE Capital overstated Momentive’s value in December 2008 to improve its own
balance sheet, he said. Valuing the asset correctly would have reduced ‘GE
Capital’s earnings 100 percent,’ in the fourth quarter that year, according to
the complaint.”
Andrew H. Harris, "Former GE Unit Executive Says He Was Pushed Out for
Questioning Accounting," Bloomberg, September 8, 2010 ---
http://www.bloomberg.com/news/2010-09-08/former-ge-unit-executive-says-he-was-pushed-out-for-questioning-accounting.html
GE Capital denies the allegation.
NelNet ---
http://en.wikipedia.org/wiki/Nelnet
"Nelnet to Pay $55-Million to Resolve Whistle-Blower Lawsuit," by
Kelly Field, Chronicle of Higher Education, August 15, 2010 ---
http://chronicle.com/article/Nelnet-to-Pay-55-Million-to/123912/
Nelnet will pay $55-million to settle its share of
a whistle-blower lawsuit that accuses it and several other lenders of
defrauding taxpayers of more than a billion dollars in student-loan
subsidies.
The
settlement, which
Nelnet announced late Friday, is the latest to result from a lawsuit brought
by Jon H. Oberg, a former Education Department researcher, on behalf of the
federal government. A federal judge ordered Nelnet and seven other
student-loan companies to participate in a settlement conference last week
after two of the other defendants in the case, Brazos Higher Education
Service Corporation and Brazos Higher Education Authority, reached a
tentative settlement agreement with Mr. Oberg.
Among the other defendants in the case is
Sallie Mae, the nation's largest student-loan
company. A year ago, the Education Department's inspector general
issued an audit concluding that Sallie Mae
overbilled the Education Department for $22.3-million in student-loan
subsidies and should be required to return the money to the department.
Continued in article
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Checklist for an Open CourseWare Semester," by Ethan Watrall,
Chronicle of Higher Education, August 19, 2010 ---
http://chronicle.com/blogPost/Checklist-for-an-Open/26317/?sid=wc&utm_source=wc&utm_medium=en
For many of us, another semester is right around
the corner. For those of us who adhere to an Open CourseWare (OCW)
philosophy, it's a good time to evaluate (or re-evaluate) our personal OCW
strategy. For those who are thinking about getting onboard with OCW, now is
a perfect time to think about how best to go about getting in on the game.
In the spirit of this, I would like to present a few items that should be on
anyone's start of the semester OCW checklist—things that are best decided at
the beginning of developing (or revamping) an open course. As is customary,
this list is hardly exhaustive or comprehensive. It is simply the things
that I think are important to think about. For a more comprehensive look at
developing a personal OCW strategy (as opposed to a brief pre-semester
checklist) have a look at my Developing a Personal Open Courseware Strategy
post. That having been said, let's get to the checklist!
What to Put Up?
Different courses have different types of course
materials (obviously). Some of the content you use in your course might not
be appropriate for an open course. So, you need to make some decisions about
what you are going to put up on the open course and what to leave out. There
are practical considerations in play. If you want to include lecture audio
on your open course, you need to make sure you have the ability (and
equipment) to record and edit. You also need to make sure you record every
lecture (as opposed to just recording two or three). If you want to include
lecture slides, you need to make sure that they are standardized (in terms
of format) and the series is complete. The bottom line is that when it comes
to an open course, just make a logical (and practical) plan as to what you
want to put up.
Beyond the practical considerations, there are also
copyright issues in play. Many classes rely on copyrighted materials. Should
you include these materials in your open course? For instance, many of my
classes have videos or video clips. It's always been a challenge for me to
decide whether I should digitize these and put them online. My logic is that
because many of the videos are vital to the class , leaving them out of the
open course website makes the class seem somewhat incomplete (and therefore
less useful as an actual open course). Despite new DMCA Exemptions, putting
an entire digitized video online definitely falls into the "this sure as
heck isn't fair use" and "wow, I'm probably going to get in trouble for
this" categories. Many (including myself) have thought that putting videos
behind password protection (setting one passwords for the class or hooking
in to your university's authentication system) is a perfectly logical
solution to treading in the unhappy land of copyright violation. Makes
sense, right? By password protecting materials, you limit their access to
just your students (as opposed to broadcasting them to the world). Well,
this might still not be enough. Recently, the Association for Information
and Media Equipment (an educational media trade group) threatened to sue
UCLA, arguing that the streaming video which was behind the university's
authentication still infringed on copyright. Despite the fact that UCLA
asserted that they weren't in the wrong, they suspended the practice and are
seeking to settle the matter out of court. The result is that faculty who
assume that putting copyrighted video material behind some sort of
university authentication will protect them (and the university) from nasty
takedown letters and maybe even lawsuits probably need to rethink their
strategy.
Student Work, Public or Private?
One of the most challenging questions (especially
if your course website is the primary platform for class assignments) is
whether or not student work should be open and accessible as well. On one
hand, having student work (blog posts, wiki assignments, etc.) open and
accessible is a great way to add depth to the class. On the other hand,
putting student material online without their express permission is a major
violation of FERPA. So, what to do? My solution is to ask each student at
the beginning of the class if they want their work accessible to the public.
If they don't object, cool. However, if they they have an issue, I simply
agree to password protect their posts. I also tell students that if there
are specific assignments that they want password protect, while leaving the
rest of their material open and accessible, that's cool as well. The funny
thing is that after years of doing this, I've never had a student who had a
problem with their written assignments (mainly blogs and wikis) being
completely open and forward facing.
What is your Platform?
In all honesty, this is a bit of a no-brainer. You
can't create an open course without choosing the platform that you are going
to use to serve the course. However, I think it's worth saying that it is
very much in your best interest to make an informed choice ahead of the game
as to the platform that works best for your needs. It's far better to do
some research beforehand than to find yourself in the middle of the semester
with a platform that doesn't meet your open course needs. Granted, if you've
already chosen what content you are going to publish on your open course
(and planned ahead) switching platforms shouldn't be too much work.
Don't Forget the Creative Commons Language
One of the key aspects of an open course is that it
is published with some sort of open source license—the most logical and
popular being a Creative Commons license. This ensures that your content is
used in the way you deem appropriate (by attribution, non-commercially,
etc.). There are a bunch of ways you could do this: as a footer on every
page, as a paragraph in the "About" section of the class site, or by using
one of the handy-dandy Creative Commons license badges.
The Bottom Line
As I said at the opening, this checklist is hardly
comprehensive. The one theme (if you can have a theme with a four item
checklist) is that planning ahead is a good thing. It'll save you grief and
extra work down the line, and will ultimately ensure that your open course
is more valuable and useful to your audience.
Bob Jensen's threads on open courseware alternatives are at
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Teaching Case on Cost-Profit-Volume (CPV) Analysis
From The Wall Street Journal Accounting Weekly Review on August 20,
2010
Piece by Piece: The Suppliers Behind the New BlackBerry Torch Smartphone
by:
Jennifer Velentino-Devries and Phred Dvorak
Aug 17, 2010
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
TOPICS: Cost
Accounting, Cost-Volume-Profit Analysis, Managerial Accounting
SUMMARY: The
article was written based on analysis and component price estimates by
research firm iSuppli after dismantling Blackberry's new Torch smartphone.
The product was assembled in Mexico from parts made by at least 7 companies
headquartered in the U.S., South Korea, the U.K., Germany, Japan, and
Switzerland. Questions ask students to identify manufacturing cost
components, determine gross profit, and consider what manufacturing costs
are not separately identified when a company buys completed components for
assembly.
CLASSROOM APPLICATION: The
article is appropriate for an introductory level managerial accounting
class.
QUESTIONS:
1. (Introductory)
What are the three components of cost for any manufactured product?
2. (Introductory)
What is the total cost of the components of the new BlackBerry Torch as
estimated by iSuppli?
3. (Advanced)
Assuming that the cost shown in the article comprises all of the cost
identified in your answer above, what is the gross profit earned on each
sale of the Torch? What is the gross profit rate on this product? In your
answer, define the difference between each of these amounts.
4. (Advanced)
What other costs might be included in the cost of selling this product
beyond the component costs shown in this article? What other costs will
Research in Motion (RIM) incur in selling this product that are never
included in product cost? In your answer, define the terms period cost and
product cost.
5. (Introductory)
View the video that is affiliated with this article. How many Torch
smartphones were sold on the opening weekend for this product? What is the
possible result of this sales level?
6. (Introductory)
According to the related video, what is the lowest price at which this new
phone is offered? Recalculate the answers you gave to question 4 above based
on this selling price.
Reviewed By: Judy Beckman, University of Rhode Island
"Piece by Piece: The Suppliers Behind the New BlackBerry Torch Smartphone,"
by: Jennifer Velentino-Devries and Phred Dvorak, The Wall Street Journal,
August 17, 2010 ---
http://online.wsj.com/article/SB10001424052748704868604575433751932669646.html?mod=djem_jiewr_AC_domainid
Research In Motion Ltd.'s latest iPhone challenger,
the BlackBerry Torch 9800, hasn't yet made a killing where it matters the
most: at the cash register.
Analysts say retail spot checks show sales of the
Torch, which began in the U.S. at AT&T Inc. stores Thursday, have been
unimpressive—particularly in comparison with other recent smartphone debuts.
Analysts at RBC Capital Markets and Stifel Nicolaus
both put weekend sales at around 150,000 phones. In comparison, Apple Inc.
said it sold 1.7 million iPhone 4 units in the first three days. To be sure,
many Torch sales will likely go to RIM's core business clients, who can be
slower to adopt the latest models.
RIM declined comment; AT&T didn't respond to
requests for comment.
The plodding start isn't great news for RIM, which
is losing market share in the important North American market to snazzier
rivals like the iPhone. The Torch, RIM's first phone with a touchscreen and
slide-out keyboard, comes with revamped software and a faster Web browser,
which address some of the complaints against previous BlackBerry models.
But so far it's had a limited rollout: The Torch is
only available—at least for now—through AT&T for $199.99, with a two-year
service contract. RIM hasn't yet said when it will go on sale
internationally or through other carriers.
BlackBerry users could also be waiting to upgrade
current phones with the new operating system, rather buying an entirely new
phone, analysts say. The new software is set to roll out to existing devices
in the coming months and promises to make it easier for developers to offer
third-party applications. The platform also makes improvements in the way
BlackBerry users can tap into social networks like Facebook and media from
iTunes and Windows Media Player.
Like other high-profile smartphones, the Torch has
been disassembled by research firms to identify key components to help spot
trends in the electronics industry. Two research firms, iSuppli and UBM
TechInsights, concluded the new phone relies heavily on parts used in
earlier RIM products. ISuppli said it was assembled for RIM in Mexico,
though it didn't identify what company carried out that work.
Experience WSJ professionalEditors' Deep Dive:
Smartphone Rivals Face OffPC MAGAZINE Android Boosts Smartphone SalesThe
Toronto Star The Curse of SuccessDow Jones International News Nokia N8 to
Boost High-End CompetitivenessAccess thousands of business sources not
available on the free web. Learn MoreISuppli estimated the total cost of the
Torch's components at $171, plus $12 for manufacturing. The most expensive
single part of the Torch, iSuppli said, is the display and touchscreen
assembly, at an estimated cost of $34.85. The screen supplier was unknown.
Memory chips, supplied by South Korea's Samsung Electronics Co., accounted
for $34.25 of the Torch's component costs, the firm said.
The chip that serves as the electronic brains of
the Torch--and also provides so-called "baseband" functions to manage
communications--was supplied by Marvell Technology Group Ltd., a company in
Santa Clara, Calif., that primarily uses manufacturing services in Taiwan to
build chips it designs. ISuppli put the price of that chip at $15.
UBM TechInsights pointed out that the Marvell chip
operates at a speed of 624 megahertz, where some high-end phones have chips
that operate at 1 gigahertz--providing a substantial performance advantage.
Bob Jensen's threads on management accounting are at
http://www.trinity.edu/rjensen/theory01.htm#ManagementAccounting
August 11, 2010 message from Gerald Trites
[gtrites@ZORBA.CA]
Noted University of Toronto Accounting professor,
Dr Gordon Richardson, has filed an expert witness report in a pending class
action suit against the Canadian Imperial Bank of commerce, saying that the
bank substantially overstated its profits in 2007 and 2008 by basing its
estimates of risk on indefensible assumptions. The lawsuit is expected to go
to court in March, 2011. A write-up on the submission is at
http://business.financialpost.com/2010/08/10/subprime-suit-challenges-cibc-accounting/
Dr Richardson recommended that the bank restate its
income.
"Subprime suit challenges CIBC
accounting, by Jim Middlemis, Financial Post, August 10 ,2010 ---
http://business.financialpost.com/2010/08/10/subprime-suit-challenges-cibc-accounting/
Canadian Imperial Bank of Commerce breached
Canadian accounting standards by failing to properly disclose its exposure
to subprime mortgages, according to expert testimony filed in Canada’s
biggest lawsuit to stem from the credit crisis.
Gordon Richardson, the KPMG professor of accounting
at the Rotman School of Management in Toronto and a PhD, writes in his
65-page review of the bank’s subprime disclosure that “CIBC failed to comply
with GAAP disclosure requirements … and the information provided to
pertaining credit risk was, prior to December 6, 2007, wholly misleading to
the market in general and to class members who invested in CIBC.”
The lawsuit covers the period of May 31, 2007 to
Feb. 28, 2008, a tumultuous period in the capital markets when credit
started freezing up and investment firms scrambled to understand their
exposure to subprime investments.
Mr. Richardson said, “CIBC substantially overstated
its income for the last three quarters of fiscal 2007 and the first quarter
of 2008 and income for these periods should be restated in order to comply
with GAAP.” The overstatement resulted from “indefensible assumptions”
related to its hedge fund exposure.
A second expert witness report from a noted
securities valuation firm in the United States pegs CIBC investor losses at
a maximum of $6.6-billion. The filings are made in preparation for the
mammoth class-action suit, which is expected to come before the Ontario
Superior Court for certification in March 2011.
CIBC spokesman Rob McLeod said, “CIBC denies these
allegations and plans to vigorously defend this action. CIBC is confident
that, at all times, its conduct was appropriate and that its disclosure met
applicable requirements.” The bank is expected to file its response by the
end of August.
Joel Rochon, who is representing Thornhill, Ont.,
investor Howard Green in the lawsuit, which was filed on July 22, 2008,
declined to comment on the expert testimony reports.
The lawsuit claims CIBC misrepresented the bank’s
exposure to subprime investments and failed to implement appropriate
risk-management controls related to billions of dollars in investments in
collateralized debt obligations and U.S. subprime mortgages.
A similar investor lawsuit in the United States
covering CIBC disclosures between May 2007 to May 2008 was dismissed in
March. Judge William Pauley of the Manhattan Federal Court wrote, “CIBC,
like so many other institutions, could not have been expected to anticipate
the crisis with the accuracy [the] plaintiff enjoys in hindsight.”
However, the laws between the two countries differ
and CIBC is being sued in Canada under a new section of the Ontario
Securities Act, which makes it easier for investors to sue corporations for
misrepresentations. An investor class action against Imax Corp. over
disclosure about the status of theatre construction was certified by an
Ontario judge in February.
Mr. Richardson’s extensive report examined CIBC’s
exposure to various tranches of subprime residential mortgage-backed
securities and collateralized debt obligations tied to subprime mortgages,
including its hedged and unhedged position.
He makes some damning conclusions.
“In a nutshell, investors needed to be told by no
later than April 30, 2007 that CIBC’s maximum exposure to credit risk was
$11.4-billion. Instead CIBC misled its shareholders by remaining silent and
by misstating and minimizing its exposure.” He writes that it wasn’t until
Dec. 6, 2007 that the bank “stunned the investment community” and revealed
the $11.4-billion exposure.
He said based on the TABX and ABX indices, which
tracked the value of credit default swaps tied to subprime mortgage bonds,
the bank should have realized that its main $3.5-billion hedge with
counterparty ACA Financial was in trouble. “CIBC had to have known that its
hedge of $3.5-billion with ACA had collapsed by April 30, 2007 and by no
later than July 2007.”
He said that should have resulted in fair value
writedowns of $769-million, $2.38-billion and $3.82-billion for the second
and third quarters of fiscal 2007 versus the $273-million and $747-million
hit the bank declared.
He examined two other hedges involving XL Capital
and FGIC Corp. and concluded that “CIBC should have recorded cumulative U.S.
subprime fair value write downs between $6.54-billion and $6.95-billion by
the end of the first [fiscal] quarter of 2008, rather than the $4.14-billion
cumulative U.S. subprime write own it did take…. ”
While the CIBC suit is one of the few pieces of
subprime litigation in Canada, in the United States there have been more
than 400 lawsuits filed in federal courts related to the credit crisis,
according to NERA Economic consulting, which tracks such suits.
Elaine Buckberg, a senior vice-president at NERA in
New York, said her firm has identified 74 cases relating to collateral debt
obligations, 10 of which were filed in 2010 and the others filed between
2007 and 2009. Overall, U.S. credit crisis lawsuits have resulted in
US$2.1-billion in settlements involving a number of parties. Mortgage lender
Countrywide Financial Corp. agreed to pay US$600-million to shareholders who
accused it of misleading investors about its lending practices. Mortgage
loan originator New Century Financial settled with investors for
$125-million. Merrill Lynch settled its subprime litigation for
$475-million. Charles Schwab paid out $225-million over allegations of
misrepresentation related to one of its mutual funds.
It isn’t the first investor class action CIBC has
been at the centre of. In 2005, it settled a claim by Enron Corp.
shareholders for US$2.4-billion.
Read more:
http://business.financialpost.com/2010/08/10/subprime-suit-challenges-cibc-accounting/#ixzz0wKYkmPRY
Ernst & Young LLP, Chartered Accountants, Toronto,
Ontario, is the external auditor who prepared the Independent Auditors’ Reports
to Shareholders - Report on Financial Statements and Report on Internal Control
over Financial Reporting. Ernst & Young LLP is independent with respect to CIBC
within the meaning of the Rules of Professional Conduct of the Institute of
Chartered Accountants of Ontario, United States federal securities laws - 13 -
and the rules and regulations thereunder, including the independence rules
adopted by the United States Securities and Exchange Commission pursuant to the
Sarbanes-Oxley Act of 2002; and applicable independence requirements of the
Public Company Accounting Oversight Board (United States).
Annual Information Form, Canadian Imperial Bank of Commerce, December 4, 2008
---
http://www.cibc.com/ca/pdf/investor/2008-annual-info-form-en.pdf
Where Were the Auditors ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
Bob Jensen's threads on Ernst & Young are at
http://www.trinity.edu/rjensen/Fraud001.htm
Lying CEOs: Language May Hold Key To Knowing What Chiefs Have
Accounting to Hide
A Teaching Case from the Stanford Rock Center for Corporate Governance
From The Wall Street Journal Accounting Weekly Review on August 20,
2010
For Lying CEOs, 'Team,' Not
'I'
by: Kyle
Stock
Aug 12, 2010
Click here to view the full article on WSJ.com
TOPICS: Accounting
Changes and Error Corrections, Earning Announcements, Restatement
SUMMARY: David
Larcker and Anastasia Zakolyukina of Stanford Graduate School of Business
and the Stanford Rock Center for Corporate Governance examined the
psychological and linguistics components of investor conference calls by
CEOs and CFOs of companies that later had to revise earnings results. "They
fed their filter almost 30,000 transcripts of earnings conference calls from
2003 to 2007 and found that..." they could accurately predict subsequent
earnings restatements about 50% to 65% of the time. The research paper is
entitled "Detecting Deceptive Discussions in Conference Calls" and is
available as paper #1572705 on the Social Science Research Network (SSRN) at
http://ssrn.com/abstract=1572705 The paper was last updated on July 29,
2010. The authors note in the abstract that their model is significantly
better at detecting subsequent earnings restatements than are models based
on discretionary accruals and traditional controls, a point not noted in the
WSJ article.
CLASSROOM APPLICATION: The
article is useful to introduce students to the nature of accounting research
in any financial reporting class covering earnings release topics.
QUESTIONS:
1. (Advanced)
What are earnings restatements? What authoritative accounting literature
requires restatements? Under what circumstances are such restatements
required?
2. (Advanced)
What are earnings releases? What conference calls are associated with
earnings releases?
3. (Introductory)
Summarize the basic points of the accounting research reported on in this
newspaper article. Who conducted this research? What did they examine?
4. (Advanced)
Why do you think it is useful to be able to predict likely earnings
restatements? Why might this result in the authors of this research "hearing
from some hedge funds" as the author of this WSJ article states?
Reviewed By: Judy Beckman, University of Rhode Island
"For Lying CEOs, 'Team,' Not 'I," by: Kyle Stock, The Wall Street Journal,
August 12, 2010 ---
http://online.wsj.com/article/SB20001424052748704216804575423683536800418.html?mod=djem_jiewr_AC_domainid
Conference call Q&As can be a confusing and cryptic
dance. Executives try to put the most attractive case before investors,
without giving away too much, of course. And in many cases, they are trying
to put a good spin on bad results.
But what if an investor could read right through
all of the posturing and careful prose to recognize if they were being
strung along?
A pair of accounting professors at the Stanford
Graduate School of Business and the Stanford Rock Center for Corporate
Governance recently tried to do just that. The team built a model that tries
to flush out executive, well, lies, using psychological and linguistic
studies and transcripts of conference calls from companies that later
restated earnings.
They fed their filter almost 30,000 transcripts of
earnings conference calls from 2003 to 2007 and found that it worked quite
nicely. Executives who later had to revise their books displayed some very
consistent clues.
For one, they seldom referred to themselves or
their companies in the first person; "I" and "we" were replaced by terms
like "the team" and "the company." Deceitful executives passed up humdrum
adjectives such as "solid" and "respectable" in favor of gushing words like
"fantastic," and (not surprisingly) they seldom mentioned shareholder value.
They also tended to buttress their points with
references to general knowledge with phrases like "you know" and to make
short statements with little hesitation, presumably because they had
carefully scripted the untruths in advance and had no interest in lingering
on them.
Though the study doesn't call out particular
companies, chiefs across a wide-range of industries raised the censor's red
light 14% of the time. Those in the finance business proved slightly more
honest than average, tagged for lying only 10% of the time. The study didn't
specify the industry with the most dissembling.
Finance chiefs, it appears, hold their cards a
little closer to their chests. They spoke about half as much as their
bosses, and, unlike chief executives, they showed no "positive emotions" via
"brilliant" and "astounding" adjectives. Maybe they were busy picturing
themselves in brilliant orange coveralls.
The professors' model isn't perfect. It proved
accurate enough to make predictions 50% to 65% of the time, in part because
individual executives have unique ways of speaking that don't fall neatly
into a pattern of deception.
Still, big money has to like those odds. We bet
that the authors of the study, David Larcker and Anastasia Zakolyukina, will
be hearing from some hedge funds soon, if they haven't already.
Bob Jensen's threads on creative accounting are at
http://www.trinity.edu/rjensen/theory01.htm#Manipulation
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/fraud001.htm#Governance
Paul Ekman video on how to read faces and detect lying ---
http://www.youtube.com/watch?v=IA8nYZg4VnI
This video runs for nearly one hour
Paul Ekman ---
http://en.wikipedia.org/wiki/Paul_Ekman
Ekman's work on facial expressions had its starting
point in the work of psychologist
Silvan Tomkins.[Ekman
showed that contrary to the belief of some
anthropologists including
Margaret Mead, facial expressions of emotion are
not culturally determined, but universal across human cultures and
thus
biological in origin. Expressions he found to be
universal included those indicating
anger,
disgust,
fear,
joy,
sadness, and
surprise. Findings on
contempt are less
clear, though there is at least some preliminary evidence that this emotion
and its expression are universally recognized.]
In a research project along with Dr. Maureen
O'Sullivan, called the
Wizards Project (previously named the
Diogenes Project), Ekman reported on facial "microexpressions"
which could be used to assist in lie detection. After testing a total of
15,000 [EDIT: This value conflicts with the 20,000 figure given in the
article on Microexpressions] people from all walks of life, he found only 50
people that had the ability to spot deception without any formal training.
These naturals are also known as "Truth Wizards", or wizards of
deception detection from demeanor.
He developed the
Facial Action Coding System (FACS) to taxonomize
every conceivable human facial expression. Ekman conducted and published
research on a wide variety of topics in the general area of non-verbal
behavior. His work on lying, for example, was not limited to the face, but
also to observation of the rest of the body.
In his profession he also uses verbal signs of
lying. When interviewed about the Monica Lewinsky scandal, he mentioned that
he could detect that former President
Bill Clinton was lying because he used
distancing language.
Ekman has contributed much to the study of social
aspects of lying, why we lie,
and why we are often unconcerned with detecting lies.
He is currently on the Editorial Board of Greater Good magazine,
published by the
Greater Good Science Center of the
University of California, Berkeley. His
contributions include the interpretation of scientific research into the
roots of compassion, altruism, and peaceful human relationships. Ekman is
also working with Computer Vision researcher
Dimitris Metaxas on designing a visual
lie-detector.
Research Papers Worth
Reading On Deceit, Body Language, Influence etc.. (with
links to pdfs)
Sixteen Enjoyable Emotions. – (2003)
Emotion Researcher, 18, 6-7. by Ekman, P
“Become Versed in Reading Faces”.
Entrepreneur, 26 March 2009. Ekman, P. (2009)
Intoduction: Expression Of Emotion - In RJ
Davidson, KR Scherer, & H.H. Goldsmith (Eds.) Handbook
of Afective Sciences. Pp. 411-414.Keltner, D. & Ekman, P
(2003)
Facial Expression Of Emotion. – In M.Lewis
and J Haviland-Jones (eds) Handbook of emotions, 2nd
edition. Pp. 236-249. New York: Guilford Publications,
Inc. Keltner, D. & Ekman, P. (2000)
Emotional And Conversational Nonverbal Signals.
– In L.Messing & R. Campbell (eds.) Gesture, Speech and
Sign. Pp. 45-55. London: Oxford University Press.
A Few Can Catch A Liar. - Psychological
Science, 10, 263-266. Ekman, P., O’Sullivan, M., Frank,
M. (1999)
Deception, Lying And Demeanor.- In States
of Mind: American and Post-Soviet Perspectives on
Contemporary Issues in Psychology . D.F. Halpern and
A.E.Voiskounsky (Eds.) Pp. 93-105. New York: Oxford
University Press.
Lying And Deception. – In N.L. Stein, P.A.
Ornstein, B. Tversky & C. Brainerd (Eds.) Memory for
everyday and emotional events. Hillsdale, NJ: Lawrence
Erlbaum Associates, 333-347.
Lies That Fail.- In M. Lewis & C. Saarni
(Eds.) Lying and deception in everyday life. Pp.
184-200. New York: Guilford Press.
Who Can Catch A Liar. -American
Psychologist, 1991, 46, 913-120.
Hazards In Detecting Deceit. In D. Raskin,
(Ed.) Psychological Methods for Investigation and
Evidence. New York: Springer. 1989. (pp 297-332)
Self-Deception And Detection Of Misinformation.
In J.S. Lockhard & D. L. Paulhus (Eds.) Self-Deception:
An Adaptive Mechanism?. Englewood Cliffs, NJ:
Prentice-Hall, 1988. Pp. 229- 257.
Smiles When Lying. – Journal of Personality
and Social Psychology, 1988, 54, 414-420.
Felt- False- And Miserable Smiles.Ekman, P.
& Friesen, W.V.
Mistakes When Deceiving. Annals of the New
York Academy of Sciences. 1981, 364, 269-278.
Nonverbal Leakage And Clues To Deception
Psychiatry, 1969, 32, 88-105.
"You Can't Hide Your Lying Brain (or Can You?", by Tom Bartlett,
Chronicle of Higher Education, May 6, 2010 ---
http://chronicle.com/blogPost/You-Cant-Hide-Your-Lying/23780/
Earlier this week Wired reported that a Brooklyn
lawyer wanted to use fMRI brain scans to prove that his client was telling
the truth. The case itself is an average employer-employee dispute, but
using brains scans to tell whether someone is lying—which a few, small
studies have suggested might be useful—would set a precedent for
neuroscience in the courtroom. Plus, I'm pretty sure they did something like
this on Star Trek once.
But why go to all the trouble of scanning someone's
brain when you can just count how many times the person blinks? A study
published this month in Psychology, Crime & Law found that when people were
lying they blinked significantly less than when they were telling the truth.
The authors suggest that lying requires more thinking and that this
increased cognitive load could account for the reduction in blinking.
For the study, 13 participants "stole" an exam
paper while 13 others did not. All 26 were questioned and the ones who had
committed the mock theft blinked less when questioned about it than when
questioned about other, unrelated issues. The innocent 13 didn't blink any
more or less. Incidentally, the blinking was measured by electrodes, not
observation.
But the authors aren't arguing that the blink
method should be used in the courtroom. In fact, they think it might not
work. Because the stakes in the study were low--no one was going to get into
any trouble--it's unclear whether the results would translate to, say, a
murder investigation. Maybe you blink less when being questioned about a
murder even if you're innocent, just because you would naturally be nervous.
Or maybe you're guilty but your contacts are bothering you. Who knows?
By the way, the lawyer's request to introduce the
brain scanning evidence in court was rejected, but lawyers in another case
plan to give it a shot later this month.
(The abstract of the study, conducted by Sharon
Leal and Aldert Vrij, can be found here. The company that administers the
lie-detection brain scans is called Cephos and their confident slogan is
"The Science Behind the Truth.")
"The New Face of Emoticons: Warping photos could help text-based
communications become more expressive," by Duncan Graham-Rowe, MIT's
Technology Review, March 27, 2007 ---
http://www.technologyreview.com/Infotech/18438/
Computer scientists at the University of Pittsburgh
have developed a way to make e-mails, instant messaging, and texts just a
bit more personalized. Their software will allow people to use images of
their own faces instead of the more traditional emoticons to communicate
their mood. By automatically warping their facial features, people can use a
photo to depict any one of a range of different animated emotional
expressions, such as happy, sad, angry, or surprised.
All that is needed is a single photo of the person,
preferably with a neutral expression, says Xin Li, who developed the system,
called Face Alive Icons. "The user can upload the image from their camera
phone," he says. Then, by keying in familiar text symbols, such as ":)" for
a smile, the user automatically contorts the face to reflect his or her
desired expression.
"Already, people use avatars on message boards and
in other settings," says Sheryl Brahnam, an assistant professor of computer
information systems at MissouriStateUniversity, in Springfield. In many
respects, she says, this system bridges the gap between emoticons and
avatars.
This is not the first time that someone has tried
to use photos in this way, says Li, who now works for Google in New York
City. "But the traditional approach is to just send the image itself," he
says. "The problem is, the size will be too big, particularly for
low-bandwidth applications like PDAs and cell phones." Other approaches
involve having to capture a different photo of the person for each unique
emoticon, which only further increases the demand for bandwidth.
Li's solution is not to send the picture each time
it is used, but to store a profile of the face on the recipient device. This
profile consists of a decomposition of the original photo. Every time the
user sends an emoticon, the face is reassembled on the recipient's device in
such a way as to show the appropriate expression.
To make this possible, Li first created generic
computational models for each type of expression. Working with Shi-Kuo
Chang, a professor of computer science at the University of Pittsburgh, and
Chieh-Chih Chang, at the Industrial Technology Research Institute, in
Taiwan, Li created the models using a learning program to analyze the
expressions in a database of facial expressions and extract features unique
to each expression. Each of the resulting models acts like a set of
instructions telling the program how to warp, or animate, a neutral face
into each particular expression.
Once the photo has been captured, the user has to
click on key areas to help the program identify key features of the face.
The program can then decompose the image into sets of features that change
and those that will remain unaffected by the warping process.
Finally, these "pieces" make up a profile that,
although it has to be sent to each of a user's contacts, must only be sent
once. This approach means that an unlimited number of expressions can be
added to the system without increasing the file size or requiring any
additional pictures to be taken.
Li says that preliminary evaluations carried out on
eight subjects viewing hundreds of faces showed that the warped expressions
are easily identifiable. The results of the evaluations are published in the
current edition of the Journal of Visual Languages and Computing.
Continued in article
Bob Jensen's threads on visualization are at
http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm
September 18, 2010 message from Robert Bruce Walker
[walkerrb@ACTRIX.CO.NZ]
I am about to give expert evidence in a civil
matter in respect to the failure or otherwise of a company to maintain
proper records. In this particular matter the accountant, or accountants to
be more precise, cobbled together a final set of financial statements that
were wholly self-serving for the directors of the company. This entailed
significant convolution and, I would say, corruption of accounting. This has
been done shamelessly and I think that applies literally. The accountant, I
surmise, doesn’t know that accounting is not to be manipulated for self
serving ends. The lawyer is searching the (English speaking) globe for
precedent. This is proving difficult.
Simultaneously I am involved in another matter,
criminal in nature, about which I am legally constrained from giving detail.
However I think I can say that the case has a disturbing element to it. Four
insolvency practitioners and three government agencies have raked over the
embers of this particular fiasco all the while bemoaning the lack of
records. I became involved and asked if there were any general ledgers.
There were. They had existed all the time and were set out in complete
detail yet no-one bothered to look at them!
In a third matter I am the liquidator of a company
to which a bank had appointed a receiver months before. The receiver is a
chartered accountant of good reputation. When I asked for the accounting
records initially the receiver and his lawyer attempted to block me. After a
good deal of battering with the legal powers that fall to me I was provided
with the records and a confession that reconciliations had not been prepared
nor a general ledger from the time of appointment. The receiver’s lawyer’s
argument was that it was ‘convention’ to fail to maintain proper records. I
did point out that it is impossible to control receivables, for instance,
without a proper records including a GL but that is what they attempted to
do. The burden of fixing the records falls to me and what a profound mess it
is, involving bizarre goings on with respect to GST (the NZ name for value
added tax).
I am see many such instances as these.
I said to the lawyer in the first matter, partially
in jest, that I seemed to be the only person in insolvency that cared about
accounting records. He replied, in all seriousness, that was probably true.
I have thought about that since and I fear he is correct. I have begun to
have a fear that I am truly alone, a voice crying into a void. Something,
seen from my perspective, is very badly broken.
Given that I am right I think about the causes.
Leaving aside the general lawlessness that prevails amongst accountants due
to their adversarial stance to the State’s tax collectors, I believe there
are two causes: the manner in which accountants are trained and the
fragmentation of accounting due to standard setting.
NZ follows an American model in which people who
are to become accountants are ‘educated’ in Universities. There is minimal
emphasis on double entry. Most of the courses are dedicated to theory,
bullshit sociology, complex management accounting, auditing and so on. None
of this makes any sense to a student if they first do not know the basics of
accounting and that can only be gained by actually practicing the
discipline. Large numbers of accountants, to use the term loosely, are
produced who do not understand that the centrality of accounting is
double-entry and the prime record is the general ledger. In NZ accountants
insist on calling themselves ‘chartered accountants and business advisers’
as they are ashamed on being accountants alone. This disease began about the
same time as the Cogitor travesty was perpetrated.
What has happened with standards, whilst well
intentioned (the road to hell probably), has resulted in fragmentation of a
discipline that should be approached holistically. As the complexity grows
inexorably, practitioners are being left behind. Indeed the current chairman
of the government body which approves standards has spent 20 years trying to
ensure that standards only apply to big government and big business. He
wants to exclude SMEs, being closely held companies, from the scope
altogether. I understand why he wants to do this, but he suffers from an
ahistorical perspective. When limited liability was developed in Britain,
from where we get our basic law, the notion of ‘true & fair’ was developed
to ensure creditors were protected. T&F has been found, in judicial
precedent, to equate to standards. Yet 150 years later we seek to sever the
connection.
Standards are replete with vast tracts of turgid
wording much of it petty in the extreme. It is unrelated to the basic
mechanisms of accounting. It is a feat of learning and memory to cover the
whole scope. Practitioners dealing with small companies have long since
abandoned the attempt to acquire the knowledge. Even those operating large,
publicly accountable entities do not attempt to master it. In consequence
accounting has no fulcrum upon which it pivots. There is no centre. It has
become fragmented.
Words are no substitute for numbers. Having spent
20 years attempting to put standards at the centre I have had a Pauline
style conversion. I now believe that all that is necessary is a set of
principles – the conceptual framework will do for this purpose. It should
then be left to the accountant to express these principles in the mechanics
of accounting. Standard setters should be reduced to providing arithmetic
examples, at a high level, detailing how this should be done. That is the
reason why I prefer FASB to IASB. At least FASB works out how economic
events operate arithmetically before it writes its turgid, prolix nonsense.
But even then it does not show how its schemes work in double entry. I
recall many years ago working with FAS 90 (I think) in regard to acquired
mortgages. There are examples but not expressed in double entry. They are of
limited use thereby.
In America the problem is compounded due to the
fact that the most important issue in accounting, solvency determination, is
left entirely to lawyers and courts. The disintegration is complete. I truly
believe I am staring at something too awful to contemplate. Accounting
created, or helped to create, the modern economic world. Yet in its time of
crisis it is hopelessly ill-equipped to respond because it has so profoundly
lost its way.
These may be the delusions of a solitary raving
lunatic simply reflecting the psychology of the aging – being the prospect
of doom. But then I might be right.
Jensen Comment
Some of what Walker asserts is also asserted in the following:
"Open the Andersen archives to find way out of today's mess," by Michael H.
Granof and Stephen A. Zeff, Houston Chronicle, April 6, 2002 ---
Click Here
http://www.mccombs.utexas.edu/department/accounting/faculty_staff/granof/Op-eds
and interviews/HoustonChronicle--article with Zeff on Andersen.htm
September 19, 2010 reply from Jagdish Gangolly
[gangolly@CSC.ALBANY.EDU]
I also would suggest the following article in the
CPA Journal:
Principles-Based Accounting It’s Not New, It’s Not
the Rule, It’s the Law By Ronald M. Mano, Matthew Mouritsen, and Ryan Pace
http://www.nysscpa.org/cpajournal/2006/206/essentials/p60.htm
There are a bunch of court cases that have made this crystal clear, my
favourite being Herzfeld v. Laventhol,....
One tidbit is the fact that Leonard Spacek, one of
my heroes, was the president of the Kellogg Foundation when it gave
Northwestern (where Arthur Andersen had taught) $10 million of its $40
million for its Business School.
His profound sense of fairness and ethics is shown
by the fact that even in the absence of any requirement under the AA
partnership agreement, he arranged to pay annuity of around $600,000 to the
widow of Arthur Andersen. See:
Leonard Spacek: Ahead of His Time, Relevant Today
By Frank Grippo http://www.nysscpa.org/cpajournal/2004/304/perspectives/nv6.htm
CPA Journal is a tremendous resource, and probably
one of the few in accounting I will read even after my retirement.
Jagdish Gangolly (gangolly@albany.edu)
Department of Informatics College of Computing &
Information
State University of New York at Albany
7A, Harriman Campus Road, Suite 220 Albany, NY 12206
Phone: (518) 956-8251, Fax: (518) 956-8247
Bob Jensen's threads on Enron are at
http://www.trinity.edu/rjensen/FraudEnron.htm
Bob Jensen's Enron Quiz is at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm
Accounting Basics: A Guest Post From Robert B. Walker," by Francine
McKenna, re:The Auditor, September 21, 2010 ---
http://retheauditors.com/2010/09/21/accounting-basics-a-guest-post-from-robert-b-walker/
Robert
B Walker, Chartered Accountant is a sole
practitioner undertaking insolvency work, in Wellington and Auckland New
Zealand.
Robert advises NZ Customs and Inland Revenue on
credit control and debt collection. He has provided expert witness services,
particularly with regard to the application of section 194 of the Companies
Act. He has advised a variety of Governments and NZ Government departments
and agencies on application of financial reporting law, including the
Government of Botswana, the Lesotho Revenue Authority and the National Bank
of Georgia (that country’s central bank).
Mr. Walker trained in London in a small firm,
worked for Peat Marwick Mitchell & Co at the time of the financial
revolution in the City. He then worked in shipping and, on returning back
in New Zealand, worked at the Bank of New Zealand as group accountant until
it collapsed in the last recession. He then went into audit in a small firm
that, he told me, “…was crushed by predatory pricing and the depredations of
the Auditor-General who subsequently went to prison!”
He also audited solicitors’ trust accounts.
“What a mess!” is his characterization of that period.
He then went out on his own to specialize in
financial reporting, following the enactment of a statute in that regard.
He attracted no business, sustained himself by working in Government (at the
time of the bold experiment in government accounting) and then into
insolvency where he tried to create the risk in financial reporting that was
not present in the minds of my potential clients. That is where he is
today. I recommend going to his site and reading through some of the
cases documented there. It’s an interesting
financial history of New Zealand during the past thirty years.
A guest post from Robert B. Walker:
I am about to give expert evidence in a civil
matter in respect to the failure or otherwise of a company to maintain
proper records. In this particular matter the accountant, or accountants to
be more precise, cobbled together a final set of financial statements that
were wholly self-serving for the directors of the company. This entailed
significant convolution and, I would say, corruption of accounting. This
has been done shamelessly and I think that applies literally. The
accountant, I surmise, doesn’t know that accounting is not to be manipulated
for self-serving ends. The lawyer is searching the (English speaking) globe
for precedent. This is proving difficult.
Continued in article
Jensen Comment
Other messages from Robert Bruce Walker can be found by searching for "Walker"
at
http://www.trinity.edu/rjensen/theory01.htm
"Fibbing With Numbers," by Steven Strogatz, The New York Times,
September 19, 2010 ---
http://www.nytimes.com/2010/09/19/books/review/Strogatz-t.html?_r=1&hpw
Charles Seife is steaming mad about all the ways
that numbers are being twisted to erode our democracy. We’re used to being
lied to with words (“I am not a crook”; “I did not have sexual relations
with that woman”). But numbers? They’re supposed to be cold, hard and
objective. Numbers don’t lie, and they brook no argument. They’re the best
kind of facts we have.
And that’s precisely why they can be so powerfully,
persuasively misleading, as Seife argues in his passionate new book, “Proofiness.”
Seife, a veteran science writer who teaches journalism at New York
University, examines the many ways that people fudge with numbers, sometimes
just to sell more moisturizer but also to ruin our economy, rig our
elections, convict the innocent and undercount the needy. Many of his
stories would be darkly funny if they weren’t so infuriating.
Although Seife never says so explicitly, the book’s
title alludes to “truthiness” — the Word of the Year in 2005, according to
the American Dialect Society, which defined it as “the quality of preferring
concepts or facts one wishes to be true, rather than concepts or facts known
to be true.” The term was popularized by Stephen Colbert in the first
episode of “The Colbert Report.” The numerical cousin of truthiness is
proofiness: “the art of using bogus mathematical arguments to prove
something that you know in your heart is true — even when it’s not.”
. . .
Falsifying numbers is the crudest form of
proofiness. Seife lays out a rogues’ gallery of more subtle deceptions.
“Potemkin numbers” are phony statistics based on erroneous or nonexistent
calculations. Justice Antonin Scalia’s assertion that only 0.027 percent of
convicted felons are wrongly imprisoned was a Potemkin number derived from a
prosecutor’s back-of-the-envelope estimate; more careful studies suggest the
rate might be between 3 and 5 percent.
“Disestimation” involves ascribing too much meaning
to a measurement, relative to the uncertainties and errors inherent in it.
In the most provocative and detailed part of the book, Seife analyzes the
recounting process in the astonishingly close 2008 Minnesota Senate race
between Norm Coleman and Al Franken. The winner, he claims, should have been
decided by a coin flip; anything else is disestimation, considering that the
observed errors in counting the votes were always much larger than the
number of votes (roughly 200 to 300) separating the two candidates.
“Comparing apples and oranges” is another perennial
favorite. The conservative Blue Dog Democrats indulged in it when they
accused the Bush administration of borrowing more money from foreign
governments in four years than had all the previous administrations in our
nation’s history, combined. True enough, but only if one conveniently
forgets to correct for inflation.
Seife is evenhanded about exposing the proofiness
on both sides of the political aisle, though we all know who’s responsible
for a vast majority of it: the other side.
He calls Al Gore to task for “cherry-picking” data
about global warming. Although Seife doesn’t dispute that the warming is
real and that human activities are to blame for a sizable portion of it, he
chastises Gore for showing terrifying simulations of what would happen to
Florida and Louisiana if sea levels were to rise by 20 feet, as could occur
if the ice sheets in Greenland or West Antarctica were to melt almost
completely. That possibility, while not out of the question, is generally
considered an unlikely “very-worst-case” scenario, Seife writes.
Meanwhile, the Bush administration committed a more
insidious form of proofiness when it crowed, in 2004, that its tax cuts
would save the average family $1,586. This is technically correct, but
deliberately misleading — a trick that Seife calls “apple polishing.” (Again
with the fruit!) The average is the wrong measure to use when a set of
numbers contains extreme outliers — in this case, the whopping refunds
received by a very few, very wealthy families. In such situations, the
average is far from typical. That’s why, paradoxical as it might seem, most
families received less than $650.
In one of the book’s lighter moments, Seife even
looks askance at the wholesome folks at Quaker Oats, who in addition to
selling a “bland and relatively unappetizing product” once presented a graph
that gave the visual impression that their “barely digestible oat fiber” was
a “medicinal vacuum cleaner” that would reduce your cholesterol far more
than it actually does. For the most part, though, he is deadly serious. A
few other recent books have explored how easily we can be deceived — or
deceive ourselves — with numbers. But “Proofiness” reveals the truly
corrosive effects on a society awash in numerical mendacity. This is more
than a math book; it’s an eye-opening civics lesson.
Steven Strogatz is a professor of applied mathematics at Cornell and a
contributor to the Opinionator blog on NYTimes.com. He is the author, most
recently, of “The Calculus of Friendship.”
Bob Jensen's threads on creative accounting ---
http://www.trinity.edu/rjensen/theory01.htm#Manipulation
Bob Jensen's Rotten to the Core threads are at
http://www.trinity.edu/rjensen/FraudRotten.htm
Bob Jensen's threads on theory are at
http://www.trinity.edu/rjensen/theory01.htm
"Convicted CPA Bill Murray draws 19-year sentence," Sacramento
News10, May 10, 2010 ---
http://www.news10.net/news/story.aspx?storyid=82421
The prominent accountant who stole at least $13
million from more than 50 clients apologized to them moments before
receiving one of the harshest sentences for white collar crime in recent
memory in Sacramento federal court.
William R. Murray, 56, was ordered by U.S. District
Court Senior Judge Edward Garcia to serve 19 1/2 years in federal prison
followed by three years of supervised release.
Murray pleaded guilty in March to two mail fraud
and tax charges for a long-running Ponzi scheme in which he converted
clients' tax payments to his personal use and stole money they trusted him
to invest.
News10 first reported the massive fraud last
November before criminal charges were filed. Murray, a former IRS agent,
frequently appeared on News10 to discuss tax and investment strategies.
Prior to Friday's sentencing, nine of Murray's
victims described their losses to Garcia and implored him to impose the
maximum sentence. One of the victims, Joyce Clifford, broke down in tears as
she spoke of losing her home and life savings to Murray.
"It's difficult to realize there can be such rotten
people in this world," said Clifford, 78. "He betrayed an innocent elderly
person who trusted him."
One of the two criminal charges involved in the
plea bargain was filed specifically for Clifford, and Murray's sentence was
enhanced because of her age.
Murray stood alongside attorney Donald Heller
during the entire proceeding, which lasted more than an hour. Murray wore an
orange jumpsuit issued by the Butte County Jail where he had been housed
under contract by the U.S. Marshal. Although he wore a shackle around his
waist, his hands were not cuffed.
Other victims described how Murray had the ability
to keep their trust even as the IRS was asking about missing tax payments.
"He was like my brother. We broke bread together,"
said William Ames, an El Dorado Hills electrician and inventor who lost as
much as $1 million to Murray.
When asked by Garcia if he had anything to say
before being sentenced, Murray offered the following apology but was quickly
challenged by the judge.
"I deeply regret it, and it's something I will live
with the rest of my life. I'm sorry for my actions," Murray told Garcia,
with his back to his victims.
"This case calls out for an explanation," Garcia
responded. "Why?"
Murray: "I started with the intention of paying
back the money."
Continued in article
"FD faces the music at London: Philharmonic Former employee stole
£645,000," by Pat Sweet , Accountancy Age, September 2, 2010 ---
Click Here
http://www.accountancymagazine.com/croner/jsp/Editorial.do?channelId=-305535&contentId=1656672&Failed_Reason=Session+not+found&Failed_Page=%2Fjsp%2FEditorial.do&BV_UseBVCookie=No
A former finance director at the London
Philharmonic Orchestra (LPO) is facing jail for stealing £645,000 from the
company.
Australian accountant Cameron Poole forged
signatures on company cheques and credit cards to embezzle cash which he
then spent on holidays, designer clothes, art and jewellery, according to
the Daily Mail .
The fraud took place between January 2007 and
November 2009. Poole hid the payments he was making to himself by making
false entries on the orchestra's computerised accounting system.
Poole claimed that money had been paid to IMG
Artists, which manages singers and musicians, when in fact he used the cash
to pay a building contractor. He was also in charge of running annual
audits, and manipulated the figures to show the orchestra’s expenditure as
far less than its revenue. The false information had an impact on LPO’s
funding and grant applications.
Cameron is currently paying off a £2.3m High Court
order arising from a civil action brought by the orchestra in February.
In a hearing at Southwark crown court, Poole
admitted fraud by abuse of position and acquiring and using criminal
property. He is due to be sentenced on 28 September, but the judge in the
case warned the 'most likely outcome' would be a custodial sentence.
Poole, an active member of his south London church,
worked for consulting firm Accenture and a child poverty charity in Africa
before moving to the orchestra.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Inside Chiquita's 'painful' finance system overhaul: The inside
story of a problem-plagued financial system overhaul that just might work,"
by Robert L. Mitchell, Computer World, August 9, 2010 ---
http://www.computerworld.com/s/article/350661/Chiquita_Slips_but_Does_Not_Fall?source=CTWNLE_nlt_dailyam_2010-08-09
Thank you Glen Gray for the heads up.
From PwC
A Closer Look at the Dodd-Frank Act's impact on insurance companies ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=FSAE-88GJ6L&SecNavCode=ASPP-4LYRRL&ContentType=Content
US News ranking formulas of universities are "rejiggered" (Yawn)
Yield fails to make it back into the formula
"The Rankings, Rejiggered," by Eric Hoover , Chronicle of Higher Education,
August 17, 2010 ---
http://chronicle.com/blogPost/The-Rankings-Rejiggered/26253/?sid=at&utm_source=at&utm_medium=en
Bob Jensen's threads on the controversial media rankings of colleges and
universities ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
The Top Party School is the University of
______________________?
The Most Sober School is ________________ University?
Answers ---
Click Here
http://www.businessweek.com/news/2010-08-02/top-party-school-is-university-of-georgia-mit-best-for-studies.html?link_position=link1
While the World Implodes, Let’s Bicker About
Accounting Program Rankings," by Caleb Newquist, Going Concern, May
6, 2010 ---
http://goingconcern.com/2010/05/while-the-world-implodes-lets-bicker-about-accounting-program-rankings/
"Blackboard Earns Certification
for Accessibility to Blind Students," Inside Higher Ed, August 13,
2010 ---
http://www.insidehighered.com/news/2010/08/13/qt#235367
The National Federation of the Blind Thursday gave
Blackboard, the e-learning giant, its top accessibility certification.
Blackboard is the first learning-management company to earn the
certification, although federation spokesman Chris Danielsen says the group
had not tested all of Blackboard's competitors. Given that
learning-management systems are so critical to modern education, it started
working with Blackboard; the company was able to make a number of
accessibility improvements in its latest version, released in the spring.
Since Blackboard is by far the biggest player in the learning-management
market, the federation's stamp of approval represents a big step for the
visually impaired in an age when such online tools have become crucial even
to brick-and-mortar institutions, Danielsen says.
Bob Jensen's threads on technology aids for
handicapped learners ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Handicapped
Bob Jensen's threads on Blackboard ---
http://www.trinity.edu/rjensen/Blackboard.htm
From The Wall Street Journal Accounting Weekly Review on September 3,
2010
The Decline of the P/E Ratio
by: Ben
Levisohn
Aug 30, 2010
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Analysts'
Forecasts, Financial Statement Analysis, Forecasting
SUMMARY: "While
U.S. companies announced record profits during the second quarter, and beat
forecasts by a comfortable 10% margin, on average, the stock market has
dropped 5%. Based on trailing 12-month earnings, the average price earnings
(P/E) ratio in the overall market is about 14.9 compared to 23.1 in
September 2009; "based on profit expectations over the next 12 months, the
P/E ratio has fallen to 12.2 from about 14.5 in May, 2010." The reason for
this divergence is, of course, economic uncertainty that is not evident in
the (average) point estimates of earnings nor in the relatively good
earnings numbers of both the first and second calendar quarters of 2010. The
related article is a WSJ graphic of earnings per share actual compared to
average analyst estimates, by industry and by week.
CLASSROOM APPLICATION: The
article is useful to show the need for understanding context of ratios in
undertaking financial statement analysis. It also demonstrates that ratios
can be measured in more than one way, such as the use of past earnings or
analysts' average forecasts. The related article can be used to introduce
students to analysts' earnings forecasts.
QUESTIONS:
1. (Introductory)
Define the price earnings ratio (P/E) and explain its meaning.
2. (Introductory)
What two methods of measuring P/E are described in the article? Why do you
think both are used?
3. (Introductory)
Refer to the related article. How are analysts' estimates used in this WSJ
graphic analysis? In your answer, also describe who are the analysts
producing these estimates.
4. (Advanced)
How did companies perform relative to analysts' estimates in the second
calendar quarter of 2010?
5. (Advanced)
What has happened to the P/E ratio? Why does the author say the P/E has
fallen in relevance? Do you agree with that assessment?
6. (Introductory)
What other evidence in the article corroborates the issues in the recent
fall in the average P/E ratio?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Now Reporting: Earnings
by
Aug 01, 2010
Online Exclusive
"The Decline of the P/E Ratio," by: Ben Levisohn, The Wall Street Journal,
August 30, 2010 ---
http://online.wsj.com/article/SB10001424052748703618504575459583913373278.html?mod=djem_jiewr_AC_domainid
As investors fixate on the global forces whipsawing
the markets, one fundamental measure of stock-market value, the
price/earnings ratio, is shrinking in size and importance.
And the diminution might not stop for a while.
The P/E ratio, thrust into prominence during the
1930s by value investors Benjamin Graham and David Dodd, measures the amount
of money investors are paying for a company's earnings. Typically, companies
that post strong earnings growth enjoy richer stock prices and fatter P/E
ratios than those that don't.
But while U.S. companies announced record profits
during the second quarter, and beat forecasts by a comfortable 10% margin,
on average, the stock market has dropped 5% this month.
The stock market's average price/earnings ratio,
meanwhile, is in free fall, having plunged about 36% during the past year,
the largest 12-month decline since 2003. It now stands at about 14.9,
compared with 23.1 last September, based on trailing 12-month earnings
results. Based on profit expectations over the next 12 months, the P/E ratio
has fallen to 12.2 from about 14.5 in May.
So what explains the contraction? In short,
economic uncertainty. A steady procession of bad news, from the European
financial crisis to fears of deflation in the U.S., has prompted analysts to
cut profit forecasts for 2011.
"The market is worrying not just about a slowdown,
but worse," said Tobias Levkovich, chief U.S. equity strategist at Citigroup
Global Markets in New York. "People want clarity before they make a decision
with their money."
Three months ago, analysts expected the companies
in the Standard & Poor's 500-stock index to boost profits 18% in 2011. Now,
they predict 15%. Mutual-fund, hedge-fund and other money managers put the
increase at closer to 9%, according to a recent Citigroup survey, while Mr.
Levkovich's estimate is for 7% growth.
"The sustainability of earnings is in doubt," said
Howard Silverblatt, an index analyst at S&P in New York. "Estimates are
still optimistic."
Equally troublesome, analysts' forecasts are
becoming scattered. In May, the range between the highest and lowest analyst
forecasts of S&P 500 earnings per share in 2011 was $12. Morgan Stanley
predicted $85 per share, while UBS predicted $97 per share. Now, the spread
is $15. Barclays said $80 per share; Deutsche Bank predicts $95.
When profit forecasts are tightly clustered, it
signals to investors that there is consensus among prognosticators; when
they diverge wildly, it shows a lack of clarity. The P/E ratio tends to fall
as uncertainty rises, and vice versa.
"A stock is worth its future earnings, but that
involves uncertainty," said Jeremy Siegel, professor of finance at the
University of Pennsylvania's Wharton School. "The more uncertainty there is,
the lower the P/E will be."
Not only is the P/E ratio dropping, it also is in
danger of losing some of its prominence as a market gauge.
That is because, with profit and economic forecasts
becoming less reliable, investors are focusing more on global economic
events as they make trading decisions, parsing everything from Japanese
government-debt statistics to shipping patterns in the Baltic region.
To some extent this is in keeping with historical
patterns. P/E ratios often shrink in size and significance during periods of
uncertainty as investors focus on broader economic themes.
P/E ratios fell sharply during the Depression of
the 1930s and again after World War II, bottoming at 5.90 in 1949. They
plunged again during the 1970s, touching 6.97 in 1974 and 6.68 in 1980.
During those periods, global events sometimes took precedence over
company-specific valuation considerations in the minds of investors.
There have been periods when the P/E ratio was much
more in vogue. A century ago, the buying and selling of stocks was widely
considered to be a form of gambling. P/E ratios came about as a way to
quantify the true value of a company's shares. The creation of the
Securities and Exchange Commission during the 1930s made financial
information more available to investors, and P/E ratios gained widespread
acceptance in the decades that followed.
But thanks to the recent shift toward rapid-fire
stock trading, the P/E ratio may be losing its relevance. The emergence of
exchange-traded funds in the past 10 years has allowed investors to make
broad bets on entire baskets of stocks. And the ascendance of
computer-driven trading is making macroeconomic data and trading patterns
more important drivers of market action than fundamental analysis of
individual companies, even during periods of relative calm.
So where is the P/E ratio headed in the short term?
A few optimists think it could rise from here. If corporate borrowing costs
remain at record lows and stock prices remain depressed, companies will
start issuing debt to buy back shares, said David Bianco, chief U.S. equity
strategist for Bank of America Merrill Lynch. As a result, earnings per
share would increase, he said, even if profit growth remains sluggish, and
P/E ratios could jump with them.
But today's economic uncertainty argues against
that scenario. Consider that while P/E ratios dropped during the
inflationary 1970s, they also fell during the deflationary 1930s. The one
common thread tying those two eras of falling P/E ratios: unpredictable
economic performance.
"We're looking at a more volatile U.S. economy than
we experienced in the last 30 years," said Doug Cliggott, U.S. equity
strategist at Credit Suisse in Boston. "The pressure on multiples may be
with us for quite some time."
September 8, 2010 reply from John Briggs, John
[briggsjw@JMU.EDU]
I saw this
article and didn't quite "get" it...the title at least.
Of course the P/E
ratio is still relevant.
My favorite site for this is
www.multpl.com,
where a guy provides a daily look
at the Shiller ("Irrational Exuberance") 10-year P/E...10 years of data
instead of 1. It's currently 20. It used to be 45. Indeed, 45 was a
bubble.
Right now, you
would think 16 would be appropriate, but extremely low interest rates argue
for higher (in comparison to investing in bonds), but economic uncertainly
argues for lower.
So I'd make the
case that this metric should be around 16 right now...20 indicates to me
that stocks are slightly overvalued.
The only time the
P/E ratio really was ignored was in 2000, it seems to me. I'm glad I had no
money then.
Bob
Jensen's bookmarks for financial ratios ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010303FinancialRatios
Also see
http://en.wikipedia.org/wiki/Financial_ratios
Bob Jensen's threads on valuation are at
http://www.trinity.edu/rjensen/roi.htm
"Goldman's Settlement with the SEC, and the Fragile Future of the Fabulous
Fab," by Jim Peterson, Re:Balance, August 11, 2010 ---
Click Here
http://www.jamesrpeterson.com/home/2010/08/goldmans-setlement-with-the-sec-and-the-fragile-future-of-the-fabulous-fab.html
Bob Jensen's threads on Goldman are at
http://www.trinity.edu/rjensen/Fraud001.htm
"How to Start Tweeting (and Why You Might Want To)," by Ryan Cordell,
Chronicle of Higher Education, August 11, 2010 ---
http://chronicle.com/blogPost/How-to-Start-Tweeting-and-Why/26065/?sid=wc&utm_source=wc&utm_medium=en
Bob Jensen's threads on Twitter and Social Networking ---
http://www.trinity.edu/rjensen/ListServRoles.htm
Courage
You're a 19 year old kid.
You're
critically wounded and dying in the jungle somewhere in the
Central
Highlands of Viet Nam .
It's November 11, 1967.
LZ
(landing zone) X-ray. Your unit is outnumbered 8-1 and the enemy fire is so
intense, from 100
yards
away, that your CO (commanding officer) has ordered the MedEvac
helicopters to stop coming in.
You're lying there, listening to the enemy machine guns and you
know
you're not getting out.
Your
family is half way around the world, 12,000 miles away, and
you'll
never see them again.
As
the world starts to fade in and out, you know this is the day.
Then - over the machine gun noise - you faintly hear the sound of a
helicopter.
You
look up to see a Huey coming in. But ... It doesn't seem real
because
no MedEvac markings are on it.
Captain Ed Freeman is coming in for you.
He's not MedEvac so it's not his job, but he heard the radio call and
decided
he's flying his Huey down into the machine gun fire anyway.
Even
after the MedEvacs were ordered not to come.
He's
coming anyway.
And he drops it in and sits there in the machine gun fire, as they load
3 of you
at a time on board.
Then he flies you
up and out through the gunfire to the doctors and nurses and safety.
And, he kept coming back!! 13 more times!!
Until
all the wounded were out. No one knew until the mission was over that the
Captain had been hit 4 times in the legs and left arm.
He took 29 of
you and your buddies out that day. Some would not
have
made it without the Captain and his Huey.
Medal of Honor Recipient, Captain Ed Freeman,
United States
Air Force, died last Wednesday at the age of
70, in Boise, Idaho .
May God Bless and Rest His Soul.
"Information Overload Is Nothing New From the Roman Empire to the
BlackBerry jam," by Peggy Noonan, The Wall Street Journal, August 20,
2010 ---
http://online.wsj.com/article/SB10001424052748704476104575439913190836560.html?mod=djemEditorialPage_t
It's high summer and we're all out there seeing
each other. We're not hidden away in our homes and offices as we are in
winter's cold. We're part of a crowd—on the street, in the park, on the
boardwalk, on the top deck of the ferry to Saltaire. And we can see in some
new or clearer ways how technology is changing us.
For one thing, it is changing our posture. People
who used to walk along the avenues of New York staring alertly ahead, or
looking up, now walk along with their heads down, shoulders slumped,
checking their email and text messages. They're not watching where they're
going, and frequently bump into each other. I'm told this is called a
BlackBerry jam.
A lot of people seem here but not here. They're
pecking away on a piece of plastic; they've withdrawn from the immediate
reality around them and set up temporary camp in a reality that exists in
their heads. It involves their own music, their own conversation, whether
written or oral. This contributes to the new obliviousness, to the young
woman who steps off the curb unaware that the police car with blaring siren
is barreling down the street.
In the street café, as soon as they've ordered,
people scroll down for their email. Everyone who constantly checks is
looking for different things. They are looking for connection, information.
They are attempting to alleviate anxiety: "If I know what's going on I can
master it." They are making plans. But mostly, one way or another, I think
they are looking for a love pellet. I thought of you. How are you? This will
make you laugh. Don't break this chain. FYI, because you're part of the
team, the endeavor, the group, my life. Meet your new nephew—here's the
sonogram. You will like this YouTube clip. You will like this joke. You are
alive.
We are surrounded by screens. Much of their impact
is benign, but not all. This summer I turned a number of times—every time I
did, a chapter seemed to speak specifically to something on my mind—to the
calm and profound "Hamlet's BlackBerry" by William Powers. It is a book
whose subject is how to build a good life in the digital age.
Mr. Powers is not against the screens around us. We
use digital devices "to nurture relationships, to feed our emotional,
social, and spiritual hungers, to think creatively and express ourselves."
At their best they produce moments that make life worth living. "If you've
written an e-mail straight from the heart, watched a video that you couldn't
stop thinking about, or read an online essay that changed how you think
about the world, you know this is true." But he has real reservations about
what digital devices are at their worst—an addiction to distraction, a way
not of connecting but disconnecting.
In a chapter on Seneca, he finds timeless advice.
Lucius Annaeus Seneca was born at the time of
Christ in Cordoba, Spain, an outpost of the Roman Empire. His father was an
official in the Roman government, and Seneca followed his footsteps,
becoming a Roman senator and, later, adviser to Nero in the early (and more
successful) days of his reign. Seneca was a gifted manager and bureaucrat,
but he is remembered today because he was an inveterate letter writer, and
his correspondence contained thoughts, insights and convictions that
revealed him to be a serious philosopher.
Seneca thought the great job of philosophy was to
offer people practical advice on how to live more deeply and constructively.
He came of age in a time of tumult; the Rome he lived in was being
transformed by a new connectedness. An empire that stretched over millions
of square miles was being connected by new roads, a civil service, an
extensive postal system. And there was the rise of written communication.
Writing, says Mr. Powers, was a huge part of the everyday lives of literate
Romans: "Postal deliveries were important events, as urgently monitored as
e-mail is today." Seneca himself wrote of his neighbors hurrying "from all
directions" to meet the latest mail boats from Egypt.
As written language began to drive things, Mr.
Powers says, "the busy Roman was constantly navigating crowds—not just the
physical ones that filled the streets and amphitheaters but the virtual
crowd of the larger empire and the torrents of information it produced."
Seneca, at the center of it all, struggled with the
information glut, and with something else. He became acutely conscious of
"the danger of allowing others—not just friends and colleagues, but the
masses—to exert too much influence on one's thinking." The more connected a
society becomes, the greater the chance an individual can become a creature,
or even slave, of that connectedness.
"You ask me what you should consider it
particularly important to avoid," one of Seneca's letters begins. "My answer
is this: a mass crowd. It is something to which you cannot entrust yourself
without risk. . . . I never come back home with quite the same moral
character I went out with; something or other becomes unsettled where I had
achieved internal peace."
Seneca's advice: Cultivate self-sufficiency and
autonomy. Trust your own instincts and ideas. You can thrive in the crowd if
you are not dependent on it.
But this is not easy.
Everyone Seneca knew was busy and important,
rushing about with what he called "the restless energy of the hunted mind."
Some traveled to flee their worries and burdens but found, as the old joke
says, "No matter where I go, there I am." Stress is portable. Seneca: "The
man who spends his time choosing one resort after another in a hunt for
peace and quiet, will in every place he visits find something to prevent him
from relaxing."
Even in Seneca's time, Mr. Powers notes, "the busy,
crowd-induced state of mind had gone mobile." "Today we ask, 'Does this
hotel have Wi-Fi?'"
And there was the way people consumed information.
The empire was awash in texts. "Elite, literate Romans were discovering the
great paradox of information: the more of it that's available, the harder it
is to be truly knowledgeable. It was impossible to process it all in a
thoughtful way." People, Seneca observed, grazed and skimmed, absorbing
information "in the mere passing." But it is better to know one great
thinker deeply than dozens superficially.
Seneca, Mr. Powers observes, could have been
writing in this century, "when it's hard to think of anything that isn't
done in 'mere passing,' and much of life is beginning to resemble a plant
that never puts down roots."
There are two paths. One is to surrender, to allow
the crowd to lead you around by the nose and your experience to become ever
more shallow. The other is to step back and pare down. "Measure your life,"
advises Seneca, "it just does not have room for so much."
Beware, in Mr. Powers's words, "self-created
bustle." Stop checking your inbox 10 times a day, or an hour. Once will do.
Concentrate on your higher, more serious purpose. Enrich your own
experience. Don't be a slave to technology.
Which is good mid-August wisdom for us all. Focus
on central things, quiet the mind, unplug a little, or a lot. And watch out
for those crowds, both the ones that cause BlackBerry jams and the ones that
unsettle, that attempt to stampede you into going along, or following. Step
back, or aside. Think what you think, not what they think. Everyone is
trying to push. Don't be pushed.
Bob Jensen's threads on the dark side of technology ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Getting Brassy With Clients
"Re-Branding at PricewaterhouseCoopers -- OMG, It's Like Totally Awesome!,"
by Jim Peterson, re:Balance, September 16, 2010 ---
http://www.jamesrpeterson.com/home/2010/09/re-branding-at-pricewaterhousecoopers-omg-its-like-totally-awesome.html
Humor Between August 1 and September 30, 2010
Humor is an important but sensitive issue in education and learning and
politics and everyday life
Psychology of Humor: I never thought the Three Stooges Were Funny
(What does that say about me?)
I'm not sending the following out as a political message. It does, however,
discuss some serious research on the psychology of humor
"Political Stooges: A new study of humor could spell trouble for Rand
Paul," by James Taranto, The Wall Street Journal, August 12, 2010 ---
http://online.wsj.com/article/SB10001424052748704901104575423422292357524.html?mod=djemEditorialPage_t
Two lonely "psychological scientists"
have been hard at work trying to understand this peculiar human phenomenon
called "humor," the
Association for Psychological Science tells us in
a press release.
It turns out, for example, that the idea
of the late Jimmy Dean hiring a rabbi as a spokesman for a new line of pork
products is "more likely to make the reader laugh" than the idea of Dean
hiring a farmer for the same job. That's because "having a rabbi promote
pork" is a "moral violation," per
Leviticus 11:7:
And the pig, though it has a split hoof completely
divided, does not chew the cud; it is unclean for you.
Haha, get it?! The other characteristic that makes
humor "funny" is benignity, which explains the Three Stooges. From the press
release:
"We laugh when Moe hits Larry because we know that
Larry's not really being hurt," says [the University of Colorado's A.
Peter] McGraw, referring to humorous slapstick. "It's a violation of
social norms. You don't hit people, especially a friend. But it's okay
because it's not real."
One should not underestimate the
importance of this scientific advance, which builds on earlier work by "a
research team led by Dr. Allan L. Reiss of the Stanford University School of
Medicine," which was reported by the
Associated Press in 2005:
They were surprised when their studies of how the
male and female brains react to humor showed that women were more
analytical in their response, and felt more pleasure when they decided
something really was funny.
"Women appeared to have less expectation of a
reward, which in this case was the punch line of the cartoon," said
Reiss. "So when they got to the joke's punch line, they were more
pleased about it."
Women were subjecting humor to more analysis with
the aim of determining if it was indeed funny, Reiss said in a telephone
interview.
Men are using the same network in the brain, but
less so, he said, men are less discriminating.
"It doesn't take a lot of analytical machinery to
think someone getting poked in the eye is funny," he commented when
asked about humor like the Three Stooges.
And of course it's a commonplace that women don't
get the Stooges. But imagine a DVD release of their greatest hits,
accompanied by analysis from A. Peter McGraw. The ladies would love it, and
the gents would be grateful for the chance to find common ground with the
opposite sex.
Continued in article
Reference
"People Think Immoral Behavior Is Funny -- But Only If
It Also Seems Benign," ScienceDaily (Aug. 9, 2010) ---
http://www.sciencedaily.com/releases/2010/08/100809142042.htm
August 12, 2010 reply from Zane Swanson
[ZSwanson@UCO.EDU]
As I am preparing syllabi for the fall, I am
reviewing the WSJ accounting subject cartoons that are placed on the
projector before class starts. When the cartoon is removed, it is the signal
that serious learning is to begin. Unless I missed them, there were no funny
WSJ accounting cartoons during this summer or the year for that matter. If
anyone has some recent accounting cartoons to share, I would appreciate it.
Zane Swanson
August 12, 2010 reply from Bob Jensen
Hi Zane,
I prefer cartoons from
The New Yorker, but there are serious copyright issues with cartoons in
general and especially The New Yorker’s cartoons. Some of them are
really funny ---
http://www.cartoonbank.com/?affiliate=ny-cbanimation
Enter the word
“accounting” in the search box.
Bob Jensen's threads on humor are added to the bottom of every edition of
New Bookmarks
http://www.trinity.edu/rjensen/Bookurl.htm
Accounting Humor ---
http://www.trinity.edu/rjensen/FraudEnron.htm#Humor
Forwarded by Col. Booth
AN ACTUAL PERSONA AD
To the Guy Who Tried to Mug Me In Downtown Savannah night before last.
Date: 2009-05-27, 1 :43 a.m. E.S.T.
I was the guy wearing the black Burberry jacket that you demanded that I hand
over, shortly after you pulled the knife on me and my girlfriend, threatening
our lives. You also asked for my girlfriend's purse and earrings. I can only
hope that you somehow come across this rather important message. First, I'd like
to apologize for your embarrassment; I didn't expect you to actually crap in
your pants when I drew my pistol after you took my jacket..
The evening was not that cold, and I was wearing the jacket for a reason.. My
girlfriend had just bought me that Kimber Model 1911 ...45 ACP pistol for my
birthday, and we had picked up a shoulder holster for it that very evening.
Obviously you agree that it is a very intimidating weapon when pointed at your
head ... isn't it?!
I know it probably wasn't fun walking back to wherever you'd come from with
that brown sludge in your pants. I'm sure it was even worse walking bare-footed
since I made you leave your shoes, cell phone, and wallet with me. [That
prevented you from calling or running to your buddies to come help mug us
again].
After I called your mother or "Momma" as you had her listed in your cell, I
explained the entire episode of what you'd done. Then I went and filled up my
gas tank as well as those of four other people in the gas station, -- on your
credit card. The guy with the big motor home took 150 gallons and was extremely
grateful!
I gave your shoes to a homeless guy outside Vinnie Van Go Go's, along with
all the cash in your wallet. [That made his day!] I then threw your wallet into
the big pink "pimp mobile" that was parked at the curb ... after I broke the
windshield and side window and keyed the entire driver's side of the car.
Later, I called a bunch of phone sex numbers from your cell phone. Ma Bell
just now shut down the line, although I only used the phone for a little over a
day now, so what 's going on with that? Earlier, I managed to get in two
threatening phone calls to the DA's office and one to the FBI, while mentioning
President Obama as my possible target. The FBI guy seemed really intense and we
had a nice long chat (I guess while he traced your number etc.).
In a way, perhaps I should apologize for not killing you . but I feel this
type of retribution is a far more appropriate punishment for your threatened
crime.. I wish you well as you try to sort through some of these rather
immediate pressing issues, and can only hope that you have the opportunity to
reflect upon, and perhaps reconsider, the career path you've chosen to pursue in
life. Remember, next time you might not be so lucky.
Have a good day!
Thoughtfully yours,
Alex
Forwarded by Maureen
The teenage granddaughter comes downstairs for her date with this
see-through blouse on and no bra. Her grandmother just pitched a fit,
telling her not to dare go out like that!
The teenager tells her "Loosen up Grams. These are modern times. You
gotta let your rosebuds show!" and out she goes.
The next day the teenager comes downstairs, and the grandmother is
sitting there with no top on. The teenager wants to die. She explains to
her grandmother that she has friends coming over and that it is just not
appropriate...
The grandmother says, "Loosen up, Sweetie. If you can show off your
rosebuds, then I can display my hanging baskets."
Forwarded by Paula
A TOUGH OLD COWBOY FROM TEXAS COUNSELED HIS GRANDSON
THAT IF HE WANTED TO LIVE A LONG LIFE, THE SECRET WAS TO SPRINKLE A PINCH OF
GUN POWDER ON HIS OATMEAL EVERY MORNING.
THE GRANDSON DID THIS RELIGIOUSLY TO THE AGE OF 103 WHEN HE DIED.
HE LEFT BEHIND 14 CHILDREN, 30 GRANDCHILDREN, 45 GREAT-GRANDCHILDREN, 25
GREAT-GREAT-GRANDCHILDREN,
AND A 15-FOOT HOLE WHERE THE CREMATORIUM USED TO BE.
Sort a brings a tear to your eye, don't it?
Forwarded by Paula
Old Sea Story
There's an old sea story in the Navy about a ship's Captain who inspected his
sailors, and afterward told the Chief Boatswain that his men smelled bad. The
Captain suggested perhaps it would help if the sailors would change underwear
occasionally. The Chief responded, "Aye, aye sir, I'll see to it immediately!"
The Chief went straight to the sailors berth deck and announced, "The Captain
thinks you guys smell bad and wants you to change your underwear." He continued,
"Pittman, you change with Jones, McCarthy, you change with Witkowski, and Brown,
you change with Schultz. Now, GET TO IT!"
THE MORAL OF THE STORY IS: Someone may come along and promise "Change", but
don't count on things smelling any better.
Jensen Comment
I first heard this story (in the context of gold miners) in the Malamute Saloon
in Fairbanks, Alaska courtesy of our host Tom Robinson. In the Malamute Saloon
the sawdust and peanut shells on the floor are almost ankle deep. The
temperature outside the saloon can be as much as 20 degrees colder in winter
than at the top of the cliff above the saloon.
Forwarded by Paula
I am passing this on to you because it
definitely worked for me and we all could use more calm in our lives.
By following the simple advice I heard on a Medical TV show, I have finally
found inner peace.
A Doctor proclaimed the way to achieve inner peace
is to finish all the things you have started.
So I looked around my house to see things I'd started
and hadn't finished,
and, before leaving the house this morning,
I finished off a bottle of Merlot,
a bottle of shhhardonay,
a bodle of Baileys,
a butle of vocka,
a pockage of Prunglies,
tha mainder of botal Prozic and Valum scriptins,
the res of the Chesescke an a box a choclits.
Yu haf no idr hou fkin gud I feal.
Peas sen dis orn to dem yu fee AR in ned ov inr pis
Forwarded by Dick Haar,
In the dead of summer a fly was resting on a leaf beside a lake. A hot, dry
fly who said to no one in particular, "Gosh, if I go down three inches, I will
feel the mist from the water and I will be refreshed."
There was a fish in the water thinking, "Gosh, if that fly goes down three
inches I can eat him."
There was a bear on the shore thinking, "Gosh, if that fly goes down three
inches, that fish will jump for the fly, and I will eat him."
It also happened that a hunter was farther up the bank of the lake preparing
to eat a cheese sandwich. "Gosh," he thought, "if that fly goes down three
inches, and that fish leaps for it, that bear will expose himself and grab for
the fish. I'll shoot the bear and then have a proper trophy."
You probably think this is enough activity for one bank of a lake, but I can
tell you there was more.
A wee mouse by the hunter's foot was thinking, "Gosh, if that fly goes down
three inches, and that fish jumps for that fly, and that bear grabs for that
fish, the dumb hunter will shoot the bear and drop his cheese sandwich."
A cat lurking in the bushes took in this scene and thought, as was
fashionable to do on the banks of this particular lake around lunch time, "Gosh,
if that fly goes down three inches, and that fish jumps for that fly, and that
bear grabs for that fish, and that hunter shoots that bear, and that mouse makes
off with the cheese sandwich, then I can have mouse for lunch."
The poor fly is finally so hot and so dry that he heads down for the cooling
mist of the water, The fish swallows the fly, The bear grabs the fish, The
hunter shoots the bear, The mouse grabs the cheese sandwich, The cat jumps for
the mouse, The mouse ducks, and The cat falls into the water and drowns.
This is a bit like when a researcher has a seminal discovery that pushes the
knowledge bound three inches.
Forwarded by Auntie Bev
Ask Why
l Like Retirement !!!
Question: How
many days in a week?
Answer: 6
Saturdays, 1 Sunday.
Question: When
is a retiree's bedtime?
Answer: Three
hours after he falls asleep on the couch.
Question: How
many retirees to change a light bulb?
Answer: Only
one, but it might take all day.
Question: What's
the biggest gripe of retirees?
Answer: There
is not enough time to get everything done.
Question: Why
don't retirees mind being called Seniors?
Answer: The
term comes with a 10% discount.
Question: Among
retirees what is considered formal attire?
Answer: Tied
shoes.
Question: Why
do retirees count pennies?
Answer: They
are the only ones who have the time.
Question: What
is the common term for someone who enjoys work and refuses to retire?
Answer: NUTS!
Question: Why
are retirees so slow to clean out the basement, attic or garage?
Answer: They
know that as soon as they do, one of their adult kids will want to store stuff
there.
Question: What
do retirees call a long lunch?
Answer:
Normal .
Question: What
is the best way to describe retirement?
Answer: The
never ending Coffee Break.
Question: What's
the biggest advantage of going back to school as a retiree?
Answer: If you cut classes, no one calls your parents.
Question: Why
does a retiree often say he doesn't miss work, but misses the people he used to
work with?
Answer: He is too polite to tell the whole truth.
And, my very favorite....
QUESTION: What
do you do all week?
Answer: Monday
through Friday, NOTHING..... Saturday & Sunday, I rest.
SERENITY
Reporters interviewing a 104-year-old woman:
'And what do you think is the best thing
about being 104?' the reporter asked.
She simply replied, 'No peer pressure.'
The nice thing about being senile is
you can hide your own Easter eggs.
I've sure gotten old!
I've had two bypass surgeries, a hip replacement,
new knees, fought prostate cancer and diabetes.
I'm half blind,
can't hear anything quieter than a jet engine,
take 40 different medications that
make me dizzy, winded, and subject to blackouts.
Have bouts with dementia.
Have poor circulation;
hardly feel my hands and feet anymore.
Can't remember if I'm 85 or 92.
Have lost all my friends. But, thank God,
I still have my driver's license.
I feel like my body has gotten totally out of shape,
so I got my doctor's permission to
join a fitness club and start exercising.
I decided to take an aerobics class for seniors.
I bent, twisted, gyrated, jumped up and down, and perspired for an hour. But,
by the time I got my leotards on,
the class was over.
An elderly woman decided to prepare her will and
told her preacher she had two final requests.
First, she wanted to be cremated, and second,
she wanted her ashes scattered over Wal-Mart.
'Wal-Mart?' the preacher exclaimed.
'Why Wal-Mart?'
'Then I'll be sure my daughters visit me twice a week'.
My memory's not as sharp as it used to be.
Also, my memory's not as sharp as it used to be.
Know how to prevent sagging?
Just eat till the wrinkles fill out.
It's scary when you start making the same noises
as your coffee maker.
These days about half the stuff
in my shopping cart says,
'For fast relief.'
THE SENILITY PRAYER :
Grant me the senility to forget the people
I never liked anyway,
the good fortune to run into the ones I do, and
the eyesight to tell the difference.
Forwarded by Auntie Bev
It's just pension sex
Two men were talking. 'So, how's your sex life?' 'Oh, nothing special. I'm
having Pension sex.' 'Pension sex?' 'Yeah, you know; I get a little each month,
but not enough to live on!'
________________________________________
LOUD SEX A wife went in to see a therapist and said, 'I've got a big problem,
doctor. Every time we're in bed and my husband climaxes, He lets out this ear
splitting yell.'
'My dear,' the shrink said, 'that's completely natural. I don't see what the
problem is.' 'The problem is,' she complained, 'it wakes me up!'
________________________________________
QUIET SEX Tired of a listless sex life, the man came right out and asked his
wife During a recent lovemaking session, 'How come you never tell me when you
have an orgasm?' She glanced at him and replied, 'You're never home!'
________________________________________
CONFOUNDED SEX A man was in a terrible accident, and his 'manhood' was
mangled and torn from his body. His doctor assured him that modern medicine
could give him back his manhood, but that his insurance wouldn't cover the
surgery since it was considered cosmetic. The doctor said the cost would be
$3,500 for 'small, $6,500 for 'medium, and $14,000 for 'large.'
The man was sure he would want a medium or large, but the doctor urged him To
talk it over with his wife before he made any decision. The man called his wife
on the phone and explained their options. The doctor came back into the room,
and found the man looking dejected.
'Well, what have the two of you decided?' asked the doctor.
'She'd rather remodel the kitchen.'
________________________________________
WEDDING ANNIVERSARY SEX
A husband and his wife had a bitter quarrel on the day of their 40th wedding
anniversary The husband yelled, 'When you die, I'm getting You a headstone that
reads: 'Here Lies My Wife - Cold As Ever'.'
'Yeah,' she replies, 'when you die, I'm getting you a headstone that reads:
'Here Lies My Husband - Stiff At Last.' '
________________________________________
WOMEN'S HUMOROUS SEX
My husband came home with a tube of K Y jelly and said, 'This will make you
happy tonight.' He was right. When he went out of the bedroom, I squirted it all
over the doorknobs. He couldn't get back in.
________________________________________
ELDERLY SEX
One night, an 87 year-old woman came home from Bingo and found Her 92
year-old husband in bed with another woman. She became violent and ended up
pushing him off the balcony Of their 20th floor, assisted living apartment,
killing him instantly.
Brought before the court on the charge of murder, The judge asked her if she
had anything to say in her defense. She began coolly, 'Yes, your honor. I
figured that at 92, if he could have sex... He could also fly.'
Forwarded by Paula
Catholic Rituals
To my Catholic friends and others:
SHHHH...his information is for Catholics only. It must not be divulged to
non-Catholics.
The less they know about our rituals and top secret code words, the better
off they are.
AMEN: The only part of a
prayer that everyone knows.
BULLETIN: Your receipt for
attending Mass.
CHOIR: A group of people whose
singing allows the rest of the Parish to lip-sync.
HOLY WATER: A liquid whose
chemical formula is H2OLY.
HYMN: A song of praise usually
sung in a key three octaves higher than that of the congregation' s range.
RECESSIONAL HYMN: The last
song at Mass often sung a little more quietly, since most of the people have
already left.
INCENSE: Holy Smoke!
JESUITS: An order of priests
known for their ability to find colleges with good basketball teams.
JONAH: The original 'Jaws'
story.
JUSTICE: When kids have kids
of their own.
KYRIE ELEISON:
The only Greek words that most Catholics can recognize besides gyros and
baklava. (for you non-Catholics it means Lord have mercy)
MAGI: The most famous trio to
attend a baby shower.
MANGER: Where Mary gave birth
to Jesus because Joseph wasn't covered by an HMO. (The Bible's way of showing us
that holiday travel has always been rough.)
PEW: A medieval torture device
still found in Catholic churches.
PROCESSION: The ceremonial
formation at the beginning of Mass consisting of altar servers, the celebrant,
and late parishioners looking for seats.
RECESSIONAL: The ceremonial
procession at the conclusion of Mass led by parishioners trying to beat the
crowd to the parking lot.
RELICS: People who have been
going to Mass for so long, they actually know when to sit, kneel, and stand.
USHERS: The only people in the
parish who don't know the seating capacity of a pew.
LITTLE KNOWN
FACTS about the Catholic Church in Las Vegas :
There are more
churches in LasVegas than casinos. During Sunday services at the offertory,
some worshippers contribute casino chips as opposed to cash. Some are sharing
their winnings - some are hoping to win. Since they get chips from so many
different casinos, and they are worth money, the Catholic churches are required
to send all the chips into the diocese for sorting. Once sorted into the
respective casino chips, one junior priest takes the chips and makes the rounds
to the casinos turning chips into cash. And he, of course, is known as The Chip
Monk.
Forwarded by Maureen
He Said To Me!
He said to me
Shall we try swapping positions tonight?
I said .. That's a good idea - you stand by the stove & sink while I sit on the
sofa and do nothing but fart
He said to me
What have you been doing with all the grocery money I gave you?
I said to him . ..... Turn sideways and look in the mirror!
He said to me. .
Why is it difficult to find men who are sensitive, caring and Good- looking?
I said to him . . . They already have boyfriends.
He said...
What do you call a woman who knows where her husband is every night?
I said. . .. A widow.
He said to me....
Why are married women heavier than single women?
I said to him .. . .. Single women come home, see what's in the fridge and go to
bed. Married women come home, see what's in bed and go to the fridge.
Forwarded by Col.. Booth
A nice, calm and respectable lady went into the pharmacy, walked up to the
pharmacist, looked straight into his eyes, and said, "I would like to buy some
cyanide."
The pharmacist asked, "Why in the world do you need cyanide?"
The lady replied, "I need it to poison my husband."
The pharmacist's eyes got big and he explained, "Lord have mercy! I can't
give you cyanide to kill your husband, that's against the law? I'll lose my
license! They'll throw both of us in jail! All kinds of bad things will happen.
Absolutely not! You CANNOT have any cyanide! Why don't you just get a divorce?"
The lady reached into her purse and pulled out a picture of her husband in
bed with the pharmacist's wife.
The pharmacist looked at the picture and replied, "You didn't tell me you had
a prescription.".
Forwarded by Paula (oldies but goodies)
Comprehending Accountants - Take One
Two accountancy students were walking across campus when one said, "Where did
you get such a great bike?"
The second student replied, "Well, I was walking along yesterday minding my own
business when a beautiful woman rode up on this bike.
She threw the bike to the ground, took off all her clothes and said, "Take what
you want."
The first student nodded approvingly, "Good choice; the clothes probably
wouldn't have fit."
Comprehending Accountants - Take Two
An architect, an artist and an accountant were discussing whether it was better
to spend time with the wife or a mistress.
The architect said he enjoyed time with his wife, building a solid foundation
for an enduring relationship.
The artist said he enjoyed time with his mistress, because of the passion and
mystery he found there.
The accountant said, "I like both."
"Both?"
The accountant replied "Yeah. If you
have a wife and a mistress, they will each assume you are spending time with
the other woman, and you can go to the office and get some work done."
Comprehending Accountants - Take Three
To the optimist, the glass is half full.
To the pessimist, the glass is half empty.
To the accountant, the glass is twice as big as it needs to be.
Comprehending Accountants - Take Four
"An Accountant and His Frog"
An accountant was crossing a road one day when a frog called out to him and
said, "If you kiss me, I'll turn into a beautiful princess".
He bent over, picked up the frog and put it in his pocket.
The frog spoke up again and said, "If you kiss me and turn me back into a
beautiful princess, I will stay with you for one week". The accountant took the
frog out of his pocket, smiled at it and returned it to the pocket.
The frog then cried out, "If you kiss me and turn me back into princess,
I'll stay with you and do ANYTHING you want." Again the accountant took the
frog out, smiled at it and put it back into his pocket.
Finally, the frog asked, "What is the matter? I've told you I'm a beautiful
princess, that I'll stay with you and do anything you want.
Why won't you kiss me?"
The accountant said, "Look I'm an accountant. I don't have time for a
girlfriend, but a talking frog, now that's cool."
Comprehending Accountants - Take Five
A businessman was interviewing applicants for the position of Divisional
Manager. He devised a simple test to select the most suitable person for the
job. He asked each applicant the question, "What is two and two"?
The first interviewee was a journalist. His answer was "twenty-two."
The second applicant was an engineer. He
pulled out a calculator and showed the answer to be between 3.999999 and
4.000001.
The next person was a lawyer. He stated
that in the case of Jenkins v. Commr of Stamp Duties (Qld), two and two was
proven to be four.
The last applicant was an accountant.
The business man asked him, "How much is two and two?" The accountant got up
from his chair, went over to the door, closed it then came back and sat down.
He leaned across the desk and said in a low voice, "How much do you want it to
be?" He got the job.
--------------
What's the definition of an accountant?
Someone who solves a problem you didn't know you had in a way you don't
understand.
-------------
What's the definition of a good tax accountant?
Someone who has a loophole named after him.
------------
When does a person decide to become an accountant?
When he realizes he doesn't have the charisma to succeed as an undertaker.
-------------
What does an accountant use for birth control?
His personality.
-------------
What's an extroverted accountant?
One who looks at your shoes while he's talking to you instead of his own.
-------------
What's an auditor?
Someone who arrives after the battle and bayonets all the wounded.
-------------
Why did the auditor cross the road?
Because he looked in the file and that's what they did last year.
-------------
There are three kinds of accountants in the world.
Those who can count, and those who can't.
-------------
How do you drive an accountant completely insane?
Tie him to a chair, stand in front of him and fold up a roadmap the wrong
way.
-------------
What's the most wicked thing a group of young accountants can do?
Go into town and gang-audit someone.
-------------
What do accountants suffer from that ordinary people don't?
Depreciation.
-------------
An accountant is having a hard time sleeping and goes to see his doctor.
"Doctor, I just can't get to sleep at night."
"Have you tried counting sheep?"
"That's the problem - I make a mistake and then spend three hours trying to
find it."
From Maxine
MY LIVING WILL Last night, my kids and I were sitting in the living room and
I said to them, 'I never want to live in a vegetative state, dependent on some
machine and fluids from a bottle. If that ever happens, just pull the plug.'
They got up, unplugged the Computer, and threw out my wine.
They are SO on my shit list ...
1. My husband and I divorced over religious differences. He thought he was
God and I didn't.
2. I don't suffer from insanity; I enjoy every minute of it.
3. Some people are alive only because it's illegal to kill them.
4. I used to have a handle on life,but it broke .
5. Don't take life too seriously; No one gets out alive.
6. You're just jealous because the voices only talk to me
7. Beauty is in the eye of the beer holder .
8. Earth is the insane asylum for the universe .
9. I'm not a complete idiot -- Some parts are just missing.
10. Out of my mind. Back in five minutes .
11. NyQuil, the stuffy, sneezy, why-the-heck-is-the-room-spinning medicine.
12. God must love stupid people; He made so many.
13. The gene pool could use a little chlorine.
14. Consciousness: That annoying time between naps.
15. Ever stop to think, and forget to start again?
16. Being 'over the hill' is much better than being under it!
17. Wrinkled Was Not One of the Things I Wanted to Be When I Grew up .
18 . Procrastinate Now!
19. I Have a Degree in Liberal Arts; Do You Want Fries With That?
20. A hangover is the wrath of grapes.
21. A journey of a thousand miles begins with a cash advance.
22. Stupidity is not a handicap. Park elsewhere!
23. They call it PMS because Mad Cow Disease was already taken .
24 . He who dies with the most toys is nonetheless DEAD.
25. A picture is worth a thousand words, but it uses up three thousand times
the memory.
26 . Ham and eggs... A day's work for a chicken, a lifetime commitment for a
pig. (how true)
27. The trouble with life is there's no background music .
28. The original point and click interface was a Smith & Wesson.
29. I smile because I don't know what the hell is going on .
Appreciate every single thing you have, especially your friends! Life is too
short and friends are too few !
Forwarded by Paula
IF YOU'VE EVER BEEN CALLED FOR JURY DUTY.....THEN YOU HAVE TO KNOW THIS IS
PRICELESS!
Enjoy a good laugh!
These are from a book called Disorder in the American Courts, and are things
people actually said in court, word for word,
taken down and now published by court reporters that had the torment of staying
calm while these exchanges were actually taking place..
______________________________
ATTORNEY: Are you sexually active?
WITNESS: No, I just lie there.
____________________________________________
ATTORNEY: This myasthenia gravis, does it affect your memory at all?
WITNESS: Yes.
ATTORNEY: And in what ways does it affect your memory?
WITNESS: I forget.
ATTORNEY: You forget? Can you give us an example of something you forgot?
___________________________________________
ATTORNEY: Do you know if your daughter has ever been involved in voodoo?
WITNESS: We both do.
ATTORNEY: Voodoo?
WITNESS: We do.
ATTORNEY: You do?
WITNESS: Yes, voodoo.
____________________________________________
ATTORNEY: Now doctor, "isn't it true that when a person dies in his sleep, he
doesn't know about it until the next morning?"
WITNESS: Did you actually pass the bar exam?
____________________________________
ATTORNEY: The youngest son, the twenty-year- old, how old is he?
WITNESS: He's twenty, much like your IQ.
___________________________________________
ATTORNEY: Were you present when your picture was taken?
WITNESS: Are you sh-
-ting me?
_________________________________________
ATTORNEY: So the date of conception (of the baby) was August 8th?
WITNESS: Yes.
ATTORNEY: And what were you doing at that time?
WITNESS: Getting laid
____________________________________________
ATTORNEY: She had three children, right?
WITNESS: Yes.
ATTORNEY: How many were boys?
WITNESS: None.
ATTORNEY: Were there any girls?
WITNESS: Your Honor, I think I need a different attorney.
Can I get a new attorney?
____________________________________________
ATTORNEY: How was your first marriage terminated?
WITNESS: By death.
ATTORNEY: And by whose death was it terminated?
WITNESS: Take a guess.
____________________________________________
ATTORNEY: Can you describe the individual?
WITNESS: He was about 20, medium height, and had a beard.
ATTORNEY: Was this a male or a female?
WITNESS: Unless the Circus was in town I'm going with male.
______________________________ _______
ATTORNEY: Doctor, how many of your autopsies have you performed on dead people?
WITNESS: All of them. The live ones put up too much of a fight.
_________________________________________
ATTORNEY: ALL your responses MUST be oral, OK?
What school did you go to?
WITNESS: Oral.
_________________________________________
ATTORNEY: Do you recall the time that you examined the body?
WITNESS: The autopsy started around 8:30 p.m.
ATTORNEY: And, Mr. Denton was dead at the time?
WITNESS: If not, he was by the time I finished.
____________________________________________
ATTORNEY: Are you qualified to give a urine sample?
WITNESS: Are you qualified to ask that question?
______________________________________
And the best for last:
ATTORNEY: Doctor, before you performed the autopsy, did you check for a pulse?
WITNESS: No.
ATTORNEY: Did you check for blood pressure?
WITNESS: No.
ATTORNEY: Did you check for breathing?
WITNESS: No.
ATTORNEY: So, then it is possible that the patient was alive when you began the
autopsy?
WITNESS: No .
ATTORNEY: How can you be so sure, Doctor?
WITNESS: Because his brain was sitting on my desk in a jar.
ATTORNEY: I see, but could the patient have still been alive, nevertheless?
WITNESS: Yes, it is possible that he could have been alive and practicing law.
10 Ways to Know You Were Born to Be an Accountant ---
http://www.bestcollegesonline.net/blog/2010/10-ways-to-know-you-were-born-to-be-an-accountant/
Thanks to Scott Bonacker for the heads up.
Some Yugo Humor Extended to Higher Ed ---
http://www.insidehighered.com/blogs/technology_and_learning
Forwarded by Auntie Bev
George Bush, Queen Elizabeth, and Vladimir Putin all die and go to hell.
While there, they spy a red phone and ask what the phone is for. The devil tells
them it is for calling back to Earth.
Putin asks to call Russia and talks for 5 minutes.
When he is finished the devil informs him that the cost is a million dollars,
so Putin writes him a check. Next Queen Elizabeth calls England and talks for 30
minutes. When she is finished the devil informs her that the cost is 6 million
dollars, so she writes him a check.
Finally George Bush gets his turn and talks for 4 hours. When he is finished
the devil informs him that the cost is $5.00. When Putin hears this he goes
ballistic and asks the devil why Bush got to call the USA so cheaply.
The devil smiles and replies: "Since Obama took over, the country has gone to
hell, so it's a local call."
Forwarded by Col. Booth
A blonde teenager, wanting to earn some extra money for the
summer, decided to hire herself out as a "handy-woman" and started
canvassing a nearby well-to-do neighborhood. She went to the front door of
the first house, and asked the homeowner if he had any odd jobs she could
do.
"Well, I guess I could use somebody to paint my porch," he said, "How much
will you charge me?"
Delighted, the girl quickly responded, "How about $50?"
The man quickly agreed and told her that the paint brushes and everything
she would need was in the garage. The man's wife, hearing the conversation said
to her husband, "Does she realize that our porch goes ALL the way around the
house?"
He responded, "That's
a bit cynical, isn't it?"
The wife replied, "You're right. I guess I'm starting to believe all those
dumb blonde jokes we've been getting by email lately."
Later that day, the blonde teenager came to the door to collect her money.
"You finished already?" the startled husband asked.
"Yes, she replied, and I even had paint left over, so I gave it two
coats."
Suitably impressed, the man reached into his pocket for the $50.00 and
handed it to her along with a $10.00 tip.
"And by the way, "the blonde teenager added, "it's not a Porch, it's a
Lexus.
Forwarded by Paula
*Two prostitutes were riding around town with a sign on top of their car
which said: Two Prostitutes - $50.00.
A policeman, seeing the sign, stopped them and told them they'd either
have to remove the sign or go to jail. Just at that time, another car passed
with a sign saying: 'JESUS SAVES.' One of the girls asked the officer, 'How
come you don't stop them?!' 'Well, that's a little different,' the officer
smiled, 'Their sign pertains to religion.' The following day the same police
officer noticed the same two hookers driving around with a large sign on
their car. He figured he had an easy arrest until he read their new sign:
"Two Fallen Angels Seeking Peter --$50"
Forwarded by Paula
A cowboy appeared before St. Peter at the Pearly Gates. 'Have you ever done
anything of particular merit?' St. Peter asked.
'Well, I can think of one thing,' the cowboy offered. ‘On a trip to the Black
Hills out in South Dakota, I came upon a gang of bikers who were threatening a
young woman. I directed them to leave her alone, but they wouldn't listen. So, I
approached the largest and most tattooed biker and smacked him in the face,
kicked his bike over, ripped out his nose ring, and threw it on the ground. I
yelled, 'Now, back off or I'll kick the shit out of all of you!' St. Peter was
impressed, 'When did this happen?'
'Couple of minutes ago.'
Forwarded by Maureen
One
day Gerry decided to retire...
He
booked himself on a Caribbean cruise and proceeded to have the time of his life,
that is, until the ship sank. He soon found himself on an island with no other
people, no supplies, nothing, only bananas and coconuts.
After about four months, he is lying on the beach one day when the most gorgeous
woman he has ever seen rows up to the shore. In disbelief, he asks, "Where did
you come from? How did you get here?"
She
replies, "I rowed over from the other side of the island
where I landed when my
cruise ship sank."
"Amazing," he notes. "You were really lucky to have a row boat wash up with
you."
"Oh, this thing?" explains the woman. "I made the boat out of some raw material
I found on the island. The oars were whittled from gum tree branches. I wove the
bottom from palm tree branches, and the sides and stern came from a Eucalyptus
tree."
"But, where did you get the tools?"
"Oh, that was no problem," replied the woman. "On the south side of
the island, a very unusual stratum of alluvial rock is exposed. I found that if
I fired it to a certain temperature in my kiln, it melted into ductile iron I
used that to make tools and used the tools to make the hardware."
The guy is stunned.
"Let's row over to my place," she says. So, after a short time of rowing, she
soon docks the boat at a small wharf. As the man looks to shore, he nearly falls
off the boat. Before him is a long stone walk leading to an exquisite bungalow
painted in blue and white. While the woman ties up the rowboat with an expertly
woven hemp rope, the man can only stare ahead, dumb struck. As they walk into
the house, she says casually, "It's not much, but I call it home. Sit down,
please."
"Would you like a drink?"
"No! No thank you," the man blurts out, still dazed. "I can't take another
drop of coconut juice."
"It's not coconut juice," winks the woman.. "I have a still. How would you like
a Pina Colada?"
Trying to hide his continued amazement, the man accepts, and they sit down on
her couch to talk. After they exchange their individual survival stories, the
woman announces, "I'm going to slip into something more comfortable. Would you
like to take a shower and shave? There's a razor in the bathroom cabinet
upstairs."
No
longer questioning anything, the man goes upstairs into the bathroom. There, in
the cabinet is a razor made from a piece of tortoise bone. Two shells honed
to a hollow ground edge are fastened on to its end inside a swivel mechanism.
"This woman is amazing," he muses. "What's next?" When he returns, she greets
him wearing nothing but some small flowers on tiny vines, each strategically
positioned, she smelled faintly of gardenias. She then beckons for him to sit
down next to her.
"Tell me," she begins suggestively, slithering closer to him, "We've both been
out here for many months. You must have been lonely. There's something I'm
certain you feel like doing right now, something you've been longing for,
right?" She stares into his eyes..
He can't believe what
he's hearing. "You mean..." he swallows excitedly as tears start to form in his
eyes, "You've built a Golf Course?"
Forwarded by Paula
A blonde was weed-eating her yard and accidentally cut off the tail of her
cat which was hiding in the grass.
She rushed her cat, along with the tail, over to WAL-MART!
Why WAL-MART??
HELLOOOOOOOOO!
WAL-MART is the largest re-tailer in the world!!!
Forwarded by Gene and Joan
While creating Husbands, God promised Women that good and ideal Husbands
would be found in all corners of the world.
And then God made the earth round.
Forwarded by Paula
CHURCH BULLETIN MISCOMMUNICATIONS
The Fasting & Prayer Conference includes meals.
------------ --------- -----
The sermon this morning: 'Jesus Walks on the Water.' The sermon
tonight: 'Searching for Jesus.'
------------ --------- -----
Ladies, don't forget the rummage sale. It's a chance to get rid of
those things not worth keeping around the house. Bring your husbands.
----------- --------- -----
Remember in prayer the many who are sick of our community. Smile at
someone who is hard to love. Say 'Hell' to someone who doesn't care
much about you.
------------ --------- -----
Don't let worry kill you off - let the Church help.
------------ --------- -----
Miss Charlene Mason sang 'I will not pass this way again,' giving
obvious pleasure to the congregation.
------------ --------- -----
For those of you who have children and don't know it, we have a nursery
downstairs.
------------ --------- -----
Next Thursday there will be tryouts for the choir. They need all the
help they can get.
------------ --------- -----
Irving Benson and Jessie Carter were married on October 24 in the
church. So ends a friendship that began in their school days..
------------ --------- -----
A bean supper will be held on Tuesday evening in the church hall. Music
will follow.
------------ --------- -----
At the evening service tonight, the sermon topic will be 'What Is
Hell?' Come early and listen to our choir practice.
------------ --------- -----
Eight new choir robes are currently needed due to the addition of
several new members and to the deterioration of some older ones.
------------ --------- -----
Scouts are saving aluminum cans, bottles and other items to be
recycled. Proceeds will be used to cripple children.
------------ --------- -----
Please place your donation in the envelope along with the deceased
person you want remembered.
------------ --------- -----
The church will host an evening of fine dining, super entertainment and
gracious hostility.
------------ --------- -----
Potluck supper Sunday at 5:00 PM - prayer and medication to follow.
------------ --------- -----
The ladies of the Church have cast off clothing of every kind. They may
be seen in the basement on Friday afternoon.
------------ --------- ---- -
This evening at 7 PM there will be a hymn singing in the park across
from the Church. Bring a blanket and come prepared to sin.
------------ --------- -----
Ladies Bible Study will be held Thursday morning at 10 AM. All ladies
are invited to lunch in the Fellowship Hall after the B. S. is done.
------------ --------- -----
The pastor would appreciate it if the ladies of the Congregation would
lend him their electric girdles for the pancake breakfast next Sunday.
------------ --------- -----
Low Self Esteem Support Group will meet Thursday at 7 PM.. Please use
the back door.
------------- --------- ----
The eighth-graders will be presenting Shakespeare' s Hamlet in the
Church basement Friday at 7 PM. The congregation is invited to attend
this tragedy.
------------ --------- -----
Weight Watchers will meet at 7 PM at the First Presbyterian Church.
Please use large double door at the side entrance.
------------ --------- -----
and the best for last:
The Associate Minister unveiled the church's new campaign slogan last
Sunday: "I Upped My Pledge - Up Yours."
Forwarded by Gene and Joan
Absolutely Brilliant!
|
The
European Commission has just announced an agreement
whereby English will be the official language of the
European Union rather than German, which was the other
possibility.
As part of the negotiations, the British Government
conceded that English spelling had some room for
improvement and has accepted a 5- year phase-in plan
that would become known as "Euro-English".
In the first year, "s" will replace the soft "c"..
Sertainly, this will make the sivil servants jump with
joy. The hard "c" will be dropped in favour of "k". This
should klear up konfusion, and keyboards kan have one
less letter.
There will be growing publik enthusiasm
in the sekond year when the troublesome "ph" will be
replaced with "f".. This will make words like fotograf
20% shorter.
In the 3rd year, publik akseptanse of the new spelling kan be
expekted to reach the stage where more komplikated
changes are possible.
Governments will enkourage the removal of double letters
which have always ben a deterent to akurate speling.
Also, al wil agre that the horibl mes of the silent "e"
in the languag is disgrasful and it should go away.
By the 4th yer people wil be reseptiv to steps such as
replasing "th" with "z" and "w" with "v".
During ze fifz yer, ze unesesary "o" kan be dropd from
vords kontaining "ou" and
after ziz fifz yer, ve vil hav a reil sensi bl
riten styl.
Zer vil be no mor trubl or difikultis and evrivun vil
find it ezi TU understand ech oza. Ze drem of a united
urop vil finali kum tru.
Und efter ze fifz yer, ve vil al be speking German like
zey vunted in ze forst plas.
If zis mad you smil, pleas pas on to oza pepl. |
|
|
Forwarded by Paula
So, there's this yellow toad
wandering around in the forest kinda pissed off because he doesn't want to be
yellow.
Life would be easier if he were brown like the other toads... He'd sure be less
visible to predators for one thing. Anyway... This yellow toad bumps into a
fairy godmother. "Fairy godmother, please make me brown like the other toads,"
begs her. "I'm hacked off being so visible to predators. The stress is like,
killing me, you know?" "Okay" says the fairy godmother, who whips out her magic
wand and goes "Abracapokus! You're brown!" The toad looks down and sees that he
is brown ! Except..... for his weenie, which is still yellow.
"Hang about lady," he says to the fairy godmother, "My pecker's still yellow!"
"Yeah, well I don't do weenies," she says, "You'll have to go see the Wizard of
Oz for that." So the toad thanks her and hops off on his way. There is also a
purple bear wandering about the very same woods. As luck would have it, he
encounters the very same fairy godmother (yes okay it's a coincidence, but it's
true).
"Fairy Godmother! You're just the person I need!" says the purple bear, "I can't
pull any bearesses cos they don't want to be seen with me on account of the
hunters. They can spot me from a mile off." Being a fairly nice fairy godmother,
she takes out her magic wand. "Oh for goodness sake, what is the matter with you
lot round here." she says. And with that, she yells: "Pokuscadabra! You're
brown!" The bear looks down and sees that he is, in fact, brown. Except for his
goolies, which remain purple.
"Hold up sweetheart!", he says to the fairy godmother, "My goolies are still
purple!" "Yeah, well I don't do those goolie things," she replies, "You'll have
to go see the Wizard of Oz for that." "Well that's just dandy, innit?" the bear
replies, "How the hell do I find the Wizard of Oz?" "Easy," says the fairy
godmother as she flew off...........
you know what's coming don't you ?
you'll be sorry you ever gave me your email address after this...
she flew off, saying........
"Just follow the yellow-dick toad !! "
Video forwarded by Auntie Bev
Obama at Bat (humor, sort of) ---
http://www.angelfire.com/ak2/intelligencerreport/obama_at_bat.html
Humor Between
December 1-31, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor123110
Humor Between
November 1-30, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor113010
Humor Between
October 1-31, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor103110
Humor Between August 1 and Sept. 30, 2010
---
http://www.trinity.edu/rjensen/book10q3.htm#Humor093010
Humor Between June 1 and July
31, 2010
---
http://www.trinity.edu/rjensen/book10q3.htm#Humor073110
Humor Between June 1 and June 30, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor063010
Humor Between
May 1 and May 31, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor053110
Humor Between April 1 and April 30, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor043010
Humor Between March 1 and March 31, 2010
---
http://www.trinity.edu/rjensen/book10q1.htm#Humor033110
Humor Between February 1 and February 28, 2010
---
http://www.trinity.edu/rjensen/book10q1.htm#Humor022810
Humor Between January 1 and January 31, 2010
---
http://www.trinity.edu/rjensen/book09q1.htm#Humor013110
And that's
the way it was on September 30 2010 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://www.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past
presentations and lectures ---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://www.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/
Concerns That Academic Accounting Research is Out of Touch With Reality
|
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue
to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
Question
What has the academy provided that's truly relevant to equity asset management
in practice?
"Economists’ Hubris – The Case of Equity Asset Management," Shahin Shojai,
George Feiger, and Rajesh Kumar, SSRN, April 29, 2010 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597685
Abstract:
In this, the fourth article in the economists’ hubris paper series we look
at the contributions of academic thought to the field of asset management.
We find that while the theoretical aspects of the modern portfolio theory
are valuable they offer little insight into how the asset management
industry actually operates, how its executives are compensated, and how
their performances are measured. We find that very few, if any, portfolio
managers look for the efficiency frontier in their asset allocation
processes, mainly because it is almost impossible to locate in reality, and
base their decisions on a combination of gut feelings and analyst
recommendations. We also find that the performance evaluation methodologies
used are simply unable to provide investors with the necessary tools to
compare portfolio managers’ performances in any meaningful way. We suggest a
novel way of evaluating manager performance which compares a manager against
himself, as suggested by Lord Myners. Using the concept of inertia, an asset
manager’s end of period performance is compared to the performance of their
portfolio assuming their initial portfolio had been held, without
transactions, during this period. We believe that this will provide clients
with a more reliable performance comparison tool and might prevent
unnecessary trading of portfolios. Finally, given that the performance
evaluation models simply fail in practice, we suggest that accusing
investors who look for raw returns when deciding who to invest their assets
with is simply unfair.
Jensen Comment
I repeatedly contend that if accountics research added any value to practice
then there would be more efforts to validate/replicate accountics research ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
At least in the economics academy, there are a greater number of validation
studies, especially validation studies of the Efficient Market Hypothesis ---
http://www.trinity.edu/rjensen/theory01.htm#EMH
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Free
(updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
CPA
Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle ---
http://cpareviewforfree.com/
Bob
Jensen's Personal History in Pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/
July 31, 2010
Bob Jensen's New Bookmarks on
July 31, 2010
Bob Jensen at
Trinity University
For
earlier editions of Fraud Updates go to
http://www.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you have key words to enter ---
Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Accounting
program news items for colleges are posted at
http://www.accountingweb.com/news/college_news.html
Sometimes the news items provide links to teaching resources for accounting
educators.
Any college may post a news item.
How to
author books and other materials for online delivery
http://www.trinity.edu/rjensen/000aaa/thetools.htm
How Web
Pages Work ---
http://computer.howstuffworks.com/web-page.htm
Bob
Jensen's essay on the financial crisis bailout's aftermath and an alphabet soup
of appendices can be found at
http://www.trinity.edu/rjensen/2008Bailout.htm
Federal
Revenue and Spending Book of Charts (Great Charts on Bad Budgeting)
---
http://www.heritage.org/research/features/BudgetChartBook/index.html
The Master
List of Free
Online College Courses
---
http://universitiesandcolleges.org/
Free
Online Textbooks, Videos, and Tutorials ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
The Master List of Free
Online College Courses ---
http://universitiesandcolleges.org/
Bob
Jensen's threads for online worldwide education and training alternatives ---
http://www.trinity.edu/rjensen/Crossborder.htm
"U. of
Manitoba Researchers Publish Open-Source Handbook on Educational Technology," by
Steve Kolowich, Chronicle of Higher Education, March 19, 2009 ---
http://chronicle.com/wiredcampus/index.php?id=3671&utm_source=wc&utm_medium=en
Social
Networking for Education: The Beautiful and the Ugly
(including Google's Wave and Orcut for Social Networking and some education uses
of Twitter)
Updates will be at
http://www.trinity.edu/rjensen/ListservRoles.htm
Pete Wilson provides some great videos on how to make accounting judgments ---
http://www.navigatingaccounting.com/
FEI Second
Life Video (thank you Edith) ---
If I Were an Auditor ---
http://www.youtube.com/user/feiblog#p/a/u/0/Q-FR_fkTFKY
Teaching History With Technology ---
http://www.thwt.org/
Some these ideas apply to accounting history and accounting education in general
"U. of Manitoba
Researchers Publish Open-Source Handbook on Educational Technology,"
by Steve Kolowich, Chronicle of Higher Education, March 19, 2009 ---
http://chronicle.com/wiredcampus/index.php?id=3671&utm_source=wc&utm_medium=en
Bob
Jensen's threads on accounting novels, plays, and movies ---
http://www.trinity.edu/rjensen/AccountingNovels.htm
Bob Jensen's threads on tricks and tools of the trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
"College Groups Share Health Care Worries With White House,"
Inside Higher Ed, June 3, 2010 ---
http://www.insidehighered.com/news/2010/06/03/qt#229052
Supporters of
student health insurance plans who saw provisions of the Patient Protection
and Affordable Care Act threatening the plans were
reassured Wednesday in a meeting with President Obama’s chief health care
deputy. Representatives of the American College Health Association, the
National Association of College and University Business Officers, College
and University Professional Association for Human Resources and the six
presidential higher education associations met Wednesday with Nancy-Ann
DeParle, director of the White House Office of Health Reform, to share their
concerns. They worry that student plans -- currently defined as "limited
duration," a category that exempts the plans from being part of the
individual market -- would under the new law become too expensive for
colleges and universities to offer.
One person in the room for the meeting, Steven
Bloom, assistant director of government and public affairs at the American
Council on Education, said that DeParle assured the group that the absence
of language making clear that the plans could continue to operate just as
they do today was "not intentional." The Obama administration has emphasized
that "if you like the insurance you have, you get to keep it," Bloom said,
"and they view student insurance as part of that.... It's just fallen
through the cracks."
College health advocates
first met with Congressional aides last fall to
discuss this same concern, but language supporting student health insurance
plans never made it into the final bill. Now that the bill has been passed
and legislation is all but frozen on Capitol Hill, Bloom and his peers
expect that a fix will come through regulations
Bob Jensen's threads on healthcare in the U.S. are at
http://www.trinity.edu/rjensen/Health.htm
Video on IOUSA
Bipartisan Solutions to Saving the USA
If you missed CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute
version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the
occasional video clips of President Obama discussing the debt crisis. The
problem is a build up over spending for most of our nation’s history, It landed
at the feet of President Obama, but he’s certainly not the cause nor is his the
recent expansion of health care coverage the real cause.
One take home from
the CNN show was that over 60% of the booked National Debt increases are funded
off shore (largely in Asia and the Middle East).
This going to greatly constrain the global influence and economic choices of the
United States.
By 2016 the interest
payments on the National Debt will be the biggest single item in the Federal
Budget, more than national defense or social security. And an enormous portion
of this interest cash flow will be flowing to foreign nations that may begin to
put all sorts of strings on their decisions to roll over funding our National
Debt.
The unbooked entitlement obligations that are not part of the National Debt are
over $60 trillion and exploding exponentially. The Medicare D entitlements to
retirees like me added over $8 trillion of entitlements under the Bush
Presidency.
Most of the problems
are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.
I thought the show
was pretty balanced from a bipartisan standpoint and from the standpoint of
possible solutions.
Many of the possible
“solutions” are really too small to really make a dent in the problem. For
example, medical costs can be reduced by one of my favorite solutions of
limiting (like they do in Texas) punitive damage recoveries in malpractice
lawsuits. However, the cost savings are a mere drop in the bucket. Another drop
in the bucket will be the achievable increased savings from decreasing medical
and disability-claim frauds. These are is important solutions, but they are not
solutions that will save the USA.
The big possible
solutions to save the USA are as follows (you and I won’t particularly like
these solutions):
-
Extend retirement age significantly
(75 years maybe?).
When Social Security was enacted, life expectancy was slightly over 65 years
of age.
Now it is well over 75 years of age.
-
Hit Medicare retirees like me with
higher fees for physicians, hospital services, and Medicare D drug payments.
Perhaps this should be on a scale based upon wealth/income levels such that
people, like me, who can afford to pay more must pay more.
-
Greatly curb the biggest cost of
Medicare --- keeping dying people alive in expensive hospitals for a few
weeks or maybe even a few months. Sometimes dying people must be kept alive
in ICU units costing over $10,000 per day when there is no hope of recovery.
There was not any hint of suggesting euthanasia as an alternative. But dying
people can be allowed to die more naturally and pain free.
http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)
-
Limit the National Debt is some way.
It’s now more common in Europe to limit national debt to 60% of GDP. Various
other means of constraining our National Debt were discussed in the CNN
longer version of the IOUSA Solutions video.
Watch for
the other possible solutions in the 30-minute summary video ---
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)
Here is the original (and somewhat dated video
that does not delve into solutions very much)
IOUSA (the most frightening movie in American history) ---
(see a 30-minute version of the documentary at
www.iousathemovie.com )
Now the IOUSA Bipartisan Solutions
I suggest that as many people as possible divert their attention from the Tiger
Woods at the Masters Tournament today (April 11) to watch bipartisan proposals
(‘Solutions”) on how to delay the Fall of the United States Empire. By the way,
Bill Bradley was one of the most liberal Democratic senators in the History of
the United States Senate.
Watch the World Premiere
of I.O.U.S.A.: Solutions on CNN
Saturday, April 10, 1:00-3:00 p.m. EST or Sunday, April 11, 3:00-5:00 p.m. EST
|
 |
Featured Panelists
Include:
-
Peter G. Peterson, Founder and Chairman, Peter G. Peterson
Foundation
-
David Walker, President & CEO, Peter G. Peterson Foundation
-
Sen. Bill Bradley
-
Maya MacGuineas, President of the Committee for a Responsible
Federal Budget
-
Amy Holmes, political contributor for CNN
-
Joe Johns, CNN Congressional Correspondent
-
Diane Lim Rodgers, Chief Economist, Concord Coalition
-
Jeanne Sahadi, senior writer and columnist for CNNMoney.com
|
Watch for
the other possible solutions in the 30-minute summary video ---
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)
CBS
Sixty minutes has a great video on the enormous cost of keeping dying people
artificially alive:
High Cost of Dying ---
http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)
No sugar coating from this Wharton professor
"National Retirement Expert: 75 needs to be the new 62," by Carla Fried,
CBS Moneywatch, June 2010 ---
http://moneywatch.bnet.com/retirement-planning/blog/retirement-beat/national-retirement-expert-75-needs-to-be-the-new-62/644/
Olivia Mitchell is one of the
nation’s foremost retirement experts, having spent an impressive career
studying the evolving nature of retirement planning issues for individuals,
corporations and government. The short version of Mitchell’s resume is that
she is a professor at the Wharton School at the University of
Pennsylvania and executive director of the Pension Research
Council. I’ll let you peruse
Mitchell’s full 23-page CV at your own leisure.
So I was interested to read a recent PRC paper
Mitchell penned that digs into some of the most pressing
retirement security issues in the wake of the financial crisis.
Sugarcoating is not her way.
My message is straightforward and, I fear, not
particularly upbeat: current and future generations of managers and
employees will not be able to use the ‘old fashioned’ model of
provisioning for retirement. Instead, the 21st century economy will
require an entirely new perspective on retirement risk management.
From there Mitchell ticks off the big risks
weighing on the current model: We’re not saving enough, we don’t have a clue
how to deal with longevity risk — in fact, we don’t have a clue about basic
financial concepts — traditional pensions are in major trouble, the PBGC is
not exactly rock solid, and then there’s the little issue of Social
Security, a topic near and dear to her heart, having served on the 2001
bipartisan presidential
Commission to Strengthen Social Security
The Retirement Fix
Mitchell concludes the report with a perfectly
serviceable call to action:
Part of the task is to enhance financial
literacy and political responsibility. We will also need to save more,
invest smarter, and insure better against longevity. Another task will
be to develop new products which can be used to hedge longevity and
better protect against very long term risks including inflation.
What struck me in her report was this final
thought:
But when all is said and done, most of us will
simply have to work longer to preserve some flexibility against shocks
in the long run.
And there it is: one of the nation’s foremost
retirement thinkers concludes that at the end of the day, it’s working
longer that is going to be our ticket out of any shortfalls and “shocks.”
Retire Early….at 75
Mitchell points out that working two to four more
years can go a long way to closing a retirement funding gap. But that’s
directed at Baby Boomers. Given ever-expanding longevity forecasts for
younger generations she has this bit of advice for Gen X and Gen Y:
For the younger generation, age 75 might be a
good target for early retirement, and later if possible!
Confirmation, from one of the country’s leading
retirement thinkers, that 75 may indeed be the new 55.
Jensen Comment
At the moment we're between a rock and a hard place apart from each person's
private problem concerning retirement. The global problem is that extending
retirement age to 75 contributes significantly to decline of employment
opportunities for younger people versus the need to extend retirement age to 75
to save the U.S. Social Security and Medicare entitlement programs.
Video on IOUSA
Bipartisan Solutions to Saving the USA
If you missed Sunday
afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute
version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the
occasional video clips of President Obama discussing the debt crisis. The
problem is a build up over spending for most of our nation’s history, It landed
at the feet of President Obama, but he’s certainly not the cause nor is his the
recent expansion of health care coverage the real cause.
One take home from
the CNN show was that over 60% of the booked National Debt increases are funded
off shore (largely in Asia and the Middle East).
This going to greatly constrain the global influence and economic choices of the
United States.
By 2016 the interest
payments on the National Debt will be the biggest single item in the Federal
Budget, more than national defense or social security. And an enormous portion
of this interest cash flow will be flowing to foreign nations that may begin to
put all sorts of strings on their decisions to roll over funding our National
Debt.
The unbooked entitlement obligations that are not part of the National Debt are
over $60 trillion and exploding exponentially. The Medicare D entitlements to
retirees like me added over $8 trillion of entitlements under the Bush
Presidency.
Most of the problems
are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.
I thought the show
was pretty balanced from a bipartisan standpoint and from the standpoint of
possible solutions.
Many of the possible
“solutions” are really too small to really make a dent in the problem. For
example, medical costs can be reduced by one of my favorite solutions of
limiting (like they do in Texas) punitive damage recoveries in malpractice
lawsuits. However, the cost savings are a mere drop in the bucket. Another drop
in the bucket will be the achievable increased savings from decreasing medical
and disability-claim frauds. These are important solutions, but they are not
solutions that will save the USA.
The big possible
solutions to save the USA are as follows (you and I won’t particularly like
these solutions):
-
Extend retirement age significantly
(75 years maybe?).
When Social Security was enacted, life expectancy was slightly over 65 years
of age.
Now it is well over 75 years of age.
-
Hit Medicare retirees like me with
higher fees for physicians, hospital services, and Medicare D drug payments.
Perhaps this should be on a scale based upon wealth/income levels such that
people, like me, who can afford to pay more must pay more.
-
Greatly curb the biggest cost of
Medicare --- keeping dying people alive in expensive hospitals for a few
weeks or maybe even a few months. Sometimes dying people must be kept alive
in ICU units costing over $10,000 per day when there is no hope of recovery.
There was not any hint of suggesting euthanasia as an alternative. But dying
people can be allowed to die more naturally and pain free.
http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)
-
Limit the National Debt is some way.
It’s now more common in Europe to limit national debt to 60% of GDP. Various
other means of constraining our National Debt were discussed in the CNN
longer version of the IOUSA Solutions video.
Watch for
the other possible solutions in the 30-minute summary video ---
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)
Humor Between
December 1-31, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor123110
Humor Between
November 1-30, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor113010
Humor Between
October 1-31, 2010
---
http://www.trinity.edu/rjensen/book10q4.htm#Humor103110
Humor Between August 1 and Sept. 30, 2010
---
http://www.trinity.edu/rjensen/book10q3.htm#Humor093010
Humor Between June 1 and July
31, 2010
---
http://www.trinity.edu/rjensen/book10q3.htm#Humor073110
Humor Between June 1 and June 30, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor063010
Humor Between
May 1 and May 31, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor053110
Humor Between April 1 and April 30, 2010
---
http://www.trinity.edu/rjensen/book10q2.htm#Humor043010
Humor Between March 1 and March 31, 2010
---
http://www.trinity.edu/rjensen/book10q1.htm#Humor033110
Humor Between February 1 and February 28, 2010
---
http://www.trinity.edu/rjensen/book10q1.htm#Humor022810
Humor Between January 1 and January 31, 2010
---
http://www.trinity.edu/rjensen/book09q1.htm#Humor013110
Bob Jensen's threads on accounting humor ---
http://www.trinity.edu/rjensen/FraudEnron.htm#Humor
At the AAA Annual Meetings (in San Francisco at
10:15 a.m.
on Monday, August 2) I will be the fifth wheel on an IFRS Convergence Panel
formed by David Albrecht. The other panel members, aside from David and me, are
Ed Ketz (Penn State), Charley Niemeier (almost
the SEC Chief Accountant), and Shyam Sunder (Yale).
Charley
may well have been the SEC's Chief Accountant had he not had so many doubts
about letting the IASB take over the world of accounting standard setting. Ed
Ketz is such a mild and meek personality, I don't know why David invited him?
Shyam Sunder is a former President of the AAA who is even more economist than
accountant and despises monopolies.
I mean is this a deviously
stacked panel or what? I may have to play devil's advocate in the debate and
(gasp) sing the praises of convergence. I will feel like Keith Olbermann at a
tea party.
Some Defining Issues publications from
KPMG ---
http://www.kpmginstitutes.com/index.aspx
Jensen Comment
I signed up for my first attempt to join a KPMG Webcast on an IFRS topic. It is
entitled "Intangible Assets and Development Costs" where there are some serious
differences between FASB versus IFRS rulings, especially in selected industries.
That Webcast is on July 15 at noon eastern standard time.
Bob Jensen's threads on FASB-IASB convergence
---
http://www.trinity.edu/rjensen/theory01.htm#MethodsForSetting
David Albrecht sent me this supposed humor link that Francine will especially
appreciate ---
http://angryaccounting professors.blogspot.com/
I reworded the lyrics slightly.
Where have all the accounting professors gone?
Long time passing.
Where have all the accounting professors gone?
Long time ago.
Where have all the accounting professors gone?
They became TAR mathematicians every one.
Equilibrium and game theory are now what they learn?
FASB Codification and IFRS are not what they learn?
Bob Jensen's threads on related issues ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
From PwC Direct (very slow loading)
Get ready for sweeping changes in accounting rules
Week of July 22, 2010
Welcome Robert
E. Jensen, to this week's edition of What's new at
CFOdirect, PwC's periodic guide to developments in financial
reporting, business news, and management issues.
Inside this issue
-
FlashLine: A weekly update on financial reporting - July 22, 2010
-
PCAOB Proposes New Auditing Standard on Confirmations
-
Accounting Implications of Recent Events in Venezuela
-
Get ready for sweeping changes in accounting rules
-
Point of View: Team-based learning
-
From Paper to Platform: Transforming the B2B publishing business
model
-
Revenue Expectations Up for US Multinationals, Spending Plans
Increase
PwC technical publications
FlashLine: A weekly update on financial reporting - July 22, 2010
This week's topics include:
- Get ready for sweeping changes in accounting rules
- Smaller Companies and Debt-Only Issuers Permanently Exempted from
Sarbanes-Oxley Internal
Control Audit Requirements
- 10Minutes on U.S. Financial Reform
- Accounting Implications of Recent Events in Venezuela
- PwC DataLine Discusses PCAOB's Proposed New Auditing Standard on
Confirmations
- Reminder: HIRE Act Expands Statute of Limitations Period for Tax
Returns
- PwC Comments on IASB Proposal re: Fair Value Option for Financial
Liabilities
- PwC Responds to FASB/IASB Proposal on 'Reporting Entity' Phase of
Conceptual Framework Project
- FASB Issues Final Accounting Standards Update on Disclosures
about Financing Receivables and
the Allowance for Credit Losses
- FASB Proposes Changes to Disclosures of Certain Loss
Contingencies
- FASB Issues 2011 US GAAP Financial Reporting Taxonomy
"Pre-Release" for Public View
- FASB Meetings and Project Updates
- Minutes of April 6, 2010 SEC Regulations Committee Meeting with
SEC Staff
- Materials for July 29 EITF Meeting
- AICPA Issues Four Technical Practice Aids
- GASB Issues Guidelines for Voluntary Reporting of Service Efforts
and Accomplishments (SEA)
Performance Information
- IAASB Seeks Comments on Exposure Draft re: Using the Work of
Internal Auditors
PCAOB Proposes New Auditing Standard on Confirmations
On July 13, the PCAOB released for public comment a proposed
auditing standard,
Confirmation, and related amendments to its interim
standards. The proposed standard includes updates to the PCAOB's
existing interim standard to reflect significant advances in
technology, including increased use of electronic communication
methods, and proposes new requirements regarding the confirmation of
specific accounts, confirmation procedures, and the evaluation of
audit evidence obtained from performing confirmation procedures.
Comments on the proposed standard and amendments are due September
13, 2010. The standard would be effective for audits of fiscal
years ending on or after December 15, 2011, subject to approval by
the SEC. This PwC DataLine summarizes the proposal and provides the
firms observations on it.
Accounting Implications of Recent Events in Venezuela
In May 2010, the government of Venezuela effectively eliminated the
indirect market of foreign currency exchange (referred to as the
"parallel" market). On June 9, 2010, several large Venezuelan
commercial banks began operating the Transaction System for Foreign
Currency Denominated Securities (SITME). Continued use of the
parallel market rate for re-measurement of bolivar denominated
transactions is no longer acceptable. This PwC DataLine provides an
update on Venezuela being considered a highly-inflationary economy.
Financial reporting
Get ready for sweeping changes in accounting rules
This article presents an overview of the Financial Accounting
Standards Board (FASB) and International Accounting Standards Board
(IASB) convergence projects, as well as the impact of the associated
changes on many areas of a company's business. It was originally
written for Financial Executives International (FEI) by Michael
Gallagher, U.S. National Office Leader for PricewaterhouseCoopers.
Strategic management
Point of View: Team-based learning
As businesses strive to shake off the shockwaves of the Great
Recession, forward-thinking leaders turn their focus to matters of
strategy, quality, and competitive advantage. High performance,
driven by top talent, will distinguish the players that will
dominate in tomorrow's market. With a dramatically different kind
of labor pool and a talent shortage on their doorsteps,
organizations will need to identify thoughtful, creative ways to
train and retain talent to fuel long-term success. The best answers
will not be found in the training room, but instead by engaging
teams of employees in ways that may be new to the business world,
but are nonetheless proven, trusted, and budget-savvy. Find out
more in this edition of PwC's Point of View series.
Entertainment and media
From Paper to Platform: Transforming the B2B publishing business
model
The challenges created by digital transformation and an uncertain
economic environment mean changing rules of engagement, and the
quest for relevance is now a top priority. A change of mind set is
needed to re-evaluate what it takes for B2B publishers to survive
and thrive. This PwC report examines the challenging outlook for
B2B publishing from the perspective of information users (business
professionals), advertisers, and publishers in five key territories
(US, UK, Netherlands, France and Germany), setting out the three
main challenges for publishers and PwC's view of the way forward in
seizing the digital opportunity.
Business and finance
Revenue Expectations Up for US Multinationals, Spending Plans
Increase
The latest PwC Management Barometer survey presents findings from
interviews with senior executives of US-based multinational
companies who were asked about their company's current business
performance, the state of the economy, and their expectations for
business growth over the next 12 months.
More from CFOdirect Network
CFOdirect
quick links
-
PwC insight
-
Hot topics
-
Industry focus
-
Webcasts
-
Events
-
News headlines
-
Back issues of "What's new at
CFOdirect"
CFOdirect
support links
-
Contact our editor
-
Retrieve login details
-
Change email preferences
-
Contact us - email
- Call us: 1-800-223-0535 (US), 1-813-351-6469 (outside the US)
Subscribe now to receive this e-mail in your mailbox each week.
Unsubscribe from this newsletter at any time. |
July 21, 2010 message from Charles Wankel
[wankelc@VERIZON.NET]
I have started a new list called
MANAGING-FOR-SUSTAINABILITY. It will be to discuss ecological, social and
economic sustainability from the perspective of business management
opportunities/threats and related decision-making. If you are interested in
joining the fray, perhaps on the importance of this issue from an accounting
standpoint, you are welcome. To join/leave easily use the link:
http://aomlists.pace.edu/scripts/wa.exe?SUBED1=MANAGING-FOR-SUSTAINABILITY&A=1
Best regards,
Charles Wankel
St. John's University, New York
http://facpub.stjohns.edu/~wankelc
Add me on LinkedIn:
http://www.linkedin.com/in/wankelc
Hi Charles,
It might help if you give us your definition of sustainability in the
context of your new list.
I might add that the AAA Commons has a keyword for "sustainability" that
can be attached to any Commons posting ---
http://aaahq.org/index.cfm
(The link to the Commons is in the left-side column)
But the Commons has not adequately defined many of its keywords, including
"sustainability.".
I suggest that you, Charles, post the most interesting messages you
receive to the AAA Commons on a regular basis much like I post many AECM and
CPA-L messages to the Commons.
I also suggest that you post the above announcement now to the AAA
Commons, although the AAA Commons is still disappointing to me in terms of
volume of readership. I'm not sure whether my thousands of postings are
helping or hurting the cause.
Bob Jensen
From the AICPA
Overview of Certified in Financial Forensics (CFF) Credential ---
Click Here
http://www.aicpa.org/InterestAreas/ForensicAndValuation/Membership/Pages/Overview
Certified in Financial Forensics Credential.aspx
Question
How Do Scholars and Researchers Search the Web?
Bob Jensen's threads on how researchers/scholars search the Web
are at
http://www.trinity.edu/rjensen/Searchh.htm#Scholars
"Automating Research with Google Scholar Alerts," by Ryan Cordell,
Chronicle of Higher Education, July 1. 2010 ---
http://chronicle.com/blogPost/Automating-Research-with/25158/?sid=wc&utm_source=wc&utm_medium=en
This post is something of a public service
announcement. Two weeks ago the
Google Scholar team
announced that users
could now create alerts for their favorite queries.
I would explain how to set up a Google Scholar
Alert, but both
Google and
Resource Shelf have already done so. Instead, I'll
discuss how this new featuer might be useful to the ProfHacker community.
Google Alerts
have been around for awhile. Users can set up a Google
Alert for any query, and Google will automatically email them a digest of
all new hits for that query. Users can set how many results they'd like
included in the emails, how often the emails should be sent, and what email
address(es) different alerts should be sent to. Google Alerts can help you
stay abreast of a particular topic, such as a developing news story. Many
folks also set up Google Alerts for their name, their company, or a
particular project, so they can track how those topics are being discussed
across the net.
Google Alerts pull from Google's entire index,
however, which is not always useful for research questions. I could set up a
Google Alert for an author I write on—say, Nathaniel Hawthorne—but I'd
likely have to wade through many high schoolers complaining about reading
The Scarlet Letter before finding any new scholarly work on the
author. Google Scholar Alerts pull results only from scholarly
literature—"articles, theses, books, abstracts," and other other resources
from "academic publishers, professional societies, "online repositories,
universities," and other scholarly websites. In other words, Google Scholar
Alerts provide scholars automatic updates when new material is published on
research topics they're interested in. A Google Scholar Alert for "Nathaniel
Hawthorne" would email me whenever a book or article about Hawthorne was
added to Google Scholar's index.
I worded that last sentence carefully in order to
point to some problems with Google Scholar, and by extension with the new
Google Scholar Alerts.
Peter Jacso wrote last September about serious
errors in Google Scholar's metadata, particularly with article attribution.
What counts as "new" in Google Scholar is also problematic. An article will
appear in a Google Scholar Alert when it's indexed—that is, when it's new to
Google Scholar, even if it's actually an older article.
As Jacso points out, however, Google Scholar
remains valuable for "topical keyword searches," which is what most folks
will set up Alerts to track. No one should set up a Google Scholar Alert and
consider their research complete‐but Alerts can be a good way to keep
abreast of new scholarship on a variety of topics, or on the wider context
of a particular research interest. I work on nineteenth-century apocalyptic
literature, for example, and I've set up a Google Scholar Alert for several
variations on the word "apocalyptic." The emails I've received comprise work
on apocalypticism from a variety of periods and geographical areas. Even if
I can't read most of these works in full, I've found it useful to get this
larger overview of scholarship on the topic.
Video: Wolfram Alpha has gotten much better ---
http://www.wolframalpha.com/screencast/introducingwolframalpha.html
It is best described as a search engine that will perform complicated
computations
Wolfram Alpha ---
http://www.wolframalpha.com/
Find a College
College Atlas ---
http://www.collegeatlas.org/
Among other things the above site provides acceptance rate percentages
Online Distance Education Training and Education ---
http://www.trinity.edu/rjensen/Crossborder.htm
For-Profit Universities Operating in the Gray
Zone of Fraud (College, Inc.) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#ForProfitFraud
Bob Jensen's threads on how researchers/scholars search the Web are at
http://www.trinity.edu/rjensen/Searchh.htm#Scholars
Question
Why do sales (cash) discounts have such high annual percentage rates?
Hi Pat and Tom,
In theory there may be justification for not treating the entire
sales discount as interest revenue. When setting the amount of a sales
discount, a vendor may be factoring in considerations other than time value
of money.
There’s a concise illustration at
http://snipurl.com/grossnet
Note the last paragraph and the wording “about the same.”
There’s another consideration that I’ve not seen raised anywhere.
If sales discounts are recorded net and the “Discount Not Taken” account is
considered interest revenue, some discounts are so great that they might be
a violation of usury law in many states of the United States.
This begs the question of why sales discounts have such high APR
amounts. The reason I think is that there are factors other than time value
of money built into sales discounts. One such factor is that sales discounts
may reduce the probabilities of bad debts. If a customer is on the edge and
has to ration payoffs of accounts payable, the vendors with the highest
sales discounts are likely to be paid off much faster than vendors with no
sales discounts. It would be stupid for a customer to miss a sales discount
and then ration payments of all accounts due at the end of the month.
Or put it in another way. Bad debt expense in reality is factored
into the gross price of goods sold by vendors on account. Vendors that offer
sales discounts are really rewarding customers who won’t become bad debts.
And there is another factor in setting a high APR for sales
discounts. Vendors may be trying to buy customer loyalty and goodwill among
their best customers who keep coming back in part because of the high sales
discounts (without reasoning that the vendor might treat them even better
with a lower gross price). This is what I would call a Dan Ariely argument
---
http://web.mit.edu/ariely/www/MIT/
Here’s the traditional basic accounting way “gross” sales
discounts have been taught for maybe 100 years or more.
Video: Sales Discounts ---
http://www.youtube.com/watch?v=HV4ana221HU
It’s harder to find a video on the net method, possibly because
basic accounting instructors often only teach the gross method so as not to
complicate accounting instruction at the very earliest stages.
Bob Jensen
Question
Why do auditors continue to allow earnings management with loan loss reserves?
July 19, 2010 message from Francine McKenna
[retheauditors@GMAIL.COM]
Bob,
Sound familiar? The banks are making what they can
based on technical accounting manipulation including playing with loan loss
reserves. There's still a lot of bad debt on their books.
http://www.nytimes.com/2010/07/17/business/17bank.html?_r=1&scp=3&sq=citigroup&st=Search
"Citigroup’s net income declined 37 percent, to $2.7
billion, and Bank of America’s net income fell 3 percent, to $3.1 billion,
from a year earlier. Both banks padded those results with a big release of
funds that had been set aside to cover future loan losses, with executives
citing improvements in the economy."
http://www.businessweek.com/news/2010-07-16/bank-of-america-citigroup-fall-as-loan-books-interest-shrink.html
"
Citigroup also got $599 million of mark-ups on loans
and securities in a “special asset pool” of trading positions left over from
before the credit crisis. Citigroup booked a $447 million gain from writing
down the value of its own debt, under an accounting rule that allows
companies to profit when their creditworthiness declines. The rules reflect
the possibility that a company could buy back its own liabilities at a
discount, which under traditional accounting methods would result in a
profit.
About $1.2 billion of Bank of America’s revenue
came from writing down the value of obligations assumed from its purchase of
Merrill Lynch & Co., according to the bank’s CFO, Charles Noski."
Francine
Francine
July 19, 2010 reply from Bob Jensen
Hi Francine,
Bank behaviors with auditor blessings are so sad.
Thanks for the tidbit.
Sydney
Finkelstein, the Steven Roth professor of management at the Tuck School of
Business at Dartmouth College, also pointed out that Bank of America booked
a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it
acquired last quarter to prices that were higher than Merrill kept them.
“Although perfectly legal, this move is also perfectly delusional, because
some day soon these assets will be written down to their fair value, and it
won’t be pretty,” he said
"Bank Profits Appear Out of Thin Air ," by Andrew Ross Sorkin, The
New York Times, April 20, 2009 ---
http://www.nytimes.com/2009/04/21/business/21sorkin.html?_r=1&dbk
This is starting to feel like amateur
hour for aspiring magicians.
Another day, another attempt by a Wall
Street bank to pull a bunny out of the hat, showing off an earnings report
that it hopes will elicit oohs and aahs from the market. Goldman Sachs,
JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow
their audiences with what appeared to be — presto! — better-than-expected
numbers.
But in each case, investors spotted
the attempts at sleight of hand, and didn’t buy it for a second.
With Goldman Sachs, the disappearing
month of December didn’t quite disappear (it changed its reporting calendar,
effectively erasing the impact of a $1.5 billion loss that month); JPMorgan
Chase reported a dazzling profit partly because the price of its bonds
dropped (theoretically, they could retire them and buy them back at a
cheaper price; that’s sort of like saying you’re richer because the value of
your home has dropped); Citigroup pulled the same trick.
Bank of America sold its shares in
China Construction Bank to book a big one-time profit, but Ken Lewis
heralded the results as “a testament to the value and breadth of the
franchise.”
Sydney Finkelstein, the Steven Roth
professor of management at the Tuck School of Business at Dartmouth College,
also pointed out that Bank of America booked a $2.2 billion gain by
increasing the value of Merrill Lynch’s assets it acquired last quarter to
prices that were higher than Merrill kept them.
“Although perfectly legal, this move is
also perfectly delusional, because some day soon these assets will be
written down to their fair value, and it won’t be pretty,” he said.
Investors reacted by throwing
tomatoes. Bank of America’s stock plunged 24 percent, as did other bank
stocks. They’ve had enough.
Why can’t anybody read the room here?
After all the financial wizardry that got the country — actually, the world
— into trouble, why don’t these bankers give their audience what it seems to
crave? Perhaps a bit of simple math that could fit on the back of an
envelope, with no asterisks and no fine print, might win cheers instead of
jeers from the market.
What’s particularly puzzling is why
the banks don’t just try to make some money the old-fashioned way. After
all, earning it, if you could call it that, has never been easier with a
business model sponsored by the federal government. That’s the one in which
Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which
they can turn around and lend at much higher rates.
“If the federal government let me
borrow money at zero percent interest, and then lend it out at 4 to 12
percent interest, even I could make a profit,” said Professor Finkelstein of
the Tuck School. “And if a college professor can make money in banking in
2009, what should we expect from the highly paid C.E.O.’s that populate
corner offices?”
But maybe now the banks are simply
following the lead of Washington, which keeps trotting out the latest idea
for shoring up the financial system.
The latest big idea is the so-called
stress test that is being applied to the banks, with results expected at the
end of this month.
This is playing to a tough crowd that
long ago decided to stop suspending disbelief. If the stress test is done
honestly, it is impossible to believe that some banks won’t fail. If no bank
fails, then what’s the value of the stress test? To tell us everything is
fine, when people know it’s not?
“I can’t think of a single, positive
thing to say about the stress test concept — the process by which it will be
carried out, or outcome it will produce, no matter what the outcome is,”
Thomas K. Brown, an analyst at Bankstocks.com, wrote. “Nothing good can come
of this and, under certain, non-far-fetched scenarios, it might end up
making the banking system’s problems worse.”
The results of the stress test could
lead to calls for capital for some of the banks. Citi is mentioned most
often as a candidate for more help, but there could be others.
The expectation, before Monday at
least, was that the government would pump new money into the banks that
needed it most.
But that was before the government
reached into its bag of tricks again. Now Treasury, instead of putting up
new money, is considering swapping its preferred shares in these banks for
common shares.
The benefit to the bank is that it
will have more capital to meet its ratio requirements, and therefore won’t
have to pay a 5 percent dividend to the government. In the case of Citi,
that would save the bank hundreds of millions of dollars a year.
And — ta da! — it will miraculously
stretch taxpayer dollars without spending a penny more.
"Watch Banks Pull Rabbits Out of Hats, Ably Assisted by Their Auditors," by
Francine McKenna, re:TheAuditors, July 19, 2010 ---
http://retheauditors.com/2010/07/19/watch-banks-pull-rabbits-out-of-hats-ably-assisted-by-their-auditors/
Do you own stock in a large money center bank?
Work for one? Count on one to lend you money for a small business? Expect
them to stimulate the economy via commercial loans and lending again for
residential or commercial real estate?
You’ve been deluded by the illusion of their
self-serving public relations – rah-rah intended to help you forget
financial reform that barely is and no safety net for anyone but the elite.
The global money center banks are masters at
managing financial reporting. Regulators repeatedly feign surprise at
balance sheet sleight of hand, prestidigitation at the expert level intended
to buy time until the banks can grow out of the black hole that bubble
lending put them in. They announce their quarterly results, with all the
details – they don’t even try to hide them anymore – and they’re ignored or
the con is traded on for short term profits.
The New York Times, July 16, 2010
“Citigroup’s net income declined 37 percent, to
$2.7 billion, and Bank of America’s net income fell 3 percent, to $3.1
billion, from a year earlier. Both banks padded those results with a big
release of funds that had been set aside to cover future loan losses,
with executives citing improvements in the economy.”
Business Week reports that Citigroup flip flopped
on the value of assets acquired with Merrill Lynch and magic happened:
“Citigroup also got $599 million of mark-ups on
loans and securities in a “special asset pool” of trading positions left
over from before the credit crisis. Citigroup booked a $447 million gain
from writing down the value of its own debt, under an accounting
rule that allows companies to profit when their
creditworthiness declines. The rules reflect the possibility that a
company could buy back its own liabilities at a discount, which under
traditional accounting methods would result in a profit.
About $1.2 billion of Bank of America’s revenue
came from writing down the value of obligations assumed from its
purchase of Merrill Lynch & Co., according to the bank’s CFO,
Charles Noski.”
Interestingly enough,
the opposite move also netted them a gain last
year. How exactly did this years write down equal a gain too?
Sydney Finkelstein, the Steven Roth
professor of management at the Tuck School of Business at
Dartmouth College, also pointed out that Bank of America
booked a $2.2 billion gain by increasing the value
of Merrill Lynch’s assets it acquired last quarter to prices
that were higher than Merrill kept them.
“Although perfectly legal, this move
is also perfectly delusional, because some day soon these
assets will be written down to their fair value, and it
won’t be pretty,” he said.
John Talbott, meanwhile,
explains today why Treasury Secretary Tim Geithner
doesn’t want watchdog Elizabeth Warren as the head of the new post-reform
consumer protection agency – she’ll prevent banks from making money off the
little guy while lending and trading remain unreliable profit drivers.
“Hank Paulson, the Treasury Secretary at the
time, had announced that the $700 billion TARP funds would be used to
buy toxic assets like bad mortgage loans from the commercial banks. But
this never happened and now the amount of bad bank loans has increased
in the trillions. Immediately after receiving authorization of the
funding for TARP from Congress, Paulson reversed direction and decided
to make direct equity investments in the banks rather than using the
TARP funds to acquire their bad loans.
So where are the trillions of dollars of bad
loans that the banks had on their books? They are still there. The
Federal Reserve took possession temporarily of some of them as
collateral for lending to the banks in an attempt to clean up the banks
for their supposed” stress tests”. But as of now, the trillions of
dollars of underwater mortgages, CDO’s and worthless credit default
swaps are still on the banks books. Geithner is going to the familiar
“bank in crisis” playbook and hoping that the banks can earn their way
out of their solvency problems over time so the banks are continuing to
slowly write off their problem loans but at a rate that will take years,
if not decades, to clean up the problem.”
Paul Krugman predicted this roller coaster ride
with bank earnings back in October, in particular with regard to Bank of
America and Citigroup. What he missed is that when trading profits are down
too, the banks – with the assistance of their auditors advice – must be
ever more creative to avoid having to write off those bad assets all at once
or without cover.
…while the wheeler-dealer side of the financial
industry, a k a trading operations, is highly profitable again, the part
of banking that really matters — lending, which fuels investment and job
creation — is not. Key banks remain financially weak, and their weakness
is hurting the economy as a whole.
You may recall that earlier this year there was
a big debate about how to get the banks lending again. Some analysts,
myself included, argued that at least some major banks needed a large
injection of capital from taxpayers, and that the only way to do this
was to temporarily nationalize the most troubled banks. The debate faded
out, however, after Citigroup and Bank of America, the banking system’s
weakest links, announced surprise profits. All was well, we were told,
now that the banks were profitable again.
But a funny thing happened on the way back to a
sound banking system: last week both Citi and BofA announced losses in
the third quarter. What happened?
Part of the answer is that those earlier
profits were in part a figment of the accountants’ imaginations.”
I’ve told you more than once that Citigroup is
still a mess. Anyone who isn’t a senior insider is nuts to buy their stock
or count on them for a job or business. Listen to me talk about AIG, Bank of
America and Citigroup, “an accident waiting to happen,” at the 8:15 mark on
this video for Stocktwits TV recorded June 3, 2010.
. . .
Both AIG and Goldman Sachs executives have been
questioned recently by the Financial Crisis Inquiry Commission.. The
Commission seeks to “examine the causes, domestic and global, of the current
financial and economic crisis in the United States.” We’ve also seen Lehman
executives called to account by Congressional inquisitors.
But we’ve yet to see the auditors – Pricewaterhouse
Coopers (auditor of AIG, Goldman Sachs, and Freddie Mac), Ernst & Young
(auditor of Lehman) or KPMG (auditor of Citigroup, previously of
Countrywide, Wells Fargo and Wachovia and earlier of Fannie Mae) – called to
testify to explain their role in blessing fraudulent bank balance sheet
accounting.
Isn’t it about time?
July 19, 2010 reply from Bob Jensen
Hi Francine,
Here’s an important citation on this topic --- my favorite!
My all-time heroes Frank Partnoy and Lynn Turner contend that Wall Street
bank accounting is an exercise in writing fiction: Watch the video! (a bit
slow loading) Lynn Turner is Partnoy's co-author of the white paper "Make
Markets Be Markets" "Bring Transparency to Off-Balance Sheet Accounting," by
Frank Partnoy, Roosevelt Institute, March 2010 ---
http://makemarketsbemarkets.org/modals/report_off.php
Watch the above video!
Abusive off-balance sheet accounting was a major
cause of the financial crisis. These abuses triggered a daisy chain of
dysfunctional decision-making by removing transparency from investors,
markets, and regulators. Off-balance sheet accounting facilitating the
spread of the bad loans, securitizations, and derivative transactions that
brought the financial system to the brink of collapse.
As in the 1920s, the balance sheets of major
corporations recently failed to provide a clear picture of the financial
health of those entities. Banks in particular have become predisposed to
narrow the size of their balance sheets, because investors and regulators
use the balance sheet as an anchor in their assessment of risk. Banks use
financial engineering to make it appear that they are better capitalized and
less risky than they really are. Most people and businesses include all of
their assets and liabilities on their balance sheets. But large financial
institutions do not.
Click here to read the full chapter.---
http://www.rooseveltinstitute.org/sites/all/files/Off-Balance Sheet
Transactions.pdf
Frank Partnoy is the George E.
Barnett Professor of Law and Finance and is the director of the Center on
Coporate and Securities Law at the University of San Diego. He worked as a
derivatives structurer at Morgan Stanley and CS First Boston during the
mid-1990s and wrote F.I.A.S.C.O.:
Blook in the Water on Wall Street, a
best-selling book about his experiences there. His other books include
Infectious Greed: How Deceit and Risk Corrupted the Financial Markets
and
The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall
Street Scandals.
Lynn Turner has the unique
perspective of having been the Chief Accountant of the Securities and
Exchange Commission, a member of boards of public companies, a trustee of a
mutual fund and a public pension fund, a professor of accounting, a partner
in one of the major international auditing firms, the managing director of a
research firm and a chief financial officers and an executive in industry.
In 2007, Treasury Secretary Paulson appointed him to the Treasury Committee
on the Auditing Profession. He currently serves as a senior advisor to LECG,
an international forensics and economic consulting firm.
The views expressed in this paper are those of the authors and do not
necessarily reflect the positions of the Roosevelt Institute, its officers,
or its directors.
Bob Jensen
July 19, 2010 message from Steven Kachelmeier, University of Texas at Austin
[kach@MAIL.UTEXAS.EDU]
An article by Kanagaretnam,
Krishnan, and Lobo that is forthcoming in the November 2010 issue of The
Accounting Review is the most recent effort on this topic of which I am
aware. You can find it on the SSRN network at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1590506 .
The title is "An Empirical
Analysis of Auditor Independence in the Banking Insustry," but don't be
fooled by the title -- it's about manipulation of banks' loan loss reserves,
with an emphasis on how auditors bear upon that phenomenon. Kanagaretnam et
al. (2010) also cite most of the earlier studies on earnings management
involving bank loan loss reserves. Kiridan Kanagaretnam is at McMaster
University, Gopal Krishnan is at Lehigh University, and Gerald Lobo is at
the University of Houston.
Best.
Steve
July 19, 2010 reply from Jagdish Gangolly
[gangolly@CSC.ALBANY.EDU]
I have briefly gone through this paper. Its main
thesis is that there is lack of an association between banks fiddling with
earnings via LLLP (loan loss provisions) and "unexpected" audit fees for
large banks, while for the small banks that association is strongly
negative. The authors consider this evidence of a relationship between audit
independence and earnings management at least in the case of smaller banks.
They provide a blizzard of regressions and other data.
The paper is interesting from a policy perspective,
and would be a great paper in a policy oriented economics journal. I am glad
for the authors that it got accepted. However, does it have a bearing on
accounting' practice beyond setting the regulators on a chase of auditors of
small banks? Does it give us a better way of computing LLP? Does it give us
a way of finding out the reliability of the LLP number? Does it even tell us
if the LLP numbers are more (or less) reliable for the larger banks? Does
the age distribution of the loan portfolio vary between the two types of
banks? What is the distribution of auditors between the two types of banks?
There are a host of questions that should be triggered by this thread. Of
course, the authors pick the hypothesis they want to study, but an
accounting or auditing orientation (as opposed to "about" accounting
orientation in Sterling's language) would make a lot more sense for is
accountants.
The other issue, endemic to most of these types of
papers is the oblique way of introducing causality (a definite no-no for a
positivist) to obfuscate discussions. Figure 1 in the paper is what is
usually called a path graph giving the trace of causality (the direction of
the arrows indicating causality), but the statistical analysis is entirely
associational. Statistical techniques have existed for causal analysis for
almost half a century, but accounticians have uniformly pretended they do
not exist. Stating the models in causal terms but testing them
associationally is certainly less than truthful advertising. Unless, of
course, I am misstating the model, which I doubt. I have been in this game
for too long.
Nothing I have said above should be construed as
indicating my doubt on the questions raised by the authors; they should be
of great interest to a policy oriented audience. It is just that when it
comes to accounting practice, they are trying to sell kryptonite or worse.
Jagdish Gangolly (gangolly@albany.edu)
Department of Informatics College of Computing &
Information
State University of New York at Albany
7A, Harriman Campus Road, Suite 220 Albany, NY 12206 Phone: (518) 956-8251,
Fax: (518) 956-8247
Jagdish
I urge you to polish up this validity-challenging comment and then submit it to
TAR in December after the article in question is in print in TAR. I have an
agenda of opening TAR up to publishing validity-challenging comments about its
articles where readers have serious doubts about validity ---
http://www.trinity.edu/rjensen/TheoryTar.htm
Only one such validity-challenging comment was submitted
to TAR in recent years, was refereed, was rejected, and later was expanded into
a full-blown research paper that eventually was accepted. It’s likely that
virtually nobody submits validity-challenging comments to TAR because of a
perceived hopelessness of having TAR put the short comment into print.
However, the current Senior Editor of TAR assures me
that if any validity-challenging comment is submitted to TAR and passes the
initial screening test before being sent out to referees, a short
validity-challenging or quality control comment will be published in TAR if the
referees accept it for publication.
Since there’s only one failed test of this policy across
recent years, I would really like you to submit the above comment (after
polishing) to TAR to put TAR to the test about willingness to publish
validity-challenging and quality control comments. Then I hope you will comment
on the entire saga for the benefit of the AECM.
Your short comment
above is an example of a good test case.
I recently wrote a validity challenging comment that I did not submit to TAR
because it’s not such a good test case ---
http://www.trinity.edu/rjensen/TheoryTar.htm#Analytics
Much of my challenge is based on the following:
|
Another assumption is that the audit firm's ex
ante utility function and a client firm's utility function are
respectively as follows:
Yeah right. Have these utility functions ever been validated for
any real world client and auditor? As a matter of fact, what is the
utility function of any corporation that according to agency theory
is a
nexus of contracts? My feeble mind cannot even imagine what a
realistic utility function looks like for a nexus of contracts.
I would instead contend that there is no audit firm utility
function apart from the interactions of the utilities of the major
players in client acceptance/retention decision and audit pricing
decisions. For example, before David Duncan was fired by Andersen,
the decision to keep Enron as a client was depended upon the
interactive utility functions of David Duncan versus Carl Bass
versus Joseph Berardino. None of them worked from a simplistic
Andersen utility function such as the one shown in Equation 20
above. Each worked interactively with each other in a very
complicated way that had Bass being released from the Enron audit
and Berardino buring his head in the sands of Lake Michigan.
The audit firm utility function, if it exists, is based on the
nexus of people rather than the nexus of contracts that we call a
"corporation."
|
But perhaps this is an unfair validity-challenging comment, because if TAR did
publish this comment, scores of comments might ensue that challenge the reality
of implicit and untested assumptions in most analytical models published in TAR.
If analytical modelers had to defend the validity of their assumptions it would
probably destroy mathematical/analytical methods in accounting research.
Hence I do not consider my validity challenge an appropriate test of whether
TAR will really publish any validity-challenge commentary. My comment would most
assuredly be rejected for TAR publication.
Your above comment is a much more appropriate test case Jagdish.
I also once had a terrible time
getting Issues in Accounting Education to publish my comment on a
case’s Teaching Note. The Editor of IAE and the case authors finally
conceded to let me publish my “Amendment” on my own Website ---
http://www.trinity.edu/rjensen/CaseAmendment.htm
I do admit to making some false assumptions of my own (being overly
critical) when I wrote the first version of this Amendment. My wording was
corrected in due course at the suggestion of one the case’s authors.
PS Jagdish,
Perhaps you will have more to write after you really dig into the article.
Although you’ve given the AECM many references on the correlation-causality
topic in the past, here are a few others to consider:
Beyond Bayes: causality vs. correlation," by Steve Hsu Professor of
physics at the University of Oregon, Information Processing, July 10,
2010 ---
http://infoproc.blogspot.com/2010/07/beyond-bayes-causality-vs-correlation.html
A draft
paper by Harvard graduate student James Lee (student of Steve Pinker; I'd love
to post the paper here but don't know yet if that's OK) got me interested in the
work of statistical learning pioneer
Judea Pearl.
I found the essay
Bayesianism and Causality, or, why I am only a half-Bayesian
(excerpted below) a concise, and provocative,
introduction to his ideas.
Pearl is correct to say that humans think in terms of
causal models, rather than in terms of correlation. Our brains favor simple,
linear narratives. The effectiveness of physics is a consequence of the fact
that descriptions of natural phenomena are compressible into simple causal
models. (Or, perhaps it just looks that way to us ;-)
Judea Pearl: I
turned Bayesian in 1971, as soon as I began reading Savage’s monograph The
Foundations of Statistical Inference [Savage, 1962]. The arguments were
unassailable: (i) It is plain silly to ignore what we know, (ii) It is natural
and useful to cast what we know in the language of probabilities, and (iii) If
our subjective probabilities are erroneous, their impact will get washed out in
due time, as the number of observations increases.
Thirty years later, I am still a devout Bayesian in the sense of (i), but I now
doubt the wisdom of (ii) and I know that, in general, (iii) is false. Like most
Bayesians, I believe that the knowledge we carry in our skulls, be its origin
experience, schooling or hearsay, is an invaluable resource in all human
activity, and that combining this knowledge with empirical data is the key to
scientific enquiry and intelligent behavior. Thus, in this broad sense, I am a
still Bayesian. However, in order to be combined with data, our knowledge must
first be cast in some formal language, and what I have come to realize in the
past ten years is that the language of probability is not suitable for the task;
the bulk of human knowledge is organized around causal, not probabilistic
relationships, and the grammar of probability calculus is insufficient for
capturing those relationships. Specifically, the building blocks of our
scientific and everyday knowledge are elementary facts such as “mud does not
cause rain” and “symptoms do not cause disease” and those facts, strangely
enough, cannot be expressed in the vocabulary of probability calculus. It is for
this reason that I consider myself only a half-Bayesian. ...
Statistics Lesson: Spanking is a cause of lower IQ?
U.S. children who were spanked had lower IQs four
years later than those not spanked, researchers found. University of New
Hampshire Professor Murray Straus, who is presenting the findings Friday at the
14th International Conference on Violence,
Abuse and Trauma, in San Diego, called the study
"groundbreaking." "The results of this research have major implications for the
well being of children across the globe," Straus said in a statement. "It is
time for psychologists to recognize the need to help parents end the use of
corporal punishment and incorporate that objective into their teaching and
clinical practice." "How often parents spanked
made a difference. The more spanking the, the slower the development of the
child's mental ability," Straus said. "But even small amounts of spanking made a
difference."
"Study: Spanking linked to lower IQ,"
Breitbart, September 25, 2009 ---
http://www.breitbart.com/article.php?id=upiUPI-20090925-121520-9596&show_article=1&catnum=0
Jensen Comment
I think Straus was frequently spanked as a child. Could it be that lower IQ
students get more frustrated and are inclined toward greater degrees of
misbehavior?
This is a little like the historic 0.63 correlation between stork nests and
birth rates ---
http://www.jstor.org/pss/2983064
July 20, 2010 reply from Jagdish Gangolly
[gangolly@CSC.ALBANY.EDU]
Bob,
I would like to add the following
five to the bibliography on causality:
1.
Causality and Causal Inference,
http://www.cscs.umich.edu/~crshalizi/notabene/causality.html
2. Sander Greenland, Judea Pearl and James M. Robins,
"Causal Diagrams for Epidemiologic Research", Epidemiology 10 (1999):
37--48
http://ftp.cs.ucla.edu/pub/stat_ser/r251.pdf
3.
Causal Modeling and the Origins of Path
Analysis, Daniel
J. Denis and Joanna Legerski
http://theoryandscience.icaap.org/content/vol7.1/denis.html
(A beautifully written essay in a historical context).
4.Causality:
Models, Reasoning and Inference by Judea
Pearl
Cambridge University Press; 2nd edition (September 14,
2009
http://www.amazon.com/Causality-Reasoning-Inference-Judea-Pearl/dp/052189560X/ref=sr_1_1?ie=UTF8&s=books&qid=1279669731&sr=1-1
(A must read)
5.Counterfactuals
and Causal Inference: Methods and Principles for Social Research by Stephen
L. Morgan and Christopher Winship
Cambridge
University Press; 1 edition (July 30, 2007)
http://www.amazon.com/Counterfactuals-Causal-Inference-Principles-Analytical/dp/0521671930/ref=pd_cp_b_2
(A treat for the mind. A must read)
Granger, C.W.J., 1969.
"Investigating causal relations by econometric models and cross-spectral
methods". Econometrica 37
(3), 424–438.
7.Tests for causality
between integrated variables using asymptotic and bootstrap distributions:
theory and application, by R. Scott Hacker and Abdulnasser Hatemi-J
http://ideas.repec.org/a/taf/applec/v38y2006i13p1489-1500.html
If I were teaching a course
(masters or doctoral) 1-5 would be required readings.
These are mostly publications
during the past four years or so, but the stuff has been around almost for a
century.
I doubt most accounticians have
even heard of any of them.=
Jagdish Gangolly (gangolly@albany.edu)
Department of Informatics
College of Computing & Information
|State University of New York at Albany
7A, Harriman Campus Road, Suite 220
Albany, NY 12206
Phone: (518) 956-8251, Fax: (518) 956-8247
Bob Jensen's threads on creative accounting and earnings management
http://www.trinity.edu/rjensen/Theory01.htm#ManagementAccounting
Where were the auditors when over 1,000 banks failed ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
July 20, 2010 message from Orenstein, Edith
[eorenstein@FINANCIALEXECUTIVES.ORG]
Earlier today, FASB released
its Exposure Draft (ED) of a proposed Accounting Standards Update:
Contingencies (Topic 450):
:
Contingencies (Topic 450): Disclosure of Certain Loss Contingencies.
The 30-day comment period ends August 20, 2010.
Further info is in the FEI Blog ---
http://financialexecutives.blogspot.com/2010/07/fasb-releases-proposal-on-disclosure-of.html
Thank you,
Edith
eorenstein@financialexecutives.org
Jensen Comment
Thank you Edith,
Here are some highlights from
http://financialexecutives.blogspot.com/2010/07/fasb-releases-proposal-on-disclosure-of.html
Litigation Disclosures Controversial The most
controversial issue in the ED, which is being reissued after FASB
considered the comments received on the original ED issued a few years
ago, revolved around the enhanced disclosures on litigation
contingencies.
Due to some critical feedback in the original
comment letters on the prior ED, on litigation contingency disclosures
in particular, FASB conducted additional outreach, including field tests
and a public roundtable, before reissuing this ED.
Among the proposed changes noted in the ED
(this is just one of the proposed changes):
The proposed amendments would retain the
current qualitative disclosures and enhance them by requiring additional
disclosures, for example, in the case of litigation contingencies,
disclosure of the contentions of the parties and how users can obtain
additional information about the litigation.
Similarly, in addition to the quantitative
disclosures required under current U.S. generally accepted accounting
principles (GAAP), the amendments in this proposed Update would require
disclosure of publicly available quantitative information (such as the
claim amount for asserted litigation contingencies), other relevant
nonprivileged information, and, in some cases, information about
possible recoveries from insurance and other sources.
Furthermore, a public entity would be required
to provide tabular reconciliations, by class, of recognized (accrued)
loss contingencies that present the activity in the account during the
reporting period.
Nonpublic Companies Receive Some Disclosure
Relief The ED is applicable to public and nonpublic companies, but
proposes one point of disclosure relief for nonpublic companies, that
nonpublic companies "would not be required to provide a tabular
reconciliation of accrued loss contingencies."
Continued in article
Bob Jensen's threads on the vexing problem of
contingencies with pictures of icebergs are at
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes
Internal Control? What's internal control?
This is absolutely astounding. One of the first rules of database security is
to restrict access to subsets of the database on a need-to-know basis and to be
really, really careful about permissions to access the entire database. Somehow
I think national security officers threw caution to the wind by allowing a
22-year old pfc access to the entire database of security-sensitive war
communications.
Heads should roll at the very top in this breach that jeopardizes lives of
the men and women on the ground of battle!
To say nothing of how this will change our relationships with our closes allies
in this war.
"Wikileaks' Afghanistan docs: Pentagon Papers 2.0," by Stephen Hsu,
MIT's Technology Review, July 26, 2010 ---
http://www.technologyreview.com/blog/post.aspx?bid=354&bpid=25530&nlid=3294
Read more about Bradley Manning at
http://www.dailymail.co.uk/news/article-1297644/Wikileaks-publishes-90-000-documents-Afghan-war.html
Question
Can you imagine sending a TAR submission out to the AECM for refereeing or maybe
the AAA Commons?
"Leading Humanities Journal Debuts 'Open' Peer Review, and Likes It,"
by Jennifer Howard, Chronicle of Higher Education, July 26, 2010 ---
http://chronicle.com/article/Leading-Humanities-Journal/123696/?sid=at&utm_source=at&utm_medium=en
Getting published in a humanities journal usually
works like this: Submit an article, then hope for the best as the editors
send it to a few hand-picked specialists for critique. The reviewers and the
authors are not supposed to know one another's identity.
But now scholars are asking whether this
double-blind peer-review system is still the best way to pass judgment. The
Internet makes it possible to share work with many people openly and
simultaneously, so why not tap the public wisdom of a crowd? One of the top
journals in literary studies, Shakespeare Quarterly, decided to put
that question to the test.
For this year's fall issue, a special publication
devoted to Shakespeare and new media, the journal offered contributors the
chance to take part in a partially open peer-review process. Authors could
opt to post drafts of their articles online, open them up for anyone to
comment on, and then revise accordingly. The editors would make the final
call about what to publish (hence the "partially open" label). As far as the
editors know, it's the first time a traditional humanities journal has tried
out a version of crowd-sourcing in lieu of double-blind review.
The verdict from several scholars who took part:
mostly a thumbs up, with a few cautionary notes and a dollop of "It's about
time" mixed in.
"It was on the whole a successful experiment," said
Martin Mueller, a professor of English and classics at Northwestern
University, who took part as a reviewer.
Michael Witmore, a professor of English at the
University of Wisconsin at Madison, co-authored an article on the use of
statistical analysis and a text-tagging database to reveal linguistic
patterns in Shakespeare. He and his co-author "got some terrific ideas and
some citations" from the comments of the six or so people who actively
responded to the article, he said. "It produced a more interesting paper."
Scholars and editors in the sciences have been
trying out open peer review for some time, with not entirely rosy results.
The journal Nature did a test run in 2006. In a
published overview, the editors concluded the
venture had not been a success. Many authors expressed interest but few
participated, and the quantity and quality of the comments were
disappointing.
Interviews with participants in Shakespeare
Quarterly's open peer-review trial, however, suggest this attempt went
much better than Nature's did. At least one participant pointed out
that the humanities' subjective, conversational tendencies may make them
well suited to open review—better suited, perhaps, than the sciences.
Katherine Rowe, chair of the English department at
Bryn Mawr College, guest-edited the special issue. She and the editorial
board decided that the issue's new-media theme offered a chance to
investigate how scholarly authority works in a networked environment.
"This was genuinely an experiment," Ms. Rowe said.
"We didn't know what would result."
The journal's publisher, the Johns Hopkins
University Press, supported the idea. MediaCommons, a digital scholarly
network set up to encourage such experiments and conversations, agreed to
host the
project. So Ms. Rowe and other editors put out a
call for papers, culled submissions, then offered authors still in the
running a chance to post drafts online. All accepted.
Rounding Up
Experts
Ms. Rowe invited about 90 scholars, including
Northwestern's Mr. Mueller, to comment. Anybody willing to publish thoughts
under his or her own name could join in, but the guest editor wanted
recognized authorities as part of the field.
"'What's the nature of expertise?' is one of the
questions that really gets opened up by an open process," Ms. Rowe said.
"Everybody wanted to be sure that experts would be involved." By her count,
about 40 commenters, invited and self-selected, finally participated.
All told, four articles and three review essays
were posted on MediaCommons during a two-month review period this past
spring. (The articles and comments remain archived on the MediaCommons
site.) As it turned out, all seven submissions will appear in the issue.
Some of the authors acknowledged doubts going into
the experiment. Would open review be rigorous enough? Was it risky to post
work in progress? But "the results were terrific," said Mr. Witmore, who
wrote his paper on Shakespearean linguistic analysis with Jonathan Hope, a
reader in the English department of the University of Strathclyde, in
Glasgow. "It's very different from getting a two-paragraph reader's report
from a journal," Mr. Witmore said. "In this case, what you get is individual
readers from a wide range of subspecialties zooming in on a particular
paragraph, saying 'Tell me more about this' or 'Why did you do this?' It
seemed more like a dialogue."
Another scholar, Alan Galey, submitted an article
about Shakespeare and the history of information. An assistant professor on
the Faculty of Information at the University of Toronto, he worried that an
article vetted this way might carry less professional weight—a matter of
particular concern to a junior professor going for tenure. "It was very much
going on faith in a way," he said.
Mr. Galey's dean told him to make sure the process
would be rigorous and fair. The stature of the journal also helped reassure
him on that point. So did Ms. Rowe's willingness to answer questions and her
decision to invite established scholars to join in. Many crowd-sourcing
experiments depend on scale, Mr. Galey pointed out, but this relied "on
relationships among scholars where you know you can trust somebody. It
wasn't a Wild West by any means. It was as controlled a process as
traditional peer review. It was just controlled in a different way."
Mr. Galey wound up feeling that the experiment paid
off. "I got better feedback from this process than I've had from any other
peer-review process," he said.
Another participant, Ayanna Thompson, an associate
professor of English at Arizona State University, wrote an article focused
on race in performance-based teaching of Shakespeare. She called the
experiment "a fascinating process." But she also found it stressful, and saw
evidence that some old ways die hard.
Better Feedback
On the positive side, she got lots of feedback—"the
equivalent of eight single-spaced pages of comments," she told The
Chronicle via e-mail. She felt that the lack of anonymity encouraged
reviewers to engage with the material "in a much more thoughtful and
thorough way than in blind reviews because their names were attached to the
comments." That helped her clarify and revise sections of her argument. But
going through a public critique "was a stressful experience, and I kept
saying to myself, 'I'm glad I have tenure,'" she said.
She also discovered that academic status still
played a role. "The people who were commenting online were very established,
senior scholars. In fact, several junior scholars notified me offline that
they had comments, but that they did not want to post them in case they
contradicted the senior scholars," she said. "So while the process was
supposed to democratize the review process, it did keep some of the old
hierarchies in place."
Still, Ms. Thompson is glad she took part. "The
revised article is much stronger for the feedback, and I feel lucky to have
received so much deep engagement with my work," she said.
David Schalkwyk is editor of the journal and
director of research at the Folger Shakespeare Library. He called the
experiment a success and said that Shakespeare Quarterly plans to try
it again for its future special issues, whose focused topics are most likely
to attract a critical mass of knowledgeable reviewers.
The system did, however, come at a cost from an
editor's perspective, he said. For instance, editors and writers had to keep
tabs on the evolving discussion and build in extra time for revisions;
authors also tended to make their articles longer and longer in response to
multiple comments. "I think we underestimated the amount of time that was
required," Mr. Schalkwyk said.
That's what keeps him from adopting the approach
for every issue. He said, "My reservation about applying open peer review to
normal issues is entirely practical. It's not philosophical. If I could do
it, I would."
For Mr. Mueller, the reviewer from Northwestern,
the journal's experiment was welcome—and past due. "I think it will take a
decade for scholarly communication to find ways of fitting itself into this
new technological environment," he said. "It takes time. The human problems
always take more time to manage and solve than the technological problems."
Jensen Comment
Years ago I sent a message to the AECM regarding a submission that I was asked
to referee for three different journals. I worked hard on writing down the
reasons I recommended rejecting the paper for The Accounting Review.
Within a few months another U.S. journal requested that I referee the paper (the
only change in the paper was a revised title to the paper). I recommended
rejection and forwarded a photocopy of my earlier rejection decision. In less
than a year I received a request from a foreign journal to referee the same
paper (even the title was not changed for the third round).
What this shows me is how the refereeing process, on occasion, can be far
more narrow than we think even among the global explosion of publishing
alternatives even within one academic discipline. The poor guys that authored
this submission could not get away from me. Actually, I think the system was
being unfair to them.
Since these were blind reviews, I really never learned who the authors were
on the submission.
When I was a relatively young PhD and still full of myself, the Senior
Editor, Charlie Griffin, of The Accounting Review sent me a rather large
number of accountics papers to referee (there weren't many accountics referees
available 1968-1970). I think it was at a 1970 AAA Annual Meeting that I
inadvertently overheard Charlie tell somebody else that he was not sending any
more TAR submissions to Bob Jensen because "Jensen rejects every submission." My
point in telling you this is that having only one or two referees can really be
unfair if the referees are still full of themselves.
Bob Jensen's threads on The Accounting Review's double blind
refereeing process (with nearly 600 referees to choose from and only two who
normally even see a submission) ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
"Dell Is the Latest to Go the SEC’s Woodshed; Settlement of $100 million
for Fraudulent Accounting, Disclosure Violations," by Caleb Newquist,
Going Concern, July 22, 2010 ---
http://goingconcern.com/2010/07/michael-dell-is-the-latest-to-go-the-secs-woodshed/
Also see
http://www.crn.com/it-channel/201800702;jsessionid=5YIC355EBYCZNQE1GHPSKHWATMY32JVN
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm
You may want to liven up your accounting,
math or history courses by illustrating the art and science of the Abacus
Calculator
Abacus: The Art of Calculating with Beads
---
http://www.ee.ryerson.ca/~elf/abacus/index.html
Contents
Construction · Basics ·
Java Applet · Technique · The Abacus Today
Timeline · Salamis Tablet ·
Counting Board · Roman Hand Abacus · Suan Pan ·
Soroban · Schoty · Nepohualtzitzin · Khipu ·
Lee Abacus
Sarat Chandran and
David A. Bagley's
incredible Java abacus with a built-in tutor for counting, addition and
subtraction.
Calculations
Addition ·
Subtraction ·
Multiplication & Division ·
Square Roots ·
Cube Roots
The Lee Abacus
The manual for the Lee Abacus, c. 1958 is
available as
Text
·
Images
-
Michael Mode builds exotic abaci as art
objects.
-
Abacus Techniques by Totton Heffelfinger &
Gary Flom.
Articles, Excerpts and Analysis
In 1946, a contest held in Tokyo, pitted an
abacus against an electric calculator; the abacus won, of course.
Richard Feynman battles against the abacus;
the result is not surprising (if you know Feynman).
An analysis contributed by David B. Kelley.
-
An analysis contributed by Steve
Stephenson.
-
The Incan Khipu
String, and Knot, Theory of Inca Writing by John Noble Wilford.
Talking Knots of the Incas by Viviano and Davide Domenici.
-
An article about the dangers of forgetting
knowledge learned from the past, by Eugene Linden.
All Things Abacus
Purchase or build an abacus · An
abacus for your Palm · Books about the abacus · Java
applet source code · The Mesoamerican abacus
The abacus in the classroom ·
Abacus lesson plan · Math and science resources for teachers
High-resolution photos of my abacus
collection.
Bob Jensen's threads on early accounting history are at
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
The Accounting Review Annual Report for 2010
July 14,
2010 message from
Steve
Kachelmeier [mailto:Steve.Kachelmeier@mccombs.utexas.edu]
Hi Bob –
I thought you would be interested in the attached
TAR Annual Report and Editorial Commentary for 2010, particularly Table 3
and the corresponding discussion. If any of this makes it to your
list-serve, please let me know.
Best regards,
Steve
July 14, 2010 reply from
Bob Jensen
Steve Kachelmeier's latest message to me is shown at above. Since his
public-information attachment is 50 pages long, I am serving it up at rather
than attaching it to my AECM messages ---
http://www.cs.trinity.edu/~rjensen/temp/TheoryAnnual ReportTAR_2010.pdf
As you recall, I’ve been critical of the lack of validity challenges of TAR
articles across the past 60 years, including the most recent years ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Replications and commentaries on validity are very, very rare for a TAR
journal striving to be scientific.
Although Steve and I have gone round and round about the issue of validity
challenges, I highly respect Steve for being one of the most open TAR
editors in history (at least open with me) and thank him for the time he
devoted to a succession of private messages with me. His TAR annual reports
are much more detailed than those of most previous editors. The 2010 50-page
TAR annual report is certainly no exception. I should note that this is the
last year of Steve’s tenure as TAR Editor. The task of editing TAR has
become overwhelming in many ways, although it is made more manageable by the
sacrifices made by associate editors and ad hoc reviewers.
Members of the AAA owe Steve a huge round of applause!
Although Steve is deeply rooted in accountics, he is perhaps easier to deal
with than most accountics professors who simply ignore their critics and
shut their critics out of Plato’s Cave.
I will probably have more to say about Steve’s 2010 TAR annual report, but
I’ve not yet had time to read it.
Perhaps this time I will let AECM subscribers take the first cut at this
report. It’s probably impossible for me to be an AECM lurker, but I will
give it a shot for at least a few hours.
Bob Jensen
July 14, 2010 reply from Paul Williams
[Paul_Williams@NCSU.EDU]
Bob,.
Thank you for providing the report. Even a cursory
glance shows that nothing has changed. Everything published can be
classified by the same simplistic "area" rubrics, e.g., auditing, financial
-- the undergraduate curriculum. Astonishingly, 63.5% of the papers were
empirical-archival, which means the data utilized in these studies was not
gathered by the experimenter -- an odd way to do "science" one can have
confidence in.
As part of a paper Sue Ravenscroft and I are
working on, I compiled a profile of TAR for 2009. Sixty-nine papers appeared
in 2009; four of those were invited "opinion" pieces (you can predict from
which institutions those invited to express their opinions received their
PhDs). Of the remaining 65 papers, 93% involved constructing a linear model:
47 regression models and eight ANOVAs (this is the mandated method for doing
"behavioral work). Seven papers were what TAR refers to as "analytic." These
are mathematical demonstrations that the world conforms to pnicipal/agent
theory. Given the growing skepticism even among economists and other social
sciences that the methodology (the template to use Lee Parker's description)
that dominates TAR produces anything that actually increases our
understanding of anything, it does seem remarkable that TAR reproduces
itself so faithfully year after year.
A paper by Jon Elster ("Excess Ambitions"), a
political scientist, that Bob put us on to, makes the case that the current
methodology (methidolitry) that dominates the social sciences is not just
useless but harmful.
To Steve's credit, he concludes his report with an
homage to Anthony Hopwood whose presidential address called for more
diversity in accounting scholarship. As Anthony said, accounting isn't a
science but a practice (Philip Stamp, a physicist and son of Edward Stamp
has an excellent essay ("In Search of Reality") that cogently explains why
accounting perhaps will never be one and if it does become one it will be
more like linguistics than natural sciences.)
Steve concludes his report by encouraging his
successors to agree with Hopwood's challenge, but passes the buck to the
"scholarly community" to make it happen. That's code for submitting other
than 20 variable regression models constructed out of arhived financial data
to TAR, but the catch 22 of that is that if you do the community of scholars
at TAR doesn't recognize it as scholarship (Joni Young and I tried that and
were told rather emphatically that TAR was a journal ONLY for the kind of
work that is published there).
What it takes is an editor with some spine to
acknowledge that 20 variable regression equations constructed from COMPUSTAT
data are meaningless (in accounting Occam's razor has been dulled so that it
cuts nothing). We need an editor that has the guts to issue a moratorium
(like Schipper did with JAR and behavioral experiments): TAR will publish no
more empirical, financial studies that are constructed out of the same
material as the thousands of previous ones that have been done over the last
40 years.
Until we have some leadership that has the courage
to admit the obvious (the emperor has no clothes), then nothing will change.
As long as we retain such a simple-minded, natural science view of what
constitutes valid scholarship there is no prospect that things will be
different. In spite of Steve's protestations that he has tried to broaden
the content of TAR, this report looks the same as the ones submitted by TAR
editors in the past 25 years (Steve Zeff and Gary Sundem responded well to
the changes that were happening in the academy -- I have published empirical
evidence of that); however, political correctness reared its ugly head (the
so-called financial reporting revolution, which was actually a political
revolution) and the world of accounting was compelled to comply with a
particular ideology. (Nihel Chabrak has a working paper that rather
meticulously documents the connections between the Chicago and Rochester
Schools to the ideological movement of neoliberalism; follow the money and
see who funded these programs and what their purpose for funding them is --
increasing our understanding of accounting's role in society is far from
being the purpose).
July 14, 2010 reply from Steve Kachelmeier
[Steve.Kachelmeier@mccombs.utexas.edu]
Hi Bob –
Though I am very tempted to just let this ride, I
am struck by your earlier observation that ignoring our critics is worse
than responding to our critics, so I will try to offer a brief response that
you are welcome to post if you wish.
The close of Professor Williams’ first paragraph
unmasks the fact that his beef is not so much with The Accounting Review or
even with accounting research as it is with the concept of a “social
science.” To quote, “the current methodology (methidolitry) that dominates
the social sciences is not just useless but harmful.” Sorry, but that train
has already left the station. When the bulk of our 500+ new submissions per
year reflect Professor Williams’ view, I will listen. Until then, The
Accounting Review is faithfully representing the cross-section of the
scholarship we receive. I think Table 3 of the Annual Report (and the
similar table last year) demonstrates that point directly.
The broader point that I have been trying to
virtually scream out over the past two years is that The Accounting Review
is not controlled by the conniving editor or by any individual school (or
school’s ideology) or even by the leadership of the American Accounting
Association. Rather, it is largely controlled by the community, as
represented by 582 different members of the scholarly community across a
wide variety of topical and methodological interests and a wide variety of
institutions who kindly reviewed TAR submissions last year. Surely, the
editor must step in (sometimes boldly) and overrule reviewers from time to
time, especially when they are split. But I cannot recall a single instance
in which a TAR editor overruled two favorable reviewers. And the reviewers
are us. TAR names all 582 in the Annual Report (with my heartfelt thanks).
Are all 582 members of the same conspiracy? Or put differently, is it
conceivable that 582 different people fail to see that the emperor has no
clothes, to use Professor Williams’ metaphor? I think not.
Quickly, a couple of clarifications – of the four
“invited opinion pieces” TAR published in 2009 that were referenced in
Professor Williams’ note, two were AAA Presidential Scholar Lectures, which
we publish automatically (Anthony Hopwood’s 2007 TAR article is another
example). The other two were discussions of special research forums – one by
Greg Waymire in the January 2009 issue and the other by Mark Bradshaw in the
July 2009 issue. I stand behind both invitations, and somewhat ironically,
given the tenor of Professor Williams’ comments, both call for a more
inclusive view of accounting scholarship.
Professor Williams’ TAR anecdote dates back before
the current editorial regime. But without getting into the specifics of that
anecdote, what does an example of one suggest for a journal that receives
over 500 new submissions per year? Show me 200 such examples, and I’ll
surely take stock. Until then, I stand by the assertion based on Table 3 of
the Annual Report that we run a fair game.
Finally, the “follow the money” sentence at the end
of Professor Williams’ note is telling of the cynicism underlying concerns
of this nature. Is the implication that editors are somehow being bribed to
conform to a certain ideology? If so, I haven’t seen any of the payoff yet.
Perish the thought, because I know it doesn’t fit conspiracy theories very
well, but my coeditors and I are actually doing this job to provide a
service. Notwithstanding our disagreement, I do appreciate Bob Jensen’s note
of thanks in his comments. Apparently, not all are convinced.
Best regards,
Steve
Steven Kachelmeier
Senior Editor, The Accounting Review
June 14, 2010 reply from Dan Stone, Univ. of Kentucky
[dstone@UKY.EDU]
Wow -- Steve K produces a 45+ page report that
details TAR's process for selecting editors, reviewers and manuscripts and
Pauls' reaction is -- "nothing has changed"? I disagree. This has changed:
How about the level of accountability to the AAA
community? How about the level of commitment to transparency and openness?
Best,
Dan Stone
June 14, 2010 reply from Patricia Walters
[patricia@DISCLOSUREANALYTICS.COM]
I have one comment on the following sentence in
Steve's response: "When the bulk of our 500+ new submissions per year
reflect Professor Williams’ view, I will listen. Until then, The Accounting
Review is faithfully representing the cross-section of the scholarship we
receive."
Tenure clocks are short. (Almost) no one believes a
non-empirical or non-analytical paper would be published in TAR. What
rational tenure track asst prof would send a different kind of research to
TAR? In my view, that would be tenure suicide at any school that demands TAR
level publications.
How many of those 500+ submission come from
non-tenured profs? (If in report, my apologies.)
If the "leadership" truly believes there should be
greater diversity, then they have to be seen to publish it (maybe by
invitation). Otherwise, the status quo will be maintained. The risk to most
non-tenured faculty is too great.
This current experience is a self-fulfilling
prophecy.
Pat
Who left a tenure-track position in 1995 because I
didn't want to spin tapes and beat the data into submission for the rest of
my life and is now reasonably happy as a clinical.
And who had collected almost all data for my
admittedly empirical dissertation (including price data for companies not in
CRSP) by reading microfilm at the SEC library in NYC. Do they even have SEC
libraries now?
As an aside to a comment Bob made earlier about
hand collecting data: I wanted to point out that April Klein at NYU who one
a best paper one year at the AAA hand collected all of her data on directors
from annual reports. I know because I watched her. And, this was before pdfs
of annual reports.
Informative and Concise
"INFORMS Guidelines for Copyright & Plagiarism ," InformsOnline
---
Click Here
Thank you Dan Stone for the heads up.
Bob Jensen's threads on the dreaded DMCA ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm#Copyright
"How Sharia-compliant is Islamic banking?:" by John Foster, BBC
News, December 11, 2009 ---
http://news.bbc.co.uk/2/hi/business/8401421.stm
The Islamic finance industry has often battled
with the question: How Islamic is Islamic banking?
The question's pertinence was raised in March last
year, when Sheikh Muhammad Taqi Usmani, of the Accounting and Auditing
Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based
regulatory institution that sets standards for the global industry, said
that 85% of Sukuk, or Islamic bonds, were un-Islamic.
Usmani is the granddaddy of modern-day Islamic
finance, so having him make this statement is synonymous with Adam Smith
saying that free-markets are inefficient.
Because Sukuk underpin the modern-day Islamic
financial system, one of its pre-eminent proponents arguing that the
epicentre of the system was flawed sent shockwaves through the industry.
It also gave ammunition to the many critics who see
Islamic finance as an industry more driven by cultural identity than
practical problem solving: as a hodgepodge of incoherent, incomplete,
impractical and irrelevant ideas.
Recognisable products
The products that modern-day Islamic bankers have
created are very similar to conventional products.
This immediately creates a problem for Islamic
banks, as conventional banks charge borrowers an interest rate through which
they can reward their depositors and make some profit for being the broker.
With interest ruled out it is harder to make money.
The modern Islamic banker has found a way around
this prohibition, however.
As in many Islamic products, the bank enters a
partnership with its depositors and invests his money in a Sharia compliant
business.
The profit from this investment is then shared
between the depositor and the bank after a set time.
In many cases this "profit rate" is competitive
with the conventional banking system's interest rate for savers.
Lease agreements
Alternatively, an Islamic banker might enter into a
lease agreement for a car or a house with an individual.
The bank would buy a vehicle outright and then
lease it back to the person who wanted it, over a time period that would
ensure that the capital was repaid and the bank made a profit.
Alternatively the bank would enter into a
partnership with a person wanting to buy a house. The bank would buy 70% of
the house, the individual 30%.
The bank then rents its share of the house back to
the individual until the house is fully paid for.
The bank makes a profit on the rent, which would be
higher than equivalent rents in the area, but on an annualised percentage
basis, would look very much like a conventional mortgage interest rate.
To the casual observer, a spade is a spade.
Whether the product is dressed up in Arabic
terminology, such as Mudarabah, or Ijarah, if it looks and feels like a
mortgage, it is a mortgage and to say anything else is semantics.
Sophisticated finance
The potential wealth locked up in oil-rich Gulf
states encouraged the conventional banks to enter Islamic finance.
HSBC established the Amanah Islamic Finance brand
in 1998 and Deutsche Bank, Citi, UBS and Barclays quickly joined the fray,
all offering interest-free products for wealthy Arabs.
However, this new generation of Islamic bankers had
cut their teeth in the City and Wall Street, and were used to creating
sophisticated financial products.
They often bumped heads with the Sharia scholars
who authorised their products as Sharia compliant.
However, these bankers had a way of dealing with
this, as one investment banker based in Dubai, working for a major Western
financial organisation explains:
"We create the same type of products that we do for
the conventional markets. We then phone up a Sharia scholar for a Fatwa
[seal of approval, confirming the product is Shari'ah compliant].
"If he doesn't give it to us, we phone up another
scholar, offer him a sum of money for his services and ask him for a Fatwa.
We do this until we get Sharia compliance. Then we are free to distribute
the product as Islamic."
No consensus
This "Fatwa shopping", which was carried out by
some institutions, brings us back to the Sharia scholars.
Even these scholars do not agree all the time,
which means that in some cases a product is deemed Sharia compliant in one
market and not in another.
This is especially the case with Malaysian
products, which are often deemed not Sharia complaint in the more austere
Gulf.
"Often no rulings exist for modern day problems,
such as use of narcotics," Alamad explains.
"In Islam intoxication by wine is forbidden, but at
the time of the Prophet Mohammed there was no crack cocaine."
Modern scholars had to interpret the rules on
intoxication, and the consensus was that crack should also be forbidden to
Muslims, as it is a dangerous intoxicant.
"This is how we make rulings, whether in finance or
societal," Alamad says. "The consensus rules, which usually will become
mandatory for all Muslims to follow, but there are some opinions and
sometimes scholars are not in the consensus."
Banking is banking
This makes it more important to be in the
consensus, and so getting a favourable ruling from a leading Sharia scholar
is important for a product manager.
That is why the top scholars can earn so much money
- often six-figure sums for each ruling.
The most creative scholars are the ones in the most
demand, says Tarek El Diwany, analyst at London-based Islamic financial
consultancy Zest Advisory.
"To date, most Islamic financiers have been looking
at examples of financing in Islamic history and figuring out how to apply
them to today's financial products."
Continued in article
Bob Jensen's threads on Islamic accounting are at
http://www.trinity.edu/rjensen/theory01.htm#IslamicAccounting
"How Big Banks Fail and What to Do about It," Stanford GSB News,
July 2010 ---
Click Here
http://www.gsb.stanford.edu/news/research/Duffie_book_610.html?utm_source=newsletter&utm_medium=email&utm_campaign=knowledgebase-july2010
In a new book Professor Darrell Duffie describes
the financial network of incentives and financial contracts that lead to
run-on-the-bank calamities during the financial crisis of 2007-2009. The
Stanford Graduate School of Business finance professor argues that placing
the global financial system on a sounder footing depends on an understanding
of how the largest and most connected banks — the major dealer banks — can
make a sudden transition from weakness to failure.
July 2010
STANFORD GRADUATE SCHOOL OF BUSINESS—In a
forthcoming book, Stanford Graduate School of Business finance expert
Darrell Duffie goes behind the scenes to describe the financial network of
incentives and financial contracts that lead to run-on-the-bank calamities
during the financial crisis of 2007-2009. He argues that success in placing
the global financial system on a sounder footing going forward depends on an
understanding of how the largest and most connected banks — the major dealer
banks — can make a sudden transition from weakness to failure.
In How Big Banks Fail and What To Do About It, to
be published by Princeton University Press in July, Duffie, the Dean Witter
Distinguished Professor of Finance, describes the failure mechanics of
dealer banks in clinical detail. He also outlines improvements in
regulations and market infrastructure that are likely to reduce the risks of
these failures and reduce the damage they cause to the wider financial
system when they do fail. The dealer banks are at the center of the plumbing
of the financial system. Among other crucial activities, they intermediate
over-the-counter markets for securities and derivatives. Although the
financial crisis has passed, the dealer banks remain among the most serious
points of weakness along the backbone of the financial system.
Once the solvency of a dealer bank is questioned,
its relationships with its customers, equity investors, secured creditors,
derivatives counterparties, and clearing bank can change suddenly. The
incentives at play are similar to those of a depositor run at a commercial
bank. That is, fear over the solvency of the bank leads to a rush by many to
reduce their potential losses in the event that the bank fails. At first,
the bank must signal its strength, giving up some of its slim stocks of
remaining capital and cash, for to do otherwise would increase perceptions
of weakness. Finally, it is impossible for the bank to stem the tide of cash
outflows. The bank fails.
The key mechanisms of a dealer-bank failure, such
as the collapses of Bear Stearns and Lehman Brothers in 2008, depend on
special institutional and regulatory frameworks that influence the flight of
short-term secured creditors, hedge-fund clients, derivatives counter-
parties, and most devastatingly, the loss of clearing and settlement
services. Dealer banks, sometimes referred to as "large complex financial
institutions" or as "too big to fail," are indeed of a size and complexity
that sharply distinguish them from typical commercial banks.
Even today, the failure of a dealer bank would pose
a significant risk to the entire financial system and the wider economy.
Current regulatory approaches to mitigating bank
failures do not adequately treat the special risks posed by dealer banks,
writes Duffie. Some of the required reforms are among those suggested in
2009 by the Basel Committee on Banking Supervision and in the U.S. Restoring
American Financial Stability Bill. Other needed reforms to regulations or
market infrastructure still do not receive adequate attention. A January
2010 speech by Paul Tucker, Deputy Governor of the Bank of England, shows
that some regulators are aware of the significant changes still required.
Bob Jensen's threads on the Greatest Swindle in the History of the World
---
http://www.trinity.edu/rjensen/2008Bailout.htm
"Five Major Defects of the Financial Reform Bill," by Nobel Laureate
Gary Becker, Becker-Posner Blog, July 11, 2010 ---
http://www.becker-posner-blog.com/2010/07/five-major-defects-of-the-financial-reform-bill-becker.html
A 2300 page bill is usually an indication of many
political compromises. The Dodd-Frank financial reform bill is no exception,
for it is a complex, disorderly, politically motivated, and not well thought
out reaction to the financial crisis that erupted beginning with the panic
of the fall of 2008. Not everything about the bill is bad-e.g., the
requirement that various derivatives trade through exchanges may be a good
suggestion- but the disturbing parts of the bill are far more important. I
will concentrate on five major defects, including omissions.
1. The bill adds regulations and rules about many
activities that had little or nothing to do with the crisis. For example, it
creates a consumer financial protection bureau to be housed at the Fed that
is supposed to protect consumers from fraud and other abusive financial
practices. Yet it is not apparent that many consumers were victimized during
the financial boom years, or that consumer behavior had anything of
importance to do with the crisis. For example, consumers who took out
subprime mortgages that required almost no down payments and had low
interest rates were not victimized since these conditions enabled them to
cheaply own houses, at least for a while. The “victims” were the banks, and
especially Fannie Mae and Freddie Mac, that were foolishly willing to hold
such risky mortgages.
The bill gives the Fed authority to limit
interchange or “swipe” fees that merchants pay for each debit-card
transaction, although these fees had not the slightest connection to the
financial crisis. Such price controls are in general undesirable, and hardly
seem to require the attention of the Federal Reserve. The bill also gives
the SEC authority to empower stockholders to run their own candidates for
corporate boards of directors. Corporate boards often receive some blame for
the crisis-mainly unjustified in my opinion- but stockholder election of
some members will not improve corporate governance, and will probably make
that worse.
2. The Dodd-Frank bill gives several government
agencies considerable additional discretion to try to forestall another
crisis, even though they already had the authority to take many actions. The
Fed could have tightened the monetary base and interest rates as the crisis
was developing, but chose not to do so. The SEC and various Federal Reserve
banks-especially the New York Fed- had the authority to stop questionable
lending practices and increase liquidity requirements. These and other
government bodies did not use their authority to try to head off the crisis
partly because they got caught up in the same bubble hysteria as did banks
and consumers. In addition, regulators are often “captured” by the firms
they are regulating, not necessarily because the regulators are corrupt, but
because they are mainly exposed to arguments made by the banks and other
groups they are regulating.
Despite the fact that regulators failed to use the
powers they already had, the bill mainly adds not clear rules of behavior
for banks, but additional governmental discretionary power. For example, the
bill creates the Financial Stability Oversight Council, a nine-member panel
drawn from the Fed, SEC, and other government agencies, that is supposed to
monitor Wall Street’s largest companies and other market participants to
spot and respond to any emerging growth in systemic risk in the economy.
With a two-thirds vote this Council could impose higher capital requirements
on lenders and place hedge funds and dealers under the Fed’s authority.
Given the regulators reluctance to use the power they already had to
forestall the crisis, it seems highly unlikely that this Council will act
decisively prior to the emergence of a crisis, especially when a two thirds
majority is required.
3. Insufficient capital relative to bank assets was
an important cause of the financial crisis. The bill does reduce the ability
of banks to count as bank capital certain risky assets, such as trust
preferred securities, and gives the Fed authority to impose additional
capital and liquidity requirements on banks and non-bank financial
companies, including insurers. I would have preferred a simple rule that
raised capital requirements of banks relative to their assets, especially
capital of larger and more interconnected banks. As suggested by Raghu Rajan
and the Squam Lake group of economists, the bill probably should have
required larger banks to issue “contingent” capital, such as debt that
automatically converts to equity when the banks are experiencing large
losses, or when a bank’s capital to asset ratio falls below a certain level.
4. One of the most serious omissions is that the
bill essentially says nothing about Freddie Mac or Fannie Mae. In 2008 these
organizations were placed into conservatorship of the Federal Housing
Finance Agency. During the run up to the crisis, Barney Frank and others in
Congress encouraged Freddie and Fannie to absorb most of the subprime
mortgages. In 2008 they held over half of all mortgages, and almost all the
subprimes. They have absorbed even a larger fraction of the relatively few
mortgages written after 2008. Freddie and Fannie deserve a considerable
share of the blame for the crisis, but they continue to have strong
political support. I would like to see both of them eventually dissolved,
but that is unlikely to happen. Instead we are promised that they will be
dealt with in future legislation, but I am skeptical that anything will be
done to terminate either organization, or even improve their functioning.
5. Many proposals in the bill will have highly
uncertain impacts on the economy. These include, among many other
provisions, the requirement that originators of mortgages and other assets
retain at least 5% of the assets they originate, that many derivatives go on
organized exchanges (may be an improvement but far from certain), that hedge
funds become more closely regulated, and that consumer be “protected” from
their financial decisions.
Most of these and other changes in the bill are not
based on a serious analysis of what contributed to the financial crisis, but
rather are the result of political and emotional reactions to the crisis.
Usually, such reactions do more harm than good. That is likely to be the
fate of the great majority of the provisions of the Dodd-Frank bill.
Question
Are proposed IFRS changes to IAS 39 becoming too complicated for internal
auditors, external auditors, regulators, preparers, and investors?
"Deloitte comment letter on financial instruments," July 6, 2010 ---
http://www.iasplus.com/dttletr/1007amortcost.pdf
Excerpt
We agree with the Board’s objective in this phase of the IASB project to
replace IAS 39 Financial Instruments: Recognition and Measurement (IAS 39)
to address weaknesses of the incurred loss model in IAS 39 that were
highlighted during the global financial crisis. An impairment loss model
that focuses on an assessment of recoverable cash flows reflecting all
current information about the borrower’s ability to repay would be an
improvement on the current approach in IAS 39 which relies on identification
of trigger events and often leads to a delay in loss recognition. However,
we have concerns about the specific requirements proposed by the IASB, in
particular those to determine, and allocate, the initial estimate of
expected credit losses on a financial asset and to use a
probability-weighted outcome approach. We believe that this approach will in
many cases be unnecessarily complex. Further, the incorporation of potential
future economic environments in estimating recoverable cash flows would be
extremely complex, costly and burdensome to apply by preparers.
The requirement in the ED to forecast future economic
environments and events without providing sufficient guidance with respect
to the level of objectivity, verifiability, or support for the underpinnings
of these inputs presents significant challenges to internal auditors,
external auditors, and regulators. Overall,
we believe that the measurement principle would not be operational if the
Board were to adopt the ED in its current form.
Jensen Comment
One huge advantage of FAS 133 over IAS 39 is the tremendous amount of
implementation guidance given by the FASB for implementation in a raft of
implementation documents, illustrations, and pronouncements from the Derivatives
Implementation Group. For educators and practitioners, the ever-increasing
complexity of IFRS should be accompanied my more illustrations and
implementation guidance. The IASB seemingly just does not have enough high
quality support staff for helping educators and practitioners.
Bob Jensen's threads on the controversies of FASB-IFRS convergence rules
are at
http://www.trinity.edu/rjensen/theory01.htm#MethodsForSetting
Are you still teaching an obsolete Black-Scholes Model
"Coarse Thinking, Implied Volatility, and the Price of Call and Put
Options," by Hammad Siddiqi, SSRN, January 8, 2010 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1636247
Abstract:
People
think by analogies and comparisons. Such way of thinking, termed coarse
thinking by Mullainathan et al [Quarterly Journal of Economics, May 2008] is
intuitively very appealing. We derive a new option pricing formula based on
the notion that the market consists of coarse thinkers as well as rational
investors. The new formula, called the behavioral option pricing formula is
a generalization of the Black-Scholes formula. The new formula not only
provides explanations for the implied volatility skew and term structure
puzzles in equity index options but is also consistent with the observed
negative relationship between contemporaneous equity price shocks and
implied volatility.
Jensen Comment
Since valuation of options is required under FAS 133 and FAS 123-R, I think many
intermediate accounting instructors are still leaving their students with the
impression that the Black-Scholes formula is the appropriate alternative for
valuing options. It is a poor valuation model for FAS 133 and a really lousy
valuation model for FAS 123-R where employees have great aversion to the
possibility that their stock options will tank out of the money.
I've no thoughts yet on the appropriateness of the Siddiqi model proposed
above, but for years when I was still teaching accounting theory I made my
students learn the lattice model.
The
problem in theory and practice is that the Black-Scholes model that is popular
in financial markets for purchased options is not especially well suited for
employee stock options where employees tend to have greater fears that option
values will tank before expiration dates. It's a little like having to put your
salary in suspension and then losing it before you get it back. As a result the
lattice model described below may be more approprate.
"How to
“Excel” at Options Valuation," by Charles P. Baril, Luis Betancourt, and
John W. Briggs, Journal of Accountancy, December 2005 ---
http://www.aicpa.org/pubs/jofa/dec2005/baril.htm
This is one of the best articles for accounting
educators on issues of option valuation!
Research
shows that employees value options at a small fraction of their Black-Scholes
value, because of the possibility that they will vest underwater. ---
http://www.cfo.com/article.cfm/3014835
"Toting Up
Stock Options," by Frederick Rose, Stanford Business, November 2004, pp.
21 ---
http://www.gsb.stanford.edu/news/bmag/sbsm0411/feature_stockoptions.shtml
How
to value stock options in divorce proceedings ---
http://www.optionanimation.com/MarlowHowToValueStockOptionsInDivorce.htm
How
the courts value stock options ---
http://www.divorcesource.com/research/edj/employee/96oct109.shtml
Search for the term options at
http://www.financeprofessor.com/summaries/shortsummaries/FinanceProfessor_Corporate_Summaries.html
"Guidance
on fair value measurements under FAS 123(R)," IAS Plus, May 8, 2006 ---
http://www.iasplus.com/index.htm
Deloitte & Touche (USA) has updated its book of guidance on FASB Statement No.
123(R) Share-Based Payment:
A Roadmap to Applying the Fair Value Guidance to
Share-Based Payment Awards (PDF 2220k).
This second edition reflects all authoritative guidance on FAS 123(R) issued as
of 28 April 2006. It includes over 60 new questions and answers, particularly in
the areas of earnings per share, income tax accounting, and liability
classification. Our interpretations incorporate the views in SEC Staff
Accounting Bulletin Topic 14 "Share-Based Payment" (SAB 107), as well as
subsequent clarifications of EITF Topic No. D-98 "Classification and Measurement
of Redeemable Securities" (dealing with mezzanine equity treatment). The
publication contains other resource materials, including a GAAP accounting and
disclosure checklist. Note that while FAS 123 is similar to
IFRS 2 Share-based Payment,
there are some measurement differences that are
Described Here.
Bob
Jensen's threads on employee stock options are at
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Bob
Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#FairValue
Bob
Jensen's threads on valuation are at
http://www.trinity.edu/rjensen/roi.htm
Cleveland my be losing Lebron James, but at least the accounting faculty at
Case Western are doing their best to offset the loss
A Good Year for Case Western's Accounting Faculty ---
http://weatherhead.case.edu/
Promotions
Lee Blazey to Associate Professor
Karen Braun to Associate Professor
Julia Grant to Full Professor
Awards
Dr. Timothy Fogarty, 2010 Issues Best Paper Award, Issues in Accounting
Education, for "Blessed Are the Gatekeepers: A Longitudinal Study of the
Editorial Boards of The Accounting Review" coauthored by Chih-Hsien
(Debra) Liao (PhD, Case Western Reserve University).
Dr. Gary Previts, 2010 Outstanding Educator Award, from the American Accounting
Association.
Jensen Comment
I'm pleased with Case because it made a faculty home for one of my excellent
former accounting students at Trinity University ---
http://weatherhead.case.edu/research/faculty/profile.cfm?idDM=372750
Yi-Jing Wu was a concert pianist until we convinced her the future was brighter
with an accounting PhD
She carried her tireless music work ethic into accounting
"Asking The Difficult Questions: An Article About Audit Committees For The
IIA’s Internal Auditor," by Francine McKenna, re:TheAuditors, July 5, 2010
---
Norman Marks
asked me to write an article for Internal Auditor’s June
2010 issue.
Norman Marks, CPA, is vice president,
governance, risk, and compliance for
SAP’s BusinessObjects division, and has been a chief audit executive of
major global corporations for more than 15 years. He is the contributing
editor to Internal Auditor’s
“Governance Perspectives”
column.
This
article is reprinted by permission with additional hyperlinks added that
were not available in print editions.
Asking The Difficult Questions
Audit committees must proactively probe
management and the auditors to gain insight and to make necessary
oversight decisions.
by Francine McKenna
Audit committees have specific responsibilities
with regard to their organization’s external auditors as a result of the
U.S. Sarbanes-Oxley Act of 2002. The IIA’s
Sample Audit Committee Charter
emphasizes the importance of reviewing the proposed audit scope and
approach for the audit, including coordination with internal auditing.
Audit committees are expected to review the auditors’ performance and
exercise final approval of their appointment or discharge. External
auditor independence is required, thus any nonaudit services provided
must be reviewed. Finally, audit committees are expected to hold regular
private meetings with the external auditors to discuss important
concerns.
External auditors also are required to
communicate consistently and effectively with the audit committee. in
the united states, the
Public Company
Accounting Oversight Board (PCAOB).
Interim Auditing Standard AU 380 requires
auditors to determine whether all audit-related matters are communicated
to the committee:
- The auditor’s responsibility under
Generally Accepted Auditing Standards (GAAS)
- Significant accounting policies
- Management judgments and accounting
estimates
- Audit adjustments
- The auditor’s judgments about the quality
of the entity’s accounting principles
- The quality of the management discussion
and analysis (MD&A)
- Disagreements with management
- Consultation with other accountants
- Major issues discussed with management
before retention
- Difficulties encountered in performing the
audit
Audit committees too often rely on the
auditors’ required disclosures without comment. They sometimes lack the
independence, experience, or determination to ask the probing questions.
It’s critical, however, that committees seek answers to vexing questions
and not accept the response, “But that’s the way management has always
done it.”
When audit committees take for granted that
important issues will be raised without prompting, they risk failing to
exercise
business judgment, which can be
personally and professionally damaging. The issue is so important that
the PCAOB is considering a
proposed audit standard on communications with audit committees
and related amendments to its interim standards.
From the audit committee perspective, the most sensitive and highly
challenging issues it will ever likely deal with are:
- Responding to reports of possible fraud by
senior executives
- Responding to whistleblower reports
- Evaluating the likelihood of management
override of internal controls
According to the
Powers Report of the Special Investigation
Committee of the Board of Directors of Enron Corp., the Enron board and
its committees needed to significantly improve their monitoring of
executives and the internal and external auditors: “The board, and in
particular the audit and compliance committee, has the duty of ultimate
oversight over the company’s financial reporting. While the primary
responsibility for financial reporting abuses discussed in the report
lies with management, the participating members of the committee believe
those abuses could and should have been prevented or detected at an
earlier time had the board been more aggressive and vigilant.”
It’s very difficult to detect
management override of internal controls.
Audit committees can address this risk by:
- Maintaining an appropriate level of
skepticism
- Continually strengthening the committee’s
understanding of the business
- Brainstorming with the internal and
external auditors about fraud risks
- Using the code of conduct/ethics to assess
the financial reporting culture
- Ensuring the support of a vigorous
whistleblower program
- Developing a broad information and
feedback network that includes the internal and external auditors
It’s essential to implement the automatic and
direct submission of all complaints involving senior management,
including whistleblower complaints, to the audit committee to
effectively monitor management override of controls. This means direct
access without filtering by management or the internal or external
auditors.
A whistleblower hotline is a statutory
responsibility of the audit committee and cannot be delegated to company
officials.
Section 301 of Sarbanes-Oxley requires that
audit committees establish effective whistleblowing procedures.
Unfortunately, a recent
Ethics Resource Center
survey that examines how employees choose to report misconduct reveals
that only 3 percent take their complaints to a hotline.
When allegations are made, the audit committee
must decide whether to initiate a formal investigation. Under U.S.
Securities and Exchange Commission (SEC) rules, the committee can engage
the external audit firm to carry out a forensic/fraud investigation.
However, this may not be the best course of action.
The Lehman Bankruptcy Examiner’s Report says
the Lehmann audit committee asked Ernst & Young (E&Y) to support
Internal Audit’s investigation of allegations made in a May 16, 2008,
“whistleblower” letter sent to senior management. On June 12, 2008,
Lehman’s Matthew Lee informed E&Y about his company’s alleged use of
“Repo 105” transactions to move US $50 billion temporarily off the
balance sheet at the end of the second quarter of 2008. Lee stated that
these transactions created a misleading picture of the firm’s financial
condition. According to the bankruptcy examiner,
E&Y failed to disclose that allegation
to the audit committee at a meeting the following
day
(Lehman bankruptcy report, v3, page 945).
Lehman Brothers’ internal audit vice president
was in charge of the investigation, not E&Y. Lehman “naturally” asked
its trusted adviser, E&Y, to help. However, it’s poor practice to
request that the external auditor lead or assist with internal
investigations of potential fraud or illegal acts by top executives. In
the Siemens’ U.S Foreign Corrupt Practices Act case, Siemens’ external
auditor, KPMG, was initially asked to assist with the internal
investigation of bribery and corruption of foreign officials.
KPMG subsequently became a target of internal
and SEC investigations and a defendant in shareholder lawsuits.
In the Lehman case, E&Y had reviewed the
company’s policy with respect to the accounting for these off-balance
sheet devices. Reportedly, they concurred with management’s proposed
treatment. However, they did not inform the audit committee of the
transactions, or their growing volume and materiality with respect to
the financial statements — and key indicators of the company’s health,
such as their liquidity ratios.
Continued in article
Also see
"My Commentary Part 1: Ernst & Young’s
Letter To Audit Committee Members," by Francine McKenna, re: The Auditors,
March 31, 2010 ---
http://retheauditors.com/2010/03/31/my-commentary-part-1-ernst-youngs-letter-to-audit-committee-members
One of the Many
illustrations in Jensen's Archives:
Update on the ConAgra Case
Some questions were raised at a subsequent date about independence between KPMG
and head of ConAgra's Audit Committee who is a former CEO of KPMG
---
http://www.secinfo.com/drFan.z2d.d.htm
ConAgra Allegedly Cooks the Books
The Securities and Exchange Commission filed a
civil complaint accusing three former ConAgra Foods Inc. executives of improper
accounting practices that helped pump up profit statements. The SEC named former
Chief Financial Officer James P. O'Donnell, former Controller Jay D. Bolding and
Debra L. Keith, a former vice president of taxes, as defendants in the complaint
filed in U.S. District Court. The complaint alleged improper accounting from
fiscal 1999 through 2001. The SEC filed a separate complaint against former
controller Kenneth W. DiFonzo, 55, of Newport Beach, Calif.
"ConAgra's Books Draw SEC Action," The Wall Street Journal, July 2, 2007;
Page A10 ---
Click Here
The Securities and Exchange Commission has filed civil charges
against ConAgra Foods, Inc., alleging that it engaged in improper, and in
certain instances fraudulent, accounting practices during its fiscal years
1999 through 2001, including the misuse of corporate reserves to manipulate
reported earnings in fiscal year 1999 and a scheme at its former subsidiary,
United Agri-Products (UAP), in 2000 that involved, among other things,
improper and premature revenue recognition. ConAgra is a diversified
international food company headquartered in Omaha, Neb. Linda Thomsen,
Director of the Commission's Division of Enforcement, said, "This case again
illustrates that the Commission will take strong action when a company and
its officers engage in accounting fraud that distorts the company's true
financial condition. The facts here are particularly troubling because of
the number of different improprieties engaged in by Con Agra, the length of
time over which they occurred, and the fact that senior management was
involved in the misconduct."
AccountingEducation.com, August 9, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145322
Jensen Comment on Audit Committee Successes
When investigating audit committee outcomes, I hope Francine will mention
successes as well as failures. I suspect there are countless successes of
audit committees, most of which are never reported to the public. A few,
however, are reported such as the success of the Audit Committee of Huron
Consulting in discovering and disclosing executive-level fraud within the
company ---
http://www.trinity.edu/rjensen/fraud001.htm#Cooking
In the case of Huron, the Audit Committee did its homework.
Some of previous academic research on audit committees has been artificial
and simplistic. Here's an example of what I consider to be bad accountics
research:
"Are Independent Audit-Committee Members Objective?" The
Harvard Law School, July 6, 2009 ---
http://blogs.law.harvard.edu/corpgov/2009/07/06/are-independent-audit-committee-members-objective/
Based upon a forthcoming Accounting Review article by Matthew Magilke
of the University of Utah, Brian W. Mayhew of the University of
Wisconsin-Madison, and Joel Pike of the University of Illinois at
Urbana-Champaign.)
The working paper can be downloaded from SSRN at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097714
Abstract:
We use experimental markets to examine stock-based compensation's impact
on the objectivity of participants serving as audit committee members.
We compare audit committee member reporting objectivity under three
regimes: no stock-based compensation, stock-based compensation linked to
current shareholders, and stock-based compensation linked to future
shareholders. Our experiments show that student participants serving as
audit committee members prefer biased reporting when compensated with
stock-based compensation. Audit committee members compensated with
current stock-based compensation prefer aggressive reporting, and audit
committee members compensated with future stock-based compensation
prefer overly conservative reporting. We find that audit committee
members who do not receive stock-based compensation are the most
objective. Our study suggests that stock-based compensation impacts
audit committee member preferences for biased reporting, suggesting the
need for additional research in this area.
Keywords: Audit Committee, Stock
Compensation, Independence
Jensen Comment
I hate to keep repeating myself, but this will probably go down as one of
those student experiments that have dubious extrapolations to the real
world. The student compensation is nowhere near the possible compensations
of real board members of real corporations. My traditional example here is
my banker friend who gambles for relatively large stakes with his
poker-playing friends, but never gambles even small time time with his local
Bangor bank.
Even more discouraging is that following decades of publications of
empirical academic research, the findings will simply be accepted as truth
without ever replicating the outcomes as would be required in real science.
In science, it's the replications that are more eagerly anticipated than the
original studies. But this is not the case in accounting research ---
http://www.trinity.edu/rjensen/theory01.htm#Replication
Probably the most fascinating study of an audit committee is the history
of the infamous Audit Committee of Enron. Evidence in retrospect seems to
point to the fact that the Audit Committee and the Board of Directors (Bob
Jaedicke was on both Boards) were truly deceived by clever and unscrupulous
Enron executives. Probably the most penetrating study of what happened was
the after-the-fact Power's Study conducted by the Board itself ---
http://www.trinity.edu/rjensen/FraudEnron.htm
There are times when I'm more impressed by a sample of one than a sample of
students in an artificial experiment that is never replicated.
Also see Question 15 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm
July 8, 2009 reply from Dennis Beresford
[dberesfo@TERRY.UGA.EDU]
Bob,
I read the first 25 or so pages of the
paper. As an actual audit committee member, I feel comfortable in saying
that the assumptions going into the experiment design make no sense
whatsoever. And using students to "compete to be hired" as audit
committee members is preposterous.
I have served on five audit committees of
large public companies, all as chairman. My compensation has included
cash, stock options, restricted stock, and unrestricted stock. The value
of those options has gone from zero to seven figures and back to zero
and there have been similar fluctuations in the value of the stock. In
no case did I ever sell a share or exercise an option prior to leaving a
board. And in every case my *only *objective as an audit committee
member was to do my best to insure that the company followed GAAP to the
best of its abilities and that the auditors did the very best audit
possible.
No system is perfect and not all audit
committee members are perfect (certainly not me!). But I believe that
the vast majority of directors want to do the right thing. Audit
committee members take their responsibilities extremely seriously as
evidenced by the very large number of seminars, newsletters, etc. to
keep us up to date. It's too bad that accounting researchers can't find
ways to actually measure what is going on in practice rather than revert
to silly exercises like this paper. To have it published in the leading
accounting journal shows how out of touch the academy truly is, I'm
afraid.
Denny Beresford
July 8, 2009 reply from Bob Jensen
Hi Denny,
It's clear why TAR didn't send you this manuscript to referee. It
would be dangerous to have experienced audit committee members have an
input to this type of accountics research that takes place in the
academy's sandbox.
Bob Jensen
Bob Jensen's threads on Enron's infamous Audit Committee ---
http://www.trinity.edu/rjensen/FraudEnron.htm#AuditCommittee
Bob Jensen's threads on professionalism and independence are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism
"Stanford's 'Three Books' program turns to ethics," by Cynthia Haven,
Stanford News, July 6, 2010 ---
http://news.stanford.edu/news/2010/july/three-books-program-070610.html
Authors Tracy Kidder, Anne Fadiman and Joyce Carol
Oates take an uncomfortable look at the world of privilege – and the windows
we have on the rest of the world.
Teaching Case on Ignoring of Earnings Management
From The Wall Street Journal Accounting Weekly Review on July 16, 2010
Clouds Hover Over Boffo Profits
by: Paul
Vigna and John Shipman
Jul 12, 2010
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Earning
Announcements, Earnings Forecasts, Interim Financial Statements
SUMMARY: The
article and related video assess current status at the point of kicking off
corporate second quarter 2010 earnings season. "The biggest U.S. stocks
should post per-share profits up a heady 19.3% from a year ago according to
analysts' forecasts." But economic factors described in the article give
mixed signals for the second half of 2010.
CLASSROOM APPLICATION: These
articles are useful to introduce corporate quarterly reported and can be
adapted to any level of course covering this topic. Questions focus on the
format of quarterly reporting and the concepts of predictive and
confirmatory (feedback) values of financial information.
QUESTIONS:
1. (Introductory)
By what measures are quarterly operating results at large U.S. corporations
assessed in this article? Be specific by listing specific items taken from
quarterly financial reports. Include definitions of each of the items you
list.
2. (Introductory)
What factors indicate that the good results for the second quarter of 2010
may not continue?
3. (Introductory)
What evidence indicates that future quarters' results "may not be as bad as
the stock market was pricing"?
4. (Advanced)
How do the points discussed in answer to the two questions above mean that
"earnings per share for the second quarter are fairly irrelevant"?
5. (Advanced)
Define the concepts of predictive and confirmatory (or feedback) values of
financial information. Using those two concepts, argue against the
irrelevance of earnings per share for the second quarter.
6. (Introductory)
Watch the video in which Mr. Vigna discusses these issues in which he states
that "the numbers are easy" compared to a year ago. What does he mean by
this statement?
7. (Introductory)
Alternatively, how do the revenue and earnings for the second quarter
compare to the first quarter of 2010?
8. (Advanced)
Consider the format of corporate quarterly reporting. How is the information
discussed in answer to the two questions above presented in quarterly
financial reports? Be specific, with reference to the format of the balance
sheet and income statement.
Reviewed By: Judy Beckman, University of Rhode Island
"Clouds Hover Over Boffo Profits," by: Paul Vigna and John Shipman, The
Wall Street Journal, July 12, 2010 ---
http://online.wsj.com/article/SB10001424052748704075604575357183481261238.html?mod=djem_jiewr_AC_domainid
Corporate profits have been running hot since late
last year and, despite growing anxieties over European debts and lackluster
consumer spending, will remain strong in second-quarter reports, which begin
Monday.
The biggest U.S. stocks should post per-share
profits up a heady 19.3% from a year ago, according to analysts' forecasts.
Airlines are benefiting from improved business travel, trucking and rail
operators from manufacturing and retail-sales gains, and export-heavy
industries from emerging markets demand.
Alcoa Inc., which kicks off the earnings parade
Monday, is expected to post a profit on higher aluminum prices and sales
after a year-ago loss. Chip maker Intel Corp. is expected to report
double-digit sales gains on business-PC demand. Trucker J.B. Hunt Transport
Services Inc. should show profits jumped 52% when it reports Tuesday.
There are even signs of life in the hard-hit auto
industry. Car and car-parts shipments are helping railroads, including Union
Pacific Corp. Its automotive shipment business rose 161% for the week ended
July 3 from a year ago.
"Earnings could continue to grow for one or two
more quarters as margins edge slightly higher," forecasts Capital Economics
economist John Higgins.
Of course, results tell more about the road behind
than the journey ahead. Some companies and analysts say the strong
second-quarter profits were fueled on businesses restocking inventories and
helped by stimulus spending and Census Bureau hiring that won't help this
quarter.
"Earnings per share for the second quarter are
fairly irrelevant," said Heiko Ihle, an analyst for brokers Gabelli & Co.
"What people want to see is in the outlook and what we've seen in the last
couple of weeks doesn't bode well for a ridiculously good outlook."
The job gains of March and April evaporated in May
and June. Housing took a widely expected drop after the home-buyer tax
credit expired. Stock markets swooned amid talk of economic slowdown and
sovereign debt defaults in Europe.
"Bottom line is earnings may hold up, but sales
growth is slow and companies aren't going to invest their record cash
holdings until it improves," argues Howard Silverblatt, Standard & Poor's
senior index analyst.
Airlines, another hard-hit industry, are on track
to make their first annual profit since 2007, thanks to fuller planes and
higher fares.
"Corporate revenues are driving a considerable
amount of the improvement," Delta Air Lines Inc. president Ed Bastian told
an industry conference last month.
The second quarter started out strong, helped by
business restocking, stimulus spending, Census Bureau hiring and chipper
retail-sales. As the quarter began, White House chief economist Larry
Summers crowed the economy had achieved "escape velocity."
But the economic tea leaves over the past month
have pointed to a slowing economy. The manufacturing sector, which has been
the economy's bright spot, appears to be leveling off, with the Institute
for Supply Management's June Purchasing Manager's Index sliding to 56.2 from
59.7. A level above 50 indicates manufacturing is still growing.
May existing-home sales surprisingly fell 2.2%, and
new home sales plunged 33%, after the home-buyer tax credit expired. Job
growth has been a disappointment the past two months, and that convinced
nearly a million Americans to just leave the work force.
Expiration of jobless benefits beginning this month
could place another burden on economic growth. Without further benefit
extensions, Société Générale estimates 0.2% per month will be shaved off
income growth between now and October, adding "to the sense that the economy
is losing momentum."
The euro's fall against the U.S. dollar and debt
problems are a concern, but so far not a major one. McDonald's Corp. said
last month it expects the weakening euro will hurt its earnings this year,
although it doesn't expect any effect on the second quarter. Burger King
Holdings Inc. said in June it expects currency translations to cut one to
two cents a share from its earnings.
"We caution that it might be too early for
management teams to offer much in the way of new positive forward-looking
guidance," Brown Brothers Harriman analyst Charles Blood wrote, "based on
the recent slowing in economic momentum." Mr. Blood sees earnings coming in
ahead of expectations, but not as much as in the first quarter.
On the other hand, the generally stronger Asian
economies are helping shipping companies including FedEx Corp., which noted
Asian exports were a big boost to its fiscal fourth-quarter shipping
volumes.
In a positive sign, certain freight traffic in June
hit levels not seen since 2008 and in some cases broke records. June is
considered a bellwether shipping month as it offers a preview of the busy
fall shipping season–backed by back-to-school shopping, Halloween and then
the holidays.
Air-freight shipments between Hong Kong, Europe and
the U.S. hit 245,000 tons in June, rising 30% from the same period a year
ago, and breaking a previous monthly shipping record of 220,000 tons shipped
in June of 2008, according to Kevin Sterling, a transportation analyst with
BB&T Capital Markets.
Most of the air shipments were Asia exports,
suggesting U.S. retailers who might now be seeing enough demand to continue
stocking up.
"I think it's telling us that the economy may not
be as bad as the stock market was pricing," Mr. Sterling said.
Bob Jensen's threads on earnings management are at
http://www.trinity.edu/rjensen/Theory01.htm#Manipulation
A Daunting Problem With Replacement Cost Accounting
Although Tom Selling hates to admit it, I think that the difficulty or
impossibility of replacing operating assets with anything like those existing
assets that are not being replaced makes entry value (replacement cost, current
cost) accounting a daunting task that ends up with numbers of dubious value to
investors because of their arbitrary and subjective nature. The following case
illustrates the problem for deriving replacement cost of a ten-year old airliner
still in use with slower travel time, inefficient fuel usage, lower cargo
capacity, and higher maintenance costs. What should be its depreciation-adjusted
replacement cost while still in use?
From The Wall Street Journal's Accounting Weekly Review on July 16,
2010
FedEx Looks to 777s to
Deliver an Edge
by:
Jennifer Levitz
Jul 14, 2010
Click here to view the full article on WSJ.com
TOPICS: Capital
Budgeting, Capital Spending, Supply Chains
SUMMARY: This
article discusses FedEx's investment in new Boeing aircraft that allow
overseas shipments to be 1 to 3 hours faster by eliminating a fuel stop in
FedEx's Alaskan hub. Combining this point with latest economic growth trends
based on information about the U.S. and worldwide, Frederick W. Smith,
FedEx's founder, chairman, and chief executive, argues that this equipment
is a "game changer." Helping to reduce risk of large investment in a new
fleet of planes
CLASSROOM APPLICATION: This
article can be used in managerial accounting and supply chain management
courses to understand the influence of various factors on capital
expenditure decisions. This understanding is then tied to an ultimate impact
on choice of carrier in the supply chain process.
QUESTIONS:
1. (Introductory)
In general, how does a company decide on its capital spending strategy for a
year or longer period of time?
2. (Introductory)
What factors led FedEx to invest in Boeing's new 777 aircraft? Describe all
that are listed in the article. Explain how each factor you list would
impact an assessment of capital spending under the structure you describe in
answer to question 1 above.
3. (Advanced)
Why do both FedEx and UPS see different opportunities in the economic
outlook than might a domestic-only U.S. carrier?
4. (Advanced)
Refer again to your answers to questions 1 and 2. How does the outlook you
describe impact those methods of assessing capital expenditure decisions?
5. (Introductory)
How does FedEx's capital expenditures in 2010 compare to that of its rival,
UPS?
6. (Advanced)
Suppose you are a supply chain professional charge with selecting an
overnight shipper for product. Would FedEx's claims about its fleet
influence your choice of carrier? What other factors would you consider in
your decision-making?
7. (Introductory)
What personal force might also influence FedEx's decision to invest in
Boeing 777s?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
FedEx CEO Takes Stock of Alternative Energy, Obama and China
by Jennifer Levits
Jul 13, 2010
Online Exclusive
.
Bill Paton admitted being hung up on this weakness of replacement cost
alternatives to historical cost accounting as noted by Larry Revsine in 1979:
"Technological Changes and Replacement Costs: A Beginning," by Larry
Revsine, The Accounting Review, April 1979 ---
http://www.jstor.org/pss/245517
Steve Zeff also writes extensively about this issue ---
http://www.routledge.com/books/details/9780415554299/
Paton was not an advocate of exit value accounting for operating assets
It should be noted that Bill Paton was in an advocate of "value accounting"
clear back in his 1922 Accounting Theory, but I take this to be
replacement cost rather than exit value later advocated by MacNeal in 1939 and
Chambers and Sterling in the 1960s. In his famous (prior to the 1940 Paton and
Littleton monograph) Accountants Handbook (Ronald Press, 1932, Second
Edition, Page 525) it is stated:
In particular the case of specialized equipment market value is usually
little more than scrap value. That is, a specialized machine, bolted to the
factory floor, has little value apart from the particular situation, and
hence its market value, unless it is being considered as an element of the
market value of the entire business as a going concern, is limited to net
salvage ... buildings and equipment have a
"going concern value" or "value in use"
in excess of liquidation or market value
For current thinking of the FASB on “value in use” see Accounting
Standards Update (ASU) 2010-6
"Fair Value Measurements and Dicsclosures Topic 820"
Click Here
http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820873224&blobheader=application%2Fpdf
Also see KPMG's commentary on ASU 2010-6
http://www.kpmginstitutes.com/financial-reporting-network/insights/2010/pdf/di-10-26-fasb-proposes-changes-fair-value-measurements.pdf
Valuation Premises
Fair value measurements of assets must consider the highest and best use
of the asset, which is determined from the perspective of market
participants rather than the reporting entity’s intended use. Under current
U.S. GAAP, the asset’s highest and best use determines the valuation
premise. The valuation premise determines the nature of the fair value
measurement; that is, whether the fair value of the asset will be measured
on a stand-alone basis ("in-exchange") or measured based on an assumption
that the asset will be used in combination with other assets ("in-use"). The
proposed ASU would remove the terms in-use and in-exchange because of
constituents’ concerns that the terminology is confusing and does not
reflect the objective of a fair value measurement. The proposed ASU would
also prohibit financial assets from being measured as part of a group. The
FASB decided that the concept of highest and best use does not apply to
financial assets, and therefore their fair value should be measured on a
stand-alone basis. Entities would still have the ability to measure fair
value for a nonfinancial asset either on a stand-alone basis or as part of a
group, consistent with the nonfinancial asset’s highest and best use.
Bob Jensen's threads on alternative valuation models for operating assets
---
http://www.trinity.edu/rjensen/Theory01.htm#BasesAccounting
The schism
between academic accounting research and practitioner interests
I've been having a recent round of private messaging with a renowned
accountics researcher who seems to be in denial about the relevance of the
schism between accountics research and needs of the practicing profession.
He suggests that practitioner interest has become too revenue-centered
compared to practitioners before the 1960s who used to pride themselves in
scholarly articles submitted to TAR by practitioners compared to today when
there are virtually zero practitioner submissions to TAR, JAR, JAE and even AH.
Part of my reply is as follows:
Hi again XXXXX,
Sorry to bother you, but perhaps you're limiting your study of
practitioner scholarship to practitioner journal articles such as the
Journal of Accountancy where you claim that authors are not critical of
standards and add little to scholarship about standards.
In the days of networked communications some of the best
practitioner scholarship and critical reviews appear in the blogs and other
networked items of the large auditing firms. My favorite in IAS Plus
where my good friend and former student, Paul Pacter, is the Webmaster. For
decades Paul has been on the technical staff of the FASB and IASB as well as
headquartering in Deloitte Hong Kong ---
http://www.iasplus.com/index.htm
He’s just been appointed as a full Board member on the IASB.
He’s been the IASB’s point man on various standards such as IAS 39 and the
more recent SME standard.
Most importantly Paul is willing to publish criticisms of the FASB and IASB
in the IAS Plus Blog, and many of the critical items come from
Deloitte’s own specialists.
For an example of some current criticism of IASB standards
and proposed standards, take a look at
http://www.iasplus.com/dttletr/1007amortcost.pdf
As another example, I draw your attention to Deloitte's comment letter on
"Exposure Draft ED/2010/4 Fair Value Option for Financial Liabilities" ---
http://www.iasplus.com/dttletr/1007ed2010-04.pdf
In our view, own credit risk represents the risk
that a reporting entity will not perform its financial obligations under a
contract. The IFRS 7 approach encompasses many more components (e.g. asset
specific risk) and, as a result, would include additional amounts within OCI
not related to one’s own credit risk and thereby distorting the amounts
reported in profit or loss and OCI. We encourage the Board to reach out to
constituents, in particular valuation professionals, to gather views on what
they believe are components of own credit risk, how they can be separated,
and if any meaningful practical expedients can be employed by preparers in
isolating one’s own credit risk. Furthermore, we disagree with the
prohibition of recycling on a transfer or early settlement of a liability
and with the two-step approach to presentation of changes in credit risk.
Continued in article
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
"Windfall Profits for Dummies," The Wall Street Journal, May 3,
2008; Page A10 ---
http://online.wsj.com/article/SB120977019142563957.html?mod=djemEditorialPage
This is one strange debate the candidates
are having on energy policy. With gas prices close to $4 a gallon, Hillary
Clinton and John McCain say they'll bring relief with a moratorium on the
18.4-cent federal gas tax. Barack Obama opposes that but prefers a
1970s-style windfall profits tax (as does Mrs. Clinton).
Mr. Obama is right to oppose the gas-tax
gimmick, but his idea is even worse. Neither proposal addresses the problem
of energy supply, especially the lack of domestic oil and gas thanks to
decades of Congressional restrictions on U.S. production. Mr. Obama supports
most of those "no drilling" rules, but that hasn't stopped him from
denouncing high gas prices on the campaign trail. He is running TV ads in
North Carolina that show him walking through a gas station and declaring
that he'll slap a tax on the $40 billion in "excess profits" of Exxon Mobil.
The idea is catching on. Last week
Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as
part of what he called the "Consumer Reasonable Energy Price Protection Act
of 2008." So now we have Congress threatening to help itself to business
profits even though Washington already takes 35% right off the top with the
corporate income tax.
You may also be wondering how a higher tax
on energy will lower gas prices. Normally, when you tax something, you get
less of it, but Mr. Obama seems to think he can repeal the laws of
economics. We tried this windfall profits scheme in 1980. It backfired. The
Congressional Research Service found in a 1990 analysis that the tax reduced
domestic oil production by 3% to 6% and increased oil imports from OPEC by
8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign
oil, which he says "costs America $800 million a day." Someone should tell
him that oil imports would soar if his tax plan becomes law. The biggest
beneficiaries would be OPEC oil ministers.
There's another policy contradiction here.
Exxon is now under attack for buying back $2 billion of its own stock rather
than adding to the more than $21 billion it is likely to invest in energy
research and exploration this year. But hold on. If oil companies believe
their earnings from exploring for new oil will be expropriated by government
– and an excise tax on profits is pure expropriation – they will surely
invest less, not more. A profits tax is a sure formula to keep the future
price of gas higher.
Exxon's profits are soaring with the
recent oil price spike, but the energy industry's earnings aren't as
outsized as the politicians seem to think. Thomson Financial calculates that
profits from the oil and natural gas industry over the past year were 8.3%
of investment, while the all-industry average is 7.8%. And this was a boom
year for oil. An analysis by the Cato Institute's Jerry Taylor finds that
between 1970 and 2003 (which includes peak and valley years for earnings)
the oil and gas business was "less profitable than the rest of the U.S.
economy." These are hardly robber barons.
This tiff over gas and oil taxes only
highlights the intellectual policy confusion – or perhaps we should say
cynicism – of our politicians. They want lower prices but don't want more
production to increase supply. They want oil "independence" but they've
declared off limits most of the big sources of domestic oil that could
replace foreign imports. They want Americans to use less oil to reduce
greenhouse gases but they protest higher oil prices that reduce demand. They
want more oil company investment but they want to confiscate the profits
from that investment. And these folks want to be President?
Late this week, a group of Senate
Republicans led by Pete Domenici of New Mexico introduced the "American
Energy Production Act of 2008" to expand oil production off the U.S. coasts
and in Alaska. It has the potential to increase domestic production enough
to keep America running for five years with no foreign imports. With the
world price of oil at $116 a barrel, if not now, when? No word yet if
Senators Clinton and Obama will take time off from denouncing oil profits to
vote for that.
How Will a Windfall Profits Tax Increase Supply?
by Frank J.
Stalzer and David P. McElvain
The Wall Street Journal
May 08, 2008
Page: A14
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB120977019142563957.html?mod=djemEditorialPage
TOPICS: Advanced
Financial Accounting, Financial Accounting, Oil and Gas
Accounting, Tax Laws, Taxation
SUMMARY: The
second of these two letters to the editor is written by a 70
year old reader who has worked in the oil and gas industry for
all of his life. Both letters discuss the Obama-proposed
windfall profits tax, but the latter also refers to the fact
that historical cost-based financial statements show higher
income statement profits than would statements prepared under
replacement cost accounting.
CLASSROOM
APPLICATION: The article may be used to addressed the
current political debates of the presidential candidates'
proposed policies in either a taxation or an advanced financial
accounting class.
QUESTIONS:
1. (Introductory) What are "windfall profits?" What is
a "windfall profits tax?"
2. (Introductory) Why might a windfall profits tax
appeal to voters who are unsophisticated in their understanding
of its potential economic impact?
3. (Advanced) What is "replacement
cost accounting?" In your answer, compare this
measurement method to our current historical cost method.
4. (Advanced) Why might historical cost accounting be
particularly problematic in the oil and gas industry as opposed
to, say, a traditional manufacturing industry?
5. (Advanced) What is the argument put forth by Mr.
McElvain that historical-cost basis financial statements are
contributing to the potential implementation of a windfall
profits tax?
6. (Advanced) "Major oil companies need to administer
their businesses on the basis of true replacement costs, not
historical accounting costs." Is that possible even if the
business must use historical cost accounting in published
financial statements?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Windfall Profits for Dummies
by N/A
May 03, 2008
Page: A10
|
Joe Hoyle Challenging Students
"The Nonaggression Pact in Reverse," by Joe Hoyle, Teaching Financial
Accounting Blog, June 20, 2010 ---
http://joehoyle-teaching.blogspot.com/2010/06/nonaggression-pact-in-reverse.html
"What Can We (live teachers) Add?" by Joe Hoyle, Teaching Financial
Accounting Blog, July 22, 2010 ---
http://joehoyle-teaching.blogspot.com/2010/07/what-do-we-add.html
Over the last few years, my wife and I have become
big fans of the video classes produced by The Teaching Company. Two or three
times per week, we will watch a 30 or 45-minute video lecture on art or
literature or history or religion prepared by a college teacher. I am amazed
by how much I now know about topics that once were totally foreign to me.
In watching these videos, I am occasionally
reminded of a question that comes up in colleges now and then: Do we need
live instructors? Why don’t we find the very best college teachers and film
their classes? Then, put those videos up on the Internet and everyone (or,
at least, our students) can learn the material without the need of a
classroom or a teacher.
Well, the easy answer to that query is that a
college education has to be more than the conveyance of information to a
passive student taking notes. So, doesn’t that automatically raise the next
question that we need to address as teachers: What are we adding in our
classes that goes beyond the conveyance of information to a passive student?
If the answer is nothing, then maybe we should all be replaced by videos.
As you get ready for the fall semester, ponder how
you are going to add value to your students. --“I’m going to tell them some
interesting stories.” -- A video can tell them hundreds of interesting
stories. --“I’m going to tell them about the history of my discipline.” -- A
video can tell them about the history of your discipline. --“I’m going to
walk them step-by-step through the essential core of the disciple.” - A
video can walk students through the essential core of the discipline.
Those are all important to a class but they could
just as easily be done by a person on video. What are you going to do this
coming semester in your classes that a video could not do?
We live in a time when too many people believed
that they could not be replaced until they were replaced. My assumption is
that if you add real value to a process, you become essential. Otherwise,
someone will eventually catch on that you can be replaced.
There are many, many ways that teachers add value
to the students in their classes. How will you do that in the coming fall?
What will you do that couldn’t be replaced by a video?
Jensen Comment
Believe it or not, I think the most important thing we can add is to be live
role models day-to-day for our students. We can be role models regarding what it
means to be professionally competent (without necessarily awing them in every
class). We can be role models for such other things in life as empathy, caring,
ethics, human frailty, and yes even fashion.
Fashion?
Professors who show up in class wearing T-shirts, jeans, and open toe sandals
really turn me off. Perhaps that's because I'm an old farm boy who, at one time,
was awed by male professionals who wore white shirts and neckties to work. Our
most scruffy professors will spiff up when applying for a job or make a speech
at a local Rotary Club luncheon. What makes our students less important
day-to-day?
But the most important thing we add is to awe our students with both our
professional competence combined with professional honesty in admitting things
we cannot answer. Watching a talking head on television can be really
educational, but having a live teacher fumble about out loud while trying to
reason out a brilliant answer can be even more educational (even if it is more
time consuming). Teachers demonstrate how real-world thinking takes us down
blind alleys and stumbling blocks of dumb ideas. Students leave our courses with
a better understanding of what a non-perfect world of reasoning is really like
(as long as our stumbling really gets eventually us to the best answers).
The latest exchange of AECM messaging regarding the question raised by Tom
Selling about sales discounts provides a perfect example of great teachers
stumbling about trying to find the best answer. If Carla had been the first to
respond it would've been disappointing to the AECM learning process.
What is sad in teaching, as illustrated by many lurkers on the AECM, is
the hesitancy of some teachers to be fearful of subjecting their incomplete or
flawed reasoning to students and peers. The classic case is the teacher who
delivers only canned lectures and cases in which he or she only delivers perfect
reasoning that are much like prepared answers being read from a teleprompter.
This can make students fearful that they can never be as smart as their teachers
who always seem to know the best answers.
I love teachers who have the confidence to even provide answers they know are
wrong and then testing how students discover the errors and are willing to point
them out. This, by the way, is part of the BAM pedagogy ---
http://www.trinity.edu/rjensen/265wp.htm
Probably the best teaching lies in asking the best questions without telling or
even knowing the best answers.
I think a case can be made that the IASB is becoming more Bayesian as tests
of credit risk of cash flow impairments become weighted by subjective
probability distributions. Hence we have to dredge up more of the old Bayesian
theory for students if the IASB heads full bore into using subjective
probability distributions for credit impairment, fair value, etc. Reverend Bayes
may be smiling down on the FASB. I am not so enthusiastic about how it will help
investors to add this subjectivity to financial reporting ---
http://www.iasplus.com/dttletr/1007amortcost.pdf
"Beyond Bayes: causality vs correlation," by Steve Hsu Professor of
physics at the University of Oregon, Information Processing, July 10,
2010 ---
http://infoproc.blogspot.com/2010/07/beyond-bayes-causality-vs-correlation.html
A draft paper by Harvard graduate student James Lee
(student of Steve Pinker; I'd love to post the paper here but don't know yet
if that's OK) got me interested in the work of statistical learning pioneer
Judea Pearl.
I found the essay
Bayesianism and Causality, or, why I am only a half-Bayesian
(excerpted below) a concise, and provocative,
introduction to his ideas.
Pearl is correct to say that humans think in terms of
causal models, rather than in terms of correlation. Our brains favor simple,
linear narratives. The effectiveness of physics is a consequence of the fact
that descriptions of natural phenomena are compressible into simple causal
models. (Or, perhaps it just looks that way to us ;-)
Judea Pearl: I
turned Bayesian in 1971, as soon as I began reading Savage’s monograph
The Foundations of Statistical Inference [Savage, 1962]. The arguments
were unassailable: (i) It is plain silly to ignore what we know, (ii) It
is natural and useful to cast what we know in the language of
probabilities, and (iii) If our subjective probabilities are erroneous,
their impact will get washed out in due time, as the number of
observations increases.
Thirty years later, I am still a devout Bayesian in the sense of (i),
but I now doubt the wisdom of (ii) and I know that, in general, (iii) is
false. Like most Bayesians, I believe that the knowledge we carry in our
skulls, be its origin experience, schooling or hearsay, is an invaluable
resource in all human activity, and that combining this knowledge with
empirical data is the key to scientific enquiry and intelligent
behavior. Thus, in this broad sense, I am a still Bayesian. However, in
order to be combined with data, our knowledge must first be cast in some
formal language, and what I have come to realize in the past ten years
is that the language of probability is not suitable for the task; the
bulk of human knowledge is organized around causal, not probabilistic
relationships, and the grammar of probability calculus is insufficient
for capturing those relationships. Specifically, the building blocks of
our scientific and everyday knowledge are elementary facts such as “mud
does not cause rain” and “symptoms do not cause disease” and those
facts, strangely enough, cannot be expressed in the vocabulary of
probability calculus. It is for this reason that I consider myself only
a half-Bayesian. ...
"Why Bayesian Rationality Is Empty, Perfect Rationality Doesn’t Exist,
Ecological Rationality Is Too Simple, and Critical Rationality Does the Job,"
Simoleon Sense, February 15, 2010 ---
Click Here
http://www.simoleonsense.com/why-bayesian-rationality-is-empty-perfect-rationality-doesn%e2%80%99t-exist-ecological-rationality-is-too-simple-and-critical-rationality-does-the-job/
"An Intuitive Explanation of Bayes': Theorem: Bayes' Theorem
for the curious and bewildered; an excruciatingly gentle introduction," by
Eliezer S., Yudkowsky, August 2009 ---
http://yudkowsky.net/rational/bayes
Statistics Lesson: Spanking is a cause of lower IQ?
U.S. children who were spanked had lower IQs four years
later than those not spanked, researchers found. University of New Hampshire
Professor Murray Straus, who is presenting the findings Friday at the
14th International Conference on Violence, Abuse
and Trauma, in San Diego, called the study
"groundbreaking." "The results of this research have major implications for the
well being of children across the globe," Straus said in a statement. "It is
time for psychologists to recognize the need to help parents end the use of
corporal punishment and incorporate that objective into their teaching and
clinical practice." "How often parents spanked
made a difference. The more spanking the, the slower the development of the
child's mental ability," Straus said. "But even small amounts of spanking made a
difference."
"Study: Spanking linked to lower IQ," Breitbart, September
25, 2009 ---
http://www.breitbart.com/article.php?id=upiUPI-20090925-121520-9596&show_article=1&catnum=0
Jensen Comment
I think Straus was frequently spanked as a child. Could it be that lower IQ
students get more frustrated and are inclined toward greater degrees of misbehavior?
This is a little like the historic 0.63 correlation between stork nests and
birth rates ---
http://www.jstor.org/pss/2983064
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory01.htm
Government Accountability Office (GAO) Podcast [iTunes]
http://www.gao.gov/podcast/watchdog.xml
The Sad State of Government Accounting and Accountability ---
http://www.trinity.edu/rjensen/Theory01.htm#GovernmentalAccounting
"PwC “Restructures” Indian Consulting Business: Will It Be Enough To
Preserve US and UK Interests?" by Francine McKenna, re"TheAuditors,
July 12, 2010 ---
http://retheauditors.com/2010/07/12/pwc-restructures-indian-consulting-business-will-it-be-enough-to-preserve-us-and-uk-interests/
“Come on, India’s not as bad as all
that. Other side of the earth, if you like, but we stick to the same old moon.”
E.M. Forster, A
Passage to India, Ch. 3
If any doubts remained that PricewaterhouseCoopers International Limited,
the international global network “coordinating” firm, does the bidding of
its largest and most powerful member firms – primarily PwC US and PwC UK –
the latest “restructuring” in India should remove them.
From
Livemint.com, Hindustan Times’ project with the Wall Street Journal:
“The Indian arm of global consulting and audit firm
PricewaterhouseCoopers (PwC) is ceding control of its prized business
process outsourcing (BPO) unit to PwC US, ending years of battle between
the Indian partners and other PwC network firms.
Because the Indian arm alone cannot anymore support the envisaged
growth of the BPO business—or “global delivery service” in PwC’s
parlance—over the next few years, it is being transferred to a joint
venture with other PwC network firms, according to Ambarish Dasgupta,
executive director of PricewaterhouseCoopers Pvt. Ltd, or PwC India.”
In January of 2009, three days after the CEO of
Price Waterhouse India’s client Satyam admitted to a massive fraud,
I predicted the following:
“PwC Global will pull a
PwC Japan and reorganize Pricewaterhouse & Co
out of existence, forcing “bad” partners out and creating “clean” firm.
From the
India Times:
PwC global CEO Samuel DiPiazza, Jr., along
with some senior worldwide partners is currently in India to assess the
situation, after widespread reports that Price Waterhouse’s alleged
overlooking of Satyam accounts could impact the audit firm’s reputation
and business in India. It is learnt that the global partners are
actively considering restructuring the India unit.
Persons close to the development also said that
a damage control exercise is likely as global partners are also
concerned about the likely impact of the Satyam case on their existing
clients. Already, KPMG and Deloitte, archrivals of PwC, have more
auditing clients than PwC, especially with Indian companies that have
presence in US.
The reshuffle could likely include shifting current
leaders to new responsibilities, said the persons who asked not to be
named.”
Since the
scandal started in January 2009 with Raju’s
confession, PwC global leaders have
visited numerous times,
claimed to be victims themselves, made several
appeals to the Indian media including trying to
squelch my reports, set up an
internal “advisory board” with foreign partners
and
reorganized more than
once.
How can any self-respecting attorney still argue –
and any lucid judge still believe – that PwC’s global firm is not just a
sham legal construct, an artificial vehicle for the strongest member firms
to control and potentially exploit their weaker ones, all under the guise of
“improving quality and seamless deliver to multinational clients…” ?
PwC UK did the same thing to its Middle East
colleagues recently. Sound familiar?
From the
London Times Online May 17, 2010:
PricewaterhouseCoopers is ramping up its
operations in the Middle East, with plans to more than double fee income
in the region to $500 million within two years.
Britain’s biggest professional services firm
has identified growth in the region as one of its top strategic
priorities for the next decade. It is betting that a surge in spending
on infrastructure projects by Arab governments will yield huge
consulting fees for foreign advisory firms.
Its British division, which generates more than
£2 billion a year from auditing and advisory services, took control of
PwC’s Middle East operations last May. Since then, it has poured
millions of pounds into the practice in an attempt to unseat Ernst &
Young as the dominant accountant in the region.
The Price Waterhouse India member firm is made up
of several local firms that provide audit, tax and consulting services.
These firms in India are connected by an
incestuous partnership structure that is
complicated by design. The complexity is ostensibly necessary due to the
restrictions in India over foreign ownership of audit firms.
Putting the best, fastest growing business
seemingly out of reach of Indian legal and regulatory judgments, sanctions
and fines as a result of the Satyam fraud may be wise. But this ploy assumes
that only the Indian firm and Indian partners will be found culpable.
That’s a big “if.”
I asked Mark O’Connor, CEO of
Monadnock
Research LLC for his thoughts:
PwC likely realizes that its India businesses
will not escape far reaching liability in the Satyam scandal. Assuming
the Livemint.com report is accurate, PwC appears to be moving an Indian
jewel out of the exclusive ownership and control of the Indian firms,
and out of the exclusive legal jurisdiction of the Indian regulators and
courts.
They’ve created a plausible justification for
doing what they did – the Indian firms could not provide adequate
capital to fund the business and capture the strong demand for future
services.
It also offers some level of assurance that
value created by those that remain will not be a casualty of past acts.
This allows them to stem the
tide of defecting talent.
Finally, it also opens up the possibility that
the full technology outsourcing business will be folded in eventually.
If done now, this would likely be perceived as way “over the top” and as
shifting assets off shore to protect them from domestic legal exposure.
The legal maneuverings
are even more obvious in light of the long-awaited ruling by the U.S.
Supreme Court affirming dismissal of the Morrison v. National Australia Bank
case. Among other things, the Court’s
opinion will limit securities claims by investors
who bought their shares on foreign exchanges. The Satyam consolidated
class action suit pending in US District
Court, Southern District of New York, alleges claims on behalf of:
“…[plaintiffs] who (a)
purchased or otherwise acquired Satyam Computer Services Limited
(“Satyam” or “the Company”) American Depositary Shares (“ADSs”) on the
New York Stock Exchange (“NYSE”); and/or (b) were investors residing in
the United States who purchased or otherwise acquired Satyam common
stock on the National Stock Exchange of India (“NSE”) or the Bombay
Stock Exchange (“BSE”) between January 6, 2004 and January 6, 2009 (the
“Class Period”), and who were damaged by the conduct alleged herein.
This action is also brought on behalf of two sub-classes of Satyam
employees who received and exercised stock options…”
It looks like the a)
plaintiffs will still be good but the b) plaintiffs don’t fit the new
post-NAB test. It may depend which exchange was used to exercise the
Satyam employees’ options, I suppose, but I wonder if the Court
anticipated all scenarios.
PwC’s attorneys want
it
dismissed in full based on forum non
conveniens argments.
The plaintiffs’ attorneys –
there are four large firms involved – can still obtain good results for
their clients if they successfully pierce the sham “corporate” veil of
Pricewaterhouse Coopers International Ltd, the global firm already named
in the suit and force the Global Board of Partners, as representatives
of the largest member firms such as the US and UK, to be held
responsible. Even better, they can avoid the issues of Morrison v. NAB
if they can reel in PwC US (and maybe sue in the UK against PwC UK) by
proving fraud.
I outlined
a hypothetical last year.
Continued in article
Bob Jensen's threads on PwC are at
http://www.trinity.edu/rjensen/Fraud001.htm
Teaching Case on Loan Loss Reserves
From The Wall Street Journal Accounting Weekly Review on July 9, 2010
Better Credit-Card
Statistics? Yes, Because Jobless Have Left
by:
Aparajita Saha-Bubna
Jul 06, 2010
Click here to view the full article on WSJ.com
TOPICS: Bad
Debts, Banking, Loan Loss Allowance
SUMMARY: The
persistently high U.S. unemployment rate has led to a divergence from the
rate at which credit card receivables are written off by U.S. banks and
other credit card issuers. Those write offs have declined as the unemployed
have simply been washed out of the credit system. Further, card issuers have
reduced available lines of credit as "new rules limiting fees...and curbs on
rate increases...make it less lucrative for card issuers to lend to the less
credit-worthy."
CLASSROOM APPLICATION: The
article may be used in any financial accounting class covering receivables,
bad debts, and write offs.
QUESTIONS:
1. (Introductory)
What is the usual relationship between the level of unemployment and rates
at which credit-card companies write off loan balances? In your answer,
include and define the statistical term "correlation."
2. (Introductory)
Why has the typical relationship between loan write offs and the
unemployment rate diverged as U.S. unemployment has remained high?
3. (Advanced)
Explain the difference between recording bad debt expense and writing off
specific accounts receivable. You may prepare your answer by including the
journal entry format of the accounting for these events.
4. (Advanced)
What does the author mean by the statement that "issuers of plastic also are
seeing a bump in earnings from whittling down their loss reserves..."? In
your answer, propose an alternate term for "loss reserves."
5. (Advanced)
Describe how information from the financial reporting system for credit-card
issuing corporations provides the data used in the analysis for this
article.
Reviewed By: Judy Beckman, University of Rhode Island
"Better Credit-Card Statistics? Yes, Because Jobless Have Left," by:
Aparajita Saha-Bubna, The Wall Street Journal, July 6, 2010 ---
http://online.wsj.com/article/SB10001424052748704790104575344791310159992.html?mod=djem_jiewr_AC_domainid
Chronically high unemployment is disrupting what
once used to be easy math: the tight correlation between joblessness and
souring credit-card loans.
For years, the rate at which credit-card companies
write off loan balances has shadowed the unemployment rate. An out-of-work
borrower, of course, tends to fall behind on payments.
But for months now, some U.S. card issuers, such as
American Express Co., Capital One Financial Corp., J.P. Morgan Chase & Co.,
Bank of America Corp., Citigroup Inc. and Discover Financial Services, are
reporting improving credit trends despite stubbornly high unemployment
rates. Issuers of plastic are also seeing a bump in earnings from whittling
down their loss reserves, a trend that's expected to continue this year.
The reason for the divergence is grim: Some people
have been unemployed so long they have simply been washed out of the credit
system and no longer have any effect on the numbers.
"We have never seen the kind of divergence we've
seen this time" between unemployment and credit losses, said David Nelms,
Discover Financial's chief executive, last month in an interview. "I expect
credit will continue to improve. I'm much less optimistic about the total
unemployment rate."
The U.S. economy shed jobs in June for the first
time this year and the unemployment rate remained high at 9.5%, according to
data released Friday. A slight decline in the unemployment rate, from 9.7%,
reflected discouraged workers giving up on searching for jobs. In a sign of
the labor market's continued weakness, 46% of unemployed Americans were out
of work for more than six months in June.
Meanwhile, the quality of credit-card loans has
been broadly improving this year. Discover wrote off an annualized 7.97% of
its card balances in its fiscal second quarter ended May 31, lower than the
8.51% rate in the first quarter. Write-offs in May similarly improved for
most of its peers, who will report second-quarter results later this month.
For instance, AmEx's uncollectible U.S. card
balances totaled an annual rate of 6.3% in May, down from 6.7% in April, and
J.P. Morgan Chase wrote off 8.95% of card loans, down from 9.03%, during the
same period. In a sign of things to come, the rate of borrowers behind on
their card payments—a key gauge for future loan losses—is also falling
across the board.
"I think we actually see in this phase of the cycle
a little bit of reduction in the impact on credit metrics of things like
unemployment," said Richard D. Fairbank, Capital One's chief executive,
after the bank reported fourth-quarter results in January.
As Americans stay unemployed for long stretches,
they fall behind on card payments, get written off—and have no access to new
credit. While their continued unemployment keeps the jobless rate high, they
no longer have any influence on the statistics of delinquencies or
write-offs on cards. Meanwhile, card lenders have tightened standards, and
new borrowers are less likely to get into trouble.
"Over time the weaker cardholders get weeded out,"
says Richard X. Bove, an analyst with Rochdale Securities, so "the quality
of your portfolio gets better even as unemployment is high."
Card companies, burned by credit losses and
sweeping credit-card legislation passed last year, have scaled back on
credit lines, becoming more selective on borrowers. New rules limiting fees,
such as those hitting card users exceeding their credit limit or paying
late, and curbs on rate increases, make it less lucrative for card issuers
to lend to the less creditworthy.
This time around, says Scott Hoyt, senior director
of consumer economics at website Moody's Economy.com, the impact on credit
losses "from actions taken by lenders has become stronger than the
unemployment rate."
Jensen Comment
Perhaps agreeing to phony loan-loss reserve levels of banks has been the darkest
hour in the history of CPA auditing ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
Bob Jensen's threads on dirty tricks of credit card companies are at
http://www.trinity.edu/rjensen/FraudReporting.htm#FICO
Potentially a Great Case for Managerial Accounting Courses: How can
Harry Potter movies be financial losers?
"'Hollywood Accounting' Losing In The Courts: From the math-is-hard
dept," TechDirt ---
http://www.techdirt.com/articles/20100708/02510310122.shtml
If you follow the entertainment business at all,
you're probably well aware of "Hollywood accounting," whereby very, very,
very few entertainment products are technically "profitable," even as they
earn studios millions of dollars. A couple months ago, the Planet Money
folks did a great episode explaining how this works in very simple terms.
The really, really, really simplified version is that Hollywood sets up a
separate corporation for each movie with the intent that this corporation
will take on losses. The studio then charges the "film corporation" a huge
fee (which creates a large part of the "expense" that leads to the loss).
The end result is that the studio still rakes in the cash, but for
accounting purposes the film is a money "loser" -- which matters quite a bit
for anyone who is supposed to get a cut of any profits.
For example, a bunch of you sent in the example of
how Harry Potter and the Order of the Phoenix, under "Hollywood accounting,"
ended up with a $167 million "loss," despite taking in $938 million in
revenue. This isn't new or surprising, but it's getting attention because
the income statement for the movie was leaked online, showing just how
Warner Bros. pulled off the accounting trick:
In that statement, you'll notice the "distribution
fee" of $212 million dollars. That's basically Warner Bros. paying itself to
make sure the movie "loses money." There are some other fun tidbits in there
as well. The $130 million in "advertising and publicity"? Again, much of
that is actually Warner Bros. paying itself (or paying its own
"properties"). $57 million in "interest"? Also to itself for "financing" the
film. Even if we assume that only half of the "advertising and publicity"
money is Warner Bros. paying itself, we're still talking about $350 million
that Warner Bros. shifts around, which get taken out of the "bottom line" in
the movie accounting.
Now, that's all fascinating from a general business
perspective, but now it appears that Hollywood Accounting is coming under
attack in the courtroom... and losing. Not surprisingly, your average juror
is having trouble coming to grips with the idea that a movie or television
show can bring in hundreds of millions and still "lose" money. This week,
the big case involved a TV show, rather than a movie, with the famed
gameshow Who Wants To Be A Millionaire suddenly becoming "Who Wants To Hide
Millions In Profits." A jury found the whole "Hollywood Accounting"
discussion preposterous and awarded Celador $270 million in damages from
Disney, after the jury believed that Disney used these kinds of tricks to
cook the books and avoid having to pay Celador over the gameshow, as per
their agreement.
On the same day, actor Don Johnson won a similar
lawsuit in a battle over profits from the TV show Nash Bridges, and a jury
awarded him $23 million from the show's producer. Once again, the jury was
not at all impressed by Hollywood Accounting.
With these lawsuits exposing Hollywood's sneakier
accounting tricks, and finding them not very convincing, a number of
Hollywood studios may face a glut of upcoming lawsuits over similar deals on
properties that "lost" money while making millions. It's why many of the
studios are pretty worried about the rulings. Of course, these recent
rulings will be appealed, and a jury ruling might not really mean much in
the long run. Still, for now, it's a fun glimpse into yet another way that
Hollywood lies with numbers to avoid paying people what they owe (while at
the same sanctimoniously insisting in the press and to politicians that
they're all about getting content creators paid what they're due).
Bob Jensen's threads on case learning are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
Bob Jensen's threads on return on investment
http://www.trinity.edu/rjensen/roi.htm
Bob Jensen's threads on management accounting
http://www.trinity.edu/rjensen/theory01.htm#ManagementAccounting
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory01.htm
KPMG's Foundation Updates ---
http://www.kpmgfoundation.org/index.asp
For years the KPMG Foundation has raised money for fellowships and other
services for minority PhD students in selected universities. Although the main
objective is financial support, there are other types of help given by the
Foundation and most notably the founder of this wonderful program --- Bernie
Milano.
Watch Bernie on the video at
The PhD Project
New Awards 2009-2010 Academic Year ---
http://www.kpmgfoundation.org/index.asp
Note that the funding for each student carries on from entry into the
doctoral program up to the time of departing from the doctoral program
Elio Alfonso, Louisiana State University
Dereck Barr, University of Mississippi
Cathalene Bowler, Morgan State University
Elicia Cowins, University of North Carolina Chapel Hill
Paige Gee, Temple University
Aisha Meeks, Jackson State University
Wayne Nelms, Morgan State University
Genese Rogers, Morgan State University
Menghistu Sallehu, Drexel University
John Williams, University of North Texas
Reginald Wilson, Jackson State University
Also note the listing of KPMG Professorships at
http://www.kpmgfoundation.org/foundinit.asp
Scroll down to the listing
My threads on the "Two Faces" of KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm#KPMG
We can only hope that the same spirit of cooperation is taking place in
the Academy
"U.S., Mexico Accountants Build Model Alliances: Cross-border commerce
flourishes between professionals.," by Bill Teague, CPA Trendlines,
July 18, 2010 ---
Click Here
http://cpatrendlines.com/2010/07/17/u-s-mexico-accountants-build-model-alliances/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+cpatrendlines%2FtPxN+%28CPA+Trendlines%29
With international initiatives emerging as one of
the AICPA’s key strategies, the U.S.-Mexico relationship may serve as a
model of friendhsip.
International cooperation was apparent up close and
in action at the U.S.-Mexico Conference in May, copresented by the San Diego
Chapter of the California Society of CPAs (CalCPA) and their counterparts,
the Colegio de Contadores Publicos de Baja California.
At the conference, AICPA president Melancon,
appearing for the first time since the conference’s inception over 15 years
ago, praised the work between the two societies.
“It’s a tribute to what’s going on from a commerce
perspective,” he said. “We appreciate the leadership of the CalCPA in these
cross-border relationships.” Melancon noted the annual conference has been
in existence since 1995.
JOINT SUMMIT
Melancon reported on the joint summit that had
taken place May 20, with the Instituto de Mexico Contadores Publicos’s
president, Luis Michel Dominguez.
“We had a great summit with IMCP president Luis
Michel,” Melancon said, praising him and other “true leaders on the
international stage” representing Mexico. “We have forged a very nice
relationship, meeting each year for several years,” he said.
The conference was marked by this kind of balance.
Presentations were in either Spanish or English, with simultaneous
translation available by headset.
Melancon’s appearance at the conference was paired
with the appearance of the IMCP’s Dominguez. Both Melancon and Dominguez
provided detailed overviews of current professional developments in their
respective countries.
Other sessions focused on Regional Enterprise
Zones, banking across borders, Mexico’s evolving financial statement
standards, and an update on U.S. international tax compliance.
PLEDGE FOR GREATER VISIBILITY
Both Melancon and Dominguez underscored the
existing reciprocity available between CPAs in the United States and
Contadores Publicos Certificado in Mexico. Professionals on one side of the
border can take an exam to demonstrate their knowledge. If successful, they
are provided licensure in the other country. Both did admit the reciprocity
was as well known as it should be, and agreed to address the issue.
PRACTICAL WORKINGS
In the meanwhile, if the conference is any measure,
most professionals are relying on networking and partnerships as the
quickest route to cross-border engagements. CPAs and other professionals on
both sides of the border took full advantage of breaks and a networking
session to forge links and relationships.
“I’ve noticed that when you work with a Mexican CPA
and he or she has a client that does business in the United States or has
other foreign issues, they immediately seek your advice and can potentially
generate a new client or consulting fees,” Susy Cabuto, CPA, Hutchinson and
Bloodgood LLP, said. “I think it is very important to nurture these
relationships because in the end, it allows us to offer top quality service
to our clients on both sides of the border.”
U.S. – MEXICO AND THE WORLD
Melancon underscored the progress between the CPAs
of the United States and Mexico as an early and successful response to the
growing international challenge. “As we’ve seen from recent headlines, we
don’t have the luxury to think of our economies as being contained within
borders,” Melancon said. “We need to help others understand this, [others]
who don’t live within a few kilometers of an international border.”
It’s a matter of making sure the profession thrives
in a changing world, he said. “For our profession to be successful for the
next ten, 20 and 30 years, we need to be more attuned to these international
issues.”
CHINESE INVESTMENT, MEDIAL TOURISM, RETIRING BABY
BOOMERS
The last session of the conference underscored the
international nature of today’s economy with a glimpse at three growing
trends in the U.S.-Mexican economy. Mauricio Monroy-Rojas, Managing Partner,
Ibanez Soltero Gomez Paz Y Monroy, S.C., predicted more visibility for
Chinese investment, medical tourism, and U.S. retirees choosing to relocate
to Mexico.
Foreign investment in decades past was around the
world of maquiladoras, originally led by Japan, followed by Korea and other
Asian countries, Monroy said.
(The maquiladora concept provides economic benefits
for foreign manufacturers based on labor costs and freedom from duties and
tariffs that might otherwise apply. Tijuana has many such maquiladoras.)
Monroy foresees China as taking a lead for foreign
investment in Mexico, and not just limited to in-and-out manufacturing
operations. China also views Mexico as a convenient distribution point to
the United States, he said. Chinese operations in Mexico will likely
increase in number, and then open related U.S. offices, he said, making for
a more complex tax environment.
While not new, U.S. medical tourism and the influx
of U.S. retirees will rise rapidly in future years, he said.
All three developments will require better
understanding of tax regulations on both sides.
“With such new economic and social phenomena
reshaping U.S.-Mexico cross border business, there is an increasing need for
understanding the tax issues of ‘the other side’ affecting all of our
clients,” Monroy said.
SIXTEENTH ANNUAL CONFERENCE
The joint conference was first begun in 1995 and
was founded by Katherine Leonard, CPA, currently of Hutchinson and Bloodgood,
LLP, and Monroy. Each year the conference is supported in the United States
by CalCPA.
“The conference has united the CalCPA San Diego
Chapter and the Colegio de Contadores Publicos on several levels,” Leonard
said. “First, we plan the conference together, identifying current issues of
interest to our members. Next, the speakers often collaborate on
presentations. The event itself offers networking opportunities, and the
venue alternates between the two countries.”
“Although we continue to face challenges, they
provide us great opportunities to strengthen our friendship among U.S. and
Mexican CPAs,” Monroy said.
More CPAs are embracing LinkedIn, Twitter and blogs and
reaping the benefits of doing so. Others remain hesitant and question their
value. In this video, Tom Hood, executive director and CEO of the Maryland
Association of CPAs, discusses the value of using social media.
http://email.aicpa.org/cgi-bin15/DM/y/egTw0bAne80GPA0rrO0EU
More on the For-Profit University Saga
Kaplan is a for-profit mostly online university (with limited onsite
alternatives) that includes a law school ---
http://portal.kaplanuniversity.edu/Pages/MicroPortalHome.aspx
"Justice Department Weighs In for Whistle-Blowers in Cases Against Kaplan,"
by Goldie Blumenstyk, Chronicle of Higher Education, July 6, 2010 ---
http://chronicle.com/article/Justice-Dept-Weighs-In-for/66150/?sid=at&utm_source=at&utm_medium=en
The U.S. Department of Justice weighed in Tuesday
on the side of several whistle-blowers who have alleged in lawsuits that
various colleges owned by Kaplan Higher Education defrauded the government
of hundreds of millions of dollars by paying incentives to recruiters and
lying to obtain accreditation.
The three cases, all filed under the federal False
Claims Act, were consolidated before the same federal judge in Miami last
year. Kaplan has been arguing to have two of the cases, one filed in
Illinois and the other filed in Florida, dismissed on grounds that under a
"first to file" provision of the act, only the earliest lawsuit filed should
proceed. Kaplan is also arguing that the suit that was filed first, in
Pennsylvania, should be dismissed on grounds that it lacks the specificity
required in a federal fraud case.
(A fourth suit out of Nevada initially was
considered as part of this consolidation, but it never was included).
The Justice Department, however, has urged the
judge to allow the allegations against Kaplan to proceed based on the
various "first-filed" claims from each of the cases, as long as the cases
don't substantially piggyback on one another.
As a condition of participating in federal
student-aid programs, colleges and universities owned by Kaplan affirm that
they will abide by the rules of a "program participation agreement," or PPA,
with the Department of Education. Each of the lawsuits alleges that Kaplan
fraudulently obtained millions in federal student-aid funds by violating
various provisions of that agreement—allegations that the company denies.
The False Claims Act allows individuals to sue on
behalf of the government for alleged fraud. The Justice Department has a
stake in such lawsuits because the government shares in any damages that may
eventually be recovered.
A memorandum it filed on Tuesday, at the request of
Judge Patricia A. Seitz of the U.S. District Court in Miami, suggests that
the department is eager to keep that option open in all three cases. To best
serve the purposes of the False Claims Act, the memo says, "there is no
reason why an allegation of a violation of one provision of a PPA should act
as a first-to-file bar against unrelated allegations of a violation of a
wholly different provision."
Bob Jensen's threads on for-profit colleges and universities are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm#ForProfitFraud
Semantic Web ---
http://en.wikipedia.org/wiki/Semantic_Web
DBPedia ---
http://en.wikipedia.org/wiki/Dbpedia
Freebase ---
http://en.wikipedia.org/wiki/Freebase_(database)
"Wikipedia to Add Meaning to Its Pages The online encyclopedia is
exploring ways to embrace the semantic Web," by Tom Simonite, MIT's
Technology Review, July 7, 2010 ---
http://www.technologyreview.com/web/25728/?nlid=3210&a=f
As a global resource built from the spare time of
millions of volunteers, Wikipedia may be the epitome of Web 2.0. But the
Wikimedia Foundation,
a nonprofit organization that runs Wikipedia, among other projects, is now
thinking about how to make it a linchpin of Web 3.0, or the semantic Web.
That means making some of the data on Wikipedia's
15 million (and counting) articles understandable to computers as well as
humans. This would allow software to know, for example, that the numbers
shown in one of the columns in
this table listing U.S. presidents are dates. That
could, in turn, allow applications that draw on Wikipedia to automatically
generate historical timelines or answer the kind of general knowledge
questions that would usually entail a person finding and reading a relevant
entry on the site.
At the
2010 Semantic Technology
conference in San Francisco last month, the foundation's deputy director,
Erik
Möller, and colleague
Trevor Parscal,
a user-experience developer for Wikimedia, showed some first steps taken by
the foundation to explore how more semantic structure might be added to
Wikipedia. They also appealed to the semantic Web community to help develop
ways to make Wikipedia's knowledge more accessible to computers and
software.
"Semantic information already exists in Wikipedia,
and people are already building on it," says Möller. "Unfortunately, we're
not really helping, and they have to use extensive processing to do so."
One example is
DBPedia,
a semantic database built using software collect data
from the site's pages, and maintained by the Free University of Berlin and
the University of Leipzig, both in Germany. Another is
Freebase,
a for-profit knowledge database, much of which was
also sourced by scraping Wikipedia. Freebase is the data source used by
question-answering search engine
PowerSet, which was acquired by Microsoft to be
part of its Bing search engine
Bob Jensen's threads on LinkedIn and the SematicWeb ---
http://www.trinity.edu/rjensen/Searchh.htm#LinkedIn
The Cius ---
Click Here
Relative to iPad, I like the fact that Cisco's new tablet connects to a docking
station.
The iPad has zero USB ports, whereas the Cius has three USB ports
Relative to iPad, I like the fact that Cisco's new tablet has a port for
external display such as an LCD Projector
Unlike an iPad, the Cius will play Adobe's Flash Videos served up at millions of
sites in the world
Why didn't Steve Jobs think of these for the iPad (I suspect he did but feared
that an iPad with these would blast a hole in Mac laptop sales)
|
Expanded capabilities through:
Click Here
• 3 USB ports
• 3.5-mm headset jack
• 10/100/1000-Gbps switch
ports for wired connections
and Power over Ethernet (PoE)
• Additional speaker for
wideband hands-free
communications
• DisplayPort™
to connect to a larger
display for an immersive
video experience and for a
virtualized desktop
experience
• Two handset options:
standard and slimline
|
|
|
|
The Cius is also much more friendly toward applications developers than the
greedy iPad's Orwellian Big Brother
I’ve been an open-source advocate from get go!
Video ---
Click Here
"Cisco Debuts Android-Based Tablet," by Jeffrey Schwartz, T.H.E.
Magazine, July 1, 2010 ---
http://thejournal.com/articles/2010/07/01/cisco-enters-tablet-market.aspx
Cisco Systems is the latest vendor to enter the
tablet device market and, like other players, the company is looking at its
entry as an alternative to traditional Windows-based PCs.
The Cius, announced this week, is a device that to
some degree looks like Apple's iPad, though it is based on Google's Android
platform. Cisco becomes the second major vendor to launch an Android-based
tablet in as many months: Dell in late May launched the
Streak. With its 5-inch display, it was described
by Dell as a hybrid smartphone and tablet.
But that's where the similarities end. Cisco's Cuis
is clearly targeted at professional, not consumer use. It will support an
optional docking station, enabling individuals to mount it to the IP-based
handset.
When undocked, the Cuis can connect to an
enterprise network or the Internet via 802.11 a/b/g/n WiFi or 3G cellular
services. Ultimately it will support 4G services as they become more broadly
available, Cisco said. Through Bluetooth and USB communications, the device
will be able to share data with a PC, Cisco said.
The Cius is not slated to be available until the
first quarter of next year, though Cisco said customer trials will begin in
the third quarter of this year, which begins July 1. The company has not set
pricing though a spokeswoman said it will carry a street price of less than
$1,000.
Cisco is pitching the Cius as a virtual desktop
that will allow for data collaboration and communication. It will support
real-time HD video, messaging, and Web browsing, allowing users to share
content in cloud-based services, Cisco said.
Weighing slightly more than 1 pound, it will have a
front-mounted 720p camera and a 5 megapixel rear-mounted camera, dual
noise-cancelling microphones, and a 7-inch Super VGA display.
The Cius will be designed to cork with Cisco's
various lines of collaboration products and services, including WebEx
Connect, Cisco Presence, and its high-end TelePresence videoconferencing
systems.
Cisco said it will also reach out to developers
with an SDK that includes its Collaboration APIs. The Cius will be made
available through Cisco's network of Unified Communications and
Collaboration partners, according to the spokeswoman.
With all these features, Cius owners may only have to carry the Cius tablet
from conference-to-conference or class-to-class. The unfortunate iPad users will
most likely have to lug their laptops along with their iPads.
"First Reactions to Blackboard Buying Wimba and Elluminate," by Joshua
Kim, Inside Higher Ed, July 8, 2010 ---
http://www.insidehighered.com/blogs/technology_and_learning
Here I'm going on
"Gut Feelings" and my
"Blink" - an approach I wouldn't necessarily
recommend.
I'd definitely read Ray Henderson's
blog post about the acquisition - and the
letter to clients is also worth your time.
I'm sure my reactions contain thoughts that will
piss off everyone …. just remember that
I may be wrong.
Gut Reactions:
--This is Very Smart for Blackboard: The
future of the LMS involves knitting together various functions. Synchronous
meetings, presence awareness, and voice-authoring/collaboration are all
essential pieces of the online/hybrid learning experience. The danger for
Blackboard is that their core product becomes essentially middleware -
performing commodity functions such as enrollment management, gradebook,
etc. etc. Tying the higher value-add services directly into the Blackboard
product (as will happen over time) makes it more difficult to replace
Blackboard with another LMS.
--Elluminate Needs Development: I have
utilized Elluminate for Webinars, and I have to say that I find the platform
lacking as compared to Adobe Connect Pro. Others will disagree - but
whatever your synchronous collaboration tool preference I think you will
agree that all the platforms need significant investment. I wonder how much
better Elluminate will be than Adobe Connect Pro, particularly when the
Adobe product is integrated with Blackboard using the building block. Even
though I've never been wild about Elluminate, I think that the tool offers a
quantum leap of functionality over the atrocious native Blackboard
synchronous tools - and if Blackboard is smart they will quickly fold this
Elluminate into their core offering.
--Wimba Voice/Chat Features Are Great: I've
never quite understood why it was necessary to buy key voice and chat
(presence awareness) tools on top of the LMS - but I think Wimba has been
fulfilling an important need. If I were Blackboard I'd also integrate the
Wimba features into the core - and make the money with services,
integration, etc. etc.
--Bad News for Non-Blackboard Wimba and
Elluminate Clients: I can't see how I'd be happy with this news if I'm
running Moodle and Wimba or Elluminate. Ray is someone I trust - so his
assurances that investments will be made to support and grow the products
for non-Blackboard clients do carry a great deal of weight. Still … if I
were a Moodle person I'd be reviewing my options about now.
--If You Are Worried About Lock-In, You Should
Be: And you should be worried about lock-in, as it will be even more
difficult to leave Blackboard once the core tool is also providing
synchronous meetings and rich collaboration / student authoring functions.
Many campuses will like the pre-baked integration and robust features that
the eventual fully integrated products will deliver. Others will (wisely)
decide to piece together open-source and consumer tools, leaving themselves
with agility and flexibility.
--Kaltura or ShareStream or Ensemble Are Next:
The big piece that is missing from Blackboard now is a way to do curricular
media management. The Kaltura and ShareStream already offer robust
Blackboard integration - wouldn't it make more sense from Blackboard's
perspective if they could offer a full vertical solution - one sales cycle,
one support model, one source for integration and localization?
--Good News for Blackboard Campuses (I Think):
Overall, my gut tells me that this is good news for Blackboard campuses - as
synchronous learning and collaboration will improve (I think) with both
integration and focused resources. Getting rid of the need to have separate
sales teams and back-offices, and combining developer resources, will mean
more dollars and time can be spent on improving functionality. I'm also
worried about lock-in, but perhaps more excited about the robust and
seamless experience.
I'd also say this is good news for our industry. If
I were working at Blackboard this is exactly the deal that I would have
tried to arrange. This deal puts Blackboard in a very strong position in
terms of their long-term relevance in higher ed, and I think addresses much
of the risk that open/community source alternatives like Moodle were
beginning to pose. I also believe that within 3 years time Blackboard will
be acquired by Microsoft or Oracle or maybe even Google - as the education
market will only grow. This acquisition will be seen as a smart move along
the road to that destination.
Collaboration ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Collaboration
Social Networking ---
http://www.trinity.edu/rjensen/ListServRoles.htm
Google Wave ---
http://en.wikipedia.org/wiki/Google_Wave
Rick Telberg pointed me to this excellent
slide show by Tom Hood (Maryland Association of CPAs and a close friend of Barry
Rice)
CPAs and the Social Media (75
slides) ---
http://www.slideshare.net/thoodcpa/social-media-strategy-quickstart-for-cpas
Early on Tom picked up on social networking as an important tool in a CPA firm's
tool bag.
Collaboration Software ---
http://en.wikipedia.org/wiki/Collaboration_software
"What Belongs in a 21st-Century Classroom? Faculty and IT Staff Disagree,"
by Sophia Li, Chronicle of Higher Education, July 19, 2010 ---
http://chronicle.com/blogPost/What-Belongs-in-a-21st-Century/25642/?sid=wc&utm_source=wc&utm_medium=en
Faculty members and information-technology staff
members alike say technology is useful for teaching and learning, but
professors take a narrower view of what technology belongs in today's
classroom, according to a report released on Monday by the technology
company CDW Government Inc.
Eighty-eight percent of the 303 faculty members
surveyed said technology was essential or useful for student learning, and
over 60 percent said they used electronic materials in their teaching,
according to the report.
The most popular tools cited by professors were
e-textbooks and online documents, with faculty members reporting far less
enthusiasm for other electronic tools. Under a quarter of faculty members
surveyed use wikis or blogs in their teaching, and only 31 percent of
professors surveyed considered online collaboration tools "essential" to
today's classroom, compared with 72 percent of over 300 IT employees
surveyed.
That suggests an interesting gap between technology
staff members and professors when it comes to how smart classrooms need to
be. How wired should teaching spaces be?
E-mail Print Comment (22) Share Share Delicious
Digg Facebook Linked In Mixx Reddit Twitter Yahoo Buzz Comments 1.
morningsider - July 19, 2010 at 05:47 pm
Perhaps IT employees already know how to use such
tools. I am self taught but have been evangelizing wikis to my faculty
colleagues. I have even voluntarily led a faculty workshop on wikis--just to
help my colleagues learn how to use them.
I think there are at least three problems that
might explain this "gap" between IT and faculty attitudes. First, for many
faculty there is a learning curve: on top of structuring course material,
they have to learn the vagaries of specific software or platforms. Second,
there are so many options for tech tools many faculty don't know which are
most appropriate for their teaching style. Who can guide them to the tools
most useful for their teaching? Third, many faculty, at least at my
institution, don't have enough technical support in the classroom. Let's say
an instructor has prepared a class period on collaborative work on a wiki:
the network goes down (too frequent an occurrence on our campus) or the data
projector malfunctions. S/he calls computer services for help--no one is
available to troubleshoot until it is too late.
The existence of technology tools is not enough.
Faculty need help, training, and technical support before such tools can be
used effectively.
2. arrive2__net - July 20, 2010 at 05:06 am
The information-technology staff members provide
support across all faculty members, so their answers probably would reflect
the perceived needs across all faculty. Faculty are likely answering just
for themselves. Faculty have to pay a lot of attention to what is going on
in their own field, they have to keep up-to-date with what often turns out
to be a moving target. For professors, learning, developing, and practicing
applications of new learning technologies is a whole other work effort that
goes on top of their existing full time job of being a teacher and a scholar
(and often a researcher). Another factor is that a professor can get burned
by investing a lot of time developing and learning tech applications if
then, he or she turns out not to be teaching that course next year or term,
or if changes in the text or field renders the tech application out-of-date.
For IT, on the other hand, the technology is their bread-and-butter, so
naturally ... (you'd better bet) it matters.
Bernard Schuster Arrive2.net
3. beveridge - July 20, 2010 at 07:09 am
At Queens College, where I teach, seven different
sign-ons are required for students to have full access to the various types
of computer systems they need: Account to Claim College System Account,
College System Account, E-mail Account, Blackboard Account, Cuny Portal
Account, MyQc Web Account, Portal Account for Library Access, Account for
Remote Access.
Any of these tools: wikis, e-portfolios, blogs, add
still another level of access issues and make teaching even more difficult
with extremely limited resources.
In a recent survey, we found tht about 15% of
students do not have adequate access to do their work in a Statistics class.
About half drop out, and the other half jump through significant hoops to
get them.
In the words of Van Holland (former UMICH Tech
Guru) "No more miracles please."
4. paievoli - July 20, 2010 at 07:20 am
You can easily fix the sign-on problem. Just use a
student portal that supplies all needs in one place. A very simple
aggregator of all contant in one place that is accessible 24/7/365. This is
the problem. Just take a look at my site and see. http://www.thecampuscenter.com
everything in one place and for free no seat charges no cost.
5. mberman54 - July 20, 2010 at 08:05 am
I'll throw in an IT prefessional's point of view:
It's our job to be futurists in this area. Pin one of us down and we'll
admit that we don't know which of the tools we advocate for today will still
be around in 10 years, but we also know that if they're not around, the
functions will be subsumed into other things. We also know, from supporting
our student populations, that the students are trending strongly towards a
preference for online communications. Morningsider made the important point
that many faculty don't know how to use, or are uncomfortable, with these
tools. From experience I can promise you that they will get easier to use
over time, but in the meantime we're here to help you, and if you want to
reach your students, you'll find them online.
6. infogoon - July 20, 2010 at 08:05 am
@beveridge - There are many single sign-on
technologies that would help with that. Industry standards like LDAP and
Kerberos are supported by most systems (email, Blackboard, etc.) and can be
used to synchronize passwords across multiple login environments.
My school decided to bite the bullet and deploy a
solution to mitigate this same problem a few years back. It's a fair amount
of legwork, but not especially cutting edge or difficult for most
environments.
7. infogoon - July 20, 2010 at 08:06 am
(Oh, I forgot to mention - Blackboard does _not_
support LDAP authentication on their lowest tier product, forcing you to buy
a huge and expensive bundle of additional services instead. They're an
exception. We got around the problem by switching to another LMS, since our
contract with them ended during this deployment.)
8. vudutu - July 20, 2010 at 08:17 am
There are a number of problems, the usual budget
issues, management by committee, lack of training, dated and overly complex
systems and tools, poor direction, lack of faculty involvement in
understanding IT and not feeling inclusion in IT decisions.
That all said I believe the biggest issue is
digital immigrants teaching digital natives. The most digitaly enabled and
accepting are the adjuncts, the aging faculty are frozen in the digital
headlights. IT personel, like the younger students live with tech so they
accept it.
9. csgirl - July 20, 2010 at 08:22 am
I'm in computer science, and if anything, tend to
be ahead of our IT staff when it comes to nifty online tools. My teaching is
of course very dependent on technology. My problem is, I can't get IT to
adequately support the tools that I need - software repositories, bug
tracking systems, any IDE other than Visual Studio - so I have to spend a
lot of time doing my own setup and support. I also find that IT is its own
little closed world. They don't have much inkling of the teaching needs of
faculty, so the applications they choose to promote are often not that
useful.
10. jleone - July 20, 2010 at 08:23 am
At RIT, we have a strong ITS and excellent support
services for using technology in the classroom. And while older faculty tend
to be lass facile with technology, it isn't uniformly true. At age 72, I
have pushed myself to stay current with technology. Of course, I teach in
the computing disciplines. We have access to very high quality seminares and
workshops for faculty on our campus. We have access to hi-tech rooms for
recording lectures. Our major problem is the strong push for scholarly
endeavors, a recent (past 10 years) in the direction our institution has
taken.
11. interface - July 20, 2010 at 08:39 am
Every IT department has its favorite platforms;
every IT person has preferred programs and ways of accomplishing any given
task; every administration has different notions of the place of technology
in the classroom. And those favorites and preferences and notions keep
changing. If you're an adjunct working for different institutions, as more
and more of us are, it's tiring and time-consuming and ultimately
counterproductive to try to adjust to them all. One thing's true across the
board: those most enamored of technology are the first to lose sight of the
fact that it's a good servant and a bad master, and that there's no
substitute for the human connection necessary for good teaching.
12. clancymarshall - July 20, 2010 at 08:50 am
The DynamicBooks platform is an e-book that enables
instructors to upload online documents, audio and video and also to edit the
text to make it more relevant for students. What do you think? Will
instructors in 21st Century classrooms customize e-books for their students
or use them as is?
13. 3224243 - July 20, 2010 at 09:21 am
#9 (csgirl) - I'm at a comprehensive state
institution with 8500 students and 300 faculty. All of our general-use
classrooms (appx 100) have a base level of technology with upgrades
performed regularly and newgen technology implemented as budget allows. What
we provide and support is a result of what faculty members request. And, we
do it with 2.5 FTE.
Get off your high horse. You're not the only
instructor on campus and you're not the only one we support.
14. catlkelley - July 20, 2010 at 09:21 am
From the title I thought this article would be
about the classroom itself - i.e. what technologies need to be installed in
a classroom, such as data projectors and smart boards.
In any case, from an IT / teaching support point of
view, I agree with comment #2 above. If 25% (or even 10%) of our faculty
need or want a particular technology, then that is 100% a concern for me. So
I am not at all surprised that the numbers of IT people who find particular
technologies to be "essential" is much higher than the numbers of faculty
who say that about the same technology. I am actually surprised that the
numbers for IT staff aren't higher than they are.
Reading through the comments so far, it is very
clear to me that there is a great deal of variability in the kind of support
that is provided to faculty. And by this I do not mean only the breadth of
technologies available. I mean the support that faculty need to thoughtfully
integrate technology into the curriculum. My office is dedicated to the
concept mentioned by "interface" in comment #11 - namely, technology is a
good servant but bad master. We try to focus on teaching & learning first
and technology only when it will help. It's a difficult thing to do, as we
are also bound to keep up with current trends and new technologies. We'd
like to see adventurous faculty try out the new stuff so that we can gauge
its utility in real life.
15. broekhuysen - July 20, 2010 at 09:44 am
I wonder how many of the faculty members surveyed
are teachers of foreign languages -- I'd be willing to bet that a very
higher percentage of them use technology regularly (as long as they teach in
institutions with the specific professional support they need) -- and not
only in "labs", for doing homework, but as a constant presence in the
classrooom -- if they have the kind of access they need.
16. alex369 - July 20, 2010 at 10:32 am
Let me get this straight: The Chronicle publishes a
free ad for CDW Government Inc., a private company with undisclosed
interests, and there is a serious debate about the company's claims?
17. jeanniec - July 20, 2010 at 10:40 am
@alex369 Agreed. Why is this even posted here?
According to the report you can contact Kelly Caraher CDW-G Public Relations
for more information. Her title says it all.
18. drjeff - July 20, 2010 at 10:44 am
As an IT guy, I couldn't sit here a "listen" to
everyone saying how "easy" it is to do "single sign-on." (This is what IT
folks call integrating things to the point that students -- and faculty --
don't have a separate account on each little fiefdom's system.)
Yes, the technology to do it is reasonably
well-known (even if beyond the least expensive version of Blackboard and
some other products). All you do it install, set up and populate a directory
system (usualy LDAP), then make every system refer to it rather than its own
database. But, because the various systems are, on most campuses, highly
Balkanzed (at least in their ownership), many campuses, like many
corporations, find it exceptionally difficult to get essentially every
department to dedicate the effort (even if fairly small) to support the
project, which is what's necessary to actually make it happen.
In corporations, the CEO or COO usually ends up
"pushing" successful implementations, or else it takes literally years. On a
campus, it often takes the President. The next person in line (on our
campus, it's the Executive VP for Finance and Administration) may or may not
have the necessary "pull" with some of the departments.
Don't forget, we're probably talking about everyone
from the Rec center to the Religious Studies department to the Credit Union,
not to mention Food Services, Computer Science and the LGBTQ Center. Did I
leave out Middle Eastern studies and the repair shop behind the research
labs? You get the idea.
Sure, you (or I) can describe what has to be done
with one sentence. Getting it done? That's going to take a little more.
19. csgirl - July 20, 2010 at 11:29 am
#13, you guys sound seriously overwhelmed, and I
can appreciate that. I used to teach at a comprehensive state U that sounds
remarkably like what you are describing. But that isn't what this article is
talking about. The article seems to be discussing a gap between supremely
knowledgable IT people and Luddite professors who won't adopt the wonderful
technology the IT people recommend (at least, this is how the IT folks see
it). This is the mentality I deal with at my current school, where we have
armies of IT specialists. The problem is, our IT people are spending tons of
time playing with whiz-bang technology that no professor has requested,
congratulating themselves on how "advanced" they are, instead of educating
themselves on the technology that we actually need and use.
20. jboncek - July 20, 2010 at 11:45 am
Technology is sometimes useful, but hardly
essential.
21. lizlanin - July 20, 2010 at 11:58 am
"For professors, learning, developing, and
practicing applications of new learning technologies is a whole other work
effort that goes on top of their existing full time job of being a teacher
and a scholar (and often a researcher)."
Shocker, sounds like my job in the corporate world.
I too have to learn new technologies in order to do my full-time job... why
should professors be any different?
Bob Jensen's threads on collaboration are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Collaboration
Bob Jensen's threads on Blackboard are at
http://www.trinity.edu/rjensen/Blackboard.htm
Bob Jensen's threads on social networking are at
http://www.trinity.edu/rjensen/ListservRoles.htm
Joe Cassano ---
http://en.wikipedia.org/wiki/Joe_Cassano
A PwC Partner’s Scribbled Notes Helped Save Joe Cassano’s Hide ---
http://goingconcern.com/2010/07/a-pwc-partners-scribbled-notes-helped-save-joe-cassanos-hide/scribble_2/
July 23, 2010
message from Francine McKenna
[retheauditors@GMAIL.COM]
Here's what I wrote about the issue. In April. And
again in June.
http://goingconcern.com/2010/04/good-news-bad-news-aig’s-cassano-snitches-on-pricewaterhousecoopers/
http://goingconcern.com/2010/06/what-a-tangled-web-we-weave-aig’s-cassano-says-he-told-pwc-everything/
The stories in NYT and WSJ are coming out because the
documents that contain the evidence of the PwC knowledge of Cassano's
contentions in November, pre- the investors meeting in December, have just
been made public by the Financial Crisis Inquiry Commission. They make for
interesting reading for anyone with the interest, aptitude and patience.
http://www.fcic.gov/hearings/06-30-2010.php
Francine
Bob Jensen's threads on PwC
are at
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's Fraud Updates are
at
http://www.trinity.edu/rjensen/FraudUpdates.htm
NASBA ---
http://en.wikipedia.org/wiki/Nasba
NASBA video that you may want to watch ---
http://bit.ly/HowToBecomeACPA
You could really do NASBA
a favor by watching the entire video and then sending your review comments to
Perri with copies to me.
Perri’s email address is
powens@nasba.org
You may want to
share this video with prospective accounting majors as well as advanced
accounting majors approaching the CPA Examination.
I thank Tom
Selling for passing my name along to Perri.
From:
Perri duGard Owens [mailto:powens@nasba.org]
Sent: Thursday, July 08, 2010 3:35 PM
To: Jensen, Robert
Subject: Re: FOR IMMEDIATE RELEASE: NASBA RELAUNCHES WEBSITE PROVIDING
RELIABLE CPA LICENSING INFORMATION
I am happy to hear that you liked the video. Your suggestions are very
helpful. I am reviewing and will work with our internal team to incorporate
these.
Would you be willing to send out our release and video to your group?
Perri
----- Original Message -----
From: "Robert Jensen" <rjensen@trinity.edu>
To: "Perri duGard Owens" <powens@nasba.org>
Sent: Wednesday, July 7, 2010 11:08:03 AM
Subject: RE: FOR IMMEDIATE RELEASE: NASBA RELAUNCHES WEBSITE PROVIDING RELIABLE
CPA LICENSING INFORMATION
Hi Perri,
I liked the video.
But your homepage needs some improvements.
You need a link to “ALL” on the homepage itself. When I entered
“ALL” in the search box I was led astray.
You should also have a link to the YouTube “How to Become a CPA” video on
your homepage.
Click on the NASBA Tools link at
http://www.nasba.org/nasbaweb/NASBAWeb.nsf/NWL/9D46587571985124862571BC006E108E?OpenDocument
It led me to nothing.
Perhaps
you should consider another link to a video on why a student might choose to
major in accounting and eventually become a CPA.
You should also have a FAQ page on what it means to be a CPA with links to
the following:
Profitability: Based on 300,000 companies, most with annual sales under $10
million. One takeaway: Specialization pays off
What
a great Rank 1 slide for college recruitment of accounting majors ---
http://www.forbes.com/2010/04/15/most-profitable-small-businesses-entrepreneurs-finance-sageworks_slide_21.html
The
most profitable niche of the bunch (CPA bunch) enjoys a nice mix of pricing
power (everybody needs accountants, no matter how the economy is doing), low
overhead and marketing scale, thanks to plenty of repeat clients.
Other
Accounting Services comes it at Rank 3 ---
http://www.forbes.com/2010/04/15/most-profitable-small-businesses-entrepreneurs-finance-sageworks_slide_19.html
Various accounting, bookkeeping, billing and tax preparation services in any
form, handled not necessarily by a Certified Public Accountant (see No. 1 on our
list).
And
at Rank 5 are Tax Preparation Services (one rank below dentist offices) ---
http://www.forbes.com/2010/04/15/most-profitable-small-businesses-entrepreneurs-finance-sageworks_slide_17.html
Who
likes doing their taxes? Exactly.
"The
Most Profitable Small Businesses," by Brett Nelson and Maureen Farrell,
Forbes, April 15, 2010 ---
http://www.forbes.com/2010/04/15/most-profitable-small-businesses-entrepreneurs-finance-sageworks.html?boxes=entrepreneurschannelinentre
The 20
Most Profitable Slide Show (The top line has a Next button) ---
http://www.forbes.com/2010/04/15/most-profitable-small-businesses-entrepreneurs-finance-sageworks_slide.html
Stress some of the key points and links given at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
In
particular, also stress some of the advantages of becoming an accounting
professor vis-à-vis other types of professors (for one thing accounting
professors tend to be higher paid due to enormous shortages of PhD
accountants in North America).
"So you want to get a
Ph.D.?" by David Wood, BYU ---
http://www.byuaccounting.net/mediawiki/index.php?title=So_you_want_to_get_a_Ph.D.%3F
Do You Want to Teach?
---
http://financialexecutives.blogspot.com/2009/05/do-you-want-to-teach.html
If I can be of further help, please let me know.
Bob Jensen
From: Perri duGard Owens [mailto:powens@nasba.org]
Sent: Wednesday, July 07, 2010 8:55 AM
To: Jensen, Robert
Subject: Re: FOR IMMEDIATE RELEASE: NASBA RELAUNCHES WEBSITE PROVIDING
RELIABLE CPA LICENSING INFORMATION
That would be wonderful. Thank you so much for responding. Is the release
enough information to send out to your ListServ? Or do you require
additional information? I can tailor something to the educator demographic
if that would be helpful - providing you with an intro paragraph before the
release information.
We also offer complimentary ALL accounts for any college professor. I am
happy to set-up a demo with one of our product experts if you are available
as well.
Please let me know how best to proceed.
Thanks,
Perri duGard Owens
Marketing Manager
-----------------------------
National Association of State Boards of Accountancy (NASBA)
150 Fourth Avenue North, Suite 700
Nashville, TN 37219
-----------------------------
P/F:
615-312-3848
M:
615-829-6499
E: powens@nasba.org
----- Original Message -----
From: "Robert Jensen" <rjensen@trinity.edu>
To: "Perri duGard Owens" <powens@nasba.org>
Sent: Tuesday, July 6, 2010 5:12:42 PM
Subject: RE: FOR IMMEDIATE RELEASE: NASBA RELAUNCHES WEBSITE PROVIDING RELIABLE
CPA LICENSING INFORMATION
Hi Perri,
I would be happy to speak more with you about this, hopefully via
email until we get further along.
I apologize for the delay in answering your message.
Bob Jensen
From: Perri duGard Owens [mailto:powens@nasba.org]
Sent: Thursday, July 01, 2010 2:25 PM
To: Jensen, Robert
Subject: Fwd: FOR IMMEDIATE RELEASE: NASBA RELAUNCHES WEBSITE PROVIDING
RELIABLE CPA LICENSING INFORMATION
Bob - I received your name from Tom Selling with The Accounting Onion blog
and he suggested that I forward this information that NASBA just released
last week regarding our Accountancy Licensing Library website relaunch. Perhpas
it would be useful information for the academic subscribers to your
listserv?
NASBA is developing relationships with several media outlets and online
resources and would like to share valuable information to assist those
interested in the profession.
For example, with the relaunch of our ALL website we've created a new video
explaining, from a NASBA point of view, How to Become a CPA (http://bit.ly/HowToBecomeACPA
).
Considering
the varying ways that the accounting profession interacts with NASBA, we are
cultivating opportunities to provide additional content or hold discussions
with media entities so that we can foster conversation as part of our PR
efforts.
There are several additional tools that may be useful for your online
readers. Would you be willing to speak further with me about this?
Your response, in advance, is very much appreciated.
Perri
Bob Jensen's threads on
accounting careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
"NASBA Gives Its Accounting License Library a Makeover," by Adrienne
Gonzalez, Going Concern, July 23, 2010 ---
http://goingconcern.com/2010/07/nasba-gives-its-accounting-license-library-a-makeover/
For those of you that aren’t already aware, we
implore you to check out NASBA’s incredibly useful
Accounting
Licensing Library – a comprehensive,
continually-updated database that can help future CPAs find a state in which
to be licensed and offers accounting firms access to important state data to
assist in their efforts across state lines. In other words, the tool’s main
goal is to facilitate mobility by bringing all 55 jurisdictions together in
one easy-to-use area while offering a one-stop shop for those considering
CPA licensure.
We recently got a chance to chat with NASBA General
Counsel and Director of Business Development Maria Caldwell about the new
ALL.
The new ALL tool features
a new
section for accounting students, an enhanced state
requirement comparison research tool and expanded product information. The
refreshed ALL website offers the same features and benefits as the previous
site in a more user-friendly format. Users can find detailed licensing
information and even use their research tool to determine if their
educational requirements meet any state’s licensure requirements without
having to click through each state board’s website individually. This is
huge for candidates and for NASBA, as it allows them to spend more time
dealing with candidate issues and less time pointing candidates in the right
direction.
The birth of the ALL actually began within NASBA
four years ago as they wanted a single resource for internal use that would
take each state board’s requirements and aggregate them into one place.
“There really wasn’t one source to go to and look up all these different
rules, so that was the impetus for putting the tool together,” Caldwell told
us. “We wanted to offer it to firms at first but once it was out there we
realized there were several different audiences using it. Students use it as
a licensing tool and international candidates use it as well.”
With over 700 candidates accessing the tool per
year (before the makeover) and a significant leap in CPA exam applications
since the first whispers of an economic downturn in 2008, interest in the
tool and CPA licensure does not appear to be waning any time soon.
Beyond the licensure aspect of the tool, the ALL
gives both individuals and firms a way to improve their own economic
outlooks by reaching across state lines to find clients. “In this kind of
environment, the firms are looking to neighboring states if their state is
suffering from a lack of business,” Caldwell said. The tool allows for
mobility without firms wasting countless hours combing through state
requirements and allows CPAs in a specialty practice to meet the needs of
clients who may be in areas that lack qualified accountants who offer their
specialized services.
As the CPA exam prepares to go international, NASBA
is counting on increased interest in not only the ALL but the all-important
CPA designation. Let’s face it, not every industry can say it has weathered
the economic downturn as well as CPAs have and passing the exam is still
considered a prestigious accomplishment across the globe.
Great job, NASBA, we definitely approve!
Bob Jensen's threads on passing the CPA Examination ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam
Hi Tom,
I’m glad to see that IASB member Jim Leisenring found his rusted
spurs used when he was a FASB member. Jim’s never been one to pull his punches.
I admire his work in bringing
about
the badly needed FAS 133 and 123-R. Jim’s one of the few FASB-IASB members who
really understands derivatives and hedging.
I was glad to see Deloitte hammer down on the IASB for proposing
a totally unrealistic probability-weighted recoverable cash flow model in place
of the current trigger-event adjustment for credit risk changes of future cash
flows. At least the trigger-event gave auditors something to hang their hats on
when auditing loan loss reserves. Deloitte asserts the probability-weighted
model as non-operational and non-auditable as proposed by the IASB ED on
Financial Instruments: Amortized Cost and Impairment. I concur 100% ---
http://www.iasplus.com/dttletr/1007amortcost.pdf
Both the IASB and FASB are truly proposing low-quality and
unworkable standards in such areas as financial instruments impairment and fair
value accounting and revenue recognition. I almost threw up when I first read
the joint proposal for revenue recognition. Welcome to the world of hypothetical
revenue to accompany the hypothetical world of unrealized changes in fair value
and impairment.
Thanks Tom,
Robert E. (Bob) Jensen
Trinity University Accounting Professor (Emeritus)
190 Sunset Hill Road
Sugar Hill, NH 03586
Tel. 603-823-8482
www.trinity.edu/rjensen
From:
noreply+feedproxy@google.com [mailto:noreply+feedproxy@google.com] On Behalf
Of The Accounting Onion
Sent: Monday, July 12, 2010 8:20 AM
To: Jensen, Robert
Subject: The Accounting Onion
|
An IASB Member Unleashed
Posted: 12
Jul 2010 12:20 AM PDT
I can't cite
chapter and verse for this, but experience tells me that there is a
cardinal rule for IASB and FASB members that goes something like this:
'If you can't say something nice about board deliberations, then don't
say anything at all.' Thus, I was surprised read that IASB member
James Leisenring recently
made some less-than-bland comments in regard to the quality of the
sausage spewing forth out of the IASB/FASB's high-speed grinders and
packers.
But, before I
continue, a caveat is in order. I was not in
attendance when Leisenring
made the remarks that are the subject of this post. After an arduous
15-minute search I am compelled to notify readers that my only source
for his comments is a very brief news article credited to one Simon
Brown and entitled,
IASB
Member Calls Lessor Accounting Discussions with FASB "Hopeless."
The report was sent to me via email by a much-respected source, who must
remain nameless. I have not even been able to discover the title of the
publication in which Brown's article appeared.
According to
Brown's report, Leisenring made colorful comments on three topics:
leases, pensions, and a disagreement among IASB members as to what
constitutes "high quality accounting standards" (which I will abbreviate
to "HQAS"). As lease accounting holds a special place in my pet-peeve
riddled heart, I'll have more to say about the lease accounting comments
at a later time. The topic for this post will be restricted to the HQAS
remark.
According to
Brown:
"Leisenring
also explained an interpretive disagreement he has with some IASB
members regarding what is meant by 'high quality standards.' He said
some consider high quality accounting standards can be standards that
are unambiguous, such that a practitioner 'can't fail to comply with
them.' An unambiguous standard, however, could still allow 'for implicit
alternatives' to the standard, Leisenring argued. He did not offer an
alternative model."
Actually, I
can't say that I even know from Simon's account what Leisenring is
specifically referring to. What grabbed my attention was simply that the
IASB members are still trying to figure out for themselves what
constitutes an HQAS, especially if it will be used as a benchmark
against which to judge the results of IFFRS/GAAP convergence. I'm also
surprised that the dialogue among the players seems to be: (1) strictly
amongs the IASB members; and (2) apparently restricted to the compliance
side of standards – as opposed to whether the numbers reported in the
financial statements actually will mean anything.
Regarding the
strictly intramural aspect of the discussion, I have
noted previously that
James Kroeker, SEC Chief Accountant has stated that the SEC would want
to determine whether convergence has resulted in demonstrably higher
quality accounting standards before moving further down the IFRS
adoption path. Leaving aside my concern that "demonstrably higher" is
neither very ambitious nor specific, the SEC's view of what HQAS means
should count for something to the IASB, assuming they actually care
about making a case for convergence.
Moreover, if
there are some doubts as to what HQAS is, the SEC's view could have been
attended to more closely at the
outset of formal
convergence efforts (October 2002); for surely the SEC had convergence
in mind when they published their congressionally mandated (see the
Sarbanes Oxley Act, Section 108(d))
report on the feasibility
of "principles-based" accounting standards in August 2003. According to
the SEC, the "objectives-oriented" standards they are looking for from a
standard setter should possess the following qualities:
"Be based on an
improved and consistently applied conceptual framework;
Clearly state
the accounting objective of the standard;
Provide
sufficient detail and structure so that the standard can be
operationalized and applied on a consistent basis;
Minimize
exceptions from the standard;
Avoid use of
percentage tests ("bright-lines") that allow financial engineers to
achieve technical compliance with the standard while evading the intent
of the standard."
Now, seven
years later, the SEC's battle plans have been subordinated during the
din and desperation of convergence wars.
Are any
new standards from either board "based on an improved and consistently
applied conceptual framework"? Obviously not, for nary a
single alteration to any conceptual framework document has occurred in
the last seven years. The existing definitions for assets and
liabilities are like wooden ships sent to battle against nuclear
submarines.
Does each
new standard, or revised standard "clearly state the accounting
objective"? In a strict compliance sense, the answer could be 'yes,' but
otherwise not. Take IFRS 3R on business combinations:
"The objective
of this IFRS is to improve the relevance, reliability and comparability
of the information that a reporting entity provides in its financial
statements about a business combination and its effects. To accomplish
that, this IFRS … [establishes a bunch of new rules].
Fair enough, I
suppose. But, every new IFRS should "improve relevance, reliability and
comparability"—so what contribution does stating what should be the
objective for
all
accounting standards to HQAS? For example, the IASB has an outstanding
exposure draft proposing to continue to give companies the option to
fair value financial liabilities.
"The
objective of this statement is to
diminish
comparability and reliability
by allowing companies to arbitrarily choose to measure some of their
liabilities at fair value, and to measure rest of its liabilities
according to the rules of this statement."
As to "minimize
exceptions to the standard," why did the IASB propose to exclude
insurance companies from the scope of its putatively "principles-based"
revenue recognition exposure draft (at earlier stages of the project,
insurance was not excluded); or to exclude extractive industries from
its leasing ED; or, again in IFRS 3R, and without exposing it for
comment, to give acquirors the option of measuring noncontrolling
interests at historic cost instead of fair value?
A High
Quality Recipe -- If I May Be Allowed to Say So Myself
Up to this
point, I have set aside my misgivings with the SEC's 2003 report, and
especially the apparent lack of monitoring to ensure that its
recommendations were adopted. I wanted to focus on my misgivings with
the IASB/FASB convergence project as a producer of HQAS; for taken as a
whole, the last seven years have done little more than to add filler and
artificial coloring to the old sausage recipes. Now, finally, here is
my very own recipe for making HQAS.
First and
foremost, for there to be a higher quality accounting standard, there
must be higher "earnings
quality," defined as the strength of association between
reported earnings and economic earnings. Higher earnings quality can,
and must, be established from standard economic logic. For example, I
believe that every post I have written in which I have suggested an
alternative accounting standard has been based on a logical link between
my proposed standard the economic earnings. On the other hand, the
Boards' leasing exposure drafts, for example, would fail this test;
because, although all leases would be capitalized, the numbers put on
the financial statements are
arbitrarily determined.
[insert link from prior post]
Second, accounting should never be determined by management's intent,
strategy, or even industry. An asset is an asset and a liability is a
liability.
Third, do not twist perfectly clear English terms into misleading
terms of art. The lump left over from IFRS 3R's additions and
subtractions is not "goodwill";
and multiplying an historic cost denominated in a foreign currency by a
current exchange rate is not "translation." A balance sheet is not a
statement of "financial position" (because of omitted economic assets
and liabilities); and a statement of recognized revenues, expenses,
gains is not an "income" statement. And,
please
don't refer to a liability or a contra-asset as a
"provision" unless one is legally required to prefund a future
obligation.
Fourth, if a standard must exclude certain transactions or industries
from its scope, justification for a scope limitation should be based
only on a comparison of the cost of producing information to its value.
Why are derivatives contracts with physical settlement provisions
ignored, but net-settled derivatives are recognized and measured at
their fair values? Why should there be different revenue recognition
rules for insurance companies than for companies that issue product
warranties? I believe these are examples of political tradeoffs, as
opposed to tradeoffs made with the interests of investors in mind and
heart.
A recipe for high quality accounting standards doesn't have to be
complicated. But, it's more like baking a cake than making sausage: if
you skimp on key ingredients, it will fall flat.
 |
This is one of the few times I've seen a Harvard accounting faculty member
contribute to the daily Harvard Business Review Blog that has a steady
flow of contributions form management, marketing, and finance faculty that
sustain this blog.
"Dodd-Frank Financial Commentary from HBS Faculty," Harvard
Business Review Blog, July 20, 2010 ---
http://blogs.hbr.org/hbsfaculty/2010/07/dodd-frank-commentary-from-hbs.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE
A Much, Much, Much Better Commentary
"Five Major Defects of the Financial Reform Bill," by Nobel Laureate
Gary Becker, Becker-Posner Blog, July 11, 2010 ---
http://www.becker-posner-blog.com/2010/07/five-major-defects-of-the-financial-reform-bill-becker.html
A 2300 page bill is usually an indication of many
political compromises. The Dodd-Frank financial reform bill is no exception,
for it is a complex, disorderly, politically motivated, and not well thought
out reaction to the financial crisis that erupted beginning with the panic
of the fall of 2008. Not everything about the bill is bad-e.g., the
requirement that various derivatives trade through exchanges may be a good
suggestion- but the disturbing parts of the bill are far more important. I
will concentrate on five major defects, including omissions.
1. The bill adds regulations and rules about many
activities that had little or nothing to do with the crisis. For example, it
creates a consumer financial protection bureau to be housed at the Fed that
is supposed to protect consumers from fraud and other abusive financial
practices. Yet it is not apparent that many consumers were victimized during
the financial boom years, or that consumer behavior had anything of
importance to do with the crisis. For example, consumers who took out
subprime mortgages that required almost no down payments and had low
interest rates were not victimized since these conditions enabled them to
cheaply own houses, at least for a while. The “victims” were the banks, and
especially Fannie Mae and Freddie Mac, that were foolishly willing to hold
such risky mortgages.
The bill gives the Fed authority to limit
interchange or “swipe” fees that merchants pay for each debit-card
transaction, although these fees had not the slightest connection to the
financial crisis. Such price controls are in general undesirable, and hardly
seem to require the attention of the Federal Reserve. The bill also gives
the SEC authority to empower stockholders to run their own candidates for
corporate boards of directors. Corporate boards often receive some blame for
the crisis-mainly unjustified in my opinion- but stockholder election of
some members will not improve corporate governance, and will probably make
that worse.
2. The Dodd-Frank bill gives several government
agencies considerable additional discretion to try to forestall another
crisis, even though they already had the authority to take many actions. The
Fed could have tightened the monetary base and interest rates as the crisis
was developing, but chose not to do so. The SEC and various Federal Reserve
banks-especially the New York Fed- had the authority to stop questionable
lending practices and increase liquidity requirements. These and other
government bodies did not use their authority to try to head off the crisis
partly because they got caught up in the same bubble hysteria as did banks
and consumers. In addition, regulators are often “captured” by the firms
they are regulating, not necessarily because the regulators are corrupt, but
because they are mainly exposed to arguments made by the banks and other
groups they are regulating.
Despite the fact that regulators failed to use the
powers they already had, the bill mainly adds not clear rules of behavior
for banks, but additional governmental discretionary power. For example, the
bill creates the Financial Stability Oversight Council, a nine-member panel
drawn from the Fed, SEC, and other government agencies, that is supposed to
monitor Wall Street’s largest companies and other market participants to
spot and respond to any emerging growth in systemic risk in the economy.
With a two-thirds vote this Council could impose higher capital requirements
on lenders and place hedge funds and dealers under the Fed’s authority.
Given the regulators reluctance to use the power they already had to
forestall the crisis, it seems highly unlikely that this Council will act
decisively prior to the emergence of a crisis, especially when a two thirds
majority is required.
3. Insufficient capital relative to bank assets was
an important cause of the financial crisis. The bill does reduce the ability
of banks to count as bank capital certain risky assets, such as trust
preferred securities, and gives the Fed authority to impose additional
capital and liquidity requirements on banks and non-bank financial
companies, including insurers. I would have preferred a simple rule that
raised capital requirements of banks relative to their assets, especially
capital of larger and more interconnected banks. As suggested by Raghu Rajan
and the Squam Lake group of economists, the bill probably should have
required larger banks to issue “contingent” capital, such as debt that
automatically converts to equity when the banks are experiencing large
losses, or when a bank’s capital to asset ratio falls below a certain level.
4. One of the most serious omissions is that the
bill essentially says nothing about Freddie Mac or Fannie Mae. In 2008 these
organizations were placed into conservatorship of the Federal Housing
Finance Agency. During the run up to the crisis, Barney Frank and others in
Congress encouraged Freddie and Fannie to absorb most of the subprime
mortgages. In 2008 they held over half of all mortgages, and almost all the
subprimes. They have absorbed even a larger fraction of the relatively few
mortgages written after 2008. Freddie and Fannie deserve a considerable
share of the blame for the crisis, but they continue to have strong
political support. I would like to see both of them eventually dissolved,
but that is unlikely to happen. Instead we are promised that they will be
dealt with in future legislation, but I am skeptical that anything will be
done to terminate either organization, or even improve their functioning.
5. Many proposals in the bill will have highly
uncertain impacts on the economy. These include, among many other
provisions, the requirement that originators of mortgages and other assets
retain at least 5% of the assets they originate, that many derivatives go on
organized exchanges (may be an improvement but far from certain), that hedge
funds become more closely regulated, and that consumer be “protected” from
their financial decisions.
Most of these and other changes in the bill are not
based on a serious analysis of what contributed to the financial crisis, but
rather are the result of political and emotional reactions to the crisis.
Usually, such reactions do more harm than good. That is likely to be the
fate of the great majority of the provisions of the Dodd-Frank bill.
Bob Jensen's threads on the economic crisis are at
http://www.trinity.edu/rjensen/2008Bailout.htm
Technology for Personal Finance
"Goalkeeping Gets Easier in the Finances Arena New Mint.com Feature Offers
User-Friendly Options That Help Savers Set Up Budget Objectives and Stick to
Them," by Katherine Boehret, The Wall Street Journal, June 30, 2010
---
http://online.wsj.com/article/SB10001424052748704911704575326914251218780.html
When most people hear the word "budget," they groan
about all the numbers and spreadsheets involved in setting financial goals.
Instead they procrastinate and continue spending without any specific
savings goals. Case in point: I recently postponed a meeting with my
financial planner because I didn't have the energy after a long business
trip to work through my finances.
Now Mint.com, a website that already offers
user-friendly options for studying how one's money is spent, has introduced
an easy way to set budget objectives, link them to accounts and learn
specific steps on how to reach those goals. The goals can even be
personalized with digital photos, like an image of the car you're saving up
to buy. And this service, which launched Tuesday, doesn't cost a cent.
I've been testing Intuit Inc.'s free, updated
Mint.com service, specifically focusing on its new Mint Goals feature. The
idea of adding goals that tie into real accounts has been a long time coming
for the finance-management website. Mint previously offered a Planning
section on its site, but it required too much manual input, including
setting up personal budget categories, and guesswork about how much one
should spend.
The Goals feature uses pop-up windows where users
can quickly input data, like annual salary, to get estimates on how much
they can afford to spend on things like a vacation, as well as how much they
need to save for that vacation. Monthly savings estimates can be set to
aggressive savings plans or conservative ones with just a mouse click.
Finances in One Place
Mint.com has been around for almost three years and is already used by
millions of people. Its proprietary algorithms encrypt data so people will
feel confident enough to input their usernames and passwords for their
online financial accounts, allowing them to see all of their financial
activity in one place. These accounts include those tied to credit cards,
banks, retirement savings and others. Mint is known for displaying colorful
visuals like pie charts and graphs, so it's easy for people to see where
they're spending their money or how it's being invested.
Mint Goals is a new tab on the Mint.com site, and
clicking on it directs users to a group of eight popular goals and one that
can be customized (more will be added over time). The preset list includes
goals to get out of debt, buy a home, buy a car, save for college, take a
trip or save for retirement. A digital checklist in each goal called "Next
Steps" gives people serious, doable tasks to complete, so they can actually
make progress toward a goal in ways other than just putting money aside.
This instant gratification saved me from doing a lot of calculating.
The Best Account
When you set up a goal for the first time, Mint suggests what type of
account would work best for saving toward it. Examples include a 529 savings
plan for people who are saving to put their kids through college or a Roth
IRA for retirement savings. Mint will also tell you the provider with the
best interest rate.
Unlike some other websites that encourage saving,
like SmartyPig.com, Mint isn't a bank, so you'll have to leave the Mint site
to create accounts and manage money transfers rather than starting them
right on the site. Aaron Patzer, the company's founder and CEO, expects the
site will enable setting up savings accounts and money transfers by the end
of this year.
Each goal includes the overall amount of money
intended to be saved, today's balance, planned and projected dates for
reaching the goal and how much has been saved this month (like $200 of
$750). I liked looking at Mint's colorful thermometers, which quickly showed
me how I was progressing in a particular goal.
For example, the Buy a Home goal checklist includes
steps like finding a Realtor, getting homeowner's insurance and getting
prequalified for a loan. A panel beside each of these items also offers an
educational explanation of what these steps really mean. Many explanations
include links to a blog called MintLife, where blog posts from Mint
employees and some freelancers offer deep explanations about financial
questions.
Ads With Context
The Goals feature comes with contextual ads, which help it remain free. One
checklist item suggests opening a high-yield savings account and also offers
links to the Discover and American Express websites, which offer the
accounts. If you've started a Mint Goal to save for a trip to Iceland,
travel insurance is suggested, along with Web links to sites that sell trip
insurance.
While these links might allow people to get started
right away on a particular task, they also beg the question of whether these
are the best options for users—or just the biggest advertisers on Mint. Mr.
Patzer explained that companies for these ads are chosen according to what's
best for the user and are selected from a list of savings options ranked by
the site's editors.
Goals can be linked to several of your accounts on
Mint so they're updated with real-time data. A long-term retirement goal can
link to a 401(k), brokerage account and retirement account. If the stock
market takes a dive and money is lost in an account, that loss is
automatically reflected in the overall goal's balance. If you tie a savings
account to a goal to save for a house, every dollar added to that account
(on the bank's end) is automatically reflected in the goal.
Mint already gave people a visually engaging way to
know more about what their money is doing, but Mint Goals give people a real
reason to come back to the site more often.
Mint.com home page ---
http://www.mint.com/
Bob Jensen's personal finance helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
Auditors Are Cutting More Corners Than Ever:
When will
professionalism ever overcome the quest for unwarranted speed and profits?
"FTSE 100 audits require "significant improvement", inspectors find: Audit
Inspection Unit highlights deficiencies in company audits," by Mario
Christodoulou, Accounting Age, July 21, 2010 ---
http://www.accountancyage.com/accountancyage/news/2266785/regulators-hold-significant
Two FTSE 100 audits required “significant
improvement”, according to an annual review of the UK’s largest eight audit
firms, released today.
Auditors have also been accused of altering
documents before handing them to regulators and putting cost savings ahead
of quality, in the review by the Audit Inspection Unit (AIU).
The report raised a number of concerns following
its inspection of 109 audits from AIM and the FTSE 350.
The report also found some cases where partners
signed audit reports before the audit was complete and one instance when an
auditor tried to alter an internal file after the AIU requested it. Auditors
had also changed internal materiality thresholds, which effectively reduced
their workload, and had also not applied enough scepticism to internal asset
valuations.
“In particular, in certain cases, it was unclear
from the audit files whether the audit teams had obtained an adequate
understanding of the basis upon which the prices used had been determined,”
the report stated.
The release follows a joint Financial Services
Authority/ FRC report, released this month, which found auditors displayed a
“worrying lack of scepticism” when auditing banks valuation models.
The AIU report also reported that auditors were
sending work to company-owned offshore service centres to reduce costs - a
practice it believes, sent the wrong message to partners.
Paul George, director of the Professional Oversight
Board which carried out the inspections, said auditors needed to change
their behaviour, and show more scepticism when inspecting management
judgments.
“We continue to find a rump of audits which don’t
meet the standards we expect. To eliminate this will require not just
changes to policies and procedures but also behavioural changes to ensure
there is sufficient challenge to management,” he said.
“Developments in auditing have not kept pace with
developments in financial reporting,” George added.
Liz Murrall, director of corporate reporting at the
Investment Management Association (IMA), said investors are worried about
audit quality, when auditors themselves are under commercial stress.
“In particular, investors are concerned in the
current economic climate that fee pressure on audit firms could impact audit
quality,” she said.
PwC’s head of audit, Richard Sexton, said audit
quality was the “foundation” of the firm’s practice, while also conceding
the need for reform. “The integrity of our people and their behaviours are
also vital components of a quality audit… Process alone will never be the
answer,” he said.
Oliver Tant, UK head of audit at KPMG, said he is
“acutely aware” of the need for auditors to be sceptical. “We are not
complacent, however, and look forward to a wider debate across the
profession on the issue,” he said.
The AIU will release reports on individual audit
firms in September.
2009 PCAOB Inspection Report for Ernst & Young ---
Scroll down to "Ernst & Young LLP July 2, 2010" at
http://pcaobus.org/Inspections/Pages/InspectedFirms.aspx
The initial response of E&Y is at the bottom of the document
See also
http://www.scribd.com/doc/34056825/2010-Ernst-Young-LLP-US
"PCAOB Report States That There Was a Fair Amount of Failing Going on at
Ernst & Young," by Caleb Newquist, Going Concern, July 8, 2010 ---
Click Here
http://goingconcern.com/2010/07/pcaob-report-states-that-there-was-a-fair-amount-of-failing-going-on-at-ernst-young/
The PCAOB has issued its annual report on Ernst &
Young having given the firm the third degree at its national office and 30
of its 80 U.S. offices. It inspected 58 audits performed by the firm but
exactly who is, of course, a big secret (unless
you tell us).
There were five “Issuers” that were listed in the
report and some form of the word “fail” was used 25 times (that includes the
footnotes).
[Issuer A] The Firm failed to adequately test
the issuer’s loan loss reserves related to certain loans held for
investment. Specifically, the Firm failed to reconcile certain values
used in the issuer’s models with industry data, failed to test the
recovery rates used in the issuer’s calculation, and failed to test the
qualitative components of the reserves.
Damn those loan loss reserves!
[Issuer C] The Firm failed to perform
sufficient procedures to test the issuer’s allowance for loan losses
(“ALL”). The issuer determined the general portion of its ALL estimate,
which represented a significant portion of the ALL, using certain
factors such as loan grades. Data for this calculation were obtained
from information technology systems that reside at a third-party service
organization. The Firm relied on these systems, but it failed to test
the information-technology general controls (“ITGCs”) over certain of
these systems, and it failed to test certain of the application controls
over these systems. Further, the Firm’s testing of the controls over the
assignment and monitoring of loan grades was insufficient, as the Firm
failed to assess the competence of the individuals performing the
control on which it relied.
This loan thing appears to be a trend…
[Issuer D] The Firm failed to sufficiently test
the costing of work-in-process and finished goods inventory.
Specifically, the Firm’s tests of controls over the costing of such
inventory were limited to verifying that management reviewed and
approved the cost allocation factors, without evaluating the review
process that provided the basis for management’s approval.
Hopefully that doesn’t blow back on an A1.
Anyway, you get the picture. The whole report is
below for your reading pleasure. E&Y’s got its $0.02 in, however it was
short and was mostly concerned about the firm’s right to keep its response
to Part II (the non-public part)…non-public:
We are enclosing our response letter to the
Public Company Accounting Oversight Board regarding Part I of the draft
Report on 2009 Inspection of Ernst & Young LLP (the “Report”). We also
are enclosing our initial response to Part II of the draft Report.
We note that Section 104(g)(2) of the
Sarbanes-Oxley Act requires that “no portions of the inspection report
that deal with criticisms of or potential defects in the quality control
systems of the firm under inspection shall be made public if those
criticisms or defects are addressed by the firm, to the satisfaction of
the Board, not later than 12 months after the date of the inspection
report.” Based on this statutory provision, we understand that our
comments on Part ii will be kept non-public as long as Part ii of the
Report itself is non-public.
In addition, we are requesting confidential
treatment of this transmittal letter.
So this doesn’t mean much other than E&Y would
prefer that no one know how it managed to tell the PCAOB to fuck right off
as nicely as it could.
If you had the pleasure of being on one of these 58
engagements, we’d love to
hear about your experience.
Other PCAOB Inspection Reports ---
http://pcaobus.org/Inspections/Pages/InspectedFirms.aspx
Bob Jensen's threads on Ernst & Young are at
http://www.trinity.edu/rjensen/Fraud001.htm
Grant Thornton said in a statement that it had met
"all of our professional obligations and that our work complied with
professional standards."
See below
"Koss embezzlement ran in spurts, lawsuit says $478,735 spent over three
days in summer 2006" by Cary Spivak, Milwaukee Journal Sentinel, July
10, 2010 ---
http://www.jsonline.com/business/98152439.html
The $31 million embezzlement at Koss Corp. included
several spurts of rapid-fire spending, according to a recent court filing -
including one three-day span in 2006 during which nearly $500,000 flew out
of the Milwaukee company's accounts and into the hands of three high-end
retailers and a credit card company.
The lists of checks and wire transfers shed new
light on the scheme for which Sujata "Sue" Sachdeva, former vice president
of finance for Koss, is facing six federal felony charges. She was arrested
by the FBI in December and has pleaded not guilty.
The list, which takes up the equivalent of about 10
single-spaced pages, is contained in a lawsuit that Koss filed last month
against Sachdeva and its former auditor, Grant Thornton LLP.
The list shows that in addition to expenditures at
upscale clothing retailers, Koss funds also were spent on smaller luxury
items such as a personal trainer and limousine rides. Koss charges that the
payments listed in the lawsuit were used to pay for Sachdeva's personal
expenses.
The spending spurts left some experts wondering how
the scheme could have gone unchecked for at least seven years.
"If they just looked at a sample of the
withdrawals, they would have found it," said Joel Joyce, a forensic
accountant at Reilly, Penner & Benton, referring to Koss executives or
outside auditors. "They might not have caught it in the first month . . .
but my guess is it would not have been six to seven years."
A case in point was a flurry of check-writing in
the summer of 2006.
On Aug. 1 of that year, two cashier's checks
totaling $154,021 went to Valentina Inc., an exclusive Mequon clothing
store.
The next day, an $18,100 cashier's check was cut to
Neiman Marcus and a $10,120 check was made out to Saks Fifth Avenue.
Then, on Aug. 3, three checks totaling $296,494
were written to American Express, the credit card company that eventually
blew the whistle on Sachdeva last year.
Total over the three-day span: $478,735.
The checks to retailers identified the merchants by
their initials, Koss said in the lawsuit. For example Valentina was V Inc.
and Saks Fifth Avenue was S.F.A Inc.
Tony Chirchirillo, owner of Valentina, said he saw
nothing suspicious about the large cashier's checks his company received
from Sachdeva. He said he assumed the checks were backed by her own funds.
It's believed that over a five-year period Sachdeva
spent more than $5 million at the boutique, sources said, although
Chirchirillo said that figure "seemed high."
"I didn't know it came from Koss," Chirchirillo
said, explaining that unlike personal checks, the cashier's checks did not
list whose account the money was being drawn from. "I was told by an FBI
agent that the money came from Koss. I would not have taken it if it said
Koss."
The largest withdrawals listed in the lawsuit went
to upscale retailers and to American Express, the target of an earlier
lawsuit filed by Koss that contended the credit card company should have
raised suspicions about the expenditures sooner.
The August spurt wasn't the only one. On Feb. 3,
2006, two cashier's checks were written to American Express, one for
$102,836 and the other for $101,451.
And from July 11 to July 17 of 2003, a check for
$20,182 was written to Marshall Fields, a second for $26,420 went to Saks
Fifth Avenue, and five checks totaling $104,738 went to American Express.
The indictment against Sachdeva charges that she
spent most of the embezzled money on luxury clothing and jewelry, furs,
vacations and items for her Mequon home. More than 22,000 items - some with
price tags still attached - have been seized by federal authorities in
connection with the investigation, including fur coats, designer clothing,
jewelry, art items and hundreds of pairs of shoes.
Among the payments detailed in the latest lawsuit:
• Carey Limousine received $16,706 from 2006 to
2008, with the bulk of the money coming in 2007. The most expensive ride was
for $4,460 in September 2007.
• Chris A. Aiello, a personal trainer, was paid
$770 in 2005. Aiello said he trained Sachdeva two to three times a week,
sometimes in a conference room at Koss headquarters and sometimes at her
Mequon home. Normally, Aiello said, he was paid with personal checks by
Sachdeva, although he recalled that on a handful of occasions Sachdeva told
him to get his money from one of her assistants, Julie Mulvaney. He said he
thinks those few checks came from Koss.
"You question it in your mind, but you don't say
anything," said Aiello, who no longer trains Sachdeva. "We weren't doing
anything illegal."
• Several payments, including one for $21,000 and
another for $14,000, went to individuals. Ongoing investigations include an
effort to determine what connection, if any, those people had to Sachdeva.
• Mulvaney was paid a total of $14,000, and another
Sachdeva assistant, Tracy Malone, was paid about $1,800. Both employees were
fired by Koss last year, and attorneys for both women have said they did
nothing wrong.
In addition, more than $145,000 was taken from
petty cash, in increments ranging from $482 to $9,049, according to the Koss
list.
"That's a lot of distributions coming out of petty
cash," said Richard Brown, the retired head of accounting company KPMG's
Milwaukee office. "But petty cash doesn't get a lot of attention."
At the time of the scheme, Michael Koss held five
high-level titles in the company including chief executive officer and chief
financial officer. Koss, the son of the company's founder, remains CEO but
is no longer CFO.
"A CFO should have been reviewing financial reports
that might have raised questions, which might have included 'Let me see the
documents,' " said Brown, who now teaches accounting. That review would have
likely led to question about why thousands, and in some cases millions, were
being paid to retailers, he said.
The suit, filed in Cook County, Ill., seeks damages
from Grant Thornton and alleges the national accounting firm failed to spot
the fraud and repeatedly assured Koss that it had adequate internal
controls.
Grant Thornton said in a statement that it had met
"all of our professional obligations and that our work complied with
professional standards."
Michael Koss and the California attorney who filed
the lawsuit did not return calls for comment.
Brown said suits filed against auditors by
companies that are fraud victims often are settled out of court.
"A full blown civil lawsuit will bring out a lot of
facts potentially embarrassing to both the company and the accounting firm,"
Brown said, adding it was impossible to say which side might prevail in
litigation. "Both the company and the audit firm will suffer continued
embarrassing publicity if the suit goes to completion. It is for this reason
that these types of suits often get settled out of court before a trial
The $31 million embezzlement at Koss Corp. included
several spurts of rapid-fire spending, according to a recent court filing -
including one three-day span in 2006 during which nearly $500,000 flew out
of the Milwaukee company's accounts and into the hands of three high-end
retailers and a credit card company.
The lists of checks and wire transfers shed new
light on the scheme for which Sujata "Sue" Sachdeva, former vice president
of finance for Koss, is facing six federal felony charges. She was arrested
by the FBI in December and has pleaded not guilty.
The list, which takes up the equivalent of about 10
single-spaced pages, is contained in a lawsuit that Koss filed last month
against Sachdeva and its former auditor, Grant Thornton LLP.
The list shows that in addition to expenditures at
upscale clothing retailers, Koss funds also were spent on smaller luxury
items such as a personal trainer and limousine rides. Koss charges that the
payments listed in the lawsuit were used to pay for Sachdeva's personal
expenses.
The spending spurts left some experts wondering how
the scheme could have gone unchecked for at least seven years.
"If they just looked at a sample of the
withdrawals, they would have found it," said Joel Joyce, a forensic
accountant at Reilly, Penner & Benton, referring to Koss executives or
outside auditors. "They might not have caught it in the first month . . .
but my guess is it would not have been six to seven years."
A case in point was a flurry of check-writing in
the summer of 2006.
On Aug. 1 of that year, two cashier's checks
totaling $154,021 went to Valentina Inc., an exclusive Mequon clothing
store.
The next day, an $18,100 cashier's check was cut to
Neiman Marcus and a $10,120 check was made out to Saks Fifth Avenue.
Then, on Aug. 3, three checks totaling $296,494
were written to American Express, the credit card company that eventually
blew the whistle on Sachdeva last year.
Total over the three-day span: $478,735.
The checks to retailers identified the merchants by
their initials, Koss said in the lawsuit. For example Valentina was V Inc.
and Saks Fifth Avenue was S.F.A Inc.
Tony Chirchirillo, owner of Valentina, said he saw
nothing suspicious about the large cashier's checks his company received
from Sachdeva. He said he assumed the checks were backed by her own funds.
It's believed that over a five-year period Sachdeva
spent more than $5 million at the boutique, sources said, although
Chirchirillo said that figure "seemed high."
"I didn't know it came from Koss," Chirchirillo
said, explaining that unlike personal checks, the cashier's checks did not
list whose account the money was being drawn from. "I was told by an FBI
agent that the money came from Koss. I would not have taken it if it said
Koss."
The largest withdrawals listed in the lawsuit went
to upscale retailers and to American Express, the target of an earlier
lawsuit filed by Koss that contended the credit card company should have
raised suspicions about the expenditures sooner.
The August spurt wasn't the only one. On Feb. 3,
2006, two cashier's checks were written to American Express, one for
$102,836 and the other for $101,451.
And from July 11 to July 17 of 2003, a check for
$20,182 was written to Marshall Fields, a second for $26,420 went to Saks
Fifth Avenue, and five checks totaling $104,738 went to American Express.
The indictment against Sachdeva charges that she
spent most of the embezzled money on luxury clothing and jewelry, furs,
vacations and items for her Mequon home. More than 22,000 items - some with
price tags still attached - have been seized by federal authorities in
connection with the investigation, including fur coats, designer clothing,
jewelry, art items and hundreds of pairs of shoes.
Among the payments detailed in the latest lawsuit:
• Carey Limousine received $16,706 from 2006 to
2008, with the bulk of the money coming in 2007. The most expensive ride was
for $4,460 in September 2007.
• Chris A. Aiello, a personal trainer, was paid
$770 in 2005. Aiello said he trained Sachdeva two to three times a week,
sometimes in a conference room at Koss headquarters and sometimes at her
Mequon home. Normally, Aiello said, he was paid with personal checks by
Sachdeva, although he recalled that on a handful of occasions Sachdeva told
him to get his money from one of her assistants, Julie Mulvaney. He said he
thinks those few checks came from Koss.
"You question it in your mind, but you don't say
anything," said Aiello, who no longer trains Sachdeva. "We weren't doing
anything illegal."
• Several payments, including one for $21,000 and
another for $14,000, went to individuals. Ongoing investigations include an
effort to determine what connection, if any, those people had to Sachdeva.
• Mulvaney was paid a total of $14,000, and another
Sachdeva assistant, Tracy Malone, was paid about $1,800. Both employees were
fired by Koss last year, and attorneys for both women have said they did
nothing wrong.
In addition, more than $145,000 was taken from
petty cash, in increments ranging from $482 to $9,049, according to the Koss
list.
"That's a lot of distributions coming out of petty
cash," said Richard Brown, the retired head of accounting company KPMG's
Milwaukee office. "But petty cash doesn't get a lot of attention."
At the time of the scheme, Michael Koss held five
high-level titles in the company including chief executive officer and chief
financial officer. Koss, the son of the company's founder, remains CEO but
is no longer CFO.
"A CFO should have been reviewing financial reports
that might have raised questions, which might have included 'Let me see the
documents,' " said Brown, who now teaches accounting. That review would have
likely led to question about why thousands, and in some cases millions, were
being paid to retailers, he said.
The suit, filed in Cook County, Ill., seeks damages
from Grant Thornton and alleges the national accounting firm failed to spot
the fraud and repeatedly assured Koss that it had adequate internal
controls.
Grant Thornton said in a statement that it had met
"all of our professional obligations and that our work complied with
professional standards."
Michael Koss and the California attorney who filed
the lawsuit did not return calls for comment.
Brown said suits filed against auditors by
companies that are fraud victims often are settled out of court.
"A full blown civil lawsuit will bring out a lot of
facts potentially embarrassing to both the company and the accounting firm,"
Brown said, adding it was impossible to say which side might prevail in
litigation. "Both the company and the audit firm will suffer continued
embarrassing publicity if the suit goes to completion. It is for this reason
that these types of suits often get settled out of court before a trial
takes place."
Continued in article
"Defending Koss And Their Auditors:
Just Loopy Distorted Feedback," by Francine McKenna, re:
TheAuditors, January 16, 2010 ---
http://retheauditors.com/2010/01/16/defending-koss-and-their-auditors-just-loopy-distorted-feedback/
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on Grant Thornton are at
http://www.trinity.edu/rjensen/Fraud001.htm
Sam Antar and Crazy Eddie ---
http://en.wikipedia.org/wiki/Sam_Antar
"Sex, lies, and accounting fraud," AccountingWeb, July 7, 2010
---
http://www.accountingweb.com/topic/watchdog/sex-lies-and-accounting-fraud
When Sam Antar was cooking the books for his
company, he used a number of complicated accounting tricks to dupe auditors.
But some tactics were simple.
"These auditors from the Big Four accounting firms
are usually single kids just a few years out of school. What do kids in
their 20s think about all the time? Sex," said Antar, who was at the center
of a multi-million dollar fraud 20 years ago.
So Antar would pair "cute hot female" employees
with male auditors as part of his distraction strategy. "In effect, I was a
fraudster, matchmaker, and pimp," said Antar, who avoided jail time by
working with the U.S. government, and now advises government agencies and
businesses on avoiding accounting fraud.
Since the financial crisis struck, accounting scams
– such as the multi-billion dollar Bernard Madoff scheme – have made regular
headlines. Last week, a Hong Kong executive at Ernst & Young was detained by
police and documents were seized after evidence of falsified audit documents
came to light in a court case. Ernst settled a $1 billion negligence claim
by the liquidators of Akai Holdings out of court for an undisclosed sum and
the executive was suspended awaiting internal disciplinary action.
A London executive for accounting firm KPMG –
another of the "Big Four" accounting firms (along with Ernst,
PricewaterhouseCoopers and Deloitte Touche Tohmatsu) – was sentenced to four
years in jail in September for siphoning nearly $900,000 of company funds
for personal use.
While there are no international statistics
charting white-collar crime arrests, the number of people being trained to
detect accounting shenanigans has exploded since the financial crisis. The
U.S.-based Association of Certified Fraud Examiners, which trains
accountants in fraud investigation, has 47,000 members worldwide – adding
10,000 new members last year alone.
"There's always an uptick in fraud activity when
the economy goes down," said Kim Frisinger, a former FBI accounting fraud
investigator and managing director of LECG Hong Kong, a consulting firm.
"It's like the ocean going out and you can see everything that was hidden
under water."
The fraud triangle
If an employee is having an affair, Gary Zeune
knows exactly where he would look to find equivalent accounting chicanery.
"Look at his or her company expense reports – they will almost always have
false entries," said Zeune, an accountant who specializes in fraud. "No one
budgets to have an affair."
Although there are "millions of ways to commit
fraud, there are always three common elements in any employee fraud case –
incentive, opportunity, and rationalization," Zeune said.
Although greed is an obvious incentive, it is not
the only one – infidelity, gambling debts, drug use or simple ego can start
the slide into accounting crime.
"Look at the Société Générale incident where a
single trader, Jerome (Kerviel), lost the company $7 billion," said Zeune,
referring to the incident that nearly destroyed the French financial
services company in 2008. "Why? He wanted to show what a smart securities
trader he was. He was looking for psychic income, not monetary income."
Opportunity is created when a culprit feels there
is a relatively low likelihood of being caught – most often at private
companies, Zeune said. "They have less internal controls than publicly
listed companies."
Rationalization is the conversation with the
white-collar criminal has with him or herself to assuage their conscience –
something that is much more likely to have during a downturn, when companies
are downsizing and employees are asked to do more for less, Zeune said.
Catching a crook with crooks
But many accounting fraudsters don't operate within
the bounds of right and wrong. Large-scale frauds such as Madoff or Enron
are more pathological in nature, Antar said.
"You have to take morality out of the equation to
understand the criminal mind ... I'd still be doing it today if I didn't get
caught," said Antar, who went to school and obtained his accounting degree
solely to look for ways to subvert the law.
Like diverting auditors with attractive staff,
accounting fraud is all about distraction, Antar said. "It's like David
Copperfield, it's an illusion...I want you to look over here so you don't
see what I'm doing over there."
Another tactic: Delay. "They would come in here
with maybe six weeks to go through the books ... my goal would be to leave
them 80 percent of the work for the last week, so they're rushed to finish."
Digging into accounting fraud means understanding
"there is a big difference between truth and accuracy," said Mark Morze, who
spent five years in U.S. prisons for a billion-dollar stock fraud in the
1990s. "Every financial statement I put together was accurate, but it wasn't
truthful."
In fact, perfection is often a sign of shadiness,
said Morze, who, like Antar now teaches accountants about fraud. "You're
doing everything in reverse, so of course it's going to add up," he said.
One of the best ways to detect fraud in financial
statements is to read only the footnotes, and compare how they have changed
over time. "Look for subtle differences, and that is where they will hide
the fraud," said Antar. "That's what I did."
Most frauds fail to unravel because obvious
questions aren't asked – often because the perpetrators wrap themselves in a
veneer of integrity. "Everyone thought Enron was legit," Morze said. "Bernie
Madoff, people would say – look who his clients are, Steven Spielberg – he
must be legit."
But once questions are asked – and asked again –
the fraud often becomes apparent. "If people get offended when you ask them
a question about verification, that's a sign something is up," Morze said.
"No honest person gets offended when asking to verify something."
Kevin Voigt's article is reprinted with permission
from The Pros & The Cons, the only speakers’ bureau in the United States for
white-collar criminals.
Related articles: A day in the life of...a counter
fraud specialist Small company suffers massive embezzlements
Related articles
Bob Jensen's threads on accounting fraud are at
http://www.trinity.edu/rjensen/Fraud001.htm
Report to the Nations on Occupational Fraud and Abuse, 2010 Global
Fraud ---
http://www.acfe.com/rttn/rttn-2010.pdf
Thanks to Jim McKinney for the heads up.
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Teaching vs. Research," by Scott Jaschik, Inside Higher Ed,
July 13, 2010 ---
http://www.insidehighered.com/news/2010/07/13/grad
It’s common for many at research universities to
say that just because they value scholarly production doesn’t mean they
don’t care about teaching. But a new study of political science departments
at doctoral institutions -- published in the journal PS -- suggests that
there may be a tradeoff.
The study examined 122 departments at universities
that grant doctorates in political science to see which institutions offer a
course for doctoral students on how to become good teachers. It turns out
that only a minority of departments (41) do so -- even though the American
Political Science Association and others have urged graduate programs to
recognize that the odds favor their students finding jobs at institutions
that place at least as much value on teaching as on research. Of the 41
programs with courses, 28 are required and the rest are optional.
The analysis then tried to determine which programs
were most likely to offer these courses. The size of the department and the
size of the universities -- both of which could be thought to measure the
resources available for courses -- were found not to be factors.
But there was an inverse relationship between
research productivity in departments and the odds of offering such a course.
The relationship, while significant, had notable exceptions in the survey
among public but not among private institutions. Some of the public
institutions with strong research records -- such as Ohio State University,
the University of California at Berkeley and the University of Wisconsin at
Madison -- do have such courses. But as a general rule, highly ranked
private university departments do not.
Over all, public institutions were seven times more
likely than private institutions to offer such courses, the study found,
citing as a possible explanation “the public service component of state
institutions or the fact that public institutions are consistently faced
with state-mandated programs to enhance teaching generally.”
The study notes that there are innovations that go
beyond just having a single course on teaching techniques. For example,
Baylor University, in its relatively young doctoral program in political
science, has placed an emphasis on the idea that it is training future
college teachers with a “teaching apprentice” program. In this program, grad
students are assigned to work with senior professors teaching an
undergraduate course -- not by becoming teaching assistants, but by
analyzing the course. The grad students prepare an annotated syllabus --
different from the syllabus used -- to explore various teaching issues.
During the fourth year of the program, the grad
students are “instructors of record” for a course, but then in their fifth
year they shift to a focus on finishing dissertations. The study suggests
that this approach provides in-depth exposure to teaching issues.
The paper on these issues was written by a professor (John Ishiyama)
and two doctoral students (Tom Miles and Christine Balarezo) at the
University of North Texas.
Bob Jensen's threads on the sad state of accounting doctoral programs ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms
Form Jensen's Archives
Question
What research methodology flaws are shared by studies in political science and
accounting science?
"Methodological Confusion: How indictments of
The Israel Lobby (by John J. Mearsheimer, Stephen M. Walt, ISBN-13:
9780374177720) expose political science's flaws" by Daniel W. Drezner, Chronicle
of Higher Education's Chronicle Review, February 22, 2008, Page B5 ---
http://chronicle.com/weekly/v54/i24/24b00501.htm
Does the public understand how political science
works? Or are political scientists the ones who need re-educating? Those
questions have been running through my mind in light of the drubbing that
John J. Mearsheimer and Stephen M. Walt received in the American news media
for their 2007 book, The Israel Lobby and U.S. Foreign Policy
(Farrar, Straus and Giroux, 2007). Pick your periodical — The Economist,
Foreign Affairs, The Nation, National Review, The New Republic, The New York
Times Book Review, The Washington Post Book World — and you'll find a
reviewer trashing the book.
From a political-science perspective, what's
interesting about those reviews is that they are largely grounded in
methodological critiques — which rarely break into the public sphere.
What's disturbing is that the methodologies used in The Israel Lobby and
U.S. Foreign Policy are hardly unique to Mearsheimer and Walt. Are the
indictments of their book overblown, or do they expose the methodological
flaws of the discipline in general?
The most persistent public criticism of Mearsheimer
and Walt has been their failure to empirically buttress their argument with
interviews. Writing in the Times Book Review, Leslie H. Gelb,
president emeritus of the Council on Foreign Relations, criticized their
"writing on this sensitive topic without doing extensive interviews with the
lobbyists and the lobbied." David Brooks, a columnist for The New York
Times, recently seconded that notion: "If you try to write about
politics without interviewing policy makers, you'll wind up spewing all
sorts of nonsense."
That kind of critique has a long pedigree. For
decades public officials and commentators have decried the failure of social
scientists to engage more deeply with the objects of their studies.
Secretary of State Dean Acheson once objected to being treated as a
"dependent variable." The New Republic ran a cover story in 1999 with the
subhead, "When Did Political Science Forget About Politics?"
To the general reader, such critiques must sound
damning. International-relations scholars know full well, however, that
innumerable peer-reviewed articles and university-press books utilize the
same kind of empirical sources that appear in The Israel Lobby. Most
case studies in international relations rely on news-conference transcripts,
official documents, newspaper reportage, think-tank analyses, other
scholarly works, etc. It is not that political scientists never interview
policy makers — they do (and Mearsheimer and Walt aver that they have as
well). However, with a few splendid exceptions, interviews are not the bread
and butter of most international-relations scholarship. (This kind of
fieldwork is much more common in comparative politics.)
Indeed, the claim that political scientists can't
write about policy without talking to policy makers borders on the absurd.
The first rule about policy makers is that they always have agendas — even
in interviews with social scientists. That does not mean that those with
power lie. It does mean that they may not be completely candid in outlining
motives and constraints. One would expect that to be particularly true about
such "a sensitive topic."
Further, most empirical work in political science
is concerned with actions, not words. How much aid has the United States
disbursed to Israel? How did members of Congress vote on the issue? Without
talking to members of Congress, thousands of Congressional scholars study
how the legislative branch acts, by analyzing verifiable actions or words —
votes, speeches, committee hearings, and testimony. Statistical approaches
allow political scientists to test hypotheses through regression analysis.
By Brooks's criteria, any political analysis of, say, 19th-century policy
decisions would be pointless, since all the relevant players are dead.
Other methodological critiques are more difficult
to dismiss. Walter Russell Mead's dissection of The Israel Lobby in Foreign
Affairs does not pull any punches. Mead, a senior fellow at the Council on
Foreign Relations, wrote that Mearsheimer and Walt "claim the clarity and
authority of rigorous logic, but their methods are loose and rhetorical.
This singularly unhappy marriage — between the pretensions of serious
political analysis and the standards of the casual op-ed — both undercuts
the case they wish to make and gives much of the book a disagreeably
disingenuous tone."
Mead enumerates several methodological sins, in
particular the imprecise manner in which the "Israel Lobby" is defined in
the book. For their part, the book's authors acknowledge that the term is
"somewhat misleading," conceding that "the boundaries of the Israel Lobby
cannot be identified precisely." It is certainly true that many of the
central concepts in international-relations theory — like "power" or
"regime" — have disputed definitions. But most political scientists deal
with nebulous concepts by explicitly offering their own definition to guide
their research. Even if others disagree, at least the definition is
transparent. In The Israel Lobby, however, Mearsheimer and Walt essentially
rely on a Potter Stewart definition of the lobby: They know it when they see
it. That makes it exceedingly difficult for other political scientists to
test or falsify their hypotheses.
Many of the reviews of the book highlight two flaws
that, disturbingly, are more pervasive in academic political science. The
first is the failure to compare the case in question to other cases. For
example, Mearsheimer and Walt go to great lengths to outline the
"extraordinary material aid and diplomatic support" the United States
provides to Israel. What they do not do, however, is systematically compare
Israel to similarly situated countries to determine if the U.S.-Israeli
relationship really is unique. An alternative, strategic explanation would
posit that Israel falls into a small set of countries: longstanding allies
bordering one or multiple enduring rivals. The category of states that meet
that criteria throughout the time period analyzed by Mearsheimer and Walt is
relatively small: Pakistan, South Korea, Taiwan, and Turkey. Compared to
that smaller set of countries, the U.S. relationship with Israel does not
look anomalous. The United States has demonstrated a willingness to expend
blood, treasure, or diplomatic capital to ensure the security of all of
those countries — despite the wide variance in the strength of each's
"lobby."
Continued in article
Daniel W. Drezner is an associate professor of international politics
at the Fletcher School at Tufts University.
Jensen Comment
When I read the above review entitled "Metholological Confusion" I kept
thinking of the thousands of empirical and analytical studies by accounting
faculty and students that have similar methodology confusions. How many
mathematical/empirical database studies relating accounting events (e.g., a new
standard) with capital market behavior also conduct formal interviews with
investors, analysts, fund managers, etc. Do analytical researchers conduct
formal interviews with real-world decision makers before building their
mathematical models? The majority of behavioral accounting studies conducted by
professors use students as surrogates for real-world decision makers. This
methodology is notoriously flawed and could be helped if the researchers had
also interviewed real-world players.
And Drezner overlooked another common flaw shared by both political science
and
accountics research. If the findings are as important as claimed by
authors, why aren't other researchers frantically trying to replicate the
results? The lack
of replication in accounting science (accountics research) is scandalous
---
http://www.trinity.edu/rjensen/Theory01.htm#Replication
Formal and well-crafted interviews with important players (investors, standard
setters, CEOs, etc.) constitute possible ways of replicating empirical and
analytical findings.
The closest things we have to in-depth contact with real world players in
accounting research is research conducted by the standard setters themselves
such as the FASB, the IASB, the GASB, etc. Sometimes these are interviews,
although more often then not they are comment letters. But accountics
researchers wave off such research as anecdotal and seldom even quote the public
archives of such interviews and comments. Surveys are frequently published but
these tend to be relegated to less prestigious academic research journals and
practitioner journals.
Most importantly of all in accountics is that the leading accounting research
journals for tenure, promotion, and performance evaluation in academe are
devoted to accountics paper. Normative methods, case studies, and interviews are
rarely used in studies published in such journals. The following is a quotation
from “An Analysis of the Evolution of Research Contributions by The Accounting
Review (TAR): 1926-2005,” by Jean L. Heck and Robert E. Jensen, Accounting
Historians Journal, Volume 34, No. 2, December 2007, Page 121.
Leading accounting
professors lamented TAR’s preference for rigor over relevancy [Zeff,
1978; Lee, 1997; and Williams, 1985 and 2003]. Sundem [1987] provides
revealing information about the changed perceptions of authors, almost
entirely from academe, who submitted manuscripts for review between June
1982 and May 1986. Among the 1,148 submissions,
only 39 used archival
(history) methods; 34 of those submissions were rejected.
Another 34
submissions used survey methods; 33 of those were rejected.
And 100 submissions
used traditional normative (deductive) methods with 85 of those being
rejected. Except for
a small set of 28 manuscripts classified as using “other” methods
(mainly descriptive empirical according to Sundem), the remaining larger
subset of submitted manuscripts used methods that Sundem [1987, p. 199]
classified these as follows:
292 General Empirical
172 Behavioral
135 Analytical modeling
119 Capital Market
97 Economic modeling
40 Statistical modeling
29 Simulation
It is clear that by
1982, accounting researchers realized that having mathematical or
statistical analysis in TAR submissions made accountics virtually a
necessary, albeit not sufficient, condition for acceptance for
publication. It became increasingly difficult for a single editor to
have expertise in all of the above methods. In the late 1960s, editorial
decisions on publication shifted from the TAR editor alone to the TAR
editor in conjunction with specialized referees and eventually associate
editors [Flesher, 1991, p. 167]. Fleming et al. [2000, p. 45] wrote the
following:
The big change was in
research methods. Modeling and empirical methods became prominent during
1966-1985, with analytical modeling and general empirical methods
leading the way. Although used to a surprising extent, deductive-type
methods declined in popularity, especially in the second half of the
1966-1985 period.
I think the emphasis highlighted in red above demonstrates
that "Methodological Confusion" reigns supreme in accounting science as well as
political science.
February 22, 2008 reply from James M. Peters
[jpeters@NMHU.EDU]
A couple of years ago, P. Kothari, one of the
Editors of JAE and a full professor at MIT, visited the U. of Maryland to
present a paper. In my private discussion with him, I asked him to identify
what he considered to the settled findings associated with the last 30
years of capital markets research in accounting. I pointed out that
somewhere over half of all accounting research since Ball and Brown fit into
this category and I was curious as to what the effort had added to Ball and
Brown. That is, what conclusions have been drawn that could be considered
settled ground so that researchers could move on to other topics. His
response, and I quote, was "I understand your point, Jim." He could not
identify one issue that researchers had been able to "put to bed" after all
that effort.
Jim Peters
New Mexico Highlands University
February 22, 2008 reply from J. S. Gangolly
[gangolly@CSC.ALBANY.EDU]
Jim,
P. Kothari's response is to be expected. I have had
similar responses from at least two ex-editors of TAR; how appropriate a TLA!
But who wants to bell the cats (or call off the naked emperors' bluff)?
Accounting academia knows which side of the bread is buttered.
That you needed to flaunt Kothari's resume to
legitimise his vacuous response shows the pathetic state of accounting
academia.
If accounting academia is not to be reduced to the
laughing stock of accounting practice, we better start listening to the
problems that practice faces. How else can we understand what we profess to
"research"? We accounting academics have been circling our wagons too long
as a ploy to keep our wages arbitrarily high.
In as much as we are a profession, any academic on
such a committee reduces the whole exercise to a farce.
Jagdish
September 8, 2009 reply from Amy Dunbar
[Amy.Dunbar@BUSINESS.UCONN.EDU]
Bob Jensen wrote:
The troubles with multiple regression and discriminant analysis models
are those nagging assumptions of linearity, predictor variable
independence, homoscedasticity, and independence of error terms. If we
move up to non-linear models, the assumption of robustness is a giant
leap in faith. And superimposed on all of this is the assumption of
stationarity needed to have any confidence in extrapolations from past
experience.
In the end, if gaming is allowed in the future as
it has been allowed by bankers and their auditors for decades, putting
accountics into the standards is not the answer.
Sophisticated accountics is just perfume sprayed on
the manure pile.
Amy Dunbar comment/questions: Oh my, what a
metaphor. ;-)
I continue to struggle with the dismissal of
econometric analysis (accountics?) as an approach to address accounting
issues. Many disciplines use econometric analysis in research, despite the
limitations you point out. What research methods do you think are
appropriate for studying accounting issues? In my opinion, research requires
a disciplined approach that can be replicated, which you argue is crucial.
Can one replicate research using the research methods that you favor? Or
perhaps I am misunderstanding your points.
For example, consider the FIN 48 tax disclosures.
My coauthors and I have collected data from the tax footnotes of300
companies to determine how firms are handling the FIN 48 21d requirement of
forecasting the expected tax reserve change over the next 12 months. We want
to know how accurate forecasts are and if the forecast errors result because
of the inherent difficulty of providing the forecast or if firms do not want
to disclose because they do not want to provide a roadmap for taxing
authorities. We use econometric methods to test our hypotheses. How would
you address this issue? By the way, the Illinois tax conference in October
has a panel session on FIN 48 disclosures, including the forecast
requirement, which suggests others are grappling with the informativeness of
these disclosures.
I ordered the book that Paul Williams suggested:
The Flight from Reality in the Human Sciences. I hope I will have a better
understanding of your position after I read it.
Amy Dunbar
UConn
September 8, 2009 reply from Bob Jensen
Hi Amy,
If you really want to understand the problem you’re
apparently wanting to study, read about how Warren Buffett changed the whole
outlook of a great econometrics/mathematics researcher (Janet Tavkoli). I’ve
mentioned this fantastic book before ---
Dear Mr. Buffett. What opened her eyes is how Warren Buffet
built his vast, vast fortune exploiting the errors of the sophisticated
mathematical model builders when valuing derivatives (especially options)
where he became the writer of enormous option contracts (hundreds of
millions of dollars per contract). Warren Buffet dared to go where
mathematical models could not or would not venture when the real world
became too complicated to model. Warren reads financial statements better
than most anybody else in the world and has a fantastic ability to retain
and process what he’s studied. It’s impossible to model his mind.
I finally grasped what
Warren was saying. Warren has such a wide body of knowledge that he does not
need to rely on “systems.” . . . Warren’s vast knowledge of corporations and
their finances helps him identify derivatives opportunities, too. He only
participates in derivatives markets when Wall Street gets it wrong and
prices derivatives (with mathematical models) incorrectly. Warren tells
everyone that he only does certain derivatives transactions when they are
mispriced.
Wall Street derivatives
traders construct trading models with no clear idea of what they are doing.
I know investment bank modelers with advanced math and science degrees who
have never read the financial statements of the corporate credits they
model. This is true of some credit derivatives traders, too.
Janet Tavakoli, Dear Mr. Buffett, Page 19
The part of my message
that you quoted was in the context of a bad debt estimation message. I don’t
think multivariate models in general work well in the context of bad debt
estimation because of the restrictive assumptions of the models (except in
some industries where bad debt losses are dominated by one or two really
good predictor variables). There is an exception in the case of the Altman,
Beaver, and Ohlson bankruptcy prediction models, but predicting bankruptcy
is in a different ball park than predicting defaults among 10 million rather
small accounts receivable.
As to multivariate models
as applied in TAR, JAR, and JAE I’ve no objection since the 1970s after
referees became much better at challenging model assumptions (in the 1960s
refereeing of econometrics models in accounting literature was often a
joke).
"FANTASYLAND ACCOUNTING RESEARCH: Let's Make Pretend..." by Robert E.
Jensen, The Accounting Review,
Vol. 54, January 1979, 189-196.
The problem, as I see it,
is that there’s nothing wrong with our econometrics tool bag when applied to
problems where the tools fit the problem. The econometrics models (except
for nonlinear models) are relatively robust in most papers that do get
published these days.
An Example of
Challenges of Multivariate Model Assumptions
"Is accruals quality a priced risk factor?" by John E.
Corea, Wayne R. Guaya, and Rodrigo Verdib, Journal of Accounting and
Economics ,Volume 46, Issue 1, September 2008, Pages 2-22
Abstract
In a recent and influential empirical paper, Francis, LaFond, Olsson, and
Schipper (FLOS) [2005. The market pricing of accruals quality. Journal of
Accounting and Economics 39, 295–327] conclude that accruals quality (AQ) is
a priced risk factor. We explain that FLOS’ regressions examining a
contemporaneous relation between excess returns and factor returns do not
test the hypothesis that AQ is a priced risk factor. We conduct appropriate
asset-pricing tests for determining whether a potential risk factor explains
expected returns, and find no evidence that AQ is a priced risk factor.
We need to see the above disputes become the rule
rather than the exception!
Francis, LaFond, Olsson, and Schipper vigorously disagree with criticisms of
their work such that there are some interesting disputes that on occasion
arise in accountics research. For the most part, however, published papers
like this are rarely replicated such that errors and frauds go unchallenged
in most of the thousands of accountics papers that have been published in
the past four decades ---
http://www.trinity.edu/rjensen/theory01.htm#Replication
The Corea, Guaya, and Verdib replication is a very,
very, very rare exception. I only wish there were more such disputes over
underlying modeling assumptions --- they should be extended to data quality
as well.
Now let me ask about your
FIN 48 tax disclosure study. Was there any independent replication to verify
that you did not make any significant data collection or modeling analysis
errors (you would be the last person in the world that I would suspect of
research fraud)? Do we accept your harvest as totally edible without a
single taste test by independent replicators?
http://www.trinity.edu/rjensen/theory01.htm#Replication
The Bigger Problems
Accountics models seldom
focus on the big problems of the profession, because the econometrics and
mathematical analysis tools just are not suited to our systemic accountancy
problems (such as the vegetable nutrition problem) ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews
The editorial problem in TAR, JAR, and JAE is that they
commenced in the 1980s to ignore problems that could not be attacked with
accountics mathematics and statistical tool bags. This leaves out most
problems faced in the accounting profession since practitioners and standard
setters seldom (almost never) have copies of TAR, JAR, JAE, and even AH on
the table when they are dealing with client issues or standards issues. AH
evolved from its original charge to where articles in AH versus TAR are
virtually interchangeable. I repeat from a message yesterday:
Not everything that can be counted, counts.
And not everything that counts can be counted.
Albert Einstein
For a long time, elite accounting
researchers could find no “empirical evidence” of widespread earnings
management. All they had to do was look up from the computers where their
heads were buried.
Bob Jensen ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Research should be problem driven rather
than methodologically driven," said Lisa Garcia Bedolla, a member of the
task force who teaches at the University of California at Berkeley.
Scott Jascik
---
http://www.insidehighered.com/news/2009/09/04/polisci
"I understand your point,
Jim." He could not identify one issue that
(accountics)
researchers had been able to "put to bed" after all that effort.
P. Kothari, one of the Editors of JAE and a full professor at
MIT, as quoted by Jim Peters below.
Do we forecast? You bet. Do we have
confidence in our forecasts? Never! Confidence about a non-linear chaotic
system can only come in degrees, and even those degrees of confidence are
guesses. Not all hope is lost. There are times when it seems our ability to
predict is better than others. Thus we need to take advantage of it if we
see it. Trading ranges, pivot points, support and resistance, and the like
can help, and do help the trader.
Michael Covel,
Trading Black Swans, September 2009 ---
http://www.michaelcovel.com/pdfs/swan.pdf
The following is an excerpt from my accounting theory threads ---
http://www.trinity.edu/rjensen/theory01.htm
The rise of accountics is summarized at
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Most importantly of all in accountics is that the leading accounting
research journals for tenure, promotion, and performance evaluation in
academe are devoted to accountics paper. Normative methods, case studies,
and interviews are rarely used in studies published in such journals. The
following is a quotation from “An Analysis of the Evolution of Research
Contributions by The Accounting Review (TAR): 1926-2005,” by Jean L. Heck
and Robert E. Jensen, Accounting Historians Journal, Volume 34, No.
2, December 2007, Page 121.
Leading accounting professors lamented
TAR’s preference for rigor over relevancy [Zeff, 1978; Lee, 1997; and
Williams, 1985 and 2003]. Sundem [1987] provides revealing information about
the changed perceptions of authors, almost entirely from academe, who
submitted manuscripts for review between June 1982 and May 1986. Among the
1,148 submissions,
only 39 used
archival (history) methods; 34 of those submissions were rejected.
Another 34
submissions used survey methods; 33 of those were rejected.
And 100 submissions used traditional normative
(deductive) methods with 85 of those being rejected.
Except for a small set of 28 manuscripts classified as using “other” methods
(mainly descriptive empirical according to Sundem), the remaining larger
subset of submitted manuscripts used methods that Sundem [1987, p. 199]
classified these as follows:
292 General Empirical
172 Behavioral
135 Analytical modeling
119 Capital Market
97 Economic modeling
40 Statistical
modeling
29 Simulation
It is clear that by 1982, accounting researchers realized
that having mathematical or statistical analysis in TAR submissions made
accountics virtually a necessary, albeit not sufficient, condition for
acceptance for publication. It became increasingly difficult for a single
editor to have expertise in all of the above methods. In the late 1960s,
editorial decisions on publication shifted from the TAR editor alone to the
TAR editor in conjunction with specialized referees and eventually associate
editors [Flesher, 1991, p. 167]. Fleming et al. [2000, p. 45] wrote the
following:
The big change was in research
methods. Modeling and empirical methods became prominent during 1966-1985,
with analytical modeling and general empirical methods leading the way.
Although used to a surprising extent, deductive-type methods declined in
popularity, especially in the second half of the 1966-1985 period.
I think the emphasis highlighted in red
above demonstrates that "Methodological Confusion" reigns supreme in
accounting science as well as political science.
February 22, 2008 reply from James M. Peters
[jpeters@NMHU.EDU]
A couple of years
ago, P. Kothari, one of the Editors of JAE and a full professor at MIT,
visited the U. of Maryland to present a paper. In my private discussion with
him, I asked him to identify what he considered to the settled findings
associated with the last 30 years of capital markets research in accounting.
I pointed out that somewhere over half of all accounting research since Ball
and Brown fit into this category and I was curious as to what the effort had
added to Ball and Brown. That is, what conclusions have been drawn that
could be considered settled ground so that researchers could move on to
other topics. His response, and I quote, was "I understand your point, Jim."
He could not identify one issue that researchers had been able to "put to
bed" after all that effort.
Jim Peters
New Mexico Highlands University
February 22, 2008 reply from J. S. Gangolly
[gangolly@CSC.ALBANY.EDU]
Jim,
P. Kothari's response
is to be expected. I have had similar responses from at least two ex-editors
of TAR; how appropriate a TLA! But who wants to bell the cats (or call off
the naked emperors' bluff)? Accounting academia knows which side of the
bread is buttered.
That you needed to
flaunt Kothari's resume to legitimise his vacuous response shows the
pathetic state of accounting academia.
If accounting
academia is not to be reduced to the laughing stock of accounting practice,
we better start listening to the problems that practice faces. How else can
we understand what we profess to "research"? We accounting academics have
been circling our wagons too long as a ploy to keep our wages arbitrarily
high.
In as much as we are
a profession, any academic on such a committee reduces the whole exercise to
a farce.
Jagdish
September 10, 2009 reply from Bob Jensen
Hi again Amy,
Accountics is the mathematical science of values.
Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
The history of the accountics takeover of leading academic accounting
research journals around the world as well as the takeover of accountancy
doctoral programs in the U.S. and other nations can be found at http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
The more I read in the book Dear Mr. Buffet by Janet
Tavakoli, the more I see a parallel between investment bankers and
accountics researchers.
After almost 20 years working for Wall
Street firms in New York and London, I made my living running a
Chicago-based consulting business. My clients consider my expertise in
product they consume. I had written books on credit derivatives and
complex structured finance products, and financial institutions, hedge
funds, and sophisticated investors came to identify and solve potential
problems.
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 5)
Jensen Comment
Before she wrote Dear Mr. Buffett, her technical book on
Structural Finance & Collateralized Debt Obligations (Wiley) sat on
my desk for constant reference. Janet also runs her own highly
successful hedge fund. She won't disclose how big it is, but certain
clues make me think it is over $100 million with very wealthy clients.
Her professional life changed when she commenced to correspond with what
was the richest man in the world in 2008 (before he gave much of
his wealth to the Gates Charitable Foundation). He's also one of the
nicest and most transparent and most humble men in the world.
Warren Buffett ---
http://en.wikipedia.org/wiki/Warren_Buffett
Warren Buffett disproved the theory of
efficient markets that states that prices reflect all known information.
His shareholder letters, readily available (free)
through Berkshire Hathaway's Web site, told
investors everything they needed to know about mortgage loan fraud,
mospriced credit derivatives, and overpriced securitizations, yet this
information hid in plain "site."
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 7)
Jensen Comment
Berkshire Hathaway ---
http://en.wikipedia.org/wiki/Berkshire_Hathaway
Jensen Comment
This of course does not mean that on occasion Warren is not fallible.
Sometimes he does not heed his own advice, and rare occasions he loses
billions. But a billion or two to Warren Buffett is pocket change.
I finally grasped what
Warren was saying. Warren has such a wide body of knowledge that he does not
need to rely on “systems.” . . . Warren’s vast knowledge of corporations and
their finances helps him identify derivatives opportunities, too. He only
participates in derivatives markets when Wall Street gets it wrong and
prices derivatives (with mathematical models) incorrectly. Warren tells
everyone that he only does certain derivatives transactions when they are
mispriced.
Janet Tavokoli,
Dear Mr. Buffett (Wiley, 2009, Page 19)
Why
investment bankers are like many accoutics professors
Wall Street derivatives traders construct trading models with no clear idea
of what they are doing. I know investment bank modelers
with advanced math and science degrees
who have never read the financial statements of the corporate credits they
model. This is true of some credit derivatives traders, too.
Janet Tavokoli,
Dear Mr. Buffett (Wiley, 2009, Page 19)
Jensen Comment
Especially note the above quotation when I refer to Reviewer A below.
Warren is aided by the fact that most
investment banks use sophisticated Monte Carlo models that misprice the
transactions. Some of the models rely on (credit) rating agency inputs,
and the rating agencies do a poor job of rating junk debt.
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 21)
Investment banks could put on the
same trades if they did fundamental analysis of the underlying
companies, but they are too busy
playing with correlation models.
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 24)
Warren has another advantage: Wall
Street underestimates him. I mentioned that Warren Buffett and I have
similar views on credit derivatives . . . My former colleague, a Wall
Street structured products "correlation" trader, wrinkled his nose and
sniffed: "That old guy? He hates derivatives."
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 24)
Warren Buffett writes billions of dollars worth of put options
When Warren sells a put buyer the right to make
him pay a specific price agreed today for the stock index (no matter
what the value 20 years from now), Warren receives a premium. Berkshire
Hathaway gets to invest that money for 20 years. Warren thinks the
buyer, the investment bank, is paying him too much . . . Furthermore,
Berkshire Hataway invests the premiums that will in all likelihood cover
anything he might need to pay out anything at all, since the stock index
is likely to be higher than today's value.
Janet Tavokoli, Dear
Mr. Buffett (Wiley, 2009, Page 24)
My Four Telltale Quotations about accoutics professors
Although there are no longer any investment banks in the United States since
early 2009, how were investment bankers much like accountics researchers?
There is of course very little similarity now since investment bankers are
standing in unemployment lines and investment banks are out of business ---
http://www.trinity.edu/rjensen/2008Bailout.htm#InvestmentBanking
Accountics professors are still happily in business dancing behind tenure
walls and biased journal editors who still cannot see beyond accountics
research methodology.
I provide three quotations below that, I think, pretty well tell the
story of why many, certainly not all, accountics professors are pretty much
like investment bankers that were superior at mathematics and model building
and lousy at accounting and finance fundamentals. You, Amy, will probably
recall each of these quotations although they may not have sunk in like they
should've sunk in.
Quotation 1
Denny Beresford gave a 2005 luncheon speech at the annual meetings of the
American Accounting Association. Having been both a former executive partner
with E&Y and, for ten years, Chairman of the FASB before becoming an
accounting professor at the University of Georgia, Denny has lived all sides
of accounting --- practice, standard setting, and academe. In his speech
Denny very politely suggested that accountics professors should take and
interest in and learn a bit more about, gasp, accounting.
After he gave his speech, Denny submitted his speech for publication to
Accounting Horizons. Referee A flatly rejected the Denny's submission
for the following reasons:
The paper provides specific recommendations for
things that accounting academics should be doing to make the accounting
profession better. However (unless the author believes that academics'
time is a free good) this would presumably take academics' time away
from what they are currently doing. While following the author's advice
might make the accounting profession better, what is being made worse?
In other words, suppose I stop reading current academic research and
start reading news about current developments in accounting standards.
Who is made better off and who is made worse off by this reallocation of
my time? Presumably my students are marginally better off, because I can
tell them some new stuff in class about current accounting standards,
and this might possibly have some limited benefit on their careers. But
haven't I made my colleagues in my department worse off if they depend
on me for research advice, and haven't I made my university worse off if
its academic reputation suffers because I'm no longer considered a
leading scholar? Why does making the accounting profession better take
precedence over everything else an academic does with their time?
Referee A's rejection letter,
Accounting Horizons, 2005
What riled me the most was the arrogance of Referee A. I read into it
that, whereas mathematicians and econometricians are true "scholars," other
accounting professors are little better than teachers of bookkeeping and
fairy tales. This is the same arrogant attitude held by previous investment
bankers trying to take advantage of Warren Buffet as their counterparties in
derivatives or other financial transactions.
Investment bankers and many accountics professors put on superior airs
because of their backgrounds in mathematics and science. To hell with
knowledge of fundamentals in accounting and finance apart from mathematical
models. To hell with reading and analyzing financial statements in great
depth. Accountics scholars, at least some of them who referee many
submissions to journals, don't waste their time on such mundane things.
Quotation 2
My second quotation laments that accounting education programs now often
have to pay the highest starting salaries for some graduates of accounting
doctoral programs who know very little accounting. Before she moved to
Wyoming, Linda Kidwell wrote a revealing message to the AECM listserv.
I cannot
find the exact quotation in my archives, but some years ago Linda Kidwell
complained that her university had recently hired a newly-minted graduate
from an accounting doctoral program who did not know any accounting. When
assigned to teach accounting courses, this new "accounting" professor was a
disaster since she knew nothing about the subjects she was assigned to
teach.
Quotation 3
In the year following his assignment as President of the American Accounting
Association Joel Demski asserted that research focused on the accounting
profession will become a "vocational virus" leading us away from the joys of
mathematics and the social sciences and the pureness of the scientific
academy:
Statistically there are a few youngsters who came to academia for the joy of
learning, who are yet relatively untainted by the
vocational virus.
I urge you to nurture your taste for learning, to follow your joy. That is
the path of scholarship, and it is the only one with any possibility of
turning us back toward the academy.
Joel
Demski,
"Is Accounting an Academic Discipline? American Accounting Association
Plenary Session" August 9, 2006 ---
http://bear.cba.ufl.edu/demski/Is_Accounting_an_Academic_Discipline.pdf
Accounting professors are no longer "leading scholars" if they succumb to a
vocational virus and focus on accounting rather than mathematics,
econometrics, and/or psychometrics ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR.htm
Quotation 4
One of the very leading accountics professors is employed by the graduate
school at Northwestern University. Ron Dye's academic background is in
mathematics rather than accounting, and he's written some of the most
esoteric accountics research papers ever published in leading accounting
research journals.
Richard Sansing
from Dartmouth, on the AECM, occasionally stresses the importance of a
background in mathematics for students seeking fame and fortune as
accounting professors. Although I agree with Richard because of the
dominance of accountics in the accounting academy over the past four
decades, I don't think Richard anticipated the response he got from Ron Dye
when he (Richard Sansing) asked Ron Dye to comment about accountics research
and about the possible desirability of getting a doctorate in mathematics,
econometrics, psychometrics, statistics, etc. before becoming an accounting
assistant professor.
About the question: by and large, I think it is
a mistake for someone interested in pursuing an academic career in
accounting not to get a phd in accounting. If you look at the
"success" stories, there aren't many: most of the people who make a
post-phd transition fail. I think that happens for a couple reasons.
1. I think some of the people that transfer
late do it for the money, and aren't really all that interested in
accounting. While the $ are nice, it is impossible to think about $
when you are trying to come up with an idea, and anyway, you're
unlikely to come up with an idea unless you're really interested in
the subject.
2. I think, almost independent of the
field, unless you get involved in the field at an early age, for
some reason it becomes very hard to develop good intuition for the
area - which is a second reason good problems are often not
generated by "crossovers."
The bigger thing - not related to the question
you raise - but maybe you could add to the discussion is that there are,
as far as I can tell, not a lot of new ideas being put forth by
anyone in accounting nowadays (with the possible exception of John
Dickhaut's neuro stuff). In most fields, the youngsters are supposed to
come up with the new problems, techniques, etc., but I see a lot more
mimicry than innovation among newly minted phds now.
Anyway, for what it's worth....
Ron Dye, Northwestern
University
I think Ron Dye is being extremely
blunt and extremely honest. What really strikes me is that four decades of
accountics research as pretty much evolved into sterile research where "not
a lot of new ideas are being put forth" by accountics professors.
What the big problem is with
accountics research is that it is too restrictive as to what problems are
taken on by accountics researchers, what papers are written for submission
to the leading academic accounting research journals, and the high level of
mathematics required for admission/progression in an accountancy doctoral
program.
What a boring time it is in accountics
research where virtually nothing comes out that is deemed worth replicating
and verifying.
Accountics researchers, however,
should thank the heavens that they did not become, like those "correlation
investment bankers," counterparties in derivatives with Warren Buffet.
It's far better to be among the highest paid professors in a university
while dancing behind the protective walls of tenure.
I will probably send out a lot more
tidbits from my hero Janet Tavaloli (she became more of a hero after she
delved into the mind of Warren Buffett).
Bob Jensen
September 10, 2009 reply from Patricia Walters
[patricia@DISCLOSUREANALYTICS.COM]
Having been very busy at my "day job" the last few
days, I've missed much of this thread, but I'd like to comment on something
Ron Dye said in the excerpt below about "new ideas." I apologize if my
thoughts are not fully developed, so I'll label them observations or
questions.
How many new PhDs actually have any experience in
accounting or of thinking about accounting issues outside of their
undergraduate degree program?
Although I'm generally on the side of the non-accountics
folks in the debate about relevant research, I also believe it's difficult
for someone to come up with new and interesting questions about which to do
even accountics research if that person hasn't spent time thinking about the
issues of financial reporting (or management decisions-making, etc).
I don't see the problem raised by Ron as one
related to the methodology used for the research. Rather my observation is a
lack of experience about the issues that cause us to want/need some research
in the first place.
Thoughts?
Pat
September 10, 2009 reply from Bob Jensen
Hi Pat,
Gary Sundem,
while editor of TAR and while AAA President, made a major point of saying
that the accounting profession should not look to empirical research for
"new theories."
The following is a quote from the 1993
President’s Message of Gary Sundem, President’s Message. Accounting
Education News 21 (3). 3.
Although empirical
scientific method has made many positive contributions to accounting
research, it is not the method that is likely to generate new theories,
though it will be useful in testing them. For example, Einstein’s theories
were not developed empirically, but they relied on understanding the
empirical evidence and they were tested empirically. Both the development
and testing of theories should be recognized as acceptable accounting
research.
If we ever had an accounting Einstein in the past four
decades, that accounting Einstein probably could’ve never published in TAR,
JAR, JAE, CAR, or even AH (in later years). Hence, we do not look to these
“leading” research journals of the accounting academy for the development of
new theories that perhaps cannot be immediately tested.
When I was
Program Director for an AAA annual meeting in NYC, I arranged for Joel
Demski to be on a plenary session (actually a debate with Bob Kaplan). Among
other things I asked Joel to identify at least one seminal and creative idea
from the academy of accountics researchers that impacted on the practitioner
world. In his speech, Joel suggested Dollar-Value Lifo. Later I inspired
accounting historian Dale Flesher investigate the origins of Dollar-Value
Lifo.
-----Original
Message-----
From: Dale Flesher University of Mississippi
[mailto:actonya@HOTMAIL.COM]
Sent: Friday, January 25, 2002 1:35 PM
To:
AECM@LISTSERV.LOYOLA.EDU
Subject: Re: The Only Invention of Academic Accountants
Contrary to a recent
statement in this forum, Dollar-Value Lifo (DVL) was not developed by a
professor. The father of DVL was Herbert T. McAnly, who retired in 1964 as a
partner at Ernst & Ernst after 44 years with the firm. Throughout his
career, McAnly was known as "Mr. LIFO."
Although he did not
develop LIFO, which had been around for decades in the form of the
base-stock method, he did develop DVL after the Internal Revenue began
accepting LIFO from all types of companies. The Treasury would probably
never have agreed to allow all companies to use LIFO (in 1939) had they been
able to prognosticate McAnly's idea. He first described the concept in an
address delivered at the Accounting Clinic and the Central States Accounting
Conference in Chicago in May 1941. His concept was finally accepted by the
IRS following the Hutzler Brothers Co. case in 1947 (8 TC 14 (1947)). He
later worked with the Treasury Department trying to get more practical
regulations relating to LIFO.
Dale L. Flesher
Professor of Accountancy University of Mississippi
I repeat a
few quotations below:
For a long time, elite accounting
researchers could find no “empirical evidence” of widespread earnings
management. All they had to do was look up from the computers where their
heads were buried.
Bob Jensen ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
If we ever had an accounting Einstein
in the past four decades, that accounting Einstein probably could’ve never
published in TAR, JAR, JAE, CAR, or even AH (in later years). Hence, we do
not look to these “leading” research journals of the accounting academy for
the development of new theories that perhaps cannot be immediately tested.
Bob Jensen
“Research should be problem driven rather
than methodologically driven," said Lisa Garcia Bedolla, a member of the
task force who teaches at the University of California at Berkeley.
Scott Jascik
---
http://www.insidehighered.com/news/2009/09/04/polisci
"I understand your point,
Jim." He could not identify one issue that
(accountics)
researchers had been able to "put to bed" after all that effort.
P. Kothari, one of the Editors of JAE and a full professor at
MIT, as quoted by Jim Peters in an AECM message.
Bob Jensen
September 9, 2009 reply from Paul Williams
[Paul_Williams@NCSU.EDU]
Amy,
Why don't you ask the protagonists what they are doing and why?
Anthropolotgists and sociologists do it all the time. At the AAA meeting in
NYC I used an analogy that Sylvia Earle provided at an Emerging Issues Forum
here at NC State a number of years ago. She is an oceanographer who holds
all the records for time and depth spent under water by a woman. She
described her discipline before and after the invention of SCUBA and other
forms (bathosphere) of deep diving technology. Before the ability to immerse
in the ocean environment she likened her research to being in a balloon over
NYC throwing a basket through the clouds and dragging it along the streets.
From the bits and pieces (much of which was simply
the detritus of life in the city) you had to infer what life was actually
like in a place you couldn't see. What underwater breathing technology did
for her field was absolutely revolutionary because, as she said, you could
actually be in the life of the sea. Obviously what we thought was the case
from the bits of stuff retrieved turned out to be woefully inadequate for
developing a rich understanding of oceanic life.
Accountics research is still little more than
throwing a basket over the side. It is observing at a distance the detritus
(bits of accounting data that float to the surface in the form of public
archives) and inferring what must be happening. This is further limited by
the invariable assumption that whatever is happening must be economic!
Little wonder we have made so little progress.
Ackerloff and Shiller (Animal Spirits) provide an
interesting, two dimensional matrix for understanding human behavior (they
are still economists, but at least Shiller's wife is a social psychologist
who has had a very positive influence on his thinking): One dimension is
Motives -- economic and non-economic (people are likely more non-economic
than economic) and Responses -- rational and irrational. Of the four boxes,
accountics research has confined itself to just one: motives must be
economic and responses must be rational. Seventy five percent of the terrain
of human social behavior is completely ignored.
Added to Bob's shortcomings to accountics research
I would add one more. Sue Ravenscroft and I have a working paper trying to
sort out the inadequacies of "decsion usefulness" as both a policy criterion
and a research objective. One problem with accounting research is that the
accountics approach privileges exclusively algorithmic knowledge -- behavior
that can be modeled (so Wayne Gretzky's famous observation, "I skate to
where the puck is going to be" is beyond understanding). Much of this
research utilizes accounting data as a principal source of measurement. The
problem is that though accountants produce numbers, they don't produce
Quantities, which is essential for performing mathematical operations.
Brian West discusses this extensively in his
Notable Contribution Award winner Professionalism and Accounting Rules. To
perform even the simplest arithmetic operation of addition the numbers you
add must represent quantities of a like type. I can add a coffee cup to a
Volkswagon and claim I have two, but two of what?
Accounting numbers are what Gillies describes as
operational numbers, i.e., numbers obtained by performing operations,
analogous to grading an exam. As West points out financial statements today
consist of numbers developed by performing operations that require cost,
unamortized cost, lower-of-cost or market (with floor and ceiling rules),
exit market values, present values, and, now, "fair" value. When you add all
of these up what do you have? Good question. You have a number, but you most
certainly do not have a quantity. So when an accountics researcher develops
a 20 variable regression model where the dependent variable and at least
half of the independent variables are the operational numbers produced by
accountants (numbers, not quantities), what could the results possibly MEAN.
It is a false precision of the most egregious
kind (GIGO?). In your study you will use operational numbers and assert this
is what my measures mean, but you have no way of knowing if this describes
the actual context in which the decisions were actually made (you are
looking at the stuff from the basket). What it means to you isn't
necessarily what it meant to the actual people who made these decisions.
My issue with so much accountics research is that
it means what the researcher chooses to have it mean; the researcher assigns
the meaning, but to understand what is going on with human beings it is
important to know what their behavior means to them.
And in accountics research this remains a mystery.
A couple of other books (once you finish Shapiro"s) are by Bent Flyvbjerg:
Rationality and Power and Making Social Science Matter. In the latter he
discusses the work of Dreyfus and Dreyfus on what they call "a-rational"
behavior (what Gretzsky is doing when he skates to where the puck is going
to be). See also Gerd Gigerenzer, Gut Feelings: The Intelligence of the
Unconscious..
September
9, 2009 reply from Jagdish Gangolly
[gangolly@GMAIL.COM]
Amy,
Statistical methods are not inherently faulty. But they can be, and far too
frequently are, misused. So, to turn your metaphor on its head, much accountics
econometrics work is more like spraying manure in a perfumed room, or more like
a skunk spraying in a perfumed room.
Statistical methods are used for classifying, associating, predicting,
inferring (causally as well as associatively), organising, and learning. It is
important to always keep in mind in which context you are using statistics.
1.
In the accountics stuff I am familiar with, determining association is the
avowed objective, but the language subtly takes a predictive turn in
discussions. The reason usually is the positivist dogma having to do with
absence of causation in a naive positivist's lexicon.
I have been stunned by well known accounticians professing that we do not study
causes because there are no statistical methods for causal inference. And to the
last person, these folks have not heard of modern statistical tools for the
study of causation in statistics.
Ignorance is bliss in this wonderland. Social scientists, however, have used
them for a long time. Theological commitments are dangerous for ANY "science".
2.
Classification is the first step in learning. It is only VERY recently that
accounting folks have started talking about the use of classification by use of
clustering, support vector machines, neural nets, etc., but most of these
discussions take place in non-mainstream contexts.
3.
Many of the techniques in 2 are nowadays considered part of the field of machine
learning, a hybrid between statistics and computing. I am sure one of these
days, when they have become stale elsewhere,They’ll be used in accounting.
Mainstream accountics academics are far too conservative to accept any
statistical method unless they have been certified stale.
4.
Often, in conversations, accountics folks revert to counterfactual
statements.That is natural in the sciences. Underlying such statements are
usually causal inferences. It is in this context that I had made observation 1
above. Building a better mousetrap is a legitimate objective of sciences, and
therefore predictive models are essential component of any science. Accountics'
theological commitment to positivist dogma makes them schizophrenic in that they
cannot admit causality without jeopardising their philosophical suppositions and
yet cannot ignore it if they are to maintain their credibility as scientists.
As to some work in these areas of statistics, any list I prepare would include
the following books.
1.
Counterfactuals and Causal Inference: Methods and
Principles for Social Research (Analytical Methods for Social Research) by
Stephen L. Morgan and Christopher Winship
2.
Causality: Models,
Reasoning, and Inference by
Judea Pearl
3.
Pattern Recognition and
Machine Learning (Information Science and Statistics) by
Christopher M. Bishop
4.
The Elements of Statistical
Learning: Data Mining, Inference, and Prediction, Second Edition (Springer
Series in Statistics) by
Trevor Hastie, Robert Tibshirani, and Jerome Friedman
I think 3 is available online for free, but it is dense reading. 1 is
outstanding.
2 is a classic, and 4 is, to an extent, based on the work of Vapnik.
Jagdish
Bob
Jensen's accounting theory threads ---
http://www.trinity.edu/rjensen/theory01.htm
The rise of accountics is summarized at
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
As David Bartholomae observes, “We make a huge
mistake if we don’t try to articulate more publicly what it is we value in
intellectual work. We do this routinely for our students — so it should not be
difficult to find the language we need to speak to parents and legislators.” If
we do not try to find that public language but argue instead that we are not
accountable to those parents and legislators, we will only confirm what our
cynical detractors say about us, that our real aim is to keep the secrets of our
intellectual club to ourselves. By asking us to spell out those secrets and
measuring our success in opening them to all, outcomes assessment helps make
democratic education a reality.
Gerald Graff, "Assessment Changes
Everything," Inside Higher Ed, February 21, 2008 ---
http://www.insidehighered.com/views/2008/02/21/graff
Gerald Graff is professor of English at the University of Illinois at Chicago
and president of the Modern Language Association. This essay is adapted from a
paper he delivered in December at the MLA annual meeting, a version of which
appears on the MLA’s Web site and is reproduced here with the association’s
permission. Among Graff’s books are Professing Literature, Beyond the
Culture Wars and Clueless in Academe: How School Obscures the Life of the Mind.
The consensus report, which was approved by the
group’s international board of directors, asserts that it is vital when
accrediting institutions to assess the “impact” of faculty members’ research on
actual practices in the business world.
"Measuring ‘Impact’ of B-School Research," by Andy Guess, Inside
Higher Ed, February 21, 2008 ---
http://www.insidehighered.com/news/2008/02/22/impact
"iZepto: Timesheets Made Human," by Rick Lillie, Thinking Outside
the Box Blog, July 5, 2010 ---
http://iaed.wordpress.com/2010/07/05/izepto-timesheets-made-human/
For anyone who spent time in public practice, the “timesheet”
was both a good thing and a bad thing! It helped you keep track of what you
accomplished (and what you didn’t). I have often wondered whether
maintaining a timesheet would be a useful exercise for a faculty member.
A couple of years ago, I discovered a personal
timesheet program called
iZepto
developed by
Shine Technologies, an Australian
company. I started using iZepto to keep track of my time. iZepto is
particularly useful when preparing my annual faculty activitity report.
iZepto is a Web 2.0 hosted software service. There
is nothing to download except reports that you setup and print
periodically. It is easy to tailor to personal needs. Classify your
activities in ways that make sense to you.
iZepto is free for 1 to 3 users. Great price! For
iPhone users, there is a free
iPhone application that you can
download from the iPhone App Store. What could be more useful?
iZepto is a great personal productivity tool. Take
a look. Give it a try.
Rick Lillie
(CalState, San Bernardino)
Bob Jensen's on Tricks and Tools of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Collaboration ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Collaboration
Social Networking ---
http://www.trinity.edu/rjensen/ListServRoles.htm
Google Wave ---
http://en.wikipedia.org/wiki/Google_Wave
Rick Telberg pointed me to this excellent
slide show by Tom Hood (Maryland Association of CPAs and a close friend of Barry
Rice)
CPAs and the
Social Media (75 slides) ---
http://www.slideshare.net/thoodcpa/social-media-strategy-quickstart-for-cpas
Early on Tom picked up on social networking as an important tool in a CPA firm's
tool bag.
"Frontiers of Collaboration: The Evolution of Social Networking,"
Knowledge@Wharton, July 7, 2010 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2536
Social networking tools such as Twitter and the
emerging Google Wave web application are taking individuals and
organizations to the frontiers of real-time communication and collaboration.
The technology has the potential to make it easier to discover and share
information, interact with others, and decide what to buy or do. But the key
word is "potential": Social networking's evolution is still in its early
stages. What makes the current crop of services more promising than those
that came before? What are the obstacles to further progress?
An expert panel debated these questions at the
annual Supernova technology strategy conference, produced in partnership
with Wharton and held last winter in San Francisco. The 2010
Supernova forum
will be held this month in Philadelphia.
The panel at the San Francisco event was chaired by
David Weinberger, a fellow at Harvard Law School's Berkman Center for
Internet and Society and co-author of The Cluetrain Manifesto. Appearing on
the panel were: Anna-Christina Douglas, product marketing manager at Google;
Laura Fitton, principal of Pistachio Consulting and co-author of Twitter for
Dummies; Paul Lippe, founder and CEO of Legal OnRamp; Jason Shellen, founder
and CEO of Thing Labs, and Deborah Schultz, a partner with the Altimeter
Group. In addition, Google engineers were in the room demonstrating Google
Wave by allowing the audience to post to the social networking service
during the session; their comments appeared in real time on projection
screens near the panelists.
Weinberger began the session by asking panelists
what made the introduction of social networking tools different from
previous technological endeavors to improve communication and collaboration.
One significant issue discussed was how social networking compared with
knowledge management (KM). KM systems first appeared on the scene about 20
years ago and once represented the frontier, embodying companies' most
innovative ideas for integrating internal access to disparate information in
order to improve communication, collaboration and business processes.
KM systems were implemented through technologies
such as web portals, e-mail networks, content management systems and
business intelligence infrastructure. Web portals, which were probably the
most successful type of KM system, allow users to access a range of
information -- including reports, diagrams, catalogs and maintenance records
-- through one interface, rather than many. The portals also include
external information supplied by business partners, government agencies and
news sources. The technology automatically pulls information from the
sources on demand so that users do not have to search for it manually.
Organizations employ KM systems to increase the
value of their "intellectual capital." However, the technology that supports
KM systems has traditionally been difficult to develop and deploy. And the
systems have not been universally successful at fostering real time
collaboration between employees.
According to Shellen -- who was part of the
development teams for Google's blogging program and Reader aggregator
service -- before social networking tools enabled quick and casual
communication, many bloggers in corporate organizations had "some KM tool
where you captured the knowledge in the tool's silo and assigned all sorts
of tags, folders and so on to it. You would then pass the blog to your
manager for him or her to [learn from] what you were writing." Shellen now
heads Thing Labs, a San Francisco-based company that builds web-based
software for sharing content. Social networking is easing some of the
frustration users in many organizations have encountered with traditional KM
systems. Through use of Twitter and other tools, more of the intellectual
capital that KM systems once guarded is flowing freely, in real time, inside
and outside organizations. If an employee needs to find expertise or share
information, he or she doesn't have to work within the rigid confines of a
KM system, or even the confines of his or her organization. Instead, the
employee can use social media to collaborate with others and to find answers
more quickly and put relevant advice into practice.
While there are virtues to being able to
communicate faster and more easily with social networking tools, panelists
agreed that many organizations are struggling to adjust to the spontaneity
and loss of control over information that comes with these tools. Concerned
that organizations will eventually clamp down, Weinberger asked, "Will all
the fun be stripped out of it? Will people become afraid to Tweet about
things that are not strictly business-related?" Fitton, whose consulting
firm focuses on helping companies to use micro-blogging in a business
environment, suggested that companies may find the "messy and random
serendipity" of Twitter and other social networks to be more efficient than
lumbering KM systems and processes. "It brings an infusion of humanity to
business," she noted, who adding that, in her experiences at Pistachio
Consulting, she has observed social networking having an impact on
organizations by leveling management hierarchies, accelerating team-building
across geographical locations, and improving mentoring. She stated that, in
some cases, research to find human expertise that used to take many hours
can happen much faster when queries are "flung out into the commons" to
catch the attention of people who can provide answers more quickly.
Breadth vs. Depth
One of the advantages social networking tools have
over KM systems, experts say, is that they simplify the process of obtaining
information that would be useful to a business or employee. Tools such as
Twitter provide a sort of "KM in the cloud," allowing users to collaborate
with each other and send messages to locate expertise without a company
having to build and maintain a complex and expensive system to provide these
capabilities internally. Social networking tools provide access to a broad
population and employ simple, standardized, techniques to link users to
information. But while social networking offers "an enormous amount of
horizontal power," Lippe said, "most of the hard collaboration problems are
[solved] in vertical domains." His firm, Legal OnRamp, is a collaboration
platform for lawyers that allows information to be collected and shared
virtually. Membership is by invitation only.
Lippe noted that, in the legal field, "there's
already a structure of knowledge, and most knowledge repositories and
structures of the collaborative web have existed for multiple generations.
So, the question is, how do you tap into them?" One core structure is
attorney-client privilege, which Lippe said "has long preceded the
information confidentiality and security regime that we all have now. It
creates the structure of what you can and cannot share." In the legal
universe, he added, the messy serendipity of "horizontal" social networking
cannot solve the hardest problems. "Lawyers have some questions they will
answer for free, and others that they will figure out a way to get paid to
answer."
But the legal field's communication sensitivities
are "a very specific case," Shellen pointed out. He noted that companies
have built private social networks that feature protected blogs and search
engines, and that these tools have proven effective in achieving new forms
of collaboration while keeping information secure. Organizations are now
incorporating use of Twitter, Facebook, Flickr and other social media into
their daily routines, although they are in need of systems that can
integrate and update the information being posted across all of the
platforms. Shellen's Thing Labs produces a reader called "Brizzly" that can
be used to provide that service.
Lippe agreed that, despite the concerns he noted,
large legal firms have an opportunity to use social networking to
reestablish an intimacy with clients that they may have lost as the
businesses grew larger and adjusted to structural changes in the industry.
Lippe wrote recently on his Legal OnRamp blog that social networking tools
can be used to save attorneys from "e-mail and attachment overload" and to
"share existing knowledge or collaborate on new work [including] high volume
work like commercial contracts and high complexity work like major case
litigation."
Office culture plays a significant role in what
platform is used to share information, according to Schultz, a partner with
the San Mateo, Calif.-based Altimeter Group, a technology strategy
consulting firm. She noted that media companies, for example, may be a
better fit for the horizontal nature of social networking. Schultz has been
active in social media and networking for many years and has advised
organizations ranging from startups to Fortune 50 companies, including
Citibank and Procter & Gamble. At P&G, she built the P&G Social Media Lab, a
program that enables the company to study the new dynamics of customer
relationships in the age of social networking, and to use social media to
break the mold of standard marketing measures and approaches that were
geared toward older types of media. By encouraging brand managers to pay
close attention to what customers were saying on community sites and other
social networking places, Schultz said the Lab has helped P&G redefine how
it engages, communicates with and uses marketing to influence consumers. "I
see the tools making the roles we have more porous," she stated. "As the
consumer-driven nature of social networking moves into organizations, the
collaboration potential of their use becomes more interesting."
The use of tools like Twitter and Google Wave
"definitely make a cultural statement," said Douglas. The Google product
marketing manager described how Google Wave has the capabilities for
real-time, rolling conversation and collaboration among users that can
include messages, links and attachments. Douglas noted that each
conversation or "wave" can be modified with different editing and replying
privileges so that enterprises can "exercise controls for how people want to
lock down content." The Google engineers demonstrated the application on the
big screen behind the panelists; they showed how users can comment with
links embedded in their messages and also load attachments.
Google Wave could be used effectively for private
communication inside the firewall, as well as for working with a diverse
community outside an organization, panelists said. Previous KM systems did
not easily integrate communication with content management, making it
difficult to use existing tools to access and manage information during real
time conversations. Google Wave and other social networking tools offer the
potential of a much tighter integration between communication and content,
meaning conversations can include richer information sharing and easier
references to content available across the organization.
To Shellen, the most interesting aspect to how
social networking and collaboration tools are used is users' ability to join
ongoing conversations. He said his firm is currently building a "data set on
top of that engagement, where we ask people to explain trending topics on
Twitter." The combination of immediate updates plus access to more in-depth
information can enhance knowledge. "Tools like Twitter make me much smarter
about you," Schultz noted. "And the 'you' could be an entity or an
individual." She said that with the right kind of filtering, people can
collaborate and make more effective use of the information available on
social networks. "Companies can collaborate in real time with customers on
products and even pricing."
But does the 140-character limit for posts to
Twitter enable engagement, or is it "a sign of triviality?" asked
Weinberger. "Constraints breed invention," replied Shellen. Douglas added
that communities using Twitter, Google Wave and other tools are creating
their own etiquette. Panelists agreed that both the creation of etiquette
for particular conversations and the sheer ability to engage in several
discussions at once would be difficult using blogs and older forms of web
content sharing programs.
An Open and Vibrant World
Weinberger asked the panelists whether progress
toward the real-time collaboration frontier is being driven by new
technology or human needs. Speaking to the human needs, Fitton observed that
social networking tools such as Twitter "help us overcome human isolation in
a way that is not brand new but is happening on a different scale." She said
that the collaboration possible on the site is a question of "not just;
'What are you doing?' but, 'What do we have in common?'" Fulfilling that
need is what fascinates her about the phenomenon. Shellen added: "There's
accountability behind it; we now have modes of identity tied to short bursts
of communication that are very much 'you.'"
Continued in article
Bob Jensen's threads on social networking ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Ketz Me If
You Can
"Pension Reality in Orange County," by Ed Ketz, SmartPros, July
2010 ---
http://accounting.smartpros.com/x69952.xml
An interesting court case concerns the nature of enhancements to retirement
benefits. If we remove the legal jargon, the essence of the case is whether an
amendment to a pension plan that increases employee benefits constitutes a
liability. At first this case may appear boring to accountants because the
answer is yes - like, duh! - it becomes titillating when one realizes the
balkanization of economic thought by some governmental entities.
The case pits the Board of Retirement of the Orange County Employees Retirement
System (OCERS) and the Association of Orange County Deputy Sheriffs (AOCDS) and
others against Orange County, California. The legal context pivots around the
authority to raise pension benefits without taxpayer approval. As the state has
a constitutional mandate that Orange County and similar governmental entities
not encumber future year tax revenue streams, the issue is whether the benefit
enhancement creates liabilities that must be paid out of future years’ taxes. If
it does, then the action is voidable because such action requires taxpayer
referendum; if the amendment does not increase the entity’s liabilities, then
the actions by the OCERS and the AOCDS were appropriate.
In December 2001 the Retirement Board of OCERS, among other things, increased
the retirement benefits from 2% to 3% of annual compensation multiplied by the
total years of service if the employee retired at age 50 or over. This pension
benefit enhancement was applied to all years of service, both past and future.
The cost was estimated to be $100 million, but this cost has grown to at least
$187 million. The current Board of Supervisors for Orange County decided to sue
OCERS and AOCDS because they believe that the state constitution requires
approval by the taxpayers.
This pension benefit enhancement was applied to all years of service, both past
and present. The change that applies to future years of service will give rise
to an accounting liability if and when the employee has earned that additional
benefit by providing future years of service—a fact not contested in this case.
On the other hand, the nature of the benefit enhancement as it applies to past
years of service is contested. Accordingly, the remainder of this column focuses
on this pension benefit enhancement as it applies for past years of service.
The argument is simple. The increase to pension benefits is a liability that
must be paid for in future years. Incurring such liabilities may take place only
if the taxpayers approve. They were not given a chance to vote on this increase
to liabilities brought about by the pension enhancement, so the pension increase
should be nullified by the courts. The defendants argue that the increase to
pension benefits is not a liability and so there is no constitutional violation.
The court tossed out the case, accepting the arguments by the defendants. Orange
County has appealed the case. As I think this case is very important to
governmental units in this country and because I think too many politicians are
defrauding voters with unctuous, illogical gobbledygook, I played an active role
in preparing a brief, together with various colleagues and associates. To us,
accounting and economic logic are straight-forward in this case.
We begin our amicus curiae in support of the appellant by recalling the
definition of a liability. Definitions by the FASB, the IASB, and the GASB are
essentially the same—a liability is a probable future sacrifice that arises from
a present obligation of a particular entity to supply assets or services to
another entity sometime in the future because of a past transaction. The pension
enhancement clearly meets this definition of a liability.
It is a present obligation of Orange County because the employees who stand to
reap those benefits do not have to do anything else in order to receive them.
Orange County has little ability to avoid having to sacrifice resources in the
future unless some extraordinary event occurs, such as a court’s overturning the
legality of the pension obligation. The obligating event has already occurred;
the former Board of Supervisors has already agreed to the transaction. The FASB
and the IASB already have pronouncements that require such amendments to be
included as part of the projected benefit obligation (FAS 87 and 132; IFRS 19).
The GASB requires the disclosure of this liability (GAS 50), though it does not
require it to be booked on the balance sheet. The AICPA has criticized this GASB
pronouncement in a letter dated August 12, 2009, and argued strongly that the
“employer’s unfunded accrued benefit obligation meets the definition of a
liability” and that “it should be reported on the face of the financial
statements…”
The Orange County case is both simple and exasperating. It is simple because the
economics of pensions clearly demonstrate the creation of a liability that must
be borne by the county. It is disturbing because some court cases have tamped
down economic reality by politicizing the issues and allowing irresponsible
politicians to create huge liabilities that possess the potential to destroy
state and county economies.
I make no comment about the pension plan itself; that is beyond my purview. But,
I wish governmental leaders would quit acting recklessly when it comes to our
money. If politicians are required to disclose economic and accounting truth,
the voters will be in a better position to know whether they can afford these
changes.
Ketz Me If You Can
"CalPERS Attacks Pension Truth in Orange County," by J. Edward Ketz,
SmartPros, July 2010 ---
http://accounting.smartpros.com/x70042.xml
The mission of the California Public Employees'
Retirement System (CalPERS) includes representing the interests of
California's public employees. Its specific objective is to provide pension
benefits to public workers in the state. As such, it brooks no challenges to
future receipts of taxpayer largesse.
In my last column
Pension
Reality in Orange County, I discussed an
interesting court case that deals with increases to employee benefits and
described how such benefits constitute a liability. Not surprisingly,
CalPERS filed an amicus brief in the case and questions this assertion.
Clearly, the leaders of CalPERS either do not understand economic reality or
they stand up for their members regardless of the truth.
The amicus brief by CalPERS has two arguments, the
first of which is that the enhanced pension benefits based on prior years of
service does not violate the constitutional debt limit. This argument has
two subpoints: first, the estimated costs are actuarial estimations and thus
not a liability; second, the government agency’s cost is a contingent
liability.
That the pension obligation due to prior services is an actuarial estimation
seems a strange argument to make because accounting is filled with hundreds
of estimations. Corporations routinely estimate such things as the age and
salvage value and the fair value of property, plant, and equipment;
allowance for bad debts and fair value of residual cash flows arising from
the securitization of receivables; allowance for inventory obsolescence;
fair value and recoverability of intangible assets with indefinite lives;
fair value and recoverability of goodwill; fair value of investments; future
income tax assets and liabilities; accruals for payroll; accruals for
restructuring and workforce reduction costs; accruals for deferred revenues;
accruals for taxes and warranties; insurance liabilities and reserves;
stock-based compensation; and fair value measurements of derivative
instruments require estimates of future cash flows, the risk-free interest
rate, and volatility. Disallow estimations and one erases the accounting
profession from existence.
With respect to pension estimates, the AICPA correctly stated that
“actuarial science is well established and there are numerous instances in
which financial statements are affected by actuarial calculations and are
reliably stated.” In short, CalPERS’ attack on actuarial assumptions is a
straw man. If the Court would accept that argument, it would deny the
existence of virtually all assets and liabilities, and there would be no
budgets and no financial planning. Consequently, there would be no
accountability.
CalPERS went on to say that even if the pension obligation is a debt, it is
a contingent obligation. But, the debt is contingent on past events,
specifically on obtaining approval by a former group of supervisors. As the
contingent event has occurred, to an accountant this is a full-blooded
liability and not a contingent debt. Perhaps CalPERS is trying to say that
the obligation is contingent on future retirements and how long the retirees
live and similar events. If so, this argument renews its attack on
actuarial science; as such, it is merely a morph of the estimation argument,
which is fallacious.
The second major argument provided in the CalPERS amicus brief is that the
California constitution allows extra compensation when the entity receives
benefits from the other parties. That may or may not be so in those
instances in which the benefit depends on continuing work, but it is
patently false in those cases in which the benefits are awarded for work
already completed. Whatever past benefits were provided to Orange County
are historical; they will supply no additional benefits to Orange County in
the future. This argument is not only a straw man, but a moldy one as well.
The third argument given in the brief is really a statement of the
consequences if the Court recognizes the economic reality of pension
obligations. CalPERS declared, “If this Court adopts the County’s
unprecedented claims, the pension benefits of all of these employees and
their dependents could be threatened.” This assertion exaggerates what is
contested in this lawsuit—plaintiff has focused on the unfunded pension
liability due to the enhancement for prior services and the respondent has
incorrectly broadened the claims to other pension benefits as well. Even
so, governing law and economic reality should guide the Court’s decision
making and not the potential consequences.
As an aside, I do not worry about public employees because they have been
enjoying the good life. The US Department of Labor reports that private
sector workers earn on average $27.42 per hour while state and local
employees make $39.60 per hour. I know of no economic reason to explain the
disparity.
The L.A. Daily News reports that over six thousand employees of Los Angeles
have salaries of more than $100,000 per year. Given the lower pay for
regular taxpayers and the high salaries for public employees, it is no
wonder that taxpayers are showing signs of an inability to pay for the
excessive compensation in the public sector.
My main concern, however, is whether we analyze these enhancements to
pension benefits correctly. The enhancements are undoubtedly liabilities.
If the Court says otherwise, it will be showing its support for accounting
lies and will contribute to the mess in financial reporting as much as any
of the corporate scandals in the last ten years.
A footnote to this brief: it was prepared by Attorney General Jerry Brown
who is running for the governor’s office this fall. The question is why he
supporting Enron-like accounting for California. Recall that Enron
repeatedly disguised its debts by either treating the transactions as sales
(e.g., the Nigerian barges transactions) or by ignoring them (e.g., the
non-consolidation of many of Enron’s special purpose entities). To refuse
to call pension enhancements a liability is on par with what Enron did.
Perhaps it isn’t that bad. Maybe Jerry is just scrounging for votes and
hopes to garner the ballots of public employees. Even so, the price is too
high to pay.
July 19, 2010 reply from Robert Bruce Walker
[walkerrb@ACTRIX.CO.NZ]
No matter how you feel about Goldman's behavior, use of uncouth and filthy
language by government leaders and our media sets a low bar for decency.
Goldman's defender, Warren Buffet, thinks the Goldman deal does not even smell.
Boo to Warren on this one! Personally I don't think that Goldman's swap
construction on this one passes the smell test.
How might the proposed changes to revenue recognition standards by the FASB-IASB
affect firms like Apple Corporation?
Not answered below, but food for student thought
I think Aggie alumni should seriously think about making some kind donations
in kind to the Texas A&M Foundation --- I mean semi-truckloads should be headed
for College Station.
And do you suppose the big Aggies versus Longhorns game next November will be
a wipeout? If the game is held in Texas Stadium, the young men and women seen
stuffing their pockets with toilet paper to take home will be Aggie students.
There won't be any squares left after the first quarter of the game in Texas
Stadium.
I kid you not --- back on our Iowa farm we did not waste money on TP. And
contrary to Iowa folklore, we also did not use corn cobs in the outhouse. At a
Jensen family reunion a few years ago, we all chuckled when thinking back to how
Sears Catalog pages were ultimately put to use out back behind the
quarter-moon door.. However, as a young boy I quickly tore out the women's
underwear sections and preserved those pages in the hay loft. "Those were the
days my friend, I thought they'd never END."
Forwarded by Col. Booth
Billy Bob and Luther were talking one afternoon when Billy Bob tells Luther,
"Ya know, I reckon I'm 'bout ready for a vacation. Only this year I'm gonna do
it a little different. The last few years, I took your advice about where to go.
“Three years ago you said to go to Hawaii . I went to Hawaii and Earlene got
pregnant.
“Then two years ago, you told me to go to the Bahamas , and Earlene got
pregnant again.
“Last year you suggested Tahiti and darned if Earlene didn't get pregnant
again."
The ability to make and understand puns is considered to be the highest level
of language development.
1. A vulture boards an airplane, carrying two dead raccoons. The stewardess
looks at him and says, "I'm sorry, sir, only one carrion allowed per passenger."
2. Two fish swim into a concrete wall. One turns to the other and says,
"Dam!"
3. Two Eskimos sitting in a kayak were chilly, so they lit a fire in the
craft. Unsurprisingly it sank, proving once again that you can't have your kayak
and heat it too.
4. Two hydrogen atoms meet. One says, "I've lost my electron." The other
says, "Are you sure?" The first replies "Yes, I'm positive."
5. Did you hear about the Buddhist who refused Novocain during a root canal?
His goal: transcend dental medication.
6. A group of chess enthusiasts checked into a hotel and were standing in the
lobby discussing their recent tournament victories. After about an hour, the
manager came out of the office and asked them to disperse. "But why?", they
asked, as they moved off. "Because," he said, "I can't stand chess-nuts boasting
in an open foyer."
7. A woman delivers a set of identical twins and decides to give them up for
adoption. One of them goes to a family in Egypt and is named "Ahmal." The other
goes to a family in Spain ; they name him "Juan." Years later, Juan sends a
picture of himself to his birth mother. Upon receiving the picture, she tells
her husband that she wishes she also had a picture of Ahmal. Her husband
responds, "They're twins! If you've seen Juan, you've seen Ahmal."
8. A group of friars were behind on their belfry payments, so they opened up
a small florist shop to raise funds. Since everyone liked to buy flowers from
the men of God, a rival florist across town thought the competition was unfair.
He asked the good fathers to close down, but they would not. He went back and
begged the friars to close. They ignored him. So, the rival florist hired Hugh
MacTaggart, the roughest and most vicious thug in town to "persuade" the friars
to close. Hugh beat up the friars and trashed their store, saying he'd be back
if they didn't close up shop. Terrified, they did so, thereby proving that only
Hugh can prevent florist friars.
9. Mahatma Gandhi, as you know, walked barefoot most of the time, which
produced an impressive set of calluses on his feet. He also ate very little,
which made him rather frail and, with his odd diet, he suffered from bad breath.
This made him (Oh, dude, this is so bad, it's good…..) a super calloused fragile
mystic hexed by halitosis.
10. And finally, there was the person who sent ten different puns to friends,
with the hope that at least one of the puns would make them laugh. No pun in ten
did.
These are only for people who have had training in the medical arts (all
others: stop reading) . . .
1. A man comes into the ER and yells . . . 'My wife’s going to have her baby
in the cab.' I grabbed my stuff, rushed out to the cab, lifted the lady's dress
and began to take off her underwear. Suddenly I noticed that there were several
cabs - - - and I was in the wrong one.
Submitted by Dr. Mark MacDonald, San Francisco
2. At the beginning of my shift, I placed a stethoscope on an elderly and
slightly deaf female patient's anterior chest wall.
'Big breaths,'. . . I instructed. 'Yes, they used to be,'. . . replied the
patient.
Submitted by Dr. Richard Byrnes, Seattle , WA
________________________________________
3. One day I had to be the bearer of bad news when I told a wife that her
husband had died of a massive myocardial infarct.
Not more than five minutes later, I heard her reporting to the rest of the
family that he had died of a 'massive internal fart.'
Submitted by Dr. Susan Steinberg
4. During a patient's two week follow-up appointment with his cardiologist,
he informed me, his doctor, that he was having trouble with one of his
medications. . ‘Which one ?'. .. . I asked. 'The patch... The Nurse told me to
put on a new one every six hours and now I'm running out of places to put it!' I
had him quickly undress and discovered what I hoped I wouldn't see. Yes, the man
had over fifty patches on his body!
Now, the instructions include removal of the old patch before applying a new
one.
Submitted by Dr. Rebecca St. Clair, Norfolk , VA
5. While acquainting myself with a new elderly patient, I asked, 'How long
have you been bedridden?' After a look of complete confusion she answered . . .
' Why, not for about twenty years - when my husband was alive.'
Submitted by Dr. Steven Swanson Corvallis , OR
6. I was performing rounds at the hospital one morning and while checking up
on a man I asked . . .' So how's your breakfast this morning?' ‘It’s very good
except for the Kentucky Jelly. I can't seem to get used to the taste.’ .. . Bob
replied. I then asked to see the jelly and Bob produced a foil packet labeled
'KY Jelly.'
Submitted by Dr. Leonard Kransdorf, Detroit
7. A nurse was on duty in the Emergency Room when a young woman with purple
hair styled into a punk rocker Mohawk, sporting a variety of tattoos, and
wearing strange clothing, entered..... It was quickly determined that the
patient had acute appendicitis, so she was scheduled for immediate surgery...
When she was completely disrobed on the operating table, the staff noticed that
her pubic hair had been dyed green and above it there was a tattoo that read . .
.' Keep off the grass.'
Once the surgery was completed, the surgeon wrote a short note on the
patient's dressing, which said 'Sorry . . . had to mow the lawn.'
Submitted by RN no name...
8. As a new, young MD doing his residency in OB. I was quite embarrassed when
performing female pelvic exams... To cover my embarrassment I had unconsciously
formed a habit of whistling softly.
The middle-aged lady upon whom I was performing this exam suddenly burst out
laughing and further embarrassing me. I looked up from my work and sheepishly
said. . . ' I'm sorry. Was I tickling you?' She replied with tears running down
her cheeks from laughing so hard . . .
No, doctor, but the song you were whistling was . . . "I wish I was an Oscar
Meyer Wiener."
Dr. wouldn't submit his name....
9. Baby's First Doctor Visit A woman and a baby were in the doctor's
examining room, waiting for the doctor to come in for the baby's first exam.
The doctor arrived, and examined the baby, checked his weight, and being a
little concerned, asked if the baby was breast-fed or bottle-fed. 'Breast-fed, '
she replied...
'Well, strip down to your waist,' the doctor ordered.
She did. He pinched her nipples, pressed, kneaded, and rubbed both breasts
for a while in a very professional and detailed examination.
Motioning to her to get dressed, the doctor said, 'No wonder this baby is
underweight. You don't have any milk.'
‘I know,’ she said, ‘I'm his Grandma, but I'm glad I came.
