New
Bookmarks
Year 2011 Quarter 1: January 1 - March 31 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have
key words to enter --- Search Site.
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 Threads ---
http://www.trinity.edu/rjensen/threads.htm
574 Shields
Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
![](http://www.trinity.edu/rjensen/book10Q1_files/image001.jpg)
Choose a
Date Below for Additions to the Bookmarks File
2011
January 31
March 31
![](http://www.trinity.edu/rjensen/book10Q1_files/image001.jpg)
March 31, 2011
Bob
Jensen's New Bookmarks February 1-March 31, 2011
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
In some ways the AAA's Issues in Accounting Education did not have
such a good year.
The Editor's 2010 Report IAE has two tables of interest. Especially note Table 2
---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=IAEXXX000025000004000795000001&idtype=cvips&prog=normal
Compare this with the Editor's Report for Accounting Horizons ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACHXXX000024000004000715000001&idtype=cvips&prog=normal
And then compare these with the Editor's Report for The Accounting Review ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACHXXX000024000004000715000001&idtype=cvips&prog=normal
Jensen Comment
I really don't want to make a lengthy comment at this time except to say that it
is very sad the accounting researchers do not take more interest in accounting
education.
The following history paper seems to be increasingly and sadly relevant today
---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Humor Between February 1 and March 31, 2011
---
http://www.trinity.edu/rjensen/book11q1.htm#Humor033111
Humor Between January 1 and January 31, 2011
---
http://www.trinity.edu/rjensen/book11q1.htm#Humor013111
Deloitte
University ---
http://careers.deloitte.com/united-states/students/csc_general.aspx?CountryContentID=16027
Update on Bob
Herz (with a note on his interest in accounting technology) ---
http://accounting.smartpros.com/x71457.xml
CPA
Exam Slated for International Debut in August ---
http://www.journalofaccountancy.com/Web/20113892.htm
Bob
Jensen's threads on the CPA Examination ---
http://www.trinity.edu/rjensen/BookBob1.htm#010303CPAExam
"Comparing
CPA Review Courses," by Junior Deputy Accountant Adrienne Gonzalaz ---
http://goingconcern.com/2011/03/comparing-cpa-review-courses/#more-27710
We’ve gone over
how to choose a CPA review course in the past
but it seems we’ve been getting more emails than usual asking about
specific review programs. Due to a potential perceived bias (this author
was employed in CPA Review for four years), we have avoided covering
this subject in detail until now.
The following list of review courses is by no means comprehensive and we
do not endorse any of these courses (unless, of course, they would like
to get in touch with our
advertising
folks and set up a sweet deal to be pimped out).
CPA exam candidates are highly encouraged to do their own research by
checking blogs and forums. Coworkers can also
be a good source of info but keep in mind colleagues are less likely
than strangers on the Internet to be honest about their own performance
so take any information you glean from them with a grain of salt.
Many have asked if
additional supplemental products are necessary when dropping a big chunk
of cash on CPA review. I generally tell candidates to save their
pennies, get a $2 pack of index cards and make their own flash cards.
Not only do you save money, by writing them out yourself you’ll actually
see that you’re understanding the concepts better simply due to the
mechanical motion of putting pen to paper.
We’ve included
links to CPAnet where appropriate so you can check out actual candidate
feedback (the positive and negative) which former students of each of
these courses have posted on the forums there.
•
Becker: Retail Price: $3,065 (all four parts)
Per part if ordered individually: $990 (CPAnet)
•
CPAexcel: Retail price (Gold Medal option): $1690 (four parts) Per
part if ordered individually: $580 (CPAnet)
• Kaplan, Gleim and Bisk: Considered
self-study or supplemental,
check
CPAnet for feedback on these courses.
•
Roger: Retail Price: $2095 –
$1695 (all four parts) Per part if ordered individually: $595 – $695 (CPAnet)
•
Wiley:
Price varies based on options. (CPAnet)
•
Yaeger: Retail price:
$1787 (four parts) Per part if ordered individually: $545 (CPAnet)
This is where our lovely
GC readers come in. We know you all are really proud of how you’ve
kicked the CPA exam’s ass, so please let us know in the comments what
worked for you. If you all can get extra excited about this, we can put
together a GC reader CPA review deathmatch based on your input.
Note: prices
current as of 3/29/11 based on available information. If you have a
correction, please
get
in touch.
Jensen
Comment
This approach to comparing alternatives will make most accountics professors
shudder. Can't you just imagine the course managers' contacting their "alumni"
requesting that you send Going Concern raving reviews about their CPA
Review "alma maters?"
Actually
most any way I can think of to compare these coaching course alternatives makes
me shudder. These coaching courses are often very important to some exam takers,
but in every instance a coaching course is only one variable leading to success,
and it's not an independent variable. It's a variable that interacts with many
other factors in complicated and dynamic ways. I defy anybody in the real world
to isolate its first-order plus its higher order impacts and to robustly
extrapolate the findings to a person comparing these coaching course
alternatives.
Firstly,
exam takers may not know what factors really led to success when they took the
CPA Examination and/or they may falsely attribute success to factors that in the
grand scheme of things were truly less important. For example, coaching courses
have a "recent-timing bias" in that they are the last big efforts to study for
the exam when in reality the success may be largely attributable to some parts
of undergraduate courses they took years ago.
Secondly, exam takers may attribute too much to things that don't necessarily
differ greatly between coaching courses. Some exam takers attribute success to
coaching courses that kick butt and force them to study a lot weekly. But since
nearly all the coaching courses kick butt in one way or another, this hardly
distinguishes the best butt kickers. Other exam takers attribute success to the
coaching course "wizards" who successfully predicted what would be on a
particular exam. But coaching courses may have varying success in this regard
over time and with varying degrees of luck.
Thirdly,
when education researchers compare different pedagogies among good students, the
general finding is that there's no significant difference between one pedagogy
versus another. Good students adjust to different instructors, different
textbooks, different teaching methods, different coaching, etc. ---
http://www.trinity.edu/rjensen/assess.htm#AssessmentIssues
I think
there are many ways coaching courses can be compared on the input side. I don't
see a good way of comparing them on the output side. Also it's not at all clear
to me that many students get what they pay for, although the fault for this may
vary. Some coaching courses are overpriced in my viewpoint. Going for the most
expensive course does not mean you get what you paid extra for to pass the exam.
Some
things are probably more important than coaching courses. For example, how much
time off does your employer give you to study for the exam and how efficiently
do you make use of that free time? Do you have to study in hotel rooms more than
you can study conveniently at home? Do you have to study for the exam while
having to also bounce a child on each knee most of the time? WC Fields said
there's only one good way to have kids --- cooked. How much do you really,
really, really want to pass this exam? Are you really studying so intently that
you have to change underwear six times a day? Are there too many outside
distractions in your life such as excessive success or failure in your love
life? Are you spending too much time pouring over Bob Jensen's AECM messaging?
When the
Great Scorer at NASBA comes to write against your name, he writes if you won or
lost, not how you played the game.
Bob
Jensen's threads on the CPA Examination are at
http://www.trinity.edu/rjensen/BookBob1.htm#010303CPAExam
"The
Quickest 2011 CPA Exam Breakdown You’ll Ever Read," by
Adrienne Gonzalez, Going Concern, September 24, 2011 ---
http://goingconcern.com/2010/09/the-quickest-2011-cpa-exam-breakdown-youll-ever-read/
Because we know all of you are very busy tearing up your
last exams before CBT-e hits in January of 2011, we won’t waste your
time and get right to the point. 2011 is coming, the exam is changing
and though we’ve been over it plenty in the last several months, let’s
go over it one more time.
Simulations
– This year’s simulations are next year’s simlets.
Simulation problems
will be shorter, task-based problems that
should take you about 10 – 15 minutes to complete as opposed to the 45
minutes they take now. AUD and FAR will have 7 smaller simulation
problems while REG will have 6. As usual, not all of these are graded.
Multiple choice
– BEC and REG will contain 24 MCQ per testlet while FAR and AUD will
still contain 30. MCQ will make up 60% of the FAR, AUD and REG exams and
85% of BEC.
Research
– if you’re taking the exam this year, research is buried in simulations
and doesn’t carry much weight point wise. Next year, however,
research will be its own tab
worth as many points as any of the other
simlet problems. FAR research will be easy as it is limited to the ASCs
(Accounting Standard Codification) and REG will mostly draw from the
Internal Revenue Code but AUD will come with a dropdown menu that
includes PCAOB ASs, the Code of Professional Conduct and SSARS just to
name a few. You’ve been warned.
Written communication
– WC is out of FAR, REG and AUD and slapped into BEC. You’ll have to
write three written communications, of which two will be graded.
International standards
–
IFRS and
international auditing standards will be added to current FAR and AUD
content (respectively) while REG is mostly unchanged by this as you
can’t really test international standards of federal taxation. Keep in
mind that this additional content will most likely be gently mixed in
with what is already being tested and does not make GAAP completely
irrelevant so don’t use 2011 as an excuse to procrastinate all the way
through the holidays.
Now stop wasting your time with inflammatory nonsense blogs and GET BACK
TO STUDYING!
(btw: if you have a CPA exam question for us – anything from applying to
qualifying to passing – do
get
in touch)
"Video:
Behavioral Finance from PBS Nova," by Jim Mahar, Finance Professor Blog,
March 27, 2011---
http://financeprofessorblog.blogspot.com/2011/03/behavioarl-finance-from-pbs-nova.html
Bob
Jensen's threads on behavioral finance and economics
http://www.trinity.edu/rjensen/Theory01.htm#Behavioral
An Ethics Case
This might be a good video to use in an ethics class. It demonstrates how
convincing scam artists can become and how they pray on investors by
demonstrating their "superior" research. One of the most common tactics of
investment analysts and advisers to exaggerate their past records of success.
Stansberry Investment Research ---
http://www.stansberryresearch.com/
Video: A controversial and negative video forecast of a collapse of the
U.S. monetary system and rioting in the streets of America ---
http://www.stansberryresearch.com/pro/1011PSIENDVD/LPSIM224/PR
Jensen Comment
I linked to the above Stansberry video as food for thought and not
because I buy into all of this somewhat self-serving gloom about what the
Zimbabwe Theory of Finance will do to bring down the United States. The
end of this video gets a bit too mysterious to me in an effort sell his
newsletter. But the early parts of the video are sobering. What the video
demonstrates most to me is how sales pitches can be so convincing by scam
artists. This might be a good video to use in an ethics class. It
demonstrates how convincing scam artists can become and how they pray on
investors by demonstrating their "superior" research. One of the most common
tactics of investment analysts and advisers to exaggerate their past records of
success.
"AGORA,
INC., PIRATE INVESTOR, LLC and FRANK PORTER STANSBERRY, SEC Civil Action No. MJG
03 CV 1042
http://www.sec.gov/litigation/complaints/comp18090.htm
"Catching SEC-Busted Stansberry Research In 4 Blatant Lies & Why Porter
Stansberry Is The Real Life Hyman Roth," by Timothy Sykes, October 4, 2010 ---
http://www.timothysykes.com/2010/10/catching-sec-busted-stansberry-research-in-4-blatant-lies-why-porter-stansberry-is-the-real-life-hyman-roth/
I’ve previously
written about Stansberry Research by exposing their $1.5 million SEC fine
and how they use certainly unethical, but-not-always-illegal manipulative
language to market their “picks” using sucker-inducing marketing messages
like ““This is the kind of situation that can change your life… where a
$10,000 stake can allow you to literally quit work, forever.”
Continued in article
Also see
http://briandeer.com/vaxgen/stansberry-fraud.htm
Stansberry's defense of the SEC charges against him proving how clever these
guys are in the face of adversity ---
http://dailyreckoning.com/why-the-sec-sued-me-and-why-you-should-care/
Suggested Student
Assignment
Assign a debate where students take up both sides of Stansberry's defense and
his advice for investing in these troubled economic times.
Report: Bomber of Moscow Airport Was an Accounting Student ‘Pumped Full of
Drugs’ ---
http://goingconcern.com/2011/02/report-bomber-of-moscow-airport-was-an-accounting-student-pumped-full-of-drugs/#more-24935
Jensen Comment
But the lingering questions are the usual questions about where he got the bomb
and the training to be a terrorist. Accounting students generally bomb in other
ways.
A roundup of posts on Apple software and
products.
"From the Archives: Apple Edition," by Natalie Houston, Chronicle of
Higher Education, March 14, 2011 ---
http://chronicle.com/blogs/profhacker/from-the-archives-apple-edition/31807?sid=wc&utm_source=wc&utm_medium=en
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
GASB Issues Requests for Proposals for Academic Research Funding,
AccountingEducation.com, March 21, 2011 ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151484
In a continuing effort to foster more collaborative
research efforts with the academic community, the Governmental Accounting
Standards Board (GASB) has issued the 2011 Request for Research (RR) for the
Gil Crain Memorial Research Grant. Under this program, the GASB offers
grants of up to $5,000 for research on both existing standards and issues
the Board has yet to address. The deadline for sending a request for
research funding is May 27, with grants to be awarded June 17, 2011.
The GASB technical staff is relatively small. Therefore, the GASB seeks to
leverage research efforts by encouraging the academic community to conduct
applied research that is relevant to the GASB’s standards-setting
activities. Two broad areas of research are particularly important to the
GASB: (1) research on existing standards, including the monitoring of new
standards for implementation difficulties, as well as reviewing standards in
place not less than five years, and (2) studies of issues that have not yet
been addressed.
The RR enumerates the areas on GASB's research agenda on which it seeks
assistance (see pages 5-13). These areas can be broadly characterized as
asset retirement obligations, electronic filing reporting, financial
performance measurements, government-wide financial statements,
infrastructure reporting, in-kind contributions, popular reporting,
reporting unit presentations, potential re-examination projects, and
re-examination of pre-November 30, 1989 FASB and AICPA pronouncements.
Candidates may suggest research topics not specifically addressed in this
document.
Full details of research needs, application requirements, and deadlines are
included in the
RR. Once again, the
deadline for submitting an application is May 27, 2011.
Bob Jensen's threads on the sad state of governmental accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Journal of Accountancy Video on How to Combat IT Security Threats ---
http://www.journalofaccountancy.com/Multimedia/
Bob Jensen's threads on computer and networking security ---
http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection
Is your life stuck in the mud --- a creative idea on how to get moving
Here is what a REAL Norwegian does when his tractor gets
stuck! ---
http://www.boreme.com/posting.php?viral_id=28504&page=1
"The Four Hottest Areas in Litigation Consulting," by Rick Telberg,
CPA Trendlines, March 2011 ---
http://cpatrendlines.com/2011/03/14/the-four-hottest-areas-in-litigation-consulting/
"Moral for CEOs Is Choose Your Fraud Carefully:," by Jonathan Weil,
Bloomberg, March 16, 2011 ---
http://www.bloomberg.com/news/2011-03-16/moral-for-ceos-is-choose-your-fraud-carefully-commentary-by-jonathan-weil.html
Of all the stories to come out of the 2008
collapses of Fannie Mae and Freddie Mac, this one may be the most
incredible: To this day, neither company has admitted that any of the
numbers on its financial statements that year were wrong.
It seems the Securities and Exchange Commission
won’t be doing anything to challenge that pretense, either, and that this
may be by design. The SEC for years has been bending over backward to avoid
accusing major financial institutions of cooking their books, even when it’s
obvious they did. So much for upholding financial integrity.
Last week the regulator notified former Fannie Mae
Chief Executive Officer Daniel Mudd that it may file civil claims against
him. The allegations wouldn’t be about Fannie Mae’s accounting, though. They
would focus on whether the government- chartered housing financier
accurately disclosed to investors how much of its loans were subprime.
“The disclosures and procedures that are the
subject of the staff’s investigation were accurate and complete,” Mudd said
in a statement last week. He said he would submit a written response “that
will make clear why the SEC staff should not pursue any action in this
matter.”
There’s a pattern here. When the SEC in 2009
accused former Countrywide Financial Corp. CEO Angelo Mozilo of securities
fraud, it claimed the lender’s management foresaw as early as 2004 that the
company would suffer massive credit losses on the home loans it was making.
The SEC’s complaint accused Mozilo of “disclosure fraud” for hiding such
information from investors. Accounting Violation
Yet if the SEC’s allegation were true, it would
mean Countrywide had been overstating its earnings for years, by delaying
the recognition of losses long past the point when management knew they were
probable. That would be an accounting violation. The SEC never made that
connection in its complaint, though, and clearly had made a decision not to.
Mozilo later paid $67.5 million to settle the suit, without admitting or
denying the regulator’s claims.
Similarly, when the SEC accused three former
IndyMac Bancorp Inc. (IDMCQ) executives of securities fraud last month, it
claimed they had made false and misleading disclosures about the company’s
financial stability. IndyMac’s regulator, the Office of Thrift Supervision,
by then had already admitted to letting the company backdate a capital
contribution to its main banking unit in May 2008, so it would appear in the
prior quarter. IndyMac Collapse
That was a violation of generally accepted
accounting principles, the Treasury Department’s inspector general said in a
2009 report. Yet the SEC didn’t identify any accounting errors at IndyMac.
The company showed shareholder equity of $959 million, as of March 31, 2008.
By July 2008, IndyMac had failed, costing the Federal Deposit Insurance
Corp. $10.7 billion.
Likewise, last month Freddie Mac’s former chief
financial officer, Anthony “Buddy” Piszel, said he received a Wells notice
from the SEC, indicating the regulator might sue him. Piszel said the
inquiry concerned “certain disclosure matters,” according to a press release
by CoreLogic Inc., where he was CFO until Feb. 10. There was no mention of
Freddie’s accounting. Freddie’s former CEO, Richard Syron, received a
similar Wells notice last month.
That Fannie’s and Freddie’s books were a farce is
beyond dispute. At the time they were placed into conservatorship, both
companies had overvalued their deferred tax assets by billions of dollars.
The bigger their losses got, the more their tax assets grew, based on the
companies’ ludicrous claim that they would use all these credits to offset
future tax bills because they would be wildly profitable for decades to
come. Paper Losses
Both companies kept billions of dollars of paper
losses on mortgage-backed securities out of their earnings and regulatory
capital by labeling them as “temporary,” when it was obvious the declines
were anything but that. They also claimed, falsely, to be adequately
capitalized.
And they did it all in broad daylight with the full
knowledge and approval of their regulator, the Federal Housing Finance
Agency. That helps explain why the SEC is trying to dig up something other
than accounting misdeeds as it tries to build cases against former Fannie
and Freddie executives. The toughest challenge for the SEC will be finding
violations that the government didn’t know about while they were going on.
The biggest beneficiaries of the SEC’s
see-no-accounting- evil approach are the Big Four accounting firms. Freddie
Mac is audited by PricewaterhouseCoopers LLP. Deloitte & Touche LLP audits
Fannie Mae. KPMG LLP audited Countrywide. Ernst & Young LLP audited IndyMac.
Shielding Auditors
As long as the SEC clings to the position that
there were no errors in those companies’ financial statements, it can’t
allege there was anything wrong with the firms’ audits. That helps shield
the auditors from potentially crippling liability in private securities
litigation.
It also limits the SEC’s ability to accuse any of
the companies’ executives of fudging their numbers. And so the SEC has to
resort to convoluted claims like the one against Mozilo, where Countrywide’s
disclosures were false and misleading but somehow its balance sheet was
pristine.
Continued in article
Video on the efforts of some members of Congress seeking to cover up
accounting fraud at Fannie Mae ---
http://www.youtube.com/watch?v=1RZVw3no2A4
The Largest Earnings Management Fraud in
History
and Congressional Efforts to Cover it Up
Without trying to place the blame on
Democrats or Republicans, here are some of the facts that led to the
eventual fining of Fannie Mae executives for accounting fraud and the
firing of KPMG as the auditor on one of the largest and most lucrative
audit clients in the history of KPMG. The restated earnings purportedly
took upwards of a million journal entries, many of which were
re-valuations of derivatives being manipulated by Fannie Mae accountants
and auditors (Deloitte was charged with overseeing the financial
statement revisions.
Fannie Mae may have conducted the largest
earnings management scheme in the history of accounting.
. . . flexibility
also gave Fannie the ability to manipulate earnings to hit -- within
pennies -- target numbers for executive bonuses. Ofheo details an
example from 1998, the year the Russian financial crisis sent
interest rates tumbling. Lower rates caused a lot of mortgage
holders to prepay their existing home mortgages. And Fannie was
suddenly facing an estimated expense of $400 million.
Well, in its
wisdom, Fannie decided to recognize only $200 million, deferring the
other half. That allowed Fannie's executives -- whose bonus plan is
linked to earnings-per-share -- to meet the target for maximum bonus
payouts. The target EPS for maximum payout was $3.23 and Fannie
reported exactly . . . $3.2309. This bull's-eye was worth $1.932
million to then-CEO James Johnson, $1.19 million to
then-CEO-designate Franklin Raines, and $779,625 to then-Vice
Chairman Jamie Gorelick.
That same year
Fannie installed software that allowed management to produce
multiple scenarios under different assumptions that, according to a
Fannie executive, "strengthens the earnings management that is
necessary when dealing with a volatile book of business." Over the
years, Fannie designed and added software that allowed it to assess
the impact of recognizing income or expense on securities and loans.
This practice fits with a Fannie corporate culture that the report
says considered volatility "artificial" and measures of precision
"spurious."
This
disturbing culture was apparent in Fannie's manipulation of its
derivative accounting. Fannie runs a giant derivative book in an
attempt to hedge its massive exposure to interest-rate risk.
Derivatives must be marked-to-market, carried on the balance sheet
at fair value. The problem is that changes in fair-value can cause
some nasty volatility in earnings.
So, Fannie
decided to classify a huge amount of its derivatives as hedging
transactions, thereby avoiding any impact on earnings. (And we mean
huge: In December 2003, Fan's derivatives had a notional value of
$1.04 trillion of which only a notional $43 million was not
classified in hedging relationships.) This misapplication continued
when Fannie closed out positions. The company did not record the
fair-value changes in earnings, but only in Accumulated Other
Comprehensive Income (AOCI) where losses can be amortized over a
long period.
Fannie had
some $12.2 billion in deferred losses in the AOCI balance at
year-end 2003. If this amount must be reclassified into retained
earnings, it might punish Fannie's earnings for various periods over
the past three years, leaving its capital well below what is
required by regulators.
In all, the
Ofheo report notes, "The misapplications of GAAP are not limited
occurrences, but appear to be pervasive . . . [and] raise serious
doubts as to the validity of previously reported financial results,
as well as adequacy of regulatory capital, management supervision
and overall safety and soundness. . . ." In an agreement reached
with Ofheo last week, Fannie promised to change the methods involved
in both the cookie-jar and derivative accounting and to change its
compensation "to avoid any inappropriate incentives."
But we don't
think this goes nearly far enough for a company whose executives
have for years derided anyone who raised a doubt about either its
accounting or its growing risk profile. At a minimum these
executives are not the sort anyone would want running the U.S.
Treasury under John Kerry. With the Justice Department already
starting a criminal probe, we find it hard to comprehend that the
Fannie board still believes that investors can trust its management
team.
Fannie Mae
isn't an ordinary company and this isn't a run-of-the-mill
accounting scandal. The U.S. government had no financial stake in
the failure of Enron or WorldCom. But because of Fannie's implicit
subsidy from the federal government, taxpayers are on the hook if
its capital cushion is insufficient to absorb big losses. Private
profit, public risk. That's quite a confidence game -- and it's time
to call it.
Video on the efforts of some members of Congress seeking to cover up
accounting fraud at Fannie Mae ---
http://www.youtube.com/watch?v=1RZVw3no2A4
Bob Jensen's threads on earnings management and creative accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Question
Why can't the highest scoring CPA Exam taker in the nation probably can't become
a licensed CPA in Texas?
Answer
Because in Texas, unlike the other 49 states, nobody can become a CPA without
having taken at least five accounting courses onsite. Distance education
graduates need not apply for a CPA certificate if they have distance education
degrees and/or did not take about half of the required accounting, auditing, and
tax courses onsite instead of online.
In effect this means that Texas does not allow full distance education
accounting degrees such that even flagship universities like Texas and Texas A&M
like flagship universities in Connecticut, Wisconsin, and Maryland have distance
education accounting degrees.
March 31, 2011 message from Barbara Scofield
In the state of Texas educators are struggling with
ever more onerous rules for candidacy. The AICPA, however, seems to be
ignoring issues that loom large for the TSBPA. One of their newly featured
"new CPAs" at the link below is an award winner from Colorado (not a 150
hour state) who took her accounting courses online (Texas requires 15 credit
hours face to face of upper division accounting courses) from DeVry.
http://www.thiswaytocpa.com/exam-licensure/exam-diary/leslie-rezgui/
Could this person work as a CPA in Texas?
Barbara W. Scofield, PhD, CPA
Chair of Graduate Business Studies
Professor of Accounting
The University of Texas of the Permian Basin
4901 E. University Dr. Odessa, TX 79762
432-552-2183 (Office)
November
5,. 2010 reply from Bruce Lubich <BLubich@umuc.edu>
Note that Bruce is the Director of an online accounting distance education
program in the University of Maryland System
Hi Bob,
When TX first went to the 15 credit requirement, we
had a couple of University of Maryland University College students apply
for the exam there, and be rejected. Our transcript doesn't show which
courses were taken online. Apparently it's on the TX paperwork. Lying on
that is not something to be encouraged for future CPAs. So, unless a
student has no desire to sit for the CPA exam or they just need to fill in
a few holes to qualify, the TX market has dried up for all online programs.
Evidently, the TX board takes this requirement
very seriously, so my guess is that your Deloitte hire would be denied the
ability to sit. Seems to me Deloitte would need to send the student to a
different office until they pass the exam. As for reciprocity, I haven't
heard of any problems. That doesn't mean they're not out there, but I
haven't heard of them. Bottom line is TX has protected their investment in
their brick & mortar schools. At one time LA and New Mexico had similar,
though weaker rules like this. I believe both have woken up and done away
with those rules.
Bruce Lubich
University of Maryland University College
November 6, 2010 reply from Bob Jensen
Hi Bruce,
Thanks for this.
What you are saying is that the Texas Board may be cooperating with Texas
Universities to reserve all entry-level accounting jobs in Texas for only
graduates of Texas universities. Graduates from your program in the
University of Maryland system can, thereby, not compete for jobs in Texas
CPA firms. .
Out-of-state graduates need not apply. Seems like a great idea for the
other 49 states so that graduates of a given state have a monopoly on jobs
within the state. Of course the national and international CPA firms might
object to complications this creates in hiring. And students who want to
leave a state might object to not having jobs available anywhere other than
the state where they graduated.
Why didn't the European Union think of this as a clever way of
restricting labor flows between borders?
Bob Jensen
My threads (rough draft notes) on this antiquated and absurd ruling by the
TSBCPA (read that Big Brother) can be found at
http://www.cs.trinity.edu/~rjensen/temp/TexasBigBrother.htm
"Enabling Vibrant Learning Communities," Chronicle of Higher
Education, March 2011 ---
http://chronicle.com/section/Online-Learning/471/
Bob Jensen's threads on tools and systems for online learning ---
http://www.trinity.edu/rjensen/290wp/290wp.htm
Bob Jensen's threads for online training and education alternatives ---
http://www.trinity.edu/rjensen/crossborder.htm
Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's threads on the dark side ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Bob Jensen's threads on education technology in general ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Could this at last be the long-awaited Certified Public Cognitor (later
changed to XYZ)?
http://www.journalofaccountancy.com/Issues/2001/Oct/TheXyzCredential
Also see
http://www.journalofaccountancy.com/Issues/2001/May/CpasSpeakUpOnNewGlobalCredential
"AICPA, CIMA Joint Venture Would Offer New Management Accounting
Designation," Journal of Accountancy, March 17, 2011 ---
http://www.journalofaccountancy.com/Web/20113959.htm
The AICPA and the London-based Chartered Institute
of Management Accountants (CIMA) are proposing forming a joint venture to
develop and promote a new global management accounting designation. The
joint venture is designed to give management accounting a higher profile in
the United States, advance the science of management accounting worldwide,
and promote the U.S. CPA designation as a worldwide standard of professional
excellence in accounting, according to a press release from the
organizations.
The AICPA, founded in 1887, is the world’s largest
association representing the accounting profession, with nearly 370,000
members in 128 countries. CIMA, founded in 1919, is the world’s largest
professional body of management accountants, with 183,000 members and
students in 168 countries. The proposed joint venture would combine the
strength of the AICPA in North America with CIMA’s footprint in Europe, the
Middle East, Africa, Asia and elsewhere. Together, the organizations
represent more than 550,000 members and students.
“This joint venture would help produce and
recognize professionals around the world committed to excellence in
management accounting, enterprise and performance strategy,” AICPA President
and CEO Barry Melancon said in a press release.
“This agreement would give CIMA and AICPA truly
global reach," said CIMA President George Glass. “The new venture would have
an unrivaled depth of resources to meet the needs of both organizations and
their individual members around the world.”
The pathways for obtaining the new credential would
vary. Recognizing the significant educational and professional background of
U.S. CPAs, AICPA voting members with at least three years working in
management accounting or a financial management role would qualify for an
accelerated route to obtaining the new designation. Non-voting AICPA members
in the United States would not be eligible to obtain the credential.
CIMA Chief Executive Charles Tilley said:
“Management accountants provide the expertise and information that enable
organizations to make business-critical decisions. Professionals who earn
the new designation will have achieved proficiency and leadership in
management accounting.”
The proposal will be vetted through the AICPA’s
governance process. It has been reviewed by the AICPA Board of Directors,
which approved advancing the proposal to the Institute’s regional Council
meetings this month to gain input.
The initiative is subject to approval by the
governing bodies of both organizations and will be voted on separately by
the CIMA and AICPA councils in May, according to the press release. If
approved, the joint venture would launch in 2012.
Under the terms of the proposed agreement, CIMA and
the AICPA would create a nonprofit joint venture called the Association of
International Certified Professional Accountants. The AICPA would own 60% of
the entity; CIMA would own 40%; and the board of directors would be split
evenly between the organizations, with CIMA and the AICPA rotating in the
role of chairman.
Both the AICPA and CIMA would continue to exist as
stand-alone membership organizations. The joint venture would authorize
issuance of the designation on behalf of each membership organization. The
joint venture is intended to become self-supporting within three years.
Continued in article
March 19, 2011 reply from Paul Bjorklund
First we had standards overload, now there is
credential overload. These folks need to tend to business and stop acting
like frenzied bureaucrats building more towers of babel. As you point out
with their previous quixotic ventures, the track record is embarrassing. I
think layoffs and dues reductions are in order.
Paul Bjorklund, CPA Bjorklund
Consulting, Ltd.
Flagstaff, Arizona
March 19, 2011 reply from Denny Beresford
As a nearly 50 year member of the Institute of
Management Accountants and the holder of one of the first CMA certificates
(number 6, I believe), I was very disappointed to read this news. If the
AICPA is truly interested in giving “management accounting a higher profile
in the United States” it seems to me it should be pursuing a venture with
the IMA rather than the CIMA. It’s hard for me to believe that U.S.
management accountants, who comprise a good percentage of those who have
also earned CPA certificates and may also continue to be AICPA members, will
benefit from a CIMA designation. On the other hand, the AICPA putting its
resources behind the IMA and CMA could greatly enhance the value of that
certificate, which has struggled to gain as much credibility as it should.
On the surface, this proposal seems to be primarily for the benefit of the
AICPA in extending its global reach rather than for its U.S. members (nearly
all at present?). I’m sure there are good reasons for the AICPA action that
aren’t clear to me on the surface, but I hope that professional and academic
management accountants in the U.S. will consider this proposal carefully and
let the AICPA know how they feel before a final decision is made.
Denny Beresford
Teaching Case on Why Companies Declare Dividends
From The Wall Street Journal Accounting Weekly Review on March 25,
2011
Cash-Rich Cisco to Begin Paying Dividend .
by: Roger Cheng
Mar 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Cash Management, Dividends, Financial Accounting
SUMMARY: Cisco Systems
Inc. finally heeded to years of investor clamoring and approved its
first-ever dividend, the latest technology giant to do so as its business
matures. The networking giant, like many of its technology peers, has long
built up a war chest of cash and investments. As of Jan. 29, the company had
$4.9 billion in cash and $35.3 billion in investments. The dividend would
cost the Cisco some $335 million a quarter.
CLASSROOM APPLICATION: This
article could serve as a basis for a discussion of how to account for
dividends, as well as the reasons for dividends and why a company would
declare them.
QUESTIONS:
1. (Introductory) What is a dividend? When can they be declared?
Who makes the decision to declare a dividend for a company?
2. (Introductory) How do you book a dividend and its payment into
the accounting records? What dates are significant? What accounts are
affected? How are balance sheet accounts impacted? How are income statement
accounts impacted?
3. (Advanced) Why do companies declare dividends? What factors
should management consider when declaring a dividend? What are other options
does management have for the use of cash?
4. (Advanced) What is the difference between an "income company"
and a "growth company"? What part do dividends play in these
classifications? Why do some companies choose one category or the other?
What are the different goals and priorities of management between these
classifications?
5. (Advanced) How has Cisco used its cash in the past? Why has it
made the decision to pay dividends at this point?
6. (Advanced) The article states "the dividend would cost Cisco
some $335 million a quarter." Is a dividend an expense? What does the
reporter mean by this statement?
Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Cisco's Dividend Debut!: Six Cents.
by Matt Phillips
Mar 18, 2011
Online Exclusive
"Cash-Rich Cisco to Begin Paying Dividend," by: Roger Cheng, The Wall
Street Journal, March 19, 2011 ---
http://online.wsj.com/article/SB10001424052748704608504576208482968995562.html?mod=djem_jiewr_AC_domainid
Cisco Systems Inc. finally heeded to years of
investor clamoring and approved its first-ever dividend, the latest
technology giant to do so as its business matures.
Read more: http://online.wsj.com/article/SB10001424052748704608504576208482968995562.html#ixzz1HcAaWdbm
Cisco will pay a quarterly dividend of six cents a
share. The company will make the payment on April 30 to shareholders of
record on March 31.
The networking giant, like many of its technology
peers, has long built up a war chest of cash and investments. As of Jan. 29,
the company had $4.9 billion in cash and $35.3 billion in investments. The
dividend would cost the Cisco some $335 million a quarter.
The dividend payout comes as Cisco faces questions
about the strength of its core networking business. Cisco has been combating
the notion that it is no longer a growth company, exacerbated by several
quarters of disappointing results. Cisco shares recently rose 1.9% to
$17.32. The stock has been down roughly 35% over the past year.
"Cisco's leadership position in the markets we
serve is strong, and the time is right for Cisco to pay our first-ever cash
dividend," Chief Financial Officer Frank Calderoni said.
Cisco first said in September that it would begin
paying a dividend, targeting a yield of 1% to 2%. At the time, Chief
Executive John Chambers said the dividend would be funded through cash
generated from its North American operations.
Standard & Poor's equity analyst Ari Bensinger said
the current amount would result in a 1.4% yield. "We like that Cisco is
increasing its commitment to enhancing shareholder value and putting some of
its large $40 billion cash stockpile and strong free cash flow generation to
better use," Mr. Bensinger said in a note.
Cisco previously used its cash stockpile to make
acquisitions, such as the $3.3 billion purchase of teleconferencing company
Tandberg. On Monday, it purchased digital media company Inlet Technologies
for $95 million in cash. It also preferred repurchasing stock over
dividends.
Read more:
http://online.wsj.com/article/SB10001424052748704608504576208482968995562.html#ixzz1HcAfyjMl
Continued in article
Jensen Comment
It is extremely important in elementary accounting to explain both why stock
dividends are fundamentally different from cash dividends and why the accounting
for both types of "dividends" is fundamentally different. Why is the term "stock
dividend" really an oxymoron? What is the difference between a stock dividend
and a stock split?
From IAS Plus on March 8, 2011 ---
http://www.iasplus.com/index.htm
Financial Accounting Foundation broadens webcast coverage of FASB
meetings
The Financial Accounting Foundation (FAF),
responsible for the oversight of the Financial Accounting Standards
Board (FASB),
has announced that it will begin live video
webcasting of all education sessions hosted by the FASB.
In December 2010, the FAF announced
the commencement of live webcasting of decision-making FASB meetings
(see
our
ealier story). This step widens the scope to
include education sessions where no official FASB decisions are made,
which are usually held one week before a public Board meeting is held on
that same topic. The first education session to be webcast will be held
on 9 March 2011.
The webcasts will be available
here. Click for
FAF press release (link to FAF website).
International Accountant 57 is now available in digital format. In particular
this issue has an interesting article on creative accounting case studies
---
http://www.aiaworldwide.com/content/InternationalAccountant/Issue57.htm
Jensen Comment
I'm generally frustrated by the difficulty of navigating and searching issues of
this journal. It seems to be technology run amuck.
Bob Jensen's threads on creative accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Evil Empire Ethics Dilemmas in Star Wars and in Libya
"Consulting for the Evil Empire," by Jimmy Guterman, Harvard Business
Review Blog, March 4, 2011 ---
Click Here
http://blogs.hbr.org/hbr/hbreditors/2011/03/consulting_for_the_evil_empire.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Tom Selling conjectures (tongue in cheek) that a CPA audit does not add total
value to an audit client over and above the costs of an audit?
He then asked me to find evidence to support the counter argument.
After I posted what I thought was some evidence of the benefits of auditing,
David Albrecht followed with a posting on his blog that takes a very negative
view of the benefits of auditing ---
"Audit Credibility," by David Albrecht, The Summa, January 31,
2011 ---
http://profalbrecht.wordpress.com/2011/01/31/audit-credibility/
I think my original posting that triggered David's reply was much more
positive about the benefits of auditing and, unlike David, I did attempt to
provide some various types of evidence of overwhelming auditing benefits. It
should be especially noted that many organizations pay for voluntary CPA
external audits even when not required to do so because they feel these audits
add considerable credibility to their financial reports. For example, Trinity
University pays Ernst and Young to audit its financial reports. Among other
things, Trinity University wants to voluntarily add credibility to these reports
as part of its stewardship assurances to past and future donors.
To avoid any confusion I repeat my original posting to the AECM and CPA-L. In
my opinion the writers that are extremely negative about the benefits of auditin
(e.g., Francine McKenna, David Albrecht, and Jim Peterson) just do not put issue
of CPA audits in the total perspective of the proportion of the tens of
thousands of such audits that do not go bad. I'm reminded of the (hypothetical)
Exxon billboard:
"EXXON: Why is the media never interested when we
don't spill something?"
Credibility?
Question
Do credible CPA audit firms add benefits to clients that exceed the audit costs?
Tom Selling conjectures (tongue in cheek) that a CPA audit does not add total
value to an audit client over and above the costs of an audit?
He then asks me to find evidence to support the counter argument.
I could pull a "Calvin" here and ask him to support his own conjecture, but I
will resist a Calvinistic response in this case.
This thread commenced when Patricia Walters questioned my assumption of the
value of requiring credibility for numbers reported in financial statements? It
appears that in her eyes unaudited fair values, such as real estate appraisals
and management estimates of long-term executory contract fair values, are as
valuable or even more valuable than more credible numbers that are attested to
by auditing firms in financial statements. She does not seem to worry much about
moral hazards of unaudited numbers that CPAs either will not or are not allowed
to attest to on financial statements. I might add that at the moment fair values
of financial contracts are required or soon will be required to be audited by
independent CPA auditors. She, however, supports aggregating non-audited fair
values of non-financial items like real estate with the audited numbers like
Cash, Accounts Receivable, and Notes Receivable.
I don't mind when clients provide separate schedules of many unaudited fair
values, but I think that all items in the main financial statements should be
subject to attestation. In my opinion, separate
schedules or columns are required when unaudited numbers are less credible.
I think aggregating audited numbers with unaudited numbers presents clients with
enormous moral hazards.
Anecdotal Evidence
Let me first provide anecdotal evidence where more concern with credibility of
audited numbers might've prevent billions of dollars from being bilked in
various hedge fund Ponzi schemes. The SEC has obscure jurisdiction over over
hedge funds and completely failed public investors, in spite of receiving
credible warnings at the SEC, while Bernie Madoff stole over a billion dollars
in his infamous Ponzi scheme. The SEC and thousands of investors assumed that
since Madoff engaged a CPA "auditor" that Madoff's stewardship over their
investments was legitimate.
Ponzi Schemes Where Madoff was King ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi
The SEC did not bother to investigate whether this lone and obscure Madoff
hedge fund auditor was even licensed to be a CPA auditor. Nobody, including the
SEC, questioned whether the audit firm was credible --- it was not! The moral of
this story is that there are degrees of credibility of a CPA auditing firms, and
one test of credibility is to verify the licensure and general auditing
reputation of that firm. Another test is to investigate the depths of the
pockets of a CPA auditing firm in lawsuits and the proportion of its audits that
end up in civil court. If Deloitte had been engaged by Madoff, investors
would've lost much less even in the case where Deloitte conducted an
incompetent or fraudulent audit. And, contrary to what
Francine and Tom would like us to believe, the proportion of Deloitte's audits
that end up in civil court or are settled out of court is a miniscule in
terms of the number of all audits conducted globally by Deloitte auditors.
As a second piece of anecdotal evidence of non-cpa firm auditor lack of
credibility we might lament why taxpayers do not question the credibility of
government auditors in local, state, and federal agencies when it came to
auditing public pension funds. It turns out that undetected accounting and
accountability frauds, yes outright deliberate frauds, have now brought entire
states to the brink of bankruptcy ---
The Sad State of Governmental Accounting and Accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Try suing California for pension reporting audit failures when California cannot
even pay its public pension liabilities.
Historical Evidence
There is a long history of historical evidence that CPA certifications of GAAP
conformance by credible auditors lowers a client's cost of capital. The evidence
here is the voluntary choice of clients to pay for CPA audits of GAAP
conformance prior to when such audits became required by the SEC in the 1930s.
It would seem that if CPA audits did not lower costs of capital that clients
would not of their own free will pay for such audits.
There is also evidence today when clients like charities and universities,
that are not required by the SEC to have CPA audits, still choose to pay for
such audits --- such as when stakeholders feel that CPA audits will keep manager
agents more accurate and honest.
Empirical Evidence
Hypothesis
As the global reputation of an auditing firm declines a point is reached where
engaging that firm as an auditor raises cost of capital relative to cost
of capital when the client engages a more credible auditing firm.
Loss of Reputation is a Kiss of Death
for One Public Accounting Firm:
An Empirical StudyAndersen Audits Increased Clients' Cost
of Capital Relative to Clients of Other Auditing Firms
"The Demise of Arthur Andersen," by
Clifford F. Thies, Ludwig Von Mises Institute, April 12, 2002 ---
http://www.mises.org/fullstory.asp?control=932&FS=The+Demise+of+Arthur+Andersen
From Yahoo.com,
Andrew and I downloaded the daily adjusted closing prices of the stocks of
these companies (the adjustment taking into account splits and dividends). I
then constructed portfolios based on an equal dollar investment in the
stocks of each of the companies and tracked the performance of the two
portfolios from August 1, 2001, to March 1, 2002. Indexes of the values of
these portfolios are juxtaposed in Figure 1.
From August 1,
2001, to November 30, 2001, the values of the two portfolios are very highly
correlated. In particular, the values of the two portfolios fell following
the September 11 terrorist attack on our country and then quickly recovered.
You would expect a very high correlation in the values of truly matched
portfolios. Then, two deviations stand out.
In early December
2001, a wedge temporarily opened up between the values of the two
portfolios. This followed the SEC subpoena. Then, in early February, a
second and persistent wedge opened. This followed the news of the coming DOJ
indictment.
It appears that an Andersen signature (relative to a "Final Four" signature)
costs a company 6 percent of its market capitalization.
No wonder corporate clients--including several of the companies that were in
the Andersen-audited portfolio Andrew and I constructed--are leaving
Andersen.
Prior to the demise
of Arthur Andersen, the Big 5 firms seemed to have a "lock" on reputation.
It is possible that these firms may have felt free to trade on their names
in search of additional sources of revenue. If that is what happened at
Andersen, it was a big mistake. In a free market, nobody has a lock on
anything. Every day that you don’t earn your reputation afresh by serving
your customers well is a day you risk losing your reputation. And, in a
service-oriented economy, losing your reputation is the kiss of death.
The Total Benefits of an Audit are Impossible to Measure: Errors and
Frauds That Might've Transpired Without Audits
If we exclude incompetent surgeons, the costs in 2010 of errors made by
credible surgeons who made mistakes is enormous in terms of pain, suffering,
costs of correcting mistakes, and death. But it would be absurd to conjecture
that the total benefits of credible surgeons was less than the "costs" of their
mistakes.
Along a somewhat similar vein, the costs in 2010 of errors made by credible
auditors who made mistakes is enormous in terms of pain, suffering, costs of
correcting mistakes, and possibly even death (yes some of Madoff's investors in
despair committed suicide). But it would be absurd to conjecture that the total
benefits of credible auditors were less than the "costs" of their mistakes and
frauds.
Tom and Patricia fail to mention the tremendous benefit from CPA audits in
terms of GAAP errors and financial frauds that might've transpired if
clients were not subjected to audits. I conjecture that it's impossible to
measure benefits of error and fraud prevention.
1. Error Prevention
The fact that external CPA auditors will be looking for GAAP errors makes
clients more responsible in understanding GAAP and installing internal
controls that prevent GAAP errors and embarrassments accompanying CPA
auditor discovery of GAAP errors.
.
2. Fraud Prevention
CPA auditors aren't generally engaged to detect frauds that do not
significantly impact the numbers on financial statements. In truth they are
usually not very good at even detecting such frauds even when engaged to do
so. But existence of remote chances that frauds such as kiting will be
detected by external CPA auditors probably prevents trillions of dollars
from being pilfered by employees around the world.
.
Think of the cost and trouble it took for Lehman to conspire (with auditor
consent) a way of hiding poisoned assets in such a manner that its CPA auditors
would go along with in the financial statements. If Lehman was not subjected to
CPA firm audits Lehman would've quite simply not disclosed the extent of the
poison and would've not had to concoct expensive Repo 105/108 schemes required
by its auditors.
In other words, if we are to consider the "total benefits" of CPA audits we
must consider the externalities as well as the direct benefits to clients who
are seeking lower costs of capital by paying for CPA audits.
This does not mean that there are no credible alternatives to CPA audits
as we know them today
I think shifting CPA audits from the private sector to the public sector is a
bad idea given the track record of public sector auditors over the years and the
degree to which government auditors are pressured by politicians and lobby
powers. But there are some other alternatives to private sector "auditing."
Josh Ronen at NYU is a long-time advocate in replacing CPA assurance with
insurance --- -
http://pages.stern.nyu.edu/~jronen/
CPA audit firms in essence would become insurance firms that reimburse
investors and creditors for a client's violations of GAAP. Such insurance
schemes would probably not totally eliminate client audits but insurance might
change many auditing procedures, e.g., more analytical reviews and less detail
testing. Presumably small auditing firms would not necessarily be driven out of
business if they participated in insurance pools.
But it would take many years of research and experimentation before insured
CPA audits could be implemented. One of the biggest challenges lies in
determining the insurance payoffs for violations of GAAP and the problems of
moral hazards. If customers throw banana peelings on supermarket floors and then
sue for spine injuries, there will also be employees in clients that cause GAAP
violations to collect the insurance money for their girl friends and third
cousins. As long as the law is lenient with offenders, insurance schemes are
doomed to failure ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
February 12, 2011 reply from Jim Peterson
Dear Bob and Dave --
A note of greeting from Chicago, picking up on your extended thread ended (I
think) last Monday. I write only to the two of you, for two reasons: first,
as a late-career arrival to the academic world I am almost completely
unfamiliar with and incompetent to use ListServe; and second, I will
probably offer some thoughts better shared only among adult participants in
the issues on which we share common concerns.
Unable to resist a good discussion, however -- and only regretting either a
forum where we could converse tete-a-tete at length and/or the lack of a
sponsor who could bring together the dozen or so best observers in this area
-- I will offer up here a number of observations on your thread -- roughly
in order as I read down from the top.
First, for a number of reasons I entirely share Bob's concerns about the
ability of government to supply audit services that would have any value to
the markets at all. The international complexities are a place to start --
the aridity of thinking among the "leaders" continues to be remarkable --
Michele Barnier being the latest, or perhaps Jim Doty. The fact that the
PCAOB points with pride to its arrangements with the Brits, almost nine
years after the passage of Sarbox, speaks to the unreality of real global
supervision and oversight.
As for the notion of "free audits paid for by taxpayers" -- there might
conceivably be some function for government audit, which could be on an
"issuer pays" basis. But the result would be in the same vein as other
compliance licenses issued by functionaries -- examples coming to mind would
include drivers' licenses, restaurant inspections and building permits; the
administration would be elaborate and expensive and a nuisance, the
incidence of failures would be large, and the assurance of real quality
rather than sub-standard behavior among the performers -- drivers, chefs and
builders -- would be negligible.
(There is, by the way, an absence of experience suggesting that putting
civil servants on a "bounty" basis would yield credible, useful and
non-corrupt results -- not to mention the conversion such a system would
entail to a completely adversarial relationship between issuers and
government agents, as opposed to the partially adversarial one prevailing
now in the wake of Sarbox.)
(While at it, by the way, I would observe that the notion of auditors
rooting out and reporting on "ALL departures from GAAP" misses quite a basic
point, I would urge, which is that the great bulk of the manipulations over
the course of my 35 years of experience have been not accounting driven but
essentially audit related and audit-failure based -- arising out of either
executive looting of a company, hidden from the auditors by manipulations
and over-rides -- Koss, Parmalat, etc -- or manipulations for the sake of
stock price effect -- going back to Equity Funding and American Express but
coming down through Waste Management and its cousins to Satyam and Lehman.
Major areas of manipulation of accounting principles, on the other hand,
have revealed the opportunities lurking in the politicized nature of the
standard-setting process itself -- running from the sector-wide S&L exploits
of the 1980's to Enron itself to the banks' treatment of financial
instruments during the recent crisis.)
That said, if such a system were to come into being -- mainly to satisfy the
politically-based needs of those who would benefit -- namely the lawmakers
and the bureaucrats -- the market would open up for the private delivery of
assurance that would have real value and that issuers and users would pay
for.
The large firms would have to re-tool, however, and also would have to deal
with real competition from niche players (by industry or geography) who
could deliver such services without the need for the scale of the Big Four.
Is that possible? Since you have invoked my name as a skeptic on the value
of today's audit report -- which I am -- I speak up to clarify that I view
the profession very differently from its most inflamed and rabid critics,
who are persuaded that the large firms are corrupt, venal and in thrall to
their clients (Francine, for example, having just re-cycled one of her more
aggressive screeds from a couple years ago).
Much as I admire what Francine has done in building her platform, my own
view is very different -- namely that the profession generally comprises a
collection of skilled and talented people, acting almost entirely in good
faith, most of the time genuinely doing the best they can in the
circumstances -- the problem being that it is enmeshed in an inter-locking
set of competing interests in which a "good faith, most of the time" effort
is insufficient and unsatisfactory. To make matters worse, the lack of
vision and leadership in the profession itself leaves it captive to its
current business model, in which innovation to develop new forms of
assurance cannot occur under the pressure on the leaders from their partners
who depend on the model in place since the 1930's -- probably the high-water
mark of the profession's relationship with the user and regulatory
community.
So it may be "possible but not likely" -- unless (as I believe) the Big Four
franchise is taken down by a litigation/enforcement shock of the type so
profoundly denied by the leadership -- a "black swan" of the type that we
now know can happen (Enron, with Bankest pending) -- and is surely lurking
in the pending litigation portfolios -- potential events include Bear
Stearns and WaMu for Deloitte, Lehman for E&Y, PwC's AIG, Madoff and the
Iceland banks (likely not Satyam), and KPMG's Fannie and Freddie among
others.
In that case all the discussion and the academic arguments about the value
of "voluntary audits" -- which I believe are naively based on a failure to
appreciate that the commodity language of the obligatory audit report for
public companies trumps all aspects of discussions about purported "choice"
-- becomes irrelevant. Assurance will be re-invented, but only after the
catastrophic loss of intelligence and expertise that would go with the
disintegration of the large networks.
By the way would investors "abandon capital markets if public corporations
had no audits"? Not a chance. Money has to go somewhere, and will. And if
today's audit report goes away, because the firms disintegrate and there are
no providers, the stock exchanges would open on schedule the next Monday and
the system would carry on without a hiccup. (I put this proposition to Mary
Schapiro recently, who did not disagree a bit -- although in fairness, a
discussion with her about the challenges of the accounting profession brings
to mind Oscar Wilde's observation that it is not sporting to engage in a
battle of wits with someone who is unarmed.)
As for Ronen and the "insurance" alternative -- I had thought this stream of
thinking had been stopped some time since. At least, all that is needed to
reveal its utter impracticality is to talk with those in the industry itself
-- which has long ago abandoned the field because of the fundamental failure
to satisfy the conditions of insurability -- diversity, predictability and
quantifiability. If there were any form of assurance that would enable the
insurance industry to underwrite risks in this area, surely it would have
been discovered by now -- and the absence of such tools or industry interest
is instead fully on view.
A couple more words on my skepticism about the value of the current audit
model -- here two points on the supposed value of the "thousands of audits
that do not go bad." The first is that, partly because the report is in
commodity form and purchased by users as such, neither the profession itself
nor the user community has the means to differentiate between a situation
where real quality work was done and one where all concerned were simply
lucky to avoid a catastrophe -- and it is impossible to impute value to a
process if you don't know and can't tell the difference between "good" and
"lucky." The second, going back to the point on mega-exposures, is that just
as elsewhere in life where the routine events are merely routine and don't
really matter very much, it is of no consequence at all that most audits are
done well, if the one that goes "worst case" is big enough to blow you up.
Passing for a moment the question of a prevailing corrupt mind-set at
Andersen in its last years, the fact remains that the great bulk of its work
was done to good standards by people doing honest, competent work -- all to
no avail. A business unable to learn from its failures has no chance of
evolving or improving by merely repeating what it perceives to be its
successes.
By extension, the "anecdote" that Big Four audit would have prevented Madoff
misses two points. The first is that proof of the negative does not support
the positive -- the failure of a no-name auditor does not give any comfort
that a Big Four audit would have done better -- the parade of conspicuous
failures over the recent decades being the evidence for the contrary -- many
of them based on defects in performance that with hindsight would have
failed Auditing 101. The second is the more profound point that the fact
that Madoff did what he did over decades with a no-name auditor shows the
basic lack of value placed on the audit process itself -- since the contrary
position was always there for anyone to pursue, only no one did.
As for the argument that comfort is provided to charities and non-profits,
it should be observed that these are sectors where traditionally B work is
done by B players, with significant outbursts of irregularity out of all
proportion to any fees or (more usually) a "feel good" factor -- thinking of
Baptist Hospital and United Way as two that come quickly to mind.
Finally -- and bravo if you are still with me -- I would put it that the
"cost of failure" comparison to a surgeon is misplaced, because the analogy
is wrong. The auditor is not there to perform the equivalent of surgery --
but offers something more like the annual physical -- or perhaps the exam of
the proctologist. In that environment, the analogy becomes more compelling,
because the dynamics of luck vs skill and deferral or disregard of
opportunities become significant in the cost/benefit calculus.
Whew -- time to pause, if not to stop.
Thanks -- reactions and extension of the dialog are both very welcome.
Best regards --
Jim
Psssst! Want to hear a secret?
The sentencing of Madoff's Ponzi Fund "auditor" keeps getting delayed ---
http://blogs.forbes.com/walterpavlo/2011/03/21/madoff-accountant-now-auditing-to-save-his-a/
Question
What is your accounting program doing to upgrade faculty and the curriculum on
the rapidly changing times for XBRL?
"XBRL US Expands Education Program to Meet Growing Public Company Filer
Demand," XBRL US, February 11, 2011 ---
http://xbrl.us/News/Pages/20110211.aspx
XBRL US, the national consortium for XML standards
in business reporting, has increased the number and coverage of educational
programs offered in 2011 to meet rising demand from an estimated 8,000
public companies that will be filing XBRL-formatted financials in 2011 for
the first time. A new monthly webinar 'Detailed Footnote Tagging in XBRL', a
60-minute program to help companies that are getting started on the second
phase of the Securities and Exchange Commission (SEC) rollout, has been
added. XBRL US SEC Filer Training Workshops have been expanded to include a
90-minute online preparatory session in addition to the full-day in-person
training, and will now be offered eight times in 2011. Upcoming programs
include:
Implementing XBRL for SEC Reporting, 2/16,
3pm ET – Free introductory program. No CPE available.
Covers the essentials of implementing XBRL for SEC reporting including
organizing data – mapping, extending, tagging, creating the XBRL
document; quality control and validation; updates on taxonomy
development and findings from the XBRL data to date. Learn more and
register at
http://xbrl.us/webinars.
Detailed Footnote Tagging in XBRL, 2/23, 3pm
ET, 60 minutes. Earn 1 CPE.
Provides the skills to begin mapping and tagging detailed footnotes
including handling tables and establishing the correct process. Covers
review of SEC requirements and approach to timing for footnote tagging;
differences between year one and year two tagging of footnotes; examples
of simple and more complex detailed footnote tagging. Learn more and
register at
http://xbrl.us/DFTwebinar.
In-Person Training: SEC Filer Training
Workshop, 3/4 online session and 3/10 in-person training in New York, NY.
Earn up to 10 CPE.
This interactive 2-part workshop explains how to use the US GAAP
Taxonomy, convert primary financial statements and block tag footnotes
in XBRL format. Learn more and register at
http://xbrl.us/training.
Who should attend: CFOs, Controllers,
Assistant Controllers, External Reporting Managers, and finance staff
members who have direct responsibility for implementing SEC XBRL filing
requirements.
About XBRL US
XBRL US is the non-profit consortium for XML business reporting
standards in the U.S. and it represents the business information supply
chain. Its mission is to support the implementation of XML business
reporting standards through the development of taxonomies for use by U.S.
public and private sectors, with a goal of interoperability between sectors,
and by promoting XBRL adoption through marketplace collaboration. XBRL US
has developed taxonomies for U.S. GAAP, credit rating and mutual fund
reporting under contract with the U.S. Securities and Exchange Commission.
XBRL US Labs, the research and development arm of XBRL US, leverages the
XBRL US platform, methodologies and people to address the quality of
taxonomies and the harmonization of XBRL with other XML standards. For more
information, go to
xbrl.us.
From Ernst & Young's Week in Review, March 3,
2011
For additional information on the
SEC's rule regarding the use of XBRL, we encourage you to monitor the XBRL
page on the
SEC's
website (http://xbrl.sec.gov) and to consider our publications and
webcast, which are available on AccountingLink:
March 9, 2011 reply from Glen Gray
Another nice source of XBRL classroom material is
available from Kelly Williams, Rick Elam, and Mitch Wenger. The contact
person is Mitch at
mrwenger@olemiss.edu
They start with XML exercises and then move on to
XBRL. They use XML and XBRL software from Altova at
www.altova.com who
provides free licensing of their products to educators.
Glen L. Gray, PhD, CPA
Dept. of Accounting & Information Systems
College of Business & Economics
California State University, Northridge
18111 Nordhoff ST
Northridge, CA 91330-8372
818.677.3948
http://www.csun.edu/~vcact00f
Steve Hornik suggested Dipity ---
http://www.dipity.com/timeline/SEC-XBRL/#timeline
Bob Jensen's threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
An Illustration of Future Free TV News on the Web
Non-Profit CEO Gets 10 Year Prison Sentence ---
http://nonprofittimes.tv/non-profit-times-tv-march-9th-2011
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Seven Accounting Changes That Will Affect Your 2010 Annual Report,"
by Jim Brendel, SmartPros, March 3, 2011 ---
http://accounting.smartpros.com/x71479.xml
"Which Traits Predict Success? (The Importance of Grit)," by Jonah
Lehrer, Wired News, March 14, 2011 ---
http://www.wired.com/wiredscience/2011/03/what-is-success-true-grit/
Jensen Comment
This article focuses mainly on accomplishments that require unbelievable amounts
of practice such as in solo performances in music and athletics.
More interesting and much more difficult is prediction of "success" following
graduation from an MBA program. Years ago I took a psychology course from Tom
Harrell at Stanford University. Professor Harrell received a rather large
research grant from the U.S. Navy to track graduates of Stanford's MBA Program.
While the students were in the program, he administered a time consuming battery
of psychological and intelligence test, including personality tests. He
additionally had access to student records such as undergraduate degree
information, GMAT scores, grades un undergraduate and graduate courses,
occupational history, etc.
The he annually tracked each graduate's career path. I don't think he got
into other personal details such as marriage, children, divorce, etc., although
I could be wrong about this. He did gather substantial information about
compensation, promotions, job details, etc.
"Which Traits Predict Success? (The Importance of Grit)," by Jonah
Lehrer, Wired News, March 14, 2011 ---
http://www.wired.com/wiredscience/2011/03/what-is-success-true-grit/
Jensen Comment
This article focuses mainly on accomplishments that require unbelievable amounts
of practice such as in solo performances in music and athletics.
More interesting and much more difficult is prediction of "success" following
graduation from an MBA program. Years ago I took a psychology course from Tom
Harrell at Stanford University. Professor Harrell received a rather large
research grant from the U.S. Navy to track graduates of Stanford's MBA Program.
While the students were in the program, he administered a time consuming battery
of psychological and intelligence test, including personality tests. He
additionally had access to student records such as undergraduate degree
information, GMAT scores, grades un undergraduate and graduate courses,
occupational history, etc.
The he annually tracked each graduate's career path. I don't think he got
into other personal details such as marriage, children, divorce, etc., although
I could be wrong about this. He did gather substantial information about
compensation, promotions, job details, etc.
Question
What is the biggest stumbling block in predicting success of MBA graduates?
Answer
The major problem is that of defining "success." Professor Harrell called it "The
Criterion Problem." ---
http://www.trinity.edu/rjensen/assess.htm#CriterionProblem
Income is a misleading criterion for a variety of reasons. Students who
graduated from Stanford to immediately become executives in their family's
business can hardly be compared with graduates who commenced working for banks
or accounting firms at relatively low paid staff training levels.
A fair number of Stanford's MBA students were on active duty career tracks
with the Navy. I remember one who was a Lieutenant JG and another who was a
Lieutenant Commander while enrolled in the MBA Program. Their career paths and
compensation following graduation from the MBA Program are just not comparable.
And there are a lot of intervening variables that cannot be compared. Suppose
one graduate subsequently enrolled in the doctoral program of Carnegie-Mellon
whereas another graduate, like MSNBC's Chris Matthews, joined the Peace Corps
and another graduate became partially paralyzed in an accident. In all three
instances post-graduate factors are likely to become much more important than
the final gpa in Stanford's MBA Program.
Tom Harrell also conducted similar studies for other branches of the
military. You might take a look at the
following reference:
Harrell, T.W. (1992). "Some history of the army general classifications test,"
Journal of Applied Psychology, 77, 875-878.
Even when comparing athletic performance it becomes very difficult to factor
out circumstantial causes and effects. We can hardly compare the number of game
wins of Pitcher A who plays for the best hitting team in the league with Pitcher
B who pitches for the Bad News Bears. Earned run averages are hardly comparable
between the Boston Red Sox having a short left field fence as their home field
and the Boys of Summer in Yankee Stadium.
And such things as medal counts are often misleading. During the Cold War the
bias of judges from the Soviet Union was no joke in winter and in summer
Olympics. And authors of best selling popular books can hardly be compared with
an author who wins a Nobel Prize for a research monograph that sold less than
200 copies to small subset of advanced biomedical researchers.
Lastly its very difficult to factor out serendipity of life when comparing
success of different people. Remember that well known story about when the
maggot that fell from a bird's butt into a manure pile encounters his brother
who fell into a pavement crack. The manure pile maggot attributed his great
success to "brains and personality" superiority when in fact most of his success
was due to wind current.
"TARP Was No Win for the Taxpayers : Treasury's claim that the bank
bailouts will return a profit ignores the other, more costly programs enabling
the banks to repay their TARP funds," by Paul Atkins, Mark McWatters, and
Kenneth Troske, The Wall Street Journal, March 17, 2011 ---
http://online.wsj.com/article/SB10001424052748703899704576204383282043422.html?mod=djemEditorialPage_t
Today the Senate Banking Committee will explore the
Troubled Asset Relief Program (TARP). Almost 30 months after its birth, TARP
is far from dead. More than 550 banks, AIG, GM, Chrysler and others still
have approximately $160 billion of taxpayer money outstanding.
Even so, the administration would have us believe
that TARP has been a success because it supposedly alleviated the financial
crisis and is (so far) being paid back at an apparent profit for taxpayers.
Perhaps because he helped invent TARP before he joined the Obama
administration, Treasury Secretary Timothy Geithner has called TARP the
"most effective government program in recent memory."
Treasury's view is misleading. First, it hides the
full story of the government's financial crisis effort, of which TARP is but
a minor part. Moreover, Treasury has not been content using rhetoric alone
to try to put TARP in the best light. The Special Inspector General for TARP
criticized Treasury in October for inadequately disclosing a change in its
valuation methodology that reduced a $45 billion loss in AIG to $5 billion,
making TARP losses appear smaller than they really are. This data
manipulation is only part of a much larger problem with Treasury's
representations regarding the supposed success of the bank bailout payments
that lie at the heart of TARP.
The focus on repayment fails to consider the huge
taxpayer costs from non-TARP programs that directly and indirectly enabled
many of the large banks to repay their TARP funds. These intertwined
programs, operated by the Treasury and the Federal Reserve, dwarf the size
of TARP and lack its accountability.
The financial crisis was born in the housing bubble
caused by the policies of Fannie Mae and Freddie Mac, the two bankrupt
government-sponsored entities (GSEs) charged with buying and packaging
mortgages into mortgage-backed securities (MBS). TARP banks own billions of
dollars worth of MBS and have remained liquid in part because the Federal
Reserve has bought more than $1.1 trillion of these GSE-guaranteed MBS in
the securities markets—all outside TARP.
The Fed purchased the MBS at fair market value, but
this value reflects Treasury's bailout and continued support of the GSEs—also
done outside of TARP with taxpayer money. Had the GSEs failed, TARP
recipients probably would have been stuck with these MBS, writing them down
at significant loss. Their ability to pay back TARP funding would have been
hurt, and they might have had to obtain more TARP funds or go bust.
So the taxpayer-backed GSE guarantee enables the
Fed to prop up the market with taxpayer funds, in turn allowing the TARP
banks to "repay" their TARP funds. The bailout of the GSEs by Treasury thus
shifts potential losses from TARP to other programs that have less oversight
and public scrutiny. Any evaluation of TARP's success must take into account
the interaction among all government programs designed to prop-up the
financial system, and the shifting of costs among these programs.
The Congressional Budget Office estimates that
Treasury's bailout of the GSEs will cost the taxpayers approximately $380
billion through fiscal year 2021. If only one-fourth of CBO's estimate
ultimately benefits TARP recipients and other financial institutions,
taxpayers will have provided a subsidy to these institutions of
approximately $100 billion, which is not accounted for under TARP.
Also seldom mentioned are future costs resulting
from using TARP funds to rescue "systemically important" financial and other
firms. TARP exacerbates the "too big to fail" phenomenon by targeting much
of its funding toward large banks and automobile firms, solidifying the
market's belief in an implicit guarantee from the government for these
firms. As credit-rating agencies have recognized, these large firms can
borrow much more cheaply than their small-enough-to-fail competitors, which
will lead to less competition, a more concentrated financial sector, and
higher prices paid by consumers.
In addition, creating larger, more systemically
important financial firms increases the likelihood of future financial
crises because these firms have an incentive to invest in riskier projects
as a result of the implicit government guarantee. The additional costs borne
by consumers in the form of higher prices for financial services and the
additional costs that result from future financial crises need to be
included in any accounting of the costs of the TARP.
TARP was never where the real action was happening.
In fact, other Fed and FDIC programs added another $2 trillion of taxpayer
money at risk to the 19 stress-tested banks alone, on top of the $1.1
trillion of MBS purchased by the Fed. TARP is but one-eighth of that total.
The government's efforts inside and outside of TARP
have sown the seeds for the next crisis and, unfortunately, last year's
2,319-page Dodd-Frank Act does nothing to fix these problems. Treasury must
be more transparent regarding TARP. The real myth that the Treasury
secretary should dispel is that TARP is a big win for the taxpayer.
Mr. Atkins was a member of the Congressional Oversight Panel from
2009-2010. Messrs. McWatters and Troske are current members of the panel.
The Commission's Final Report ---
http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_full.pdf
Video: Charles Furgeson has produced a powerful documentary, “Inside
Job,” about the deep capture of financial (de)regulation ---
http://thesituationist.wordpress.com/2010/11/14/the-situation-of-the-2008-economic-crisis/
"How Wall Street Fleeced the World: The Searing New doc Inside Job
Indicts the Bankers and Their Washington Pals," by Mary Corliss and Richard
Corliss, Time Magazine, October 18, 2010 ---
http://www.time.com/time/magazine/article/0,9171,2024228,00.html
Like some malefactor being grilled by Mike Wallace
in his 60 Minutes prime, Glenn Hubbard, dean of Columbia Business School,
gets hot under the third-degree light of Charles Ferguson's questioning in
Inside Job. Hubbard, who helped design George W. Bush's tax cuts on
investment gains and stock dividends, finally snaps, "You have three more
minutes. Give it your best shot." But he has already shot himself in the
foot.
Frederic Mishkin, a former Federal Reserve Board
governor and for now an economics professor at Columbia, begins stammering
when Ferguson quizzes him about when the Fed first became aware of the
danger of subprime loans. "I don't know the details... I'm not sure
exactly... We had a whole group of people looking at this." "Excuse me,"
Ferguson interrupts, "you can't be serious. If you would have looked, you
would have found things." (See the demise of Bernie Madoff.)
Ferguson—whose Oscar-nominated No End in Sight
analyzed the Bush Administration's slipshod planning of the Iraq
occupation—did look at the Fed, the Wall Street solons and the decisions
made by White House administrations over the past 30 years, and he found
plenty. Of the docufilms that have addressed the worldwide financial
collapse (Michael Moore's Capitalism: A Love Story, Leslie and Andrew
Cockburn's American Casino), this cogent, devastating synopsis is the
definitive indictment of the titans who swindled America and of their pals
in the federal government who enabled them.
With a Ph.D. in political science from MIT,
Ferguson is no knee-jerk anticapitalist. In the '90s, he and a partner
created a software company and sold it to Microsoft for $133 million. He is
at ease talking with his moneyed peers and brings a calm tone to the film
(narrated by Matt Damon). Yet you detect a growing anger as Ferguson digs
beneath the rubble, and his fury is infectious. If you're not enraged by the
end of this movie, you haven't been paying attention. (See "Protesting the
Bailout.")
The seeds of the collapse took decades to flower.
By 2008, the financial landscape had become so deregulated that homeowners
and small investors had few laws to help them. Inflating the banking bubble
was a group effort—by billionaire CEOs with their private jets, by agencies
like Moody's and Standard & Poor's that kept giving impeccable ratings to
lousy financial products, by a Congress that overturned consumer-protection
laws and by Wall Street's fans in academe, who can earn hundreds of
thousands of dollars by writing papers favorable to Big Business or sitting
on the boards of firms like Goldman Sachs.
Who's Screwing Whom? In the spasm of moral
recrimination that followed the collapse, some blamed the bright kids who
passed up careers in science or medicine to make millions on Wall Street and
charged millions more on their expense accounts for cocaine and prostitutes.
After the savings-and-loan scandals of the late-'80s, according to Inside
Job, thousands of executives went to jail. This time, with the economy
bulking up on the steroids of derivatives and credit-default swaps, the only
person who has done any time is Kristin Davis, the madam of a bordello
patronized by Wall Streeters. Davis appears in the film, as does disgraced
ex--New York governor Eliot Spitzer; both seem almost virtuous when compared
with the big-money men. (See "The Case Against Goldman Sachs.")
The larger message of both No End in Sight and
Inside Job is that American optimism, the engine for the nation's expansion,
can have tragic results. The conquest of Iraq? A slam dunk. Gambling
billions on risky mortgages? No worry—the housing market always goes up.
Ignoring darker, more prescient scenarios, the geniuses in charge
constructed faith-based policies that enriched their pals; they stumbled
toward a precipice, and the rest of us fell off.
The shell game continues. Inside Job also details
how, in Obama's White House, finance-industry veterans devised a "recovery"
that further enriched their cronies without doing much for the average Joe.
Want proof? Look at the financial industry's fat profits of the past year
and then at your bank account, your pension plan, your own bottom line.
Video: Watch Columbia's Business School
Economist and Dean Hubbard rap his wrath for Ben Bernanke
The video
is a anti-Bernanke musical performance by the Dean of Columbia Business School
---
http://www.youtube.com/watch?v=3u2qRXb4xCU
Ben Bernanke (Chairman of the Federal Reserve and a great friend of big banks)
---
http://en.wikipedia.org/wiki/Ben_Bernanke
R. Glenn Hubbard (Dean of the Columbia Business School) ---
http://en.wikipedia.org/wiki/Glenn_Hubbard_(economics)
Bob Jensen's threads on the Bailout of Banksters and the Greatest Swindle
in the History of the World are at
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
"Qaddafi's Son Expelled from IE Business School," by Louis Lavelle,
Business Week, March 4, 2011 ---
http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2011/03/qaddafis_son_expelled_from_ie_business_school.html?link_position=link7
Also note the comments.
“As I look at the deficiencies cited in the letter,
taken as a whole, it appears that Citigroup had a material weakness with respect
to valuing these financial instruments,” said Ed Ketz, an accounting professor
at Pennsylvania State University, who reviewed the OCC’s letter to Pandit at my
request. “It just is overwhelming by the time you get to the end of it."
"How Did Citigroup’s Internal Controls Cut the Mustard with KPMG?" by
Caleb Newquist, Going Concern, February 24, 2011 ---
http://goingconcern.com/2011/02/how-did-citigroups-internal-controls-cut-the-mustard-with-kpmg/#more-25882
Jonathan Weil writes in his column today about
Citigroup and their “acceptable
group of auditors,” (aka KPMG) and he’s
having trouble connecting the dots on a few things. Specifically, how a love
letter (it was sent on February 14, 2008, after all)
sent by the Office of the Comptroller of the Currency
to Citigroup CEO Vikram Pandit:
The gist of the
regulator’s
findings: Citigroup’s internal controls were a
mess. So were its valuation methods for subprime mortgage bonds, which
had spawned record losses at the bank. Among other things, “weaknesses
were noted with model documentation, validation and control group
oversight,” the letter said. The main valuation model Citigroup was
using “is not in a controlled environment.” In other words, the model
wasn’t reliable.
Okay, so the bank’s internal controls weren’t worth
the paper they were printed on. Ordinarily, one could reasonably expect
management and perhaps their auditors to be aware of such a fact
and that they were handling the situation accordingly. We said,
“ordinarily”:
Eight days later, on Feb. 22, Citigroup filed
its
annual report to shareholders, in which it
said “management believes that, as of Dec. 31, 2007, the company’s
internal control over financial reporting is
effective.” Pandit
certified the
report personally, including the part about Citigroup’s internal
controls. So did Citigroup’s chief financial officer at the time,
Gary Crittenden.
The annual report also included a Feb. 22
letter from KPMG LLP, Citigroup’s outside auditor,
vouching for the
effectiveness of the company’s financial-reporting controls. Nowhere did
Citigroup or KPMG mention any of the problems cited by the OCC. KPMG,
which earned $88.1 million in fees from Citigroup for 2007, should have
been aware of them, too. The lead partner on KPMG’s Citigroup audit,
William O’Mara, was listed on the “cc” line of the OCC’s Feb. 14 letter.
Huh. There has to be an explanation, right? It’s
just one of the largest banks on Earth audited by one of the
largest audit firm on Earth. You’d think these guys would be more
than willing to stand by their work. Funny thing – no one felt compelled to
return JW’s calls. So, he had no choice to piece it together himself:
[S]omehow KPMG and Citigroup’s management
decided they didn’t need to mention any of those weaknesses or
deficiencies. Maybe in their minds it was all just a difference of
opinion. Whatever their rationale, nine months later Citigroup had taken
a $45 billion taxpayer bailout, [Ed. note: OH, right. That.]
still sporting a balance sheet that made it seem healthy.
Actually, just kidding, he ran it by an expert:
“As I look at the deficiencies cited in the
letter, taken as a whole, it appears that Citigroup had a material
weakness with respect to valuing these financial instruments,” said Ed
Ketz, an accounting professor at Pennsylvania State University, who
reviewed the OCC’s letter to Pandit at my request. “It just is
overwhelming by the time you get to the end of it."
"What Vikram Pandit Knew, and When He Knew It: Jonathan Weil," by
Jonathon Weil, Bloomberg News, February 23, 2011 ---
http://www.bloomberg.com/news/2011-02-24/what-vikram-pandit-knew-and-when-he-knew-it-commentary-by-jonathan-weil.html
Yet somehow KPMG and Citigroup’s management decided
they didn’t need to mention any of those weaknesses or deficiencies. Maybe
in their minds it was all just a difference of opinion. Whatever their
rationale, nine months later Citigroup had taken a $45 billion taxpayer
bailout, still sporting a balance sheet that made it seem healthy.
“As I look at the deficiencies cited in the letter,
taken as a whole, it appears that Citigroup had a material weakness with
respect to valuing these financial instruments,” said Ed Ketz, an accounting
professor at Pennsylvania State University, who reviewed the OCC’s letter to
Pandit at my request. “It just is overwhelming by the time you get to the
end of it.”
One company that did get a cautionary note from its
auditor that same quarter was American International Group Inc. In February
2008, PricewaterhouseCoopers LLP warned of a material weakness related to
AIG’s valuations for credit-default swaps. So at least investors were told
AIG’s numbers might be off. That turned out to be a gross understatement.
At Citigroup, there was no such warning. The public
deserves to know why.
Continued in article
In Frank Portnoy's video below note how Citigroup got
its auditors to certify absurdly low loan loss reserves and highly misleading
(off balance sheet hideaway) financial statements right up to the point where
the Federal Government had to bailout this enormous bank. Where were the
auditors?
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://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-transparency-balance-sheet-accounting
Watch the video!
Bob Jensen's threads on the good things and not-so-good things done by KPMG
are at
http://www.trinity.edu/rjensen/Fraud001.htm
Marie E. Thornton, a former vice president
for finance at Iona College, pleaded guilty on Wednesday to
embezzling more than $850,000 from Iona, a
Roman Catholic institution in New York state, the U.S. attorney’s
office in Manhattan said in a
news release. At a sentencing hearing
scheduled for May 13, Ms. Thornton could face up to 10 years in
prison and a fine of $250,000, or twice the gross gain or loss from
the offense.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Blogging in the Classroom," by David Albrecht, Summa, March
25, 2011 ---
http://profalbrecht.wordpress.com/2011/03/25/conference-presentation/,
Slide Show ---
http://profalbrecht.files.wordpress.com/2011/03/classroom-blogging.pdf
Bob Jensen's threads on blogging (including links to accounting bloggers) ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Sanjay Sharma has been appointed Dean of the School of Business
Administration at the University of Vermont ---
http://www.indiajournal.com/?p=1158
"UVM’s new dean: the rest of the story," by Tim Johnson, Burlington
Free Press, March 9, 2011 ---
http://blogs.burlingtonfreepress.com/highered/tag/sanjay-sharma/
After we took note of the new UVM business dean’s
handsome salary
the other day, we
learned there’s more to this package than UVM put in its news release about
his appointment.
His wife is joining the faculty too, as a full
professor, at an annual salary of $180,000, which is more than most of her
UVM faculty peers earn. (The typical range for that position at UVM’s
business school is $139,000-$155,000. An exception is Rocki-Lee DeWitt, a
former dean, who earns a tad more than $180,000.)
Together, Sanjay Sharma, the dean-to-be, and
Promodita Sharma, who will assume the new post of Sanders professor in the
School of Business Administration in August, will be drawing $500,000 in
salary. How many other half-million-dollar couples do we have in little ol’,
don’t-confuse-us-with-Wall-Street Burlington?
The dean will have a secondary appointment as
professor of business. Both he and his wife have been through the school’s
tenure review process, so both will have tenure upon arrival. Promodita
Sharma
Promodita Sharma
The school now has five full professors. Next fall,
there will be seven. Retirements of three associate professors in May will
help make room for the new arrivals.
At UVM, the Sharmas will be reprising their
professional configuration at Concordia University in Montreal, where Sanjay
Sharma is dean of the John Molson School of Business, and Pramodita Sharma
is CIBC Distinguished Professor of Family Business.
. . .
What’s the Sanders Professorship?
We put the question to UVM and were informed that it’s an endowment,
established in 1968 from alumni donations, named for Daniel Clarke Sanders,
UVM’s first president. The fund is used as faculty support at the discretion
of the president or the president’s designee.
Promodita Sharma will receive $20,000 per year from
the Sanders endowment earnings for research activities. .
Continued in article
Jensen Comment
The compensation package is not shocking by national standards for business
school deans these days. The University of Colorado just appointed a new
business school dean for over $400,000 that will not be compensating a spouse.
But the pay package is an outlier in terms of what state universities in
Vermont, New Hampshire, and Maine pay their faculty and administrators.
It is also somewhat unusual nationally for business school deans to be paid
such a large annual stipend for research responsibilities.
I wonder what kind of pay package Dean Sharma will eventually be paying
accounting professors at the University of Vermont?
A new one from my old behavioral accounting friend Jake
"Is Neuroaccounting Waiting in the Wings?" Jacob G. Birnberg and Ananda
R. Ganguly, SSRN, February 10 ,2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1759460
Abstract:
This paper reviews a recently published handbook on neuroeconomics (Glimcher
et al. 2009H) and extends the discussion to reasons why this newly emerging
discipline should be of interest to behavioral accounting researchers. We
evaluate the achieved and potential contribution of neuroeconomics to the
study of human economic behavior, and examine what behavioral accountants
can learn from neuroeconomics and whether we should expect to see a similar
sub-field emerge within behavioral accounting in the near future. We
conclude that while a separate sub-field within behavioral accounting is not
likely in the near future due mostly to practical reasons, the behavioral
accounting researcher would do well to follow this discipline closely, and
behavioral accountants are likely to collaborate with neuroeconomists when
feasible to examine questions of mutual interest.
Keywords: Neuroeconomics, Neuroaccounting, Behavioral Accounting
Jensen Comment
This ties in somewhat with the work of John Dickhaut ---
http://www.neuroeconomics.org/dickhaut-memorial/in-memory-of-john-dickhaut
The lead article in the November 2009 issue of The Accounting Review
is like a blue plate special that differs greatly from the usual accountics
offerings on the TAR menu over the past four decades. TAR does not usually
publish case studies, field studies, or theory papers or commentaries or
conjectures that do not qualify as research on testable hypotheses or analytical
mathematics. But the November 2009 lead article by John Dickhout is an
exception.
Before reading the TAR tidbit below you
should perhaps read a bit about John Dichaut at the University of Minnesota,
apart from the fact that he's an old guy of my vintage with new ideas that
somehow leapt out of the accountics publishing shackles that typically restrain
creative ideas and "search" apart from "research."
"Gambling on Trust: John Dickhaut uses "neuroeconomics" to study how people
make decisions," OVPR, University of Minnesota ---
On the surface, it's obvious that trust
makes the economic world go round. A worker trusts that he or she will get
paid at the end of the week. Investors trust that earnings reports are based
on fact, not fiction. Back in the mid-1700s, Adam Smith-the father of
economics-built portions of his theories on this principle, which he termed
"sympathy." In the years since then, economists and other thinkers have
developed hundreds of further insights into the ways that people and
economies function. But what if Adam Smith was wrong about sympathy?
Professor John Dickhaut of the Carlson
School of Management's accounting department is one of a growing number of
researchers who uses verifiable laboratory techniques to put principles like
this one to the test. "I'm interested in how people make choices and how
these choices affect the economy," says Dickhaut. A decade ago, he and his
colleagues developed the trust game, an experiment that tracks trust levels
in financial situations between strangers. "The trust game mimics real-world
situations," he says.
Luckily for modern economics-and for
anyone planning an investment-Dickhaut's modern-day scientific methods
verify Adam Smith's insight. People tend to err on the side of trust than
mistrust-are more likely to be a little generous than a little bit stingy.
In fact, a basic tendency to be trusting and to reward trustworthy behavior
may be a norm of human behavior, upon which the laws of society are built.
And that's just the beginning of what the trust game and the field of
experimental economics can teach us.
Trust around the world
Since Dickhaut and his co-authors first
published the results of their research, the trust game has traveled from
the Carlson School at the University of Minnesota all the way to Russia,
China, and France. It's tested gender differences and other variations.
"It's an experiment that bred a cottage
industry," says Dickhaut. Because the trust game has proved so reliable,
researchers now use it to explore new areas. George Mason University's
Vernon Smith, 2002 Nobel Laureate for his work in experimental economics,
used the trust game in some of his path-breaking work. University of
Minnesota researcher and Dickhaut co-author Aldo Rustichini is discovering
that people's moods can be altered in the trust games so that participants
become increasingly organized in their behavior, as if this can impact the
outcome. This happens after the participants are repeatedly put in
situations where their trust has been violated.
Although it's too soon to be certain, such
research could reveal why people respond to troubled times by tightening up
regulations or imposing new ones, such as Sarbanes-Oxley. This new research
suggests that calls for tighter rules may reveal more about the brain than
reduce chaos in the world of finance.
Researchers who study the brain during
economic transactions, or neuroeconomists, scanned the brains of trust game
players in labs across the country to discover the parts of the brain that
"light up" during decision-making. Already, neuroeconomists have discovered
that the section of the brain investors use when making a risky investment,
like in the New York Stock Exchange, is different than the one used when
they invest in a less risky alternative, like a U.S. Treasury bill.
"People don't lay out a complete decision
tree every time they make a choice," Dickhaut says. Understanding the part
of the brain accessed during various situations may help to uncover the
regulatory structures that would be most effective-since people think of
different types of investments so differently, they might react to rules in
different ways as well. Such knowledge might also point to why behaviors
differ when faced with long- or short-term gains.
Dickhaut's original paper, "Trust,
Reciprocity, and Social History," is still a hit. Despite an original
publication date of 1995, the paper recently ranked first in ScienceDirect's
top 25 downloads from the journal Games and Economic Behavior.
Risky business
Dickhaut hasn't spent the past 10 years
resting on his laurels. Instead, he's challenged long-held beliefs with
startling new data. In his latest research, Dickhaut and his coauthors
create lab tests that mimic E-Bay style auctions, bidding contests for major
public works projects, and others types of auctions. The results may be
surprising.
"People don't appear to take risks based
on some general assessment of whether they're risk-seeking or risk-averse,"
says Dickhaut. In other words, it's easy to make faulty assumptions about
how a person will respond to risk. Even people who test as risk-averse might
be willing to make a risky gamble in a certain type of auction.
This research could turn the evaluation of
risk aversion upside down. Insurance company questionnaires are meant to
evaluate how risky a prospective client's behavior might be. In fact, the
questionnaires could simply reveal how a person answers a certain kind of
question, not how he or she would behave when faced with a risky
proposition.
Bubble and bust, laboratory style
In related research, Dickhaut and his
students seek that most elusive of explanations: what produces a
stock-market collapse? His students have successfully created models that
explain market crash situations in the lab. In these crashes, brokers try to
hold off selling until the last possible moment, hoping that they'll get out
at the peak. Buyers try to wait until the prices are the lowest they're
going to get. It's a complicated setting that happens every day-and
infrequently leads to a bubble and a crash.
"It must be more than price alone," says
Dickhaut. "Traditional economics tells us that people are price takers who
don't see that their actions influence prices. Stock buyers don't expect
their purchases to impact a stock's prices. Instead, they think of
themselves as taking advantages of outcomes."
He urges thinkers to take into account
that people are always trying to manipulate the market. "This is almost
always going to happen," he says. "One person will always think he knows
more than the other."
Transparency-giving a buyer all of the
information about a company-is often suggested as the answer to avoiding
inflated prices that can lead to a crash. Common sense says that the more
knowledge a buyer has, the less likely he or she is to pay more than a stock
is worth. Surprisingly, Dickhaut's findings refute this seemingly logical
answer. His lab tests prove that transparency can cause worse outcomes than
in a market with poorer information. In other words, transparent doesn't
equal clearly understood. "People fail to coordinate understanding,"
explains Dickhaut. "They don't communicate their expectations, and they
might think that they understand more than they do about a company."
Do stock prices balloon and crash because
of genuine misunderstandings? Can better communication about a stock's value
really be the key to avoiding future market crashes? "I wish you could say
for sure," says Dickhaut. "That's one of the things we want to find out."
Experimental economics is still a young
discipline, and it seems to raise new questions even as it answers old ones.
Even so, the contributions are real. In 2005 John Dickhaut was awarded the
Carlson School's first career research award, a signal that his research has
been of significant value in his field. "It's fun," he says with a grin.
"There's a lot out there to learn."
Reprinted with permission from the July 2005 edition of
Insights@Carlson School, a publication of the Carlson School of Management.
"The Brain as the Original Accounting Institution"
John Dickhaut
The Accounting Review 84(6), 1703 (2009) (10 pages)
TAR is not a free online journal, although articles can be purchased ---
http://aaahq.org/pubs.cfm
ABSTRACT:
The evolved brain neuronally processed information on human interaction long
before the development of formal accounting institutions. Could the neuronal
processes represent the underpinnings of the accounting principles that
exist today? This question is pursued several ways: first as an examination
of parallel structures that exist between the brain and accounting
principles, second as an explanation of why such parallels might exist, and
third as an explicit description of a paradigm that shows how the benefits
of an accounting procedure can emerge in an experiment.
The following are noteworthy in terms of this being a blue plate special
apart from the usual accountics fare at the TAR Restaurant:
- There are no equations that amount to anything beyond a seventh grade
algebra equation.
- There are no statistical inference tests, although much of the
discussion is based upon prior experimental models and tests.
- The paper is largely descriptive conjecture by brain analogy.
- I view this paper as a commentary even though the current Editor of TAR
declared he will not publish commentaries.
- The paper goes far back in history with the brain analogy.
- To date the TAR Editor has not been fired by the AAA Accountics Tribunal
for accepting and publishing this commentary that is neither empirical nor
advanced mathematical analysis. However, you must remember that it's a
November 2009 edition of TAR, and I'm writing this tidbit in late November.
Thunder and lightning from above could still wipe out Sarasota before the
year end.
- The paper is far out in the conjectural ether. I think John is lifting
the brain metaphor to where the air is thin and a bit too hot for me, but
perhaps I'm an aging luddite with a failing brain. I reached my limit of the
brain analogy in my metacognitive learning paper (which is also brain
conjecture by analogy) ---
http://www.trinity.edu/rjensen/265wp.htm
Professor Dickhaut presents a much wider discussion of all parts of the
brain. My research never went beyond the tiny hippocampus
part of the brain.
John was saved from the wrath of the AAA Accountics Tribunal by also having
an accountics paper (with complicated equations) published in the same November
2009 edition of TAR.
"Market Efficiencies and Drift: A Computational Model"
John Dickhaut and
Baohua Xin
The Accounting Review 84(6), 1805 (2009) (27 pages)
Whew!
Good work John!
John died in April 2010 at the age of 68.
Two-Year Semester Credit Hour Load: 27=24+3; 21=18+3; 15=12+3
It's not clear how much credit-hour relief can be granted to those who serve
doctoral programs and administrative duties.
Presumably the spirit of the law is that every tenure track professor who
teaches at least one course in two years will add at least one course.
Will allowances be made for probationary faculty not yet granted tenure?
Will faculty who teach in quarters rather than semesters have to add six quarter
hours or four credit hours or three quarter hours?
"A Heavier Load in Ohio," by Dan Berrett, Inside Higher Ed, March 22,
2011 ---
http://www.insidehighered.com/news/2011/03/22/ohio_plan_to_increase_faculty_course_loads_mirrors_other_efforts_but_without_buy_in
Jensen Comment
Such a law could hit some schools hard like Michigan State University that gives
one quarter's relief from all teaching every two years. Keeping this quarter's
relief plan in operation when being required to teach two added quarter courses
becomes a relatively heavy teaching load in some teaching quarters. To my
knowledge this proposal has not yet jumped from Ohio to Michigan and probably
will not do so since the Michigan governor is pro labor union. Not so for the
governors of Ohio and Wisconsin.
The question is whether some universities will require teaching and added
course whether or not heavier loads are mandated from above. With shrinking
budgets this can be a way to free up some money and/or retaining some tenure
track positions that might otherwise be lost in budget cutting crises.
Is this better than the current approach of increasing teaching loads by
increasing class sizes --- something that Patricia Walters and others have
complained about several times on the AECM?
Video Lecure by Nobel Lauriate Robert Merton
The Future of Finance
MIT World
http://mitworld.mit.edu/video/881
In his keynote address, Robert Merton chooses not
to focus on the financial crisis. It is clear to him there were “fools and
knaves,” as well as “many structural elements that would have happened even
if people were well behaved and well informed” -- risks are simply “embedded
in our systems.” Instead, Merton explores how financial engineering is
essential in preparing for the inevitable next crisis, and in solving
critical challenges. “The world has changed; we can’t go back. Let’s talk
about what we should do going forward.”
To illustrate society’s need for financial
innovation, Merton uses “a live case study:” the vast problem of retirement
funding. In the past decade, stock market declines and falling interest
rates have hit mainstream employer pension plans hard. Municipal pension
plans may be underfunded to the tune of three trillion dollars. (“It makes
the S&L crisis look like nothing.”) But people seek, and are due, “the
standard of living during retirement they enjoyed in the latter part of
their work life.”
Generally, determining this standard of living
means adding up likely medical, housing and general consumption costs, and
Merton describes how to target such retirement income. The main ways to
achieve the desired goal are by saving more, working longer or taking more
risk. Merton would like to design a software-based tool for ordinary people,
simple on the user end, complex on the provider end, which would serve as a
“next generation pension solution,” offering a way to manipulate the key
variables in retirement income and demonstrate potential financial outcomes.
This tool would help users continuously optimize risk to help them reach
their retirement funding goals.
There are regulatory obstacles now to the
implementation of such a method on a widespread basis, and a gap between how
managers, advisers and financial institutions think about pension assets,
and what Merton has in mind. Nevertheless, he says, “What we need to do for
most of the people who don’t have extra money and must do the most with
their assets is deliver a simple, easy to use, and if they don’t use it
still gets them there, solution.” Merton acknowledges those who think the
giant problem of pension funding can be solved by what’s already available
-- bond and equity markets, bank loans – and who hanker “to get rid of all
the complexity, go back to 1930, ’50 or ’80.” From his perspective, this
means “throwing away a lot of what you could do, because the market-proven
strategies people have developed and used…can do a much better job for
people.”
Jensen Comment
Contributing to the pension crisis has been a willingness of the accounting and
auditing profession to allow both the public and private sectors to deceive
taxpayers and investors about the extend to which contracted pension obligations
are off the balance sheet and not even disclosed properly.
The sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Off Balance Sheet Financing (OBSF) ---
http://www.trinity.edu/rjensen/Theory02.htm#OBSF2
Teaching Case on Pension Accounting Trends
From The Wall Street Journal Weekly Accounting Review on March 11, 2011
Rewriting Pension History
by: Michael Rapoport
Mar 09, 2011
Click here to view the full article on WSJ.com
TOPICS: Accounting
Changes and Error Corrections, Pension Accounting, Post Retirement
Benefits
SUMMARY: AT&T Inc.,
Verizon Communications Inc. and Honeywell International Inc. recently
changed their longstanding pension accounting in which they smooth out
gains and losses on pension assets over time. These companies now
include all actuarial gains and losses in income (via pension expense
calculations) as they occur; the article states that they are including
all gains and losses on pension assets in income as they occur. The
change in accounting principle is being handled in accordance with
Accounting Standards Codification 250-10-05-2 which requires
retrospective application whenever practicable. Retrospective
application is defined in the codification glossary as the application
of a different accounting principle to one or more previously issued
financial statements, or to the statement of financial position at the
beginning of the current period, as if that principle had always been
used, or a change to financial statements of prior accounting periods to
present the financial statements of a new reporting entity as if it had
existed in those prior years. ASC 250-10-45-2(b) requires that a change
in accounting principle be adopted only if "the entity can justify the
use of an allowable alternative accounting principle on the basis that
it is preferable."
CLASSROOM APPLICATION: The
article is useful when covering pension accounting and when covering
accounting changes, typically in advanced financial reporting or MBA
classes. **Note that answers to some questions are given in the summary
so that faculty using this review may want to edit before distributing
to students.
QUESTIONS:
1. (Advanced) What is a defined benefit pension plan?
2. (Advanced) What are the objectives in accounting for this
type of pension plan? Cite your source for this answer from the
Accounting Standards Codification.
3. (Introductory) Summarize the accounting change for pension
plans described in the article. In your answer, summarize how pension
accounting "smoothes" large gains and losses generated by pension
assets.
4. (Advanced) Access the AT&T Form 10-K filing for 2010 made on
March 1, 2011 and available at
http://www.sec.gov/cgi-bin/viewer?action=view&cik=732717&accession_number=0000732717-11-000014&xbrl_type=v
Proceed to Pension and Post Retirement Benefits (Note 11) under Notes to
Financial Statements and read the third paragraph which begins "in
January 2011, we announced a change in our method of recognizing
actuarial gains and losses..." Are actuarial gains and losses the same
as gains and losses on plan assets? Do they impact pension calculations
similarly? Explain your answers.
5. (Introductory) How is this accounting change being reflected
in these companies' financial statements? Why will this accounting
change impact 2008 the most?
6. (Advanced) What accounting standard codification section
promulgates the requirements for the accounting described in this
article? What requirement must be met for any company to undertake any
change in accounting principle, including the pension change discussed
in this article?
7. (Advanced) Compare the statements in AT&T's pension footnote
to the objectives of pension accounting you identified in answer to
question 2. Clearly explain what you think is the basis for justifying
this change in accounting principle.
Reviewed By: Judy Beckman, University of Rhode Island
"Rewriting Pension History," by Michael Rapoport, The Wall Street Journal,
March 9, 2011 ---
http://online.wsj.com/article/SB10001424052748703662804576188843415326976.html?mod=djem_jiewr_AC_domainid
Some big companies are changing how they account
for their pension plans in a way that could make their earnings look better
in coming years.
AT&T Inc., Verizon Communications Inc. and
Honeywell International Inc. recently ended a longstanding practice in which
they "smooth" large gains and losses generated by pension assets into their
financial results over a period of years. From now on, these companies will
count all such gains and losses in the same year they are incurred.
While the moves might seem like arcane accounting
steps, they have important implications for investors. The companies say the
changes will make their earnings reporting more transparent, but they also
sweep away tens of billions in past pension losses the companies have yet to
smooth into—and hurt—their results. By charging them against their earnings
from 2008, when the losses were incurred, they are taking lumps for years
that many investors may no longer care about.
"They'll put the bad news behind them" said David
Zion, an accounting analyst with Credit Suisse.
Still, the accounting change will make it clearer
to investors how pension plans' performance affects the companies' income
statements, where it is factored into operating earnings. And the current
rock-bottom interest rates make it a good time to make such a change. Any
increases in rates could improve pension-plan performance, and clearing away
the old losses will heighten the impact that better performance has on the
companies' earnings.
Under current accounting rules, companies with
defined-benefit pension plans, which promise to pay specified amounts to
retirees, have the option to take several years to spread the cost of large
pension gains and losses into earnings. That means that when a plan's
investment results are much better or worse than expected—as with the 2008
market downturn—it can have a significant effect on earnings for years.
For that and other reasons, the system of
accounting for pension results in earnings long has been widely criticized.
The Financial Accounting Standards Board, the U.S. accounting rule maker,
has examined the issue before but hasn't made any changes, though they may
revisit it soon. AT&T, Verizon and Honeywell changed their accounting
methods on their own initiative. While the details differ, all three said
they would start recognizing some or all of their deferred losses in the
year they occur, through a "mark-to-market" adjustment to fourth-quarter
earnings to reflect their pension plan's returns for the year.
All three assessed the bulk of the change's impact
against 2008 earnings, the height of the market meltdown. AT&T, for example,
said its 2008 pension costs would increase by $24.9 billion because of the
change, compared to a $3 billion increase for 2010. The company reduced its
2008 earnings by $15.5 billion as a result, from a profit of $12.9 billion
to a loss of $2.6 billion.
An increase in interest rates could benefit the
companies' pension plans if, as expected, they move higher. That is because
pension obligations that may be paid out decades into the future are
discounted back to their present value. When rates are low, there's less
discounting, and the obligations stay relatively high. But when rates rise,
the future obligations will be discounted more aggressively, moving their
present value lower.
That means a lower base on which the company has to
pay interest costs, which could translate into lower pension costs, improved
pension performance and better earnings.
"Clearly the mark-to-market approach is preferable
accounting," said Kathleen Winters, Honeywell's controller. But she
acknowledged that "the low interest-rate environment made this a good time
to do this."
Continued in article
Bob Jensen's threads on pension accounting and post-retirement benefits
are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Teaching Case on Auditor Firm's Denial of a Going Concern Opinion
From The Wall Street Journal Accounting Weekly Review on March 11, 2011
Dynegy Auditor Issues Warning (not available online)
by: John Kell
Mar 09, 2011
TOPICS: Audit
Report, Auditing
SUMMARY: Dynegy's
auditors, Ernst & Young, have issued a going concern opinion on the
company's 2010 financial statements. The going concern issue has arisen
because Dynegy expects it likely will not meet a debt covering related to
the level of EBITDA over consolidated interest expense.
CLASSROOM APPLICATION: The
article is useful to cover types of audit opinions in an auditing class.
Questions further allow discussion of the meaning behind the going concern
assumption versus an assessment of the company's financial health. The
questions also refer to the Form10-K filing and management's discussion and
analysis that specifically identifies the debt covenant failure that is
expected to occur; the article therefore can be used in covering long term
debt. While there is no on line article link, the related article covers a
lot of the issues and questions direct the student to the Dynegy 10-K filing
and the associated auditor's report.
QUESTIONS:
1. (Advanced) What are the types of audit opinions that may be
issued? What type was issued by Ernst & Young on Dynegy's financial
statements?
2. (Introductory) What problem led to the auditor's conclusion that
Ernst & Young (E&Y) should issue a "going concern opinion" on the Dynegy
financial statements? Was it the result of E&Y's assessment of the financial
health of Dynegy? Explain.
3. (Introductory) What is a debt covenant? Based on your
understanding of the statements in the article, is Dynegy currently in
violation of its debt covenants? Explain.
4. (Advanced) Access the Dynegy annual report for 2010 filed on
Form 10-K with the SEC available at
http://sec.gov/Archives/edgar/data/1105055/000114036111015138/form_10-k.htm#a009v1
Scroll down to the Table of Contents, then click on Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Read through the first three paragraphs under "Overview." What specific
financial ratio is Dynegy expecting to be unable to meet? What does this
ratio measure? What are the potential results of this failure?
5. (Introductory) What corporate actions have kept Dynegy from
undertaking transactions that might save it from bankruptcy proceedings?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Dynegy Warns of Chapter 11
by Rebecca Smith
Mar 09, 2011
Online Exclusive
Question
Why weren't there similar denials of going concern opinions on thousands of
failed banks shortly after 2009?
Where were the auditors?
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
"Recidivism and Risk Management: Barry Minkow Goes Back to the Slammer,"
by Jim Peterson, re:Balance, March 24, 2011 ---
http://www.jamesrpeterson.com/home/2011/03/recidivism-and-risk-management-barry-minkow-goes-back-to-the-slammer.html
A question for those charged with risk management
and fraud prevention:
What’s your company policy on employing or doing
business with ostensibly reformed white-collar criminals?
And is a re-think indicated by the news that Barry
Minkow, wunderkind among securities swindlers for the scam at ZZZZ Best in
the 1980’s, for which he served seven years of a double-digit sentence on 57
counts, is negotiating a securities-fraud plea bargain under which he now
faces fives fresh years of jail time (here).
My concern is a prosaic one – not Hollywood’s
question whether his return to federal housing means that the pending Minkow
bio-pic requires re-shooting of a new ending (here), or whether the February
burglary of $50,000 at the Community Bible Church where he recently resigned
as pastor (here) bears any of his felonious fingerprints (here).
It’s only this: Given the rate of relapse among
those described by English essayist Charles Lamb as “so crooked that if
they’d swallow a spike, they’d void out a corkscrew,” should a company
concerned for its reputation and fiscal soundness ever yield to sentiment
and invite such a fox back into its henhouse?
Experience over the years counsels against it.
Examples in my own catalog include the large-company CEO convict, who
finagled a reduced sentence via a convenient medical excuse, and was no
sooner paroled to a halfway house than he took over its single pay-phone to
peddle the rosy promises of new oil deals. Or the youthful CFO applicant who
persuaded an employer of his time-served maturation, following bucket-shop
charges; the naïve advice of the audit firm partner was to “keep the kid
away from the cash” – unavailing to prevent a scandalous and catastrophic
collapse and a portfolio of lengthy prison sentences for the entire
executive team.
Continued in article
Steve Albrecht (former American Accounting Association President and
Professor of Accounting at Brigham Young University) conducted interviews when
Barry Minkow was still in prison. You can read Steve's account of the ZZZZ Best
Fraud at
http://www.swcollege.com/vircomm/stice_survey/sts/sts04.html
Question
Why is there so much investment fraud?
Answer
What we have is a perfect fraud storm. In places across
the country with an appreciating housing market, low interest rates, and
consumers dissatisfied with Wall Street returns, you'll find people ripe for
[perpetrators].
"Ten Questions for Barry Minkow," CFO Staff, by CFO Magazine, January
2005, Page 20 ---
http://www.cfo.com/article.cfm/3516399/c_3516777?f=magazine_alsoinside
The current head of the Fraud Discovery Institute, Barry Minkow, also served
more than seven years in prison for the infamous ZZZZ Best scam.
Barry Minkow says he plans to be remembered for
more than the ZZZZ Best Co. fraud. The 38-year-old Minkow served more than
seven years in prison for the infamous 1980s scam. But he hopes that his
current efforts as head of the Fraud Discovery Institute and as pastor of
The Community Bible Church in San Diego will supersede his activities as CEO
of the carpet-cleaning company. This month his new book, Cleaning Up
(Nelson Current), debuts.
1. Currently, you are fighting the very crime
you were convicted of. Isn't that ironic?
No one failed worse than I did at such a young age. Sure, you can adjust the
dollar amounts and say it was $10 billion with Bernie Ebbers at WorldCom,
but it doesn't matter. I was CEO of a public company and I failed. [ZZZZ
Best] was a fully reporting public company with a stock that went from $12
to $80. And at 21, I got a 25-year sentence and a $26 million restitution
order, and that's [since been] turned into $1 billion in fraud uncoverings.
2. What can other white-collar criminals glean
from your mistakes?
Jeff Skilling's and Andy Fastow's best days are ahead of them...if they
admit they did wrong, do whatever they can to pay back their victims, and
use the same talents they used to defraud people to help them.
3. When you speak to executives about fraud,
what's your main message?
When I speak to executives, I wear my orange prison jumpsuit. It's
gimmicky... [but] the best way to stop fraud is to talk people out of
perpetrating it in the first place by doing two things: increasing the
perception of detection and increasing the perception of prosecution.
4. Are you surprised that the fraud techniques
you used are still out there?
It doesn't surprise me at all. Long before Enron was touring people on phony
trading floors, ZZZZ Best was touring people on buildings for restoration
jobs that we never did. Now the variation on a theme is always there, but
here's what we do: we lie about what we owe and we lie about what we earn.
5. On what do you blame the rash of corporate
fraud in recent years?
It's a mentality called right equals forward motion and wrong is anyone who
gets in my way. You see, we used to endorse character and integrity, but
today the business ethic that reigns is achievement. And whenever you
establish the worth of someone based on what they can do and not on who they
are, you have created the environment for fraud.
6. Are you skeptical of efforts, such as
Sarbanes-Oxley, to legislate ethics?
Let me tell you why this legislation is brilliant. Sarbox hit at a common
denominator of corporate fraud: bypassing systems of internal controls. I
would not have been able to perpetrate the ZZZZ Best fraud if I had not been
able to bypass the system of internal controls. And you know who are heroes
now — the internal auditors and the Public Company Accounting Oversight
Board. Unless you're a perpetrator, you don't know how good these moves are.
7. Should the sentencing guidelines for
white-collar criminals be overhauled?
Yes, and judges should have more discretion. My judge is the one who said
that I had no conscience. Two years ago, he dismissed my $26 million
restitution order, dismissed me from probation three years early, and told
me to go out and fight corporate fraud. [But] I don't care if anyone goes to
jail. The number-one thing white-collar criminals need to do is give the
money back to those hurt the most.
8. When will you be satisfied that you've repaid
your debt to society?
I won't be. Union Bank had a $7 million loan [against ZZZZ Best], and I have
a long way to go. But I haven't missed a payment in nine years. They've
gotten over $100,000 this year alone.
9. Why is there so much investment fraud?
What we have is a perfect fraud storm. In places across the country with an
appreciating housing market, low interest rates, and consumers dissatisfied
with Wall Street returns, you'll find people ripe for [perpetrators].
10. What do you say to those who doubt your
conversion to the straight and narrow?
There's this great phrase in the Bible: "When the man's ways please the
Lord, he makes even his enemies be at peace with him." The biggest critics
of Barry Minkow should be law enforcement. They absolutely know if someone
is a fake or real. But they've been my biggest supporters.
Read more about Barry Minkow and the infamous ZZZZ Best accounting fraud at
Financial Accounting by W. Steve Albrecht, Earl K. Stice, James D. Stice
---
Click Here
http://books.google.com/books?id=Q62w4GPXMcAC&pg=PA275&lpg=PA275&dq=Albrecht+Minkow+%22ZZZZ+Best%22&source=bl&ots=redrQhq5Yz&sig=VMDY5bYviCSTgF5V-kflvytlKPQ&hl=en&ei=YIaLTe3ADpS80QHnnLzoDQ&sa=X&oi=book_result&ct=result&resnum=2&ved=0CBoQ6AEwAQ#v=onepage&q&f=false
Also see
http://www.amazon.com/gp/search?index=books&linkCode=qs&keywords=0324645570
CommerceConnect (business helpers from the U.S. Dept. of Commerce) ---
http://commerceconnect.gov/
Bob Jensen's small business helpers ---
http://www.trinity.edu/rjensen/BookBob1.htm#SmallBusiness
From the Harvard Business School
Buy Now, Pay Later: A History of Personal Credit ---
http://www.library.hbs.edu/hc/credit/
Jensen Comment
When teaching about accounting for liabilities and credit cards, it might be
interesting to introduce students to the history of liabilities ---
Buy Now, Pay Later: A History of Personal Credit ---
http://www.library.hbs.edu/hc/credit/
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Historical Myth a Month (with a Nevada focus) ---
http://nsla.nevadaculture.org/index.php?option=com_content&task=view&id=683&Itemid=418
The above site has nothing to do with accounting, but it struck me as an
interesting way to introduce accounting history into most any accounting course.
For assignments (maybe for each class) students could be asked to verify
accounting history myths.
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Teaching Case on Repo 105/108 "Sales" That are 100% Certain to be Returned
This is really a test of whether an audit firm should follow FASB rules that, in
a particular context, become deceptive for investors/creditors
Given a choice of choosing the client's interests versus the interests of
investors and creditors, the auditor chose the client in this case
If both Lehman and Ernst & Young get off with no fines or penalties it
reminds me of all the instances in history where confessed serial killers or
rapists got off based upon some technicality in the law such as obtaining
evidence without a warrant. The FASB erred it in writing the FAS 140 rules, and
perhaps Lehman and Ernst will both walk away scott free on this clever
exploitation of an unintended loophole in the FAS 140 standard. But the renowned
audit firm will forever have a black mark in history where it obviously put
client requests for deception above its responsibility for transparency
accounting in the best interests of shareholders and creditors.
From The Wall Street Journal Weekly Accounting Review on March 18,
2011
Lehman Probe Stalls; Chance of No Charges
by: Jean Eaglesham and Liz
Rappaport
Mar 12, 2011
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, Audit Report, Auditing, Bankruptcy
SUMMARY: "In recent
months, Securities and Exchange Commission officials have grown increasingly
doubtful they can prove that Lehman violated U.S. laws by using an
accounting measure to move as much as $50 billion in assets..." and debt off
of its balance sheet. One year ago, a report by "...a U.S. bankruptcy-court
examiner investigating the collapse of Lehman Brothers Holdings Inc. blame[d]
senior executives and auditor Ernst & Young for serious lapses that led to
the largest bankruptcy in U.S. history and the worst financial crisis since
the Great Depression."
CLASSROOM APPLICATION: The
article is useful to discuss repurchase agreements ("repos"), auditors'
responsibility to ascertain whether a client is utilizing appropriate
accounting and has internal controls in place to ensure the sue of those
methods, and the Lehman Brothers collapse that led to the financial crisis.
QUESTIONS:
1. (Introductory) Who is the firm of Lehman Brothers? What happened
to this firm? Hint: you may use related articles to answer this question.
2. (Advanced) What are "repos" or repurchase agreements? How can
they be used to reduce debt on a balance sheet and therefore make a firm
look healthier than it really is?
3. (Advanced) What is an auditor's responsibility for assessing
whether financial statements are prepared in accordance with generally
accepted accounting standards? What steps must the auditor take if he or she
finds transactions not accounted for in accordance with generally accepted
accounting principles?
4. (Introductory) How did the Lehman Brothers auditor, Ernst &
Young, view the firm's use of repo transactions? Who has questioned their
business purpose and the accounting for them? Why is the accounting for
these transactions being questioned?
5. (Advanced) What are the potential implications for E&Y if the
SEC had found evidence that Lehman Brothers executives intentionally misused
accounting for repo transactions to improve the overall appearance of the
financial statements?
6. (Advanced) Are U.S. accounting standards establish in U.S. law?
Explain your answer.
7. (Introductory) How could Lehman Brothers executives have
violated U.S. law and therefore have acted in a way that would bring an SEC
enforcement action against them? Cite explanations in the article
specifically related to the grounds on which the SEC would be able to bring
a civil suit and perhaps lead the justice department to bring a criminal
suit against these executives.
Reviewed By: Judy Beckman, University of Rhode Island
"Lehman Probe Stalls; Chance of No Charges," by: Jean Eaglesham and Liz
Rappaport, The Wall Street Journal, Mar 12, 2011 ---
http://online.wsj.com/article/SB10001424052748703597804576194871565429108.html?mod=djem_jiewr_AC_domainid
The U.S. government's investigation into the
collapse of Lehman Brothers Holdings Inc. has hit daunting hurdles that
could result in no civil or criminal charges ever being filed against the
company's former executives, people familiar with the situation said.
In recent months, Securities and Exchange
Commission officials have grown increasingly doubtful they can prove that
Lehman violated U.S. laws by using an accounting maneuver to move as much as
$50 billion in assets off its balance sheet, which made it appear that the
securities firm had reduced its debt levels.
SEC officials also aren't confident they could win
any lawsuit accusing former Lehman employees, including former Lehman Chief
Executive Richard Fuld Jr., of failing to adequately mark down the value of
the large real-estate portfolio acquired in Lehman's takeover of apartment
developer Archstone-Smith Trust or to disclose the resulting losses to
investors, according to people familiar with the matter.
People close to the investigation cautioned that no
decision has been reached on whether to bring civil charges, adding that new
evidence still could emerge. Investigators are reviewing thousands of
documents turned over to the SEC since it began its probe shortly after
Lehman tumbled into bankruptcy in September 2008 and was sold off in pieces.
Officials also have questioned a number of former Lehman executives, some of
them multiple times, the people said.
But after zeroing in last summer on the battered
real-estate portfolio and an accounting move known as Repo 105, SEC
officials have grown more worried they could lose a court battle if they
bring civil charges that allege Lehman investors were duped by company
executives. The key stumbling block: The accounting move, while
controversial, isn't necessarily illegal.
In a possible sign that the probe has slowed, the
SEC hasn't issued a Wells notice to Lehman's longtime auditor, Ernst &
Young, according to people familiar with the situation. The firm had
concluded that the accounting in the Repo 105 transactions was acceptable.
Wells notices are a formal signal that the SEC's enforcement staff has
decided it might file civil charges against the recipient.
An SEC spokesman declined to comment. In a
statement, Ernst & Young said the firm stands "behind our work on the Lehman
audit and our opinion that Lehman's financial statements were fairly stated
in accordance with the U.S. accounting standards that existed at the time."
The snags are the latest sign of trouble for the
SEC and other U.S. regulators trying to punish companies and executives at
the center of the financial crisis. So far, no high-profile executives have
been successfully prosecuted. Last month, a federal criminal investigation
of former Countrywide Financial Corp. Chief Executive Angelo Mozilo was
closed without charges.
The U.S. government lost the only crisis-related
case to go to trial when former Bear Stearns Cos. hedge-fund managers Ralph
Cioffi and Matthew Tannin were acquitted in November 2009 of criminal
charges related to the $1.6 billion collapse of their hedge funds.
If SEC officials decide not to take enforcement
action against former Lehman executives, they likely would escape criminal
prosecution, too. The Justice Department "tends to follow the SEC's lead in
these complex financial cases, so reluctance to pursue civil charges
generally means the federal agencies won't take a criminal case," said
Elizabeth Nowicki, a former SEC lawyer who is an associate professor at
Tulane University School of Law in New Orleans.
A spokeswoman for the Justice Department declined
to comment on Lehman. In a statement, she said the agency "will continue to
root out financial fraud wherever it exists. When we find credible evidence
of criminal conduct—by Wall Street financiers, lawyers, accountants or
others—we will aggressively pursue justice. However, we can and will only
bring charges when the facts and the law convince us that we can prove a
crime beyond a reasonable doubt."
A year ago, it looked as if the SEC and federal
prosecutors had a road map to use against Lehman's former top executives.
Last March, the Repo 105 transactions were condemned by court-appointed
examiner Anton R. Valukas, who said in a report that they enabled Lehman to
"paint a misleading picture of its financial condition."
In the transactions, Lehman swapped fixed-income
assets for cash shortly before the securities firm reported quarterly
results, promising to buy back the securities later. The cash was used to
pay down the company's debts. Emails sent by executives at the company
referred to Repo 105 as a "drug" and "basically window dressing."
Mr. Valukas concluded there were "colorable," or
credible, legal claims against Ernst & Young, Mr. Fuld and former finance
chiefs Ian Lowitt, Erin Callan and Christopher O'Meara.
All four former Lehman executives have been
scrutinized by the SEC, according to people familiar with the matter. Their
lawyers didn't respond to calls seeking comment. They previously have denied
any wrongdoing related to Repo 105.
A December lawsuit against Ernst & Young by
soon-to-depart New York Attorney General Andrew Cuomo drew heavily on Mr.
Valukas's findings. Mr. Cuomo, who became New York's governor in January,
criticized the Repo 105 transactions as a "house-of-cards business model,
designed to hide billions in liabilities in the years before Lehman
collapsed."
Mr. Cuomo's successor, Eric Schneiderman, is "fully
committed" to pursuing the case, a spokesman said. Ernst & Young has vowed
to vigorously defend itself against accusations that the maneuver violated
generally accepted accounting procedures.
In contrast, SEC officials generally have concluded
that the transactions were consistent with accounting standards, according
to people familiar with the situation.
And agency officials aren't convinced that Lehman
shareholders suffered material harm, since executives were trading one type
of highly liquid asset for another, these people said. They said the SEC
would face a far lower bar if Lehman had converted illiquid or damaged
assets, such as Archstone's real-estate holdings, into cash using Repo 105.
Mr. Fuld and other former executives could face
charges of making misleading statements about the company's health before it
sank. That likely would be an uphill battle for the government, according to
people familiar with the matter, partly because the executives relied on
legal and accounting opinions.
British law firm Linklaters LLP signed off on the
Repo 105 transactions, all done through the securities firm's European arm.
Linklaters declined to comment.
Continued in article
Question
Were the Ernst & Young's auditors negligent or cleverly deceived or
complicit in the deception by the Lehman Brothers?
More from the examiner’s report:
Lehman never publicly disclosed its use of
Repo 105 transactions, its accounting treatment for these
transactions, the considerable escalation of its total Repo 105
usage in late 2007 and into 2008, or the material impact these
transactions had on the firm’s publicly reported net leverage ratio.
According to former Global Financial Controller Martin Kelly, a
careful review of Lehman’s Forms 10‐K and 10‐Q would not reveal
Lehman’s use of Repo 105 transactions. Lehman failed to disclose its
Repo 105 practice even though Kelly believed “that the only purpose
or motive for the transactions was reduction in balance sheet”; felt
that “there was no substance to the transactions”; and expressed
concerns with Lehman’s Repo 105 program to two consecutive Lehman
Chief Financial Officers – Erin Callan and Ian Lowitt – advising
them that the lack of economic substance to Repo 105 transactions
meant “reputational risk” to Lehman if the firm’s use of the
transactions became known to the public. In addition to its material
omissions, Lehman affirmatively misrepresented in its financial
statements that the firm treated all repo transactions as financing
transactions – i.e., not sales – for financial reporting purposes.
"Report Details How Lehman Hid Its Woes as It Collapsed," by Michael de
la Merced and Andrew Ross Sorkin, The New York Times, March 11,
2010 ---
http://www.nytimes.com/2010/03/12/business/12lehman.html?src=me
It is the Wall
Street equivalent of a coroner’s
report — a
2,200-page document
that lays out,
in new and startling detail, how
Lehman Brothers
used
accounting sleight of hand to
conceal the bad investments that led
to its undoing.
The report, compiled by an examiner for the
bank, now bankrupt, hit Wall Street with a thud late Thursday. The
158-year-old company, it concluded, died from multiple causes. Among
them were bad mortgage holdings and, less directly, demands by
rivals like JPMorgan Chase and Citigroup, that the foundering bank
post collateral against loans it desperately needed.
But the examiner, Anton R. Valukas, also
for the first time, laid out what the report characterized as
“materially misleading” accounting gimmicks that Lehman used to mask
the perilous state of its finances. The bank’s bankruptcy, the
largest in American history, shook the financial world. Fears that
other banks might topple in a cascade of failures eventually led
Washington to arrange a sweeping rescue for the nation’s financial
system.
According to the report, Lehman used what
amounted to financial engineering to temporarily shuffle $50 billion
of troubled assets off its books in the months before its collapse
in September 2008 to conceal its dependence on leverage, or borrowed
money. Senior Lehman executives, as well as the bank’s accountants
at Ernst & Young, were aware of the moves, according to Mr. Valukas,
the chairman of the law firm Jenner & Block and a former federal
prosecutor, who filed the report in connection with Lehman’s
bankruptcy case.
Richard S. Fuld Jr., Lehman’s former chief
executive, certified the misleading accounts, the report said.
“Unbeknownst to the investing public,
rating agencies, government regulators, and Lehman’s board of
directors, Lehman reverse engineered the firm’s net leverage ratio
for public consumption,” Mr. Valukas wrote.
Mr. Fuld was “at least grossly negligent,”
the report states, adding that Henry M. Paulson Jr., who was then
the Treasury secretary, warned Mr. Fuld that Lehman might fail
unless it stabilized its finances or found a buyer.
Lehman executives engaged in what the
report characterized as “actionable balance sheet manipulation,” and
“nonculpable errors of business judgment.”
The report draws no conclusions as to
whether Lehman executives violated securities laws. But it does
suggest that enough evidence exists for potential civil claims.
Lehman executives are already defendants in civil suits, but have
not been charged with any criminal wrongdoing.
A large portion of the nine-volume report
centers on the accounting maneuvers, known inside Lehman as “Repo
105.”
First used in 2001, long before the crisis
struck, Repo 105 involved transactions that secretly moved billions
of dollars off Lehman’s books at a time when the bank was under
heavy scrutiny.
According to Mr. Valukas, Mr. Fuld ordered
Lehman executives to reduce the bank’s debt levels, and senior
officials sought repeatedly to apply Repo 105 to dress up the firm’s
results. Other executives named in the examiner’s report in
connection with the use of the accounting tool include three former
Lehman chief financial officers: Christopher O’Meara, Erin Callan
and Ian Lowitt.
Patricia Hynes, a lawyer for Mr. Fuld, said
in an e-mailed statement that Mr. Fuld “did not know what those
transactions were — he didn’t structure or negotiate them, nor was
he aware of their accounting treatment.”
Charles Perkins, a spokesman for Ernst &
Young, said in an e-mailed statement: “Our last audit of the company
was for the fiscal year ending Nov. 30, 2007. Our opinion indicated
that Lehman’s financial statements for that year were fairly
presented in accordance with Generally Accepted Accounting
Principles (GAAP), and we remain of that view.”
Bryan Marsal, Lehman’s current chief
executive, who is unwinding the firm, said in a statement that he
was evaluating the report to assess how it might help in efforts to
advance creditor interests.
Repos, short for repurchase agreements, are
a standard practice on Wall Street, representing short-term loans
that provide sometimes crucial financing. In them, firms essentially
lend assets to other firms in exchange for money for short periods
of time, sometimes overnight.
But Lehman used aggressive accounting in
its Repo 105 transactions: it appears to have structured
transactions such that they sold securities at the end of the
quarter, but planned to buy them back again days later. These assets
were mostly illiquid real estate holdings, meaning that they were
hard to sell in normal transactions.
Continued in article
Jensen Comment
The links to Volumes 1-9 of the Examiner's Report ---
http://dealbook.blogs.nytimes.com/2010/03/11/lehman-directors-did-not-breach-duties-examiner-finds/#reports
March 14, 2010 reply from Bob
Jensen
Hi
Jim,
Your
link word wrapped badly, so I snipped it to
http://snipurl.com/petersonlehman
You seem to ignore the many serious internal control weakness that
Section 404 audits uncovered, e.g. at Kodak. But that's another
matter.
No
matter how we take the Examiner's report and the possible politics
involved, it all boils down to a naïve investor (perhaps a
first-year accounting student) looking up at the Lehman's new Repo
105 suit of clothes and exclaiming the "Emperor's not wearing a
stitch of clothes."
A
standard setter on the IASB sent me a private message this morning
stated the following"
“As for Repo 105, I did read Volume 1 of the report.
Common sense tells me that if I “sell” something but have a binding
obligation to buy it back, I really didn’t sell it – no matter what
the technicalities of an accounting rule might say.”
This
may be as simple as the Accounting 101 cheating that Worldcom kept
from its Board and the public.
And
Andersen's sorry audit of Worldcom was a simple violation of
Auditing 101.
Let's
not make these Repo 105 transactions too complicated as the Emperor
rides by in his new suit of Repo 105 clothes ---
http://en.wikipedia.org/wiki/Emperor%27s_New_Clothes
The
Repo 105 uproar boils down to the simplicity of Auditing 101.
And the Ernst & Young audit is a violation of Auditing 101 no matter
what rules are donned by the Emperor.
Bob
Jensen
Jensen Comment
If both Lehman and Ernst & Young get off with no fines or penalties, it
reminds me of all the instances in history where confessed murderers got
off based upon some technicality in the law such as obtaining evidence
without a warrant. The FASB blue it in writing the FAS 140 rules, and
perhaps Lehman and Ernst will walk away free on this clever exploitation
of an unintended loophole in the FAS 140 standard.
Bob Jensen's threads on the technical details of Repo 105/108
controversies ---
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
From the Scout Report on February 25, 2011
Mint ---
http://www.mint.com/026d/
Many people like to keep tabs on their finances,
and the Mint program may prove to be quite useful for those looking for such
a resource. After signing up, the program can incorporate financial
information from a variety of sources to make it all accessible in one
place. The program also works on mobile devices, and users can see what's
happening with their budget and financial goals. This program is compatible
with all operating systems.
Teaching Case on the Fragility of Supply Chains: Where do
accountants disclose such contingency risks?
From The Wall Street Journal Accounting Weekly Review on March 18,
2011
Quake Disrupts Key Supply Chains
by: Don Clark and Yoshio
Takahashi
Mar 12, 2011
Click here to view the full article on WSJ.com
TOPICS: Supply
Chains
SUMMARY: The earthquake
that struck northeast Japan forced shutdowns across a borad spectrum of the
country's industries....The quake has crippled activity for now in a country
that is a critical source of parts for consumer electronics, as well as a
key producer of automobiles, auto parts, steel and other goods.
CLASSROOM APPLICATION: The
article is useful in discussing supply chains and lean manufacturing in a
management accounting class.
QUESTIONS:
1. (Introductory) Define the term supply chain.
2. (Introductory) Why does the author state that "the bigger impact
[of the Japanese earthquake and tsunami] could come in the weeks ahead"?
3. (Advanced) What industries could be affected because of
disruptions in the supply chain? Which are the industries in which Japan is
a dominant player in the world?
4. (Advanced) How can lean manufacturing practices enhance the
negative impact of a supply chain disruption of the magnitude of the
Japanese earthquake/tsunami?
Reviewed By: Judy Beckman, University of Rhode Island
"Quake Disrupts Key Supply Chains," by: Don Clark and Yoshio
Takahashi, The Wall Street Journal, March 12, 2011 ---
http://online.wsj.com/article/SB10001424052748703597804576194101663283550.html?mod=djem_jiewr_AC_domainid
The earthquake that struck northeast Japan Friday
forced shutdowns across a broad spectrum of the country's industries, but
the bigger impact for companies could come in the weeks ahead as the
disruptions make their way through the global supply chain.
The 8.9-magnitude earth quake, one of the largest
on record, has crippled activity for now in a country that is a critical
source of parts for consumer electronics, as well as a key producer of
automobiles, auto parts, steel and other goods.
Plants don't appear to have suffered widespread,
catastrophic damage, but production delays could be enough to affect some
tightly calibrated industries.
The earthquake affected operations at dozens of
semiconductor factories, raising fears of shortages or price increases for a
number of widely used components—particularly the chips known as flash
memory that store data in hit products like smartphones and tablet PCs.
Many key chip plants, including most of the
factories run by companies like Toshiba Corp. and SanDisk Corp. that account
for the bulk of Japan's flash-memory production, were far removed from the
quake's epicenter, and most are designed to withstand such events.
But some manufacturers are likely to be affected by
other issues, particularly disruptions in transportation of finished goods
to airports or ports, as well as the movement of employees and supplies to
production plants. Even relatively short disruptions could further stress a
supply chain already stretched tight in spots over the past year by strong
demand for hot gadgets.
"This could have a pretty substantial impact for
the next quarter on the whole supply chain," said Len Jelinek, an analyst at
IHS iSuppli, a market-research firm that focuses on the electronics
industry.
Jim Handy, another market-watcher at the firm
Objective Analysis, said he expects "phenomenal" price swings and large
near-term shortages as a result of the quake.
Chip companies based in Japan generated about $63.8
billion in revenue in 2010, accounting for about one-fifth of the
semiconductor market, IHS iSuppli said. Their presence is felt most in the
key market for what the industry calls NAND flash memory, chips at the heart
of products like Apple Inc.'s iPhone and iPad. Japanese companies, led by
Toshiba, account for about 35% of global flash revenue.
Continued in article
Jensen Comment
It's good news and bad news for Japanese assembly plants located in the United
States. The good news is that the plants are thousands of miles from the
earthquake zone. The bad news is that the assembly plants may rely upon
components imported from a Japan that is now in the state of tragedy and
turmoil. For example, my Subaru Forrester came from an assembly plant in
Indiana. However, many of the components, possibly even the boxer engine, came
from a manufacturing plant in Japan. The supply chain for this and other
components is likely to be disrupted for some time.
This begs the question about if and how accounting standards should be
re-written to disclose the financial risks of supply chain dependencies.
Bob Jensen's threads on accounting for contingencies and intangibles are at
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Two Products of Possible Interest from the AICPA (the PCAOB reference is
growing a bit out of date)
PCAOB Standards and Related Rules, 2009 This reference provides auditors of
public companies with a current and comprehensive source of PCAOB standards.
http://email.aicpa.org/cgi-bin15/DM/t/ehqi0bAne80GPA0xZo0Au
Auditing Real-World Frauds: A Practical Case Application Approach Case
studies address personnel fraud, revenue recognition, various financial
statement manipulations, theft of capital assets, purchasing fraud, and other
common areas of interest.
http://email.aicpa.org/cgi-bin15/DM/t/ehqi0bAne80GPA0xZp0Av
Question
Did Deloitte and PwC turn their eyes toward their billings and away from the
fraud that should've been obvious even to blind eyes?
USAID agrees that Deloitte should have aggressively
reported evidence of fraud at Kabul Bank to the Mission.
So now this brings up the issue of potential auditor
negligence rather than omission on part of a consultant to aggressively report
fraud.
"Interesting Developments at Kabul Bank: USAID IG Report Says Deloitte Did
Not Report Fraud. But PwC Gave A Clean Audit," Big Four Blog, March
17, 2011 ---
http://www.big4.com/blog/interesting-developments-at-kabul-bank-usaid-ig-report-says-deloitte-did-not-report-fraud-but-pwc-gave-a-clean-audit-70
The Office of Inspector General of the USAID did
release the much-anticipated audit report of Deloitte’s role in the Kabul
bank debacle. It’s a 23 page detailed report and a quick synopsis follows:
The OIG contends that BearingPoint and Deloitte
advisers embedded at Afghanistan Central Bank (DAB) did see several fraud
indications at Kabul Bank for over 2 years before the run on Kabul Bank in
early September 2010; but did not aggressively follow up on indications of
serious problems at Kabul Bank.
Further, the OIG contends that Deloitte advisers
did not report fraud indicators at Kabul Bank to USAID. In addition, the
mission did not have a policy requiring contractors and grantees to report
fraud indicators.
Finally, the OIG contends that USAID/Afghanistan’s
management of its task order with Deloitte was weak; and if senior program
managers and technical experts had been on staff at the mission, USAID could
have managed Deloitte better and ask deeper questions than just accepting
them at face value.
In a reply back to Timothy Cox, OIG/Afghanistan
Director, David McCloud, Acting Assistant to the Administrator, Office of
Afghanistan and Pakistan Affairs, makes several counter arguments:
That there was no indications of fraud, waste or
abuse by USAID or Deloitte.
Deloitte could not have stopped the massive fraud
that occurred at Kabul Bank.
USAID and Deloitte’s scope of work and mandate
under Component 2 of the Economic Growth and Governance Initiative task
order was to provide trainers and technical experts to build the capacity
of the Bank Supervision unit within the Central
Bank of the Government of Afghanistan, Afghanistan Bank, and not for
Deloitte itself to supervise private banks.
USAID agrees that Deloitte should have aggressively
reported evidence of fraud at Kabul Bank to the Mission.
And then, McCloud brings up an interesting twist by
introducing another Big Four firm, PwC, which performed an audit of Kabul
Bank, but did not bring up any discrepancies or evidence of fraud, which
perhaps delayed any potential investigations and prevented a true
understanding of the situation.
“The audit performed by an affiliate of
PricewaterhouseCoopers (PwC) was not directly mentioned in the body of the
OIG report but it was a significant source of information to the Central
Bank¡¦s examination staff. The resulting clean bill of financial health of
Kabul Bank issued by PwC may have acted to delay understanding of the
gravity of Kabul Bank’s true financial condition both among the examination
staff and the international community.
Continued in article
Also see Francine's article on this at
http://blogs.forbes.com/francinemckenna/
Bob Jensen's threads on accounting firm negligence can be found at
http://www.trinity.edu/rjensen/Fraud001.htm
PCAOB advisory group
head calls for investigations into audit firms
Auditor rotation, annual reports recommended (Adds PCAOB comment)
"UPDATE 1-US urged to probe auditors' role in credit crisis," by Dena Aubin,
Reuters, March 16, 2011 ---
http://www.reuters.com/article/2011/03/16/pcaob-auditors-idUSN1611473820110316
Audit firms that failed to flag risks ahead of the
financial crisis have not been held to account and an in-depth investigation
is needed, an advisory group to the U.S. auditor watchdog agency said on
Wednesday.
Regulators in Europe and the United Kingdom are
probing the role of auditors in the 2008 crisis, but the United States has
lagged and needs to do more, said Barbara Roper, head of a working group for
the Public Company Accounting Oversight Board.
"Auditors failed to perform their basic watchdog
function in the financial crisis," Roper said at a PCAOB advisory group
meeting in Washington. "There's a need to figure out why they failed to
perform that function and what can be done to fix that problem."
The PCAOB was created after the Enron and WorldCom
accounting scandals to police audit firms. It oversees the work of the Big
Four auditors -- Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers --
and other auditors of public companies.
While auditors did not cause the financial crisis,
they gave stamps of approval to many companies' financial statements just
months before they failed, said Roper, director of investor protection for
the Consumer Federation of America.
She said the PCAOB should look at examples of
companies that failed or had to be bailed out and find out what went wrong
with the audits and why.
Lehman Brothers (LEHMQ.PK), American International
Group (AIG.N), Citigroup (C.N), Fannie Mae (FNMA.OB), and Freddie Mac (FMCC.OB),
among others, received unqualified audit opinions on their financial
statements months before their collapse or bailouts, Roper said.
"If the auditors were performing as they should and
this is the result we get, then there's a problem with the system," she
said.
AUDITOR ROTATION RECOMMENDED
Audit firms also lack the basic independent
governance that most public companies around the globe have, Lynn Turner,
head of a PCAOB working group on audit firm governance, said at the meeting
in Washington.
He said these firms need more transparency. They
should have to file annual financial statements with the PCAOB, including
information about how they control quality globally, Turner said.
PCAOB members said they will consider all the
recommendations and report back on what they decide.
Asked for his response to the recommendations,
PCAOB chair James Doty told Reuters that the PCAOB had identified areas
where audits performed during the credit crisis needed to be stronger in a
report released in September. Some of the problem audits are being
investigated and disciplinary actions may result, he said.
"All of these activities, including what we heard
from the investor advisory group today, will give us insights into the root
causes of problems we identify and will inform our initiatives to strengthen
investor protection," he said.
Because the Big Four audit firms are private, they
are not required to file public financial statements, though they do report
their revenues annually.
Without seeing their financial statements, however,
it will be difficult for the PCAOB to properly regulate them, said Turner, a
former chief accountant for the Securities and Exchange Commission.
The PCAOB also should require companies to rotate
auditors periodically to break up cozy relationships between some companies
and their auditors, he said.
Audit partners, but not audit firms, have to be
rotated every five years currently.
Continued in article
"Will Auditors Be Held Accountable? The PCAOB Has A Plan," by Francine
McKenna, re"TheAuditors, March 21, 2011 ---
http://retheauditors.com/2011/03/21/will-auditors-be-held-accountable-the-pcaob-has-a-plan/
Bob Jensen's threads on audit firm professionalism are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism
Where were the auditors?
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
The new ploy is to not get caught because of an
incriminating chain of emails. Instead set up a phony chain of emails to hide a
deeper conspiracy.
"E-Mail Lessons Learned, but . . .," by
Floyd Norris, The New York Times, March 15, 2011 ---
http://norris.blogs.nytimes.com/
Over the last several
years, it has been amazing that people did not seem to have learned that
e-mails could — and would — be searched if something ever got to court.
E-mails that incriminated the writers, or at least embarrassed them,
became a fixture of lawsuits and trials. A whole industry was born to
efficiently search though millions of messages.
Now it appears that some
people not only learned that lesson, but also applied it.
Raj Rajaratnam is
heard on wiretaps at his insider trading trial
talking about setting up an e-mail trail to provide evidence that he had
a different reason for buying a stock on which he had received inside
information from Anil Kumar, a former McKinsey consultant who has
pleaded guilty and is testifying for the government.
The Wall Street Journal
reports:
“You just have to be
careful, right?” Mr. Rajaratnam told the former Galleon employees,
adding that he would send an e-mail asking about a stock “so that we
just protect ourselves.”
“We just have a[n]
e-mail trail, right, that uh … I brought it up,” he said, after
telling them about the deal described to him by Mr. Kumar.
“That’s good,” an
employee on the call said.
Of course, it did not
occur to anyone that the feds would be recording telephone calls.
Hedge funds are largely
unregulated, and that may have added to the sense of confidence. Brokers
often record employee conversations, in part to prevent
misunderstandings on trades, and their employees understand that such
recordings can be produced. It appears that Mr. Rajaratnam and his
colleagues never dreamed something similar could happen.
As it is, the fact he
learned the e-mail lesson may make it even worse for Mr. Rajaratnam.
Evidence of a cover-up has been the critical point in many cases where
there might have been a credible case that a person did not
intentionally do anything illegal in the first place.
That is a lesson that
Richard Nixon once learned.
Francine's summary of this insider trading
scandal involving the ten-year former CEO of Mckensey & Company, the most
prestigious consulting firm in the world. He's also a former director of Goldman
and Proctor & Gamble ---
http://blogs.forbes.com/francinemckenna/
Rajat K. Gupta, a former director of Goldman
Sachs and Procter & Gamble who has been accused by the Securities and Exchange
Commission of leaking confidential information about those companies, on Friday
sued the the SEC so that this can be tied up in courts for several decades ---
http://dealbook.nytimes.com/2011/03/18/ex-goldman-director-sues-s-e-c-over-galleon-allegations/
When you're a zillionairre there often is little justice in the U.S. court
system. Mr. Gupta probably has more money than the SEC and can outlast the
agency in court.
"Assurance for Cloud-based Systems," by Jerry Trites, Trites IS
Assurance Blog, March 16, 2011 ---
Gartner recently released a report entitled
Gartner’s Top Predictions for IT Organizations and Users, 2011 and Beyond:
IT’s Growing Transparency. In that report,
there was a very notable prediction related to assurance. It stated: "By
2015, 80% of enterprises using external cloud services will demand
independent certification that providers can restore operations and data."
Many readers will immediately think of the AICPA
SAS 70 Reports. However, SAS 70 reports do not explicitly address
non-financial controls and could not be counted upon to provide assurance in
this respect.
The AICPA recognized this issue and the demand for
assurance on Security, Availability, Processing Integrity, Confidentiality
or Privacy and released new guidance specifically to deal with these
engagements, generically referred to as SOC 2 Reports. SOC 1 reports (under
SSAE 16) deal with financial controls and SOC 3 reports deal with the use of
Trust Services seals for Service Organizations.
Continued in article
Service Organization Control Reports (formerly SAS 70 reports) ---
http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/SOC/Pages/SORHome.aspx
Watch for Fraud When Trying to Repair Your Credit ( FICO ) Score
---
http://www.creditscore.net/
Edutools ---
http://ocep.edutools.info/index.jsp?pj=1
WCET’s EduTools provides independent reviews, side-by-side comparisons,
and consulting services to assist decision-making in the e-learning
community
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's threads on the history of course authoring and management
software ---
http://www.trinity.edu/rjensen/290wp/290wp.htm
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
"Online Accounting Tools Still Come Up Short," Rob Pegararo,
The Washington Post, May 22, 2008. Page D03 ---
Click Here
Few types of desktop software should be
readier for replacement by the Web than personal finance.
The concept behind these programs is sound:
Track your income and expenses through automatic downloads from
banks, credit card issuers and other financial institutions to show
where your money's coming and going, and how much of it you're
likely to have later on.
But the market long ago calcified into a
duopoly of programs,
Intuit's
Quicken
and
Microsoft's
Money. As they've piled on the
features, their usability has suffered. Many users, fearing an
ordeal of bookkeeping, avoid them entirely. Those who have bought
either program have been forced to ante up for new versions, at $15
to $90 each, when "sunset" policies cut older releases off from
account-data downloads.
It might seem that a simpler, cheaper
alternative to these programs would have emerged on the Web, now
that online shopping and bill payment have made people comfortable
with managing money online. But the big Web companies have yet to
craft such a thing.
Fortunately, the absence of a shiny new Web
application from
Google
or
Yahoo
doesn't mean the absence of hope for
online alternatives to Quicken and Money. It may just mean you'll
have to wait longer to find one that suits you.
The most visible Web competitor so far has
been the free Mint (
http://mint.com).
Since its
launch last fall, this Silicon Valley start-up has drawn 266,000
users, though founder Aaron Patzer did not say how many visit the
site regularly.
Quicken or Money vets may find Mint
insultingly simplistic. It only links to banks, credit cards and
investments and ignores most people's biggest debts (mortgages and
car loans) and assets (homes and vehicles), making net-worth
estimates impossible.
Using Mint requires you to trust the site
to safeguard your bank usernames and passwords, which you must save
there before adding any accounts. You can't enter transactions by
hand or upload Quicken or Money files. And you can't reconcile
transactions against a monthly statement.
But within those limits, Mint provides
soothingly simple money-management tools.
When tested with a bank account, two credit
cards and three mutual funds, Mint automatically fetched the latest
data, converted most gibberish in these accounts' downloads into
real names and filed most entries in the right category. For
example, a credit card charge to "WHOLEFDS ARL 10042 0ARLINGTON"
became "Whole
Foods," listed under "groceries."
It was even smart enough to split fees on
ATM withdrawals into separate expenses.
Mint then broke down patterns of income and
expenses into easy-to-read pie charts.
Mint aims to make money by suggesting
better financial services, then collecting commissions. But its
advice to drop an
American Express
card for a Chase Visa ignored the AmEx card's cash rebate.
Two other sites have begun grabbing users
as well. The free Wesabe (
http://wesabe.com),
an older
Silicon Valley start-up, acts like a money-minded social network.
It makes the collective wisdom of its users
part of its source code, comparing your spending and earning with
the averaged habits of more than 100,000 other "Wesabeans." It also
relies on their accumulated input to refine and sort statement
entries and offer tips about better deals near you.
But Wesabe may need more users (at least
near Washington) to do those jobs well. Most downloaded transactions
came through in their original, cryptic bankspeak, and some tips
showed a Bay Area bias.
This site's free-form system of tagging, in
which you can slap multiple categories onto a single transaction,
also yielded duplicate entries in its spending summaries.
Wesabe (which plans to underwrite its free
service with a fee-based "pro" option) is even more limited than
Mint. It couldn't connect to a Bank of America Visa credit card
account, and it doesn't do investments or home or car loans.
In Wesabe's favor, it offers free Mac and
Windows uploader programs that keep your account logins on your
computer and offers multiple ways to get your data off the site. It
even posts a toll-free number that you can call to reach its chief
executive each afternoon.
Wesabe may appeal most to extroverts with
specific financial goals who can easily set targets and solicit
fellow users' advice in its forums.
One of the newest Web-based personal
finance tools comes from Intuit, which in January launched the
$2.99-a-month Quicken Online (
http://quickenonline.com).
Although this site isn't as slick or quick as Mint or Wesabe, it
supports investments and mortgages, not just banks and credit cards.
Unlike Mint and Wesabe, it also lets you
add coming transactions -- no risk of forgetting the check you wrote
to your contractor-- and set bill-payment reminders.
Some basic features, such as transaction
breakdowns and the ability to upload Quicken files or download data
from the site, still aren't there. But its simplicity makes the
gridlocked complexity of desktop Quicken look painfully obsolete.
These sites and other competitors promise
tantalizing upgrades. For example, Mint says it will soon add
mortgages, with estimates of home values from
Zillow.com or
another assessment source.
With such improvements, some smart
borrowing (picture Mint's interface plus Wesabe's social smarts) and
a solid record of security, Web personal-finance software could
become an alternative along the lines of Web e-mail. Some people
might never accept such a thing, but others wouldn't think of using
anything else
Jensen Comment
Pegararo failed to research online complete Webledger systems such as
Net Suite and other important sites that will not only perform
accounting functions, manage inventories, manage receivables, perform
financial analyses, and do all sorts of sophisticated financial
analyses. These Webledger systems will also store accounting records so
they can be accessed all over the world and allow users to avoid paying
for expensive hardware/software technical support, backup systems, and
consultants ---
http://www.trinity.edu/rjensen/Webledger.htm
Pegararo also fails to mention many of the personal finance Web
options and small business accounting options:
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness
Pegararo might not have found the Web options coming up short if he'd
done more research for the above article.
"Inside The Mind of An Inside Trader," by Francine McKenna,
re:TheAuditors, March 5, 2011 ---
http://retheauditors.com/2011/03/05/inside-the-mind-of-an-inside-trader/
No Big 4 audit firms or their partners have been
named in the insider trading scandal surrounding the now-defunct hedge fund
Galleon Management. But the
SEC
has accused one of the most prominent businessmen
ever implicated in such crimes, Rajat Gupta, a former
McKinsey & Company Global Managing
Director.
Mark O’Connor, CEO of
Monadnock Research,
put together a research note for his subscribers that
gives us the details of the accusations. He also provides new insight into
why a guy like Gupta may have committed these alleged crimes.
Gupta is alleged to have tipped Galleon’s
Rajaratnam, a friend and business associate, providing him with
confidential information learned during board calls and in other aspects
of his duties on the Goldman and P&G boards. Gupta reportedly made calls
to Rajaratnam “within seconds” of leaving board sessions where
market-moving information was discussed.
The
complaint alleges that Rajaratnam then either
used the inside information on Goldman and P&G to execute trades on
behalf of some of Galleon’s hedge funds, or shared it with others at
Galleon, who then traded on it ahead of public disclosure. The SEC
claims the insider trading scheme generated more than $18 million in a
combination of illicit profits and loss avoidance.
The SEC also says that Gupta was, at the time
of the alleged disclosures of confidential non-public information, a
direct or indirect investor in at least some of Galleon’s hedge funds,
and had other business interests with Rajaratnam.
Gupta, as a McKinsey veteran, embodied the
“trusted advisor” consulting ethos and personified
the McKinsey “advisor to CEOs” business strategy and brand. The firm’s value
to its clients and its effectiveness as an advisor requires knowing their
secrets and holding them close to the vest.
Gupta was McKinsey & Company’s worldwide
Managing Director for 9 years from 1994 through 2003…Gupta, now 62,
stepped down as a McKinsey partner in 2007, and has since served as
Managing Director Emeritus, according to his profile at the
Indian School
of Business (ISB). Gupta was
instrumental in co-founding ISB in 2001, and continues to serve as its
current Governing Board Chairman and Executive Board Chairman. He is
also a current or former board member (or trustee) of AMR Corp., the
parent of American Airlines; the Rockefeller Foundation; the University
of Chicago; Harman International Industries; Genpact India; the World
Economic Forum; the International Chamber of Commerce, World Business
Organization; New Silk Route and New Silk Route Private Equity; and the
Emergency Management and Research Institute. Galleon’s Rajaratnam was
also associated with the New Silk Route ventures, where Gupta continues
as Chairman. Rajaratnam is no longer associated with those entities.
Several media commentators have openly wondered
whether the accusations against Gupta, and earlier accusations in the same
scandal against McKinsey senior partner and Gupta protégé Anil Kumar, strike
a deadly blow to McKinsey.
Will Rajat Gupta Destroy
McKinsey? John Carney, NetNet, March 2, 2011
McKinsey’s clients are attracted by its
reputation for excellence and discretion—and its stellar network of
alumni. Its consultants often refuse to even disclose who their clients
are.
If the charges against Gupta prove true, it
could be a mortal threat to the firm. Even if there’s no evidence that
confidentiality was breached while Gupta was at the firm, being led by a
man who would later leak insider information would be devastating. If
Gupta is shown to have engaged in similar actions while he was at
McKinsey, that could be the end for the Firm.
“At that point, I think we go the way of Arthur
Andersen,” another former McKinsey consultant said, referring to the
once-prestigious accounting company brought down by its connections to
Enron.
Loose Lips, Reuters BreakingViews, Robert
Cyran and Rob Cox, March 3, 2011
McKinsey’s reputation rests on its ability to
keep secrets. Consultancies, unlike investment banks, don’t provide
access to financial markets. All they offer is counsel, which relies
partly on confidences revealed by their clients. According to McKinsey,
“Our clients should never doubt that we will treat any information they
give us with absolute discretion.” The allegations against Gupta make it
hard for clients not to wonder.
It’s understandable that, in the heat of this
moment, some might naïvely compare the consequences of the criminal
indictment of an audit firm with civil charges against an individual, albeit
one who trades on – pun intended – his association with a prestigious
professional services firm.
It’s not the same thing.
Extrapolating Gupta’s behavior to McKinsey as a
whole is a stretch. I’m no McKinsey apologist but one man, even a former
Global Managing Director, does not make this firm.
On the contrary. The firm made him and he’s the one
whose currency is now worth less.
"Here Are The Things The Raj Defense Team And The Prosecution DON'T Want
The Jury To Hear," by Courtney Comstock, Business Insider, March 7,
2011 ---
http://www.businessinsider.com/defense-prosecution-block-raj-trial-2011
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm
The New York Times has just proposed to turn us all into
Seinfeld's Elaine Benes.
The article below has a really weird introduction to say the least,
especially for a venerable journal like the Harvard Business Review.
The article is really about the new New York Times way of charging
readers, which is a very, very complicated scheme to say the least.
"Is Paul Krugman "Click-Worthy"?" by Joshua Gans, Harvard Business Review
Blog, March 18. 2011 ---
Click Here
http://blogs.hbr.org/cs/2011/03/is_paul_krugman_click-worth.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Last year, one of the most famous economists in the
world,
Avinash Dixit,
released a paper, "An Option Value Model from Seinfeld,"
based on this episode (you can download it
here). ---
http://www.princeton.edu/~dixitak/home/Elaine-Final-Web.pdf
Bob Jensen's threads on option valuation are here ---
http:/www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Bob Jensen's Threads on Real Options, Option Pricing Theory, and Arbitrage
Pricing Theory ---
http://www.trinity.edu/rjensen/realopt.htm
Bob Jensen's threads on option pricing theory are at
http://www.trinity.edu/rjensen/149wp/149wp.htm
"A Few People Are Not Satisfied with the $624 Million Countrywide
Settlement," by Caleb Newquist, Going Concern, February 25, 2011 ---
http://goingconcern.com/2011/02/a-few-people-are-not-satisfied-with-the-624-million-countrywide-settlement/#more-26016
And, unfortunately for
Bank of America and KPMG, that could mean
digging through the couch cushions.
Several large institutional investors have
rejected a court settlement where Countrywide Financial Corp. had
agreed to pay $600 million to a number of national pension funds.
Those pulling out of the agreement include BlackRock Inc.; the
California Public Employees Retirement System, or Calpers; T. Rowe
Price Group Inc.; Nuveen Investments Inc.; and the Maryland State
Retirement and Pension System, according to a document from the suit
filed in U.S. District Court in Los Angeles. The investors decided
the settlement, initially agreed to last May, wasn’t enough and will
seek their own terms with the mortgage originator and its current
owner Bank of America Corp., as well as Countrywide’s auditor KPMG
LLP. KPMG had committed another $24 million to the settlement.
In typical HofK fashion, the firm didn’t bother
commenting for the Journal’s story however BofA managed to
express their disappointment, “It is unfortunate that some investors
chose to opt out of what we believe is a fair and equitable agreement to
settle these issues.” Right. Because the likes of BlackRock and Calpers
should be tickled pink with the pleasure of splitting $624 million with
dozens of other investors.
Big Investors Refuse Countrywide Settlement [WSJ]
"Big Investors Refuse Countrywide Settlement," by David Benoit, The
Wall Street Journal, February 25, 2011 ---
http://online.wsj.com/article/SB10001424052748704150604576166382331877062.html
Several large institutional investors have rejected
a court settlement where Countrywide Financial Corp. had agreed to pay $600
million to a number of national pension funds.
Those pulling out of the agreement include
BlackRock Inc.; the California Public Employees Retirement System, or
Calpers; T. Rowe Price Group Inc.; Nuveen Investments Inc.; and the Maryland
State Retirement and Pension System, according to a document from the suit
filed in U.S. District Court in Los Angeles.
The investors decided the settlement, initially
agreed to last May, wasn't enough and will seek their own terms with the
mortgage originator and its current owner Bank of America Corp., as well as
Countrywide's auditor KPMG LLP. KPMG had committed another $24 million to
the settlement.
A spokesman for New York State Comptroller Thomas
P. DiNapoli, who represented the massive New York State Common Retirement
Fund in the litigation, said the fund intends to remain part of the "very
reasonable settlement." Ola Fadahunsi, the spokesman, noted the
comptroller's office is "very happy" with the work of its counsel on the
case.
Shirley Norton, a Bank of America spokeswoman,
said, "It is unfortunate that some investors chose to opt out of what we
believe is a fair and equitable agreement to settle these issues."
KPMG declined to comment.
The settlement agreement, which is facing a final
approval hearing before a federal judge in Los Angeles Friday, was amended
last month as a result of the investors leaving. The new agreement, which
remains at a total of $624 million, now includes a provision that allows
Countrywide and KPMG to take up to $22.5 million of that amount to pay the
investors who rejected the agreement. The amount must be used within two
years.
Blair A Nicholas, a lawyer representing some of the
largest institutional investors to pull out of the agreement, including
BlackRock, Calpers and T. Rowe, said his clients "exercised their legal
right to opt out in order to maximize the recovery" of their damages.
"If our clients are unable to resolve their claims
to recovery, they are fully committed to pursuing their claims at trial to
hold Countrywide's former executives fully accountable for the pervasive
fraud at Countrywide," Mr. Nicholas said.
The L.A. Times had reported earlier that investors
were leaving the settlement.
The lawsuit alleged Countrywide made false
statements and omissions about its policies and procedures for underwriting
loans, exposing investors to excessive undisclosed risk.
According to the court document, 33 investors,
including names of some individuals, were withdrawing. Some of these
investors include Montana Board of Investments, Teacher Retirement System of
Texas, Oregon Public Employees Retirement Fund, and the Michigan State
Treasurer, on behalf of several public pension funds in the state.
Bob Jensen's threads on Countrywide sleaze are at
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze
Bob Jensen's threads on KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm
"F.D.I.C. Sues Ex-Chief of Big Bank That Failed," by Eric Dash, The
New York Times, March 17, 2011 ---
http://www.nytimes.com/2011/03/18/business/18bank.html?_r=1
The Federal Deposit Insurance Corporation sued the
former chief executive of Washington Mutual and two of his top lieutenants,
accusing them of reckless lending before the 2008 collapse of what was the
nation’s largest savings bank.
F.D.I.C. Sues Ex-Chief of Big Bank That Failed By
ERIC DASH Published: March 17, 2011
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The Federal Deposit Insurance Corporation sued the
former chief executive of Washington Mutual and two of his top lieutenants,
accusing them of reckless lending before the 2008 collapse of what was the
nation’s largest savings bank.
The civil lawsuit, seeking to recover $900 million,
is the first against a major bank chief executive by the regulator and
follows escalating public pressure to hold bankers accountable for actions
leading up to the financial crisis.
Kerry K. Killinger, Washington Mutual’s longtime
chief executive, led the bank on a “lending spree” knowing that the housing
market was in a bubble and failed to put in place the proper risk management
systems and internal controls, according to a complaint filed on Thursday in
federal court in Seattle.
David C. Schneider, WaMu’s president of home
lending, and Stephen J. Rotella, its chief operation officer, were also
accused of negligence for their roles in developing and leading the bank’s
aggressive growth strategy.
“They focused on short-term gains to increase their
own compensation, with reckless disregard for WaMu’s long-term safety and
soundness,” the agency said in the 63-page complaint. “The F.D.I.C. brings
this complaint to hold these highly paid senior executives, who were chiefly
responsible for WaMu’s higher-risk home lending program, accountable for the
resulting losses.”
In addition, the complaint says that Mr. Killinger
and his wife, Linda, set up two trusts in August 2008 to keep his homes in
California and Washington out of the reach of the bank’s creditors. Months
earlier, in the spring of 2008, Mr. Rotella and his wife, Esther, made
similar arrangements. The F.D.I.C. is seeking to freeze the assets of both
couples and named the wives as defendants in the lawsuit.
In unusually vigorous denials, Mr. Killinger and
Mr. Rotella came out swinging against the F.D.I.C. Mr. Killinger said the
agency’s claims were “baseless and unworthy of the government” and its legal
conclusions were “political theater.” Mr. Rotella said the action “runs
counter to the facts about my relatively short time at the company,” calling
it “unfair and an abuse of power.” He said the trust was for normal estate
planning purposes and was set up before the bank’s downfall. Mr. Schneider,
who is represented by the same lawyer as Mr. Rotella, did not release a
public statement.
Although the F.D.I.C. is mainly known for its role
in shuttering failed lenders, the agency has a legal obligation to bring
lawsuits against former directors and officers when it finds evidence of
wrongdoing.
So far, the F.D.I.C. has brought claims against 158
individuals at about 20 small banks that failed during the recent crisis.
The agency is seeking a total of more than $2.6 billion in damages. But the
$900 million case against the former WaMu officials is its biggest and most
prominent action to date.
Federal regulators have come under fire for failing
to hold executives responsible for their involvement in the worst financial
crisis since the Great Depression. Last fall, the Securities and Exchange
Commission reached a settlement with Angelo R. Mozilo, the former chief
executive of Countrywide Financial, to pay a $22.5 million penalty over
misleading investors about the financial condition of the giant mortgage
lender.
The New York attorney general’s office has brought
a civil suit against Kenneth D. Lewis over improper disclosures related to
the 2008 rescue of Merrill Lynch by Bank of America, of which he was chief
executive.
Continued in article
A massive shareholder lawsuit is also pending against WaMu's auditor,
Deloitte ---
http://www.nytimes.com/2011/03/18/business/18bank.html?_r=1
WaMu's loan loss reserves were not only massively understated, WaMu should've
been audited as a non-going concern ---
http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte
More Headaches for Deloitte After Auditing
the Biggest Bank to Ever Fail
"Investigation finds fraud in WaMu lending: Senate report: Failed bank’s own
action couldn’t stop deceptive practices," by Marcy Gordon, MSNBC, April 12,
2010 ---
http://www.msnbc.msn.com/id/36440421/ns/business-mortgage_mess/?ocid=twitter
The mortgage lending
operations of Washington Mutual Inc., the biggest U.S. bank ever to fail,
were threaded through with fraud, Senate investigators have found.
And the bank's own probes
failed to stem the deceptive practices, the investigators said in a report
on the 2008 failure of WaMu.
The panel said the bank's
pay system rewarded loan officers for the volume and speed of the subprime
mortgage loans they closed. Extra bonuses even went to loan officers who
overcharged borrowers on their loans or levied stiff penalties for
prepayment, according to the report being released Tuesday by the
investigative panel of the Senate Homeland Security and Governmental Affairs
Committee.
Sen. Carl Levin, D-Mich.,
the chairman, said Monday the panel won't decide until after hearings this
week whether to make a formal referral to the Justice Department for
possible criminal prosecution. Justice, the FBI and the Securities and
Exchange Commission opened investigations into Washington Mutual soon after
its collapse in September 2008.
The report said the top WaMu
producers, loan officers and sales executives who made high-risk loans or
packaged them into securities for sale to Wall Street, were eligible for the
bank's President's Club, with trips to swank resorts, such as to Maui in
2005.
Fueled by the housing boom,
Seattle-based Washington Mutual's sales to investors of packaged subprime
mortgage securities leapt from $2.5 billion in 2000 to $29 billion in 2006.
The 119-year-old thrift, with $307 billion in assets, collapsed in September
2008. It was sold for $1.9 billion to JPMorgan Chase & Co. in a deal
brokered by the Federal Deposit Insurance Corp.
Jennifer Zuccarelli, a
spokeswoman for JPMorgan Chase, declined to comment on the subcommittee
report.
WaMu was one of the biggest
makers of so-called "option ARM" mortgages. These mortgages allowed
borrowers to make payments so low that loan debt actually increased every
month.
The Senate subcommittee
investigated the Washington Mutual failure for a year and a half. It focused
on the thrift as a case study for the financial crisis that brought the
recession and the loss of jobs or homes for millions of Americans.
The panel is holding
hearings Tuesday and Friday to take testimony from former senior executives
of Washington Mutual, including ex-CEO Kerry Killinger, and former and
current federal regulators.
Washington Mutual "was one
of the worst," Levin told reporters Monday. "This was a Main Street bank
that got taken in by these Wall Street profits that were offered to it."
The investors who bought the
mortgage securities from Washington Mutual weren't informed of the
fraudulent practices, the Senate investigators found. WaMu "dumped the
polluted water" of toxic mortgage securities into the stream of the U.S.
financial system, Levin said.
In some cases, sales
associates in WaMu offices in California fabricated loan documents, cutting
and pasting false names on borrowers' bank statements. The company's own
probe in 2005, three years before the bank collapsed, found that two top
producing offices — in Downey and Montebello, Calif. — had levels of fraud
exceeding 58 percent and 83 percent of the loans. Employees violated the
bank's policies on verifying borrowers' qualifications and reviewing loans.
Washington Mutual was
repeatedly criticized over the years by its internal auditors and federal
regulators for sloppy lending that resulted in high default rates by
borrowers, according to the report. Violations were so serious that in 2007,
Washington Mutual closed its big affiliate Long Beach Mortgage Co. as a
separate entity and took over its subprime lending operations.
Senior executives of the
bank were aware of the prevalence of fraud, the Senate investigators found.
In late 2006, Washington
Mutual's primary regulator, the U.S. Office of Thrift Supervision, allowed
the bank an additional year to comply with new, stricter guidelines for
issuing subprime loans.
According to an internal
bank e-mail cited in the report, Washington Mutual would have lost about a
third of the volume of its subprime loans if it applied the stricter
requirements.
Deloitte is Included in the Shareholder
Lawsuit Against Washington Mutual (WaMu)
"Feds Investigating WaMu Collapse," SmartPros,
October 16, 2008 ---
http://accounting.smartpros.com/x63521.xml
Oct. 16, 2008 (The Seattle
Times) — U.S. Attorney Jeffrey Sullivan's office [Wednesday] announced that
it is conducting an investigation of Washington Mutual and the events
leading up to its takeover by the FDIC and sale to JP Morgan Chase.
Said Sullivan in a
statement: "Due to the intense public interest in the failure of Washington
Mutual, I want to assure our community that federal law enforcement is
examining activities at the bank to determine if any federal laws were
violated."
Sullivan's task force
includes investigators from the FBI, Federal Deposit Insurance Corp.'s
Office of Inspector General, Securities and Exchange Commission and the
Internal Revenue Service Criminal Investigations division.
Sullivan's office asks that
anyone with information for the task force call 1-866-915-8299; or e-mail
fbise@leo.gov.
"For more than 100 years
Washington Mutual was a highly regarded financial institution headquartered
in Seattle," Sullivan said. "Given the significant losses to investors,
employees, and our community, it is fully appropriate that we scrutinize the
activities of the bank, its leaders, and others to determine if any federal
laws were violated."
WaMu was seized by the FDIC
on Sept. 25, and its banking operations were sold to JPMorgan Chase,
prompting a Chapter 11 bankruptcy filing by Washington Mutual Inc., the
bank's holding company. The takeover was preceded by an effort to sell the
entire company, but no firm bids emerged.
The Associated Press
reported Sept. 23 that the FBI is investigating four other major U.S.
financial institutions whose collapse helped trigger the $700 billion
bailout plan by the Bush administration.
The AP report cited two
unnamed law-enforcement officials who said that the FBI is looking at
potential fraud by mortgage-finance giants Fannie Mae and Freddie Mac, and
insurer American International Group (AIG). Additionally, a senior
law-enforcement official said Lehman Brothers Holdings is under
investigation. The inquiries will focus on the financial institutions and
the individuals who ran them, the senior law-enforcement official said.
FBI Director Robert Mueller
said in September that about two dozen large financial firms were under
investigation. He did not name any of the companies but said the FBI also
was looking at whether any of them have misrepresented their assets.
"Federal Official Confirms Probe Into
Washington Mutual's Collapse," by Pierre Thomas and Lauren Pearle, ABC News,
October 15, 2008 ---
http://abcnews.go.com/TheLaw/story?id=6043588&page=1
The
federal government is
investigating whether the
leadership of shuttered bank
Washington Mutual broke
federal laws in the run-up
to its collapse,
the largest in U.S. history.
. . .
Eighty-nine
former WaMu employees are confidential witnesses in
a
shareholder class action lawsuit against
the bank, and some former insiders
spoke exclusively to ABC News,
describing their claims that
the bank ignored key advice from its own risk
management team so they could maximize profits
during the housing boom.
In
court documents, the insiders said the company's
risk managers, the "gatekeepers" who were supposed
to protect the bank from taking undue risks, were
ignored, marginalized and, in some cases, fired. At
the same time, some of the bank's lenders and
underwriters, who sold mortgages directly to home
owners, said they felt pressure to sell as many
loans as possible and push risky, but lucrative,
loans onto all borrowers, according to insiders who
spoke to ABC News.
Continued in article
Allegedly "Deloitte Failed to Audit WaMu in
Accordance with GAAS" (see Page 351) ---
Click Here
Deloitte issued unqualified opinions and is a defendant in this lawsuit (see
Page 335)
In particular note Paragraphs 893-901 with respect to the alleged negligence of
Deloitte.
More on Deloitte's woes in the wake of the WaMu collapse ---
http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte
Skin in the Game Accounting
This will greatly complicate accounting for sales transactions and financial
risk accounting
How do we account for "skin in the game?"
"F.D.I.C. Advances New Rules for Mortgage Securities," by Ben Pritessm,
The New York Times (DealB%k), March 29, 2011 ---
http://dealbook.nytimes.com/2011/03/29/f-d-i-c-advances-new-rules-for-mortgage-securities/
Federal regulators voted Tuesday to propose new
rules that would prohibit Wall Street banks from unloading packages of risky
mortgages on investors without keeping some of the risk on their own books,
a leading cause of the financial crisis.
The proposed rule would require banks to retain 5
percent of the credit risk on certain securities backed by mortgages,
leaving the banks with the so-called “skin in the game” on all but the
safest loans.
Wall Street banks, which lobbied to temper the
rules, won some limited concessions from regulators. The rules do not apply
to so-called “qualified residential mortgages,” conservative loans that meet
strict underwriting criteria set by regulators. Banks, under the
The Federal Deposit Insurance Corporation’s board
voted unanimously in favor of the proposal, opening it up to public comment.
The proposal was mandated by the Dodd-Frank Act, the financial regulatory
law signed by President Obama in July.
The law aimed to prevent Wall Street from returning
to its old tricks. During the mortgage bubble, lenders churned out dubious
loans and Wall Street eagerly sold the loans to investors. None of those
players had a stake in the assets when they ultimately crumbled.
“This will encourage better underwriting by
assuring that originators and securitizers cannot escape the consequences of
their own lending practices,” Sheila C. Bair, the F.D.I.C.’s chairwoman,
said at a public hearing on Tuesday.
But for now, the rules are unlikely to cause much
of a shakeup in the mortgage business, as regulators drafted a gaping
exemption: mortgage-backed securities sold or guaranteed by Fannie Mae and
Freddie Mac. As long as the government owns Fannie Mae and Freddie Mac, the
mortgage giants will not have to retain any risk associated with their
mortgage-backed securities.
The two mortgage finance companies, along with
several other government agencies that are exempt under the proposal,
collectively cover more than 90 percent of the market. The private
securitization market froze during the financial crisis and is only now
starting to see some action.
The new proposal “pretty much preserves the status
quo in the mortgage market,” Jaret Seiberg, an analyst at MF Global’s
Washington Research Group, said in a note on Tuesday. “That means few
changes in how things work today for mortgage insurers and originators.”
But the rules are not yet complete — and bank
lobbyists are only getting started. Banks argue that the new restrictions
will cause the private mortgage market to shrink even further, making it
harder for consumers to obtain loans.
Ms. Bair contends that will not happen. “The intent
of this rule-making is not to kill private mortgage securitization — the
financial crisis has already done that,” she said. “Our intent is to restore
sound practices in lending, securitization and loan servicing, and bring
this market back better than before.”
Still, banks are sure to push for a broader
definition of “qualified residential mortgages,” the safer loans exempt from
the 5 percent retention requirement.
“I don’t think they’ll go bananas,” said Jason
Kravitt, a partner at Mayer Brown and founder of the law firm’s
securitization practice. “But the industry will have to work very hard
indeed to broaden the definition of qualified mortgages.”
Under the proposal, borrowers must put a 20 percent
down payment on their home purchases for a bank to securitize the loan
without keeping a stake. The proposal also requires borrowers to be current
on other loans and to earn a certain income if a bank wants the exemption.
The proposal would not exempt notoriously risky
loans, like interest-only mortgages and adjustable-rate mortgages that
feature potentially huge interest rate increases.
Regulators reassured lenders that the government is
open to tweaking the requirements or scrapping them in favor of an
alternative approach. The proposal includes nearly 150 questions for the
industry to address.
But Mr. Kravitt said Wall Street was unlikely to
force an overhaul of the proposal.
Continued in article
The Controversy Over Revenue Reporting and HFV
---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
RLC = Return on Lobbying Congress
"G.E.’s Strategies Let It Avoid Taxes Altogether," by David Kocieniewski,
The New York Times, March 24, 2011 ---
http://www.nytimes.com/2011/03/25/business/economy/25tax.html?_r=1&partner=rss&emc=rss
General Electric, the nation’s largest corporation,
had a very good year in 2010.
The company reported worldwide profits of $14.2
billion, and said $5.1 billion of the total came from its operations in the
United States.
Its American tax bill? None. In fact, G.E. claimed
a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of
American business owners and households now preparing their own returns, but
low taxes are nothing new for G.E. The company has been cutting the
percentage of its American profits paid to the Internal Revenue Service for
years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive
strategy that mixes fierce lobbying for tax breaks and innovative accounting
that enables it to concentrate its profits offshore. G.E.’s giant tax
department, led by a bow-tied former Treasury official named John Samuels,
is often referred to as the world’s best tax law firm. Indeed, the company’s
slogan “Imagination at Work” fits this department well. The team includes
former officials not just from the Treasury, but also from the I.R.S. and
virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled
at reducing its tax burden, many other companies have become better at this
as well. Although the top corporate tax rate in the United States is 35
percent, one of the highest in the world, companies have been increasingly
using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the
Japanese disaster put a spotlight on the company’s nuclear reactor business,
G.E. reported that its tax burden was 7.4 percent of its American profits,
about a third of the average reported by other American multinationals. Even
those figures are overstated, because they include taxes that will be paid
only if the company brings its overseas profits back to the United States.
With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws
that encouraged some businesses and professionals to file as individuals,
have pushed down the corporate share of the nation’s tax receipts — from 30
percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high
it hobbles them in competing with foreign rivals. Even as the government
faces a mounting budget deficit, the talk in Washington is about lower
rates. President Obama has said he is considering an overhaul of the
corporate tax system, with an eye to lowering the top rate, ending some tax
subsidies and loopholes and generating the same amount of revenue. He has
designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the
business community and as the chairman of the President’s Council on Jobs
and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to
compete in the global economy,” Mr. Obama said of Mr. Immelt, on his
appointment in January, after touring a G.E. factory in upstate New York
that makes turbines and generators for sale around the world.
A review of company filings and Congressional
records shows that one of the most striking advantages of General Electric
is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of
millions of dollars to push for changes in tax law, from more generous
depreciation schedules on jet engines to “green energy” credits for its wind
turbines. But the most lucrative of these measures allows G.E. to operate a
vast leasing and lending business abroad with profits that face little
foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are
necessary for G.E. to compete against global rivals and that they are acting
as responsible citizens. “G.E. is committed to acting with integrity in
relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are
committed to complying with tax rules and paying all legally obliged taxes.
At the same time, we have a responsibility to our shareholders to legally
minimize our costs.”
The assortment of tax breaks G.E. has won in
Washington has provided a significant short-term gain for the company’s
executives and shareholders. While the financial crisis led G.E. to post a
loss in the United States in 2009, regulatory filings show that in the last
five years, G.E. has accumulated $26 billion in American profits, and
received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts
to corporate welfare, allowing G.E. not just to avoid taxes on profitable
overseas lending but also to amass tax credits and write-offs that can be
used to reduce taxes on billions of dollars of profit from domestic
manufacturing. They say that the assertive tax avoidance of multinationals
like G.E. not only shortchanges the Treasury, but also harms the economy by
discouraging investment and hiring in the United States.
Continued in article
From CBS Sixty Minutes on March 27, 2011
How to Shift Profits Offshore ---
http://www.cbsnews.com/video/watch/?id=7360934n&tag=contentMain;contentBody
Economist Martin Sullivan explains to Lesley Stahl how American multi-national
companies shift their profits overseas.
Read more:
http://www.cbsnews.com/video/watch/?id=7360934n&tag=contentMain;contentBody#ixzz1HvmebOLs
Comedian Jon Stewart Reacts to GE’s Tax Savviness ---
http://goingconcern.com/2011/03/jon-stewart-reacts-to-ges-tax-savviness/#more-27713
March 31, 2011 reply from Francine McKenna
Bob,
I wrote at Forbes yesterday
about KPMG's lack of independence with regard to their audit client GE.
My other
problems with GE go back to the legacy
of Jack Welch,
GE’s insidious influence on how people all over the corporate world aremeasured
and rewarded,
and their history as a
bad actor when it comes to internal controls and accounting manipulation.
So it’s not surprising that GE uses their auditor, KPMG, to help them
put their “zero” tax return together.
The Sarbanes-Oxley Act of 2002 started out tough
on tax. The rules regarding prohibited
activities by the auditor, intended to preserve
their independence, scared the living
daylights out of the largest firms. It appeared initially that the SEC
would prohibit the tax side of the firms from providing highly lucrative
tax advice to their audit clients. Many of those professionals started
planning an exit from their firms so they could continue working with
long time clients.
A compromise was reach
ed. The
result is one of the
loosest and most generous exceptions to auditor independence rules on
the books.
Francine McKenna
Managing Editor
@ReTheAuditors on
Twitter
Bob Jensen's threads on KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm
"KPMG Sued For Giving Tom Hicks "Clean Audit" a Year Before $525-Million
Loan Default," by Robert Wilonsky, Dallas Observer, March 30, 2011
---
http://blogs.dallasobserver.com/unfairpark/2011/03/kpmg_sued_for_giving_tom_hicks_clean_audit_a_year_before_525-million_loan_default.php
Courthouse News has the lawsuit: GSP Finance LLC v.
KPMG LLC, an alphabet soup's worth of names that sounds thoroughly
uninteresting. Until, that is, you crack open the case and discover that GSP
Finance is the lending arm of Galatioto Sports Partners -- the same company
Hicks hired in February 2010 to find prospective investors in or a buyer for
the Dallas Stars after Hicks Sports Group defaulted on that $525 million in
loans in the spring of '09.
Says the suit, GSP Finance loaned Hicks's HSG
Sports Group $67 million based upon KPMG's audit, which said everything was
fine even though it was far from.
Continued in article
Bob Jensen's threads on KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Brazil Merry Go Round – KPMG Acquires BDO Who Acquires Crowe Howarth…,"
Big Four Blog, March 30, 2011 ---
http://www.big4.com/blog/brazil-merry-go-round-%E2%80%93-kpmg-acquires-bdo-who-acquires-crowe-howarth%E2%80%A6-707
Jensen Comment
As GM is now discovering, the biggest economy in North and South America
combined may well become Brazil. Brazil is one of the BRICs.
A BRIC nation at the moment is a nation that has vast resources and virtually
no entitlement obligations that drag down economic growth ---
http://en.wikipedia.org/wiki/BRIC
In
economics, BRIC (typically rendered as
"the BRICs" or "the BRIC countries") is an
acronym that refers to
the
fast-growing developing economies of
Brazil,
Russia,
India, and
China. The acronym was first coined and
prominently used by
Goldman Sachs in 2001. According to a paper
published in 2005,
Mexico and
South Korea are the only other countries
comparable to the BRICs, but their economies were excluded initially because
they were considered already more developed. Goldman Sachs argued that, since
they are developing rapidly, by 2050 the combined economies of the BRICs could
eclipse the combined economies of the current richest countries of the world.
The four countries, combined, currently account for more than a quarter of the
world's land area and more than 40% of the
world's population.
Brazil, Russia,
India and China, (the BRICs)
sometimes lumped together as BRIC to
represent fast-growing developing economies, are selling off their
U.S. Treasury Bond holdings. Russia announced earlier this month it
will sell U.S. Treasury Bonds, while China and Brazil have announced
plans to cut the amount of U.S. Treasury Bonds in their foreign
currency reserves and buy bonds issued by the International Monetary
Fund instead. The BRICs are also soliciting public support for a
"super currency" capable of replacing what they see as the ailing
U.S. dollar. The four countries account for 22 percent of the global
economy, and their defection could deal a severe blow to the
greenback. If the BRICs sell their U.S. Treasury Bond holdings, the
price will drop and yields rise, and that could prompt the central
banks of other countries to start selling their holdings to avoid
losses too. A sell-off on a grand scale could trigger a collapse in
the value of the dollar, ending the appeal of both dollars and bonds
as safe-haven assets. The moves are a challenge to the power of the
dollar in international financial markets. Goldman Sachs economist
Alberto Ramos in an interview with Bloomberg News on Thursday said
the decision by the BRICs to buy IMF bonds should not be seen simply
as a desire to diversify their foreign currency portfolios but as a
show of muscle.
"BRICs Launch Assault on Dollar's Global Status," The Chosun IIbo,
June 14, 2009 ---
http://english.chosun.com/site/data/html_dir/2009/06/12/2009061200855.html
Their report, "Dreaming with BRICs:
The Path to 2050," predicted that within 40 years, the economies of
Brazil, Russia, India and China - the BRICs - would be larger than
the US, Germany, Japan, Britain, France and Italy combined. China
would overtake the US as the world's largest economy and India would
be third, outpacing all other industrialised nations.
"Out of the shadows," Sydney Morning Herald, February 5, 2005
---
http://www.smh.com.au/text/articles/2005/02/04/1107476799248.html
|
Research Opportunity for Accounting Faculty and Doctoral Students
I think that accounting faculty and doctoral students could provide various
types of health care research studies that could help the State of Vermont deal
with this very creative and controversial initiative that's virtually certain to
be passed in Vermont in 2011 without really knowing what the costs and financial
risks are in the legislation. Many accounting and financing questions are
unanswered at this point in time and will be studied in years to come.
This seems to be quite different from the universal health care law passed
under the leadership of Mitt Romney when he was Governor of Massachusetts.
Presumably Vermont intends to overcome the dire coverage and funding troubles
plaguing the Massachusetts plan at the moment.
Vermont might even fund some well-prepared accounting and finance research
proposals as well as provide databases to mine.
"Vt. House passes single-payer bill," by Dave Gram, Burlington
Banner, March 24m 2011 ---
http://www.benningtonbanner.com/ci_17695099?source=rss_viewed
Every Vermonter could sign up for state-financed
health insurance under a bill passed by the House on Thursday that would put
the state on a path to a single-payer health care system by the middle of
this decade.
Senate next
"This bill takes our state one step closer to a
system that ensures that all Vermonters have access to the care they deserve
and contains costs," House Speaker Shap Smith said shortly after the House
passed the bill 92-49.
The measure now goes to the Senate, where it is
expected to pass, but with some possible changes.
Gov. Peter Shumlin, who made single-payer health
care a centerpiece of his gubernatorial campaign last year, also praised the
legislation. He said it would make Vermont "the first state in the country
to make the first substantive step to deliver a health care system where
health care will be a right and not a privilege, where health care will
follow the individual, not be a requirement of the employer, and where we’ll
have an affordable system that contains costs."
Costs are an open question. The bill sets up a
five-member state board to design a benefit package to be called Green
Mountain Care, but doesn’t require the governor to propose a way to pay for
it until 2013. That drew fire from minority Republicans in the House, who
said the hard partof reform -- paying for it -- won’t be tackled until after
Shumlin campaigns for a second two-year term in
. . .
The Shumlin administration and supporters of the
bill need to address numerous uncertainties as the process goes forward. One
concerns the more than 100,000 Vermonters who get health coverage from
employers who are self-insured, meaning they assume the financial risks of
coverage, and are chartered under federal law.
The House defeated a proposed amendment to allow
those employers, among them the state’s largest, like IBM, to be exempt from
paying taxes to support Green Mountain Care. Rep. Anne Donahue,
R-Northfield, said that would leave them in a similar situation to parents
who send their children to private schools, but pay taxes to support public
ones.
Jensen Comment
One enormous problem faced by such a small state is that so many of its
residents must go elsewhere for specialized medical care, including such medical
centers as Dartmouth Hitchcock in New Hampshire and the various medical centers
in Boston and Canada. Cost containment is more difficult when a provider of
insurance cannot regulate the cost of services. Presumably Vermont does not want
to deny low income people coverage that they cannot afford under current private
insurance plans. This most likely will make coverage more costly than the costs
currently being covered in private-company plans.
There are other questions such as whether the State of Vermont will pick up
the supplemental Medicare insurance now provided by private companies such as
Blue Cross Anthem. With such a small population (about
626,000 residents statewide), this can be troublesome when spreading the
insurance risks among a small funding base (many residents are too young or too
poor to pay any income taxes). One of the heavy hits taken by supplemental
Medicare insurers is for the high cost of dying when older folks must be
hospitalized for lengthy stays, often in intensive care units. CBS on Sixty
Minutes claims the major issue with Medicare and its supplemental insurers is
the "High Cost of Dying."
On November 22, 2009 CBS Sixty Minutes aired a video featuring experts
(including physicians) explaining how the single largest drain on the Medicare
insurance fund is keeping dying people hopelessly alive who could otherwise be
allowed to die quicker and painlessly without artificially prolonging life on
ICU machines.
"The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009
---
http://www.cbsnews.com/stories/2009/11/19/60minutes/main5711689.shtml?tag=mncol;lst;1
Teaching Case from The Wall Street Journal Accounting Weekly Review on
February 25, 2011
For Some, Currency Hedging Is No Gain
by: Dana Mattioli And Chan
R. Shoenberger
Feb 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Foreign
Currency Exchange Rates, Hedging, International Accounting
SUMMARY: A number of
companies are finding fees on options, forward and futures contracts too
high-or reporting of hedging gains and losses too distracting-to justify the
benefits of descreased risk expected in 2011. This assessment, based on
recent reduction in worldwide currency volatility, is leading many to
discontinue foreign exchange transaction and translation hedging activities.
CLASSROOM APPLICATION: The
article is useful to introduce foreign exchange transactions, foreign
currency translation, and hedging activities.
QUESTIONS:
1. (Advanced) What types of contracts to entities with foreign
operations enter into in order to hedge against fluctuations in currency
values? Specifically describe a contract that a company with foreign sales
may enter into, then describe a contract for companies expecting to make
purchases in foreign currencies.
2. (Introductory) Into which of the above categories do you place
Progress Software Corp., the company described in this article?
3. (Advanced) What are the differences among an option contract, a
forward contract, and a futures contract? Which of these types of contracts
did Progress Software use? What situation led the company to use this
contract?
4. (Introductory) What trade off is Mr. Rick Reidy, Chief Executive
of Progress Software, considering in deciding that he will "hold off this
year" on entering into foreign currency hedging contracts?
5. (Advanced) Explain your understanding of the term "natural
hedges."
6. (Advanced) What is the difference between a foreign currency
transaction gain or loss and a financial statement translation gain or loss?
Why might companies want to stop hedging against translation gains and
losses but continue hedging against transaction gains and losses?
7. (Advanced) What is speculation in foreign currencies? Identify a
company cited in the article that you think is engaging in speculation.
Support your assessment.
Reviewed By: Judy Beckman, University of Rhode Island
"For Some, Currency Hedging Is No Gain," by Dana Mattioli And Chan R.
Shoenberger, The Wall Street Journal, February 19, 2011 ---
http://online.wsj.com/article/SB10001424052748703803904576152442756363116.html?mod=djem_jiewr_AC_domainid
Progress Software Corp. is walking away from
currency hedging, bucking a corporate practice that became commonplace in
the wake of the global financial crisis. "This year the price is just too
high for us," says Chief Executive Rick Reidy.
The Bedford, Mass., business-software developer,
which gets 60% of its $529 million in annual revenue outside the U.S., is
joining a small minority of multinationals abandoning or lessening their use
of hedging.
Although companies have hedged currency risks for
decades, widespread use began after the recession stopped the dollar's
downward run and unleashed a period of sharp swings in foreign exchange
rates. Companies with global operations rushed to embrace hedging
instruments such as forward contracts, which let them lock in an exchange
rate in the future at a fixed amount, and options, or the right to buy or
sell a currency for a specific price at some future date.
Progress Software bought a currency option in 2010
after exchange-rate fluctuations the prior year caused its reported revenue
to decline by $30 million. But with such options, essentially year-long
insurance contracts, getting more expensive and currencies becoming less
volatile, Mr. Reidy says he'll hold off this year.
"We are considering doing quarterly [contracts]
that tend to be more reasonable," he says.
Companies that have stopped hedging exchange rates
say they avoid the costs of hedging, which can be steep for thinly traded
currencies or contracts that lock in rates for long periods of time. Others,
such as Nissan Motor Co., which has a longstanding no-hedge policy, say
diversified global operations, create a natural hedge by matching revenue to
expenses in local currencies.
Autoliv Inc., a Stockholm-based seatbelt and airbag
maker, earlier this month said it would continue to rely on natural hedges,
such as its factories in China. Although its fourth-quarter European sales
were down 6%, to $717 million, primarily on unfavorable exchange rates,
Autoliv doesn't plan on purchasing forward contacts, a practice it stopped
in 2004, Chief Financial Officer Mats Wallinsays.
Medical-products maker Becton Dickinson & Co.
stopped hedging its so-called translational exposures—incurred when the
company brings foreign currencies back to the U.S. and converts to
dollars—starting in October, although it still hedges transactions. The cost
of options used for currency hedging became too expensive a few years ago,
says Chief Financial Officer David Elkins, and it began using forward
contracts instead.
In its last fiscal year, Becton reported a roughly
$31 million hedging loss compared with a $100 million hedging gain the prior
year. Executives were spending too much time explaining hedges to investors,
Mr. Elkins says. "We want to do away with that distraction."
Hedging risks are a growing issue for
pharmaceutical investors, says Tony Butler, a managing director at Barclays
Capital, who notes investors have asked him to detail individual companies'
foreign exchange sensitivity. "There was an increasing discussion of
[foreign exchange], away from the fundamentals of the business," he says.
Going cold turkey on hedging can lead to wide
revenue fluctuations as exchange rates change. That isn't a great idea, said
Jiro Okochi, chief executive of Reval, which provides software to help
companies manage foreign exchange, commodities and interest rate risks.
Some investors look for that exposure, says Jeffrey
Wallace, managing partner of Greenwich Treasury Advisors in Boulder, Colo.
"The very large companies sometimes say to their shareholders, 'You bought
me because you wanted global risk, and I'm going to give it to you.'"
For some companies, a switch away from currency
hedging is actually a bet that a currency will move in a certain direction.
Moscow-based Mobile TeleSystems stopped its currency hedging this year and
won't hedge unless the Russian ruble starts to depreciate, says Alexey
Kornya, the company's chief financial officer.
This differs from the company's strategy in 2009
and 2010, when volatility in the markets led the company to hedge heavily.
About 90% of MTS's revenue is derived in rubles, but it is also exposed to
other currencies in Eastern Europe, especially Ukraine, Armenia and
Uzbekistan.
In 2009, the telecommunications operator hedged
about $1.4 billion of its debt portfolio, says Mr. Kornya. In 2010, it only
hedged $200 million of its U.S. dollar exposure and the company moved toward
financing in rubles rather than dollars, he says. This year, Mr. Kornya says
he doesn't see the need to hedge yet, but is keeping a close eye on the
ruble's value. If the trade surplus began to diminish and the ruble
depreciated, the company would take hedging actions, he says.
Continued in article
Bob Jensen's tutorials and videos on accounting for hedging transactions
---
http://www.trinity.edu/rjensen/caseans/000index.htm
"Lehman Brothers Deceived JPMorgan With 'Goat Poo' Assets, Lawsuit Says,"
Reuters via The Huffington Post, February 18, 2011 ---
http://www.huffingtonpost.com/2011/02/18/jpmorgan-says-lehman-brot_n_825406.html
Lehman Brothers and Barclays deceived JPMorgan
Chase & Co with bad assets that the failed investment bank's own employees
dubbed "goat poo," according to new court papers that escalate a legal
battle between the financial firms.
JPMorgan filed new court claims in the case,
contending that Lehman left it with $25 billion (£15.4 billion) in unpaid
loans secured by undesirable assets like those left out of the sale to
Barclays.
Lehman Brothers Holdings Inc. filed for bankruptcy
on September 15, 2008 and then quickly sold its prize investment banking
assets to Barclays Bank. JPMorgan had been Lehman's banker.
The court papers, filed in U.S. Bankruptcy Court in
Manhattan on Thursday, said that Barclays and Lehman called certain Lehman
assets "toxic waste" and "goat poo" and knowingly excluded them from their
sale agreement.
A Lehman spokeswoman declined to make an immediate
comment on the lawsuit. JPMorgan declined comment. A spokesman for Barclays
declined to comment.
Thursday's filing revised a lawsuit that was first
filed in December in response to Lehman's own $8.6 billion suit against
JPMorgan. Lehman's suit, filed last May, accused JPMorgan of siphoning off
collateral ahead of Lehman's bankruptcy filing.
Lehman employees wrote in emails that contrary to
Lehman's and Barclays' portrayal of their deal to bankruptcy court as
including all related assets, Barclays did not have to purchase certain
"toxic waste" securities, JPMorgan contends. Those securities included
certain Lehman commercial paper known as "RACERS" -- restructured asset
certificates with enhanced returns.
Lehman employees also called these assets "goat poo"
in emails, JPMorgan said in the lawsuit. According to the emails cited by
JPMorgan, Lehman employees also said the balance sheet that the company had
sent to bankruptcy court was wrong because it showed that Barclays was
buying all of Lehman Brothers' positions.
Continued in article
Jensen Comments
And the Ernst & Young approval of Repo 105 and 108 transactions constituted
RePoo!
Bob Jensen's threads on the Lehman scandals ---
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
Accounting Scandals
The funny thing is that I never looked up this item before now. Jim Mahar noted
that it is a good link.
Accounting Scandals ---
http://en.wikipedia.org/wiki/Accounting_scandals
Bob Jensen's threads on accounting scandals are in various documents:
Accounting Firms ---
http://www.trinity.edu/rjensen/Fraud001.htm
Fraud Conclusion ---
http://www.trinity.edu/rjensen/FraudConclusion.htm
Enron ---
http://www.trinity.edu/rjensen/FraudEnron.htm
Rotten to the Core ---
http://www.trinity.edu/rjensen/FraudRotten.htm
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
American History of Fraud ---
http://www.trinity.edu/rjensen/FraudAmericanHistory.htm
Fraud in General ---
http://www.trinity.edu/rjensen/Fraud.htm
Business Week's rankings of the best part-time business programs
(slide show, click on the arrows) ---
http://images.businessweek.com/ss/09/11/1105_best_part_time_business_schools/index.htm?campaign_id=bschools_related
These are the Top 10
Rank 1 Worcester Polytechnic Institute
Rank 2 UCLA (Anderson)
Rank 3 UC Berkeley (Haas)
Rank 4 University of Nebraska
Rank 5 University of Michigan (Ross)
Rank 6 Elon University (Love)
Rank 7 Carnegie Mellon University (Tepper)
Rank 8 Rice University (Jones)
Rank 9 Indiana University Southeast
Rank 10 Drexel University (LeBow)
Jensen Comment
Interestingly, some of the top-ranked research business schools (like University
of Texas at Austin, Chicago, Emory, USC, Case Western, Maryland, Wake Forest,
and Southern Methodist) that also have part-time programs received lower ranks
for their part-time programs. However, most received higher regional rankings.
I don't know how many part-time programs are ranked, but the lowest ranked
university in the slide show has Rank 55.
I did not even know that some prestigious universities like Rice And Chicago
even had part-time programs.
Bob Jensen's threads on ranking controversies in general are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
Some of your advisees might be somewhat interested in this
What Business Week thinks are the top 2011 business schools in Europe ---
http://www.businessweek.com/globalbiz/europe/special_reports/20110318european_bschools_2011.htm?link_position=link1
Bob Jensen's threads on media ranking controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
Google Public Data Explorer
Data visualizations for a changing world ---
http://www.google.com/publicdata/home
Available Data Sets ---
http://www.google.com/publicdata/directory
Bob Jensen's threads on Multivariate Data (including faces) ---
http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm
"Bing is Copying Your Clicks, Not Google's Results: Google's results can
be accessed because Bing is snooping on IE users," by Tom Simonite, MIT's
Technology Review, February 2, 2011 ---
http://www.technologyreview.com/blog/editors/26336/?nlid=4082
Jensen Comment
But IE users are using billions of Google searches. If we ignore price
differentials is this a bit like getting almost new goods in yard sales that
recently passed through retail dealers. Bing makes money for Microsoft from
advertising. Seems like Microsoft is indirectly getting a free service from
Google whether Microsoft will admit it or not.
See
http://googleblog.blogspot.com/2011/02/microsofts-bing-uses-google-search.html
"B-School Deans Worth Following On Twitter," by John A. Byrne, Poets
and Quants, February 2, 2011 ---
http://poetsandquants.com/2011/01/25/b-school-deans-who-tweet/
"The Pulse: Faculty and Social Media," Inside Higher Ed,
February 9, 2011 ---
http://www.insidehighered.com/news/2011/02/09/qt#250726
The
February 2011 edition of The Pulse, our monthly
technology podcast by Rod Murray, features an interview with Brian Hughes,
associate director of design, publishing and service at Teachers College's
Library at
Columbia
University. He discusses the best ways to get
faculty members comfortable with using social media in teaching. Find out
more about The Pulse, and listen to selections from its archive,
here.
Bob Jensen's links to blogs and social networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob Jensen's links to accounting news ---
http://www.trinity.edu/rjensen/AccountingNews.htm
Wow: A Must Read for Sure
"Cooking the Books Why do firms issue financial misstatements? Based on
the Research of Jap Efendi, Anup Srivastava And Edward P. Swanson," Kellog
Insight, February 2011 ---
http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/cooking_the_books/#When:18:17:07Z
When the dot-com bubble of the late 1990s sent
stock prices soaring, something else soared, too: CEOs’ perceptions of their
net wealth. That theory alone may explain a large part of the psychology and
behavior of why some corporate managers allowed their accounting books to
get cooked.
On March 10, 2000, the dot-com bubble burst
abruptly and as a result many firms had to issue accounting restatements
well into the next decade. Let’s face it, a lot of people lost a lot of
money, and not just the CEOs who watched large portions of their own stock
holdings in their own companies vaporize. Let’s also not forget the chasm of
broken trust that opened between the business community and the public.
So what happened? Did the CEOs transmogrify into
greed-poisoned crooks? That answer may satisfy our human desire for a
villain, but that is not exactly how things played out, says Anup Srivastava,
an assistant professor of accounting information and management at the
Kellogg School of Management.
While most firms were not guilty of accounting
irregularities or criminal activity, a few were. Srivastava and Jap Efendi,
an assistant professor at University of Texas at Arlington, and Edward P.
Swanson, a professor at Texas A&M, dug into the problem of overvaluation of
firms’ equity, and they developed several reasons why CEOs may have overseen
the release of false or misleading financial statements. At the heart of the
matter was a confluence of CEO compensation structuring with a little idea
(holding large implications) about how very large incentives can cause
normally law-abiding citizens to step outside the law’s bounds.
Taking Risks Srivastava explains that in 2005,
Harvard professor emeritus and noted financial economist Michael C. Jensen
wrote a paper titled “Agency costs of overvalued equity,” which was
published in the journal Financial Management. “In this paper, Jensen argues
that managers are normal human beings but when the stakes are very high,
normal human beings begin making extremely risky decisions,” Srivastava
says. “Our paper examining the overvaluation of a firm’s equity during the
dot-com years is the only paper that has tested his theory.”
When Srivastava says a firm is overvalued, he is
referring to extreme situations where the stock may be worth 100 to 1,000
percent of its fundamental value. When this happens, the firm’s fundamentals
cannot justify the stock price and so managers begin to “do things.”
“They start taking extreme risks. They make
acquisitions and play with their accounting numbers,” Srivastava explains.
“This is very destructive to society. Decisions based on overvalued equity
are not good for society because they lead to a loss of wealth.”
Srivastava says that an important trend in CEO
compensation over the past two decades has been an increasing emphasis
placed on company stock options. When this collides with market
overvaluation, CEOs may find that their in-the-money stock options balloon
into the stratosphere to nearly one hundred times the value of their salary.
“Let’s say their in-the-money stock options are
worth a billion dollars now,” Srivastava says. “They may start to think,
‘I’m a billionaire.’” By confusing their overinflated stock options with
their net wealth, these CEOs begin to make riskier and riskier decisions,
perhaps to preserve their perceived wealth. It is a fragile zone to live
within; a 10 percent decline in their company’s stock price could spell out
a 50 percent decline in their net wealth.
“In this scenario, they will do anything and
everything to keep the stock values high,” Srivastava says. But this
motivation may also extend beyond their own personal gain; they may want to
maintain the status quo by not liquidating their holdings as to avoid
attention from the Securities and Exchange Commission or their investors
regarding the overvaluation problem.
“What we highlight in our paper is the fact that
when equity is overvalued, and overvaluation in equity results in large
in-the-money options for managers, then managers have incentives to take
very risky accounting decisions,” Srivastava says.
Show Me the Money The researchers used ninety-five
sample firms—pinpointed from a Government Accountability Office (GAO)
database of companies that restated a previously issued financial
statement—and compared these to ninety-five control firms that had not
issued restatements but were matched in terms of size, industry, and asset
values. They then examined the firms that announced a restatement between
January 1, 2001, and June 30, 2002, for accounting errors in prior years,
extending back to April 1995. (Firms often announce a restatement one to two
years after the year being restated, e.g., a restatement announced in
January 2001 could be for the accounting year 1999 or 2000.) The team used
press releases and annual reports to discover the exact year of the
misstatement, a detail the GAO database lacks.
For example, say an Internet company called
WidgetTechs tanked in the 2000 bust and announced a restatement of its
accounts later. Srivastava and his team basically poked through records to
find WidgetTechs’ historic stock prices and its compensation package. Then
they dissected this data to look for trends that associated aspects of
compensation to time points right before, during, and after accounting
irregularities, or criminal activity, was said to have occurred.
By doing this, Srivastava and his colleagues found
that the best predictors of accounting misstatements turned out to be
in-the-money values of stock options held by CEOs. To illuminate the
magnitude of in-the-money option holdings, they found the average holdings
for CEOs at restating firms was approximately $50 million, which greatly
exceeded the average of $9 million at matched firms that did not announce a
restatement. Stated another way, the CEOs of restating firms held options
with in-the-money value that was forty-six times their salary, compared with
options six times the salary of CEOs in control firms.
The team then parsed the restating firms into two
main categories based on accounting issue classifications assigned by the
GAO—non-malfeasance and malfeasance—that describe the degree of seriousness
of the firm’s accounting error. (A malfeasance category correlates to
fraudulent behavior or an SEC-induced restatement, while a non-malfeasance
category correlates to a non-criminal, less serious issue or irregularity.)
The researchers found that the in-the-money value
of options for CEOs at restating firms with evidence of accounting
malfeasance was even higher, averaging approximately $130 million (compared
to an average of $50 million for all restating firms).
One of the study’s key insights centered on the
degree to which options were in-the-money. The analysis detected no
difference between the value or number of options issued by restatement and
control firms to their CEOs. In other words, the larger in-the-money values
of restatement firms were not due to the number of options held but the
degree to which the firm’s stock options were in-the-money. Within both the
restating firms and the control firms, the research team analyzed CEO
compensation to look for predictors that a firm would issue a restatement.
They tested the base salary, bonus, options grant, in-the-money stock
options, restricted stock grants, and restricted stock holdings. The only
statistically significant variable turned out to be in-the-money options.
Continued in article
February 20, 2011 reply from Amy Dunbar
A colleague told me:
“It’s been a few years since that paper was
published in JFE. There is a follow-up study published in JAR that
questions the results, claiming that once you properly address the
endogeneous nature of compensation plans the link between option
compensation and misstatements disappears.”
Amy Dunbar
UConn
Jensen Comment
I'm not sure which publication Amy is referring to, but I don't think the
following JAR paper is necessarily a definitive rebuttal of the JFE paper ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2009.00361.x/abstract
Perhaps Amy has some other rebuttal in mind.
Some recent financial media outlets totally ignore any JAR rebuttal (2011)
---
http://www.bnet.com/blog/business-research/another-reason-to-cut-executives-8217-stock-options/857
So much for efficiency in the market for information.
Srivastava himself seems to still ignore the JAR rebuttal.(2011)
Weird?
http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=111729.xml&part=2
Bob Jensen's recipes for cooking the books ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Pentatonic Scale ---
http://en.wikipedia.org/wiki/Pentatonic_scale
World Science Festival 2009: Bobby McFerrin Demonstrates the Power of the
Pentatonic Scale ---
http://www.youtube.com/watch?v=ne6tB2KiZuk
Jensen Comment
This illustrates one way to get an audience involved in learning audience
involved in learning.
It also illustrates a possible student assignment in which students are asked to
write a conceptual framework definition of an accounting concept such as a
"liability." Would students learn something interesting by rewriting the
following paragraphs in the context of the "liability" concept by also
conceptualizing and maybe leaving out mezzanine debt and complicated conversion
features? They could then expand upon the pure concept of a liability by adding
dissonant intervals between differing pitches of debt.
.
Paragraph 1
The ubiquity of pentatonic scales, specifically anhemitonic (without
semitones)
modes, can be attributed to the total lack of the most
dissonant
intervals between any
pitches; there are neither any
minor seconds (and therefore also no complementary
major sevenths) nor any
tritones. This means any pitches of such a scale may be played in any order
or combination without clashing.
Paragraph 2
The pentatonic scale plays a significant role in
music
education, particularly in
Orff-based methodologies at the
primary/elementary level. The Orff system places a heavy emphasis on
developing creativity through
improvisation in children, largely through use of the pentatonic scale.
Orff instruments, such as
xylophones,
bells and other
metallophones, use wooden bars, metal bars or bells which can be removed by
the teacher leaving only those corresponding to the pentatonic scale, which
Carl Orff
himself believed to be children's native tonality.Children begin improvising
using only these bars, and over time, more bars are added at the teacher's
discretion until the complete
diatonic
scale is being used. Orff believed that the use of the pentatonic scale at
such a young age was appropriate to the development of each child, since the
nature of the scale meant that it was impossible for the child to make any real
harmonic mistakes.
Mr. Buffett, who has interests in both companies,
claimed there was another agenda (aside from hedging with
derivatives). “The reason many of them do it
(invest in derivative contracts) is that they
want to smooth earnings,” he said, referring to the idea of trying to make
quarterly numbers less volatile. “And I’m not saying there’s anything wrong with
that, but that is the motivation.”
"Derivatives, as Accused by Buffett," by Andrew Ross Sorkin,
The New York Times, March 14, 2011 ---
http://dealbook.nytimes.com/2011/03/14/derivatives-as-accused-by-buffett/?ref=business
Mr. Buffett once described derivatives as
“financial weapons of mass destruction.” Yet some of his most ardent fans
have quietly raised eyebrows at his pontifications, given that he plays in
the opaque market. In the fourth quarter alone, Berkshire made $222 million
on derivatives. TheStreet.com published a column last spring with the
headline: “Warren Buffett Is a Hypocrite.”
¶His comments, which were released last month by
the financial crisis commission, come as the government is writing rules for
derivatives as part of the Dodd-Frank financial regulatory overhaul. And the
statements could influence the debate.
¶Mr. Buffett appeared to backpedal from his
oft-quoted line, explaining: “I don’t think they’re evil per se. It’s just,
they, I mean there’s nothing wrong with having a futures contract or
something of the sort. But they do let people engage in massive mischief.”
¶The problems arise, Mr. Buffett said, when a
bank’s exposure to derivatives balloons to grand proportions and uninformed
investors start using them.
¶It “doesn’t make much difference if it’s, you
know, one guy rolling dice against another, and they’re doing $5 a throw.
But it makes a lot of difference when you get into big numbers.”
¶What worries him most is the big financial
institutions that have millions of contracts. “If I look at JPMorgan, I see
two trillion in receivables, two trillion in payables, a trillion and seven
netted off on each side and $300 billion remaining, maybe $200 billion
collateralized,” he said, walking through his thinking. “That’s all fine.
But I don’t know what discontinuities are going to do to those numbers
overnight if there’s a major nuclear, chemical or biological terrorist
action that really is disruptive to the whole financial system.”
¶“Who the hell knows what happens to those
numbers?” he asked. “I think it’s virtually unmanageable.”
¶Mr. Buffett defended Berkshire Hathaway’s use of
derivatives, arguing that the company maintains a limited amount. At the
time of the interview, the company had only about 250 derivative contracts.
(It’s now down to 203.) “I want to know every contract, and I can do that
with the way we’ve done it. But I can’t do it with 23,000 that a bunch of
traders are putting on.”
¶He noted that when Berkshire bought General Re in
1998, the reinsurance company had 23,000 derivative contracts. “I could have
hired 15 of the smartest people, you know, math majors, Ph.D.’s. I could
have given them carte blanche to devise any reporting system that would
enable me to get my mind around what exposure that I had, and it wouldn’t
have worked,” he said to the government panel. “Can you imagine 23,000
contracts with 900 institutions all over the world with probably 200 of them
names I can’t pronounce?” Berkshire decided to unwind the derivative deals,
incurring some $400 million in losses.
¶Mr. Buffett said he used derivatives to capitalize
on discrepancies in the market. (That’s what other investors must think they
are doing — just not as successfully.)
¶Perhaps the most insightful nugget in the
interview was Mr. Buffett’s explanation of why corporations use derivatives
— and why they probably shouldn’t.
¶Many companies, as diverse as Coca-Cola and
Burlington Northern, argue that they employ derivatives to hedge their risk.
¶The United States-based Coca-Cola tries to protect
against fluctuations in currencies since it does business around the world.
Burlington Northern, the railroad giant, uses the investments to limit the
effect of fuel prices.
¶Mr. Buffett, who has interests in both companies,
claimed there was another agenda. “The reason many of them do it is that
they want to smooth earnings,” he said, referring to the idea of trying to
make quarterly numbers less volatile. “And I’m not saying there’s anything
wrong with that, but that is the motivation.”
¶The numbers all even out eventually, he cautioned,
so derivatives don’t really make much difference in the long term.
¶“They’re going to lose as much on the diesel fuel
contracts over time as they make,” he said of Burlington Northern. “I
wouldn’t do it.”
Continued in article
March 16, 2011 reply from Kimberly Shanahan
This is great reading - if you follow one of the
links in the article, it shows you the transcript of Mr. Buffet's interview
with the Financial Crisis Inquiry Commission. I had not seen it previously.
Also, a great read.
Thanks Bob for forwarding!
Kimberly Shanahan
Bob Jensen's threads on creative accounting, smoothing, and earnings
management ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's tutorials on accounting for derivative financial instruments
---
http://www.trinity.edu/rjensen/caseans/000index.htm
Teaching Case on Executive Compensation and Stock Options
From The Wall Street Journal Accounting Weekly Review on March 4, 2011
J&J CEO's 2010 Bonus Cut by 45%
by: Peter Loftus
Feb 28, 2011
Click here to view the full article on WSJ.com
TOPICS: Compensation,
Executive Compensation, Stock Options
SUMMARY: Johnson &
Johnson's chief executive's pay has been reduced following a year of product
recalls due to manufacturing problems. The company does not acknowledge that
the pay reduction is related to this specific problem, but notes that the
compensation review encompasses many company performance factors.
CLASSROOM APPLICATION: The
article is useful to introduce compensation package issues and accounting
for these plans.
QUESTIONS:
1. (Introductory) From where did the reporter get the information
in this article about bonus pay and other compensation awarded to the
Johnson & Johnson (J&J) chief executive William Weldon?
2. (Introductory) Who evaluated William Weldon's performance in
2010? On what basis did they do so? Why was Mr. Weldon's overall
compensation reduced in 2010 relative to 2009?
3. (Introductory) What items comprise Mr. Weldon's compensation
package?
4. (Advanced) Access the Johnson & Johnson financial statements
filed on Form 10-K with the SEC on and available at
http://www.sec.gov/cgi-bin/viewer?action=view&cik=200406&accession_number=0000950123-11-018128&xbrl_type=v#
Proceed to the Notes to Financial Statements, No. 17. Common Stock, Stock
Option Plans, and Stock Compensation Plans. Summarize the information found
in this footnote.
5. (Advanced) From where does the company obtain the shares of its
common stock needed to be issued to executives and employees who exercise
their stock options?
6. (Advanced) Over what range of stock prices may J&J option
holders exercise their options? How does that compare to the company's
current stock price? Over how long a time period may employees exercise
these options?
7. (Advanced) What is restricted stock? How does J&J satisfy
obligations to issue shares of stock to its executives and employees under
these plans?
Reviewed By: Judy Beckman, University of Rhode Island
"J&J CEO's 2010 Bonus Cut by 45%," by: Peter Loftus, The Wall Street
Journal, February 28, 2011 ---
http://online.wsj.com/article/SB10001424052748704150604576166313696650734.html?mod=djem_jiewr_AC_domainid
Johnson & Johnson slashed Chief Executive William
Weldon's performance bonus by 45% for 2010, a year in which the health-care
giant issued a series of product recalls due to manufacturing-quality
lapses.
The recalls are continuing, with the company saying
this past week that certain packages of the decongestant Sudafed were being
recalled because of a misprint on product directions.
In an annual report filed with the Securities and
Exchange Commission Friday, J&J said Mr. Weldon's performance bonus for 2010
was $1.98 million, down from $3.6 million for 2009. The bonus, which was
approved by the compensation committee of J&J's board in January, is paid
out in the form of 85% cash and 15% in J&J shares.
In addition, the New Brunswick, N.J., company
granted fewer stock options, restricted share units and nonequity incentive
compensation units to Mr. Weldon this year than last year. He was granted
560,691 stock options in January, with an exercise price of $62.20, versus
586,873 options last year with an exercise price of $62.62.
J&J did, however, boost Mr. Weldon's base salary
for 2011 by 3% to $1.9 million, according to the SEC filing. The
year-earlier figures were contained in last year's annual report.
J&J spokeswoman Carol Goodrich said the board's
compensation committee evaluated Mr. Weldon and other senior executives
against a set of financial and strategic objectives that will be disclosed
in a proxy statement expected to be filed with the SEC in March. She said
the objectives are based on a pay-for-performance philosophy, but declined
to be more specific.
Ms. Goodrich declined to say whether the reduction
in Mr. Weldon's performance bonus was related to the product recalls.
Mr. Weldon's total compensation was valued at $30.8
million for 2009, the last full year for which total compensation was
reported. The figure included salary, bonus, changes in pension value and
other items.
Continued in article
Bob Jensen's threads on outrageous executive compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Bob Jensen's threads on accounting for stock options ---
http:/www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Two from the Journal of Accountancy on March 4, 2011
XBRL TAGS UPDATED
> SEC OKs New GAAP Taxonomy for XBRL
March 1, 2011
The SEC approved the 2011 U.S. GAAP Financial Reporting Taxonomy for
creating XBRL-tagged interactive data files. The new taxonomy contains
updates for accounting standards and other improvements to the official
taxonomy previously used by SEC issuers.
http://email.aicpa.org/cgi-bin15/DM/t/ehmt0bAne80GPA0tBN0E5
MONEY LAUNDERING
> FinCEN Amends Rules on FBAR Filing Requirements
Feb. 24, 2011
To further its mission of combating money laundering and preventing
financial fraud, the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN)
issued final regulations that amend certain aspects of the Report of Foreign
Bank and Financial Accounts (FBAR) filing
requirements such as whether an account is foreign and therefore reportable
as a foreign financial account and the definition of key terms like
"signature or other authority."
http://email.aicpa.org/cgi-bin15/DM/t/ehmt0bAne80GPA0tBS0EB
Property Tax Relief for the Rich and Famous
"Tax breaks on real estate deals for people like A-Rod cost city 900M a year,"
by Juan Gonzalez, NY Daily News, February 25, 2011 ---
http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29
Yankees star
Alex Rodriguez will pay virtually no property tax
for a $6 million apartment he is buying on the upper West Side.
Rodriguez will be billed around $1,200 this year in
real estate tax for his 3,000-square-foot, five-bedroom penthouse with
spectacular views of the
Hudson River.
Over the next 10 years Rodriguez and his fellow
residents will continue to receive huge discounts on their tax, a city
housing official said.
For Rodriguez, a full tax bill would be at least
$60,000 annually, the latest city assessment records show.
A spokeswoman for Extell, the company that built
the 2-year-old luxury Rushmore Towers near the West Side Highway, declined
to discuss the taxes on the slugger's new bachelor pad.
But the only two penthouses that went into contract
this month at the Rushmore, each of which was listed at more than $6
million, have been assessed at a little over $100 per month in taxes, one
real estate expert told the Daily News.
So how is it possible that tens of thousands of
ordinary city residents struggle each year with soaring tax bills for their
co-ops, condos and homes, while the Yankees' $33-million-a-year star gets to
pay next to nothing?
Well, Rodriguez and many other well-heeled New
Yorkers have learned to take advantage of a little-known tax abatement
program that has existed for decades.
The politicians and real estate insiders call it
the "421A" program. It grants as much as a 98% percent tax abatement for up
to 25 years to condo owners in newly built housing.
The bulk of the 421A benefit has gone to luxury
housing in
Manhattan, though a few reforms by City Hall and
the Legislature in 2007 at least required developers to build 20% affordable
housing to qualify for the tax abatement.
This year alone, the 421A program will cost our
city more than $900 million in lost revenues, the
Independent Budget Office says.
That's money that could prevent layoffs of
firefighters and teachers. That could fund senior citizen centers and pay
for after-school programs.
Continued in article
Wow: A Must Read for Sure
"Cooking the Books Why do firms issue financial misstatements? Based on
the Research of Jap Efendi, Anup Srivastava And Edward P. Swanson," Kellog
Insight, February 2011 ---
http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/cooking_the_books/#When:18:17:07Z
When the dot-com bubble of the late 1990s sent
stock prices soaring, something else soared, too: CEOs’ perceptions of their
net wealth. That theory alone may explain a large part of the psychology and
behavior of why some corporate managers allowed their accounting books to
get cooked.
On March 10, 2000, the dot-com bubble burst
abruptly and as a result many firms had to issue accounting restatements
well into the next decade. Let’s face it, a lot of people lost a lot of
money, and not just the CEOs who watched large portions of their own stock
holdings in their own companies vaporize. Let’s also not forget the chasm of
broken trust that opened between the business community and the public.
So what happened? Did the CEOs transmogrify into
greed-poisoned crooks? That answer may satisfy our human desire for a
villain, but that is not exactly how things played out, says Anup Srivastava,
an assistant professor of accounting information and management at the
Kellogg School of Management.
While most firms were not guilty of accounting
irregularities or criminal activity, a few were. Srivastava and Jap Efendi,
an assistant professor at University of Texas at Arlington, and Edward P.
Swanson, a professor at Texas A&M, dug into the problem of overvaluation of
firms’ equity, and they developed several reasons why CEOs may have overseen
the release of false or misleading financial statements. At the heart of the
matter was a confluence of CEO compensation structuring with a little idea
(holding large implications) about how very large incentives can cause
normally law-abiding citizens to step outside the law’s bounds.
Taking Risks Srivastava explains that in 2005,
Harvard professor emeritus and noted financial economist Michael C. Jensen
wrote a paper titled “Agency costs of overvalued equity,” which was
published in the journal Financial Management. “In this paper, Jensen argues
that managers are normal human beings but when the stakes are very high,
normal human beings begin making extremely risky decisions,” Srivastava
says. “Our paper examining the overvaluation of a firm’s equity during the
dot-com years is the only paper that has tested his theory.”
When Srivastava says a firm is overvalued, he is
referring to extreme situations where the stock may be worth 100 to 1,000
percent of its fundamental value. When this happens, the firm’s fundamentals
cannot justify the stock price and so managers begin to “do things.”
“They start taking extreme risks. They make
acquisitions and play with their accounting numbers,” Srivastava explains.
“This is very destructive to society. Decisions based on overvalued equity
are not good for society because they lead to a loss of wealth.”
Srivastava says that an important trend in CEO
compensation over the past two decades has been an increasing emphasis
placed on company stock options. When this collides with market
overvaluation, CEOs may find that their in-the-money stock options balloon
into the stratosphere to nearly one hundred times the value of their salary.
“Let’s say their in-the-money stock options are
worth a billion dollars now,” Srivastava says. “They may start to think,
‘I’m a billionaire.’” By confusing their overinflated stock options with
their net wealth, these CEOs begin to make riskier and riskier decisions,
perhaps to preserve their perceived wealth. It is a fragile zone to live
within; a 10 percent decline in their company’s stock price could spell out
a 50 percent decline in their net wealth.
“In this scenario, they will do anything and
everything to keep the stock values high,” Srivastava says. But this
motivation may also extend beyond their own personal gain; they may want to
maintain the status quo by not liquidating their holdings as to avoid
attention from the Securities and Exchange Commission or their investors
regarding the overvaluation problem.
“What we highlight in our paper is the fact that
when equity is overvalued, and overvaluation in equity results in large
in-the-money options for managers, then managers have incentives to take
very risky accounting decisions,” Srivastava says.
Show Me the Money The researchers used ninety-five
sample firms—pinpointed from a Government Accountability Office (GAO)
database of companies that restated a previously issued financial
statement—and compared these to ninety-five control firms that had not
issued restatements but were matched in terms of size, industry, and asset
values. They then examined the firms that announced a restatement between
January 1, 2001, and June 30, 2002, for accounting errors in prior years,
extending back to April 1995. (Firms often announce a restatement one to two
years after the year being restated, e.g., a restatement announced in
January 2001 could be for the accounting year 1999 or 2000.) The team used
press releases and annual reports to discover the exact year of the
misstatement, a detail the GAO database lacks.
For example, say an Internet company called
WidgetTechs tanked in the 2000 bust and announced a restatement of its
accounts later. Srivastava and his team basically poked through records to
find WidgetTechs’ historic stock prices and its compensation package. Then
they dissected this data to look for trends that associated aspects of
compensation to time points right before, during, and after accounting
irregularities, or criminal activity, was said to have occurred.
By doing this, Srivastava and his colleagues found
that the best predictors of accounting misstatements turned out to be
in-the-money values of stock options held by CEOs. To illuminate the
magnitude of in-the-money option holdings, they found the average holdings
for CEOs at restating firms was approximately $50 million, which greatly
exceeded the average of $9 million at matched firms that did not announce a
restatement. Stated another way, the CEOs of restating firms held options
with in-the-money value that was forty-six times their salary, compared with
options six times the salary of CEOs in control firms.
The team then parsed the restating firms into two
main categories based on accounting issue classifications assigned by the
GAO—non-malfeasance and malfeasance—that describe the degree of seriousness
of the firm’s accounting error. (A malfeasance category correlates to
fraudulent behavior or an SEC-induced restatement, while a non-malfeasance
category correlates to a non-criminal, less serious issue or irregularity.)
The researchers found that the in-the-money value
of options for CEOs at restating firms with evidence of accounting
malfeasance was even higher, averaging approximately $130 million (compared
to an average of $50 million for all restating firms).
One of the study’s key insights centered on the
degree to which options were in-the-money. The analysis detected no
difference between the value or number of options issued by restatement and
control firms to their CEOs. In other words, the larger in-the-money values
of restatement firms were not due to the number of options held but the
degree to which the firm’s stock options were in-the-money. Within both the
restating firms and the control firms, the research team analyzed CEO
compensation to look for predictors that a firm would issue a restatement.
They tested the base salary, bonus, options grant, in-the-money stock
options, restricted stock grants, and restricted stock holdings. The only
statistically significant variable turned out to be in-the-money options.
Continued in article
Bob Jensen's recipes for cooking the books ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Video: The manufacturing of a Southwest Airlines jetliner (Florida
One) ---
http://www.youtube.com/watch_popup?v=zKnsyYbfC60&feature=popular
This short video might be used to have students identify direct mfg. costs,
indirect mfg. costs, inventory costs, overhead expenses, etc.
The video also illustrates how selling and administrative expenses can become
direct costs in the supply chain. For example, GE's selling and administrative
expenses and profits factored into the price of an engine become direct
materials inventory costs in Boeing's airplane direct materials inventory.
Thus the "cost" of an engine purchased by Boeing from GE might contain many
non-manufacturing costs and profits accumulated in the supply chain. However,
each engine is a fully developed direct material component in this video such
that in this assembly line the entire cost of the engine is a direct cost of the
airliner being assembled. This would not necessarily be the case if Boeing
also manufactured the engine.
If Boeing has a standard cost system, the "standard cost" of one airplane
thus varies regarding what components such as engines are manufactured by Boeing
versus what components are purchased from outside vendors and are merely
assembled by Boeing. This explains why standard costs of finished goods
inventory in some companies cannot be compared with standard costs of identical
finished goods inventory in other more fully integrated manufacturing companies.
What becomes capitalized cost versus period expenses thus varies along
alternative supply chains. This also matters to the IRS since the timing of
income tax collections varies with alternative supply chains.
"Bing's Travel Search, So Much Better Than Google, Gets Even Better,"
by Marshall Kirkpatrick, ReadWriteWeb, February 25, 2011 ---
http://www.readwriteweb.com/archives/bings_travel_search_so_much_better_than_google_get.php
Google does almost nothing interesting in travel
search.
Bing
offers a much more compelling travel search experience
and today
added a new little feature that makes me want to
use it even more.
Search on Bing for the phrase "fly to..." and the
name of a major destination city and you will now see an automatic display
of the best dates to fly from where you are to that place, with the lowest
price for a round trip ticket and advice about whether the price is likely
to go up or down if you waited to buy the ticket later. It's really cool.
Bob Jensen's travel helpers ---
http://www.trinity.edu/rjensen/Bookbob3.htm#Travel
History of Quantitative Finance
"Four features in appreciation of the life and work of Benoit Mandelbrot,"
Simoleon Sense, February 3, 2011 ---
http://www.simoleonsense.com/four-features-in-appreciation-of-the-life-and-work-of-benoit-mandelbrot/
JAR is providing free access to the following paper
"The Effect of SOX Internal Control Deficiencies on Firm Risk and Cost of
Equity," by Hollis Ashbaugh-skaife, Daniel W. Collins, William R. Kinney,
and Ryan Lafond, Journal of Accounting Research, December 2008 ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2008.00315.x/abstract
Full article ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2008.00315.x/full
ABSTRACT
The Sarbanes-Oxley Act (SOX) mandates management
evaluation and independent audits of internal control effectiveness. The
mandate is costly to firms but may yield benefits through lower information
risk that translates into lower cost of equity. We use unaudited pre–SOX 404
disclosures and SOX 404 audit opinions to assess how changes in internal
control quality affect firm risk and cost of equity. After controlling for
other risk factors, we find that firms with internal control deficiencies
have significantly higher idiosyncratic risk, systematic risk, and cost of
equity. Our change analyses document that auditor-confirmed changes in
internal control effectiveness (including remediation of previously
disclosed internal control deficiencies) are followed by significant changes
in the cost of equity that range from 50 to 150 basis points. Overall, our
cross-sectional and intertemporal change test results are consistent with
internal control reports affecting investors' risk assessments and firms'
cost of equity.
Also see
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2010.00388.x/abstract
"What Keeps Us from Being Great," by Joe Hoyle, February 21, 2011 ---
http://joehoyle-teaching.blogspot.com/2011/02/what-keeps-us-from-being-great.html
“Assume that you make the personal decision that,
over the next 12 months, you would like to become a slightly better teacher.
Maybe it was your Valentine's Day resolution for 2011. Let’s assume, for
example, that you currently view yourself as a B teacher and you’d like to
feel like a B+ teacher by this day in 2012. Seems like a reasonable goal. My
question is this: What would be the most important thing that would keep you
from achieving that goal? I’m just looking for one thing but I’ll accept
more than one thing. I’m not asking for a lot of thinking—just tell me what
comes to your mind right off the top of your head.
“Notice that I didn't ask what keeps most people from getting better over
the next 12 months -- I want to know what would keep you from getting better
over the next 12 months.”
What was the purpose of this question? That is simple – it seems to me that
if we come face to face with the thing that is holding us back we can decide
if we really want to be held back in that way. I’m a big believer that
self-reflection can make us better (in many, many ways).
So, how would you have answered my question? Be honest with yourself—what is
keeping you from being a better teacher over the next 12 months? Once you
have identified your own personal wall, you can decide whether you are
willing to be limited in that way. Maybe you are but maybe not. You can’t
address the wall preventing you from going forward if you never identify it.
Here’s what my colleagues had to say (I’m going to paraphrase these a bit).
Maybe some of these apply to you. Maybe they will make you think more about
your own teaching and what really does prevent you from getting better over
the next 12 months.
I’ll let you guess which one of these I wrote.
1---Lack of willpower to review every lecture carefully before class, when I
might tell myself I already know the material well.
2---If something is working (albeit not as successfully as I would like), it
is difficult to try something new for fear that it will get worse. That is,
my natural reaction is to dig in and do what I’ve been doing more intently
rather than make changes that have an uncertain result.
3---The quality of my teaching is directly related to the amount of time
that I put into it. It is my opinion that to be an effective teacher most
people need just two things: 1.) a real desire to be an effective teacher;
and 2.) the willingness to put the time into it that is required. If you are
truly committed to being an effective teacher (i.e. you want to improve from
a B to a B+), then you’ve met the first criterion. All you really need then
is a willingness to put in the time. The time to prepare more for each and
every class, the time to meet with students during and outside of office
hours, the time to create materials (problem sets, extra questions, study
materials, etc.) to supplement the class. So the only thing that really
“prevents” me from improving my own teaching is that I don’t put in the
extra time. Why not? Every extra hour I devote to teaching is an extra hour
I cannot spend on something else. One less hour on research. One less hour
on committee/service work. One less hour with my family.
4---I think the lack of feedback that I get from the students on what works
and what doesn’t would be the thing.
5---For me, the most difficult part of the teaching process is being able
(or maybe willing) to be well prepared for each and every class. When I
really prepare, class usually goes well. It is just hard to take the time to
be that well prepared on a very consistent basis.
6---I think at this point in my career I have taught so many courses for the
first time that I haven’t been able to fully develop any course. It helps me
to see what works and then make changes and try different methods. So I
would say too many preps too close in time would prevent me from achieving
that goal. Also, there is always the issue of finding that perfect balance
between the time spent on research and teaching.
7---If I push my students to do better, they will start coming by and asking
questions and wanting assistance and I just don’t have the time necessary to
do that. I’d really like for them to do better without me having to do any
additional work.
8---I am pulled in so many directions and believe if I had more dedicated
time to focus on teaching techniques--rather than on completing tasks--then
I would be a better teacher.
9---The weight and importance we put on the teaching effectiveness questions
found on the student course evaluations in combination with the three-year
evaluation window. This greatly reduces my incentive to experiment with new
ideas and teaching techniques.
10---I don’t seem to know what I might do to improve or change. Thus, I am
not certain how to get better.
11---I have discovered that, for many things in life, the closer you get to
the ideal, the more effort it takes to squeeze out the last little bit of
excellence. It is easy to be average, quite a bit harder to get to 90%, but
that last 10% is harder than the entire first 90%. And the last 5% is harder
than the first 95% and so on asymptotically approaching 100% (whatever that
is). I have had semesters where I KNOW I wasn’t at my best and I’ve had
times that I knew I was close to doing as well as I can do. The truth is
that the students don’t really notice – or, more accurately, they don’t
appreciate that last 10% as much as they do the first 90%. I put in a good
bit of time and energy already and probably get 85-90% of what I’m capable
of consistently. On the other hand, reviewers for journals and my scholarly
colleagues DO notice that last 5% effort. Similarly, I think my colleagues
here do as well when we speak of school and university service work. I’m
also confident that my friends and family notice my investments in them as I
consider work/life balance. With this in mind, if I have an extra hour or
two (my most scarce resource), where do I invest that time (i.e., marginal
investment). Should I put it into making improvements to my classroom work
(likely to go largely unnoticed) or should I put it into making my
scholarship, university or family life better (likely to be noticed and
sincerely appreciated)? So, my greatest obstacle to improved teaching is the
competing demands and the return I get out of investments in those projects
relative to the returns I get from teaching.
12---First -- Lack of knowledge. For example, I would like to help my
students write better, but I really don’t know how to do it. Second -- Fear
of failure. I’m a B teacher and I have an extremely risk-averse personality.
Any change that has the potential to improve the class also has the
potential to mess up what is already working reasonably well.
13---My spontaneous answer is not being able to “read” the student’s
learning process as well as I would like to. Some students seem to be doing
fine when you interact with them but then their exams and assignments
disappoints you. Other students seem inactive but they surprise you when
they deliver strong exam results and great assignments. Thus, not fully
understanding the student’s learning process might be what hinders me from
reaching the next level as a lecturer.
14---The way to improve teaching is to know your students just slightly
beyond their names (for example, know their major or graduation year or area
where they are from…nothing that is especially difficult to find out)
because then the teacher can engage them in class because they have become
more “real” to you. What will prevent me from doing it is the fact that it
is so easy to not do it and it sounds so trivial to be beneficial.
15---For me, the pressure put on the teaching effectiveness questions on the
teaching evaluations. I often feel that I am at the mercy of the students
and their push-back.
16---It seems that no matter what attempts I make, if it requires the
students to “get into it”, they resist. I sometimes feel like we have
established an unrealistic, romanticized vision of what our student body is
really like. As a result, perhaps I have unrealistic expectations of their
intrinsic interest in engaging in the learning process. Or maybe the problem
is that I am approaching this the wrong way.
17---I don’t think there is anything in my way other than I don’t listen
enough. Sometimes we get into our routine, thinking that what we have done
in the past is still as good as it once was – and don’t listen or respond
when change is called for. I also have to constantly remind myself that
teaching is ONLY about student learning. It doesn’t matter if students like
me or don’t, it doesn’t matter if I’ve been fabulously entertaining or not –
all that matters is that I have created an environment where they are
maximizing their learning.
18---My deficiencies boil down to a small number of root causes. The central
of these causes are disorganization and poor time management.
Recognize yourself and your own walls?
What is keeping you from becoming better as a teacher and moving on toward
greatness?
Perhaps the first thing you need to do is identify what is holding you back
and then deciding whether you want to be held back.
Jensen Comment
To these I would add the following:
- Stop being a chicken about teaching evaluations when assigning grades.
Limit the A grades to a top percentile such as 15%-20% and make top students
work harder for their A grades.
- Stop worrying about what disgruntled students will write in teaching
evaluations because they think you made the course too tough. Think of how
much harder students worked when teaching evaluations were private
communications between students and teachers such that these evaluations
were not shared with administrators and RateMyProfessor.
- Consider becoming less of a teacher and more of a learning facilitator
who makes students learn more on their own ---
http://www.trinity.edu/rjensen/265wp.htm
Be prepared that it's much more difficult to be a learning facilitator than
a great lecturing professor.
- Get to know each of your students on a first name basis if at all
possible. Keep in mind, however, that some of your great colleagues may be
better hand holders for students than you in your role as a tougher and
perhaps more expert SOB. A great education department needs both hand
holders and tough SOBs that make students take on more responsibilities for
their own learning.
"Motorola's Xoom Starts Tablet Wars With iPad ," by Walter S.
Mossberg, The Wall Street Journal, February 24, 2011 ---
http://online.wsj.com/article/SB10001424052748703775704576162434292664662.html
After months of speculation, the tablet wars begin
in earnest this week. Motorola is releasing its Xoom tablet on Feb. 24, and
I consider it the first truly comparable competitor to Apple's hit iPad.
That is partly because it is the first iPad challenger to run Honeycomb, an
elegant new version of Google's Android operating system designed especially
for tablets.
Both Motorola's hardware and Google's new software
are impressive and, after testing it for about a week, I believe the Xoom
beats the first-generation iPad in certain respects, though it lags in
others. Like the iPad, the Xoom has a roomy 10-inch screen, and it's about
the same thickness and weight as the iPad, albeit narrower and longer. And,
like the iPad's operating system, Honeycomb gives software the ability to
make good use of that screen real estate, with apps that are more
computer-like than those on a smartphone.
The Xoom has a more potent processor than the
current iPad; front and rear cameras versus none for the iPad; better
speakers; and higher screen resolution. It also can be upgraded free later
this year to support Verizon's faster 4G cellular data network (though
monthly fees may rise.)
Is the Motorola Xoom tablet the first formidable
competitor to the iPad? Its high price is its Achilles heel, says Walt
Mossberg, but the Google Android Honeycomb operating system delivers. Plus:
a market for cell phone re-sales emerges.
Motorola is taking aim at the iPad just as Apple is
expected to announce, next week, a second-generation of its tablet. Little
is known about this second iPad, but it's widely expected to take away at
least one of the Xoom's advantages over the original iPad—cameras—and is
rumored to be thinner and lighter, since weight was one of the most common
complaints about the generally praised first iPad.
The iPad has way more tablet-specific apps—around
60,000 versus a handful—and, in my tests, much better battery life. Plus,
whatever the specs say, it's a fast device with a beautiful screen that
delights people daily. But, overall, the Xoom with Honeycomb is a strong
alternative to the original iPad, and one that will only improve over time.
Unfortunately for consumers looking for iPad
alternatives, the Xoom has an Achilles' heel: price. While iPads come in a
range of models priced all the way up to $829—none of which requires a
cellphone contract—Apple's entry price for the iPad is just $499. By
contrast, the base price of a Xoom without a cellphone contract is $800—60%
more. And even with a Verizon two-year contract at $20 to $80 a
month—depending on the data limit you choose—the least you can pay for a
Xoom is $600, or 20% more before counting the contract costs.
In fairness, the iPad model with the same memory as
the Xoom and a 3G cellular modem like the Xoom's is $729, which is a closer
comparison. But it is still less than $800, and consumers still focus on
that $499 iPad entry price (for a Wi-Fi-only model.)
As much as I like the Xoom and Honeycomb, I'd
advise consumers to wait to see what Apple has up its sleeve next before
committing to a higher price for the Motorola product.
Meanwhile, here's what I found in testing the Xoom.
Hardware
Though it works fine in portrait, or vertical,
mode, the Xoom is mainly designed as a landscape, or horizontal, device. The
screen is long and narrow, proportioned to best fit widescreen video. The HD
screen boasts a resolution of 1280 by 800, versus 1024 by 768 for the iPad.
. . .
Software
Perhaps even more impressive than the hardware is
the Honeycomb software, which, for now, Google won't offer on cellphones,
only tablets, of which the Xoom is the first.
I've always felt that Android had a
rough-around-the edges, geeky feel, with too many steps to do things and too
much reliance on menus. But Honeycomb eliminates much of that. Actions like
composing emails, or changing settings are much more obvious and quicker.
The smart but cluttered notification bar has been moved to the lower right
and simplified. A tap on it pops up relevant information.
There is still a separate email app for Gmail, as
opposed to other email services you may use. But, now, as on the iPad, email
is presented in multiple columns and is more attractive and easier to use.
The browser is especially impressive, with PC-like
features, such as visible tabs for open pages and the ability to open a
private browsing session. Apps like Maps and YouTube have 3-D views. There's
a movie-editing app and live widgets for the home screens that show email
previews or video frames.
There are some downsides. The ability to play Flash
video—a big Android selling point—won't work on the Xoom at launch. It will
take some weeks to appear. And I found numerous apps in the Android Market
that wouldn't work with the Xoom. I couldn't locate a working video download
or rental service, though Google says these will be available soon.
Some apps for phones, like the popular game Angry
Birds, filled the screen beautifully and worked fine.
Bottom line: The Xoom and Honeycomb are a promising
pair that should give the iPad its stiffest competition. But price will be
an obstacle, and Apple isn't standing still.
Jensen Comment
Meanwhile the Kindle market still booms for the specialized electronic book
reader that excels in light weight and outdoor daylight reading and most
certainly on low price. But the Kindle is not a tablet computer. But if you have
a great laptop computer, the Kindle may be all you need until victory is
declared in the tablet wars.
"CFOs’ Top Worry: IFRS: But still years away from being ready,"
CPA Trendlines, March 11, 2011 ---
http://cpatrendlines.com/2011/03/11/cfos-top-worry-ifrs/
Some 34% of CFOs rank “convergence to IFRS” as
their No. 1 issue. Cumulatively, CFOs rank IFRS convergence higher than any
other accounting issue, according to the latest Duke University/CFO Magazine
Global Business Outlook Survey.
Yet asked to describe their companies’ “readiness
to comply with global accounting standards,” 44% said they hadn’t “begun to
address convergence,” while 39% said they were preparing, “but far from
ready.”
Corporations are “still several years away from
having to implement a plan” to comply with a converged set of standards,
says James Kaiser, U.S. Convergence IFRS leader for PricewaterhouseCoopers.
Yet, as alarming as the state of awareness without preparedness sounds, it
just about fits the current state of the regulatory outlook. “It’s important
to monitor [regulatory developments] and develop a plan, but not get out in
front of the standards until they’re finalized,” says Kaiser.
Bob Jensen's threads on IFRS controversies are at
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Question
Is your privacy on your office copier or, worse, on a public copy machine?
March 31, 2011 message from David Fordham
I find it disappointing just how many people in my
generation aren't aware that times have changed since we were young, and
aren't aware of the proliferation and promulgation of what they'd like to
think is "personal" data. Whenever I show this video to my generation, they
recoil in shock and horror (like the "journalist" intended). Show it to my
students, and they just yawn and say, "And you are you surprised at this?
Doesn't everyone know this?"
Since many AECM'er's are over 30, and probably also
use commercial copiers on a daily basis, I thought I'd share this clip. Five
minutes of the standard over-sensationalism, but still reasonably
informative for some of us older folks. You might have to wait 15 seconds
for the ad to finish...
http://www.youtube.com/watch?v=iC38D5am7go
David Fordham
I look forward to a new SmartPros column by Professors Ed Ketz and Tony
Catanach
Grumpy Old Accountants
by J. Edward Ketz & Anthony
H. Catanach Jr.
http://accounting.smartpros.com/x71398.xml
The first article is "The Lying Culture," SmartPros, February 2011 ---
http://accounting.smartpros.com/x71398.xml
From time to time, it is good to stop and assess
one's progress in life. Such an evaluation helps people to figure out how
they are doing and to make strategic decisions to take advantage of upcoming
opportunities and to meet future challenges. When we do this for the
accounting profession, we shake our heads because accounting shenanigans
remain abundant and the seeds for further scandals are sown, watered, and
fertilized.
The kernel of this problem is simple: company
managers and their advisers are liars. Ok, not all of them, but so many are
liars that the business community is in danger of falling on its own petard.
Maybe this is because American society has a problem with the truth, as
exemplified by our political, military, bureaucratic, sports, and
entertainment leaders. We often hear the mantra, “the truth shall make you
free,” but our leaders apparently desire to enslave others through their
destructively self-serving, lying behaviors.
One obvious current example is the toxic assets
still held by banks in the wake of the financial crisis of 2008. These
investments have real values lower than their carrying values, but banks
refuse to write them down, citing mush about earnings volatility and the
adverse effects of mark-to-market accounting. They reject fair value
accounting because it would reveal the precarious position of the banking
industry. In short, banks are lying about asset values and really are not
well capitalized.
Continued in article
Jensen Comment
I greatly admire both of these professors. Ed has written years of Op "Eds" for
SmartPros that are generally critical of the establishment. Tony is best
known for his award-winning tremendous contributions to the BAM Pedagogy ---
http://www.trinity.edu/rjensen/265wp.htm
I especially look forward to when these "grumpy old professors" take on the
failures of accountics research and lack of interest in replicating "accounting
science" studies:
http://www.trinity.edu/rjensen/Theory01.htm#WhatWentWrong
http://www.trinity.edu/rjensen/TheoryTAR.htm
Their first article on "The Lying Culture" is hard hitting but
would've been more impressive in the Academy if it provided at least some
scholarly references and links.
For the sad state of the GASB and governmental accounting in general
there are references, including references to some of Ed's former Op "Eds"
provided at
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
For references on creative accounting and book cooking recipes see
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
For systemic and other problems of fraud, I recommend finding references at
http://www.trinity.edu/rjensen/fraud.htm
What I also look forward to is when these grumpy old professors take on the
nitty gritty controversies like the following:
Systemic Problems in Accounting
Accounting for the Shadow Economy
Behavioral and Cultural Economics and Finance
Media Reporting Controversies
Efficient Markets (EMH) versus Inefficient Markets
(including Black Swans and Fat Tails)
Islamic and Social Responsibility Accounting
XBRL: The Next Big Thing
The Controversy Over Revenue Reporting and HFV
---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
The Controversy Over Employee Stock Options as Compenation ---
http:/www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Key Differences Between International (IFRS) and U.S. GAAP (SFAS)
Accounting Research Versus the Accountancy Profession
Some ideas for applied research
Learning at Research Schools Versus "Teaching Schools" Versus "Happiness"
With a Side Track into Substance Abuse
Why must all accounting doctoral programs be social
science (particularly econometrics) "accountics" doctoral programs?
GMAT: Paying for Points
Accounting Journal Lack of Interest in Publishing Replications
Rankings of Academic Accounting Research Journals and Schools
Role of Accounting Standards in Efficient Equity Markets
Controversies in Setting Accounting Standards
Popular IFRS, IAS, and Other IASB Learning Resources:
Bright Lines Versus Principles-Based Rules
Comparisons of IFRS with Domestic Standards of Many Nations
http://www.iasplus.com/country/compare.htm
Should "principles-based" standards replace more detailed requirements for
complex
financial contracts such as structured financing contracts and financial
instruments derivatives contracts?
Why Let the I.R.S. See What the S.E.C. Doesn't?
Cookie Jar Accounting and FAS 106
Go to
http://www.trinity.edu/rjensen/theory01.htm#CookieJar
Synthetic Assets and Liabilities Accounting
Go to
http://www.trinity.edu/rjensen/theory01.htm#Synthetics
Time versus Money
Go go
http://www.trinity.edu/rjensen/theory01.htm#Time
Intangibles and Contingencies: Theory Disputes Focus Mainly on the Tip of
the Iceberg
Go to
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Radical Changes in Financial Reporting
The Controversy Between OCI versus Current Earnings
Accrual Accounting and Estimation
Controversy Over the SEC's Rule 144a
Go to
http://www.trinity.edu/rjensen/theory02.htm#144a
Why do sales discounts have such high annual percentage rates?
Go to
http://www.trinity.edu/rjensen/theory02.htm#SalesDiscounts
FIN 48 Liability if Transaction Is Later Disallowed by the IRS
Go to
http://www.trinity.edu/rjensen/theory02.htm#FIN48
Controversy Over FAS 2 versus IAS 38 on Research and Development (R&D)
Go to
http://www.trinity.edu/rjensen/theory02.htm#FAS02
Management ((Managerial) and Cost Accounting
Go to
http://www.trinity.edu/rjensen/theory02.htm#ManagementAccounting
Creative Earnings Management, Agency Theory, and Accounting Manipulations to
Cook the Books
Go to
http://www.trinity.edu/rjensen/theory02.htm#Manipulation
Goodwill Impairment Issues
Go to
http://www.trinity.edu/rjensen/theory02.htm#Impairment
Purchase Versus Pooling: The Never Ending Debate
Go to
http://www.trinity.edu/rjensen/theory02.htm#Pooling
Minority Interests: Lambs being led to slaughter?
Go to
http://www.trinity.edu/rjensen/theory02.htm#MinorityInterests
Off-Balance Sheet Financing (OBSF)
Go to
http://www.trinity.edu/rjensen/theory02.htm#OBSF2
Insurance: A Scheme for Hiding Debt That Won't Go Away
Go to
http://www.trinity.edu/rjensen/theory02.htm#Insurance
How do we account for lifetime warranties?
Go to
http://www.trinity.edu/rjensen/theory02.htm#LifetimeWarranties
Disclosure provisions aimed at financing receivables
and
Other Dislcosure Issues
Go to
http://www.trinity.edu/rjensen/theory02.htm#CreditDisclosures
CDOs: A Securitization Scheme for Hiding Debt That Won't Go Away
Go to
http://www.trinity.edu/rjensen/theory02.htm#CDO
Pensions and Post-retirement benefits: Schemes for Hiding Debt
Go to
http://www.trinity.edu/rjensen/theory02.htm#Pensions
Leases: A Scheme for Hiding Debt That Won't Go Away
Go to
http://www.trinity.edu/rjensen/theory02.htm#Leases
Accounting for Executory Contracts Such as
Purchase/Sale Commitments and Loan Commitments
Go to
http://www.trinity.edu/rjensen/TheoryOnFirmCommitments.htm
Debt Versus Equity (including shareholder earn-out contracts)
Go to
http://www.trinity.edu/rjensen/theory02.htm#FAS150
Intangibles: An Accounting Paradox
Go to
http://www.trinity.edu/rjensen/theory02.htm#Paradox
Intangibles: Selected References On Accounting for Intangibles
Go to
http://www.trinity.edu/rjensen/theory02.htm#References
EBR: Enhanced Business Reporting (including non-financial information)
Go to
http://www.trinity.edu/rjensen/theory02.htm#EBR
The Controversy Over Revenue Reporting and HFV
---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
The Controversy Over Employee Stock Options as Compenation ---
http://www.trinity.edu/rjensen/theory02.htmhttp:/www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Accounting for Options to Buy Real Estate
Go go
http://www.trinity.edu/rjensen/theory02.htm#RealEstateOptions
The Controversy over Accounting for Securitizations and Loan Guarantees
Go to
http://www.trinity.edu/rjensen/theory02.htm#Securitizations
The Controversy Over Pro Forma Reporting
Go to
http://www.trinity.edu/rjensen/theory02.htm#ProForma
Triple-Bottom
(Social, Environmental) Reporting
Go to
http://www.trinity.edu/rjensen/theory02.htm#TripleBottom
The Sad State of Government (Governmental) Accounting and Accountability
Go to
http://www.trinity.edu/rjensen/theory02.htm#GovernmentalAccounting
The Cost Conundrum: What a Texas town can teach us about health care
Go to
http://www.trinity.edu/rjensen/theory02.htm#CostConundrum
Which is More Value-Relevant: Earnings or Cash Flows?
Go to
http://www.trinity.edu/rjensen/theory02.htm#CashVsAccrualAcctg
LIFO Sucks Teaching Case on LIFO Layers in Years of Rising Prices
Go to
http://www.trinity.edu/rjensen/theory02.htm#LIFO
The
Controversy Over Fair Value (Mark-to-Market) Financial Reporting
Go to
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Underlying Bases of Balance Sheet Valuation
Go to
http://www.trinity.edu/rjensen/theory02.htm#BasesAccounting
Online
Resources for Business Valuations
See
http://www.trinity.edu/rjensen/roi.htm
Fade, Gain, and Cost Shifting Analysis in gross profit analysis in
construction accounting
Go to
http://www.trinity.edu/rjensen/theory02.htm#FadeAnalysis
Critical Thinking: Why's It So Hard to Teach
Go to
http://www.trinity.edu/rjensen/theory02.htm#CriticalThinking
Understanding the Issues
Go to
http://www.trinity.edu/rjensen/theory02.htm#UnderstandingIssues
Issues of Auditor Professionalism and Independence
http://www.trinity.edu/rjensen/fraud001.htm#Professionalism
Quality of Earnings, Restatements, and Core Earnings
Go to
http://www.trinity.edu/rjensen/theory02.htm#CoreEarnings
I will try to keep feeding these grumpy old accountants seeds for their
new grist mill ---
http://www.trinity.edu/rjensen/threads.htm
Grumpy Old Accountants
"What's Up with Cash Balances?" by: J. Edward Ketz and Anthony H.
Catanach Jr, SmartPros, March 2011 ---
http://accounting.smartpros.com/x71485.xml
The past decade has yielded a growing number of
cases of cash reporting problems among global firms. According to Audit
Analytics, corporate restatements in the United States for cash-related
reporting soared from 0.49 percent of all restatements in 2001 to over 13
percent in 2008.
Between 2002 and 2005, Grant Thornton auditors
failed to detect cash frauds totaling almost €4 billion at Parmalat, a
global Italian dairy and food corporation. In 2008, PricewaterhouseCoopers’
auditors missed a £1 billion in fraudulent cash balances at Satyam, the
Indian technology outsourcing giant. What’s going on?
Historically, cash has not been that hard to audit
or report, and junior accountants in their first and second years have
routinely been tasked with auditing balances and preparing disclosures for
these assets. After all, how hard can it be to audit and report cash
assets, when verification and valuation generally are not issues?
Why aren’t companies reporting cash in an ethical and transparent manner? As
analysts’ concern with earnings management has grown, they are devoting more
attention to reported cash flows. Global financial managers are aware of
this new focus and have responded accordingly by either creatively or
intentionally misreporting corporate cash flows.
Initially, most of the gimmickry related to inflating operating cash flows (OCF)
by simply misclassifying cash flows in the statement of cash flows (SCF).
Investing or financing cash inflows are reported as operating activities,
and operating cash outflows are included in the investing and financing
sections of the SCF. While such games continue even today, corporate
accountants continue to develop more sophisticated schemes to artificially
inflate cash balances and related flows. Managers now commonly achieve OCF
targets via asset liquidations, by delaying payments on payables, and even
by counting receivable collections as cash before they are actually
received, and employing special purpose entities.
Note the following 8-K disclosure recently filed by Orbitz Worldwide, a
leading global online travel company:
The Company determined that credit card
receipts in-transit at its foreign operations (which are generally
collected within two to three days) should have been classified as
“Accounts Receivable” rather than “Cash and Cash Equivalents.”
The Pep Boys, a large U.S. automobile
parts, tire, and service provider, also reported the following in its 10-K:
All credit and debit card
transactions that settle in less than seven days are also classified as
cash and cash equivalents.
Such practices clearly raise questions
about the quality of reported cash balances and OCF, and recently the games
have reached an all time low. Managers now have decided to simply change
the way they define cash in the balance sheet. Every accounting student
learns that a company reports as cash on their end-of-period balance sheet
the amount reflected in the company’s general ledger; however, a growing
number of companies are abandoning this generally accepted practice and now
inflate their reported balance sheet cash flows by adding back outstanding
checks (i.e., those than have not yet cleared the bank) written and mailed
before period-end. This practice not only increases reported cash balances,
but also overstates OCF since the outstanding checks are added to accounts
payable. Note the following example from the recent 10-K of Dick’s Sporting
Goods, a national U.S. sporting retailer:
Accounts payable at January 30,
2010 and January 31, 2009 include $74.2 million and $74.8 million,
respectively, of checks drawn in excess of cash balances not yet
presented for payment.
In this case, OCF were overstated by
89.16 percent in 2009 and 22.68 percent in 2010. Then there is the case of
Airgas, a nationwide distributor of gases, welding supplies, safety
products, and tools, that reports in its 2010 10-K:
Cash principally represents the
balance of customer checks that have not yet cleared through the banking
system…Cash overdrafts represent the balance of outstanding checks and
are classified with other current liabilities.
In this case, had the company reported
its outstanding checks appropriately, its cash balance would have been
negative at the end of 2010, and its OCF were overstated by $5.5 million as
well.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
One Way a Professor Can Become a Felon
"Prof Accused of Billing University for Travel as Consultant," Inside
Highe Ed, February 4, 2011 ---
http://www.insidehighered.com/news/2011/02/04/qt#250321
Dov Borovsky, a professor of entomology at the
University of Florida, was arrested last week on felony charges of grand
theft and fraud based on his expense reimbursement claims,
The Gainesville Sun reported. According to
authorities, Borovsky took three trips to Malaysia as a consultant to a
company based there, was reimbursed by the company for the travel, but also
submitted expense forms to the university for travel reimbursement. Borovsky,
whom the university has placed on leave, could not be reached for comment.
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Prisoners stole millions from the IRS in 2009," by Kevin McCoy,
USA Today, February 17, 2011 ---
http://www.usatoday.com/money/perfi/taxes/2011-02-16-1Ainmates16_CV_N.htm
Prisoners in Florida, Georgia and California lead
the nation's inmate population in scamming payments from an unlikely
benefactor: the IRS.
Seemingly proving the adage that crime pays, even
behind bars, prisoners in the three states received nearly $19 million in
IRS refunds during 2009 after filing false or fraudulent tax returns,
according to an IRS report to Congress that was included in a federal audit
released in January.
Continued in article
Jensen Comment
Florida also leads the nation in Medicare fraud such as phony medical equipment
billings where Cuban immigrants (possibly aided by the Cuban government) are
often masters of deception.---
http://www.healthcarefraudblog.com/2009/07/medicare_fraud_and_cuba.html
Sort of makes me wonder how much of the IRS refunding fraud in Florida makes
finds its ultimate home in Cuba.
February 22, 2011 message from Gerry Mueller
Hi, Bob + Erika -
We didn't get around to putting together our usual
"annual report" this year. We did a fair bit of travel during the 2nd half
of 2010, had a number of family get-togethers, and time got away from us.
But thankfully we are reasonably healthy and well. Our major downsizing was
a pain, but now we are glad we tackled it in 2009. How are you both?
Hopefully you did not have to suffer through the cold, cold winter in the
N.E.
Since you are both quite family oriented, I thought
you might be interested in the completion of my professional biography by
Dale Flesher at Ole Miss. I am very happy with the outcome. So I am enclosed
the flyer about the book in the attachment hereto.
Be well and keep warm! Best greetings and regards,
Gerry & Coralie
Jensen Comment
Although the above message from Gerry Mueller is somewhat personal, I thought
readers might like to hear from Gerry and to know about the recent biography
about Gerry that was written by accounting historians Dale
Flesher and Gary Previts:
Gerhard G. Mueller: Father of International Accounting Education
By Dale L. Flesher and Gary Previts
Excerpts ---
Click Here
http://snipurl.com/gerrymueller
http://books.google.com/books?id=AJVMGhLy-sEC&pg=PR9&lpg=PR9&dq=Flesher+Biography+%22Gerhard+Mueller%22&source=bl&ots=ke6Ixd4eYY&sig=caAPec9xbxIALLaj0pdfOXSW3Ww&hl=en&ei=2qBjTYD2JcSAlAeOmd3gCw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBkQ6AEwAA#v=onepage&q=Flesher%20Biography%20%22Gerhard%20Mueller%22&f=false
Although I've known Gerry and Coralie for years, we became much closer in the
years that we were both on the Executive Committee of the American Accounting
Association. Because there was significant outside funding for our EC meetings
in those years, we had some wonderful trips with spouses to places like
Amsterdam and
Puerto Rico and Hawaii. When we met outside the U.S., Gerry usually had a
purpose. For example, when we met in Amsterdam he organized meetings where we
interacted with leaders of European accounting education. Gerry had more global
contacts in accounting education than any person I've ever known other than the
very, very long term serving international accounting professor Paul Garner.
These were exciting times for the Executive Committee because it was a time when
the Big Eight accounting firms gave the AAA $4 million to establish the
Accounting Education Change Commission ---
http://aaahq.org/AECC/history/cover.htm
Gerry Mueller was instrumental in organizing the entire AECC Program.
For
36 years when Gerry was at the University of Washington he was arguably the
best known international accounting professor in the world. Gerry grew up in
Germany and was fluent in several languages (including difficult German
dialects). In addition to his various books on international accounting, Gerry
chaired the doctoral dissertations of some outstanding international accounting
students.
In addition to serving a AAA President, Gerry was on the FASB for a full five
year appointment before he retired.
Gerry served the accounting profession and the Academy very well and was a mover
and shaker in the globalization of accountancy.
My life is much richer for having served with Gerry!
"Bankruptcy Laws Drive Corporate Default Rates," Stanford Graduate
School of Business News," January 2011 ---
http://www.gsb.stanford.edu/news/research/Strebulaev_bond_default.html?cmpid=alumni&source=gsbtoday
Permissive bankruptcy laws, not bad business
downturns, seem to be the greatest cause of corporate bond defaults,
according to Professor Ilya Strebulaev, co-author of a study that researched
150 years of figures.
When it comes to corporate defaults, the current
recession is, as of now, child's play in comparison not only to the Great
Depression, but another little-recalled period: the railroad crisis of
1873–1875.
New research from Stanford shows that over the past
150 years, the U.S. corporate bond market has repeatedly suffered clustered
default events. In a surprise finding, the study reveals that default
episodes are only weakly related to bad business downturns. Rather, they
seem to be a function of permissive bankruptcy laws.
Ilya Strebulaev, associate professor of finance at
the Stanford Graduate School of Business and Spence Faculty Scholar for
2010-2011, and three other researchers have developed the first set of data
on bond defaults and debt prices reaching back to the 19th century. Their
information, much of it hand-collected from historical financial records,
has allowed for the first analysis of the relationship between various
macroeconomic conditions –– business cycles –– and financial cycles, such as
banking crises.
Continued in article
Jensen Comment
Congress tightened the rules against personal bankruptcy laws without
sufficiently tightening the corporate bankruptcy laws..
A Must Read
Educause: Emerging Trends in Education Technology ---
http://www.insidehighered.com/news/2011/02/09/qt#250713
Educause and the New Media Consortium have released
the
2011 Horizon Report, an annual study of emerging
issues in technology in higher education. The issues that are seen as likely
to have great impact:
- Over the next year: e-books and mobile
devices.
- From two to three years out: augmented reality
and game-based learning.
- From four to five years out: gesture-based
computing and learning analytics.
Bob Jensen's threads on education technology are at
http://www.trinity.edu/rjensen/000aaa/0000start.htm
The AACSB Bridge Program for Increasing Accounting Faculty Without PhD
Degrees in Accountancy ---
http://www.aacsb.edu/bridgetobusiness/default.asp
Actually the AACSB Bridge Program cuts across all business concentrations
(accounting, management, finance, etc.). There are fewer universities that
"bridge" accountants, and to be honest with you I never was optimistic that the
Bridge Program would significantly impact the supply of accounting faculty, What
I had not anticipated was the accompanying Pilot program that has been quite
successful under the leadership of Kansas State's Dan Deines.:
"The Accounting Pilot and Bridge Project," by Joe Bittner, Dan Deines,
and Glenda Eichman, New Accountant, February 2011 ---
http://newaccountantusa.com/Accounting_Pilot_and_Bridge_Project.pdf
The pilot course is a full-year course, based on
approximately 90 – 100 contact hours with students from August/September
through May/June. It is a rigorous, college-level course that emphasizes
analytical and decision-making skills, and uses an integrated approach to
teach financial accounting, managerial accounting, and financial statement
analysis concepts. The course is structured so that students make business
decisions and analyze the impact of those decisions on financial statements.
As a result, students learn the critical role that accountants play in
business.
To participate in the pilot course, teachers must
attend an intensive three-day professional development workshop that offers
subject-specific training on the content of the course, best practices for
teaching accounting, and a forum for exchanging ideas about how to implement
the course and exam. Now entering its fifth year, the Accounting Pilot and
Bridge Project has trained approximately 450 teachers nationwide.
Continued in article
Management Education at Risk (AACSB, 2002) ---
http://www.aacsb.edu/publications/thoughtleadership/management-education-at-risk.pdf
Business School Faculty Trends in 2008 ---
http://www.aacsb.edu/dataandresearch/reports/Faculty-Trends-Selected-Highlights.pdf
The Sad State of Accounting Doctoral Programs ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
"Has the HAL 9000 Finally Arrived?" by Robert Plant, Harvard
Business Review Blog, February 9, 2011 ---
Click Here
http://blogs.hbr.org/cs/2011/02/has_the_hal_9000_finally_arriv.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Key Words: Artificial Intelligence, AI, Stanley Kubrick and Arthur C.
Clarke's
2001: A Space Odyssey
Best Undergraduate Business Schools According to Business Week ---
http://www.businessweek.com/bschools/special_reports/20110303best_undergrad_bschools.htm?link_position=link1
Bob Jensen's threads on the controversies of media rankings of colleges ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
In 2007, Kate Reiling enrolled in the Tuck School of
Business at Dartmouth, specifically to develop a business plan for Morphology
"B-School Startups: The Birth of Morphology A bitter cold night in
Minnesota spawns a hit board game for a Tuck MBA entrepreneur," by Sommer
Saadi, Business Week, January 31, 2011 ---
http://www.businessweek.com/bschools/content/jan2011/bs20110128_553324.htm?link_position=link2
Editor's Note: This story is part of
Bloomberg Businessweek's occasional series
on the world of startups. The series focuses on MBAs and undergraduate
business students who developed their ideas or launched their businesses
while still in school and the many ways their schools helped them get their
new ventures off the ground. For a look at some business students trying to
build their own businesses, check out our
slide show.
Kate Ryan Reiling's big idea came on a freezing
Minnesota night in 2002. It was too cold to venture out, so Reiling and her
friends decided to stay in and play board games. They didn't like their
choices—Jenga or Pente—so they opted to invent their own game.
What they came up with was something similar to a
3D version of Pictionary. A member of a team picks a word, and using an
assortment of objects, such as string, glass beads, colored cubes, and
wooden sticks, she builds the word for her teammates to guess before time
runs out.
. . .
Crucial Toolkit
In 2007, Reiling enrolled in the Tuck School of Business at Dartmouth,
specifically to develop a business plan for Morphology. She had a good
feeling about Tuck. "There was a really exciting energy around the
entrepreneurship program," she says, "a real sense that this was something
the school was focused on nurturing."
In a course called First-Year Project, taught by
adjunct professor Gregg Fairbrothers, she learned about scheduling and
organization and how to work with investors, suppliers, and distributors.
Fairbrothers calls the course a toolkit for students. "There are a bunch of
things a businessperson needs to learn somewhere, and we're providing an
accelerated, comprehensive way of picking up those tools," he says.
For three-months, Reiling and a few of her
classmates worked on her business idea—and by the end of the course had
refined her prototype and put together a convincing business proposal. So
convincing, in fact, that the venture capitalists evaluating her assignment
were interested in investing. "The whole final presentation was validation
for me that I was onto something," Reiling says. "I realized I had the idea;
now I needed the company."
Despite everything she'd learned in her first year
at Tuck, Reiling wanted more time before she started accepting funding. She
did, however, sell her first prototype to Fairbrothers for $50.
Continued in article
Bob Jensen's threads on edutainment are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
PwC 60-Minute Webcast on Demand: IASB Proposed Changes in Hedge
Accounting ---
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=MSRA-8DXRGY&ContentType=Webcast
Webcast Summary:
The International Accounting Standards Board (IASB) recently issued
proposals to overhaul current hedge accounting requirements under IFRS. Are
you prepared? The IASB proposals address general hedging of financial and
non-financial items and will have an impact on most businesses. To help you
learn more PwC offers this 60 minute on demand webcast highlighting both the
positive aspects of the exposure draft, as well as those areas where it
might not address current problems or have unintended consequences. The
webcast will help you learn more about the proposals so that you can respond
to the IASB by its deadline of March 9, 2011.
Webcast Details:
View this on demand webcast
The IASB just issued
proposals to overhaul current hedge accounting requirements. Are you
prepared?
The International Accounting Standards Board (IASB)
proposals address general hedging of financial and non-financial items and
will have an impact on most businesses.
To help you learn more we offer this 60 minute
on demand webcast. The webcast highlights both the positive aspects of the
exposure draft, as well as those areas where it might not address current
problems or have unintended consequences. The webcast will help you learn
more about the proposals so that you can respond to the IASB by its deadline
of 9 March 2011.
It is presented by Sebastian di Paola, the lead
partner from PwC's Treasury Advisory Practice and Chair of PwC's Corporate
Treasury Technical Committee, and Sandra Thompson, a partner with PwC’s
Global Accounting Consulting Services and a former Senior Project Manager at
the IASB.
This is the only opportunity that you will have
to influence the IASB in finalizing these important proposals.
Message from Ernst & Young on February 10, 2011
To the Point: Hedge accounting - FASB seeks
reaction to IASB's proposed model
The FASB is seeking comment on the IASB's December
2010 hedge accounting proposal. The proposed IASB model would significantly
change hedge accounting, going well beyond the changes the FASB proposed
last year. Notably, the IASB proposes allowing hedges of components of
non-financial risk (e.g., commodity risk) and hedges of net positions that
share a common risk. Based on the feedback it receives, the FASB will
contemplate whether (and how) to incorporate the IASB's ideas into the
FASB's hedging model. Comments are due by 25 April 2011.
Reply from Bob Jensen to the AECM on February 10, 2011
The problem in the Academy is that nearly all
accounting professors do not understand IAS 39 well enough to even
comprehend the awful changes that are being proposed.
I think that the myth that the IASB is trying to make hedge accounting more
transparent and less complex is just that --- a myth.
In the message below Ernst & Young does not mention my biggest gripe about
the IASB's proposal. Replacing hedge effectiveness guidelines (such as the
80-125 dollar offset guideline in IAS 39) with ambiguities does not
constitute simplification. What it really does is complicate both the task
of auditing and the task of financial statement analysis.
Ernst & Young does hit hit on two changes below that also greatly complicate
auditing and financial statement analysis.
.
The IASB proposed changes are yet another illustration that "the road to
hell is paved with good intentions."
The problem in the Academy is that nearly all accounting professors do not
understand IAS 39 well enough to even comprehend the awful changes that are
being proposed.
Respectfully,
Bob Jensen
Bob Jensen's tutorials on FAS 133 and IAS 39 are at
http://www.trinity.edu/rjensen/caseans/000index.htm
"Seven Tough Questions for the 'Cloud'," by Rick Telberg, CPA
Trendlines, February 9, 2011 ---
http://cpatrendlines.com/2011/02/08/seven-tough-questions-for-the-cloud/
Wow! A torpedo just hit the second home market in New York to say nothing of
condos owned for incidental use by out-of-state (read that Florida) residents.
Will out-of-state time share owners also get clobbered by this court decision?
If other states adopt this aggressive tax, it might go a long way toward killing
the second home lifestyle and real estate market.
"Court: NY Can Tax All Income of Owner of NY Vacation Home Used 17
Days/Year," by Paul Carone, Tax Prof Blog, February 11, 2011 ---
http://taxprof.typepad.com/
Wall Street Journal,
Out-of-State Owners Could Face Tax Bill:
Connecticut and New Jersey residents with a
Hamptons summer cottage or a Manhattan pied-a-terre are about to get a
nasty surprise: New York state wants more taxes from them.
A New York court ruled last month that all
income earned by a New Canaan, Conn., couple is subject to New York
state taxes because they own a summer home on Long Island they used only
a few times a year. They have been hit with an additional tax bill of
$1.06 million. [In
re Barker, No. 822324 (NY Tax App. Jan. 13, 2011).] ....
For years, New York law stated that residents
of another state who spend more than 183 days a year in New York have to
pay taxes on any income they make in this state. But they generally
haven't had to pay New York taxes on income they make outside of the
state or on their spouses' income if they work elsewhere.
Under the recent ruling, this might change for
many out-of-state residents who own vacation homes or apartments here.
In effect, it reinterprets what counts as a permanent residence.
In defining a "permanent place of abode," New
York tax code specifically excludes "a mere camp or cottage, which is
suitable and used only for vacations." New York tax experts say the new
ruling is the first they recall that counts summer homes as permanent
residences. ....
[The judge] ruled that the couple's Long Island
vacation home qualifies under the law as a permanent abode because it
was suitable for living year-round—whether or not the couple actually
stayed in the home wasn't relevant. Under the ruling, if an owner
doesn't spend a single a day in a home it could still count toward a
permanent residence.
The Napeague, Long Island, house was purchased
by John and Laura Barker for $260,000 in 1997, according to court
documents. From 2002 to 2004, the period that was assessed for back
taxes, the Barkers said they spent only [17] days a year at the home,
usually during the summer.
Jensen Comment
It might be a good year for New York residents to buy second homes and condos at
fire sale prices. But don't count too much on making a bundle from the
resale market.
I propose that New Hampshire consider this for all the wealthy out-of-state
second home owners. New Hampshire has no income or capital gains tax, but it
does have a nasty surprise for them in a cash dividends and interest tax (5%)
after a $5,000 deductible.
The following book is more of a practitioner's guide than a course textbook.
But accounting educators and students may find it useful as a reference. The
publisher claims the book is current on PCAOB requirements and differences
between IFRS versus FASB rules for Property, Plant, and Equipment.
Internal Control of Fixed Assets: A Controller and Auditor's Guide
by Alfred King
Wiley ISBN: 978-0-470-53940-8
March 2011
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470539402.html
"What the Demise of Fannie Mae and Freddie Mac Means for the Future of
Homeownership," Knowledge@Wharton, March 16, 2011 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2737
By most accounts, the federally sponsored mortgage
giants Fannie Mae and Freddie Mac did not cause the housing and mortgage
crisis. But they were a big part of the problem, prompting a taxpayer
bailout costing more than $130 billion.
Now, seeking to protect taxpayers from future
meltdowns, the Obama administration wants to phase out the two firms over an
unspecified period and leave the lion's share of the mortgage market to
private lenders. It would be a dramatic change, given that the private
market has shriveled in recent years, leaving Fannie, Freddie and the
Federal Housing Administration to back about 90% of all new home loans. The
administration also proposes a reduced role for the FHA, one that would
focus on providing mortgages for the needy.
How would a phase-out of Fannie and Freddie affect
the availability of mortgages, loan rates and home prices? In the end, would
such a dramatic change be good for homeowners or not?
Opinions vary, and no one can know for sure. The
mortgage and housing markets are complex, and a controlled experiment that
removes Fannie and Freddie but leaves everything else the same is obviously
not possible, says Wharton real estate professor
Todd Sinai. "There's a debate over whether Fannie
and Freddie successfully reduced mortgage rates paid by borrowers, or
increased the mortgage availability for borrowers, or whether they just took
their implicit [government] subsidy and generated higher returns for
shareholders," Sinai says. "If Fannie and Freddie were successful in making
mortgage credit cheaper and more available, then eliminating [them] would
have a negative impact on house prices."
It is not clear that the private market can or
would absorb the volume of business done by Fannie and Freddie, which cover
trillions of dollars worth of loans, according to Wharton real estate
professor
Susan M. Wachter. "That's a good question," she
says, noting that even if the private market were to take over, borrowers
would probably not get the attractive deals they can today.
"The 30-year [mortgage] would become more
expensive," she states, adding that some experts predict a three percentage
point rate rise. With the 30-year, fixed-rate loan now averaging around 5%,
that would take it to 8%, raising the monthly payment for every $100,000
borrowed from $537 to $733. This would make the 30-year fixed loan
"noncompetitive" with adjustable-rate loans, Wachter says. ARMs can offer
lower rates because lenders face less risk, given that they can raise rates
as market conditions change
Jack M. Guttentag, an emeritus professor of
finance at Wharton who runs a website called
The Mortgage
Professor, thinks fixed rates might go up only
three quarters of a percentage point rather than three points. But with the
two firms' loan guarantees removed from the market, lenders would probably
demand larger down payments than they have in the past, and be less willing
to provide loans to those with less-than-stellar credit. Indeed, today's
tight lending standards, a reaction to the recent crisis, could become
permanent.
"Things like qualification standards have become
extremely strict," Guttentag says, noting that it is now all but impossible
for a self-employed applicant to get a mortgage. "The biggest part of it
would be the increase in the down payment; 20% would probably become the
minimum throughout the marketplace."
Larger down payments reduce the lender's risk
because borrowers are reluctant to default if they have equity in the home,
and because a smaller loan relative to the home's value makes it easier for
the lender to recover in a foreclosure. Currently, most lenders require 20%
down payments; a few years ago, however, it was possible to get a loan with
nothing down. The Obama administration wants underwriting standards to
require at least 10%, though the FHA would continue to offer low-down
payment loans to certain less-affluent borrowers.
Planning a Phase-out
Fannie, the Federal National Mortgage Association,
was formed as a government agency in 1938 and was converted to a publicly
traded company in 1968. Freddie, the Federal Home Loan Mortgage Corp., is a
publicly traded company created by the government in 1970 to provide
competition for Fannie. Their primary role is to buy and insure mortgages
issued by private lenders. Some loans stay on Fannie and Freddie's books,
but most are bundled into mortgage securities sold to investors like other
types of government and corporate bonds. Fannie and Freddie provide
investors certain guarantees that interest and principal payments will be
made even if homeowners default.
Continued in article
Bob Jensen's threads on Fannie and Freddie are at the following links:
http://www.trinity.edu/rjensen/2008Bailout.htm
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
In the United Kingdom
"State pension age 'rises' to 70 for anyone under 30: Anyone under the
age of 30 will not receive the state pension until they reach 70 years old under
Government plans to increase the retirement age," by Myra Butterworth By Myra
Butterworth, The Telegraph, March 24, 2011 ---
http://www.telegraph.co.uk/finance/budget/8404788/State-pension-age-rises-to-70-for-anyone-under-30.html
BUSINESS SCHOOLS ON THE THRESHOLD OF UNPRECEDENTED CHANGE DUE TO
GLOBALIZATION
AACSB Task Force Report Addresses the Most Significant Challenge to Business
Schools in 50 years.
February 10, 2011
http://www.aacsb.edu/media/releases/2011/globalization-report.asp
Rarely, if ever, have business schools experienced
change as far-reaching and powerful as the current wave of globalization.
The need for business schools to understand these changes and respond
accordingly is the core tenet of a groundbreaking report—The
Globalization of Management Education: Changing International Structures,
Adaptive Strategies, and the Impact on Institutions—released
today by AACSB International.
In this comprehensive report, the AACSB Globalization of Management
Education Task Force asserts that rising expectations from business and
society for graduates with global competencies, coupled with the increasing
complexity and global connectedness of higher education, command the
attention of business schools around the world. The report’s findings draw
upon results from a survey of AACSB member schools’ collaborative
agreements, a survey of academic thought leaders regarding global content in
curricula, and a series of case studies.
Connecting insights from this research with information gleaned through a
comprehensive review of existing literature and current events, the Task
Force presents a data-driven analysis of the global nature of management
education. According to the Task Force, business schools have just begun to
experience the wide range of implications of globalization, and to realize
the full potential of the opportunities presented.
“The imperative for change is clear. We are at a critical inflection point,
and now is the time for all business schools to respond,” said Task Force
chair Bob Bruner, dean and Charles C. Abbott Professor of Business
Administration at the University of Virginia’s Darden Graduate School of
Business. “Schools must develop approaches that will positively impact
globalization within the business community and broader society.”
But the Task Force
goes beyond simply calling schools to attention. The report presents
insights that will help guide individual school strategy development and
implementation. Focusing on approaches that include curriculum design,
faculty development, and the cultivation of strategic partnerships, the Task
Force challenges all business schools to embrace globalization in ways that
are mission-appropriate, manageable given available resources, and
meaningful to the stakeholders being served.
The report also considers the role of industry-wide initiatives that will
move business schools from keeping pace with the sweeping changes of
globalization to leading the way. “This definitive report reveals important
implications for cross-border alliances, information sharing and
benchmarking, and global quality assurance,” said John J. Fernandes,
president and chief executive officer of AACSB International. “The Task
Force shows that through collaborations with one another and organizations
like AACSB, business schools can accelerate and improve globalization.”
A complimentary electronic copy of The Globalization of Management
Education: Changing International Structures, Adaptive Strategies, and the
Impact on Institutions is available to AACSB member schools and media,
and an electronic or hard copy is available for purchase by the general
public. Please visit the
AACSB Globalization of Management Education Resource Center
for more information.
Jane McGonigal has a message: games are good
"Are Games Good for You? Jane McGonigal, in her latest book and during her
PAX East keynote, talks about the positive effects of playing," by Kristina
Grifantini, MIT's Technology Review, March 16, 2011 ---
http://www.technologyreview.com/blog/editors/26528/?nlid=4250
Jensen Comment
I have my doubts when games become addictive to a point of disproportionate time
allocation vis-a-vis other forms of learning and scholarship..
Bob Jensen's threads on edutainment, including games are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"The Pulse: Faculty and Social Media," Inside Higher Ed,
February 9, 2011 ---
http://www.insidehighered.com/news/2011/02/09/qt#250726
The
February 2011 edition of The Pulse, our monthly
technology podcast by Rod Murray, features an interview with Brian Hughes,
associate director of design, publishing and service at Teachers College's
Library at
Columbia
University. He discusses the best ways to get
faculty members comfortable with using social media in teaching. Find out
more about The Pulse, and listen to selections from its archive,
here.
An Absolute Must Read for Educators
One of the most exciting things I took away from the 2010 AAA Annual Meetings in
San Francisco is a hard copy handout entitled "Expanding Your Classroom with
Video Technology and Social Media," by Mark Holtzblatt and Norbert Tschakert.
Mark later sent me a copy of this handout and permission to serve it up to you
at
http://www.cs.trinity.edu/~rjensen/temp/Video-Expanding_Your_Classroom_CTLA_2010.pdf
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
Bob Jensen's links to accounting news ---
http://www.trinity.edu/rjensen/AccountingNews.htm
Last night on television news a clip was played of a robber in what I think
was a book store. The robber was extremely polite and apologetic when claiming
he would not be doing this if his kids were not hungry. But he insisted on
taking all the cash in the drawer rather than the $40 offered by the store
owner.
On the way out the door the polite robber promised that when he got a job and
was back on his feet again he would pay all of the stolen money back.
Would the store owner have committed such a robbery if the roles were
reversed?
Questions
Are ethics and morality variables that depend upon situational circumstances?
How does Sprite or Pepsi soda fit into the following lecture on morality?
What is heteronomy?
Video: Immanuel Kant Assumes Categorical Imperatives in a World of
Relativity (where we're slaves to our varying necessities)
Professor Sandel @ Harvard University
Here is Professor Sandel’s video introducing Immanuel Kant’s philosophy of
ethics. In my opinion, one of the best lectures on ethics. Below is an extract
for the one hour lesson --- |
http://sleightfraud.blogspot.com/2011/02/video-motives-morality-what-is-right.html
I'm not normally a big fan of Tom Selleck films. But this winter Erika and I
have really enjoyed the mystery series in which Selleck plays the role of a
crusty alcoholic chief of police, Jesse Stone, in a town of last resort
called Paradise. When asked if he shoots to kill or just wound, his automatic
response is the categorical imperative "to kill" followed by reasoning decided
early in his law enforcement career. Although we've not seen the entire series
as of yet, to date all of his victims do not live to see another day.
"Deloitte’s Troubles Bubble To Surface," by Francine McKenna,
re:TheAuditors, January 31, 2011 ---
http://retheauditors.com/2011/01/31/deloittes-troubles-bubble-to-surface/
Mainstream media, and the Financial Crisis Inquiry
Commission, are focused mainly on Ernst & Young as the auditor whipping boy
of the financial crisis. That’s really by default not by design and is
thinly justified. No one has given fly-over journalists anything on a silver
platter that would draw in the rest. Not that there aren’t a number of
reasons to look hard at all of them. They are feigning outrage in the UK.
But here in the US, we treat the audit firms as untouchable.
That doesn’t stop me from highlighting all the
reasons why the rest of the Big 4 should be scrutinized as much or, perhaps,
even more than Ernst & Young for their role in the crisis. And, of course,
you know I believe there’s more than their behavior during the crisis to
warrant significant scrutiny of the industry’s model and its methods. The
popular perception is Ernst & Young is the most vulnerable of the largest
firms because of its troubles with Lehman, but that’s more a public
relations problem than a fact-based conclusion.
Granted, Ernst & Young hasn’t been very good at
crisis communications. In fact, they’ve really sucked at it since last
March. Their delay in responding to the original Lehman Bankruptcy
Examiner’s report and the suit filed by the New York Attorney General is a
case study in how not to respond. Because that’s what they did. Not respond.
They either didn’t respond at all to journalists or issued the standard
auditor response to any lawsuit. That’s the one with two sentences, or one
long one, that includes the phrases “according to GAAP”, “followed all
standards”, “stand by our work”, and “we just stand there”.
Give me a few minutes and I can make a case for
PricewaterhouseCoopers as the one teetering on the edge of the abyss
instead. Or KPMG.
But today, let’s talk about Deloitte.
A few weeks ago I detailed the case of Arnold
McClellan, the Deloitte Tax partner who is accused of using his knowledge of
Deloitte client private equity firm Hellman & Friedman’s acquisitions to
pass insider trading tips to his UK relatives. Deloitte, the firm, is
cooperating with FSA, SEC, and DOJ investigations of these allegations, as
they did in the SEC’s investigations of their other partner inside trader –
former Deloitte Vice Chairman Tom Flanagan. Mr. Flanagan’s case was settled
with the SEC last summer and McClellan’s will eventually be settled, too. In
both cases, Deloitte’s cooperation will save them from fines and sanctions
or even a consent decree requiring them to clean up their compliance act.
How does that translate into trouble for Deloitte?
After all, they’re skating away as a firm from major insider trading
scandals, looking like the good firm. Well…Two serious insider trading
cases, both involving partners and high profile target companies, playing
out during the same time frame equals holes in Deloitte’s internal
compliance processes you can drive a Mack truck through. Whether the SEC or
Deloitte admit it publicly, the heat is on and it’s only a matter of time
before another case bobs to the surface. Or more than one.
How many times can Deloitte claim the firm is being
“duped” by its own partners? Eventually there will be an egregious case
where the firm has to pay a fine or worse. I’m sure there’s already a lot
more headaches in the annual independence process for partners and their
families. If not, both the SEC and the firm are playing with fire.
Last week I wrote in Forbes about the victory for
class action plaintiffs suing Bear Stearns executives and Deloitte for Bear
Stearns’ part in the financial crisis. It’s a major accomplishment to get a
crisis suit past the motions to dismiss, in general but especially
significant, in particular, when thesuit also names the auditor as a
defendant. Deloitte will now be subject to discovery and a trial – if they
don’t settle first – to refute allegations they performed “no audit at all”
at Bear Stearns.
That was the gist of allegations in the UK’s House
of Lords regarding Deloitte’s audit of Royal Bank of Scotland. That failed
bank was nationalized by the British government and never received a “going
concern” qualification in enough time to warn anyone.
Continued in article
Jensen Comment
In spite of the mention of Ernst & Young above, it is my general feeling that
Francine has it in for Deloitte more than the other three of the Big Four
oligopoly. Of course she hammers at all of the Big Four now and then. But
Deloitte seems to ruffle her feathers more than the rest.
Deloitte is the only one of the Big Four that did not sell or spin off its
huge consulting division. However, I don't think, since the days of Andersen,
that consulting is the main threat to auditor independence. The main threat, in
my viewpoint, is that in certain practice offices in all the Big Four audit
firms there are some audit clients too big to not get clean audit opinions.
Bob Jensen's threads on Deloitte and the rest are at
http://www.trinity.edu/rjensen/Fraud001.htm
One of Deloitte's worst audits had to be Washington Mutual just prior to when
this enormous bank with what was probably the worst lending practices of all the
failed banks got a clean opinion with badly underestimated loan losses from
Deloitte. Instead WaMu should've gotten a going concern signal from the auditors
before it went belly up!
"Auditors and Consulting: Claims Of No Conflict Strain Credibility,"
by Francine McKenna, re:TheAuditors, February 14, 2011 ---
http://retheauditors.com/2011/02/14/auditors-and-consulting-claims-of-no-conflict-strain-credibility/
Big 4 audit firms are focusing on growth in their
global consulting businesses but the conflicts that drove
three out of four of the firms to sell them after
Enron are a bigger problem than ever before. Deloitte was the only firm that
held on to its consulting arm after abuses of the privilege of doing
everything for clients resulted in prohibitions in the Sarbanes-Oxley Act of
2002 on the scope of services auditors could provide.
Between 2000 and 2002, in response to the new
rules, the IT consulting practices of four of the Big five accounting firms
were either sold to public companies or spun off and IPO’d.
- In February 2000, Ernst & Young Consulting
was sold to Cap Gemini.
- In February 2001, KPMG Consulting (later
BearingPoint, Inc.) was floated with an IPO. (This IPO was delayed and
re-priced several times in order to wait until more favorable market
conditions after the millennium change, but finally took place and then
went nowhere.)
- In July 2001, Accenture (known as Andersen
Consulting before its split from Arthur Andersen) also went through an
IPO.
- In October 2002, PricewaterhouseCoopers
Consulting was sold to IBM. (They failed on their first attempt to sell
to HP.)
Only Deloitte Consulting did not, in the end,
separate from Deloitte & Touche.
Since the end of 2006, however, the audit firms
have been rebuilding their consulting arms. All the largest accounting
firms, including Deloitte, are making
acquisitions and
hiring to expand consulting practices. Fee increases from advising companies
on Sarbanes Oxley started slowing down significantly in 2006 and other
regulatory changes such as IFRS and XBRL mandates have seen repeated delays.
M&A went into a slump that only now looks to be recovering slightly and the
financial crisis caused significant contraction in the population of large
financial services audit clients.
Global highlights via
CPA Trendlines and
International Accounting Bulletin
The report found that fee pressure is still
widespread, but easing, and this has hit the audit sector hardest.
However, revenues from audits have actually increased for most networks,
with PwC taking the lead and Deloitte following.
Tax was the strongest performer, buoyed by a
strong demand in transfer pricing work and international tax advice and
PwC led the way in this sector too. The mid-tier are starting to make
more noise in the sustainability services market, which continues to
grow, but corporate finance, IPO services and transaction support remain
flat
- Only four networks failed to grow revenue,
a complete turnaround in fortunes from last year
- Deloitte takes the mantle as the world’s
largest professional services network for the first time in history
- Deloitte reports $9 million more global
revenue than PwC, the slenderest margin
- Consulting growth alone (12%), including
major acquisitions in the US (Bearing Point) and UK (Driver’s Jonas)
help propel Deloitte to top spot
- PwC is still the largest global audit firm
and has the largest tax business. The steady growth in these core
businesses in comparison to Deloitte places the network in a good
position for 2011
Service lines
- Fee pressure still widespread in the
developed economies although it is easing
- Audit the hardest hit by fee pressure
although audit revenue from most networks increased. PwC is the top
audit firm followed by Deloitte
- Tax was the strongest performer, buoyed by
a strong demand in transfer pricing work and international tax
advice. PwC leads tax followed by E&Y
- Advisory/consulting was a mixed bag with
some networks growing particularly well and others losing out. There
is healthy demand for risk management, internal audit and due
diligence services
- Sustainability services continues to grow
and the mid-tier are starting to become more involved
One of the selectively booming non-audit businesses
has been workouts or bankruptcy advisory. PwC’s
huge long-term engagement with the Lehman bankruptcy in the UK is a
prime example. Some of PwC’s financial services audit clients
JPMorgan Chase and Bank of America also grew
because of acquisitions during the crisis. Combined with their audit of
Goldman Sachs and involvement in
Treasury TARP activities, non-audit revenues are
growing for PwC. But revenues and profitability are distributed unevenly by
geography and service line in all the firms. Although Deloitte overtook PwC
as the largest global firm in revenue this past year, those rankings are not
only based on the firms own un-audited, self-reported figures, but show a
definite emphasis on consulting and advisory services as a growth engine
versus audit.
Continued in article
Bob Jensen's threads on audit professionalism and independence are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism
"Auditors’ Independence: An Analysis of Montgomery’s Auditing Textbooks in
the 20th Century"
by Hossein Nouri and Danielle Lombardi
Accounting Historians Journal
June 2009
http://umiss.lib.olemiss.edu:82/articles/1038280.7113/1.PDF
On the Dark Side
For nearly two decades I've updated a Web document called "The Dark Side" in
which I post things that worry me about advances in education and communication
technology ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Business Week now has a very long cover story that fits right into "The Dark
Side." I don't consider myself a prude or a religious nut. But this trend in
networking most certainly discourages me about how technology sometimes eats
away at morality and good name of technology. This is yet another dark side
tidbit on the evils of technology that goes along with ID theft, malware
spreading, Internet frauds, porn, plagiarism, malicious hacking, and the like. I
was a bit surprised to find this article in Business Week rather than
Newsweek or Time Magazine.
.
The infidelity economy may be "alive, well, and profitable." But so is porn!
Those of you teaching about advances in social networking should also cover
the emerging dark sides of social networking.
"Cheating, Incorporated: At Ashley Madison's website for "dating,"
the infidelity economy is alive, well, and profitable," by Sheelah Kolhatkar
, Business Week, February 10, 2011 ---
http://www.businessweek.com/magazine/content/11_08/b4216060281516.htm?link_position=link2
Do you want to have an affair?
After hearing an ad on Howard Stern's radio show or
seeing a schlocky commercial on late-night TV, you might find yourself on
AshleyMadison.com—the premier "dating" website for aspiring adulterers. Type
in the URL, and as the page loads a gauzy violet backdrop appears with a
fuzzy image of a half-dressed couple going at it beyond a hotel doorway.
"Join FREE & change your life today. Guaranteed!"
Setting up a profile costs nothing and takes about
12 seconds. First you check off your availability status: "attached male
seeking females," "attached female seeking males," or, even though the
concept of the site is that all users are in relationships and therefore
equally invested in secrecy, "single female seeking males." Next you're
asked for location, date of birth, height and weight, and whether you're
looking for something "short term," "long term," "Cyber affair/Erotic Chat,"
"Whatever Excites Me," and so on. If you're like me, you choose a handle
based on the cupcake you most recently ate—"redvelvet2"—and then shave a few
years and pounds off your numbers.
Once you provide an e-mail address that your spouse
would presumably never have access to, you're thrust into Ashley Madison's
low-tech pink and purple interface. And then, if you're a woman, the
onslaught begins.
Continued in article
February 12, 2011 reply from Francine McKenna
Bob,
Maybe you forgot it was
that terrible Ashley Madison.com site, the one that advertises on CNBC
and wanted to advertise on the Superbowl that lured the poor Ernst &
Young partner into a debauched life of inside trading and illicit love
triangles.
Bad, bad internets...
http://nymag.com/daily/intel/2009/07/insider_trading_as_common_as_f.html
In the fall of 2004, a fortysomething investment
banker named Donna Murdoch logged into Ashley Madison, the discreet
dating website married people visit "when divorce is not an option," and
introduced herself to James Gansman, a partner at Ernst & Young in New
York. The two struck up a relationship, meeting occasionally in hotels
in Philly, New York, and California, and talking on the phone about
their lives: James told Donna about how he was kicking ass at work,
Donna told James about how she was struggling with her subprime mortgage.
Eventually the two settled into a
comfortable day-to-day routine in their respective offices in New
York and Philadelphia, staring at the same Yahoo Finance screen.
Sweet. Bill and Melinda Gates used to do kind of
the same thing when they were long-distance dating. They'd see the same
movies in different places and then talk about them on the phone. We
just though we'd mention that, because that's the kind of information we
have trapped inside our brains, and we hope that by releasing it we can
make room for other things. Anyway, Donna and James's relationship did not go
the way of Bill and Melinda's.
Eventually, their conversations about
business grew more specific.
Mr. Gansman led Ms. Murdoch in a
guessing game about which deals he was working on, she said. "The
game was that I wouldn't be looking and he would give me hints: The
market cap of two billion or market cap of 400 billion, and here's
what they do, and he'd read it to me, and ultimately make sure I
guessed," Ms. Murdoch testified. Before long, the guessing game fell
away. Mr. Gansman told her more directly about upcoming deals of
Ernst clients, she said.
She made $400, 000 off the deal, and the SEC
noticed. He made nothing, and now he's going to jail. The end.
Insider Affair: An SEC Trial of the Heart [WSJ
via Business
Insider]
Francine McKenna
Managing Editor
@ReTheAuditors on
Twitter
312-730-4884
February 12, 2011 reply from Jagdish Gangolly
Bob, Steve,
The forensic practices at the Big 4 are WAY ahead
of the accounting academia in using the technology to cover the dark side of
social networking in e-discovery. We in the accounting academia have been
too busy regressing to take note.
I know of at least two who used it extensively in
fraud examination as far back as 2008. They demonstrated its use to me while
I was designing our fraud examination course.
One commercial product that is popular is attenex.
See
http://www.jurinnov.com/attenex.asp
Jagdish
Bob Jensen's threads on social networking are at
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob Jensen's threads on The Dark Side ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Bob Jensen's threads on Education Technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
"Brazil Merry Go Round – KPMG Acquires BDO Who Acquires Crowe Howarth…,"
Big Four Blog, March 30, 2011 ---
http://www.big4.com/blog/brazil-merry-go-round-%E2%80%93-kpmg-acquires-bdo-who-acquires-crowe-howarth%E2%80%A6-707
BDO is in need of a large infusion of cash
BDO = Big Dollars Out
BDO = Big Dollars Out
"$91M awarded in Batchelor case: A jury in Miami awarded millions to the
estate and foundation of the late George Batchelor, settling a nine-year-old
lawsuit," Miami Herald, February 1, 2011 ---
http://www.miamiherald.com/2011/02/01/2044270/91m-awarded-in-batchelor-case.html
A Circuit Court jury in Miami decided on Monday
that the accounting firm BDO Seidman should pay the late
philanthropist/aviation pioneer George Batchelor's estate and foundation $91
million for ``fraudulently'' concealing false information about a company in
which Batchelor had invested.
The award consists of $55 million in punitive and
$36 million in compensatory damages.
Steven Thomas of the Venice, Calif., firm Thomas,
Alexander & Forrester, is lead Batchelor attorney. He said he thought that
the punitive damage award was so hefty because ``BDO, right up to the end,
denied it had a public duty -- and public is literally their middle name:
CPA.''
A lawsuit filed in 2002 -- the year that Batchelor
died at age 81 -- alleged that BDO Seidman covered up erroneous financial
statements during an audit of Grand Court Lifestyles, a Boca Raton
owner/manager of ``senior'' communities. Batchelor had invested in Grand
Court, which filed for bankruptcy in 2000.
The jury decided that BDO owed the estate $34.4
million and the foundation $2.3 million in compensatory damages.
Thomas said that the entire award ``goes into the
Foundation, which means dozens of organizations in Miami that are funded by
the Foundation may be getting additional monies.''
Batchelor, who founded Arrow Air and Batch Air, had
given an estimated $100 million to South Florida causes that benefited
children, animals, the environment and medical facilities before he died.
The foundation continues supporting many of those charities.
In a written statement, the accounting firm said it
``strongly'' disagreed with the verdict and planned to appeal.
Continued in article
"Prosecutors on defensive in BDO Seidman fraud case," by Andrew
Longstreth, Reuters, February 4, 2011 ---
http://www.reuters.com/article/2011/02/04/accounting-intimidation-idUSN0424891620110204
NEW YORK, Feb 4 (Reuters Legal) - Federal
prosecutors who ignited a legal firestorm five years ago for pressuring the
accounting firm KPMG to stop paying its former employees' legal fees are
facing the same accusations in another high-profile tax-fraud case.
BDO Seidman case has similarities to KPMG
The defendant in this case, Denis Field, ex-CEO of
BDO Seidman, the world's fifth largest accounting firm, claims Manhattan
prosecutors intimidated his former firm into curtailing and eventually
cutting off payments to his lawyers. In recently filed court papers, he
claims that the government deprived him of his constitutional right to
counsel and seeks dismissal of the case. Field alleges that among other
tactics, prosecutors threatened to indict the firm if it kept funding his
defense. During a hearing on Thursday, U.S. Judge William Pauley III of the
Southern District of New York, who is presiding over the case, closely
questioned prosecutors about the accusations. A ruling is expected soon.
The controversy touches on the common arrangement
among U.S. companies of paying the legal fees of executives. It raises the
question of whether a government attempt to meddle with this practice
amounts to depriving a defendant of his or her lawyer -- which could
constitute a violation of the right to counsel under the 6th Amendment.
The Field prosecution, in which he is charged with
creating phony tax shelters, is strikingly similar to the KPMG matter. That
case was thrown out in 2007 after U.S. Judge Lewis Kaplan found that
prosecutors had improperly "coerced" KPMG into cutting off the legal fees of
13 former KPMG partners and employees. "KPMG refused to pay because the
government held the proverbial gun to its head," Kaplan wrote.
Two of the prosecutors called out by Judge Kaplan
-- Stanley Okula and Shirah Neiman -- have also been involved in the Field
case, a fact that is prominently noted by Field's lawyers in their motion to
dismiss. "The reason for the government's conduct is obvious -- as with
KPMG, the prosecutors believed BDO 'should not pay the fees' of allegedly
culpable individuals," Field's lawyers argue. They cited the KPMG case no
fewer than 50 times in their brief. Okula and Neiman declined comment, as
did a spokesperson for the Manhattan U.S. Attorney's office.
Continued in article
Bob Jensen's threads on BDO are at
http://www.trinity.edu/rjensen/Fraud001.htm
Vundabar: Getting Out of IFRS ---
http://www.youtube.com/watch?v=205BqSO6lwk
"Bloomberg: NYSE deal means U.S. accounting (FASB Standards) for all,"
Reuters, February 11, 2011 ---
http://www.reuters.com/article/2011/02/11/us-exchanges-bloomberg-idUSTRE71A5O020110211
Merging the iconic New York Stock Exchange with
Germany's Deutsche Boerse AG will force European
companies to switch to using U.S. accounting rules which have superior
disclosures, Mayor Michael Bloomberg said on Friday.
"This will force a common set of accounting
standards on the world; the American disclosures are better," Bloomberg said
on his weekly WOR radio show, though he admitted U.S. rules did not prevent
Bernard Madoff from swindling billions of dollars through a Ponzi scheme.
U.S. rulemakers have been working on aligning their
accounting standards with international rules used by more than 100
countries, including European nations. The U.S. Securities and Exchange
Commission has said it will decide some time this year whether to require
U.S. companies to switch to international standards.
The next "natural link" for the Boerse and the Big
Board, the centuries-old symbol of U.S. capitalism owned by NYSE Euronext,
would be with Latin American exchanges, said the mayor, a political
independent and former trader.
"It's all pretty much a common time zone," he said,
explaining linking with Asian exchanges might be more difficult.
Bloomberg previously said the NYSE-Boerse deal will
benefit New York City at London's expense by broadening both exchanges'
markets and on Friday he said that New York's ability to remain a global
financial center hinges on attracting the people who work in financial jobs
outside of the exchange.
Floor-trading is dwindling as machine-driven
activity rises, which is one of the reasons the exchanges are exploring a
merger. "It is the jobs outside the exchange and support the exchange that
are going to be here," Bloomberg said.
Saying the best way to keep businesses in New York
was keeping crime rates low and making it a desirable place to live,
Bloomberg listed one other requirement for a global financial capital.
"In order to have a great financial center you have
to be an English-speaking country," or one in which many people speak
English because this is the world's business language, he said.
Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Artificial Intelligence ---
http://en.wikipedia.org/wiki/Artificial_intelligence
"Watson Is Far From Elementary: Question-answering machines like
IBM's 'Jeopardy!' champion will eventually force us to change what we learn and
how we think," by Stephen Baker, The Wall Street Journal, March 14,
2011 ---
http://online.wsj.com/article/SB10001424052748704570904576180954262138300.html
In the weeks since IBM's computer, Watson, thrashed
two flesh-and-blood champions in the quiz show "Jeopardy!," human
intelligence has been punching back—at least on blogs and opinion pages.
Watson doesn't "know" anything, experts say. It doesn't laugh at jokes,
cannot carry on a conversation, has no sense of self, and commits bloopers
no human would consider. (Toronto, a U.S. city?) What's more, it's horribly
inefficient, requiring a roomful of computers to match what we carry between
our ears. And it probably would not have won without its inhuman speed on
the buzzer.
This is all enough to make you feel reinvigorated
to be human. But focusing on Watson's shortcomings misses the point. It
risks distracting people from the transformation that Watson all but
announced on its "Jeopardy!" debut: These question-answering machines will
soon be working alongside us in offices and laboratories, and forcing us to
make adjustments in what we learn and how we think. Watson is an early
sighting of a highly disruptive force.
The key is to regard these computers not as human
wannabes but rather as powerful tools, ones that can handle jobs currently
held by people. The "intelligence" of the tools matters little. What counts
is the information they deliver.
In our history of making tools, we have long
adjusted to the disruptions they cause. Imagine an Italian town in the 17th
century. Perhaps there's one man who has a special sense for the weather.
Let's call him Luigi. Using his magnificent brain, he picks up on
signals—changes in the wind, certain odors, perhaps the flight paths of
birds or noises coming from the barn. And he spreads word through the town
that rain will be coming in two days, or that a cold front might freeze the
crops. Luigi is a valuable member of society.
Along comes a traveling vendor who carries a new
instrument invented in 1643 by Evangelista Torricelli. It's a barometer, and
it predicts the weather about as well as Luigi. It's certainly not as smart
as him, if it can be called smart at all. It has no sense of self, is deaf
to the animals in the barn, blind to the flight patterns of birds. Yet it
comes up with valuable information.
In a world with barometers, Luigi and similar
weather savants must find other work for their fabulous minds. Perhaps using
the new tool, they can deepen their analysis of weather patterns, keep
careful records and then draw conclusions about optimal farming techniques.
They might become consultants. Maybe some of them drop out of the weather
business altogether. The new tool creates both displacement and economic
opportunity. It forces people to reconsider how they use their heads.
The same is true of Watson and the coming
generation of question-answering machines. We can carry on interesting
discussions about how "smart" they are or aren't, but that's academic. They
make sense of complex questions in English and fetch answers, scoring each
one for the machines' level of confidence in it. When asked if Watson can
"think," David Ferrucci, IBM's chief scientist on the "Jeopardy!" team,
responds: "Can a submarine swim?"
Continued in article
Mr. Baker is the author of "Final Jeopardy—Man vs. Machine and the
Quest to Know Everything" (Houghton Mifflin Harcourt, 2011).
A computer that lacks common sense, unfortunately,
isn't an oddity. Maybe it should be.
Henry Lieberman,
MIT
"Watson on Jeopardy, Part 2: The IBM machine's mistakes offered insights
about how it works," by Henry Lieberman, MIT's Technology Review,
February 16, 2011 ---
http://www.technologyreview.com/blog/guest/26396/?nlid=4141
What Watson failed to realize was that the word
"leg," by itself, wasn't actually an answer to the question. This is common
sense for people, because "leg" is an anatomical part, not an anatomical
oddity, though Watson did realize that legs were involved somehow. What
happened here might have been something more profound than a simple bug.
David Ferrucci, Watson's project leader, attributed the failure to the
difficulty of the word "oddity" in the question. To understand what might be
odd, you have to compare it to what isn't odd—that is to say, what's common
sense. A problem with Watson's approach is that if some sentence appears in
its database, it can't tell whether someone put it there just because it's
true, or because someone felt it was so unusual that it needed to be said.
A computer that lacks common sense, unfortunately,
isn't an oddity. Maybe it should be.
Henry Lieberman is a
research
scientist who works on artificial intelligence at the Media Laboratory
at MIT.
An audit firm that lacks common sense, unfortunately, isn't an oddity.
Maybe it should be.
In the context of Repo 105/108 auditing of Lehman and C12 Capital Management
auditing at Barclays where common sense should've prevailed but did not prevail
in order to facilitate accounting deception. What happened to the common sense
auditors? ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
"Spitzer Calls Accountants 'Facilitators' for Corporate Abuse," by
Michael Cohn, Accounting Today, February 8, 2011 ---
Click Here
http://www.accountingtoday.com/debits_credits/Spitzer-Calls-Accountants-Enablers-Corporate-Abuse-57235-1.html?ET=webcpa:e1282:133851a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_020811
Former New York Governor and Attorney General Eliot
Spitzer took aim at corporate influence in politics and blamed accountants,
as well as lawyers and bankers, for allowing companies and their CEOs to get
away with dodgy valuations and overblown compensation.
During a speech Tuesday at the New York University
School of Law, sponsored by the American Constitution Society for Law and
Policy, Spitzer derided the Obama administration’s increasing acquiescence
to corporate America, including the recent extension of the Bush-era tax
cuts.
“We have created a class in our society of what I
call facilitators,” said Spitzer. “Facilitators — and we’re all part of it —
lawyers, investment bankers and accountants. Our purpose is to be hired to
justify the actions that are being taken by CEOs and others to run their
businesses, and over time what has happened is that we have lost our
backbone. We have lost our willingness to stand up and say, ‘Stop.’ There
are a bunch of reasons for this. I’ve been in private practice and I know
how those pressures are. We don’t like to look at our clients and say, ‘No,
you can’t do that. I’m not writing an opinion letter that justifies that
valuation.’ We don’t like to write a letter to the CEO saying, ‘No, you
don’t deserve a 50 percent bonus.’ Those things don’t happen very often
because we succumb to the pressures of our clients.”
Continued in article
Jensen Comment
Aside from his adulterous use of a prostitution ring, Spitzer has had some
integrity lapses himself such as lying about campaign contributions, using
campaign donations to pay for prostitutes, and the hiding of bribes ---
http://en.wikipedia.org/wiki/Eliot_Spitzer#Scandal_and_resignation .
As Attorney General and Governor of New York, he did take some unusual measures
to combat corruption in state government, including orders to state police to
conduct surveillances of some top legislators.
Be that as it may, Spitzer is a top Harvard Law School graduate and in
total seems to be dedicated, as a liberal Democrat, to fighting corruption in
the private as well as the public sectors. Since the Kennedy era it seems more
difficult for the public to forget sex scandals --- in part because of the
changed practice of the media in no longer hiding those scandals from the
public. Many of the affairs of John and Bobby Kennedy were suppressed by the
press until after they were dead. Spitzer will probably never rise again to high
office, but he will continue to be a force using his media jobs to hammer at
corruption. It would, however, be better if he accompanied his future articles
with more examples and facts.
Spitzer earned his reputation as a crime fighter by taking on the Gambino mob
in the NYC area. Now he wants to take on the Big Four mob and the Wall Street
mob. He's got guts.
Bob Jensen's threads on accounting and auditing scandals are at
http://www.trinity.edu/rjensen/Fraud001.htm
Where were the auditors? ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
"What to Ask Your Company's Auditors," by Robert C. Pozen, Harvard
Business Review Blog, February 16, 2011 ---
Click Here
http://blogs.hbr.org/cs/2011/02/what_to_ask_your_companys_audi.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Despite Sarbanes Oxley, corporate executives still
seem awfully good at keeping their boards in the dark. I find it hard to
blame board members, though. They're deluged with lengthy reports — not
least because of Sarbanes Oxley — and it's hard to know what information
they should be worrying about.
So what can board members — specifically audit
committee members — do about this problem? I personally find it helpful to
ask the company's external auditor for answers to four relatively simple
questions:
- Are there any transactions going on that occur
repeatedly at the end of quarters or financial years? It's reasonable
enough if a company engages in a complex transaction in response to a
unique set of circumstances. But if it's doing a lot of similar things
near the end of a reporting period then the audit committee should know
why.
- What material items could be presented
differently? For some financial information, accounting standards may
allow different forms of presentation. Committee members should be fully
briefed on whether and why the company decided to use or not use a
particular reporting convention on a material item where there was a
choice.
- What does the competition do differently?
Committee members need to know about any material differences in
significant accounting policies between the company and its four or five
main competitors. This comparative analysis should cover polices such as
revenue recognition, warranty obligations, retirement plan obligations,
tax reserves, and valuation of goodwill or other intangibles. Some of
the differences in accounting treatment will be down to how the
companies run their businesses; others will represent accounting
judgments that the committee should fully understand.
- How do market analysts rate the reporting?
Analysts are quick to point out what they perceive as accounting
gimmicks used by companies to improve their revenues or net income. They
typically get to a company's core earnings by stripping away these
gimmicks as well as non-recurring items, changes in tax rates, and
gains/losses from currency movements. The less a company's analysts do
this, the better the quality of the report.
All these pieces of information should be sent to
the audit committee at least one week before the committee meets. During
that week, the chairman of the audit committee should informally discuss
with the auditor's engagement partner any specific issues raised by this
information and more generally any "close calls" in the financial reports.
Continued in article
Jensen Comment
Additional Questions:
1 What's the added audit fee to get you to agree to underestimating loan
loss reserves by 98%?
2 What's the added audit fee for letting us recognize revenue, like Lehman
Bros., from repo sales that are certain to be returned?
3 What do you charge for one of those Barclays M12 structured deals on
poison transfers to former ex-wives?
Super Teacher Joe Hoyle lists the five biggest mistakes of teachers in
classrooms ---
http://joehoyle-teaching.blogspot.com/2011/03/big-mistakes.html
I might add that in terms of pedagogy Joe is almost 100% Socratic Method.
His criticisms tend to be somewhat more appropriate for Lecture Method
enthusiasts.
For example, using too much PowerPoint is often more of a problem of a lecturer
vis-a-vis a case method teacher.
Socratic Method ---
http://en.wikipedia.org/wiki/Socratic_method
The big question mark in Socratic Method is whether a teacher ultimately
certifies the best answers.
Former Harvard case method enthusiast Bill Bruns claimed to almost never give
his blessings on particular answers.
He felt students should walk away still debating in their heads the answers
given in case discussions by fellow students.
This is why "Teaching Notes" provided to instructors using Harvard Cases are
often terribly disappointing to instructors seeking answer sheets.
Perhaps this is why Tuck's Richard Sansing will not provide Teaching Notes to
cases that he shares on the AAA Commons.
The Oxford Handbook of Credit Derivatives (Oxford Handbooks)
Customers who have purchased or rated
Credit Derivatives: Instruments, Applications, and Pricing (Frank J. Fabozzi
Series) by Mark J. Anson PhD CFA might like to know that The Oxford
Handbook of Credit Derivatives (Oxford Handbooks) will be released on March
22, 2011. You can pre-order yours by following the link below.
Actually only $67 at Amazon.
"UK banker jailed for insider trading," by Jane Croft and Brooke
Masters, Financial Times, February 2, 2011 ---
http://www.ft.com/cms/s/0/691281a6-2f00-11e0-88ec-00144feabdc0.html?ftcamp=rss#axzz1D5kTPnWC
A high-flying banker who netted £590,000 by trading
on secret merger information he obtained at work has been jailed for more
than three years, in what a judge described as the “biggest prosecution for
insider trading ever brought” in Britain.
Christian Littlewood, who earned an annual salary
of more than £350,000 working for Dresdner Kleinwort and Shore Capital ,
received the longest UK sentence for insider dealing after pleading guilty
to illegal trading over a period of eight years.
The case marks the first successful criminal
prosecution brought by the Financial Services Authority against a banker who
was still working in the City at the time of his arrest. It is part of a
deliberate decision by the watchdog to prioritise cases against City
professionals and provide “credible deterrence” against market abuse.
Mr Littlewood’s Singaporean-born wife, Angie,
received a suspended prison sentence. Her friend, Helmy Omar Sa’aid, who did
much of the actual trading, was sentenced to two years in prison and faces
deportation.
All three had previously pleaded guilty to eight
counts of insider trading in stocks such as Viridian Group and RCO Holdings
based on secret price-sensitive information supplied by Mr Littlewood. The
trio invested £2.15m in trades and netted £590,000 in profits.
Sentencing the trio, Mr Justice Leonard QC said
there was no doubt that the number of “unscrupulous investment bankers”
using inside information “exceeds the number of people prosecuted for such
offences”.
The judge rejected Mr Littlewood’s attempt to
transfer culpability to his wife by arguing that he was not aware of the
scale of the trading conducted by her and Mr Sa’aid. Mr Justice Leonard
found that trading had been done by Mrs Littlewood “on behalf of the two of
you”.
Continued in article
Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"University of Georgia Coach Sentenced for Not Reporting Income From Camps,"
by Paul Caron, Tax Professor Blog, February 5, 2011 ---
http://taxprof.typepad.com/
Former University of Georgia cheerleading coach
Marilou Braswell on Friday was ordered by U.S. District Court Chief Judge C.
Ashley Royal to pay $90,900 in restitution for not filing income tax returns
from the money she received from cheerleading camps in 2003 and 2004 and
sentenced to serve five years probation. She earned $27,641 in 2003 and
$22,143 in 2004 in salary from the university and collected $708,278 and
$538,005 from the cheerleading camps in those years. The camp tuition
included housing in university dormitories, food in university dining halls
and practice time in the university coliseum, but the university had to
threaten to sue her to recover more than $300,000 for unpaid expenses
associated with the camps. Ms. Braswell was fired after a Jewish cheerleader
complained that her chances of making the team were hurt because she didn't
participate in Bible studies and pregame prayers. (Atlanta
Journal-Constitution,
Associated Press.)
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Free Open Sharing Tutorials, Videos, and Course Materials
Bob Jensen's threads on open sharing lectures, videos, and course
materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's threads on free tutorials and videos in various academic
disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#EducationResearch
1,400+ Open Sharing "Tutorials" On YouTube from a Harvard Business School
Graduate
Khan Academy Home Page ---
http://www.khanacademy.org/
This site lists the course categories (none for accounting)
"A Self-Appointed Teacher Runs a One-Man 'Academy' on YouTube: Are
his 10-minute lectures the future?" by Jeffrey Young, Chronicle of Higher
Education, June 6, 2010 ---
http://chronicle.com/article/A-Self-Appointed-Teacher-Runs/65793/?sid=wb&utm_source=wb&utm_medium=en
The most popular educator on YouTube does not have
a Ph.D. He has never taught at a college or university. And he delivers all
of his lectures from a bedroom closet.
This upstart is Salman Khan, a 33-year-old who quit
his job as a financial analyst to spend more time making homemade lecture
videos in his home studio. His unusual teaching materials started as a way
to tutor his faraway cousins, but his lectures have grown into an online
phenomenon—and a kind of protest against what he sees as a flawed
educational system.
"My single biggest goal is to try to deliver things
the way I wish they were delivered to me," he told me recently.
The resulting videos don't look or feel like
typical college lectures or any of the lecture videos that traditional
colleges put on their Web sites or YouTube channels. For one thing, these
lectures are short—about 10 minutes each. And they're low-tech: Viewers see
only the scrawls of equations or bad drawings that Mr. Khan writes on his
digital sketchpad software as he narrates.
The lo-fi videos seem to work for students, many of
whom have written glowing testimonials or even donated a few bucks via a
PayPal link. The free videos have drawn hundreds of thousands of views,
making them more popular than the lectures by the Massachusetts Institute of
Technology, famous for making course materials free, or any other
traditional institution online, according to the leaders of YouTube's
education section.
Mr. Khan calls his collection of videos "Khan
Academy," and he lists himself as founder and faculty. That means he teaches
every subject, and he has produced 1,400 lectures since he started in 2006.
Now he records one to five lectures per day.
He started with subject matter he knows best—math
and engineering, which he studied as an undergraduate at MIT. But lately he
has added history lectures about the French Revolution and biology lectures
on "Embryonic Stem Cells" and "Introduction to Cellular Respiration."
If Mr. Khan is unfamiliar with a subject he wants
to teach, he gives himself a crash course first. In a recent talk he
explained how he prepared for his lecture on entropy: "I took two weeks off
and I just pondered it, and I called every professor and everyone I could
talk to and I said, Let's go have a glass of wine about entropy. After about
two weeks it clicked in my brain, and I said, now I'm willing to make a
video about entropy."
Some critics have blogged that this learn-as-you-go
approach is no way to run an educational project—and they worry that the
videos may contain errors or lead students astray.
But to Mr. Khan, occasional mistakes are part of
his method. By watching him stumble through a problem, students see the
process better, he argues. Sometimes they correct him in comments on his
YouTube videos, and he says this makes students more engaged with the
material. "Sometimes when it's a little rough, it's going to be a better
product than when you overprepare," he says.
The Khan Academy explicitly challenges many of
higher-education's most sacred assumptions: that professional academics make
the best teachers; that hourlong lectures are the best way to relate
material; and that in-person teaching is better than videos. Mr. Khan argues
that his little lectures disprove all of that.
Watching his videos highlights how little the Web
has changed higher education. Many online courses at traditional colleges
simply replicate the in-person model—often in ways that are not as
effective. And what happens in most classrooms varies little from 50 years
ago (or more). Which is why Mr. Khan's videos come as a surprise, with their
informal style, bite-sized units, and simple but effective use of
multimedia.
The Khan Academy raises the question: What if
colleges could be retooled with new technologies in mind?
College From Scratch Mr. Khan is not the only one
asking that question these days.
Clay Shirky, an associate teacher at New York
University and a popular Internet guru, recently challenged his more than
50,000 Twitter followers with a similar thought exercise:
"If you were going to create a college from
scratch, what would you do?"
Bursts of creativity quickly Twittered in, and Mr.
Shirky collected and organized the responses on a Web site. The resulting
visions are either dreams of an education future or nightmares, depending on
your viewpoint:
All students should be required to teach as well,
said @djstrouse. Limit tenure to eight years, argued @jakewk. Have every
high-school senior take a year before college to work in some kind of
service project away from his or her hometown, said @alicebarr. Some
Twittering brainstormers even named their fictional campuses. One was called
FailureCollege, where every grade is an F to desensitize students to failure
and encourage creativity. Another was dubbed LifeCollege, where only life
lessons are taught.
When I caught up with Mr. Shirky recently, he
described the overall tone of the responses as "bloody-minded." Did that
surprise him?
"I was surprised—by the range of responses, but
also partly by the heat of the responses," he said. "People were mad when
they think about the gap between what is possible and what happened in their
own educations."
Mr. Shirky declined to endorse any of the Twitter
models or to offer his prediction of how soon or how much colleges will
change. But he did argue that higher education is ripe for revolution.
For him the biggest question is not whether a new
high-tech model of higher education will emerge, but whether the alternative
will come from inside traditional higher education or from some new upstart.
Voting With Their Checkbooks Lately, several
prominent technology entrepreneurs have taken an interest in Mr. Khan's
model and have made generous contributions to the academy, which is now a
nonprofit entity.
Mr. Khan said that several people he had never met
have made $10,000 contributions. And last month, Ann and John Doerr,
well-known venture capitalists, gave $100,000, making it possible for Mr.
Khan to give himself a small salary for the academy so he can spend less of
his time doing consulting projects to pay his mortgage. Over all, he said,
he's collected about $150,000 in donations and makes $2,000 a month from ads
on his Web site.
I called up one of the donors, Jason Fried, chief
executive of 37signals, a hip business-services company, who recently gave
an undisclosed amount to Khan Academy, to find out what the attraction was.
"The next bubble to burst is higher education," he
said. "It's too expensive for people—there's no reason why parents should
have to save up a hundred grand to send their kids to college. I like that
there are alternative ways of thinking about teaching."
No one I talked to saw Khan Academy as an
alternative to traditional colleges (for one thing, it doesn't grant
degrees). When I called a couple of students who posted enthusiastic posts
to Facebook, they said they saw it as a helpful supplement to the classroom
experience.
Mr. Khan has a vision of turning his Web site into
a kind of charter school for middle- and high-school students, by adding
self-paced quizzes and ways for the site to certify that students have
watched certain videos and passed related tests. "This could be the DNA for
a physical school where students spend 20 percent of their day watching
videos and doing self-paced exercises and the rest of the day building
robots or painting pictures or composing music or whatever," he said.
The Khan Academy is a concrete answer to Mr.
Shirky's challenge to create a school from scratch, and it's an example of
something new in the education landscape that wasn't possible before. And it
serves as a reminder to be less reverent about those long-held assumptions.
Jensen Comment
The YouTube Education Link ---
http://www.youtube.com/education?lg=EN&b=400&s=pop
I could not find Khan Academy tutorials linked at the above site.
The Khan Academy YouTube Channel is at
http://www.youtube.com/user/khanacademy
The above site also links to a PBS News item about Khan Academy
Khan Academy Home Page ---
http://www.khanacademy.org/
This site lists the course categories (none for accounting)
Although Khan Academy has many general education tutorials and quite a few
things in economics and finance, I could not find much on accounting. One
strength of the site seems to be in mathematics. There is also a category on
Valuation and Investing which might be useful for personal finance.
Bob Jensen's threads on open sharing lectures, videos, and course
materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's threads on free tutorials and videos in various academic
disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#EducationResearch
Before there was a CAPM model there was the seminal portfolio theory
contribution (1952) if Harry Markowitz who later wrote one of the most
remarkable books in the history of economics and finance. Markowitz's
theory was outstanding but the practicality of inverting matrices of the order
of 1,000 or more rows was out of the question, whereupon subsequent Nobel Prize
winners (Treynor, Sharpe, and Lintner) independently developed a more practical
single-index (CAPM) approach for implementing the portfolio theory of Harry
Markowitz. ---
http://en.wikipedia.org/wiki/CAPM
Nobel Laureate Harry Markowitz ---
http://en.wikipedia.org/wiki/Harry_Markowitz
Video (apart from an introduction to Professor Markowitz that is entirely too
long)
Markowitz' views on Modern Portfolio Theory in his own words ---
http://financeprofessorblog.blogspot.com/2011/02/markowitz-views-on-modern-portfolio.html
Aside from accountics research on human behavior, I'm not certain that any
other discovery in history has had more impact on accountics research than the
portfolio risk diversification theory of Harry Markowitz that is the root of the
CAPM single-index model of portfolio risk.
Without the Markowitz portfolio of risk diversification and the subsequent
CAPM accountics research might never have become so dominant in academic
accounting research. In later years new findings about the limitations of a
single index-model risk model like the CAPM became revealed to a point where
many of the accountics research findings over decades of TAR, JAR, JAE, CAR, and
BAR publishing are now in serious doubt. Students can even purchase and
plagiarize from term paper mill essays of the limitations of the CAPM
http://www.coursework.info/GCSE/Business_Studies/Economy___Economics/CAPM_and_its_significance_L117403.html
Also scroll down at
http://www.coursework4you.co.uk/essays-and-dissertations/finance-and-accounting/cost-of-capital/costofcapital.php
The limitations of CAPM, however, do not detract from the outstanding seminal
theory of Harry Markowitz on risk diversification in general.
February 20, 2011 reply from Jagdish Gangolly
Bob,
The following Nobel lecture by Markowitz is one of
the clearest exposition of the genesis of portfolio theory I have come
across:
http://nobelprize.org/nobel_prizes/economics/laureates/1990/markowitz-lecture.pdf
His autobiography is at
http://nobelprize.org/nobel_prizes/economics/laureates/1990/markowitz-autobio.html
I am not surprised, for his book on Portfolio
Selection (one of the readings for an operations research course I took way
back in 1967, when the finance and economics folks had pretty much ignored
it) too is one of the clearest exposition of the mechanics of portfolio
selection decision.
Markowitz also had serendipity on his side. He
stood on the shoulders of Jacob Marschak, Leonard Savage, Milton Friedman,
Tjalling Koopmans, and Milton Friedman among others. It is a pity that
Marschak and Savage did not win the Nobels. Savage dies in 1971 and Marchak
in 1977; the Nobel committee had probably not exhausted bestowing them on
traditional economists palatable to mainstream ones. However, Jacob Marschak,
Markowitz's advisor, may have been the only person all of whose doctoral
students went on to win the Nobels: Markowitz, Hurwicz, and Modigliani.
In the last paragraph of the Nobel lecture
Markowitz talks about his dissertation defense where Milton Friedman argued
that the work was not in Economics. An example of the tunnel vision that
economists usually suffer from.
Jagdish
"Under the Microscope: Microfinance's Latest Growing Pains," Knowledge@Wharton,
February 2, 2011 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2701
The most recent crisis to hit microfinance began in
India's southern state of Andhra Pradesh, where allegations of widespread
over-indebtedness, heavy-handed collection tactics and borrower suicides
have stirred a national debate about regulating the industry.
In October, the state government slapped
restrictions on microfinance institutions that crippled lending and sent
collection rates plummeting along with the share price of SKS Microfinance,
India's largest for-profit microlender. On January 19, the Malegam Committee
Report, released by the Reserve Bank of India, recommended a range of new
regulations for India's microfinance institutions, including interest rate
caps, loan limits and income ceilings for borrowers. Some observers welcomed
the news; doomsayers predicted a credit crunch and industry collapse.
While it is too early to tell how the sector will
respond, the crisis in Andhra Pradesh has sparked heated debate and
soul-searching throughout the world's microfinance community. During a
recent program for microfinance leaders at Wharton's Aresty Institute of
Executive Education, discussion turned repeatedly to questions of
over-indebtedness, rapid industry growth, and the fine line between profits
and purpose.
Continued in article
"Dealing With The Truth ," by Joe Hoyle, Teaching Financial
Accounting Blog, January 23, 2011 ---
http://joehoyle-teaching.blogspot.com/2011/01/dealing-with-truth.html
Jensen Comment
Joe beats around the bush in this posting, but it eventually boils down to grade
inflation and dealing with underachieving students.
February 16, 2011 message from David Albrecht on February 16, 2011
Fascinating look at accounting/auditing in China by
retired PWC
auditor now professor.
http://chinaaccountingblog.com/weblog/untitled-text.html
We're going to eat your lunch.
Mike Milken (to not-for-profit colleges following his
multimillion investment in for-profit ventures)
Now virtually none of the for-profits can make it on their own without Federal
government loans to students. It really turns out that Mike Milken should've
been referring to taxpayers in the above quotation.
"For-Profit Higher Ed: 20 Questions," by Joshua Kim, Inside Higher
Ed, February 20, 2011 ---
http://www.insidehighered.com/blogs/technology_and_learning
1. Who is doing comparative research on the
for-profit educational sector and the professionals who work in this
industry?
2. Where can we find research on the for-profit educational sector that
is unbiased and peer reviewed?
3. What researchers or institutions are conducting research on the
for-profit education sector that presents balanced views of both the
positives and negatives of this growing sector?
4. What can this research on for-profits teach us about the changing
landscape of higher ed?
5. What can this research on for-profits teach us about improving the
quality and affordability of all sectors of the postsecondary education
market, including public and private non-profit institutions?
6. What is life like for a professor at a for-profit university?
7. How does an academic career at a for-profit resemble and differ from
a career at a traditional nonprofit?
8. Does a full-time faculty position for a for-profit include research
and service, or is it all about teaching?
9. Assuming that tenure is not a part of the picture of a for-profit
professor (is this correct?), what sort of academic freedom and
protection do for-profit full-time faculty enjoy?
10. Is a for-profit academic career a viable alternative for a new PhD?
11. How many full-time, teaching gigs exist at for-profits? How does
this number compare to nonprofits?
12. How is the employment picture for full-time professors at
for-profits changing?
13. What proportion of full-time faculty at for-profits have PhDs?
14. Is there a career path from part-time, adjunct faculty to full-time
faculty at a for-profit?
15. What are the proportions for part-timers vs. full-timers across
non-profits and for-profits?
16. What opportunities or forums or places exist for people who work in
the non-profit and for-profit sectors to come together and honestly
discuss what we are doing, and what we can learn from each other?
17. How would we rank for-profits in terms of quality and value for the
money from a student perspective? Does such a ranking exist?
18. How would we compare and contrast the quality of non-profits with
for-profits? Do such comparisons exist?
19. Who would be interested in research on the for-profit education
sector, and why?
20. What are your questions about for-profit higher education?
"Loan-Default Rate at For-Profit Colleges Would Double Under New Formula,"
by Goldie Blumenstyk, Chronicle of Higher Education, February 4, 2011 ---
http://chronicle.com/article/Loan-Default-Rate-at-For-Profit/126250/
Teaching Case from The Wall Street Journal Accounting Weekly Review on
February 25, 2011
Why Investors Can't Get More Cash Out of U.S. Companies
by: Jason Zweig
Feb 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Cash
Management, Consolidations, Income Tax, International Taxation, Tax
Avoidance, Tax Deferrals, Tax Laws, Tax Policy, Taxation
SUMMARY: The article
describes the influence of U.S. tax law on corporations' willingness-or lack
thereof-to repatriate earnings from foreign subsidiaries. The result is that
large cash balances on corporate balance sheets are stashed in foreign
locations and cannot be accessed without paying a large tax bill.
CLASSROOM APPLICATION: The
article is useful in a tax class, and international accounting class
covering global business transactions, or a class covering consolidations.
QUESTIONS:
1. (Advanced) The article opens with the statement that Microsoft
borrowed $2.25 billion in unsecured debt earlier in February, 2011. Define
the term unsecured debt.
2. (Introductory) What is unusual about the fact that Microsoft
issued corporate debt? Has Microsoft explained this unusual circumstance?
3. (Introductory) What are undistributed corporate profits? Why do
U.S. companies' foreign subsidiaries have high balances of undistributed
profits?
4. (Advanced) Do undistributed profits necessarily imply high cash
balances? Explain.
5. (Advanced) How do cash balances maintained in foreign countries
end up showing on U.S. corporations' consolidated balance sheets?
6. (Introductory) What is the problem with companies having too
much cash?
7. (Advanced) Refer to the academic survey research done by
Professor Michelle Hanlon at MIT. Does this research support the answer you
gave about problems with corporations having too much cash? Explain.
Reviewed By: Judy Beckman, University of Rhode Island
"Why Investors Can't Get More Cash Out of U.S. Companies," by Jason Zweig,
The Wall Street Journal, February 19, 2011 ---
http://online.wsj.com/article/SB10001424052748703803904576152492475125636.html?mod=djem_jiewr_AC_domainid
Earlier this month, Microsoft borrowed $2.25
billion in unsecured debt. What in the world possesses a company with $40
billion in cash and short-term securities to go out and borrow money?
Rock-bottom interest rates are one reason. But the
bizarre, byzantine U.S. tax code seems to be another.
Microsoft declined to comment on whether its recent
borrowing was partly driven by tax considerations. But, like many
purportedly cash-rich companies, Microsoft can't bring home much of its cash
without writing a fat check to the Internal Revenue Service.
Politicians have been carping about the more than
$2 trillion in cash sitting idle in corporate coffers even as unemployment
remains high. But much of that cash isn't in the U.S.; it is abroad. And it
isn't likely to come back home unless U.S. tax laws change.
David Zion, a tax and accounting analyst at Credit
Suisse, estimates that the companies in the Standard & Poor's 500-stock
index have "north of $1 trillion" in undistributed foreign earnings, or
profits that have been parked overseas to avoid U.S. tax. Not all of that is
cash; some is in the form of inventories or other assets.
U.S. companies are taxed at up to 35% when they
bring home the earnings generated through the operations of their overseas
subsidiaries. They get a credit for any taxes paid to foreign
governments—but, since the corporate-tax rate in the U.S. is one of the
world's highest, most companies are in no rush to bring the money back
onshore. By keeping those earnings abroad, U.S. companies can indefinitely
defer their day of reckoning with the IRS.
That can put firms in the peculiar position of
having tons of cash offshore that they might need but can't use at home
without taking a tax hit.
The U.S. is the only major country that taxes
foreign earnings of its own companies this way. American investors may not
come out ahead either. In a 2007 survey of executives at more than 400
companies, Massachusetts Institute of Technology economist Michelle Hanlon
found that the desire to avoid the repatriation tax led to a variety of
distortions, most of which end up making companies less efficient.
For example, among the companies that had brought
some profits home to the U.S., 30% had invested in lower-returning foreign
assets rather than pay additional taxes to bring overseas profits back
onshore. Another 56% had borrowed money in the U.S. rather than bring cash
home. And 6% said they had declined to invest in a profitable project in the
U.S. when funding it with foreign earnings would have triggered a tax hit.
These perverse effects can extend even to smaller
companies. Consider Waters Corp., a laboratory-instrument manufacturer based
in Milford, Mass. At last count, Waters had approximately $1.4 billion in
earnings locked up at foreign subsidiaries. Of the company's $830 million in
cash and short-term securities, around 80% sits abroad.
Waters borrowed $200 million last year to pay down
higher-cost debt and "for general corporate purposes." Like many U.S.
companies, Waters is "building up cash outside the U.S. while borrowing in
the U.S.," says Eugene Cassis, its investor-relations director.
"We'd certainly like to be able to bring some of
that money back," he says. "We would have a greater ability to invest here
if we didn't have to pay a 'tollgate tax' to bring the cash home. Current
tax policy creates a slight bias towards acquiring technology or assets
outside the United States."
As the great financial analyst Benjamin Graham long
argued, shareholders are usually better off when companies hold less cash,
rather than more. Too much cash can lead to reckless acquisitions and a
fat-and-happy culture of waste.
But, in this case, it isn't just management that is
making companies sit on too much cash. It is tax policy, too. Congress and
the White House are discussing whether the U.S. should follow the rest of
the world and stop taxing repatriated offshore earnings from companies that
already have paid taxes to foreign governments. Some gnarly technical
details will have to be worked out if the repatriation tax is to be reduced
or eliminated.
Continued in article
Bob Jensen's threads on cash earnings versus accrual earnings ---
http://www.trinity.edu/rjensen/theory02.htm#CashVsAccrualAcctg
Teaching Case from The Wall Street Journal Accounting Weekly Review on
February 25, 2011
For Some, Currency Hedging Is No Gain
by: Dana Mattioli And Chan
R. Shoenberger
Feb 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Foreign
Currency Exchange Rates, Hedging, International Accounting
SUMMARY: A number of
companies are finding fees on options, forward and futures contracts too
high-or reporting of hedging gains and losses too distracting-to justify the
benefits of descreased risk expected in 2011. This assessment, based on
recent reduction in worldwide currency volatility, is leading many to
discontinue foreign exchange transaction and translation hedging activities.
CLASSROOM APPLICATION: The
article is useful to introduce foreign exchange transactions, foreign
currency translation, and hedging activities.
QUESTIONS:
1. (Advanced) What types of contracts to entities with foreign
operations enter into in order to hedge against fluctuations in currency
values? Specifically describe a contract that a company with foreign sales
may enter into, then describe a contract for companies expecting to make
purchases in foreign currencies.
2. (Introductory) Into which of the above categories do you place
Progress Software Corp., the company described in this article?
3. (Advanced) What are the differences among an option contract, a
forward contract, and a futures contract? Which of these types of contracts
did Progress Software use? What situation led the company to use this
contract?
4. (Introductory) What trade off is Mr. Rick Reidy, Chief Executive
of Progress Software, considering in deciding that he will "hold off this
year" on entering into foreign currency hedging contracts?
5. (Advanced) Explain your understanding of the term "natural
hedges."
6. (Advanced) What is the difference between a foreign currency
transaction gain or loss and a financial statement translation gain or loss?
Why might companies want to stop hedging against translation gains and
losses but continue hedging against transaction gains and losses?
7. (Advanced) What is speculation in foreign currencies? Identify a
company cited in the article that you think is engaging in speculation.
Support your assessment.
Reviewed By: Judy Beckman, University of Rhode Island
"For Some, Currency Hedging Is No Gain," by Dana Mattioli And Chan R.
Shoenberger, The Wall Street Journal, February 19, 2011 ---
http://online.wsj.com/article/SB10001424052748703803904576152442756363116.html?mod=djem_jiewr_AC_domainid
Progress Software Corp. is walking away from
currency hedging, bucking a corporate practice that became commonplace in
the wake of the global financial crisis. "This year the price is just too
high for us," says Chief Executive Rick Reidy.
The Bedford, Mass., business-software developer,
which gets 60% of its $529 million in annual revenue outside the U.S., is
joining a small minority of multinationals abandoning or lessening their use
of hedging.
Although companies have hedged currency risks for
decades, widespread use began after the recession stopped the dollar's
downward run and unleashed a period of sharp swings in foreign exchange
rates. Companies with global operations rushed to embrace hedging
instruments such as forward contracts, which let them lock in an exchange
rate in the future at a fixed amount, and options, or the right to buy or
sell a currency for a specific price at some future date.
Progress Software bought a currency option in 2010
after exchange-rate fluctuations the prior year caused its reported revenue
to decline by $30 million. But with such options, essentially year-long
insurance contracts, getting more expensive and currencies becoming less
volatile, Mr. Reidy says he'll hold off this year.
"We are considering doing quarterly [contracts]
that tend to be more reasonable," he says.
Companies that have stopped hedging exchange rates
say they avoid the costs of hedging, which can be steep for thinly traded
currencies or contracts that lock in rates for long periods of time. Others,
such as Nissan Motor Co., which has a longstanding no-hedge policy, say
diversified global operations, create a natural hedge by matching revenue to
expenses in local currencies.
Autoliv Inc., a Stockholm-based seatbelt and airbag
maker, earlier this month said it would continue to rely on natural hedges,
such as its factories in China. Although its fourth-quarter European sales
were down 6%, to $717 million, primarily on unfavorable exchange rates,
Autoliv doesn't plan on purchasing forward contacts, a practice it stopped
in 2004, Chief Financial Officer Mats Wallinsays.
Medical-products maker Becton Dickinson & Co.
stopped hedging its so-called translational exposures—incurred when the
company brings foreign currencies back to the U.S. and converts to
dollars—starting in October, although it still hedges transactions. The cost
of options used for currency hedging became too expensive a few years ago,
says Chief Financial Officer David Elkins, and it began using forward
contracts instead.
In its last fiscal year, Becton reported a roughly
$31 million hedging loss compared with a $100 million hedging gain the prior
year. Executives were spending too much time explaining hedges to investors,
Mr. Elkins says. "We want to do away with that distraction."
Hedging risks are a growing issue for
pharmaceutical investors, says Tony Butler, a managing director at Barclays
Capital, who notes investors have asked him to detail individual companies'
foreign exchange sensitivity. "There was an increasing discussion of
[foreign exchange], away from the fundamentals of the business," he says.
Going cold turkey on hedging can lead to wide
revenue fluctuations as exchange rates change. That isn't a great idea, said
Jiro Okochi, chief executive of Reval, which provides software to help
companies manage foreign exchange, commodities and interest rate risks.
Some investors look for that exposure, says Jeffrey
Wallace, managing partner of Greenwich Treasury Advisors in Boulder, Colo.
"The very large companies sometimes say to their shareholders, 'You bought
me because you wanted global risk, and I'm going to give it to you.'"
For some companies, a switch away from currency
hedging is actually a bet that a currency will move in a certain direction.
Moscow-based Mobile TeleSystems stopped its currency hedging this year and
won't hedge unless the Russian ruble starts to depreciate, says Alexey
Kornya, the company's chief financial officer.
This differs from the company's strategy in 2009
and 2010, when volatility in the markets led the company to hedge heavily.
About 90% of MTS's revenue is derived in rubles, but it is also exposed to
other currencies in Eastern Europe, especially Ukraine, Armenia and
Uzbekistan.
In 2009, the telecommunications operator hedged
about $1.4 billion of its debt portfolio, says Mr. Kornya. In 2010, it only
hedged $200 million of its U.S. dollar exposure and the company moved toward
financing in rubles rather than dollars, he says. This year, Mr. Kornya says
he doesn't see the need to hedge yet, but is keeping a close eye on the
ruble's value. If the trade surplus began to diminish and the ruble
depreciated, the company would take hedging actions, he says.
Continued in article
Bob Jensen's tutorials and videos on accounting for hedging transactions
---
http://www.trinity.edu/rjensen/caseans/000index.htm
Do great books sell themselves?
Apart from the Disappearing Spoons book itself, the article below has
some things to say about book marketing. Some years back I remember receiving
several copies of a book where each copy was contained in a really fancy box.
After reading a goodly portion of the book I decided that the "gift" was more
marketing hype than book content. I really did not care for the book in spite of
really admiring one of the great authors who is also a friend. This book proved
to me that really great scholars can write some pretty bad books --- especially
when they are trying too hard to be creative. The book by the way is entitled:
Thog’s Guide to Quantum Economics: 50,000 Years of Accounting Basics for the
Future
Copyright 2005 by Mike Brown and Zoe-Vonna Palmrose with
Illustrations by Warren Miller.
Distributed by MAC Productions (Duvall, WA), ISBN 0-9764694-0-5.
As of February 20, 2011 Amazon has four copies left and Barnes & Noble has no
copies available.
"Sharing 'The Disappearing Spoon'," by Joshua Kim, Inside Higher Ed,
February 10, 2010 ---
http://www.insidehighered.com/blogs/technology_and_learning/sharing_the_disappearing_spoon
The nicest thing that one person can do for another
is to give a book (maybe that is why I'm such a librarian groupie!). Imagine
my joy when the UPS guy dropped off a big box full of 12 books! Actually 12
copies of
The Disappearing Spoon: And Other True Tales of Madness, Love, and the
History of the World from the Periodic Table of the Elements,
by Sam Kean.
The books were sent by
Amanda Tobier,
a marketing manager at Little, Brown and Company. I
had written a
brief blog about the book, and Amanda reached out
to me wondering if I'd like to share some copies of the book around campus.
I'm not quite sure the best way to pass these books along to my campus
community. Choices include:
or
or
- Give the books to my colleagues in our
Library, as that way they could circulate.
I just don't know.
Any ideas? How would you find loving homes on
your campus for this wonderful book?
Anyway, I was so happy with this box of books I
decided to ask Amanda what motivated her to send it along. Below is a quick
e-mail interview that I did with Amanda:
My Question: Why did you decide to send a
box of the The Disappearing Spoon to me? What were your motivations?
Amanda's Answer: I sent out copies of The
Disappearing Spoon knowing (hoping!) that you would better be able to
find the right academic audience for the book. I’m limited in how I can find
readers of a particular niche, because I am not in that niche myself, so it
is of immeasurable help to have that assistance.
My Question: What do you think would be the best way to get this book
into the "consciousness" or "zeitgeist" of my institution? How do you think
the copies of the book should be distributed.
Amanda's Answer: The best way to get into the zeitgeist is probably
something you know best! Maybe your community responds to contests, or
challenges. The responders who have the funniest/smartest/most unique
request for the book, perhaps. Or maybe it can inspire some short blog posts
of their own—each person who wins a copy would then write up a short review.
Or maybe teachers/students would write about their own favorite element.
My Question: How common is it to send a box of popular nonfiction
books, books that could (and should) be assigned in courses and read by our
faculty / students / staff, to campuses.
Amanda's Answer: Sending out books like this is fairly unusual.
Publishers generally depend on the outreach of their academic marketing
departments, which issue catalogs and attend conferences where faculty can
request books for consideration of adopting for their courses. In seeking
out bloggers like you, I know there is already interest, and it is a more
focused approach. It sometimes also requires more work, but that’s the fun
part of my job.
My Question: You sent a box of hardcover books - but I read the book
in audio format from audible.com. Do you think that there is room for
"seeding" books like this on campus with digital copies (from either e-books
or audiobooks). What would be the pros and cons.
Amanda's Answer: Digital copies are always a possibility, especially
when we are offering enhanced versions of the ebook. It’s a great way to
introduce potential readers to the extra components of an ebook, or an audio
book. There are no cons, I think—it still promotes reading, and readers can
choose how they prefer to view/read/listen to the book.
My Question: How much adoption on college campuses have you seen
around The Disappearing Spoon. Have you worked on other titles (or can you
think of other popular nonfiction books) that have really taken off on
campuses?
Amanda's Answer:The Disappearing Spoon has been adopted by
several schools (that we know of, there could be more.) And we know there
will be many more when the book comes out in paperback this spring. We have
had huge success with all of Malcolm Gladwell’s books, and more recently,
with Jonathan Safran Foer’s book on vegetarianism, Eating Animals.
Continued in article
Teaching Case on Disclosure of Contingent Liabilities
The Financial Accounting Standards Board has tried
twice in the past three years to toughen its rules on loss disclosures. Both
times its attempts were beaten back by opposition from banks and other
companies, who worried stricter rules would force them to disclose too much
and thus tip their hands to legal adversaries.
From The Wall Street Journal's Accounting Review on March 4, 2011
Pressure Spurred Disclosures
by: Michael Rapoport
Mar 02, 2011
Click here to view the full article on WSJ.com
TOPICS: Contingent
Liabilities, Disclosure, Disclosure Requirements, SEC, Securities and
Exchange Commission, Securitization
SUMMARY: Goldman Sachs
Group Inc. disclosed the potential for $3.4 billion additional liabilities
from lawsuits related to repurchasing securities it packaged and sold during
the housing boom. Similar disclosures were made by J.P. Morgan Chase & Co,
Citigroup Inc., Bank of America Corp., American Express Co. and Wells Fargo
& Co. The SEC sent letters advising the financial services companies about
"some of the criteria banks should use in determining potential losses,
including those related to mortgages, to comply with disclosures rules."
CLASSROOM APPLICATION: The
article provides an interesting discussion of disclosure by financial firms
of reasonably possible litigation loss contingencies.
QUESTIONS:
1. (Introductory) Who are the financial firms discussed in this
article? What potential losses are they facing? From what transactions are
these issues arising?
2. (Advanced) Under what authoritative standard must these
financial firms disclose potential losses? Provide a specific reference to
the professional citation of this accounting requirement and state the
reporting requirement.
3. (Introductory) Based on the description in the article, what
judgment is involved in deciding on disclosures to be made about potential
losses?
4. (Advanced) What guidance has the SEC given in order to ensure
these financial firms are meeting the authoritative requirements in this
area? Is this guidance included in the accounting standard itself? Explain,
including in your answer a comment on the role of the SEC in publicly-traded
companies' financial reporting.
5. (Introductory) Why does the author speculate that the Financial
Accounting Standards Board "also may have played a role" in forcing these
additional disclosures?
Reviewed By: Judy Beckman, University of Rhode Island
"Pressure Spurred Disclosures," by: Michael Rapoport, The Wall
Street Journal, March 2, 2011 ---
http://online.wsj.com/article/SB10001424052748703409904576174912720646124.html?mod=djem_jiewr_AC_domainid
What forced Goldman to make the new disclosure?
Regulatory pressure on big banks, as well as a desire to head off
more-stringent accounting rules, pushed the firm and other companies to
better disclose their potential legal losses.
Goldman's move follows similar disclosures from
J.P. Morgan Chase & Co., Citigroup Inc., Bank of America Corp., American
Express Co. and Wells Fargo & Co. All told, those companies face potential
losses that amount to more than $15 billion.
Companies have long had to disclose legal
liabilities in their regulatory filings. Since 1975, companies have been
required to set reserves for probable losses whose approximate amount is
known. The rule says that when there is a reasonable possibility of a loss,
companies don't have to reserve for it but they must disclose it and do
their best to estimate the amount.
The Securities and Exchange Commission gave
companies a pointed reminder of that rule in October, when it sent a "Dear
CFO" letter to various financial-services companies, and recently followed
up with detailed questions. The letter stressed they must disclose their
potential risks and costs in the wake of the mortgage-foreclosure scandal
and the subsequent repurchase demands from investors. It also spells out
some of the criteria banks should use in determining potential losses,
including those related to mortgages, to comply with disclosure rules.
The amounts disclosed aren't expected losses; they
are worst-case scenarios based on losses that have more than a slight chance
of happening, but are less than likely. But what constitutes "reasonably
possible," as the rule states, is open to interpretation. That may lead
banks to use different standards in determining what potential losses should
be disclosed.
Some banks, such as J.P. Morgan and Citigroup,
disclosed more than $4 billion each in additional potential losses. Morgan
Stanley disclosed it is reasonably possible losses are $518 million, as it
had previously disclosed regarding two individual lawsuits.
Linda Griggs, a partner in the securities practice
of law firm Morgan Lewis & Bockius LLP, said that in addition to the "Dear
CFO" letter, SEC staffers have been asking banks more frequently about
disclosures of potential losses when they scrutinize the banks' regulatory
filings. The commission "made it clear they should be better disclosed," she
said.
An SEC spokesman declined to comment. A Goldman
spokesman also declined to comment.
Accounting rule makers may also have played a role.
The Financial Accounting Standards Board has tried twice in the past three
years to toughen its rules on loss disclosures. Both times its attempts were
beaten back by opposition from banks and other companies, who worried
stricter rules would force them to disclose too much and thus tip their
hands to legal adversaries.
In November, however, when the FASB last put off
consideration of a tougher rule, the board said it would review year-end
2010 filings to see if companies were disclosing enough about possible
litigation losses.
Continued in article
Bob Jensen's threads on accounting for contingencies and intangibles are
at
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
"A preliminary psychology of homework," BPS Research, March 15,
2011 ---
http://bps-research-digest.blogspot.com/2011/03/preliminary-psychology-of-homework.html
The beneficial effect of homework, if they get
round to it, on pupils' subsequent academic grades has been shown before.
It's somewhat surprising, therefore, how little research has looked at how
teenagers feel about homework, where they do it and who they do it with.
Hayal Zackar and her team have made a start.
The researchers asked 331 high school and middle school pupils (aged 11 to
18) in the USA to wear for one week a special watch that beeped eight times
a day at random intervals. When the watch went off, the teenagers had to
fill out a brief form indicating what they were doing, who they were with
and how they felt. This process, known as the
experience sampling method, captured a total of
1315 homework episodes in various places.
Continued in article
March 20, 2011 reply from Don Ramsey
I get constant pressure from students to cover
everything in class, and/or to tell them what will be on the exams. I get
the impression that there are at least some instructors in the university
who do that. Doubtless all AECM members get the same pressure.
It seems that at some level we are allowing
students to redefine what a college degree means. At a chapter a week, there
is no way to cover everything in class.
The mode often required by assessment is to specity
learning goals in terms of doing something. Make a Balance Sheet, for
example. Apparently randomly demonstrating insightful understanding and
application (at least Bloom’s third level) of the content of a group of
three chapters in Principles I is asking too much. Thus it seems that
assessment limits learning.
One of the famous officers of the Omaha Beach
landing was Brigadier General Norman Cota, assistant commander of the 29th
Infantry Division (a Md/Va. National Guard division). He found a young
officer and troops facing a house occupied by the enemy and asked how he
intended to take the house. “I don’t know, sir, I never had any training on
that.” Coda got up to the house and tossed in a grenade. Later he said to
the young officer, “You just had your training.”
Donald D. Ramsey, CPA,
Department of Accounting, Finance, and Economics,
School of Business and Public Administration,
University of the District of Columbia,
4200 Connecticut Ave., N. W., Washington, D. C. 20008. (202) 274-7054.
March 20, 2011 reply from Patricia Doherty
I agree, Donald, that assessment is limiting
learning. Like the public schools and state exams, we, too, are teaching to
various assessments - I won't get into the list. And the students are
defining, to a great degree, what they learn, because they own one of the
assessments, course/teacher evaluations. We have to accept it, and do the
best we can within that. I constantly try to fit my goals into what will
work and get us the numbers needed. You can make progress, but it isn't
easy, and it isn't going to be exactly what you want.
My husband remarked just a couple of days ago that
I seem to have a lot more to do than before (in terms of "school work").
He's right, I do. This is more work. I wish I could say that it was more
effective, or "better" but I can't. It's just more. I still love teaching,
but there is lately a little something missing.
I smiled when I read your comment on students
wanting everything taught in class. I always get at least a few comments on
evals that say we "should" go over ALL of the homework problems in class. I
wonder where we'd get the hours? And I KNOW that many of the other students
who don't say this would find that the most boring thing imaginable, since
they've done the problems on their own, and checked their answers against
solutions available in "Connect" online. Of course, the students that want
this are forgetting the purpose of homework, but we won't get into that. I
remember a professor - don't remember his name or school at all - at a
conference I went to, who remarked that a student downgraded him on
evaluations because "I had to read the book to learn the material for the
course." right. Poor you.
Patricia A. Doherty
Department of Accounting Boston
University School of Management
595 Commonwealth Avenue Boston, MA 02215
Upward Trend in Grades and Downward Trend in
Homework ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#HomeworkDeclining
Business ranks at the bottom in terms of
having 23% of the responding students having only 1-5 hours of homework per
week!
This in part might explain why varsity athletes choose business as a major
in college.
"Homework by Major," by Mark Bauerlein, Chronicle of Higher
Education, May 5, 2008 ---
http://chronicle.com/review/brainstorm/index.php?id=422
Stephen’s
post last week
about reading complained that students don’t want any more homework, and
their disposition certainly shows up in the surveys. In the 2006
National Survey of Student Engagement,
almost one in five college seniors devoted five hours or less per week to
“Preparing for class,” and 26 percent stood at six to ten hours per week.
College professors say that achievement requires around 25 hours per week of
homework, but only 11 percent reached that mark.
The 2007 NSSE numbers break responses down by
major, and the homework levels for seniors are worth comparing. Here are
numbers for 15 hours or less.
Arts and Humanities majors came in at 16 percent
doing 1-5 hours of homework per week, 25 percent at 6-10 hours, and 20
percent at 11-15 hours.
Biological Sciences: 12 percent do 1-5 hours, 22
percent do 6-10, and 20 percent do 11-15 hours.
Business: 23 percent at 1-5, 30 percent at 6-10,
and 19 percent at 11-15 hours.
Education: 16 percent at 1-5, 27 percent at 6-10,
and 21 percent at 11-15 hours.
Engineering: 10 percent at 1-5, 19 percent at 6-10,
and 17 percent at 11-15 hours.
Physical Science: 12 percent at 1-5 hours, 21
percent at 6-10, and 18 percent at 11-15 hours.
Social Science: 20 percent at 1-5 hours, 28 percent
at 6-10, and 20 percent at 11-15 hours.
"Rigor Please," by Mike Adams, Townhall, March 20, 2011 ---
http://townhall.com/columnists/mikeadams/2011/03/21/rigor_please
For some time, I have made a habit of asking
students their major (and minor) immediately after they ask me a silly
question. This is necessary because I teach two basic studies courses per
semester – both populated by students from across the spectrum of academic
disciplines. I have found (consistently) that nearly all inane questions and
comments come from students in just a handful of academic majors.
In the past, I’ve gotten myself in hot water for
suggesting that the African American Center, LGBTQIA Center, Women’s Center,
and El Centro Hispano be shut down in order to ease our current state budget
crisis. But, today, I propose that we go further by eliminating all academic
majors and minors ending with the word “studies.”
This is not meant to be prejudicial – although,
having little else to do, the Arrogant American Centers will try to make it
so. Let it be known that I propose eliminating more than just Arrogant
American and Hyphenated American Studies. I also want to do away with
Communication Studies, Environmental Studies, Liberal Studies, Women’s
Studies, and Gay and Lesbian Studies. And I want the cuts to be implemented
across our sixteen-campus system.
The data I plan to use to support my proposal is
not scientific. If it were, the proponents of the various “studies” programs
would not understand it. So I rely principally on an unscientifically
gathered collection of stupid questions I have recently heard from students
in the Fill-in-the-Blank Studies era of higher education. These student
comments demonstrate that their “studies” professors are truly making a
difference in their lives and in the dominant “society”: *At a local grill,
the waitress, a UNCW “studies” major, asked "Would you like a sweet tea or a
beer?" to which I responded "The latter." She then asked, "Which one is
that?" I responded by asking her "Well, why don't you just guess? You have a
fifty-fifty shot at getting it right." She responded by saying "I'm not in
the mood to think."
Just two days before an exam I gave my students a
review session. I told them they could ask any question as long as they did
not ask me what to “focus on.” I explained that asking what to “focus on”
was the same as asking “What is going to be on the test?”
First question: “What should we focus on in chapter
three?”
When I refused to answer, the response was “There’s
just so much to read. Where is our study guide?” (For the record, study
guides are most often found in classes ending with the word “studies.” That
is why “studies” students so often demand them. It’s an addiction).
Another student wrote to tell me she was going to
be missing the next class. Her question was:
“Will we be talking about anything important?” It’s
a fair question. Few of the professors in her major talk about anything
important.
Continued in article
Mike Adams is a criminology professor at the University of North
Carolina Wilmington and author of Feminists Say the Darndest Things: A
Politically Incorrect Professor Confronts "Womyn" On Campus.
Bob Jensen's threads on Tricks and Tools of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"Let’s Have an Adult Discussion About CPA Exam Scores," By Adrienne
Gonzalez," by Jr. Deputy Accountant Adrienne Gonzalaz, Going Concern,
March 25, 2011 ---
http://goingconcern.com/2011/03/lets-have-an-adult-discussion-about-cpa-exam-scores/#more-27540
Jensen Comment
Although Adrienne lives to toss out four-letter words, she's remarkably
restrained (for her) in this tidbit.
Bob Jensen's threads on the CPA Examination are at
http://www.trinity.edu/rjensen/BookBob1.htm#010303CPAExam
Academically Adrift: Limited Learning on College Campuses
"What Really is to Blame?," by Joe Hoyle, March 9, 2010 ---
http://joehoyle-teaching.blogspot.com/2011/03/what-really-is-to-blame.html
By now, everyone who reads this blog has probably
heard of the book “Academically Adrift: Limited Learning on College
Campuses” by Arum and Roksa that basically makes the claim that the
emperor has no clothing by giving evidence that students do not learn much
in their four years in college. If you have missed the release of the book,
you can learn more at the following URL where the authors are quoted as
stating "How much are students actually learning in contemporary higher
education? The answer for many undergraduates, we have concluded, is not
much.”
http://www.insidehighered.com/news/2011/01/18/study_finds_large_numbers_of_college_students_don_t_learn_much
What I find most interesting is that the blame game
has started. Something is obviously wrong so what is to blame? Here are some
culprits that I’ve heard mentioned: grade inflation, lack of education
classes for college professors, the stress put on faculty to do research so
they can’t focus on their teaching, lack of student preparation in K-12,
student evaluations, lack of uniform requirements (students prefer to sign
up for easier teachers – what a shock that one is), the desire of
universities to retain students, increased use of adjuncts, the failure to
reward good teachers appropriately, and on and on.
And, my response is—after 40 years in the classroom—certainly, all of these
are a factor. We have built an education system with so many internal flaws
that I’m surprised it works as well as it does. It is not one problem; there
are many problems. Anyone with their eyes open should have seen this coming.
You’d have to be totally in denial not to have expected these results. The
only thing that surprised me about this study was that anyone was surprised.
. . .
The results of the study also indicated that 35
percent of students said they studied five hours per week or less, with a 50
percent overall decline in the number of hours spent studying compared to
years past.
Sadly, I don’t doubt the data whatsoever. Excluding a small minority, we
study less. I’d go as far to admit that I study less now than I did in high
school. I remember spending hours on my Gateway computer typing up study
guides for exams and writing extensive papers for various AP classes.
According to the study, 50 percent of the students said they didn’t have a
single course that required them to write 20 pages total. I’m not shocked by
that statistic either.
Granted, I am a journalism major and am writing constantly, however I do
have many friends who say that when it comes to writing papers, they simply
aren’t assigned them.
I can recall writing a 30-page research paper on inclusion in elementary
education during my sophomore year of high school.
Thirty pages for one assignment makes all of the assignments from my general
education classes at Richmond look like a two weeks paid vacation.
When I question why it is that we study less I think it all comes down to
one thing: accountability. In high school I was held accountable by my
parents, my teachers, my peers and more importantly, by myself.
If I didn’t put in the effort, I didn’t receive a good grade. And why should
I have? I didn’t deserve one. Which was why I made sure I worked hard —
always.
Accountability is not a word we hear very often in college, at least at this
one. We’re all told that college is supposed to be hard.
That’s when the justifying starts. The fact that I got a C on an
anthropology paper no longer has to do with the fact I wrote it the night
before it was due, rather that I’m not an anthropologist. Justifications
like these make lack of accountability a comfort.
Many professors are just as guilty as their students. Instead of demanding
hard work, effort and, inevitably, respect from his or her students, he or
she attempts to gain respect (possibly in the form of a good evaluation
wink, wink) by catering to the “needs” of students.
Another possible explanation for the decrease in studying, authors of
“Academically Adrift” say, may be that the pressure put on students to be
socially engaged is too great. What do colleges care about? Student
retention.
So a happy student means a student who is doing fun things on and around
campus. Fun things on and around campus mean that student is coming back
next year.
So when the admissions spiel sounds a little like, “We care about your
happiness,” future generations of college students should smile because now
they’re in on the joke.
Data from the CLA survey indicated that students who majored in more
traditional liberal arts studies such as English or philosophy showed higher
levels of critical thinking and writing skills. It makes sense. I can’t
imagine it’d be easy to B.S. your way through an analysis of the Theory of
Forms.
For those of you, like myself, who are questioning your personal improvement
throughout your year(s) spent at University of Richmond, a word of advice:
It’s not too late.
First step: Hold yourself accountable. No one will do it for you.
Second step: Challenge your teachers to challenge
you.
Bob Jensen's threads on higher education controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Death Tax ---
http://en.wikipedia.org/wiki/Death_tax#Future_of_tax_on_inheritances
I should preface this tidbit by stating that I personally prefer high estate
taxes because I think descendants wealthy people should make there own way in
life even though they probably were advantaged with exclusive private school
educations, world travel, and fantastic medical care. Having said this, if a
multimillionaire came to me for advice, I would tell them to avoid certain
states at all costs, including such nice retirement states as Hawaii, Vermont,
and Oregon. The Garden State has nice green grass over its graves but it's a
lousy place to die if you're very wealthy.
If you live in one of the following states it is probably best to call a real
estate agent and a moving van company as quickly as possible. And then die as
soon as possible before Congress brings back the Federal death tax.
"Death Tax Ambush: Many States Now Have Crushing Burdens," The Wall
Street Journal, February 8, 2011 ---
http://online.wsj.com/article/SB10001424052748703960804576120050963075390.html?mod=djemEditorialPage_h
Family business owners, ranchers, farmers and
wealthy retirees can avoid that tax by relocating to Arizona, Florida,
Georgia, Idaho, South Carolina and other states that don't impose
inheritance taxes. There are plenty of attractive places to go.
New research indicates that high state death taxes
may be financially self-defeating. A 2011 study by the Ocean State Policy
Research Institute, a think tank in Rhode Island, examined Census Bureau
migration data and discovered that "from 1995 to 2007 Rhode Island collected
$341.3 million from the estate tax while it lost $540 million in other taxes
due to out-migration."
Not all of those people left because of taxes, but
the study found evidence that "the most significant driver of out-migration
is the estate tax." After Florida eliminated its estate tax in 2004, there
was a significant acceleration of exiles from Rhode Island to Florida.
Continued in article
![](DeathTaxes.jpg)
Slemrod sees US tax/death experiment
Ig Nobel Prize winner Joel Slemrod (of the University of Michigan)
celebrates/rues/assesses a grand US government experiment that will test his
prize-winning theory:
http://improbable.com/2010/01/13/slemrod-sees-us-taxdeath-experiment/
Thank you Paul Polinski for the heads up
A few years ago I called Marc Abrahams offering to
return
my 2001 Ig
Nobel Prize in economics (won jointly with
Wojciech Kopczuk
[of Columbia University).
Our prize-winning research showed that when estate
taxes are known in advance to be changing, some people time their deaths (or
have their deaths timed for them) so as to save their heirs money. The
evidence: in the U.S. history of estate taxes, when tax rates went up, there
were less (than otherwise) deaths after the law change, and when tax rates
went down, there were more deaths after the law change. Not many more (or
less), but a statistically significant amount—and only for those rich enough
that the estate tax actually would apply.
My call to Marc was to inform him that our findings had recently been
replicated in both Australian data and Swedish data. In 2001, the Prize
criterion was for discoveries “that cannot, or should not, be reproduced,”
but now our research had been reproduced (even if arguably it should not
have been.) Marc told me not to worry because after 2001 the Ig criterion
had been changed to achievements that “first make people laugh, and then
make them think” and that our research therefore still qualified.
Continued in article
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/BookBob1.htm#010304Taxation
EDITORS of Issues in Accounting Education
1983–1985 Richard J. Murdock
1986–1988 Robert W. Ingram
1989–1991 Daniel L. Jensen
1992–1995 Frederick L. Neumann
1996–1998 Wanda A. Wallace
1999–2001 David E. Stout
2002–2004 Thomas P. Howard
2005–2007 Sue Pickard Ravenscroft
2008-2010 E. Kent St. Pierre
2011- ? William Pasewark (Texas Tech)
The AAA Executive Committee decision to drop
Issues in Accounting Education and Accounting Horizons followed by
the grass roots Internet movement that blocked this decision and kept the two
journals alive ---
http://www.trinity.edu/rjensen/AAAjournals.htm
PAST EDITORS of Accounting Horizons
1987–1988 R. K. Mautz
1989–1991 Robert J. Sack
1992–1994 Jerry L. Arnold
1995–1997 Helen Gernon
1998–2000 Eugene A. Imhoff, Jr. John C. Burton
2001–2003 James A. Largay III
2004–2006 Robert C. Lipe
2007-2009 Ella Mae Matsumura, David A. Ziebart
2010- ? Dana R. Hermanson (Kennesaw State
University)
History of Accounting Horizons Editorial Policy
---
http://www.trinity.edu/rjensen/TheoryTAR.htm#AccountingHorizons
PAST EDITORS of The Accounting Review
1926–1929 William A. Paton
1929–1943 Eric L. Kohler
1944–1947 A. C. Littleton
1948–1949 Robert L. Dixon ey
1950–1959 Frank P. Smith
1959–1962 Robert K. Mautz
1962–1965 Lawrence L. Vance
1965–1967 Wendell Trumbull
1968–1970 Charles H. Griffin
1971–1972 Eldon S. Hendriksen
1976–1978 Don T. DeCoster
1978–1983 Stephen A. Zeff
1983–1987 Gary L. Sundem
1987–1990 William Kinn
1990–1994 A. Rashad Abdel-khalik
1994–1997 Robert P. Magee
1997–2000 Gerald L. Salamon
2000–2002 Linda Smith Bamber
2002–2005 Terry Shevlin
2005–2008 Dan S. Dhaliwal
2008-2011 Steven J. Kachelmeier
2011- ? John H. Evans, III (Harry) University of
Pittsburgh
History of Editorial Policy of The Accounting
Review ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Also see
http://www.trinity.edu/rjensen/TheoryTAR.htm
Humor Between February 1 and March 31, 2011
The Internet was invented in 1969 and used various protocols (such as FTP)
for transmission of messages and data for about 20 years before the World Wide
Web's HTML protocol was invented ---
http://en.wikipedia.org/wiki/Internet
@ = "about?"
A Bit of Media History when Katie Couric cracks her knuckles
Here's a Today Show video segment demonstrating how some leading figures of the
media were not yet informed about the Internet 25 years after it was invented
and five years after the WWW was invented ---
http://tv.gawker.com/#!5746239/katie-couric-can-you-explain-what-internet-is
Two Mergers and Acquisitions Cases
From The Wall Street Journal Accounting Weekly Review on February 18,
2011
Investors Warm to Big Deals
by: Anupreeta Das and
Gina Chon
Feb 11, 2011
Click here to view the full article on WSJ.com
TOPICS: Mergers
and Acquisitions, Stock Price Effects
SUMMARY: Worldwide
mergers & acquisition activity totals $338 billion so far in 2011, "...a
rate 25% higher than in the same period last year. And in the U.S., deal
volume is more than double last year's rate, which makes 2011 the most
active since 2008." M&A deals this year also are larger--with 12 deals
worldwide, 8 in the U.S., above $5 billion-and are focused on
consolidation "mostly in coal-mining, utilities and exchange companies."
One unusual factor this year: not only are target firm share prices
reacting positively to the transactions, but so are acquiring firms'
share prices. Acquirers usually see their share prices fall as
shareholders expect virtually all of the gains from business
combinations to be paid out to target firm shareholders.
CLASSROOM APPLICATION: The
article is useful to introduce general topics related to mergers and
acquisitions, typically done in an Advanced Accounting class prior to
teaching consolidation accounting.The general tone of the article also
makes it useful for an MBA class.
QUESTIONS:
1. (Introductory) Summarize the current state of mergers and
acquisitions activity in 2011 compared to recent years.
2. (Introductory) What does this M&A activity indicate about
corporate CEO confidence in the overall U.S./North American economy?
Hint: you may also refer to discussion in the related video to answer
this question.
3. (Advanced) "...The deals have had little sizzle, serving to
consolidate mostly coal-mining, utilities and exchange companies." What
does the term "consolidate" mean in this context?
4. (Advanced) How to acquiring firm and target firm share
prices typically react to merger and acquisition announcements? How is
that reaction measured? What is different about shareholder reaction to
2011 M&A activity?
5. (Advanced) How do "low interest rates" lead companies "back
in the M&A game"?
Reviewed By: Judy Beckman, University of Rhode Island
Sanofi, Genzyme May Announce Deal Wednesday
by: Gina Chon and
Jonathan D. Rockoff
Feb 16, 2011
Click here to view the full article on WSJ.com
TOPICS: Mergers
and Acquisitions
SUMMARY: On
Wednesday, February 17, 2011, Sanofi-Aventis and Genzyme announced that
they had reached a deal for acquisition of Genzyme. The companies'
boards agreed to a cash deal of about $19 billion plus contingent
payments, leading the total to over $20 billion. "Now comes the hard
part: making the marriage work."
CLASSROOM APPLICATION: The
primary and related articles list factors to be considered that may
inhibit success of an acquisition useful in introducing business
combinations in an advanced financial accounting class or an MBA class.
QUESTIONS:
1. (Introductory) Summarize this acquisition transaction. What
is the strategic purpose behind the transaction? What is the
consideration being paid, and to whom is it being paid?
2. (Advanced) Describe the process of negotiations culminating
in the deal announcement described in this article. In your answer,
define the phrase hostile takeover.
3. (Advanced) Categorize this acquisition as either vertical,
horizontal, or conglomerate. Support your assessment.
4. (Introductory) What pitfalls have beset acquisitions in the
pharmaceutical industry? What factors indicate whether or not this
business combination might face similar difficulties?
5. (Introductory) What are contingent payments in an
acquisition? What purpose do they serve in this deal for Sanofi-Aventis
to acquire Genzyme?
Reviewed By: Judy Beckman, University of Rhode Island
"Investors Warm to Big Deals," by: Anupreeta Das and Gina Chon, The
Wall Street Journal, February 11, 2011 ---
http://online.wsj.com/article/SB10001424052748704132204576136553233927870.html?mod=djem_jiewr_AC_domainid
The big takeover deal has come back, reflecting
increased corporate confidence and economic recovery. What should hearten
prospective deal makers is how the stock market has reacted to the
transactions: It has loved them.
Across the globe, deal volume stands at $338
billion so far this year, a rate 25% higher than in the same period last
year. And in the U.S., deal volume is more than double last year's rate,
which makes 2011 the most active since 2008.
The deals are getting bigger, too. In 2011, there
have been 12 deals valued above $5 billion, eight of them in the U.S.,
according to Dealogic. There were only two such deals in the U.S. at the
same time last year.
For all their size, the deals have had little
sizzle, serving to consolidate mostly coal-mining, utilities and exchange
companies. There was Alpha Natural Resources Inc.'s $7.1 billion deal to buy
Massey Energy Co., a $13.7 billion merger of utility companies Duke Energy
Corp. and Progress Energy Inc., and this week, the planned deal between
London Stock Exchange Group PLC and Canada's TMX Group Inc., the company
that owns the Toronto and Montreal exchanges.
One of the big differences from past merger
run-ups: Investors are sending the acquirers' stock prices up, not down,
after the deals are made public.
Shares of iron-ore producer Cliffs Natural
Resources Inc. rose nearly 3% on Jan. 11 after it announced a deal for rival
iron-ore producer Consolidated Thompson Iron Mines Ltd. for about $5
billion.
On Monday, Danaher Corp. agreed to pay $5.87
billion for Beckman Coulter Inc., which makes diagnostic equipment used in
medical testing. Danaher is paying a 45% premium on Beckman shares, usually
a sum that sparks acquiring-company shareholders to fear the company is
spending too much. But Danaher stock rose on the news, as investors cheered
the industrial conglomerate's move into a new, high-growth sector of life
sciences. Swelling middle-class populations in emerging markets such as
China and India are expected to drive demand for preventive medical care, of
which clinical testing is a central feature.
Deutsche Bank analyst Nigel Coe called the deal
"strategically coherent" and said the low cost of financing the deal, given
the state of credit markets right now, will add more to Danaher's earnings.
Wall Street has welcomed these deals because many
of these industries were ripe for consolidation before the recession, but
deal-making was put on hold as the debt markets shut down and companies
preferred to hold on to their cash.
For instance, Deutsche Börse AG and NYSE Euronext
talked seriously about a deal in 2008 and 2009, but the fragile global
economy discouraged a cross-border merger. The two are now close to a tie-up
to form a company with a putative market value of $25 billion, and a deal
could be sealed next week. The Big Board's stock shot up as much as 18% on
news of the latest talks, which followed Tuesday's merger news between the
owners of the London and Toronto exchanges. Shares of those companies
climbed 9% and 4%, respectively.
"We saw a time period in 2009 and even in early
2010 when CEOs were primarily focused on tactical opportunities, but today
they're focused more on strategic opportunities," said Jack MacDonald,
co-head of Americas M&A at Bank of America Merrill Lynch.
Danaher, for instance, has had its eye on
diagnostics companies for years. It was a confluence of factors, including
the improving economy, with "headwinds dissipating, tailwinds getting
stronger," that helped it seal a deal for Beckman, Danaher Chief Executive
Lawrence Culp said in an interview Monday.
Low interest rates, strong corporate performance in
2010 and a sense that the global economy is moving forward have put
companies "back in the M&A game," he added.
Continued in article
"Sanofi, Genzyme May Announce Deal Wednesday," by: Gina Chon and
Jonathan D. Rockoff, The Wall Street Journal, February 16, 2011 ---
http://online.wsj.com/article/SB10001424052748704409004576146350470325700.html?mod=djem_jiewr_AC_domainid
Sanofi-Aventis SA is expected to acquire Genzyme
Corp. for about $19 billion in cash, plus possible additional payments in
the future, in a deal that could be announced as soon as Wednesday, people
familiar with the matter said.
After Sanofi initially considered trying to obtain
a slightly lower price, the parties largely agreed to the broad terms that
they originally negotiated when Sanofi was given access to Genzyme's
financial books on Jan. 31, these people said.
Talks are continuing and final details are still
being worked out, these people added. The boards of both companies were
meeting Tuesday and an announcement could come in the morning European time,
ahead of Genzyme's earnings announcement.
As part of that broad agreement, Sanofi agreed to
raise its offer from $69 a share to about $74 a share in cash, or about $19
billion, people familiar with the matter said.
Genzyme investors also would receive a so-called
contingent value right, or CVR, that would entitle them to additional
payments if the company meets certain sales goals. The CVR, which investors
would be able to trade on a stock exchange, would have an initial trading
value of at least $2 a share, people familiar with the matter said.
After Sanofi finished its due diligence on Genzyme,
Sanofi executives pushed to change some of the original terms, and therefore
some of the criteria for the CVR have been adjusted, these people added.
Details of the terms of the CVR are still being finalized, they said.
The CVR would have an eventual value of between $5
and $6 a share if Genzyme meets sales targets for a drug used to treat
leukemia, which is also being tested against multiple sclerosis. The future
payments could be worth as much as $14 a share over the long term in the
best-case scenario for sales of the drug to multiple-sclerosis patients,
according to people familiar with the matter.
Sanofi didn't find any major issues in its
examination of Genzyme's financial books and manufacturing facilities. There
was a risk for Genzyme that Sanofi could discover some problems, given that
the Cambridge, Mass., biotechnology firm is still recovering from
manufacturing issues that temporarily shut down a Genzyme production
facility in 2009.
A CVR is often used when parties can't agree on
price. One of the issues between Sanofi and Genzyme is their differing
predictions on the sale of the multiple-sclerosis drug. Genzyme has
predicted those sales could reach $3.5 billion in 2017, a projection Sanofi
has said is too optimistic.
Sanofi has been pursuing Genzyme for months, but
the biotechnology firm had refused to talk to Sanofi because of its $69 a
share offer, which Genzyme said was too low. In August, Sanofi made an
unsolicited bid for Genzyme, and went hostile with its offer in October.
Some of Sanofi's biggest products, including the
cancer drug Taxotere and the blood-thinner Lovenox, have lost sales to
generic rivals, while another big drug, the blood thinner Plavix, is
expected to confront generic competition in 2012. Plavix accounted for about
9% of Sanofi's $40 billion sales last year. Sanofi also suffered a research
setback last month, when a breast-cancer drug it was testing didn't work as
expected in a late-stage study.
Continued in article
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/theory.htm
"General Mills Nears $1.1 Billion Deal to Buy Half of Yoplait," by
Chris V. Nicholson, The New York Times, March 18, 2011 ---
http://dealbook.nytimes.com/2011/03/18/general-mills-set-to-buy-yoplait-stake-for-1-1-billion/?nl=business&emc=dlbka9
"AT&T to Buy T-Mobile: Here’s Why," by Shira Ovide, The Wall Street
Journal, March 20, 2011 ---
http://blogs.wsj.com/deals/2011/03/20/att-buys-t-mobile-heres-why/
For his students, Jim Mahar contrasts these two current illustrations as
vertical versus horizontal mergers (March 22, 2011)---
http://financeprofessorblog.blogspot.com/2011/03/vertical-and-horizontal-deals.html
Computing History Tidbit
"Dot Obits: First Woman to Design Computer," by Curt Hopkins,
ReadWriteWeb Blog, March 25, 2011 ---
http://www.readwriteweb.com/archives/dot_obits_first_woman_to_design_computer.php
How the Internet Began (Humor) ---
http://home.comcast.net/~singingman7777/Beginning.htm
Link forwarded by Barry Rice
Computing History Timeline ---
http://trillian.randomstuff.org.uk/~stephen/history/timeline.html
Also see
http://en.wikipedia.org/wiki/Timeline_of_computing
Media College (New Zealand: Tutorials on Production of Multi-media) ---
http://www.mediacollege.com/
American University Computer History Museum ---
http://www.computinghistorymuseum.org/
The Apple (Computer) Museum ---
http://www.theapplemuseum.com/
A History of Microsoft Windows (slide show from Wired News) ---
http://www.wired.com/gadgets/pcs/multimedia/2007/01/wiredphotos31
Oldcomputers.com ---
http://www.old-computers.com/news/default.asp
From The Wall Street Journal Accounting Weekly Review on February 11,
2011
Weather Whacks Airlines' Revenue
by:
Mike Esterl
Feb 03, 2011
Click here to view the full article on WSJ.com
TOPICS: Cost Accounting, Disclosure, Disclosure Requirements,
Financial Accounting, Managerial Accounting, Revenue Forecast, Revenue
Recognition
SUMMARY: "A whopping 52,742 flights have been canceled at U.S. airports
since Dec. 1, 2010, or 4.98% of those scheduled....The cancellations came in
a period when travel demand is normally weaker anyway and airlines struggle
to reap profits....'Given that the first quarter is always a tough one even
in good years, a major storm that lasts several days and hits several hubs
could make or break the quarter,' said John Heimlich, chief economist at the
Air Transport Association...."
CLASSROOM APPLICATION: The article is useful to help students see the
impact of external shocks such as the weather on company profits and to
understand the disclosure process leading to analysis in the article. It may
be used in any level of accounting class covering revenue recognition, fixed
and variable costs, and quarterly reporting and disclosure.
QUESTIONS:
1. (Introductory) Airline tickets are paid for in advance. Given
that passengers have paid their fares, why do canceled flights cause
revenues to decline?
2. (Introductory) "By flying fewer flights [due to weather-related
cancellations], carriers also lower their costs." What types of costs are
reduced in this way, fixed costs or variable costs? Define each of these
costs in your answer.
3. (Advanced) Why is the first quarter of the year always a "tough
one" for airlines to earn profits, even disregarding the effects of
snowstorms? In your answer, comment on the role of high fixed costs in times
of weak demand and revenues. Are costs reduced when this demand falls as
they are due to weather-related flight cancellations?
4. (Advanced) "...Many carriers don't disclose the financial impact
of storms until weeks later, if at all..." Consider requirements for
quarterly financial reporting. Why should an airline company disclose the
impact of a storm on its revenues and profits? How could a company
management justify not disclosing these effects?
Reviewed By: Judy Beckman, University of Rhode Island
"Weather Whacks Airlines' Revenue," by: Mike Esterl, The Wall Street Journal,
February 3, 2011 ---
http://online.wsj.com/article/SB10001424052748704775604576120531230435802.html?mod=djem_jiewr_AC_domainid
This week's winter storm is cutting into the
revenues of several U.S. airlines, which already were weighed down by rising
fuel prices.
A series of rugged winter weather events since
December already had slashed those airlines' revenues by tens of millions of
dollars, according to the companies involved and industry analysts.
Carriers canceled more than 5,000 flights, or
roughly 20% of those scheduled nationwide, for a second day in a row
Wednesday as the storm barreled across much of the country. Chicago was a
no-fly zone, more than 1,000 flights were canceled in New York and hundreds
more were scratched in Dallas.
A whopping 52,742 flights have been canceled at
U.S. airports since Dec. 1, 2010, or 4.98% of those scheduled, according to
FlightStats, a flight-tracking service. That represented the highest tally
in the past five winters over the same time period and a bit more than
double last winter's rate.
The cancellations came in a period when travel
demand is normally weaker anyway and airlines struggle to reap profits.
"Given that the first quarter is always a tough one
even in good years, a major storm that lasts several days and hits several
hubs could make or break the quarter," said John Heimlich, chief economist
at the Air Transport Association, an umbrella group for U.S. carriers.
Many Wall Street analysts expected most U.S.
airlines to post losses in the first quarter, but to still book a profit for
2011 as more travelers take to the skies and fares increase.
"I think at this point we're talking tens of
millions of dollars in lost revenue. I don't think we're talking hundreds of
millions,'' said Helane Becker, an analyst at Dahlman Rose, of the storms'
impact so far in 2011.
The U.S. airline industry rode a rebounding economy
to its first profit in three years in 2010. But the outlook has turned
cloudy as fuel expenses—which make up 25% or more of carriers' overall
costs—head higher. Each $1 increase in the price of a barrel of crude oil
adds an estimated $400 million to U.S. airline industry costs annually.
Weather has a more muted impact on airlines. By
flying fewer flights, carriers also lower their costs. Many passengers often
rebook on subsequent flights, making for fuller planes and helping further
cut costs.
U.S. airlines also managed to book their first
fourth-quarter profit in a decade in the most recent reporting period ended
Dec. 31, 2010—despite the major December storm that wreaked havoc on holiday
travel.
But many carriers don't disclose the financial
impact of storms until weeks later, if at all, creating uncertainty.
Airlines said Wednesday it was too early to estimate the effect of this
week's storm on their first-quarter financial performance. Some may provide
initial estimates in the coming weeks as they roll out their monthly traffic
reports.
Delta Air Lines Inc., the second-largest U.S.
carrier by traffic, recently estimated that storms in the first half of
January alone would drag down its first-quarter profit by $30 million. It
also disclosed that December storms slashed its fourth-quarter profit by $45
million.
Continued in article
Jensen Comment
Additional considerations when teaching this case include the possible factoring
in of global warming. I read where my wife and I can expect more and more snow
each winter up here in the White Mountains and that other parts of the world can
expect more and more snow, rain, and flooding. The reason is supposedly
increased moisture in the air caused by warmer ocean temperatures. In the past
industries like transportation, hotels, and agriculture factored in "normal"
weather losses in prices. When does abnormal commence to become normal?
And there are tradeoffs. Whereas snow storms in the heartland of the United
States greatly impacted the bottom line of hotels and airlines, here in the
mountains of New England the hotels and ski resorts flourished with increased
business due to the "best" snow depths in decades. Instead of flying to the
Rocky Mountains of the west to ski, many skiers in Boston, Hartford, NYC,
Philadelphia, etc. packed up their cars and headed for the deep snows of
Vermont, Maine, and New Hampshire. How the West was Lost become How the East was
Won.
In 2009 New Jersey, New York, and Connecticut hit residents with the highest
state taxes, but with the enormous tax hikes in such states as Illinois and
California, the top honors may shift in 2011. In 2011 states like New York are
going to tax the incomes of people who own property in New York but spend very
little, if any, time in New York. It would seem that owning second homes in New
York has become a rather dumb decision for people actually living in other
states. The new words of advice: Sell that Sucker in New York!
Note that the "tax burdens" on individuals include state income taxes,
property taxes, and sales taxes as well as other tax burdens. In many states if
they don't get you one way, they hit you in another way. For example, having no
income or sales taxes may shift much of the burden to property taxes. However,
the high tax states in general may be high in most of the types of tax.
California, however, gives some property tax relief to long-time owners because
of the infamous Proposition 13.
The calculations are quite confusing since sales, lodging, and property taxes
on out-of-state visitors and second home owners are reallocated back to states
of residence in somewhat complicated formulas.
"State-Local Tax Burdens Fall in 2009 as Tax Revenues Shrink Faster than
Income: New Jersey’s Citizens Pay the Most, Alaska’s Least," Special
Report 109, The Tax Foundation, February 2011 ---
http://taxfoundation.org/files/sr189.pdf
Table 1
State and Local Tax Burdens by Rank Fiscal Year
2009
State-Local State Tax Burden Rank
U.S. Average 9.8%
New Jersey 12.2% 1
New York 12.1 2
Connecticut 12.0 3
Wisconsin 11.0 4
Rhode Island 10.7 5
California 10.6% 6
Minnesota 10.3 7
Vermont 10.2 8
Maine 10.1 9
Pennsylvania 10.1 10
Massachusetts 10.0% 11
Maryland 10.0 12
Illinois 10.0 13
Arkansas 9.9 14
Nebraska 9.8 15
North Carolina 9.8% 16
Oregon 9.8 17
Ohio 9.7 18
Kansas 9.7 19
Utah 9.7 20
Michigan 9.7% 21
Hawaii 9.6 22
Delaware 9.6 23
Iowa 9.5 24
Indiana 9.5 25
North Dakota 9.5% 26
West Virginia 9.4 27
Idaho 9.4 28
Washington 9.3 29
Kentucky 9.3 30
Florida 9.2% 31
Georgia 9.1 32
Virginia 9.1 33
Missouri 9.0 34
Montana 8.7 35
Mississippi 8.7% 36
Oklahoma 8.7 37
Arizona 8.7 38
Colorado 8.6 39
Alabama 8.5 40
New Mexico 8.4% 41
Louisiana 8.2 42
South Carolina 8.1 43
New Hampshire 8.0 44
Texas 7.9 45
Wyoming 7.8% 46
Tennessee 7.6 47
South Dakota 7.6 48
Nevada 7.5 49
Alaska 6.3 50
Dist. of Columbia 9.6% (24)
Notes: As a unique state-local entity, D.C. is not included in rankings, but
the figure in parentheses shows where it would rank. The local portions of tax
collection figures for fiscal year 2009 rely on projections of local government
tax revenue Sources: Tax Foundation calculations using data from multiple
sources, primarily Census Bureau, Rockefeller Institute, Bureau of Economic
Analysis, Council on State Taxation, and Travel Industry Association.
Bob Jensen's threads on taxation are at
http://www.trinity.edu/rjensen/BookBob1.htm#010304Taxation
A Timeline of Computer Science ---
http://www.scottaaronson.com/blog/?p=524
Jensen Comment
I don't care too much for the above timeline. Why is the slide rule a computer?
Why not the abacus?
I much prefer the following links (that are admittedly in need of updates for
the 21st Century):
Computing History Timeline ---
http://trillian.randomstuff.org.uk/~stephen/history/timeline.html
Also see
http://en.wikipedia.org/wiki/Timeline_of_computing
A complicated issue is where social networking falls into "computing
history." If social networking is an application of computing technology, it
begs the questions:
Why not add other applications to the "computing history timeline?"
Why not create an entirely new "computer applications history timeline?"
Other timelines suggested at http://en.wikipedia.org/wiki/Timeline_of_computing
Jim Mahar's Finance Class Videos,
February 16, 2011 ---
http://financeprofessorblog.blogspot.com/2011/02/class-videos.html
Jim's Finance Professor Blog ---
http://financeprofessorblog.blogspot.com/
Forwarded by Miguel (Simoleon Sense)
The economy is so bad that…
I got a pre-declined credit card in the mail.
I ordered a burger at McDonald’s, and the kid behind the counter asked,
“Can you afford fries with that?”
CEOs are now playing miniature golf.
If the bank returns your check marked “Insufficient Funds,” you have to
call them and ask if they mean you or them.
Hot Wheels and Matchbox stocks are trading higher than GM.
Parents in Beverly Hills and Malibu are firing their nannies and learning
their children’s names.
A truckload of Americans were caught sneaking into Mexico.
Motel Six won’t leave the light on anymore.
The Mafia is laying off judges.
BP Oil laid off 25 congressmen.
Congress says they are looking into the Bernard Madoff scandal. Oh great!
The guy who made $50 billion disappear is being investigated by the people
who made $1.5 trillion disappear!
Forwarded by Gene and Joan
A little silver-haired lady calls her neighbor and says, "Please come over
here and help me. I have a killer jigsaw puzzle, and I can't figure out how to
get started."
Her neighbor asks, "What is it supposed to be when it's finished?"
The little silver haired lady says, "According to the picture on the box,
it's a rooster."
Her neighbor decides to go over and help with the puzzle.
She lets him in and shows him where she has the puzzle spread all over the
table.
He studies the pieces for a moment, then looks at the box, then turns to her
and says,
"First of all, no matter what we do, we're not going to be able to assemble
these pieces into anything resembling a rooster."
He takes her hand and says, "Secondly, I want you to relax. Let's have a nice
cup of tea, and then," he said with a deep sigh ............
(scroll down)
"Let's put all the Corn Flakes back in the box."
Forwarded by Eileen
Terrorist Alerts by John Cleese (from Monty Python)
The English are feeling the pinch in relation to recent terrorist threats and
have therefore raised their security level from "Miffed" to "Peeved." Soon,
though, security levels may be raised yet again to "Irritated" or even "A Bit
Cross." The English have not been "A Bit Cross" since the blitz in 1940 when tea
supplies nearly ran out. Terrorists have been re-categorized from "Tiresome" to
"A Bloody Nuisance." The last time the British issued a "Bloody Nuisance"
warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from "Pissed Off" to "Let's get the
Bastards." They don't have any other levels. This is the reason they have been
used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert
level from "Run" to "Hide." The only two higher levels in France are
“Collaborate" and "Surrender." The rise was precipitated by a recent fire that
destroyed France’s white flag factory, effectively paralyzing the country's
military capability.
Italy has increased the alert level from "Shout loudly and excitedly" to
"Elaborate Military Posturing." Two more levels remain: "Ineffective Combat
Operations" and "Change Sides."
The Germans have increased their alert state from "Disdainful Arrogance" to
"Dress in Uniform and Sing Marching Songs." They also have two higher levels:
"Invade a Neighbor" and "Lose."
Belgians, on the other hand, are all on holiday as usual; the only threat
they are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy.
These beautifully designed subs have glass bottoms so the new Spanish navy can
get a really good look at the old Spanish navy.
Forwarded by Auntie Bev
A minister decided that a visual demonstration would add emphasis to his
Sunday sermon.
Four worms were placed into four separate jars.
The first worm was put into a container of alcohol.
The second worm was put into a container of cigarette smoke.
The third worm was put into a container of chocolate syrup.
The fourth worm was put into a container of good clean soil.
At the conclusion of the sermon, the Minister reported the following results:
The first worm in alcohol...Dead.
The second worm in cigarette smoke...Dead.
Third worm in chocolate syrup...Dead.
Fourth worm in good clean soil...Alive .
So the Minister asked the congregation, What did you learn from this
demonstration?
Maxine was sitting in the back, quickly raised her hand and said,
'As long as you drink, smoke and eat chocolate, you won't have worms!'
That pretty much ended the service!
Forwarded by Gene and Joan
A little boy comes down to breakfast. Since they live on a farm, his mother
asks if he had done his chores.
"Not yet," said the little boy.
His mother tells him no breakfast until he does his chores.
Well, he's a little pissed off, so he goes to feed the chickens, and he kicks
a chicken. He goes to feed the cows, and he kicks a cow. He goes to feed the
pigs, and he kicks a pig. He goes back in for breakfast and his mother gives him
a bowl of dry cereal.
"How come I don't get any eggs and bacon? Why don't I have any milk in my
cereal?" he asks.
"Well," his mother says, "I saw you kick a chicken, so you don't get any eggs
for a week. I saw you kick the pig, so you don't get any bacon for a week
either. I saw you kick the cow so for a week you aren't getting any milk."
Just then, his father comes down for breakfast, trips on the cat, and kicks
the cat aside..
The little boy looks up at his mother with a smile, and says, "You gonna tell
him or should I?"
Video: Two dogs dining in busy restaurant (neither one grabs for the
check) ---
http://www.youtube.com/watch?v=UDXOzyGlJdg&feature=player_embedded#at=156
Forwarded by Auntie Bev
New dictionary definitions:
ADULT: A person who has stopped growing at both ends and is now growing in
the middle.
BEAUTY PARLOR: A place where women curl up and dye. -----------------
CANNIBAL: Someone who is fed up with people.
----------------------------------
CHICKENS: The only animals you eat before they are born and after they are
dead. ----------------------------------------
COMMITTEE: A body that keeps minutes and wastes hours.
-------------------------------------------------------------------------------------------------
DUST: Mud with the juice squeezed out.
--------------------------------------------------------
EGOTIST: Someone who is usually me-deep in conversation.
---------------------------------------------------
HANDKERCHIEF: Cold Storage.
-----------------------------------------------------------------
INFLATION: Cutting money in half without damaging the paper.
-------------------------------------------------
MOSQUITO: An insect that makes you like flies better.
--------------------------------------------------------
RAISIN: Grape with sunburn.
---------------------------------------------------------------------
SECRET: Something you tell to one person at a time.
----------------------------------------------------------------
SKELETON: A bunch of bones with the person scraped off.
--------------------------------------------------
TOOTHACHE: The pain that drives you to extraction.
--------------------------------------------------------------------
TOMORROW: One of the greatest labour saving devices of today.
----------------------------------
YAWN: An honest opinion openly expressed.
-----------------------------------------------------------------
and Auntie Bev's Favorite
WRINKLES: Something other people have, similar to my character lines.
------------------------
Forwarded by Gene and Joan
MY PRIVATE PART DIED
An old man, Mr.. Wallace, was living in a nursing home. One day he appeared to
be very sad and depressed. Nurse Tracy asked him if there was anything wrong.
'Yes, Nurse Tracy ,' said Mr. Wallace. 'My Private Part died today, and
I am very sad.'
Knowing her patients were a little forgetful and sometimes a little crazy,
she replied, 'Oh, I'm so sorry, Mr. Wallace. Please accept my condolences.'
The following day, Mr. Wallace was walking down the hall with his Private
Part hanging out of his pajamas. He met Nurse Tracy. 'Mr. Wallace,' she said,
'You shouldn't be walking down the hall like that. Please put your Private Part
back inside your pajamas.'
'But, Nurse Tracy I can't,' replied Mr. Wallace. 'I told you yesterday that
my Private Part died.'
'Yes,' said Nurse Tracy , 'you did tell me that, but why is it hanging out of
your pajamas?' '
Well,' he replied, 'Today is the viewing.'
Forwarded by Eileen
GENIE
While trying to escape through Pakistan, Osama Bin Laden found a bottle on
the sand and picked it up.
Suddenly, a female genie rose from the bottle and with a smile said, "Master,
may I grant you one wish?"
Osama responded," You ignorant, unworthy daughter-of-a-dog! Don't you know
who I am? I don't need any common woman giving me anything."
The shocked genie said, "Please, I must grant you a wish or I will be
returned to that bottle forever."
Osama thought a moment, then grumbled about the impertinence of the woman and
said, "Very well, I want to awaken in the morning with three American women in
my bed. So just do it and be off with you.
The annoyed genie said, "So be it!" and disappeared.
The next morning Bin Laden woke up in bed with Lorena Bobbitt, Tonya Harding
and Sarah Palin at his side.
His penis was gone, his knees were broken, and he had no health insurance.
God is good.
Forwarded by Paula
Children Writing
About the Ocean
1) - An octopus has eight testicles. (Kelly, age 6)
2) - Oysters' balls are called pearls. (Jerry, age 6)
3) - If you are surrounded by ocean, you are an island. If you don't have
ocean all round you, you are incontinent. (, age 7)
4) - Sharks are ugly and mean, and have big teeth, just like Emily Richardson
She's not my friend any more. (Kylie, age 6)
5) - A dolphin breaths through an asshole on the top of its head.. (Billy,
age 8)
6) - My uncle goes out in his boat with 2 other men and a woman and pots and
comes back with crabs. (Millie, age 6)
7) - When ships had sails, they used to use the trade winds to cross the
ocean. Sometimes when the wind didn't blow the sailors would whistle to make the
wind come. My brother said they would have been better off eating beans.
(William, age 7)
8) - Mermaids live in the ocean. I like mermaids. They are beautiful and I
like their shiny tails, but how on earth do mermaids get pregnant? Like, really?
(Helen, age 6)
9) - I'm not going to write about the ocean. My baby brother is a always
crying, my Dad keeps yelling at my Mom, and my big sister has just got pregnant,
so I can't think what to write. (Amy, age 6)
10) - Some fish are dangerous. Jellyfish can sting. Electric eels can give
you a shock. They have to live in caves under the sea where I think they have to
plug themselves in to chargers. (Christopher, age 7)
11) - When you go swimming in the ocean, it is very cold, and it makes my
wily small. (Kevin, age 6)
12) - Divers have to be safe when they go under the water. Divers can't go
down alone, so they have to go down on each other. (Becky, age 8)
13) - On vacation my Mom went water skiing. She fell off when she was going
very fast. She says she won't do it again because water fired right up her big
fat ass.. (Julie, age 7)
14) - The ocean is made up of water and fish. Why the fish don't drown I
don't know. (Bobby, age 6)
Forwarded by Dr. Wolff
When I bought my Blackberry, I thought about the 30-year business I ran with
1800 employees, all without a cell phone that plays music, takes videos,
pictures and communicates with Facebook and Twitter. I signed up under duress
for Twitter and Facebook, so my seven kids, their spouses, 13 grandkids and 2
great grand kids could communicate with me in the modern way. I figured I could
handle something as simple as Twitter with only 140 characters of space.
That was before one of my grandkids hooked me up for Tweeter, Tweetree,
Twhirl, Twitterfon, Tweetie and Twittererific Tweetdeck, Twitpix and something
that sends every message to my cell phone and every other program within the
texting world.
My phone was beeping every three minutes with the details of everything
except the bowel movements of the entire next generation. I am not ready to live
like this. I keep my cell phone in the garage in my golf bag.
The kids bought me a GPS for my last birthday because they say I get lost
every now and then going over to the grocery store or library. I keep that in a
box under my tool bench with the Blue tooth [it's red] phone I am supposed to
use when I drive. I wore it once and was standing in line at Barnes and Noble
talking to my wife and everyone in the nearest 50 yards was glaring at me. I had
to take my hearing aid out to use it, and I got a little loud.
I mean the GPS looked pretty smart on my dash board, but the lady inside that
gadget was the most annoying, rudest person I had run into in a long time. Every
10 minutes, she would sarcastically say, "Re-calc-u-lating." You would think
that she could be nicer. It was like she could barely tolerate me. She would let
go with a deep sigh and then tell me to make a U-turn at the next light. Then if
I made a right turn instead. Well, it was not a good relationship. When I get
really lost now, I call my wife and tell her the name of the cross streets and
while she is starting to develop the same tone as Gypsy, the GPS lady, at least
she loves me.
To be perfectly frank, I am still trying to learn how to use the cordless
phones in our house. We have had them for 4 years, but I still haven't figured
out how I can lose three phones all at once and have to run around digging under
chair cushions and checking bathrooms and the dirty laundry baskets when the
phone rings.
The world is just getting too complex for me. They even mess me up every time
I go to the grocery store. You would think they could settle on something
themselves but this sudden "Paper or Plastic?" every time I check out just
knocks me for a loop. I bought some of those cloth reusable bags to avoid
looking confused, but I never remember to take them in with me.
Now I toss it back to them. When they ask me, "Paper or Plastic?" I just say,
"Doesn't matter to me. I am bi-sacksual." Then it's their turn to stare at me
with a blank look.
I was recently asked if I tweet. I answered, No, but I do toot a lot."
Forwarded by Auntie
Bev
You may remember the old Jewish Catskill comics: Shecky
Greene, Red
Buttons,Totie
Fields,
Joey Bishop, Milton
Berle,
Jan Murray, Danny
Kaye, Henny
Youngman, Sid
Caesar,
Groucho Marx, Jackie Mason,
Victor Borge,
Woody Allen, George
Burns,
Allan Sherman,
Jerry Lewis, Peter Sellers,
Carl Reiner,
Shelley Berman,
Gene Wilder,
George Jessel,
Alan King, Mel Brooks,
Phil Silvers,
Jack Carter, Rodney
Dangerfield,
Don Rickles,
Jack Benny and
so many others.
And there was not one single swear word in their comedy. Here are a few
examples:
* I just got
back from a pleasure trip. I took my mother-in-law to the airport.
* Someone stole all my credit cards but I
won't be reporting
it. The thief spends less than my wife did.
* We always hold hands. If I let go, she
shops
* My wife and I went back to the hotel where we spent our wedding night; only
this time I stayed in the bathroom and cried
* My wife and I went to a hotel where we got
a waterbed. My wife called it the Dead Sea .
* She was at the beauty shop for two hours.
That was only for the estimate. She got a mudpack and looked great for two days.
Then the mud fell off.
* The Doctor gave a man six months to live.
The man couldn't pay his bill so the doctor gave him another six months.
* The Doctor called Mrs. Cohen saying, "Mrs.
Cohen, your check came back. " Mrs. Cohen answered, "So did my arthritis!
Doctor: "You'll
live to be 60!"
Patient: "I
am 60!"
Doctor: "See! What did I tell you?"
Patient: "I
have a ringing in my ears."
Doctor: "Don't
answer!"
A drunk
was in front of a judge. The judge says, "You've been brought here for
drinking."
The drunk says "Okay, let's get started."
Why do Jewish divorces cost so much?
They're worth it.
The Harvard
School of Medicine did a study of why Jewish women like Chinese food so much.
The study revealed that this is due to the fact that Won Ton spelled
backward is Not Now.
There
is a big controversy on the Jewish view of when life begins. In Jewish
tradition, the fetus is not considered viable until it graduates from medical
school.
Q: Why
don't Jewish mothers drink?
A: Alcohol
interferes with their suffering.
Q: Why
do Jewish mothers make great parole officers?
A: They
never let anyone finish a sentence!
A man called his mother in Florida:
"Mom, how are you?"
"Not too good," said the mother. "I've
been very weak."
The son said, "Why are you so weak?" She
said, "Because I haven't eaten in 38 days."
The son said, "That's terrible.
Why haven't you eaten in 38 days?"
The mother answered, "Because
I didn't want my mouth to be filled with food if you should call."
A Jewish boy comes home from school and
tells his mother he has a part in the play. She asks,
"What part is it?"
The boy says, "I play the part of the Jewish
husband."
"The mother scowls and says, "Go back and
tell the teacher you want a speaking part."
Q: How
many Jewish mothers does it take to change a light bulb?
A: (Sigh) "Don't
bother. I'll sit in the dark. I don't want to be a nuisance to anybody."
Short summary of every Jewish holiday:
They tried to kill us. We won. Let's
eat.
Did you hear about the bum who walked up to
a Jewish mother on the street and said, "Lady, I haven't eaten in three days."
"Force yourself," she replied.
Q: What's
the difference between a Rottweiler and a Jewish mother?
A: Eventually,
the Rottweiler lets go.
Q: Why
are Jewish men circumcised?
A: Because
Jewish women don't like anything that isn't 20% off.
Video on How to Sell a Car in the South ---
http://www.youtube.com/watch?v=J__T2dvaWww
"Squirrel rescued from toilet by Goose," by Simon Garner, Metro
(in the United Kingdom), March 28, 2011 ---
Duncan Goose, 42, was in Malawi to check on aid
projects backed by his company's One projects when he rescued the forlorn
animal.
He was preparing for bed in his hotel room when he
discovered the struggling squirrel.
He said: 'I was concerned it was going to jump out
and bite me, so I put the lid back down and left it for a minute as I wasn't
sure what to do.'
When he returned shortly after to take a second
look he realised it was a squirrel and set about rescuing the poor critter.
His method was putting a hand towel down the toilet
which allowed the squirrel to climb up.
Once out he placed it in a laundry basket, took it
outside and released it.
Mr Goose said: 'It didn't seem too much the worse
for wear so hopefully it's recovered from the experience and will go on to
have a happy life devoid of toilet bowl experiences.'
Read more:
http://www.metro.co.uk/news/859324-squirrel-rescued-from-toilet-by-goose#ixzz1HvihyovB
Jensen Comment
We might suspect that the squirrel was just looking for nuts, but that might be
taking this Goose story a bit too far.
Years ago when I was living on the Bay Area the San Francisco Chronicle
reported a story that a woman discovered a boa constrictor rising up in her
commode.. The snake apparently had it's tail sticking up in its owner's
apartment and the head sticking up in the neighboring apartment. I wonder if
this became the start of a beautiful friendship? I doubt it!
Will Rogers, who died in a 1935 plane crash with
his best friend, Wylie Post, was probably the greatest political sage the U.S.
ever has known.
1. Never slap a man
who's chewing tobacco.
2. Never kick a cow chip
on a hot day.
3. There are two
theories to arguing with a woman .. . . Neither works..
4. Never miss a good
chance to shut up.
5. Always drink upstream
from the herd.
6. If you find yourself
in a hole, stop digging.
7. The quickest way to double your money is to fold it and put it back into
your pocket.
8. There are three kinds of men: The ones that learn by reading. The few who
learn by observation. The rest of them have to pee on the electric fence and
find out for themselves.
9. Good judgment comes
from experience, and a lot of that comes from bad judgment.
10. If you're riding'
ahead of the herd, take a look back every now and then to make sure it's still
there.
11. Lettin' the cat
outta the bag is a whole lot easier'n puttin' it back.
12. After eating an
entire bull, a mountain lion felt so good he started roaring. He kept it up
until a hunter came along and shot him. The moral: When you're full of bull,
keep your mouth shut.
ABOUT GROWING OLDER...
First ~ Eventually you
will reach a point when you stop lying about your age and start bragging about
it..
Second ~ The older we
get, the fewer things seem worth waiting in line for.
Third ~ Some people try
to turn back their odometers. Not me; I want people to know 'why' I look this
way. I've traveled a long way, and some of the roads weren't paved.
Fourth ~ When you are
dissatisfied and would like to go back to youth, think of Algebra.
Fifth ~ You know you are
getting old when everything either dries up or leaks.
Sixth ~ I don't know how
I got over the hill without getting to the top.
Seventh ~ One of the
many things no one tells you about aging is that it is such a nice change from
being young.
Eighth ~ One must wait
until evening to see how splendid the day has been.
Ninth ~ Being young is
beautiful, but being old is comfortable.
Tenth ~ Long ago, when
men cursed and beat the ground with sticks, it was called witchcraft.
Today it's called golf.
And, finally ~ If you don't
learn to laugh at trouble, you won't have anything to laugh at when you are
old.
Forwarded by Auntie Bev
Got to love the creativity of small business
owners …
Sign
over a Gynecologist's Office:
"Dr. Jones, at your cervix."
**************************
In a Podiatrist's office:
"Time wounds all heels."
**************************
On a Septic Tank Truck:
Yesterday's Meals on Wheels
**************************
At a Proctologist's door:
"To expedite your visit, please back in. "
**************************
On a Plumber's truck:
"We repair what your husband fixed."
**************************
On another Plumber's truck:
"Don't sleep with a drip. Call your plumber."
**************************
On a Church's Bill board:
"7 days without God makes one weak."
**************************
At a Tire Shop in Milwaukee :
"Invite us to your next blowout."
**************************
At a Towing company:
"We don't charge an arm and a leg. We want
tows.."
**************************
On an Electrician's truck:
"Let us remove your shorts.."
******** ******************
In a Nonsmoking Area:
"If we see smoke, we will assume you are on
fire and take appropriate action."
**************************
On a Maternity Room door:
"Push. Push. Push."
**************************
At an Optometrist's Office:
"If you don't see what you're looking for,
you've come to the right place."
**************************
On a Taxidermist's window:
"We really know our stuff."
**************************
On a Fence:
"Salesmen welcome! Dog food is expensive!"
**************************
At a Car Dealership:
"The best way to get back on your feet - miss
a car payment."
**************************
Outside a Muffler Shop:
"No appointment necessary. We hear you coming."
**************************
In a Veterinarian's waiting room:
"Be back in 5 minutes. Sit! Stay!"
**************************
At the Electric Company
"We would be delighted if you send in your payment.
However, if you don't, you will be."
**************************
In a Restaurant window:
"Don't stand there and be hungry; come on in
and get fed up."
**************************
In the front yard of a Funeral Home:
"Drive carefully. We'll wait."
**************************
At a Propane Filling Station:
"Thank heaven for little grills."
**************************
And don't forget the sign at a
CHICAGO RADIATOR
SHOP:
"Best place in town to take a leak."
**********************
Sign on the back of another Septic Tank Truck:
"Caution - This Truck is full of Political
Promises"
Forwarded by Auntie Bev
An attractive blonde from Cork, Ireland arrived at the casino. She seemed a
little intoxicated and bet twenty-thousand Euros on a single roll of the dice.
She said, 'I hope you don't mind, but I feel much luckier when I'm completely
nude'. With that, she stripped from the neck down, rolled the dice and with an
Irish brogue yelled, 'Come on, baby, Mama needs new clothes!'
As the dice came to a stop, she jumped up and down and squealed...'YES! YES!
I WON, I WON!'
She hugged each of the dealers and then picked up her winnings and her
clothes and quickly departed.
The dealers stared at each other dumbfounded.
Finally, one of them asked, 'What did she roll?'
The other answered, 'I don't know - I thought you were watching.'
MORAL OF THE STORY - Not all Irish are drunks, not all blondes are dumb, but
all men...are men.
Forwarded by Auntie Bev
The Best of Rodney Dangerfield
My wife only has sex with me for a purpose. Last
night she used me to time an egg.
It's tough to stay married. My wife kisses the dog on the lips, yet she won't
drink from my glass!
Last night my wife met me at the front door. She was wearing a sexy negligee.
The only trouble was, she was coming home.
A girl phoned me and said, 'Come on over. There's nobody home.' I went over.
Nobody was home!
A hooker once told me she had a headache.
I went to a massage parlor. It was self-service.
If it weren't for pickpockets, I'd have no sex life at all.
I was making love to this girl and she started crying I said, 'Are you going to
hate yourself in the morning?' She said, 'No, I hate myself now.'
I knew a girl so ugly that she was known as a two-bagger. That's when you put a
bag over your head in case the bag over her head comes off.
I knew a girl so ugly... they use her in prisons to cure sex offenders.
My wife is such a bad cook, if we leave dental floss in the kitchen the roaches
hang themselves.
I'm so ugly I stuck my head out the window and got arrested for mooning.
The other day I came home and a guy was jogging, naked. I asked him, 'Why?' He
said, 'Because you came home early.'
My wife's such a bad cook, the dog begs for Alka-Seltzer.
I know I'm not sexy. When I put my underwear on I can hear the Fruit-of-the-Loom
guys giggling.
My wife is such a bad cook, in my house we pray after the meal.
My wife likes to talk on the phone during sex. She called me from Chicago last
night.
My family was so poor that if I hadn't been born a boy,
I wouldn't have had anything to play with...
Humor Between February 1 and March 31, 2011
---
http://www.trinity.edu/rjensen/book11q1.htm#Humor033111
Humor Between January 1 and January 31, 2011
---
http://www.trinity.edu/rjensen/book11q1.htm#Humor013111
And that's
the way it was on March 31, 2011 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
|
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/
![](http://www.trinity.edu/rjensen/book10Q1_files/image001.jpg)
January 31, 2011
Bob
Jensen's New Bookmarks January 1-31, 2011
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
In some ways the AAA's Issues in Accounting Education did not have
such a good year.
The Editor's 2010 Report IAE has two tables of interest. Especially note Table 2
---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=IAEXXX000025000004000795000001&idtype=cvips&prog=normal
Compare this with the Editor's Report for Accounting Horizons ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACHXXX000024000004000715000001&idtype=cvips&prog=normal
And then compare these with the Editor's Report for The Accounting Review ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACHXXX000024000004000715000001&idtype=cvips&prog=normal
Jensen Comment
I really don't want to make a lengthy comment at this time except to say that it
is very sad the accounting researchers do not take more interest in accounting
education.
The following history paper seems to be increasingly and sadly relevant today
---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Humor Between January 1 and January 31, 2010
---
http://www.trinity.edu/rjensen/book11q1.htm#Humor013111
I thank Don Edwards for helping to identify some of the people in the picture.
AACSB Innovation Resource
Center ---
http://www.aacsb.edu/resources/innovation/default.asp
Get Ready for IFRS in the United States
AICPA updates IFRS Backgrounder ---
http://www.iasplus.com/usa/aicpa/1101ifrsbackgrounder.pdf
Controversies in the Setting of Accounting
Standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Dow 12000: More Fun Factoids ---
http://blogs.wsj.com/marketbeat/2011/01/26/dow-12000-more-fun-factoids/
Thank you Jim Mahar for the heads up.
Ten Employment Trends to Watch in 2011 (in accounting firms) ---
http://accounting.smartpros.com/x71163.xml
Jensen Comment
As fuel prices and other travel expenses keep increasing, I think one of the
most important trends will be the decline in physical travel when on the job.
Technology in communications and telecommuting will probably take over. Note in
the above link that job interviews will increasingly be conducted without
physical presence.
Distance training and education will soar. And computer translating may
become so good that we can even understand online sessions in France, China,
Poland, and Finland. Well maybe not Finland since the language is so difficult.
As an aside, the increasingly boring argument that students can cheat more on
distance education examinations will no longer be relevant.
Proctors will not even have to sit in the classroom when students are taking
examinations onsite. Instead Webcams will be placed overhead that record each
student's every move during an examination. There may even be a camera for each
student. Sensitive microphones will even be embedded so that student whispering
will be captured.
This begs the question about what things in hotel conferences will be lost
when those conferences become more and more virtual. Of course the paid-vacation
family vacation aspect of a conference will be lost for those professors who
like to pack up spouses and children for vacations, including those on the
opposite side of the world, reimbursed heavily by their employers. And those
spontaneous sexual affairs will have to be virtual bummers.
Probably the biggest serious loss in hotel conferencing will be the informal
networking and, yes, even the tremendous importance of evesdropping. I cannot
tell you how much I've learned over the years simply by overhearing something at
a conference. I've told this story before on the AECM, but one time I
overheard an outgoing TAR editor tell an incoming TAR editor not to send Bob
Jensen any manuscripts for refereeing because "Jensen never accepts anything."
This was when I was young and still full of myself. That one overheard bit of
information changed my life as a journal referee and even as a professional
person. I think that I became a much more empathetic person on such things as
promotion and tenure committees. My colleagues the last three universities where
I served on the faculty will tell you that I was probably a bit of a softie when
it came to personnel evaluations. I don't think I should be described as a
softie on paper refereeing but I became much more likely to write very critical
comments and then close with "revise and resubmit" rather than "no hope on this
one."
I may not have become this type of person if I'd not overheard one TAR editor
talking to another TAR editor. Since I'm so good I might've remained full of
myself for my entire career.
I'm really not a big fan of video or computer games, but this one from the
popular Price is Right television show is both fun and has educational
attributes.
Video: Pay the Rent strategy on The Price is Right ---
Click Here
http://mindyourdecisions.com/blog/2011/01/26/pay-the-rent-strategy-on-the-price-is-right/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+mindyourdecisions+%28Mind+Your+Decisions%29
"I'm an auditor --- so I really don't have all that many friends."
Video: Is This PwC Auditor Your Next American Idol?
http://goingconcern.com/2011/01/is-this-pwc-auditor-your-next-american-idol/#more-24553
Thank you for the heads up Caleb.
Financial Accounting Foundation
Appoints Leslie F. Seidman Chairman of the Financial Accounting Standards Board
---
Click here
http://www.accountingfoundation.org/cs/ContentServer?site=Foundation&c=FAFContent_C&pagename=Foundation%2FFAFContent_C%2FFAFNewsPage&cid=1176158080171
"Making things hard to read 'can boost learning'," by Cordelia
Hebblethwaite, BBC News, January 144, 2011 ---
http://www.bbc.co.uk/news/world-11573666
Difficult-to-read fonts make for better
learning, according to scientists.
The finding is about to be published in
the international journal Cognition.
Researchers at Princeton University
employed volunteers to learn made-up information about different types of
aliens - and found that those reading harder fonts recalled more when tested
15 minutes later.
They argue that schools could boost
results by simply changing the font used in their basic teaching materials.
Hard to digest
The 28 volunteers in the Princeton study
were given 90 seconds to try to memorise a list of seven features for three
different species of alien.
The idea was to re-create the kind of
learning in a biology class. Aliens were chosen to be sure that none of the
volunteers' prior knowledge interfered with the results.
One group was given the lists in 16-point
Arial pure black font, which is generally regarded to be easy and clear to
read. Continue reading the main story The alien test An extract from the
test used by Princeton University, showing lists of features about made-up
aliens in Arial and Comic Sans MS fonts
An extract from the Princeton University
test The text at the top is in Arial; the bottom is in Comic Sans MS
Volunteers were able to remember more when the information was written in
the bottom font, or in the Bodoni MT font
Source: Princeton University
The other had the same information
presented in either 12-point Comic Sans MS 75% greyscale font or 12-point
Bodoni MT 75% greyscale.
The volunteers were distracted for 15
minutes, and then tested on how much they could remember.
Researchers found that, on average, those
given the harder-to-read fonts actually recalled 14% more.
They believe that presenting information
in a way that is hard to digest means a person has to concentrate more, and
this leads to "deeper processing" and then "better retrieval" afterwards.
It is an example of the positive effects
of what scientists call "disfluency".
"Disfluency is just a subjective feeling
of difficulty associated with any mental task," explained psychology Prof
Daniel Oppenheimer, one of the co-authors of the study.
"So if something is hard to see or hear,
it feels disfluent... We'd found that disfluency led people to think harder
about things.
"When we found that in the lab, we were
very excited, because it has obvious implications for the classroom."
Continued in article
Jensen Comment
I wonder if the same reasoning also applies to content itself in cases and
problems. The illustrations in Appendices A and B of the original FAS 133 are
notoriously difficult. These illustrations taught be more about accounting for
derivative financial instruments and hedging activities more than any other
source of my learning of how to account for these complex contracts. Sadly,
these illustrations were left out of the FASB's Codification Database. I wonder
if it was because they're deemed too difficult.
Truth Time:
Actually the most valuable learning experience for me was in extending the ten
toughest Appendix B examples ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/FAS133AppendixB/
Even more difficult are the cross currency and benchmark illustrations in the
original FAS 138. For example, see the 138Bench folder at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/FAS133OtherExcelFiles/
It was most certainly extremely difficult for me to learn and extend these
complicated illustrations. But if I had not studied and extended these difficult
examples I would've never learned nearly as much about the wonders of FAS 133
and its extending amendments.
I'm not in favor of simplifying standards and textbooks on the theory that
they're too difficult for students. And I'm certainly glad that watering down
content is not the guiding principle in medical schools. The students that get
left behind maybe should be left behind rather than make it easier to
specialize.
You're more respected if you really, really understand very technical
content. Learning from watered down sources diminishes this respect unless you
one day move into the tough reading, cases, illustrations, and problems. You're
respected even more if you can extend this tough material in meaningful ways.
Yahoo Education ranks "hot careers" through 2018 and beyond.
Accountants/audits get top billing, which is probably the first time we've
ever been called "hot."
http://education.yahoo.net/articles/hot_careers_through_2018.htm .
Accounting Careers are Hot at Rank 2 According to College Board
"Hottest Careers for College Graduates: Experts Predict Where the Jobs
Will Be in 2018," College Board, December 30, 2010 ---
http://www.collegeboard.com/student/csearch/majors_careers/236.html
Government economists estimate which occupations
will have the most job openings between 2008 and 2018. Openings occur
because new jobs are created and because workers retire or leave the field
for other reasons.
Check out these top 10 lists of occupations, sorted
by the level of education typically required:
Occupations with the Most Job Openings: Graduate Degree
Occupation
|
Total
Job Openings 2008–2018 |
Postsecondary teachers |
553,000 |
Doctors and surgeons |
261,000 |
Lawyers |
240,000 |
Clergy |
218,000 |
Pharmacists |
106,000 |
Educational, vocational, and school counselors |
94,000 |
Physical therapists |
79,000 |
Medical scientists, except epidemiologists |
66,000 |
Mental health and substance abuse social workers |
61,000 |
Instructional coordinators |
61,000 |
Occupations with the Most Job Openings: Bachelor's Degree
Occupation
|
Total
Job Openings 2008–2018 |
Elementary school teachers, except special education |
597,000 |
Accountants and auditors |
498,000 |
Secondary school teachers, except special and vocational education |
412,000 |
Middle school teachers, except special and vocational education |
251,000 |
Computer systems analysts |
223,000 |
Computer software engineers, applications |
218,000 |
Network systems and data communications analysts |
208,000 |
Computer software engineers, systems software |
153,000 |
Construction managers |
138,000 |
Market research analysts |
137,000 |
Occupations with the Most Jobs Openings: Associate's Degree or
Postsecondary Vocational Award
Occupation
|
Total
Job Openings 2008–2018 |
Registered nurses |
1,039,000 |
Nursing aides, orderlies, and attendants |
422,000 |
Licensed practical and licensed vocational nurses |
391,000 |
Computer support specialists |
235,000 |
Hairdressers, hairstylists, and cosmetologists |
220,000 |
Automotive service technicians and mechanics |
182,000 |
Preschool teachers, except special education |
178,000 |
Insurance sales agents |
153,000 |
Heating, air conditioning, and refrigeration technicians |
136,000 |
Real estate sales agents |
128,000 |
Source: U.S. Bureau of Labor Statistics
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
A
Must View
Video: Authors@Google: Chris Chabris (including his book on the Invisible
Gorilla and perceptual psychology) ---
http://www.youtube.com/watch?v=4rdUk52h-MY&feature=youtu.be
A
Must View
Video: Authors@Google: Chris Chabris (including his book on the
Invisible Gorilla and perceptual psychology) ---
http://www.youtube.com/watch?v=4rdUk52h-MY&feature=youtu.be
Jensen Comment
This has some implication for financial statement analysis. We are conditioned
to look for certain types of things like return on investment, net cash flow,
and other things that are commonly looked at in financial statements. We may be
warned ahead of time to look for a "gorilla" or a "woman carrying an umbrella
passing by." But we have limited ability to perceive unexpected events.
PS
Also note why "hands free" cell phones do very little to make driving safer
while being on the phone.
Question
Why bother submitting papers to journals that are not highly respected by
promotion and tenure committees?
Hi David,
One time a colleague, who was an attorney and not a PhD, asked me a similar
question. I advised her to write cases that were both scholarly and field
tested on students. Then I said if she could get these published in refereed
journals this greatly beat having no publications in refereed journals.
She did write some very good ethics cases and got them published in a
refereed law journals and made conference presentations of her cases. She
became tenured and is still teaching as a tenured associate professor.
Unfortunately, after attaining tenure her case writing productivity
declined. Alas, she may eventually retire without ever having attained a
full professorship.
.
In addition to publishing accountics research in education, IAE publishes
accounting education cases. Some of these cases were often part of my course
assignments and were of great value to me.
.
There is a highly respected NACRA case research journal that is rigorously
refereed, and the NACRA crowd is very active in conferences where they
evaluate each others' cases. If your colleagues don't give credit for
refereed publications in IAE and NACRA the problem is their ignorance rather
than your ignorance ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
.
Sometimes you have to educate your colleagues and supervisors. The important
part of being a scholar is to become known as a valuable frog in the pond of
your choosing. The key is that experts in your pond look up to you even if
it is a small pond and not one of the great lakes. Do good work as a
genuine expert and you will be discovered.
Another piece of advice is that there's still great merit in having
double-blind refereed publications on a resume. Web publishing and blog
publishing may be your greatest contribution to the outside world, but to
get respect as a scholar in the academy there has to be either refereed
publication or other comparable evidence of scholarship such as invitations
by other universities to make presentations of your scholarship. Generally
the two go hand-in-hand. The scholars with long resumes are the most likely
scholars to be invited to to speak and conduct CEP programs.
And lastly I cannot stress enough the importance of being looked up to as an
expert. One of the real weaknesses of accounting departments as opposed to
chemistry, math, and history departments is that those other departments
generally have experts in very narrow subsets of their disciplines --- those
small ponds.
In college accounting departments we have a huge problem with becoming known
as experts in narrow areas of accounting. For example, in a Big Four firm
some of the most valued partners are those that are looked up to as genuine
experts in narrow areas like insurance accounting, synthetic lease
accounting, FIN 48, etc. This type of expertise is not appreciated in
college classrooms because the curriculum plan just does not drill down to
such narrow areas of expertise.
But professors can be greatly respected for publishing in areas of narrow
expertise even though they probably cannot find an outlet for this expertise
in a classroom on campus. We just do not offer courses on synthetic leasing.
But we can publish cases and empirical research on synthetic leasing to a
point where we are admired around the world as synthetic lease experts.
As I mentioned before, one way to challenge a journal editor is to submit a
paper in such a narrow area of expertise that the editor cannot find a
single college professor to referee the paper. This has happened to me in
accounting for derivative financial instruments where the editor had to go
to Big Four firms to find experts to referee my paper.
It's sad that Big Four firms have better accounting experts than the
academy. Our top accounting researchers are experts on mathematical
models and data mining but their expertise is not respected by genuine
accounting experts in the Big Four because our professors are not genuine
accounting experts. I don't think this is as much of a problem in
medical schools, law schools, and engineering schools. But in accounting
schools our professors just don't swim around in the small ponds.
More than all the refereed publications that I have in accountics I take
pride in being known as a FAS 133 expert. It allows me to stand tall in my
profession.
Bob Jensen
Texas A&M Case on Computing the Cost of Professors and Academic Programs
Somebody at Texas A&M has rushed in where angels fear to tread
On November 5, 2010 I shared the "Texas A&M Case on Computing the Cost of
Professors and Academic Programs" with the AECM and the AAA Commons as well as
posting it to my Website at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
For some reason the The Wall Street Journal has seen fit to renew
interest in this case in a January 10, 2011 editorial (keep in mind that the WSJ
has a different Editor for the Editorial Page vis-a-vis the rest of the
newspaper):
"Grading the Ivory Towers: Texas A&M shocks the professoriate with
cost-benefit analysis," The Wall Street Journal, January 10, 2011 ---
http://online.wsj.com/article/SB10001424052748703860104575508052117098986.html#mod=djemEditorialPage_t
There's a memorable scene in the movie
"Ghostbusters" when Dan Akroyd says in horror to Bill Murray after they lose
their jobs at a university: "I've worked in the private sector. They expect
results."
The same can't always be said of universities,
where costs are rising faster even than health care. Now, a growing number
of states are demanding that their taxpayer-funded universities show
evidence of improvement in student performance. Perhaps the most aggressive
school is Texas A&M, which is trying to measure professor productivity and
performance. Given the reaction from some in the faculty lounges, you'd
think Texas had banned football.
Since 1978 college costs have risen by more than
tenfold, about three times the rate of inflation, according to an American
Enterprise Institute study. Four years of college now cost as much as
$200,000 at some private institutions, making this perhaps the only industry
in America that has recorded negative productivity gains. In 2009 tuitions
rose by 6%, four times overall prices. With rising tuition comes rising
indebtedness, and for the first time student loan debt of $850 billion now
exceeds credit card debt of $830 billion. State subsidies keep rising but
are swallowed up in higher university costs and thus haven't lowered
tuitions.
Professors' salaries and benefits make up about 60%
to 70% of university noncapital costs. So Texas A&M is starting to ask such
basic questions as: Is that psychology or engineering professor worth his
$125,000 salary?
The school is trying to answer this question by
applying a cost-benefit analysis of how much each professor earns in salary
per student taught. The school also uses such metrics of value added as
research dollars brought in by a professor and student evaluations of how
well a teacher performs in a classroom. For high-achieving professors, the
new pay-for-performance standards offer bonuses of up to $10,000 a year.
The academic reaction to the plan has been furious.
Nationally, the American Association of University Professors (AAUP) calls
the system of "balancing revenues and costs" both "simplistic and very
dangerous." Peter Hugill, a professor of geology and the head of the AAUP
chapter at Texas A&M, has denounced the new analysis as "a weapon" to hang
over the head of professors that is making "Texas a laughing stock." The
faculty is pressuring the university to lower the bonuses to $1,500 and
spread the money to more teachers.
Frank Ashley, the vice president for academic
affairs at A&M, replies that the reforms are about accountability: "We're
being held accountable for the money the state gives us, and we want to show
that we're not throwing the money away."
What a concept. Given that Texas faces a $12
billion deficit and every year writes a nine-figure check to Texas A&M (and
to the University of Texas), taxpayers deserve more transparency and cost
containment. A pay system that requires middle and lower income families to
take on enormous debt to subsidize universities is unfair.
No doubt the Texas A&M system is a work in progress
and will be tweaked as it gains experience in evaluating its professors'
classroom performance and contributions to the university. Perhaps the
professors would reply that too many students think they're on a subsidized,
four-year party. But we hope the school's regents persist with this effort
and that the reformers succeed in their efforts to spread
pay-for-performance accountability to other public universities.
A Lesson in the History of Statistics That Has a Lot to Do With Aggregations
and Rankings in Accounting Such as P/E Ratio Rankings
"The Flaw of Overall Rankings," by Robert J. Sternberg, Inside
Higher Ed, January 24, 2011 ---
http://www.insidehighered.com/views/2011/01/24/sternberg
Many college administrators are uncomfortable with
rankings of colleges and universities, such as those found in U.S. News &
World Report. Perhaps they don’t like the idea of measuring the quality of
an institution of higher learning, or they don’t like the way the
measurements are done. But from a psychological point of view — psychology
is my field — there is a more fundamental problem. Overall rankings obscure
what is most interesting about an institution. Consider an analogy to the
assessment of human intellectual qualities.
In 1904, Charles Spearman, a British psychologist,
proposed that quality of mind, at least as characterized by human
intelligence, could be summarized as a single attribute, which he referred
to as "general ability," or g. His assertion was based on his observation
that various tests of quality of mind — for example, verbal, mathematical,
spatial — correlated positively with each other, suggesting to him that they
were different measures of the same thing, except for the relatively
uninteresting aspects of thinking that were wholly particular to each kind
of test.
Spearman’s view was eventually challenged. By 1938,
an American psychologist, Louis Thurstone, suggested that Spearman’s view
was an oversimplification — that the more variegated qualities actually were
important in their own right. Thurstone labeled qualities such as verbal
ability, mathematical ability, and spatial ability as "primary mental
abilities." For example, you might care more about verbal ability for an
English major or future journalist or novelist, more about mathematical
ability for a finance major or future accountant or actuary, and more about
spatial ability for an engineering major or future civil engineer or
air-traffic controller. It might be nice to have an air-traffic controller
with a good command of the English language, but in the end, what passengers
and airport officials likely most care about is whether the controller can
visualize the trajectories of airplanes in a way that prevents their
infringing on each other’s airspace, so long as the controller can
communicate this information to pilots.
Spearman and Thurstone got into a bitter argument
over which of their theories was correct. But as often happens in science,
the two theorists represented a Hegelian thesis and antithesis in a
dialectical argument. What was needed was a synthesis.
The argument was largely resolved in 1993 when
American psychologist John B. Carroll built on previous work and showed that
general and more specific qualities of mind could be understood
hierarchically, with general ability at the top, so-called "primary mental
abilities" beneath them, and still more specific abilities beneath those.
Carroll’s hierarchical theory is widely accepted today, although certainly
not by everyone. There is still some dispute about just how general
"general" ability is. For example, psychological theorists such as Howard
Gardner and I have suggested that "general ability" may not, in fact, be as
general as some have claimed. For example, so-called "general ability" might
be more useful in predicting performance of a pupil in primary school than
in predicting performance of a pianist, plumber, politician, or poet. In
college admissions, "general ability" would correspond loosely to a
composite ACT or summed SAT score.
If we now return to institutional assessments, we
see that roughly the same logic can be applied to assessments of the quality
of colleges and universities. At some general level, colleges and
universities near the top of the U.S. News ratings, such as Harvard and Yale
Universities, probably excel in some meaningful way over those institutions
near the bottom of such rankings, just as people with higher composite ACTs
have certain academic skills that are more developed than those in people
with lower composite ACTs. But such global assessments miss the qualities
that make institutional differences, like individual differences,
interesting. They actually can fool people into missing what is most
important in distinguishing entities, whether individuals or institutions.
For example, the University of California at Los Angeles and the University
of Virginia, tied for the second rank among public universities in recent
U.S. News ratings, would provide very different experiences to
undergraduates (as anyone who has visited UCLA and UVA likely would notice).
They differ in the roles of undergraduate versus graduate students, social
traditions, and, of course, campus ambiance, among other things.
There is no definitive list of the analogues to the
primary mental abilities for institutions of higher learning. But
administrators pretty much know what some of the major ones are: quality of
research, quality of teaching, quality of extracurricular programs, quality
of leadership development, amount of attention individual students receive,
effectiveness with which the institution is led, and so on. These
differential primary qualities matter greatly in institutions, just as they
do in individuals. At the individual level, employers conduct interviews in
large part because they realize that job applicants can score high on tests
of cognitive ability and yet have poor or, in some cases, sorely deficient
social and emotional skills. Similarly, the financial crisis of 2008 was in
part the result of the work of people with impressive quantitative skills
who nevertheless lacked common sense and an ethical compass. Those selecting
an institution of higher learning at which to study or work need to do the
same kinds of "job interviews."
When students (or faculty or staff, for that
matter) select an institution of higher learning, overall rankings may
obscure the information individuals most need to make an informed choice.
Some of the best research institutions in the country show relatively little
concern with teaching and some of the best teaching institutions put only
modest emphasis on research. Of course, there are institutions that care
about both and even those that care about neither (so long as they meet
their projected bottom line). If one were to select an institution solely on
overall quality, one would miss these important differences and many others,
such as size, view of undergraduate versus graduate versus professional
students, kind of campus life, role of religion on campus, salience of
athletics on campus, availability of particular degree programs, pride in
traditions, and so forth. In the case of my own institution, Oklahoma State
University, the rankings would not take into account its fidelity to its
land-grant mission of serving the state of Oklahoma, the nation, and the
world.
Continued in article
Jensen Comment
This has a great deal to do with the vegetable problem of aggregation at
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews
What Went Wrong With Accountics Research ---
http://www.trinity.edu/rjensen/Theory01.htm#WhatWentWrong
Bob Jensen's threads on rankings controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
Ketz Me if Can
"NY v. Ernst & Young: Did Lehman Bros. Follow GAAP?" by: J. Edward
Ketz, SmartPros, January 2011 ---
http://accounting.smartpros.com/x71206.xml
Jensen Comment
I don't much care whether Lehman and Ernst abided by the letter of FAS 140
rules. To me there's an overriding auditing principle that says if a contract is
designed to both follow the letter of the law under GAAP and to deceive
investors, creditors, and regulators then exception should be taken to
deliberate attempts by the client to deceive.
From all I know about Lehman's Repo 105/108 contracts the primary intent was
deception.
When confronted with a choice of protecting the client versus protecting
investors, I think the auditors in this case dredged up a rather obscure section
of GAAP to protect the client and deceive the investors. It's like dredging up
some statute written in 1798 justifying whipping your wife with a leather strap.
Bob Jensen's threads on Lehman's 105/108 contracts are at
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
Ketz Me If You Can (and it was Tom Selling who coined "Betz from Ketz")
"NY v. Ernst & Young (Part II): Who Cares Whether Lehman Bros. Followed GAAP?"
by J. Edward Ketz, SmartPros, February 2011 ---
http://accounting.smartpros.com/x71245.xml
The major result of this case is that the courts do
not rely exclusively on whether the external auditors attest to an entity’s
application of generally accepted accounting principles. Instead, the
standard is fairness. This is the proper outcome, for managers cannot be
allowed to loot corporations and cover it up with transactions that abide by
generally accepted accounting rules (also known as cleverly rigged
accounting ploys or CRAP).
A. A. Sommer, former commissioner at the SEC put
this case into perspective as follows:
Judge Friendly … said in effect that the first law
for accountants was not compliance with generally accepted accounting
principles, but rather full and fair disclosure, fair presentation, and if
the principles did not produce this brand of disclosure, accountants could
not hide behind the principles but had to go beyond them and make whatever
additional disclosures were necessary for full disclosure. In a word,
“present fairly” was a concept separate from “generally accepted accounting
principles,” and the latter did not necessarily result in the former.
While the FASB and the SEC and the accounting firms
have shied away from the concept of “fairness,” the courts have embraced it.
Interestingly, the courts ended up in a place quite similar to that in
Statement of Financial Concepts No.1 The court said that corporate managers
should report assets and liabilities and stockholders’ equity and revenues
and expenses as fairly as possible and then to communicate these results
fairly to the firm’s investors and potential investors.
Notice the similarities between the cases. Both
Lehman Brothers and Continental Vending wanted to manage their financial
leverage. They both accomplished this by reducing assets and liabilities by
some number; while keeping the equity the same, the leverage ratios shrunk
materially. Both Lehman Brothers and Continental Vending relied on GAAP to
obtain the desired hiding of liabilities. And both Lehman Brothers and
Continental Vending supplied deficient, uninformative disclosures on these
transactions.
E&Y finds itself in a position similar to Lybrand,
Ross Brothers, and Montgomery. It appears that E&Y will defend itself based
on accounting rules, just as Lybrand, Ross Brothers, and Montgomery said it
followed GAAP. The ultimate question is whether the judge of jury will find
this sufficient. Is it a reasonable defense to follow the rules or is a
professional auditor responsible for attesting that the financial statements
as a whole fairly present the financial position and the results of
operations?
Bob Jensen's threads on Lehman and Ernst are at
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
Executory Contracts: The Root of Most Off-Balance-Sheet-Financing Evils
Here's another Onion post from Tom.
In FAS 133 there's a big deal distinction between forecasted transactions (no
signed executory contracts) versus firm commitments (signed executory
contracts). Both types of "commitments" are are frequently hedged such that the
"big deal" is not so much whether a contract has been signed as it is the type
of hedge accounting that's called for such as a cash flow hedge versus a fair
value hedge versus a FX hedge.
Since we're virtually certain that Southwest Airlines is going to need to
purchase jet fuel over the next five years, it hardly matters much in theory
whether there is an unsigned forecasted transaction or a signed executory
contract other than if one of the counterparties breaches the contract the
signed contract may lead to some damage settlement.
When you drill down to the issue of whether an executory contract should be
booked as a liability, one issue is the estimation of damages if the contract is
breached. One reason we do not book long-term purchase contracts is that the
damages from breach of contract are often a miniscule portion of the notionals
times the underlyings.
My favorite example is a contract many years back signed by Dow Jones to buy
newsprint (reels of paper) from St. Regis Paper Company for something like 50
years worth of paper upon which such things as The Wall Street Journal
would be printed. Some of the trees needed for that paper had not even been
planted yet in the timberlands when the contract was signed.
The present value of executory contract is massive in terms of discounted cash
flow liability for the entire purchase. But if one of the counterparties to the
contract breaks the contract the estimated damages most likely are only be a
miniscule portion of the "gross" present value of the liability.
Hence booking such long-term purchase contracts at "gross" present values can be
more misleading than not booking them at all. And estimation of the "damages"
at any point in time is extremely difficult and probably should not be attested
to by auditors.
With that introduction I will turn the floor over to Tom. I don't think the
issue has so much to do with "politics" as it has to do with economic realism in
many instances.
By the way, I've been told by several business law professors that the term "executory
contract" is probably overused by accountants since the "executory" adjective is
not considered such an important term in law schools. However, I've never really
looked into this matter.
"Executory Contracts: The Root of Most Off-Balance-Sheet-Financing Evils,"
by Tom Selling, The Accounting Onion, January 23, 2011 ---
Click Here
http://accountingonion.typepad.com/theaccountingonion/2011/01/executory-contracts-the-root-of-most-off-balance-sheet-financing-evils.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29
Bob Jensen's threads on OBSF ---
http://www.trinity.edu/rjensen/Theory02.htm#OBSF2
Is this sheer coincidence that in my communications with Patricia Walters and
Tom Selling on the AECM that I brought up my long-time illustration of a
newsprint long-term purchase contract between Dow Jones (read that the WSJ) and
St. Regis Paper Company (that has a mill in Bucksport, Maine)?
Could it be that John Malone is buying up timberland in Maine to protect the
future supply of newsprint? The term "timberland" in Maine is a legal term
meaning land that is preserved for trees, and any development on leased land is
severely restricted. One restriction is not having schools so that the
timberland owners do not become liable for school taxes. Timberland owners do
lease ground for recreational cottages (Mainers call them "camps). But lessees
cannot demand public schools for their children while living in those camps.
"For Land Barons, Acres by the Millions," by Katherine Q. Seelye,
The New York Times, January 30, 2011 ---
http://www.nytimes.com/2011/01/29/us/29land.html?_r=4
John C. Malone, a media mogul who is on the verge
of buying nearly one million acres of timberland in Maine, could soon become
the largest private landowner in the United States, catapulting him ahead of
Ted Turner on the list of those who accumulate earth the way others
accumulate, say, bison.
Continued in article
"Learning to Read, Again," by Gary Alan Fine, Chronicle of Higher
Education's The Chronicle Review, January 29, 2011 ---
http://chronicle.com/article/Learning-to-Read-Again/126063/?sid=cr&utm_source=cr&utm_medium=en
Academics take reading for granted. We learned to
read in first grade, and those skills have served us well ever since. Like
fish in water, we hardly notice the transparent medium in which we swim.
Writing is a skill that we are continuously taught,
a skill that is graded. But reading is different. When academics have
trouble understanding texts—and we do—the problem is usually with texts and
with our background knowledge, not the act of reading itself. And when we do
have a reading problem, we tend to medicalize it as dyslexia, suggesting
that proper reading is normal and natural—especially for advanced scholars.
That tendency is not particular to higher education, however. After the
elementary years, schools pay little attention to the mechanisms of reading.
We read as if all texts, even the most complex, were Dick and Jane.
A quarter-century ago, the sociologist Howard S.
Becker published a now classic discussion of the challenges of writing in
graduate school. In Writing for Social Scientists: How to Start and Finish
Your Thesis, Book, or Article (University of Chicago Press, 1986), Becker
demonstrated how academics should write. But the question of how academics
should read is deeper, since, unlike writing, reading is considered a given.
Although the words, syntax, and ideas are more complex, isn't reading in
graduate school fundamentally like reading in first grade?
It isn't, of course. Not only is reading Foucault
more intellectually challenging than reading Goodnight Moon (although the
two have quite a bit in common, both emphasizing omnipresent surveillance),
but the application of reading differs. For the most part, earlier reading
is an attempt to grasp the meaning of a text so that one can repeat it to an
authority, who then judges whether one "got" the ideas. At that level,
reading is regurgitation.
In graduate school, reading and the ability to
discuss and interpret that reading are simultaneously a means by which a
student asserts an academic identity and the basis on which a student can
produce new knowledge. And while assignments before graduate school are
meant to be read in full, the wise graduate student must learn how to skim
in order to manage impossible demands. It is the ability to not read
everything—while still reading enough—that represents success in graduate
school.
When students arrive at graduate school, they have
been reading for nearly 20 years or longer, and they are good at it. But
from their first day, they are thrown into a world in which reading has
different, contradictory meanings. Becker observed a similar conflict when
studying medical students for his canonical ethnography, Boys in White
(University of Chicago Press, 1961). Becker recognized that although the
students entered classrooms with the goal of learning all that the field of
medicine could offer, and all that their instructors required, they soon
found that goal impossible to meet. To survive, the successful students were
forced to learn tricks of the trade. They learned to become real doctors,
not imagined, ideal ones.
A similar process occurs in graduate school.
Students who triumphed in college find themselves swimming in a sea of words
with no shore in sight. Their task is complicated by the fact that reading
contributes to the reputation game that is so essential to graduate
education. Incoming students have only a hazy notion of how they stand in
comparison with their peers. But they soon find that in the first years of
graduate study, being able to discuss the assigned readings is central to
that evaluation. One must be informed and engaged in order to be esteemed
and rewarded.
Continued in article
Jensen Comment|
By the way, a leading accounting scholar on Michael Foucault is my former
doctoral student Ed Arrington who lived in Europe for a while studying
Foucault's work first hand. Ed was and still is interested in extending
Foucault's doctrine of texts and criticism into the realm of accountancy.
Search the journal Accounting, Organizations and Society for some of
Ed's published papers on this topic ---
http://www.elsevier.com/wps/find/journaldescription.cws_home/486/description#description
January 31, 2011 reply from Jim Martin
Some papers by C. E. Arrington
Arrington, C. E. and J. R. Francis. 1989. Letting the chat out of the bag:
Deconstruction, privilege and accounting research. Accounting,
Organizations and Society 14(1-2): 1-28.
Arrington, C. E. and J. R. Francis. 1993. Accounting as a human practice:
The appeal of other voices. Accounting, Organizations and Society
18(2-3): 105-106.
Arrington, C. E. and J. R. Francis. 1993. Giving economic accounts:
Accounting as cultural practice. Accounting, Organizations and Society
18(2-3): 107-124.
Arrington, C. E. and W. Schweiker. 1992. The rhetoric and rationality of
accounting research. Accounting, Organizations and Society 17(6):
511-533.
Arrington, C. E., C. D. Bailey and W. S. Hopwood. 1985. An attribution
analysis of responsibility assessment for audit performance. Journal of
Accounting Research (Spring): 1-20. (JSTOR link).
Arrington, C. E., W. Hillison and R. E. Jensen. 1984. An application of
analytical hierarchy process to model expert judgments on analytical
review procedures. Journal of Accounting Research (Spring): 298-312.
(JSTOR link).
"The AICPA Talks to Going Concern About the New CPA Exam," by Jr.
Deputy Accountant and often foul-mouthed Adrienne Gonzalaz, Going Concern,
January 14, 2011 ---
http://goingconcern.com/2011/01/the-aicpa-talks-to-going-concern-about-the-new-cpa-exam/
Because I genuinely care about the well-being of
you little CPA exam candidates out there, I recently put aside the
inflammatory nonsense for a moment and took some time out of my busy
schedule to chat with the AICPA about the new CPA exam that
they were proud to say launched early this month without a hitch.
We’re pretty excited about that too, mostly because it
means we can finally stop talking about 2011 changes and get back to talking
CPA exam strategy, which is largely unchanged as a result of CBT-e.
We here at Going Concern value reader input (even
if we do value chastising said reader just as equally) and therefore reached
out to get
your input on the sorts of questions we should ask.
You spoke and we listened so let’s cut right to the
chase and give you some answers.
John Mattar, Ed.D.,
Director of Psychometrics and Research and Mike Decker, Director of
Operations and Development, both of the AICPA Examinations Team, were kind
and brave enough to speak with me and give me plenty of insight on the brain
behind the new CPA exam.
First of all, we need to talk scoring as that’s the
one thing you guys have complained about consistently since the exam went
computerized in 2004 (except for written communication but that is an
entirely different issue). We’re proud to tell you that we can finally say
with certainty that the AICPA will not be changing the passing score
from 75 moving forward. That’s right, put down your flaming
pitchforks, all you 74s who were ready to flip should the score have been
lowered to 70. “In terms of the score reported to candidates, right now the
passing score on that reported scale is a 75 and it’s going to remain there
because we want to have consistency over time,” John told us.
That means a 75 last year might not necessarily be
the same as a 75 this year but a 75 is still passing and that’s what
matters. As we all know, the AICPA uses a complicated and mysterious
psychometric formula to determine weights for each question and bases a
candidate’s score on this formula. It isn’t for you, little candidate, to
worry about how they come up with their numbers nor should you feel as
though the AICPA gets some sick thrill out of seeing you get a 74. Believe
it or not, they’re neutral. They don’t care if you pass or fail, they only
care about overseeing a professional examination that successfully tests the
knowledge base of entry-level CPAs in the United States. That’s it.
Second, while
the AICPA will be using a single score release formula
for at least the first three testing windows of the
year, candidates can anticipate a new and improved score release system that
will hopefully be introduced by the end of the year. This means all
candidates who test early in their window will be eligible to receive their
scores in the first release and all other candidates can expect to receive
their scores in more frequent batches through the end of that window’s
blackout month. So forget the Wave 1/Wave 2 nonsense. “Due to a lot of the
work we’re doing on the backend, we’re going to be able to release scores
faster. We’re not actually going to be able to release the scores earlier
until the 4th quarter because we need to do a greater analysis in the first
three quarters,” Mike said. So while you guys see the new simulations and
international content on the frontend, it’s important to remember that a lot
of time and effort went into improving the backend of the CPA exam and
faster scoring is one such improvement that we can expect to see by the end
of the year. But these changes come at a price so be patient while the AICPA
works through the first three windows of this year to finalize their new
scoring process.
If you haven’t already, I recommend you check out
How the CPA Exam is Scored for more details on
this process. Expect an update to that document when new scoring takes
effect later in the year.
As for CBT-e content, I initially congratulated the
AICPA for finally streamlining some questionable areas of the exam
(especially BEC) in the updated
CSOs/SSOs but forgot
that they don’t actually come up with content on their own. You can thank
an extensive practice analysis and subsequent input from practicing CPAs
for the CPA exam you know and love today, a process that takes into account
input from the profession on what entry-level CPAs should know. That means
the introduction of international financial reporting and auditing standards
is entirely independent of the SEC’s do-we-or-do-we-not IFRS roadmap. This
should be a comfort to some of you who are wondering just how much IFRS will
appear on the exam in coming windows as it means the exam will most likely
continue to test remedial international content and will mostly focus on
major differences between IFRS and GAAP. Entry-level CPAs in the U.S. are
not expected to be experts in IFRS, just as they are not expected to be
experts in cost accounting, government accounting, non-profit accounting or
any number of areas that have been consistently tested on the CPA exam for
years now.
The best news is that though the e in
CBT-e stands for evolution, those expecting to take the exam in
2012 or beyond shouldn’t expect such a large overhaul as we just saw any
time soon. “We don’t plan to change the exam,” John said. “What we plan to
do is keep the exam current with the profession to protect the public
interest. If we do have significant changes in test content we would have to
let candidates know in advance.”
That being said, the largest takeaway I got from my
conversation with the AICPA was that they are simply interested in providing
a consistent examination that continues to evolve to meet the needs of the
profession. I swear to you that they really don’t get a sick thrill out of
torturing you guys with changes, scoring delays and new content though it
may appear that way sometimes, especially if you’re in the 74 x 3 club. It’s
their job to make sure that the CPA exam represents the best interests of
the profession, which means revising their strategy to keep up with the
evolution of the industry.
We applaud the AICPA on a job well done and
congratulate them for a successful CBT-e launch. So far, candidate feedback
I have gotten on the new exam format has been mostly positive, which means
that their hard work was totally worth it.
Bob Jensen's threads on the CPA examination are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam
"MIT Introduces Complete Courses to OpenCourseWare Project,"
OpenCulture.com, January 13, 2011 ---
http://www.openculture.com/2011/01/mit_opencourseware_introduces_complete_courses.html
This week, MIT’s OpenCourseWare project launched OCW
Scholar, a new series of courses “designed for
independent learners who have few additional resources available to them.”
To date, MIT has given students access to isolated materials from MIT
courses. Now, with this new initiative, lifelong learners can work with a
more rounded set of resources.
OWC
Scholar takes video lectures, homework problems,
problem solving videos, simulations, readings, etc., and stitches them into
a structured curriculum. Perfect for the self-disciplined student.
Below we have listed the first five courses in the
OWC
Scholar collection. (They’re entirely free.) Fast
forward three years and you will find 20 courses online,
says MIT. All will be
added to our big list of
Free
Online Courses.
Physics 1: Classical Mechanics
Physics II: Electricity and Magnetism
Introduction to Solid State Chemistry
Single Variable Calculus
Multivariable Calculus
Business School Podcast Collection – Download MBA Podcasts and other
Business Podcasts ---
http://www.openculture.com/2007/02/business_school.html
Bob Jensen's threads on the sharing of course materials and videos from
various prestigious universities are at
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Texas A&M Case on Computing the Cost of Professors and Academic Programs
Jensen Comment
In an advanced Cost/Managerial Accounting course this assignment could have two
parts. First assign the case below. Then assign student teams to write a case on
how to compute the cost of a given course, graduate in a given program, or a
comparison of a the cost of a distance education section versus an onsite
section of a given course taught by a tenured faculty member teaching three
courses in general as well as conducting research, performing internal service,
and performing external service in his/her discipline.
From The Wall Street Journal Accounting Weekly Review on November 5,
2010
Putting a Price on Professors
by: Stephanie Simon and Stephanie Banchero
Oct 23, 2010
Click here to view the full article on WSJ.com
TOPICS: Contribution Margin, Cost Management, Managerial Accounting
SUMMARY: The article describes a contribution margin review at Texas A&M
University drilled all the way down to the faculty member level. Also
described are review systems in place in California, Indiana, Minnesota,
Michigan, Ohio and other locations.
CLASSROOM APPLICATION: Managerial concepts of efficiency, contribution
margin, cost management, and the managerial dashboard in university settings
are discussed in this article.
QUESTIONS:
1. (Introductory) Summarize the reporting on Texas A&M University's Academic
Financial Data Compilation. Would you describe this as putting a "price" on
professors or would you use some other wording? Explain.
2. (Introductory) What is the difference between operational efficiency and
"academic efficiency"?
3. (Advanced) Review the table entitled "Controversial Numbers: Cash Flow at
Texas A&M." Why do you think that Chemistry, History, and English
Departments are more likely to generate positive cash flows than are
Oceanography, Physics and Astronomy, and Aerospace Engineering?
4. (Introductory) What source of funding for academics is excluded from the
table review in answer to question 3 above? How do you think that funding
source might change the scenario shown in the table?
5. (Advanced) On what managerial accounting technique do you think
Minnesota's state college system has modeled its method of assessing
campuses' performance?
6. (Advanced) Refer to the related article. A large part of cost increases
in university education stem from dormitories, exercise facilities, and
other building amenities on campuses. What is your reaction to this parent's
statement that universities have "acquiesced to the kids' desire to go to
school at luxury resorts"?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Letters to the Editor: What Is It That We Want Our Universities to Be?
by Hank Wohltjen, David Roll, Jane S. Shaw, Edward Stephens
Oct 30, 2010
Page: A16
"Putting a Price on Professors," by Stephanie Simon and Stephanie Banchero,
The Wall Street Journal, October 23, 2010 ---
http://online.wsj.com/article/SB10001424052748703735804575536322093520994.html?mod=djem_jiewr_AC_domainid
Carol Johnson took the podium of a lecture hall one
recent morning to walk 79 students enrolled in an introductory biology
course through diffusion, osmosis and the phospholipid bilayer of cell
membranes.
A senior lecturer, Ms. Johnson has taught this
class for years. Only recently, though, have administrators sought to
quantify whether she is giving the taxpayers of Texas their money's worth.
A 265-page spreadsheet, released last month by the
chancellor of the Texas A&M University system, amounted to a profit-and-loss
statement for each faculty member, weighing annual salary against students
taught, tuition generated, and research grants obtained.
Ms. Johnson came out very much in the black; in the
period analyzed—fiscal year 2009—she netted the public university $279,617.
Some of her colleagues weren't nearly so profitable. Newly hired assistant
professor Charles Criscione, for instance, spent much of the year setting up
a lab to research parasite genetics and ended up $45,305 in the red.
The balance sheet sparked an immediate uproar from
faculty, who called it misleading, simplistic and crass—not to mention,
riddled with errors. But the move here comes amid a national drive, backed
by some on both the left and the right, to assess more rigorously what,
exactly, public universities are doing with their students—and their tax
dollars.
![](TexasAggieProfessorCost.gif)
As budget pressures mount, legislators and
governors are increasingly demanding data proving that money given to
colleges is well spent. States spend about 11% of their general-fund budgets
subsidizing higher education. That totaled more than $78 billion in fiscal
year 2008, according to the National Association of State Budget Officers.
The movement is driven as well by dismal
educational statistics. Just over half of all freshmen entering four-year
public colleges will earn a degree from that institution within six years,
according to the U.S. Department of Education.
And among those with diplomas, just 31% could pass
the most recent national prose literacy test, given in 2003; that's down
from 40% a decade earlier, the department says.
"For years and years, universities got away with,
'Trust us—it'll be worth it,'" said F. King Alexander, president of
California State University at Long Beach.
But no more: "Every conversation we have with these
institutions now revolves around productivity," says Jason Bearce, associate
commissioner for higher education in Indiana. He tells administrators it's
not enough to find efficiencies in their operations; they must seek
"academic efficiency" as well, graduating more students more quickly and
with more demonstrable skills. The National Governors Association echoes
that mantra; it just formed a commission focused on improving productivity
in higher education.
This new emphasis has raised hackles in academia.
Some professors express deep concern that the focus on serving student
"customers" and delivering value to taxpayers will turn public colleges into
factories. They worry that it will upend the essential nature of a
university, where the Milton scholar who teaches a senior seminar to five
English majors is valued as much as the engineering professor who lands a
million-dollar research grant.
And they fear too much tinkering will destroy an
educational system that, despite its acknowledged flaws, remains the envy of
much of the world. "It's a reflection of a much more corporate model of
running a university, and it's getting away from the idea of the university
as public good," says John Curtis, research director for the American
Association of University Professors.
Efforts to remake higher education generally fall
into two categories. In some states, including Ohio and Indiana, public
officials have ordered a new approach to funding, based not on how many
students enroll but on what they accomplish.
Continued in article
Jensen Comment
This case is one of the most difficult cases that managerial and cost
accountants will ever face. It deals with ugly problems where joint and indirect
costs are mind-boggling. For example, when producing mathematics graduates in
undergraduate and graduate programs, the mathematics department plays an even
bigger role in providing mathematics courses for other majors and minors on
campus. Furthermore, the mathematics faculty provides resources for internal
service to administration, external service to the mathematics profession and
the community, applied research, basic research, and on and on and on. Faculty
resources thus become joint product resources.
Furthermore costing faculty time is not exactly the same as costing the time
of a worker that adds a bumper to each car in an assembly line. While at home in
bed going to sleep or awakening in bed a mathematics professor might hit upon a
Eureka moment where time spent is more valuable than the whole previous lifetime
of that professor spent in working on campus. How do you factor in hours
spent in bed in CVP analysis and Cost-Benefit analysis? Work sampling and
time-motion studies used in factory systems just will not work well in academic
systems.
In Cost-Profit-Volume analysis the multi-product CPV model is
incomprehensible without making a totally unrealistic assumption that "sales
mix" parameters are constant for changing levels of volume. Without this
assumption for many "products" the solution to the CPV model blows our minds.
Another really complicating factor in CVP and C-B analysis are semi-fixed
costs that are constant over a certain time frame (such as a semester or a year
for adjunct employees) but variable over a longer horizon. Of course over
a very long horizon all fixed costs become variable, but this generally destroys
the benefit of a CVP analysis in the first place. One problem is that faculty
come in non-tenured adjunct, non-tenured tenure-track, and tenured varieties.
To complicate matters the sources of revenues in a university are complicated
and interactive. Revenues come from tuition, state support (if any), gifts and
endowment earnings, research grants, services such as surgeries in the medical
school, etc. Allocation of these revenues among divisions and departments is
generally quite arbitrary.
I could go on and on about why I would never attempt to do CVP or C-B
research for one of the largest universities of the world. But somebody at
Texas A&M has rushed in where angels fear to tread.
Bob Jensen's threads on managerial and cost accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Bob Jensen's threads on higher education controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm
"Top 10 SEO Tips for New Websites: Neophyte sites should be
realistic in their goals, focus on building trust and crank up the social media
campaign," DevX.com, January 4, 2011 ---
http://www.devx.com/DevX/Article/46214/0/page/1
Thanks ot Jerry Trites for the heads up.
Every site needs to attract attention. Since people
can only come to your site by typing your URL directly into the browser,
come to your site from a link on another site another, or find you via a
search engine, the topic of getting traffic from search engines is a very
important one. In this article, we'll go over SEO (Search Engine
Optimization) strategies that many new sites would
do well to follow to grow traffic to their sites.
Continued in article
Bob Jensen's sadly neglected threads on e-Business ---
http://www.trinity.edu/rjensen/ecommerce.htm
January 15, 2011 message from Whitney Belmont
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“Tech Gadgets” can be the hyperlink to:
http://www.businessweek.com/technology/wildstrom.htm
Thank you again,
--Whitney
Whitney Belmont
Wbelmont1@bloomberg.net
Bob Jensen's investor helpers are at
http://www.trinity.edu/rjensen/BookBob1.htm
Question
What percentage of combined Big Four revenues comes from the America's Region?
2010 Performance Analysis of the Big Four
Accounting firms ---
http://www.big4.com/intro.html
Direct Link:
http://www.big4.com/pdfs/2010 Big Four Firms Performance Analysis by
Big4.com.pdf
After an extraordinary period of
continuous revenue growth from the early 2000s to 2008, combined revenue for
the four firms in fiscal 2009 fell by 7% from fiscal 2008 in US dollar
terms. Revenue decreases in US dollar percentage terms ranged from negative
5% for Deloitte to negative 7% each for Ernst & Young and
PricewaterhouseCoopers to negative 11% for KPMG.
In 2010, the situation improved
remarkably, with $95 billion combined revenue for the four firms in fiscal
2010 increasing 1.4% from $94 billion in fiscal 2009 in US dollar terms.
Revenue increases in US dollar percentage terms ranged from negative 0.9%
for Ernst & Young, 1.5% for PwC, 1.8% for Deloitte and 2.6% for the
fastest-grower, KPMG. KPMG also had positive growth in all its three regions
and narrowed its revenue gap with E&Y. E&Y was the only firm whose full year
revenues shrank, though the firm indicated that the second half of the
fiscal year was much stronger, especially in Advisory and TAS.
The big story of 2010 was that
Deloitte with its 1.8% growth was able to beat PricewaterhouseCoopers with
its 1.5% growth to gain first place and become the largest accounting firm
on the planet. In 2009, PwC was narrowly ahead of Deloitte, but Deloitte’s
2010 revenues of $26.578 billion was ahead of PwC’s 2010 revenues of $26.569
billion by an ultra-slim, but very significant, $9 million. Ernst & Young
took the third spot at $21.3 billion, and KPMG maintained its position as
the smallest of the Big Four firms at $20.6 billion, but narrowed the gap
against E&Y.
The Americas region accounts for 39%
of global revenues for the Big Four firms, but its share has been falling
over the years, due to the preponderance of mature markets. The region grew
only 1% from 2009 to 2010. Contrary perhaps to common belief, Europe, Middle
East and Africa has the highest percentage of total revenues for the Big
Four firms at 45%, this region shrank 0.4% from 2009 to 2010. Asia Pacific,
while being the smallest region at 15% of revenues, has posted the highest
growth rates, owing to the strong upswing in many emerging Asian economies,
posting a strong 9% growth from 2009 to 2010.
The Audit service line accounts for
almost 47% of total revenues and this proportion has been falling across the
years; and revenues further fell from 2009 to 2010. Tax services experienced
strong growth in 2006 to 2008, in sync with global merger and acquisition
transactions activity. Tax revenues fell 7% from 2008 to 2009 and then
further 1% from 2009 to 2010. Advisory services has been the fastest growing
service line as the firms extended their services into risk management and
business consulting. Advisory has grown from 22% of total revenues in 2004
to 29% in 2010. Advisory revenues grew a strong 6% from 2009 to 2010.
The Big Four firms cumulatively employ
more than 600,000 staff globally, with a total of 34,000 partners overseeing
a steep pyramid of about 460,000 professionals. Employment fell somewhat
from 2009 to 2010.
With the subsiding of the world’s
worst financial crisis for over 70 years, the Big Four firms turned a
creditable performance in 2010, with revenues rising by moderate but welcome
positive percentages, indicative of a solid momentum of improving
fundamentals.
The outlook for 2011 and beyond is
quite optimistic, revenue is expected to grow at a steady pace, with help
from strong emerging markets and Advisory services. 2011 will also prove
whether Deloitte can maintain its lead over PwC; and whether the gap between
E&Y and KPMG will narrow further.
![](BigFourRevenues2010.jpg)
. . .
Deloitte
Deloitte said business volume increased from the prior year, while rates
remained constrained by the challenging economic conditions. Also the firm
noted that business lines performed strongly within the context of the
economic environment. A 15% increase in consulting revenues, led by a 19%
growth in the strategy and operations service line and a 33% growth in
technology integration, offset small declines in other businesses affected
by modest reductions in rate per hour. Deloitte US’ integration of
BearingPoint’s North American public sector practice helped consulting’s
overall performance.
In terms of geography, Americas increased 3.0% in
local currency terms and 3.9% in US dollar terms from $12.5 billion in 2009
to $13.0 billion in 2010. Europe, Middle East and Africa revenues dropped
4.2% in local currency terms and 2.9% in US dollar terms from $10.2 billion
in 2009 to $10.0 billion in 2010.
Asia Pacific grew 1.6% in local currency terms and
8.5% in US dollar terms from $3.4 billion in 2009 to $3.6 billion in 2010.
Asia Pacific revenues grew 9%, making it the fastest-growing region for the
sixth consecutive year. Korea and India grew more than 20%, Deloitte China
grew 8%. Brazil grew in excess of 20%. Deloitte United States grew 3% and
the Middle East grew 15%. In terms of sub regions, Deloitte Latin America
grew 6%, North America grew 2.7%, Europe fell 4.8%, Africa grew 0.2%, all in
local currency terms.
And this remarkable performance helped Deloitte to
beat PwC and become the largest Big Four firm in the world. Its 2010
revenues of $26.578 billion
"Suing Big 4 Auditors Hasn’t Gone as Well as Investors Hoped," by
Caleb Newquist, Going Concern, January 21, 2011 ---
http://goingconcern.com/2011/01/suing-big-4-auditors-hasnt-gone-as-well-as-investors-hoped/
Thnk you Jerry Trites for the heads up.
Sure, there are settlements here and there but not
the big KA-CHING!
investors are looking for.
Lawsuits have been dismissed against Deloitte &
Touche over its audits of mortgage financier Fannie Mae, as well as a
case against PricewaterhouseCoopers accusing it of helping hide risks at
insurer American International Group. KPMG settled a lawsuit stemming
from its audits of mortgage lender Countrywide Financial Corp, now part
of Bank of America, for a relatively modest amount. “Every time somebody
comes up with a new fraudulent scheme, auditors miss it,” said Andrea
Kim, a partner at law firm Diamond McCarthy LLP in Houston who
represents plaintiffs in auditor lawsuits. “The historical pattern is
that they find a way to manage the litigation to limit their liability.”
Analysis: Big wins elude investors in auditor lawsuits [Reuters]
"No Audit At All: Deloitte and Bear Stearns," by Francine McKenna,
Forbes, January 25, 2011 ---
http://blogs.forbes.com/francinemckenna/2011/01/25/no-audit-at-all-deloitte-and-bear-stearns/
Deloitte’s audits “were so deficient that the
audit amounted to no audit at all,” the [Bear Stearns investors]
plaintiffs argued in court papers.
That’s
Reuters describing the rationale behind the
decision of US District Judge Robert Sweet on January 23, 2011 to allow a
case against fallen investment bank Bear Stearns and its outside auditor,
Deloitte, to go forward.
The decision for a group of plaintiffs, including
the State of Michigan Retirement system, and their attorneys is indeed
sweet. Subprime suits have been hampered by the argument they are trying to
punish the case of “classic fraud by hindsight”. Bankers did a great job
during and after the crisis of describing the events that occurred as “black
swan” events,
forces of nature that could not have been
identified in advance.
That rhetoric is
slowly being disproved.
This decision is even more significant because it
provides a successful template for including claims against the auditors for
financial crisis failures when warranted. In
Ernst & Ernst v. Hochfelder, the Supreme
Court held that actions under Section 10(b) of the Exchange Act and Rule
10b-5 require an allegation of “`scienter’—intent to deceive, manipulate, or
defraud.” The “scienter” requirement, necessary to sustain allegations
against the auditors in a securities claim under Section 10(b), is
notoriously difficult to meet.
If there’s anything of substance in a claim against
auditors the case usually settles before the facts are made public. New
Century Trustee v. KPMG is an early crisis mortgage originator case,
cited several times in this decision. However, those facts will never be
heard in open court. In spite of – or perhaps because of – very particular
examples of reckless behavior by the auditor documented by the bankruptcy
examiner,
the case was settled.
The Ernst & Ernst v. Hochfelder decision
left open the question of “whether, in some circumstances, reckless behavior
is sufficient for civil liability under § 10(b) and Rule 10b-5.” However,
since Ernst, most courts have concluded that recklessness can
satisfy the requirement of “scienter” in a securities fraud action against
an accountant.
“Recklessness” in a securities fraud action against
an accountant is defined as, “highly unreasonable [conduct], involving
not merely simple, or even inexcusable negligence, but an extreme departure
from the standards of ordinary care, and which presents a danger of
misleading buyers or sellers that is either known to the defendant or is so
obvious that the actor must have been aware of it.”
Continued in article
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Auditors Under Pressure In The UK: Or Are They?" by Francine McKenna,
re:TheAuditors, January 28, 2011 ---
http://retheauditors.com/2011/01/25/auditors-under-pressure-in-the-uk-or-are-they/
The UK accounting firms’ response to the “pressure”
on their industry post-crisis has been sharp, quick, and on message.
But the “pressure” itself feels like a strategy
orchestrated by the audit firms to force legislators to grant their wishes
under the mistaken assumption they’re “regulating” the industry.
Let me break it down for you.
There’s been
much more noise made by legislators and regulators in the UK
regarding the auditors’ role in the financial crisis than in the US. Banks
failed there, too. The government bailed them out, although it looked more
like nationalization. The difference is they’re not afraid to admit it.
Mainstream media publications such as the
Financial Times and the Guardian have been full of
stories about the auditors and what they did, and did not do, to warn of the
crisis or mitigate the impact to investors.
The UK regulators have
gone through the motions, wringing their hands.
The angst has even spread to the European Union, where Michel
Barnier has voiced overall displeasure with
the audit firms and threatened
new laws and regulations.
But the firms’ master plan hit a speedbump at end
of November. The leaders of the largest audit firms –
Ian Powell, chairman of PwC UK,
John Connolly, Senior Partner and Chief Executive
of Deloitte’s UK firm and Global MD of its international firm, John
Griffith-Jones, Chairman of KPMG’s Europe,
Middle East and Africa region and Chairman of KPMG UK, and
Scott Halliday, UK & Ireland Managing Partner for
Ernst & Young – appeared before the House of Lord’s Economic Affairs
Committee and let their cat out of the bag.
The auditors admitted they did not
issue “going concern” warnings for any of the
large banks that were eventually nationalized because they were assured
during private, confidential meetings with government officials – Lord
Myners in particular – that the government would bail out the banks if
needed.
The admission was “astonishing” said one member of
the Committee, Lord Lawson.
Accountancy Age, November 23, 2010: Debate
focused on the use of “going concern” guidance, issued by auditors if
they believe a company will survive the next year. Auditors
said they did not change their going concern guidance because they were
told the government would bail out the banks.
“Going concern [means] that a business can pay
its debts as they fall due. You meant something thing quite different,
you meant that the government would dip into its pockets and give the
company money and then it can pay it debts and you gave an unqualified
report on that basis,” Lipsey said.
Lord Lawson said there was
a “threat to solvency” for UK banks which was
not reflected in the auditors’ reports.
“I find that absolutely astonishing, absolutely
astonishing. It seems to me that you are saying that
you noticed they were on very thin ice but you were completely relaxed
about it because you knew there would be support,
in other words, the taxpayer would support them,” he said.
I found the admission to be quite astonishing
myself.
I reprinted it on my site, based here in the
United States, and some in the US also found it rather astonishing.
Continued in article
Bob Jensen's threads on the failure of auditors to signal going concern
exceptions to over 1,000 failed banks in 2008 are at
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
Bob Jensen's threads on auditor professionalism or lack thereof are at
http://www.trinity.edu/rjensen/Fraud001.htm
"David Bergstein: Tech Predictions for 2011," CPA Trendlines, January
2011 ---
http://cpatrendlines.com/2010/12/29/three-tech-predictions-for-2011/
Predictions for accounting firms
I see change coming in how accounting firms make
investments in hardware and software and how they deploy applications. Many
firms will now start to think of the cloud (SaaS) or a central data center
as the repository of their data – lower cost to the firm and accessible from
almost anywhere.
Dashboards will be employed by managers and
partners as a means of measuring and monitoring on mobile devices such as
iPads or the multitude of tablets that will be released in 2011. Laptops and
mobile monitors will be employed in the field in much greater numbers as
more work is performed in the clients’ office to justify billings.
Continued in article
Bob Jensen's technology bookmarks are at
http://www.trinity.edu/rjensen/BookBob1.htm
By the way my Technology Glossary is becoming more obsolete as time goes by.
It became too large to be updated with MS Frontpage or Expression. I would have
to go back to an older archived version and than split the file. But for what
purpose? Technology definitions are now easily found with Google and other
search engines and Wikipedia. For example, if you want a definition for
"Dashboard Computing" simply enter that phrase in quotes after the word define
in Google. Or enter "define dashboard computing" in Google. I can't compete with
Google and Wikipedia.
However, my Technology Glossary still serves some use to technology
historians. I think my definitions of such things as "CD-I" and many other terms
beat what you will find in Google or Wikipedia. However, like me some things are
better for history than for current events.
My Technology Glossary that is now frozen in time is at
http://www.trinity.edu/rjensen/245gloss.htm
Benford's Law: How a mathematical phenomenon can help CPAs uncover fraud and
other irregularities
A century-old observation about the distribution of significant digits is now
being used to detect fraud.
Thanks to Miguel for the heads up on January 22, 2011---
http://www.simoleonsense.com/benfords-law-difficulty-of-faking-data/
"The Difficulty of Faking Data," tpHill.net ---
http://www.tphill.net/publications/BENFORD PAPERS/difficultyOfFakingData1999.pdf
From
Jensen's Archives ---
http://www.trinity.edu/rjensen/Theory02.htm
Benford's Law: It's interesting to read the "Silly" comments that follow the
article.
"Benford's
Law And A Theory of Everything: A new relationship between Benford's Law and
the statistics of fundamental physics may hint at a deeper theory of everything,"
MIT's Technology Review. May 7, 2010 ---
http://www.technologyreview.com/blog/arxiv/25155/?nlid=2963
In 1938, the physicist Frank Benford made an extraordinary discovery about
numbers. He found that in many lists of numbers drawn from real data, the
leading digit is far more likely to be a 1 than a 9. In fact, the
distribution of first digits follows a logarithmic law. So the first digit
is likely to be 1 about 30 per cent of time while the number 9 appears only
five per cent of the time.
That's an unsettling and counterintuitive discovery. Why aren't numbers
evenly distributed in such lists? One answer is that if numbers have this
type of distribution then it must be scale invariant. So switching a data
set measured in inches to one measured in centimetres should not change the
distribution. If that's the case, then the only form such a distribution can
take is logarithmic.
But while this is a powerful argument, it does nothing to explan the
existence of the distribution in the first place.
Then there is the fact that Benford Law seems to apply only to certain types
of data. Physicists have found that it crops up in an amazing variety of
data sets. Here are just a few: the areas of lakes, the lengths of rivers,
the physical constants, stock market indices, file sizes in a personal
computer and so on.
However, there are many data sets that do not follow Benford's law, such as
lottery and telephone numbers.
What's the difference between these data sets that makes Benford's law apply
or not? It's hard to escape the feeling that something deeper must be going
on.
Today, Lijing Shao and Bo-Qiang Ma at Peking University in China provide a
new insight into the nature of Benford's law. They examine how Benford's law
applies to three kinds of statistical distributions widely used in physics.
These are: the Boltzmann-Gibbs distribution which is a probability measure
used to describe the distribution of the states of a system; the Fermi-Dirac
distribution which is a measure of the energies of single particles that
obey the Pauli exclusion principle (ie fermions); and finally the
Bose-Einstein distribution, a measure of the energies of single particles
that do not obey the Pauli exclusion principle (ie bosons).
Lijing and Bo-Qiang say that the Boltzmann-Gibbs and Fermi-Dirac
distributions distributions both fluctuate in a periodic manner around the
Benford distribution with respect to the temperature of the system. The Bose
Einstein distribution, on the other hand, conforms to benford's Law exactly
whatever the temperature is.
What to make of this discovery? Lijing and Bo-Qiang say that logarithmic
distributions are a general feature of statistical physics and so "might be
a more fundamental principle behind the complexity of the nature".
That's an intriguing idea. Could it be that Benford's law hints at some kind
underlying theory that governs the nature of many physical systems? Perhaps.
But what then of data sets that do not conform to Benford's law? Any decent
explanation will need to explain why some data sets follow the law and
others don't and it seems that Lijing and Bo-Qiang are as far as ever from
this.
It's interesting to read the "Silly" comments that follow the article.
"I've
Got Your Number: How a mathematical phenomenon can help CPAs uncover fraud and
other irregularities," by Mark J. Nigrini, Journal of Accountancy, May 1999
---
http://www.journalofaccountancy.com/Issues/1999/May/nigrini.htm
EXECUTIVE SUMMARY |
BENFORD'S LAW PROVIDES A DATA
analysis method that can help alert CPAs to possible errors,
potential fraud, manipulative biases, costly processing
inefficiencies or other irregularities.
A
PHYSICIST AT GE RESEARCH LABORATORIES
in the 1920s, Frank Benford found that numbers with low first
digits occurred more frequently in the world and calculated the
expected frequencies of the digits in tabulated data.
|
CPAs CAN USE BENFORD'S DISCOVERY
in business applications ranging from accounts payable to Y2K
problems. In addition, subset tests identify small lists of
serious anomalies in large data sets, making an analysis more
manageable.
DIGITAL ANALYSIS IS WELL SUITED
to finding errors and irregularities in large data sets when
auditors need computer assisted technologies to direct their
attention to anomalies. |
MARK J. NIGRINI, CA (SA), PhD, MBA, is an assistant professor at
the Edwin L. Cox School of Business, Southern Methodist
University, Dallas, and a Research Fellow at the Ernst & Young
Center for Auditing Research and Advanced Technology, University
of Kansas, Lawrence. |
|
Bob
Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory02.htm
From CNN: Clark Howard's Informative Advice About Shopping,
Financial Planning, and Warnings About Scams ---
http://www.cnn.com/CNN/Programs/clark.howard/?iref=allsearch
Bob Jensen's warnings about scams ---
http://www.trinity.edu/rjensen/FraudReporting.htm
Bob Jensen's shopping helpers ---
http://www.trinity.edu/rjensen/Bookbob3.htm
Rethinking Capitalism
Video: Crisis in Capitalism ---
http://www.youtube.com/watch?v=qOP2V_np2c0
Thank you Paul Williams for the heads up.
If Harvard University Business School faculty took a vote regarding who was
their most valuable faculty member my guess without doubt would be that the
winner would be economist Michael Porter. Apart from being a fine colleague and
great teacher, he's probably Harvard's most popular consultant and author of
books and many articles in the Harvard Business Review ---
http://en.wikipedia.org/wiki/Michael_Porter
The Harvard Business Review blog is now carrying a video interview with
Professor Porter:
"Rethinking Capitalism," Michael Porter, Harvard Business Review Blog,
January 5, 2010 ---
Click
Here
http://blogs.hbr.org/video/2011/01/rethinking-capitalism.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
I could not help trying to think how Porter's interview might've compared
with the same interview being conducted on the late Milton Friedman. In my
estimation, Michael Porter cannot hold a candle in comparison with Milton
Friedman whose "Free to Choose" PBS series in the 1970s is a classic that lives
today as even more relevant since many of his dire predictions and warnings
about entitlements are now coming true ---
http://en.wikipedia.org/wiki/Milton_Friedman
Let me give you a concrete example. My new Dell 64-bit Studio Laptop computer
had a nagging hardware problem in that it would always start to warm up and then
die out about 90% of the time. It would sometimes take me 30 minutes to finally
get the startup to hold fast. My product consultant at Dell forwarded me to
Dell's Tech Support Team in India. A technician with very precise English guided
me through a series of tests that took over 30 minutes. He then took over my
computer such that, while sitting in the White Mountains of New Hampshire, I
could watch him move my mouse and download something.
In the end he set me up with a superb repair technician who, ten days later,
arrived from Boston with a box of parts. The repair technician was very good,
but it took him about two hours in my basement plus the drive time (over three
hours each way) from Boston. He earns about $100 per hour so it does not take a
rocket scientist to conclude that, with the cost of parts and labor, Dell really
lost money on the revenue from my laptop (including the $350 price of a
three-year onsite warranty for parts and labor).
My Interview Question for Professors Friedman and Porter
"Assuming that tech support teams of identical quality and customer satisfaction
(I was certainly satisfied with my Dell tech team) can be established in India
or Texas, should Dell be socially responsible by creating jobs in Texas and
avoid India even if the Texas tech team costs ten times as much for each minute
of service rendered?"
Anticipated Answer from Professor Friedman
"By all means outsource to India under those
circumstances. The responsibility of a corporation is to maximize returns to
owners while operating within the law. The only condition for using the more
expensive alternative would be if the law required domestic labor. But that
would be counterproductive because requiring domestic labor in the technology
sector under the doctrine of protectionism would lead to protectionism
retaliations in foreign markets such that as many or more jobs would be lost in
the U.S. agricultural and export services sectors if the economy."
Anticipated Answer from Professor Porter
I think Dell should develop green-colored computers that
run on solar power and radiation from fluorescent lights. This is a new market
that could create new jobs in the United States and have multiplier effects on
manufacturers of the component parts as well as bringing more profits from
shareholder.
Then in whisper after the interview is over: "Off the
record, Dell should always seek the lowest price alternatives subject to quality
control standards and standards of customer satisfaction."
The Dismal Labor Theories of Arthur Lewis
One of the best places to begin, in my opinion, on the dismal future prospects
of jobs and wages is in the writings of Arthur Lewis ---
http://en.wikipedia.org/wiki/Arthur_Lewis_(economist) .
Even Karl Marx attributed much of the cause of unemployment to
overpopulation. Arthur Lewis provides a rather clear theory that the wage rates
in industrialized nations will always remain low because of the "unlimited
supply" of global subsistence-level labor. Laziness has little to to with the
major problem of unemployment. It has more to do with the oversupply of labor
coupled in modern times with vastly improved communication and transportation
systems.
World Population Growth Year Population
1 200 million
1000 275 million
1500 450 million
1650 500 million
1750 700 million
1804 1 billion
1850 1.2 billion
1900 1.6 billion
1927 2 billion
1950 2.55 billion
1955 2.8 billion
1990 5.3 billion
1995 5.7 billion
1999 6 billion
2006 6.5 billion
2009 6.8 billion
2011 7 billion 2025 8 billion
2050 9.4 billion
In 1954, when Lewis wrote his most famous theory, there were nearly 2.8
billion people back in the wonderful 1950s (when I was literally enjoying every
moment of high school). Now we're living in a world of over 7 billion where jobs
are easily transported to India, Indonesia, Africa, Mexico and all other points
south of the Rio Grande.
We will soon have technology capable of assembling automobiles with one
worker who turns the factory switch on or off. It's analogous to the evolution
of replacing 5,000 1940 telephone switchboard operators in Cleveland with
automated switchboards. All this is taking place while the world population more
than doubled between 1950 and 1990. There's one highly automated factory in
China that now produces over a third of the foot socks sold in the world.
When I was a kid, a farm family in Iowa could make a good living on 80 acres
of land. That same family probably cannot make good living on less than 240
acres of land in Iowa and even 240 acres is too small for the farming capacities
of modern farming machinery designed to work 2,000 or more acres of land with
one or two farmers.
Now we are witnessing the decline of the newspaper and magazine industry due
to an explosion of faster and more innovative ways of communicating local and
global news.
The problem becomes ever more acute as we keep producing more people faster
than jobs for those people. There are a few positive signs such as the fact that
the rate of growth in population is slowing even if the growth itself is still
upward.
Poverty is caused by teens and adults who are too ambitious in producing
children relative to the finite resources of this planet. Of course there are
many ways we can support population growth by better utilizing and preserving
the most crucial resources like fish in the sea.
I think Arthur Lewis was correct about the true causes of unemployment and
poverty --- the problem is too many of us creating an unlimited supply of labor.
The problem of unemployment and underemployment is not a function of how
economic resources are allocated (markets versus planning boards). The problem
is the "unlimited supply of labor."
http://en.wikipedia.org/wiki/Arthur_Lewis_(economist)
Yale economist Robert Shiller argues that rising inequality in the US was
a major cause of the recent crisis, and little is being done to address it. He
chooses books that give insight into human nature
"Robert Shiller on Human Traits Essential to Capitalism," by Robert
Shiller (Yale), The Browser, January 2011 ---
http://thebrowser.com/interviews/robert-shiller-on-human-traits-essential-capitalism
"Striking it Richer: The Evolution of Top Incomes in the United States
(Updated with 2008 estimates)," by Emmanuel Saez, July 17, 2010 ---
http://elsa.berkeley.edu/~saez/saez-UStopincomes-2008.pdf
Thank you Jagdish Gangolly for the heads up.
"Women and Repayment in Microfinance," by
Roy Mersland , Bert D'Espallier, and Isabelle Guérin, SSRN, January 11,
2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1711396
Abstract:
This paper
analyzes gender-differences with respect to microfinance repayment-rates
using a large global dataset covering 350 Microfinance Institutions (MFIs)
in 70 countries. The results indicate that more women clients is associated
with lower portfolio-at-risk, lower write-offs, and lower credit-loss
provisions, ceteris paribus. These findings confirm common believes that
women in general are a better credit-risk for MFIs. Interaction effects
reveal that the effect is stronger for NGOs, individual-based lenders,
‘finance plus’-providers and regulated MFIs. This indicates that two types
of MFIs benefit more than others from focussing on women: First, those MFIs
that develop hands-on, women-friendly procedures tailored to individual
women’s need, and Second, those MFIs that apply coercive enforcement methods
to which women are more responsive.
FASB scales back fair value proposal ---
Click Here
http://www.fasb.org/cs/ContentServer?site=FASB&c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FActionAlertPage&cid=1176158177636
Jensen Comment
The thrust toward requiring fair value adjustments for most financial
instruments is now scaled back to a more centrist mixed model of fair value and
amortized historical cost.
"Camouflaged Earnings Management," by Itay Kama and Nahum D. Melumad,
SSRN, December 31, 2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1733107
Abstract:
In recent years, there has been increased scrutiny of financial reporting
and greater analysts and investors attention to indicators of potential
earnings management, in particular, to cash and accruals relative to
earnings and revenues. We assert that, in response, firms have increased
their focus on cash management aimed at aligning these variables, which has
resulted in camouflaged earnings management. Analytically, we develop
indicators of camouflaged earnings management and use them empirically to
test whether the alignment of cash and earnings has intensified following
the legislation of the Sarbanes-Oxley Act. The empirical results are all in
line with, and reinforce, our assertion. This suggests that any
comprehensive investigation of earnings management should also consider the
option of camouflaging.
Bob Jensen's threads on earnings management ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Forty Years of Change, One Constant: Tax Analysts ---
http://www.taxanalysts.com/www/website.nsf/Web/40thAnniversary/$file/TA_40Yr.pdf
Thanks to Paul Caron for the heads up.
Mike Willis himself called my attention to the excellent XBRL update article
below that may be helpful to share with students and clients.
One thing I've noticed when comparing accounting professor conference
programs with finance professor programs is that finance professors tend to
ignore XBRL happenings relative to their accounting professor counterparts, and
even among accounting professors interest in XBRL updates is highly variable. We
all need to be more up to date on XBRL happenings!
And we really need to get more finance professors involved in XBRL. The
following article by Mike would be excellent to share with your finance
colleagues along with a warning that they should not be ignoring what is
happening on the XBRL front. It's really not hard to explain why!
I also think that, as Chairman of XBRL International, Mike should make a
concerted effort to have this organization involve finance professors in a
variety of ways. Firstly, Mike should reach out to leading finance and
investment textbook authors with an appeal to add chapters on XBRL and to
provide these authors with videos and cases that are now available from XBRL
International and its associates. Secondly, I think Mike should lean on his best
XBRL experts to propose joint research projects with professors of finance and
investments. Thirdly I think accounting professors themselves should suggest
possible joint research and teaching projects with finance and investments
professors. Where have finance professors been in the past 10 years of XBRL?
Both accounting and finance professors should make more of an effort to bring
alumni up to speed on XBRL happenings. Efforts should be made to make CPE
presentations about XBRL.
"Standardize to Streamline - The Implications of Supply Chain Standards
for Accountants," by Mike Willis, Chesapeake System Solutions,
October 15, 2010 ---
http://www.chessys.com/news_display.php?id=39
Question
What are the four main take aways from Mike's article?
"The XBRL Mandate: Opportunities, And Threats, For Non-Big 4 Auditors,"
by Daniel Roberts via Francine McKenna, re:TheAuditors, January 2, 2010
---
http://retheauditors.com/2011/01/02/the-xbrl-mandate-opportunities-and-threats-for-non-big-4-auditors/
This is a guest post by Daniel Roberts, the past
Chairman of the XBRL US Steering Committee, a voting member of the XBRL
International Assurance working group, and a member of numerous XBRL working
groups.
Daniel has more than 25 years of professional
services experience helping clients with engagements in the areas of
innovation, sustainability, internal audit, risk management, corporate
governance, and implementation of technology to support these initiatives.
Daniel participates actively in discussions on CSR & sustainability
solutions for organizations. He wrote to the SEC to advocate for more
effective disclosure and mandated improvements in MD&A reporting of climate
related issues and risks. He believes CSR & sustainability are business
issues and must be approached as such.
Daniel has been involved at all levels in the
XBRL world since the beginning of 2003, included serving as Chairman of the
XBRL US Steering Committee. He also chaired the XBRL International
Accounting Supply Chain group. He is a voting member of the XBRL
International Assurance Working Group, and was instrumental in supporting
the SEC’s decision to mandate the use of XBRL for filings.
Daniel comes from a USAID family, was born in
Libya, and has lived in Tanzania, Tunisia, Thailand, Syria, Greece, New
Zealand, the United States, and most recently France and the UK. In 1985, he
earned his Bachelor of Science in Behavior and Social Science at the
University of Maryland.
Continued in article
Bob Jensen's sadly neglected threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
The IFRS Foundation has published for public comment
an exposure draft of the IFRS Taxonomy 2011. The proposed taxonomy is a
translation of pronouncements as issued at 1 January 2011 into XBRL (eXtensible
Business Reporting Language) and is consistent with IFRSs (International
Financial Reporting Standards), including IASs (International Accounting
Standards) and the IFRS for SMEs (Small and Medium-sized Entities).
IFRS Foundation press release (link to IFRS
Foundation website).
IFRS Foundation
publishes proposed IFRS Taxonomy 2011
IAS Plus, January 18, 2011 ---
http://www.iasplus.com/index.htm
A Flaw in IFRS: Allowing Banks to Hide Risks
"Bankers' bumper bonuses are the 'mistake' of flawed accounting rules,"
by Louise Armitstead, London Telegraph, January 13, 2011 ---
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8255590/Bankers-bumper-bonuses-are-the-mistake-of-flawed-accounting-rules.html
The House of Lords Economic Affairs Committee,
which is investigating the role of auditors in the financial crisis, was
told that the controversial International Financial Accounting Standards
(IFRS) had allowed banks to hide risks so that profits and bonuses were
inflated.
The devastating assessment of the accounting rules
was articulated for the first time by some of Britain's biggest
institutional investors.
Iain Richards, of Aviva Investors, told the Lords
that the IFRS system of auditing the banks had had "a material cost to the
taxpayer and to shareholders" because "as a result dividend distributions
have been made and bonuses have been paid that were imprudent".
Mr Richards said: "The IFRS (system) is extremely
pro-cyclical; it facilitated and exacerbated the credit bubble...There were
some very clear risks inherent (in the banks)...the risks were extremely
material."
He told the Lords that rather than highlighting the
problems, the accounting standards allowed the banks to look far more
profitable than they were. The financial crisis exposed the shortfall that
had built up.
Mr Richards said: "The double-digit billions pumped
into the banks went to plug the gap created by both bonus distribution and
dividend distributions that were made just preceding the crisis."
His assessment was backed by fund management heavy
weights giving evidence to the Lords including David Pitt-Watson of Hermes;
Guy Jubb of Standard Life Investments; and Robert Talbut of Royal London
Asset Management.
Mr Pitt Watson told the Lords that "we as investors
and society" need to see the re-introduction of more principle-based
accounting system that included prudential and on-going assessments of
risks. The "rules-based" IFRS system has been criticised for not identifying
bad loans until they fail.
He said that the lesson of the crisis was that
"rules encourage people to go round them." He added: "If you have too much
weight on rules not a professional over ride on that, we'll give ourselves
another problem."
The assessment backs that of Tim Bush, the City
veteran who wrote the Government in the summer warning that IFRS amounted to
a "regulatory fiasco" that had contributed to the crisis and still posed a
danger to the system now.
Stella Fearnley, professor of accounting at
Bournemouth University, said: "Since IFRS is supposed to help investors to
assess companies, I think that their obvious loss of confidence is extremely
important. There needs to be an immediate overhaul of IFRS and the ASB which
unleashed this defective system."
Bob Jensen;s Rotten to the Core threads are at
http://www.trinity.edu/rjensen/FraudRotten.htm
Charles Ferguson via
MIT World (H/T
Jesse's Cafe Americain).
"Video: The Financial Crisis, the Recession, and the American Political Economy:
A Systemic Perspective," by Nadine Sabai, Sleight of Hand, January 13, 2011 ---
http://sleightfraud.blogspot.com/2011/01/video-financial-crisis-recession-and.html
Ferguson finds galling both government apathy in
regulating and in prosecuting high-end white collar crime, but perceives the
reason: a financial services industry that “as it rapidly consolidated and
concentrated became the dominant source not only of corporate profits but
campaign contributions and political funding in the U.S.” Evidence for
unrestrained financial power lies in the fact that the government response
to the crisis has been engineered by Wall Street insiders intent on shoring
up firms too big to fail. Ferguson cites as well “corruption of the
economics discipline,” the rising role of money in politics, and the
increasing concentration of wealth in the hands of a few.
The dominance of a single industry constitutes a
deep change and danger for America, believes Ferguson. The nation “has
evolved a political duopoly where two political parties agree on things
related to finance and money.” Without a political structure immune to such
influence, Ferguson sees little likelihood of challenging the interests of
the financial giants.
Bob Jensen's Rotten to the Core threads for bankers are at
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
How much of the OBSF blame falls on the accounting profession?
"Public Pension Hygiene Act: The first reform step is exposing the
true size of the funding hole," The Wall Street Journal, January 22,
2011 ---
http://online.wsj.com/article/SB10001424052748703791904576076223177494308.html#mod=djemEditorialPage_t
We're so accustomed to misnamed legislation like
the Employee Free Choice Act (card check) that it's hard to believe that a
welcome proposal called the Public Employee Pension Transparency Act
describes what it actually purports to do. To wit, prohibit public pension
bailouts by the federal government and expose the $3.5 trillion of unfunded
public pension liabilities that local and state governments have obscured.
Most state and local governments currently use
their own estimated rate of return on their investments to discount their
liabilities. By projecting unrealistically high rates of return, states
minimize their unfunded liabilities, at least on paper. Lower unfunded
liabilities in turn allow them to reduce how much they and public employees
must contribute to their pension funds. Inflated investment assumptions are
one reason that public pension funds are unfunded to the tune of $3.5
trillion.
Public pensions typically assume an 8% annual
return on average, but over the past five years state pension funds with
more than $5 billion in assets have earned only 4.5%. Taxpayers must make up
the difference between what the funds earn and what they need to pay
retirees. For Californians that is roughly $5 billion this year.
Local taxpayers are already seeing their services
whacked and taxes raised to fill these pension holes. University of
California students will have to pony up 8% more next year for tuition to
offset an expected $500 million in state budget cuts. Illinois residents
will soon pay 67% more in income taxes, but taxpayers won't feel the full
brunt for another decade when the funds begin running out of money. When
Chicago's pension fund goes dry around 2019, over half of the city's revenue
will be dedicated to pensions.
In the 1950s and 1960s, many private employers
obscured their liabilities the way governments are doing today, though they
didn't have a public backstop. Many funds went broke. In 1974 Congress
established minimum funding requirements and penalized companies that
underfunded pensions. The law also required companies to report and discount
their liabilities using a more conservative rate of return.
These changes exploded liabilities and prompted
many companies to switch from defined-benefit plans to defined-contribution
plans like 401(k)s. While a majority of private workers now have
defined-contribution plans, defined-benefit plans remain the norm in
government.
Enter the Public Employee Pension Transparency Act,
which is sponsored by House Republicans Devin Nunes and Darrell Issa of
California and Wisconsin's Paul Ryan. Their bill would encourage governments
to switch to defined-contribution plans by revealing the true magnitude of
their unfunded liabilities. States and municipalities would have to report
their liabilities to the U.S. Treasury using their own rosy investment
forecasts as well as a more realistic Treasury bond rate (to be determined
by a formula).
This data would make clear how much taxpayers
potentially owe and increase pressure on lawmakers to fix their plans. For
instance, Illinois estimated in 2009 that it had a roughly $85 billion
unfunded liability. Using a Treasury discount rate, that unfunded liability
balloons to $167 billion.
Out of respect for state sovereignty, the federal
government shouldn't and can't tell local governments how to run or fund
their pensions. But the bill doesn't do so and it also doesn't force states
to fund their plans using a lower discount rate. States don't even have to
comply with the law, though they would forego their ability to sell
federally subsidized, tax-exempt bonds if they don't.
The bill may not persuade states like Illinois and
California to revamp their pensions, but it will reveal how broken they
are—and that's a start.
Bob Jensen's threads on the sad state of government accounting and
accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
From The Wall Street Journal Accounting Weekly Review on July 10, 2009
Public Pensions Cook the Books
by Andrew G.
Biggs
The Wall Street Journal
Jul 06, 2009
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, Financial Accounting Standards Board, Governmental
Accounting, Market-Value Approach, Pension Accounting
SUMMARY: As
Mr. Biggs, a resident scholar at the American Enterprise Institute, puts it,
"public employee pension plans are plagued by overgenerous benefits, chronic
underfunding, and now trillion dollar stock-market losses. Based on their
preferred accounting methods...these plans are underfunded nationally by
around $310 billion. [But] the numbers are worse using market valuation
methods...which discount benefit liabilities at lower interest rates...."
CLASSROOM APPLICATION: Introducing
the importance of interest rate assumptions, and the accounting itself, for
pension plans can be accomplished with this article.
QUESTIONS:
1. (Introductory)
Summarize the accounting for pension plans, including the process for
determining pension liabilities, the funded status of a pension plan,
pension expense, the use of a discount rate, the use of an expected rate of
return. You may base your answer on the process used by corporations rather
than governmental entities.
2. (Advanced)
Based on the discussion in the article, what is the difference between
accounting for pension plans by U.S. corporations following FASB
requirements and governmental entities following GASB guidance?
3. (Introductory)
What did the administrators of the Montana Public Employees' Retirement
Board and the Montana Teachers' Retirement System include in their
advertisements to hire new actuaries?
4. (Advanced)
What is the concern with using the "expected return" on plan assets as the
rate to discount future benefits rather than using a low, risk free rate of
return for this calculation? In your answer, comment on the author's
statement that "future benefits are considered to be riskless" and the
impact that assessment should have on the choice of a discount rate.
5. (Advanced)
What is the response by public pension officers regarding differences
between their plans and those of corporate entities? How do they argue this
leads to differences in required accounting? Do you agree or disagree with
this position? Support your assessment.
Reviewed By: Judy Beckman, University of Rhode Island
"Public Pensions Cook the
Books: Some plans want to hide the truth from taxpayers," by Andrew Biggs,
The Wall Street Journal, July 6, 2009 ---
http://online.wsj.com/article/SB124683573382697889.html
Here's a dilemma: You manage a public employee
pension plan and your actuary tells you it is significantly underfunded. You
don't want to raise contributions. Cutting benefits is out of the question.
To be honest, you'd really rather not even admit there's a problem, lest
taxpayers get upset.
What to do? For the administrators of two Montana
pension plans, the answer is obvious: Get a new actuary. Or at least that's
the essence of the managers' recent solicitations for actuarial services,
which warn that actuaries who favor reporting the full market value of
pension liabilities probably shouldn't bother applying.
Public employee pension plans are plagued by
overgenerous benefits, chronic underfunding, and now trillion dollar
stock-market losses. Based on their preferred accounting methods -- which
discount future liabilities based on high but uncertain returns projected
for investments -- these plans are underfunded nationally by around $310
billion.
The numbers are worse using market valuation
methods (the methods private-sector plans must use), which discount benefit
liabilities at lower interest rates to reflect the chance that the expected
returns won't be realized. Using that method, University of Chicago
economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to
the market collapse, public pensions were actually short by nearly $2
trillion. That's nearly $87,000 per plan participant. With employee benefits
guaranteed by law and sometimes even by state constitutions, it's likely
these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.
Some public pension administrators have a strategy,
though: Keep taxpayers unsuspecting. The Montana Public Employees'
Retirement Board and the Montana Teachers' Retirement System declare in a
recent solicitation for actuarial services that "If the Primary Actuary or
the Actuarial Firm supports [market valuation] for public pension plans,
their proposal may be disqualified from further consideration."
Scott Miller, legal counsel of the Montana Public
Employees Board, was more straightforward: "The point is we aren't
interested in bringing in an actuary to pressure the board to adopt market
value of liabilities theory."
While corporate pension funds are required by law
to use low, risk-adjusted discount rates to calculate the market value of
their liabilities, public employee pensions are not. However, financial
economists are united in believing that market-based techniques for valuing
private sector investments should also be applied to public pensions.
Because the power of compound interest is so
strong, discounting future benefit costs using a pension plan's high
expected return rather than a low riskless return can significantly reduce
the plan's measured funding shortfall. But it does so only by ignoring risk.
The expected return implies only the "expectation" -- meaning, at least a
50% chance, not a guarantee -- that the plan's assets will be sufficient to
meet its liabilities. But when future benefits are considered to be riskless
by plan participants and have been ruled to be so by state courts, a 51%
chance that the returns will actually be there when they are needed hardly
constitutes full funding.
Public pension administrators argue that government
plans fundamentally differ from private sector pensions, since the
government cannot go out of business. Even so, the only true advantage
public pensions have over private plans is the ability to raise taxes. But
as the Congressional Budget Office has pointed out in 2004, "The government
does not have a capacity to bear risk on its own" -- rather, government
merely redistributes risk between taxpayers and beneficiaries, present and
future.
Market valuation makes the costs of these potential
tax increases explicit, while the public pension administrators' approach,
which obscures the possibility that the investment returns won't achieve
their goals, leaves taxpayers in the dark.
For these reasons, the Public Interest Committee of
the American Academy of Actuaries recently stated, "it is in the public
interest for retirement plans to disclose consistent measures of the
economic value of plan assets and liabilities in order to provide the
benefits promised by plan sponsors."
Nevertheless, the National Association of State
Retirement Administrators, an umbrella group representing government
employee pension funds, effectively wants other public plans to take the
same low road that the two Montana plans want to take. It argues against
reporting the market valuation of pension shortfalls. But the association's
objections seem less against market valuation itself than against the fact
that higher reported underfunding "could encourage public sector plan
sponsors to abandon their traditional pension plans in lieu of defined
contribution plans."
The Government Accounting Standards Board, which
sets guidelines for public pension reporting, does not currently call for
reporting the market value of public pension liabilities. The board
announced last year a review of its position regarding market valuation but
says the review may not be completed until 2013.
This is too long for state taxpayers to wait to
find out how many trillions they owe.
Bob Jensen's threads on the sad state of government accounting and
accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Teaching Case on Bad Debts
Borders to Ask Publishers to Agree to Longer IOUs
by: Jeffrey A Trachtenberg
Jan 05, 2011
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Bad Debts
SUMMARY: "Borders Group
Inc. ...has stopped writing checks to key suppliers [and] is expected to ask
publishers...to push back the due dates on bills as it works out a
refinancing plan...." Competitor Barnes & Noble Inc. and others question the
fairness of the possible change in terms by publishers for just one
customer.
CLASSROOM APPLICATION: The
article is useful to introduce the concept of payment terms in covering
accounts receivable and accounts payable in any level of accounting class.
QUESTIONS:
1. (Introductory) Based on your reading of the article, what are
the account terms offered by publishers to customers such as Borders Books
and Barnes & Noble?
2. (Introductory) Why is Borders is trying to renegotiate the terms
with publishers? What incentive does a publisher have to enter into these
negotiations?
3. (Advanced) What is the form of receivable for the publishers,
and payable for Borders, likely to be entered into if the publishers agree
to alter terms of their accounts receivable from Borders?
4. (Advanced) Why should Barnes & Noble consider these negotiations
potentially unfair?
Jensen Comment
One question to pose to students is how much value added Borders provides
relative to the lower prices (possibly) and ease of finding books from such book
sources such as Amazon, Barnes & Noble, Google, etc.
Another question is how do Borders' IOUs differ from IOUs being doled out to
vendors supplying the states of Illionis, California, and others. The CBS Sixty
Minues show featured some of the many vendors of the State of Illinois who are
now mostly receiving IOUs instead of paymnets unless they can demonstrate
exceptional hardship caused by delayed payments.
Questions
Although all 50 states are in deep financial troubles, what state is in the
worst shape at the moment and is unable to pay its bills?
Hint: The state in deepest trouble is not California, although California is in
dire straights!
How did accountants hide the pending
disasters?
Watch the Video
This module on 60 Minutes on December 19 was one of the most worrisome episodes
I've ever watched
It appears that a huge number of cities and towns and some states will default
on bonds within12 months from now
"State Budgets: The Day of Reckoning Steve Kroft Reports On The Growing
Financial Woes States Are Facing," CBS Sixty Minutes, December 19, 2010 ---
http://www.cbsnews.com/stories/2010/12/19/60minutes/main7166220.shtml
The problem with that, according to Wall Street
analyst Meredith Whitney, is that no one really knows how deep the holes
are. She and her staff spent two years and thousands of man hours trying to
analyze the financial condition of the 15 largest states. She wanted to find
out if they would be able to pay back the money they've borrowed and what
kind of risk they pose to the $3 trillion municipal bond market, where state
and local governments go to finance their schools, highways, and other
projects.
"How accurate is the financial information that's
public on the states? And municipalities," Kroft asked.
"The lack of transparency with the state disclosure
is the worst I have ever seen," Whitney said. "Ultimately we have to use
what's publicly available data and a lot of it is as old as June 2008. So
that's before the financial collapse in the fall of 2008."
Whitney believes the states will find a way to
honor their debts, but she's afraid some local governments which depend on
their state for a third of their revenues will get squeezed as the states
are forced to tighten their belts. She's convinced that some cities and
counties will be unable to meet their obligations to municipal bond holders
who financed their debt. Earlier this year, the state of Pennsylvania had to
rescue the city of Harrisburg, its capital, from defaulting on hundreds of
millions of dollars in debt for an incinerator project.
"There's not a doubt in my mind that you will see a
spate of municipal bond defaults," Whitney predicted.
Asked how many is a "spate," Whitney said, "You
could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This
will amount to hundreds of billions of dollars' worth of defaults."
Municipal bonds have long been considered to be
among the safest investments, bought by small investors saving for
retirement, and held in huge numbers by big banks. Even a few defaults could
affect the entire market. Right now the big bond rating agencies like
Standard & Poor's and Moody's, who got everything wrong in the housing
collapse, say there's no cause for concern, but Meredith Whitney doesn't
believe it.
"When individual investors look to people that are
supposed to know better, they're patted on the head and told, 'It's not
something you need to worry about.' It'll be something to worry about within
the next 12 months," she said.
No one is talking about it now, but the big test
will come this spring. That's when $160 billion in federal stimulus money,
that has helped states and local governments limp through the great
recession, will run out.
The states are going to need some more cash and
will almost certainly ask for another bailout. Only this time there are no
guarantees that Washington will ride to the rescue.
Continued in article
Also see the Becker-Posner Blog ---
http://www.becker-posner-blog.com/2010/12/the-dismal-state-of-long-term-state-and-local-government-finance-becker.html
The Government' Recipe for Off-Budget
Debt
"US Government 'hiding true amount of debt'," by Gregory Bresiger, news,com ---
http://www.news.com.au/business/breaking-news/us-government-hiding-true-amount-of-debt/story-e6frfkur-1225926567256#ixzz106MjZzOz
Bob Jensen's threads on the economic
crisis ---
http://www.trinity.edu/rjensen/2008Bailout.htm
The Sad State of Government Accounting and
Accountability ---
http://www.trinity.edu/rjensen/theory02.htm#GovernmentalAccounting
Teaching Case on the Value Added by Large Global Auditing Firms
The ultimate answer lies in investor reactions around the world
Tsingtao Brewery Seeks Shareholders' OK to Dismiss Foreign Auditor
by: Yvonne Lee
Jan 13, 2011
Click here to view the full article on WSJ.com
TOPICS: Audit
Firms, Auditing, Auditing Services, Auditor Changes, International Auditing,
Regulation
SUMMARY: Tsingtao Brewery
Company is traded as an H share on the Hong Kong Stock Exchange. This
mainland Chinese company will seek shareholder approval Feb. 18 to dismiss
its foreign auditor, PricewaterhouseCoopers. The company is the first to
take this step "after Chinese and Hong Kong authorities recently agreed to
relax reporting rules....to allow mainland Chinese companies listed in the
city to use Chinese accounting standards and employ auditors based in China
to sign off on their books."
CLASSROOM APPLICATION: The
article is useful to discuss international aspects of convergence and audit
regulation in an environment entirely outside the U.S.-but one from which
many international students in U.S. universities originate.
QUESTIONS:
1. (Introductory) Why is Tsingtao Brewery Co. dismissing its
foreign auditor, PricewaterhouseCoopers? What firm is the brewery engaging
to conduct its required audit?
2. (Advanced) What step must Tsingtao Brewery undertake in order to
change its audit firm? What concerns might be raised in this required
process?
3. (Introductory) Who is the Hong Kong regulator who might face
difficulty in tackling fraud if audits are conducted on Chinese GAAP
financial statements and audited solely by Chinese auditors? Why might the
regulator face these difficulties?
4. (Introductory) How are cost savings arising from this change in
required reporting and auditing? What convergence efforts led to this change
and cost savings?
5. (Advanced) Besides allowing its listed companies to save
reporting costs, what benefits will the Hong Kong Stock Exchange reap from
this rule change by the city's financial reporting regulators?
Reviewed By: Judy Beckman, University of Rhode Island
"Tsingtao Brewery Seeks Shareholders' OK to Dismiss Foreign Auditor," by:
Yvonne Lee, The Wall Street Journal, January 13, 2011 ---
http://www.wsjsmartkit.com/wsj_redirect.asp?key=AC20110120-00&mod=djem_jiewr_AC_domainid
HONG KONG—Tsingtao Brewery Co. looks set to become
the first Hong Kong-listed Chinese company to rely solely on its mainland
accounting firm to prepare its financial statements, after Chinese and Hong
Kong authorities recently agreed to relax reporting rules.
The nation's biggest brewery by market
capitalization will seek shareholder approval Feb. 18 to dismiss its foreign
auditor, PricewaterhouseCoopers, while retaining the Big Four accounting
firm's Chinese affiliate as its sole auditor, "in order to improve the
efficiency and reduce the costs of disclosure," Tsingtao said this month.
Regulators in mainland China and Hong Kong agreed
in December to allow mainland Chinese companies listed in the city to use
Chinese accounting standards and employ auditors based in China to sign off
on their books.
Tsingtao's plan could significantly reduce costs,
but as the auditors aren't based in the city, it also raises concerns about
the Hong Kong regulators' ability to tackle fraud.
Market observers predict
that many other China-incorporated companies
listed in Hong Kong with so-called H shares will
follow Tsingtao's lead to streamline their
reporting work as Hong Kong and Chinese
accounting rules become more standardized.
The company, whose
Tsingtao beer is popular in many countries, was
the first H share to list in Hong Kong in 1993.
The company said the proposed dismissal of its
overseas auditor won't affect publication of its
2010 results.
The revised rules will
reduce costs for mainland companies listed in
Hong Kong if they choose to prepare one set of
financial statements instead of two, China's
Ministry of Finance and the Hong Kong stock
exchange said in December. The relaxed rules are
also aimed at attracting more Chinese companies
to list in the city.
A Hong Kong-based
partner at a Big Four firm said Chinese
companies could save about a third of annual
audit fees by using only the Chinese accounting
standard. He added that savings could be
particularly large for companies with operations
dispersed in many parts of China.
In the past, mainland
companies had to prepare one set of statements
according to local standards and another
according to Hong Kong standards. But with
China's concerted efforts to improve domestic
reporting standards beginning in 2005, the rules
have largely converged with those in Hong Kong,
according to the Hong Kong stock exchange. There
are also plans for further standardization of
the rules, the exchange operator said.
But as a result of the
changes, Hong Kong's Securities and Futures
Commission will have to rely on mainland Chinese
authorities to tackle any malpractice by
mainland auditors, raising questions from
corporate-governance experts about whether
investor interest could be adequately protected.
While the commission
could hold the Hong Kong-based auditor of a
mainland company listed on its exchange
accountable for wrongdoing, its jurisdiction
won't extend to auditors based in China.
To be fair, some
analysts say the commission already has its
hands tied because it isn't able to take action
against mainland-listed companies if their
assets and executives are on the mainland.
Instead, the agency will need to seek assistance
from their counterparts in China.
A Securities and
Futures Commission spokesman said Wednesday that
relevant regulatory authorities in Hong Kong and
the mainland have set up a cooperation mechanism
and they will maintain a close working
relationship in ensuring smooth implementation
of the arrangement.
Shareholder activist
David Webb said
mainland auditors won't put investors at a
disadvantage because he believes Hong Kong's
regulations for auditors aren't very stringent
to begin with, noting as an example that
shareholders can't sue auditors of listed
companies for wrongdoing during the
initial-public-offering stage under current
laws.
"I don't think that
things could be much worse with mainland
auditors," said Mr. Webb, adding he expects more
Chinese companies to exclusively adopt Chinese
accounting standards to reduce their
administration costs.
The Hong Kong stock
exchange said in December that cooperation
agreements are in place between Hong Kong and
Chinese regulators to "enable efficient and
effective monitoring and investigation of
mainland audit firms by the regulators best
positioned to do so."
"Worthless Stocks from China" When a retiree in Texas discovered
that some Chinese companies listed in the U.S. are frauds, he unleashed an army
of short-sellers," by Dune Lawrence, Business Week, January 11, 2011 ---
http://www.businessweek.com/magazine/content/11_04/b4212058566865.htm?link_position=link3
Bird's involvement would evolve from irritation
that a company could get away with making a claim that so obviously
defies basic business logic to the conviction that many pieces of the
Chinese miracle that trade in the U.S. are, in his words, "flat-ass"
frauds. And what started as a retiree looking into a company has turned
into a dispute that has drawn in other shorts, the Securities and
Exchange Commission, auditors, and, according to recent reports, the
U.S. House Committee on Financial Services. It has also revealed
significant flaws in U.S. markets and how they are regulated. Although
the stocks trade on U.S. exchanges, and thus project a sense of having
to play by American rules, the assets and the principals of many of the
companies reside in China. The companies operate on their terms, leaving
injured parties and the SEC powerless. Bird says the carnage is just
beginning. "The whole thing has no place to go but to blow up," he says.
"That's a rational position for an investor to start with, that every
one of these Chinese reverse mergers is a fraud."
Jensen Comment
Which once again demonstrates that fraud in financial reporting greatly harms or
may totally destroy capitalism. Early on frauds can badly damage the capital
raising ability of legitimate Chinese ventures.
This makes me wonder what proportion of these frauds were audited by
affiliates of the Big Four in China. It might make a good student project to see
what can be gleaned, if anything, from the audit reports.
January 15, 2011 reply from Ramesh Fernando
In reality, the Shanghai and Shenzhen market are
nothing but ponzi schemes. The majority of stocks (red chips) are favoured
by the Chinese Communist Party (CCP) and have some money pumped into them,
when there whole revenue model(with no worry about P&L statements) is based
on false estimates. The SEC's equal in China is totally corrupt and led by
CCP people. As long as the CCP continues in power in China, I would
recommend that no investor put their money there. Much better more liquid
and better regulated markets exist in India and other parts of Asia. It's
true the SEC is letting this fraud continue but you need many more
inspectors at the SEC to watch over all the markets. The Canadian market,
especially the natural resources stock like gold excluding Barrick Gold,
GoldCorp or Kinross (they are much more legitimate being large companies )
are full of ponzi schemes. I wish the SEC would put pressure on the Ontario
Security Commission as well as other provincial securities commissions to
regulate all this false reporting.
Teaching Case on Supply Chains and Value Chains
Not Really 'Made in China'
by: Andrew Batson
Dec 16, 2010
Click here to view the full article on WSJ.com
TOPICS: Product
strategy, Supply Chains
SUMMARY: "One widely
touted solution for current U.S. economic woes is for America to produce
more of the high-tech gadgets that the rest of the world craves. Yet two
academic researchers have found that Apple Inc.'s iPhone-one of the most
iconic U.S. technology products-actually added $1.9 billion to the U.S.
trade deficit with China last year. How is this possible? Though the iPhone
is entirely designed and owned by a U.S. company, and is made largely of
parts produced by other countries, it is physically assembled in China. Both
countries' trade statistics therefore consider the iPhone a Chinese export
to the U.S. So a U.S. consumer who buys what is often considered an American
product will add to the U.S. trade deficit with China."
CLASSROOM APPLICATION: The
article is useful in a managerial accounting class or an MBA class.
Questions ask students to discuss the concepts of product cost, period cost,
value chains, and supply chains, then consider the impact of these
accounting concepts as they are used in discussing issues in the world
economy.
QUESTIONS:
1. (Advanced) What are the three cost components of any product?
2. (Advanced) What other period costs also contribute to production
of any product such as the iPhone and the iPad discussed in this article?
3. (Introductory) What component of the iPhone and iPad product
costs and period costs are incurred in China? In the U.S.? In other parts of
the world?
4. (Advanced) What is a value chain? How do both product costs and
period costs reflect amounts in the value chain for a product?
5. (Advanced) What is a supply chain? How is the functioning of
today's global supply chain impacting the statistics traditionally used to
assess international trade?
6. (Introductory) How do the researchers cited in the article use
the components of a value chain to improve analysis of global supply chains?
"Not Really 'Made in China'," by: Andrew Batson, The Wall Street Journal,
December 16, 2010 ---
http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html?mod=djem_jiewr_AC_domainid
One widely touted solution for current U.S.
economic woes is for America to come up with more of the high-tech gadgets
that the rest of the world craves.
Yet two academic researchers estimate that Apple
Inc.'s iPhone—one of the best-selling U.S. technology products—actually
added $1.9 billion to the U.S. trade deficit with China last year.
How is this possible? The researchers say
traditional ways of measuring global trade produce the number but fail to
reflect the complexities of global commerce where the design, manufacturing
and assembly of products often involve several countries.
"A distorted picture" is the result, they say, one
that exaggerates trade imbalances between nations.
Trade statistics in both countries consider the
iPhone a Chinese export to the U.S., even though it is entirely designed and
owned by a U.S. company, and is made largely of parts produced in several
Asian and European countries. China's contribution is the last
step—assembling and shipping the phones.
So the entire $178.96 estimated wholesale cost of
the shipped phone is credited to China, even though the value of the work
performed by the Chinese workers at Hon Hai Precision Industry Co. accounts
for just 3.6%, or $6.50, of the total, the researchers calculated in a
report published this month.
A spokeswoman for Apple said the company declined
to comment on the research.
The result is that according to official
statistics, "even high-tech products invented by U.S. companies will not
increase U.S. exports," write Yuqing Xing and Neal Detert, two researchers
at the Asian Development Bank Institute, a think tank in Tokyo, in their
report.
This isn't a problem with high-tech products, but
with how exports and imports are measured, they say.
The research adds to a growing debate about
traditional trade statistics that could have real-world consequences.
Conventional trade figures are the basis for political battles waging in
Washington and Brussels over what to do about China's currency policies and
its allegedly unfair trading practices.
"What we call 'Made in China' is indeed assembled
in China, but what makes up the commercial value of the product comes from
the numerous countries," Pascal Lamy, the director-general of the World
Trade Organization, said in a speech in October. "The concept of country of
origin for manufactured goods has gradually become obsolete."
Mr. Lamy said if trade statistics were adjusted to
reflect the actual value contributed to a product by different countries,
the size of the U.S. trade deficit with China—$226.88 billion, according to
U.S. figures—would be cut in half.
To correct for that bias is difficult because it
requires detailed knowledge of how products are put together.
Continued in article
Bob Jensen's threads on managerial accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
"Islamic Accounting," IAS Plus, January 3, 2011 ---
http://www.iasplus.com/islamicfinance/islamicaccounting.htm
Accounting Standards for financial reporting by
Islamic financial institutions have to be developed because in some cases
Islamic financial institutions encounter accounting problems because the
existing accounting standards such as IFRSs or local GAAP were developed
based on conventional institutions, conventional product structures or
practices, and may be perceived to be insufficient to account for and report
Islamic financial transactions. Shariah compliant transactions that observe
the prohibition to charge interest may not have parallels in conventional
financing and therefore, there may be significant accounting implications.
Likewise, the Islamic finance industry is under considerable pressure to
enhance practice and improve risk management systems and protect investors.
On this page, we maintain a history of recent
developments in Islamic accounting requirements and practices.
January 3, 2011 reply from Prof. Al-Twaijry
I think it is an important subject especially after
the failing of the Western financing systems. I hope Islamic Accounting
Standards come to existence soon.
Prof. Al-Twaijry
Qassim University
Qassim, Saudi Arabia
Bob Jensen's threads on Islamic accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting
"Which of These Banks Was 2010's Most Shameless Corporate Outlaw?" by
Richard Escow, Huffington Post, December 30, 2010 ---
http://www.huffingtonpost.com/rj-eskow/which-of-these-banks-was_b_802887.html
Their collective rap sheet includes fraud, sex
discrimination, collusion to bribe public officials... even laundering drug
money for Mexican drug cartels. One of them is accused of ripping off some
nuns! None of this criminal behavior has stopped them from sulking over a
presidential slight. Let's review the record for these corporate
malefactors, and then decide:
The Greatest Swindle in the History of the World ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
"The Great Fannie and Freddie Rip-Off: The GSEs' common shareholders
need to organize and make their voices heard in Congress," by Ralph Nadar,
The Wall Street Journal, January 26, 2011 ---
http://online.wsj.com/article/SB10001424052748703555804576102423446952218.html#mod=djemEditorialPage_t
For decades Fannie and Freddie behaved like other
large, publicly held financial corporations. They were profit-seeking
companies, listed on the New York Stock Exchange (NYSE). They displayed an
unfettered drive for greater sales, profits, executive bonuses and stock
options for the top brass. Their shareholders received dividends and rising
stock values.
These so-called government sponsored enterprises (GSEs)
dominated the secondary mortgage market. The implied government backstop
slightly lowered their borrowing costs in return for a poorly enforced
obligation to facilitate a mortgage market for lower-income home buyers.
Otherwise, the GSE moniker meant little, since everybody knew that, like
Citigroup, Goldman Sachs and other Wall Street giants, Washington viewed
them as "too big to fail."
With the onset of the subprime mortgage collapse,
Fannie and Freddie went down with the rest of the financial industry. The
federal government moved into high bailout gear during the latter half of
2008 with three distinct rescue models for Wall Street and Detroit.
One model provided capital and credit lines to Bank
of America, Citigroup, Morgan Stanley, J.P. Morgan Chase and AIG, leaving
their shareholders beaten down but intact to start recovering value.
The second model dispatched General Motors into a
well-orchestrated, stunningly quick bankruptcy process. While the bankruptcy
court treated the common shareholders like flotsam and jetsam, GM emerged
well subsidized and tax-privileged with a clean balance sheet under
temporary ownership by the U.S. and Canadian governments and the United Auto
Workers.
The third model placed Fannie and Freddie under an
indeterminate conservatorship scheme that kept but abused its common
shareholders, who had already lost up to 99% of their investment. Neither
vanquished nor given an opportunity to recover, the institutional and
individual shareholders are trapped in limbo.
Here is how the scheme congealed. In return for
providing an open credit line, the government received warrants to buy up to
79.9% of the GSEs' common stock for $0.00001 per share. The government's
share stayed under 80% to avoid forcing the liabilities of these two
behemoths onto the government's books. Treasury achieved this by having the
common shareholders nominally own the other 20%.
Here's the rub: The zombie common shareholders have
no rights or remedies against Fannie and Freddie, both operationally active
companies, or their regulator—the Federal Housing Finance Agency. FHFA
ordered the Fannie and Freddie boards and executives to suspend
communications with shareholders and abolish the annual stockholders
meeting.
In 2008, then-Treasury Secretary Henry Paulson and
Federal Reserve Chairman Ben Bernanke told Fannie and Freddie investors that
the companies "are adequately capitalized." Moreover, another regulator, the
Office of Federal Housing Enterprise Oversight (Ofheo), assured
investors—including many mutual funds, pension trusts and small banks—of the
soundness of their investment.
Fannie Mae's then-Senior Vice President Chuck
Greener, backed by his then-CEO Daniel Mudd, said, "We are maintaining a
strong capital base, building reserves for credit losses and generating
solid reserves as our business continues to serve the market." That was on
July 11, 2008.
These former officials (both have since left Fannie
Mae) should have known better. On Sept. 8, 2008, when Treasury announced the
conservatorship, the GSEs' common stock dropped to pennies and the
shareholders realized they were misled.
Such statements by private executives controlling a
publicly traded corporation should have prompted a Securities and Exchange
Commission investigation. Such was the betrayal of trust of investors who
were told for years that putting their money in these GSEs was second only
to investing in Treasury bonds.
Still, some faithful shareholders, including me,
held on, believing that they might have a chance to recover something—as did
their counterparts in Citigroup, AIG and the rest of the rescued.
Then came the cruelest and most unnecessary diktat
of all. On June 16, 2010, the FHFA directed Fannie and Freddie to delist
their common and preferred stock from the NYSE. The exchange did not demand
this move. True, Fannie had dropped slightly below the $1 per share
threshold stipulated by NYSE rules, but the Big Board is quite flexible with
time either to get back over $1 or to allow companies to offer a reverse
stock split. Freddie was comfortably over the $1 level. Why delist with one
irresponsible stroke of the government's pen and destroy billions of dollars
of remaining shareholder value? This move took the shares down to the range
of 30 cents, chasing away many institutional holders.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on bailout frauds are at
http://www.trinity.edu/rjensen/2008Bailout.htm
A Bit of Accounting History: The Evolution of FAS 123R
"Lieberman’s Legacy on Accounting," by Floyd Norris, The New York
Times, January 20, 2011 ---
http://norris.blogs.nytimes.com/2011/01/20/liebermans-legacy-on-accounting/
Gail Collins, who has known
Joe Lieberman since he was a local politician
in Connecticut, ends her
column about his decision not to seek
re-election with a threat to write a book entitled, “Everything Bad
Is Joe Lieberman’s Fault.”I assume
she is kidding, but if she goes through with it she should definitely
include a chapter on stock option accounting. It was he who, in 1994,
got the Senate to vote 88 to 9 in favor of a resolution opposing a rule
requiring companies to treat the value of stock options they hand out as
an expense.
He then threatened to push through legislation
to basically abolish the
Financial Accounting Standards Board, and the
board caved. It would be another decade before reasonable accounting
came to the world of options, with the American board moving only after
the International Accounting Standards Board had done so.
The senator crowed when the board caved,
calling it “a great victory for American business and workers.” To hear
him tell it, forcing disclosure of reality would “diminish the ability
of small companies to raise capital and attract employees.”
Had he not been there, some of the worst
excesses of the technology stock bubble might have been avoided.
Certainly shareholders would have had a better understanding of how the
bosses were getting rich. Somehow Silicon Valley survived after the
accounting was changed.
"Floyd Norris on Joe Lieberman’s Views on Accounting," by David
Albrecht, The Summa, January 21, 2011 ---
http://profalbrecht.wordpress.com/2011/01/21/floyd-norris-on-joe-liebermans-views-on-accounting/
January 21, 2011 by David Albrecht
Senator Joe Lieberman has announced his plans not
to seek re-election. This means that January 3, 2013 will be his last day
to serve as the 112th Congress is replaced by the 113th. Gail Collins,
Op-Ed columnist for the New York Times is thrilled, announcing
tongue-in-cheek plans for a new book, “Everything
Bad Is Joe Lieberman’s Fault.”
Piling on, respected New York Times business
columnist Floyd Norris suggests that Collins include a chapter on Joe
Lieberman’s opposition to an accounting rule on executive stock options.
Norris says that not having a rule to expense executive stock options caused
the stock market bubble of the late 1990s. Floyd, I love you, but you should
check with me before you write your next piece on accounting.
Surely Lieberman was promoting his personal
interests in fighting the rule, and had no altruistic purpose in mind such
as improving the world of accounting. However, he was correct on this one
issue.
Adding the value of executive stock options as an
expense on the income statement was a bad idea in the 1990s when Lieberman
fought it, it was still a bad idea in 2005 when the FASB adopted it, and it
will continue to be a bad idea for as long as the rule is on the books.
Here’s why Norris and the FASB are wrong about
expensing stock options. Traditionally, the income statement has been
reserved for (1) the value received from selling products and services, and
(2) the money spent (costs) to generate these revenues. An executive stock
option causes no money to be spent by the company. It is merely a vehicle to
increase (potentially) the wealth of the receiving executive by a grant of
ownership from the company’s owners. The current owners take a hit, but that
hit has nothing to do with the profit from company operations. No money is
being spent by the company on the executives, and no money will ever be
spent by the company on the executives.
The expensing rule is but one example of the the
use of accounting rules to accomplish societal objectives. When executives
are granted stock options, the current group of stockholders have been
robbed by the company’s board of directors, with the receiving executives as
willing co-conspirators. Crying foul, investors have looked for a way to
curb this practice. Their solution is to add a charge to current earnings,
thereby making it more difficult for executives to qualify for their annual
bonus. Unfortunately, the only result accomplished is to diminish the
importance of the income statement.
It would be so much more powerful to simply vote
out the directors who voted in the executive stock option. If a few boards
were voted out because of granting these options, the practice would dry up
in a hurry, I assure you.
Mr. Norris, thanks for writing about accounting.
This time, though, you got it wrong.
Debit and credit – - David Albrecht
January 22, 2011 reply from Bob Jensen
Hi David,
We been round and round about this before, and I just do not agree with your
reasoning. Let me tell you a Fairy Tale I used to read to my children.
Years and years ago a penniless gnome named
Rumpelstiltskin limped along a cobblestone road
carrying his portable spinning machine on his humped back. He encountered a
sign reading: "You're Entering the Land of Albrecht."
Inside the Land of Albrecht Rumpelstiltskin
encountered a golfer named
Walter Schuetze, and the two chatted under a
Rosewood Tree. Rumpelstiltskin bragged that if he had bale of straw he
could spin it into a gold nugget. Walter Schuetze asked
Rumpelstiltskin to rest under the tree for a moment, raced to a nearby farm,
and returned with a bale of straw.
Walter Schuetze then explained that he'd formed a
new corporation in the Land of Albrecht with the following general journal
entries:
Cash
$1
Common stock $1
-To record the formation of Schuetze Inc.
Straw inventory $1
Cash
$1
-To record the purchase of a
bale of straw
Walter Schuetze truthfully further explained that
he had no more money. But he would give Rumpelstiltskin an employee stock
option in this new corporation if Rumpelstiltskin would be an employee of
the company and spin the straw inventory into a nugget of gold. Now this is
a transaction for services rendered but in the Land of Albrecht such
employee stock option transactions are not booked.
No
journal entry in the journal for the stock option granted to Rumpelstiltskin
Rumpelstiltskin labored on his spinning machine and
did indeed transform the straw inventory into a nugget of gold. Walter
Schuetze then took physical inventory under the accounting rules in the land
of Albrecht and made the following entries:
Retained
earnings $1
Straw inventory $1
-To record the disappearance of the
bale of straw
Walter Schuetze then recorded the final journal
entry as follows:
Common
stock $1
Retained earnings $1
-To record the liquidation of
Schuetze Inc. in the Land of Albrecht
Walter Schuetze then bid Rumpelstiltskin good day
and proceeded whistling with joy down the cobblestone road looking for a
golf course.
Rumpelstiltskin followed making screeching noises
and waving his stock option. Walter Schuetze looked back at the pitiful
gnome and explained that in the Land of Albrecht a stock option in a defunct
corporation is worthless. It was never even booked into the accounting
journal.
In a rage Rumpelstiltskin picked up a cobblestone,
hit Walter Schuetze in the head, dragged this former SEC Chief Accountant
into a ditch, retrieved the nugget of gold from the golfer's golf bag, and
proceeded on in the Land of Albrecht toward his ultimate destination where
the accounting rules were much more fair --- the Land of the FASB.
Walter Schuetze awakened with a headache and no
gold nugget. When he finally did find a golf course in the Land of the FASB
his only option was to raise some lunch money by caddying for Denny
Beresford.
Almost all lived happily ever after with the FASB's
ruling on accounting for stock options under FAS 123R except for former FASB
Board Member Walter Schuetze who fumed over FAS 123R for the rest of his
lonely life in the Land of the FASB.
Long before I reached this thrilling ending to this Fairy Tale my children
were always fast asleep.
Moral of the story:
Option value is the sum of intrinsic value plus time value.
Employees trade their services for the time value of options that should be
recorded as the value at the time of vesting for services rendered.
Otherwise inventories will be seriously undervalued as they are in the Land
of Albrecht.
If the corporation is disbanded the nugget of gold remaining cannot be
confiscated without considering the value of the employee stock options that
have not yet expired in the more equitable Land of the FASB.
Book ---
Click Here
http://www.amazon.com/gp/product/0071703071?ie=UTF8&tag=worbet-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0071703071
Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial
Reports, Third Edition [Hardcover]
Howard Schilit (Author), Jeremy Perler (Author)
Also available as an eBook
Bob Jensen's threads on creative accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's threads on employee stock option accounting are at
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Questions
The case for reincarnation in manufacturing
Is refurbished as good as new?
Is rust only skin deep?
Can old retired professors and their spouses sign up for this program?
A teaching case from The Wall Street Journal Accounting Weekly Review
on January 28, 2011
From Trash Heap to Store Shelf
by: James R. Hagerty and
Paul Glader
Jan 24, 2011
Click here to view the full article on WSJ.com
TOPICS: Cost
Accounting, Cost Management, Cost-Basis Reporting, Managerial Accounting,
Regulation, Research & Development
SUMMARY: Companies such
as Caterpillar Inc., General Electric Co., General Motors Co., Eastman Kodak
Co., and Xerox Corp. are "remanufacturing" or refurbishing products "ranging
from cell phones to railroad locomotives to medical scanners." Executives
from these companies gathered in Washington on January 24 and 25, 2011,
"...to seek more government support for their efforts to refurbish and sell
[these] used products."
CLASSROOM APPLICATION: The
article is useful in a management accounting class to consider costs in
"refurbish versus manufacture"--or buy new versus used-decisions.
QUESTIONS:
1. (Introductory) What is "remanufacturing"?
2. (Advanced) What factors related to global trade impact the
ability of "remanufacturers" to sell their products? How can the U.S.
government impact those factors?
3. (Advanced) What will R&D funding do to help companies described
in this article? Again, how can the U.S. government impact the level of this
funding?
4. (Advanced) What manufacturing materials costs make "...it
economical to invest in processes to extend the life of these materials"? Be
specific in comparing two costs to demonstrate a return on investment in
remanufacturing.
5. (Introductory) What laws reduce the costs of remanufacturing?
How does this reduction improve the ability to undertake this process rather
than producing a new product?
6. (Advanced) What costs to society are not evident in comparisons
made when deciding whether to manufacture a new product or refurbish an old
product? What government actions can bring these societal costs into the
decision-making process?
Reviewed By: Judy Beckman, University of Rhode Island
"From Trash Heap to Store Shelf," by: James R. Hagerty and Paul Glader,
The Wall Street Journal, January 24, 2011 ---
http://online.wsj.com/article/SB10001424052748704115404576095881429852432.html?mod=djem_jiewr_AC_domainid
Executives from some of the largest U.S.
manufacturers are gathering in Washington Monday and Tuesday to seek more
government support for their efforts to refurbish and sell used products
ranging from cell phones to railroad locomotives to medical scanners.
Remanufacturers—including Caterpillar Inc., General
Electric Co., General Motors Co., Eastman Kodak Co. and Xerox Corp.—would
like the government to push harder for free global trade in reconditioned
products and to help fund research into better methods of remanufacturing,
which involves restoring used products to like-new condition for resale.
Auto parts have been rebuilt for decades, along
with various kinds of machinery parts and motors. But remanufacturing now
extends to a wide array of items, including computers and home appliances.
An estimated $100 billion of remanufactured goods
are sold each year in the U.S. and more than 500,000 people are employed in
the industry, according to Nabil Nasr, who heads the Center for
Remanufacturing at the Rochester Institute of Technology, Rochester, N.Y.,
which is hosting the meeting of more than 20 companies along with the
Council on Competitiveness, a Washington, D.C., nonprofit group that aims to
make U.S. businesses more competitive.
A key issue for remanufacturers is they haven't
convinced everyone that their products are as reliable as new ones. Many
countries, including China, Japan and Brazil, have banned or restricted
imports of used medical equipment. Even when imports are allowed,
government-controlled hospitals sometimes are barred from buying them, with
officials citing fears that foreign companies are sending outdated or
substandard products.
The thousands of large and small firms involved in
remanufacturing tout it as a highly profitable business that affords
customers lower costs—sometimes as little has half the price of a new
product—and also helps the environment by reducing waste and energy use.
Remanufacturers say any expansion of their activities will create jobs—a
priority in Washington.
Manufacturers often see better profit margins on
remanufactured products than on new ones, said Trent Simpson, a product
manager at Caterpillar, the construction- and mining-equipment giant, which
remanufactures engines and parts for a variety of machines.
"Customers, business and the environment all win,"
Mr. Simpson said.
Officials from the Department of Commerce and the
Office of the U.S. Trade Representative are also due to attend the meeting,
which comes as the Obama administration seeks improved its relations with
the business community.
Remanufacturing also faces challenges on pricing.
Imports of low-priced new auto parts from Asia, for example, can sometimes
still undercut parts remanufactured in the U.S., and many products may never
be good candidates for remanufacturing. Some, like toasters or hair dryers,
are already so cheap it would be hard to justify the expense of fixing and
putting them back on the market. Rapid changes in fashion and technology
also frustrate some efforts to revive old products.
Working in remanufacturing's favor, however, is the
rising cost of copper, steel and other commodities, making it economical to
invest in processes that extend the life of these materials. Meanwhile,
environmental legislation is forcing companies to seek production methods
that use less energy and leave less waste. Many U.S. states have passed or
are considering legislation requiring manufacturers of electronic equipment
to take used goods back for recycling or other kinds or reuse. Those laws
facilitate remanufacturing because they create more reliable ways of
gathering used products, which otherwise might be dispersed in landfills.
Jensen Comment
A recycled bulldozer is one thing. But I would worry some about metal fatigue in
my 50-year old airliner.
Bob Jensen's threads on management accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
"Merrill Traded On Client Data: SEC," by Jean Eaglesham, Dan
Fitzpatrick, and Randall Smith, The Wall Street Journal, January 26, 2011
---
http://online.wsj.com/article/SB20001424052748704013604576104090997516476.html
On the fifth floor of Merrill Lynch & Co.'s
headquarters at the World Financial Center in lower Manhattan, a small team
of traders who bought and sold securities with the firm's own money for two
years were close enough to see the computer screens of traders taking orders
from clients and overhear their phone calls.
The Securities and Exchange Commission said Tuesday
that the proprietary-trading desk, which traded electronic messages with its
nearby counterparts, was illegally spoon-fed information about what
Merrill's clients were doing, and then copied an unspecified number of
trades between 2003 and 2005. Merrill also encouraged market-making traders
to generate and share "trading ideas" with the proprietary-trading desk,
according to the SEC.
Merrill, acquired by Bank of America Corp. in 2009,
agreed to pay $10 million to settle the accusations, which also included
charging institutional investors undisclosed trading fees. Merrill neither
admitted nor denied wrongdoing.
Such enforcement cases are rare, and the Merrill
settlement is likely to fuel longstanding suspicions among many investors
that Wall Street firms tap the continuous flow of orders from customers for
their own benefit. Securities firms are lobbying U.S. regulators over the
wording of the "Volcker rule," part of last year's Dodd-Frank financial law
that is expected to force banks to wind down or sell their
proprietary-trading desks.
In a statement, Bank of America said the "matter
involved issues from 2002 to 2007 at Merrill Lynch." The proprietary-trading
desk, which had one to three employees and authority to trade more than $1
billion of Merrill's capital, was shut down in 2005 "for business reasons"
after the SEC began investigating, according to people familiar with the
situation.
The employees involved in the trading no longer
work at Bank of America, these people said.
Bank of America said Merrill has "adopted a number
of policy changes to ensure separation of proprietary and other trading and
to address the SEC's concerns."
Merrill Lynch also voluntarily implemented enhanced
training and supervision to improve the principal-trading processes at the
securities firm.
The SEC accused Merrill of numerous regulatory
breakdowns, ranging from supervision failures to cheating customers.
"One of our goals in a case like this is to make
sure that the problems we find are fixed going forward," said Scott Friestad,
an associate director in the SEC's enforcement division. The Merrill case is
"one of the few times that the [SEC] has ever charged a large Wall Street
firm with misconduct involving the activities of a proprietary-trading
desk."
The traders involved in the matter weren't
identified in documents released by the SEC. People familiar with the
situation said the proprietary traders, who worked on what Merrill called
its Equity Strategy Desk, were led by Robert H. May.
Mr. May was among four traders from Bank of America
hired last week by boutique-trading firm First New York Securities Inc.
Mr. May couldn't be reached to comment. Neil
Bloomgarden, who reported to Mr. May, now works at Morgan Stanley. He and
the firm declined to comment.
Bank of America hasn't announced plans to shut down
or sell its remaining proprietary-trading desk.
As a result of the investigation, though, the
company has physically separated such traders from the rest of the trading
floor. Merrill also separates client orders from other trades to eliminate
any mingling with positions taken by market makers who buy and sell on
behalf of clients.
The SEC cited four examples in which Merrill
traders on the proprietary-trading desk bought or sold shares within minutes
of a similar order for a customer, according to the agency. Customers of
Merrill were assured by the firm that information about their orders would
be kept confidential, and the company's code of ethics requires employees to
"not discuss the business affairs of any client with any other person,
except on a strict need-to-know-basis," the SEC said Tuesday. The number of
trades detailed by the SEC was small.
In September 2003, an unidentified institutional
client placed an order to sell about 40,000 shares of Teva Pharmaceutical
Industries Ltd., according to the SEC filing. Three minutes later, a
market-making trader "sent an instant message to an ESD trader informing him
about the trade," the filing said. The proprietary trader then sold 10,000
shares in the company for Merrill's own account.
"[I] always like to do what the smart guys are
doing," one Merrill proprietary trader wrote in an electronic message,
according to the SEC filing.
Continued in article
Jensen Comment
Do a word search for "Merrill" and count the many times Merrill Lynch has
engaged in securities fraud (and actually this is just an ad hoc sampling in Bob
Jensen's archives). Merrill really was rotten to the core.
http://www.trinity.edu/rjensen/FraudRotten.htm
Question
What is Cournot Equilibrium and will the Big Four accounting firms be reduced to
the equilibrium Big Three?
Paul Williams Argues That the Invisible Hand Never Had Much Grip in the First
Place
"When Did the Invisible Hand Lose Its Grip?" by Chris Meyer & Julia
Kirby, Harvard Business Review Blog, January 13, 2011 ---
Click Here
http://blogs.hbr.org/hbr/meyer-kirby/2011/01/when-did-the-invisible-hand-lo.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
We aren't the first to see that the world has
changed and free market competition no longer produces benefits
as if by an invisible hand. Historian
Alfred Chandler described the change convincingly in his book
The Visible Hand. Writing in the 1970s,
Chandler described the growth of large industrial organizations in the early
20th century. Their emergence, he observed, marked a major new era in
capitalism, dividing its history into two phases. Before 1850 there was the
market economy, in which many players, engaged in something plausibly
resembling
perfect competition, collectively met demand
without any grand plan to do so. After 1850, the markedly different system
that he called managerial capitalism emerged.
One way to understand the difference is to reflect
on the most basic definition of an economy: it allocates resources to
fulfill desires. Beyond that, the rest is up for grabs. The difference
between Chandler's two eras was in the mechanism by which that allocation
happened. Under managerial capitalism, overall production was no longer
driven by market mechanisms; it was decided on by skilled managers in large
companies. The invisible hand was replaced by a visible one, belonging to a
John D. Rockefeller or Andrew Carnegie, operating deliberately and with
sufficient power and intent to change the shape of markets.
The change Chandler describes actually began as far
back as the industrial revolution, because that basically invented market
power. Before mass production, no organization had achieved or could achieve
the kind of scale the industrial revolution enabled. In the
beer industry, for example, it created the
capabilities to brew huge batches and ship beer over long distances —
creating the so-called "shipping" breweries that ultimately dominated an
industry that was once nothing but microbrew.
Today it is almost wholly the visible hand that
rocks the economy. Massive firms do not respond to consumption dynamics so
much as they shape them. They have the means to manufacture demand as well
as to serve it.
So here's the question: if competition is no longer
atomized, but is now titanic, does that mean that markets are no longer
truly competitive?
We would say so. We think when power is
concentrated in the hands of the few, the game gets friendlier on some
level. Consider that when there are 500 of us in some setting all pursuing
our own agendas, it's very difficult to get a consensus on anything. But
when there are just a few of us, we can come to some kind of agreement.
Let's say that happens, however implicitly (and we
do not claim that it is more than implicit ... except sometimes). What would
the agreement be? It seems clear that not one of those few bloated players
would be pounding the table for the establishment of a more competitive
marketplace. Individually,
they are committed to thwarting that.
That might sound like an outrageous statement, but it
isn't at all. If you are a reader of management literature, as evidently you
are, you cannot have failed to encounter the phrase "sustainable competitive
advantage." This is what all managers in all firms aspire to — it is the
holy grail that lies at the end of the search for excellence, and the
promise of
Michael Porter's teachings. Its point is simple:
that a firm does best when it finds some way not only to prevail in the
current market with its current offering, but also to ensure that its
advantage is not purely temporary.
Sustainable competitive advantage, in other words,
is the tying of the Invisible Hand. In Adam Smith's world, whenever a
producer responded to a market opportunity with a uniquely valuable
proposition to buyers, it had the ability to enjoy excess profits. But
immediately, those excess profits would be spotted and coveted by other
producers, who would rush in with rival offerings. Faced with multiple
options, buyers would look for value differentials through lower pricing,
and the profits would rapidly be competed away. This, to a firm, is a horror
to be avoided: a buyer's market. The entire enterprise of management has
been to find a way around it.
To underscore the point: The invisible hand is the
enemy of sustainable competitive advantage — and any firm trying to gain a
sustainable competitive advantage is an enemy of the invisible hand.
When oligopolistic conditions exist, therefore,
where it is possible for a few major players to implicitly agree on how
business will be done, the agreement that is arrived at looks nothing like
constant, fierce competition. Rather, it's in all the leaders' interests to
maintain a stable market and profitable prices. Oligopoly permits mutual
understanding to develop, and then, because that understanding supports
premium profits, the players have an incentive to maintain the oligopoly.
Fat cats just don't fight like alley cats.
Okay, perhaps we should retract that last sentence,
because we can already feel the cats' backs getting up. That very phrase
"fat cats" was after all a lightning rod for the business community when
Barack Obama used it. "I did not run for office to
be helping out a bunch of, you know, fat-cat bankers on Wall Street," he
told CBS's 60 Minutes in mid December 2009. In the year following,
his administration was broadly accused of being hostile to business, not
only by its political rivals but by thoughtful executives
like GE's Jeff Immelt.
But we're leaving it in, because it's important to
recognize when a knee-jerk response is happening, and when that reflex needs
to be called out, challenged, and changed. Please think about this with a
mind unclouded by what you think your politics are: it is not a necessity to
be on board with business interests to be a defender of free markets. In
fact, as we've been describing, the two are deeply at odds.
There is undeniably a common attitude in America
that to be pro-free market is to be pro-business, and vice versa. Routinely
we see defenders of American values reflexively taking the side of
corporations in policy disputes. But it's important to understand that,
while in the abstract corporate leaders are defenders of free markets, when
it comes to their own competitive settings, they would much rather sit well
above the fray.
Sometimes it's hard to understand what
self-described advocates of the free market do believe in since they so
often defend the rights of the company that already has market power to do
whatever it can to strengthen its position further. This is a point we
really feel strongly about: we give huge market power to large corporations
under the banner of free competition, when in fact what they are engaging in
is not competition. It is
pseudo competition.
Jensen Comment
When the monopoly of the regulated AT&T Bell System was broken up into Baby
Bells there was great hope for competition and innovation in the Baby Bell
system. But the Baby Bells afterwards coagulated into a virtual monopoly called
AT&T, which seems to be the natural trend in many industries having economies of
scale unless trust busters vigorously enforce anti-trust laws (which is seldom
the case). What saved the U.S. consumers somewhat was the advent of wireless
cell phone communications and the explosive growth of the Internet that allowed
new entrants into the communications industry and also restrained the giant
Communications Industry Union.
Unfortunately the many competitors in the cell phone industry are now being
driven out by an oligopoly of big smart giants and who compete as oligopolists
and not capitalists. Oligopoly competition generally coagulates into the Cournot
equilibrium magic number of three that can hardly be called capitalist
competition.
Cournot Equilibrium ---
http://en.wikipedia.org/wiki/Cournot_equilibrium
Federal Reserve System ---
http://en.wikipedia.org/wiki/Federal_Reserve_System
Question
Teaching Case: How well do your students understand the Fed?
As we move into more fair value accounting, interest rate hedge accounting,
and financial risk reporting, accounting students need to know more about the
Fed?
Fed's Net Soars on Crisis-Era Holdings
by: Maya Jackson Randall
Jan 11, 2011
Click here to view the full article on WSJ.com
TOPICS: Investments,
Net Income, Net Profit, Treasury Department
SUMMARY: "The Federal
Reserve's net income surged to $80.9 billion in 2010, largely due to a boost
in earnings from securities it acquired during the financial crisis and its
aftermath, according to preliminary unaudited results the central bank
released Monday. Most of that income will go back to the U.S. treasury,
as....the Fed will transfer a record $78.4 billion to the Treasury
Department....a 65% increase over the $47.4 billion the Fed paid the
Treasury in 2009....The increase was due primarily to increased interest
income earned on securities holdings during 2010,' the Fed said in a
statement."
CLASSROOM APPLICATION: The
article is useful for students to understand that accounting for investments
applies beyond companies in a for-profit environment and that the recorded
profits on investments influence remittances into our U.S. Treasury
department.
QUESTIONS:
1. (Introductory) What is the Federal Reserve System? What are its
member (district) banks? (Hint: you may access this information on the
Federal Reserve System's web page at
http://www.federalreserve.gov/pubs/frseries/frseri2.htm)
2. (Advanced) Why is the income that the Federal Reserve has earned
on securities it acquired during the financial crisis so notable?
3. (Introductory) What does the Federal Reserve do with the income
it earns?
4. (Advanced) What does the author mean by the statement that "the
Fed super-sized its balance sheet..."?
5. (Advanced) How is it possible that "the Fed could still lose
money on the holdings" that currently are producing record profits? In your
answer, consider and describe the accounting for investments under U.S.
generally accepted accounting principles.
6. (Introductory) What will happen if the Fed ends up losing on the
remaining assets it holds from the steps it took during the financial
crisis?
Reviewed By: Judy Beckman, University of Rhode Island
"Fed's Net Soars on Crisis-Era Holdings," by: Maya Jackson Randall, The
Wall Street Journal, January11, 2011
http://online.wsj.com/article/SB10001424052748704458204576074111716303734.html?mod=djem_jiewr_AC_domainid
The Federal Reserve's net income surged to $80.9
billion in 2010, largely due to a boost in earnings from securities it
acquired during the financial crisis and its aftermath, according to
preliminary unaudited results the central bank released Monday.
Most of that income will go back to the U.S.
Treasury, as is the Fed's custom. The Fed will transfer a record $78.4
billion to the Treasury Department, including income earned from interest on
bonds issued by the Treasury itself. It marks a 65% increase over the $47.4
billion the Fed paid the Treasury in 2009.
Fed officials said the bulk of the payments have
already been distributed to Treasury. "The increase was due primarily to
increased interest income earned on securities holdings during 2010," the
Fed said in a statement.
During the financial crisis, the Fed super-sized
its balance sheet by creating a slew of unprecedented, emergency programs
through which it bought securities and debts and lent to banks and other
firms. The Fed has been criticized for taking too many risks with taxpayer
money and putting itself in a position to rack up big losses.
So far, the Fed's lending and credit programs look
like a profitable effort. "I think from a purely fiscal point of view…this
is most likely to be beneficial, not harmful, to the government's financial
position," Federal Reserve Chairman Ben Bernanke said at a Capitol Hill
hearing last week. "Our cost of funds is very low, so the interest that we
are receiving, we are remitting back to the Treasury."
One can view the payments returned to Treasury on
interest from Treasury bonds as "interest that the Treasury didn't have to
pay the Chinese," he added.
The Fed's assets increased from less than $900
billion before the financial crisis to more than $2.4 trillion today. The
Fed could still lose money on the holdings.
For instance, if inflation rises and the central
bank needs to push interest rates higher, its own cost of funding would rise
and it could be forced to sell long-term government bonds at a loss. If that
were to happen, the Fed's remittances to the government would drop, or
possibly halt for some time. Central bank officials play down the risk.
The Fed said the estimated 2010 net income was
derived primarily from $76.2 billion in income from mortgage bonds and
Treasury debt. In 2009, it earned $48.8 billion from securities holdings,
Fed officials said on a conference call with reporters Monday.
The Fed said $7.1 billion in income came from
limited liability companies created during the financial crisis for
different rescues, including one holding commercial paper loans made by the
Fed and another holding assets from Bear Stearns. Another $2.1 billion in
interest income came from credit extended to American International Group
(AIG); $1.3 billion of dividends on preferred interests in AIA Aurora LLC
and ALICO Holdings LLC; and $800 million in interest income on loans
extended under the Term Asset-Backed Securities Loan Facility and loans to
depository institutions.
This Could Make an Interesting Managerial/Cost Accounting Case (CVP
Analysis in the Real World)
"How Travelers Could Lose in American's Web Ticket War," by Kayla
Webly, Time Magazine, January 6, 2010 ---
http://www.stumbleupon.com/su/1xBg8J/www.time.com/time/business/article/0,8599,2040936,00.html
Thank you Robert Harris for the heads up.
An ongoing battle between American Airlines and
online travel agents Orbitz and Expedia has played out for weeks with more
fervor, unlikely alliances and backstabbing than the last season of The
Apprentice. When American and Orbitz failed to reach terms on a new
distribution agreement, the airline ordered its schedule dropped from the
popular travel website on Dec. 21. Just a few days later, pre-empting its
own distribution dispute, Expedia hid American's listings from its search
results, making it difficult but not impossible to book an AA flight on the
website. Then, once Expedia's agreement with American ended Dec. 31, it
dropped the carrier from the site, calling the airline's strategy
"anti-consumer and anti-choice."
There's no question that part of American's
motivation is to cut costs, which George Hobica, founder of Airfare
Watchdog, says the airline is "desperate" to do. In bypassing the online
travel agents, American saves on distribution costs, but can also raise its
ticket prices more easily, since its fares won't be displayed directly
beside those of its competitors.
(See the top 10 travel moments of 2010.)
An ongoing battle between American Airlines and
online travel agents Orbitz and Expedia has played out for weeks with more
fervor, unlikely alliances and backstabbing than the last season of The
Apprentice. When American and Orbitz failed to reach terms on a new
distribution agreement, the airline ordered its schedule dropped from the
popular travel website on Dec. 21. Just a few days later, pre-empting its
own distribution dispute, Expedia hid American's listings from its search
results, making it difficult but not impossible to book an AA flight on the
website. Then, once Expedia's agreement with American ended Dec. 31, it
dropped the carrier from the site, calling the airline's strategy
"anti-consumer and anti-choice."
There's no question that part of American's
motivation is to cut costs, which George Hobica, founder of Airfare
Watchdog, says the airline is "desperate" to do. In bypassing the online
travel agents, American saves on distribution costs, but can also raise its
ticket prices more easily, since its fares won't be displayed directly
beside those of its competitors.
(See the top 10 travel moments of 2010.)
Continued in article
Bob Jensen's threads on management accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Is hiring a stalker cheaper than paying rent?
"There Oughta Be a Law: Californians Getting 725 New Ones in 2011," by
Hoa Patch, LaMesa Patch, December 31, 2011 ---
http://lamesa.patch.com/articles/there-outta-be-a-law-californians-getting-725-new-ones-in-2011
Jensen Comment
Are you tired of the same old "Make versus Buy" or "Buy versus Rent" cases in
your managerial and cost accounting courses? Spice up your teaching with the new
"Stalk versus Pay" house rental cases from California. Assume that long-term
stalkers are plentiful for a fee. Determine the breakeven point where you become
indifferent between paying a stalker versus paying your landlord.
What if a company leasing the tallest building in Los Angeles is being
stalked by Carl Icahn? Can the company stop paying rent until Carl Icahn agrees
to leave the lessee alone ---
http://en.wikipedia.org/wiki/Carl_Icahn
I think David Albrecht should adapt a new variation of his use of Parker
Bros. Monopoly board game when teaching accounting. If you land on luxurious
Park Place or Boardwalk, with each having four very expensive rental houses, you
should have a chance to get out of paying rent with a "Hired a Stalker" card
from the Community Chest.
You might even hang your stalkers by the fireplace on Christmas eve. Moms
should make a point of buying stalker stuffers for each stalker hung by the
chimney with care.
Additional Comment
AB 1871 allows people to lease out their cars when they are not being
used—alleviating the need to purchase additional insurance. Can your teenage
son, who caused four deaths in three separate accidents in which he was
convicted of drunk driving, get a better deal on insurance by leasing a car from
his parents instead of borrowing a car from them?
Here's another managerial and cost accounting project for students.
When is it cheaper for a sixteen year old driver to lease a his grandpa's car
rather than take out insurance on his own new car?
Does your answer vary whether the teenager lives in New York versus Wyoming when
he's contemplating renting Grandpa's car in Yuba City, California.
Additional Comment
Here's another project for accounting students. Since insurance companies can no
longer differentiate teenage driver car insurance fees on the basis of gender of
the teenager, will teenage women end up paying more in 2011 than they were
paying insurance companies in 2010 to insure their SUVs?
Does this new gender-neutral law really screw women in general for life
insurance, medical insurance, car insurance, etc.
Did California women simply overlook this law before it went into effect?
Additional Comment
AB 12 allows foster youth to acquire state services until the age of 21.
Is it a good idea to put your kid out for foster care when she/he graduates from
high school.
With any kind of luck, your neighbor might get paid to take care of your kid
between the ages of 18 and 21. Maybe you can get a kickback. Wouldn't that be a
kick?
Someone
in KPMG is keeping tab on the street price of fake goods all across the world
---
http://www.big4.com/blog/if-you-are-buying-fake-goods-in-london-its-a-real-ripoff-says-kpmg-656
"The Swedish Corporate Control Model: Convergence, Persistence or Decline?"
by Magnus Henrekson, SSRN, January 2, 2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734149
Thanks to Jim Mahar for the heads up.
IFN Working Paper No. 857
Abstract: Abstract: This paper explores the effects
of deregulation and globalization on the dominant mode of corporate
governance in Swedish public firms. The effects are multidimensional - the
direction of change in corporate governance cannot be determined by simply
examining whether a convergence towards the Anglo-Saxon model is occurring.
Dispersed ownership with management control has not proven to be a viable
model of corporate governance for Swedish listed companies. Instead, the
control models with the most rapid growth in the most recent decades are
found outside the stock market, notably private equity and foreign
ownership. After a major revival of the Swedish stock market its importance
for the Swedish economy is again in decline. Instead of adjustments in
pertinent institutions and practices to ensure effectiveness of the
corporate governance of Swedish public firms under these new conditions, a
great deal of endogenous adjustment of the ownership structure has taken
place.
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/Fraud001.htm#Governance
"Unveiling the Mystery of Forensic Accounting," by Marion Hecht and
MaryEllen Redmond, Accounting Today, December 28, 2010 ---
http://www.accountingtoday.com/news/Unveiling-Mystery-Forensic-Accounting-56712-1.html
Thanks to Nadine Sabai for the heads up.
Bob Jensen's threads on accounting fraud ---
http://www.trinity.edu/rjensen/Fraud.htm
"Skype 5 beta is horrible," by Dennis Howlett, AccMan, January
4, 2011 ---
Click Here
http://accmanpro.com/2011/01/04/skype-5-beta-is-horrible/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+flacknhack/jRao+%28Dennis+Howlett:+AccMan%29
I am not alone.
The
howls of protest on the Skype forums are both
impassioned and detailed in their condemnation of the new UI/UX.
January 4, 2010 reply from Robert Bowers (tax accountant)
This Skype thread interests me.
I have been cutting costs w/ a vengeance for sev
yrs
Sev yrs ago I went from Verizon tel (120) + full
Comcast cable (130) + net = about 250/mo
I talked Com into giving me a promo rate of 62,
went to Vonage @ 25, total 87 … not bad
Then Com went back to 130, so I talked Verizon into
70 for all 3. But this expires in June.
I have looked at Vonage, Magic Jack, not Skype –
all these alt phones don’t seem to support Faxes,
and to be honest it seems Verizon still beats all
these for clarity
This wouldn’t bother me, as I send email
attachments to all but one – guess who – the IRS
As far as cable, I just went w/ Netflix – unlimited
movies for $8/mo
Now if I could find a TV provider of all the news (incl
CNBC), I would be happy
When you go to alternative providers there is
always a tradeoff – you can’t get something for nothing.
January 4, 2010 reply from Rick Lillie
While there are some features in Skype v5.0.0.156
that I do not care about, overall I really like the new Skype version. I'm
not a Facebook person. I prefer that links to Facebook and other social
media be kept optional for users who want such features.
We all have our biases, which is clear from the
Howlett article, forum comments and my comments in this email message. I'm a
"PC" person. I'm not an "Apple" person. I'm probably in the minority, but I
don't care for the iPad. I'll stick with my ThinkPad Tablet computer. It's
capabilities go far beyond what the iPad can do.
I use Skype to offer virtual office hours for my
students. This makes it possible to extend the benefits of traditional
office hours to students who are unable to come to my office during set
times. Students really like using Skype to work together.
Skype features like desktop sharing make it easy to
work one-on-one with students when they need help with assignments. The
instant messaging and file sharing features are exceptional, especially with
improvements added in v5. With v5, you can send a message or file to someone
even though the other party is not online at the moment. Skype now
temporarily stores the message or file until the other party is available
and then downloads it. This improvement takes peer-to-peer to the next
performance level.
I have used Skype's new multi-party video
conferencing. It worked fine. Several study groups used multi-party video
conferencing during Fall Quarter 2010 and liked its performance. I see a
real future for multi-party video conferencing. My concern is that it will
become a fee-based service that students will not be able to afford.
I combine the free features of Skype with features
of other free Web 2.0 technologies to teach my students how to use
technology to create, share, and communicate. For example, when we combine
Skype with Google Docs and Spreadsheets, students learn to do what you can
do in WebEx or Adobe Connect. This combination is free. The alternatives are
extremely expensive.
Skype's interface changed with v5. Without a doubt,
it will change again. Skype listens to feedback. Technology evolves.
Skype includes a bundle of features that makes it a
powerful communicative, collaborative Web 2.0 technology tool. It includes
far more useful features in one tool than I find in other similar tools.
This is what makes Skype really useful and easy to use.
Skype changes itself about every 15 minutes. If you
don't like the current version, be patient or find a better alternative. If
you truly find a better alternative, please share it.
Happy New Year! May we all prosper in 2011.
Rick Lillie, MAS, Ed.D., CPA
Assistant Professor of Accounting
Coordinator, Master of Science in Accountancy
CSUSB, CBPA, Department of Accounting & Finance
5500 University Parkway, JB-547
San Bernardino, CA. 92407-2397
Email: rlillie@csusb.edu \
Telephone: (909) 537-5726
Skype (Username): ricklillie
"Fama Says Too-Big-to-Fail `Distorting' Financial System (of efficient
markets)" Bloomberg Video ---
http://www.bloomberg.com/video/64476076/
Jensen Comment
This seems to coincide with the hypothesis that "Too Big to Lose" is distorting
the auditing system worldwide.
Bob Jensen's threads on the EMH ---
http://www.trinity.edu/rjensen/Theory01.htm#EMH
"Tax Havens Devastating To National Sovereignty," Southwerk,
January 13, 2011 ---
http://southwerk.wordpress.com/2011/01/13/tax-haven-devastating-to-national-economies/
Thank you Nadine Sabai for the heads up.
The blog post is
a review of the book,
Nicholas Shaxson’s -
Treasure Islands: Uncovering the Damage of Offshore Banking and Tax
Havens
Tax havens are the ultimate source of strength
for our global elites. Just as European nobles once consolidated their
unaccountable powers in fortified castles, to better subjugate and extract
tribute from the surrounding peasantry, so financial capital has coalesced
in their modern equivalent today: the tax havens. In these fortified nodes
of secret, unaccountable political and economic power, financial and
criminal interests have come together to capture local political systems and
turn the havens into their own private law-making factories, protected
against outside interference by the world’s most powerful countries – most
especially Britain. Treasure Islands will, for the first time, show the
blood and guts of just how they do it.
The nations of the world are harmed by the evasion
of their laws and taxes made possible by tax havens. The tax money is
important but more important is the ability to threaten governments to force
actions that multinational corporations such as investment banks wish done.
These escape routes transform the merely
powerful into the untouchable. “Don’t tax or regulate us or we will flee
offshore!” the financiers cry, and elected politicians around the world
crawl on their bellies and capitulate. And so tax havens lead a global race
to the bottom to offer deeper secrecy, ever laxer financial regulations, and
ever more sophisticated tax loopholes. They have become the silent battering
rams of financial deregulation, forcing countries to remove financial
regulations, to cut taxes and restraints on the wealthy, and to shift all
the risks, costs and taxes onto the backs of the rest of us. In the process
democracy unravels and the offshore system pushes ever further onshore. The
world’s two most important tax havens today are United States and Britain.
But the world is not without means to
remedy the situation. In the late 1700′s piracy flourished because nations
found it advantageous to use them against their enemies. Pirates often
employed as privateers fattened the treasury of the nations hiring them and
did harm to their enemies.
But over time, it became obvious that the
benefits of piracy were outweighed by the faults.
So, nations by treaty and policy ran the
pirates out of business.
The United States in concert with the
European Union, China and other nations could by agreement make this kind of
tax haven impossible to maintain or at the very least difficult.
It has been a daunting task to motivate the
government of the United States to act against the interests of these larger
corporations particularly the financial ones, but the future of this nation
may well depend on those tax dollars and enforcing the national interest.
James Pilant
I wish to thank
homophilosophicus for calling my attention to
Thriven’s Blog.
"New Hit to Strapped States: Borrowing Costs Up as Bond Flops;
Refinancing Crunch Nears," by Michael Corkery and Ianthe Jeanne Dugan,
The Wall Street Journal, January 14, 2011 ---
http://online.wsj.com/article/SB10001424052748704307404576080322679942138.html?mod=ITP_pageone_0
With the market for municipal bonds tumbling,
cities, hospitals, schools and other public borrowers are scrambling to
refinance tens of billions of dollars of debt this year, another sign that
the once-safe market is under duress.
The muni bond market was hit with the latest wave
of bad news Thursday, prompting a selloff that sent the market to its lowest
level since the financial crisis. A New Jersey agency was forced to cut the
size of a bond issue by about 40% because of mediocre demand, and pay a
higher rate than expected. And mutual fund giant Vanguard Group shelved
plans for three new muni bond funds, citing market turmoil.
"We believe that this delay is prudent given the
high level of volatility in the municipal bond market," said Rebecca Katz,
spokeswoman for the nation's biggest fund company.
The market has fallen every day this week, and
investors have been net sellers of their holdings in municipal-bond mutual
funds for nine straight weeks, according to fund tracker Lipper FMI.
Yields on 30-year triple-A rated general obligation
bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived
risk, according to Thomson Reuters Municipal Market Data. The last time
those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.
Amid the selloff, public borrowers such as states
and utilities face a wave of refinancing stemming from deals cut mostly
during the crisis. The deals involved letters of credit from banks that were
designed to keep financing costs down for government entities in need of
cash.
Though the financing deals can be meant to last
decades, the letters of credit underpinning them are expiring sooner. That
could force the borrowers in many cases to pay higher interest rates or seek
guarantees at higher costs. For the weakest borrowers, new guarantees may
not be available and refinancing too costly. There are about $109 billion
worth of letters of credit and similar backstops expiring this year,
according to Bank of America Merrill Lynch. Some $53 billion in letters of
credit alone is expiring this year, according to Thomson Reuters.
"Municipalities may be hard-pressed to come up with
this money or refinance this debt," said Eric Friedland, a municipal analyst
at Fitch Ratings. The ratings firm is scouring to identify risks among
weaker municipalities that are seeking to renew these deals, and says it
could downgrade some.
The rollover rush stems from the credit crisis that
roiled the U.S. in 2008. Municipalities had issued so-called auction-rate
securities, instruments whose rates reset at weekly auctions. Amid the
credit crunch, buyers at these auctions vanished.
Many municipalities scrambled to convert the debt
into other instruments, including variable-rate demand obligations, which
are long-term bonds with interest rates that reset periodically. For a fee,
big banks guaranteed many of these deals.
These so-called letters of credit from banks
typically only last two or three years, leaving municipalities to refinance
the deals or obtain a new guarantee. The issuers expected to easily renew
the letters of credit.
But many of these letters of credit have become
much more expensive and scarce, state officials say, leaving them with
little choice but to try to refinance at a time when the broader muni market
is under pressure.
The short-term squeeze is unusual in the $2.9
trillion municipal bond market. Most debt is paid back over decades. And
state and local governments generally don't need to borrow money to fund
their daily operations. The long-term nature of the market is a key reason
why most experts don't see the problems with state and local government debt
spiraling into another financial crisis. Analysts say that many large states
and cities with good credit ratings have been able to roll over deals well
ahead of their expiration.
But there are parts of the market where short-term
cash crunches could emerge, leading municipalities to potentially default on
their debts. The risks could spill over to banks that backed bonds with the
letters of credit.
"This is one area of risk the market hasn't focused
on," said Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods.
Mr. Cannon says it is difficult to determine banks' exact exposure to such
deals because they don't typically report them in their financial
statements.
Continued in article
So what's causing the downswing of the muni bond market?
Watch the CBS Sixty Minutes video
"States Budgets: A Day of Reckoning ---
http://www.cbsnews.com/video/watch/?id=7166293n&tag=cbsnewsMainColumnArea.9
"Man with a ‘Passion’ for Charter Buses Managed to Dupe Moss Adams,
Deloitte in Washington’s Largest Ponzi Scheme," by Caleb Newquist, Going
Concern, January 20, 2011 ---
Click Here
http://goingconcern.com/2011/01/man-with-a-passion-for-charter-buses-managed-to-dupe-moss-adams-deloitte-in-washingtons-largest-ponzi-scheme/
Cringe] Oops. To be fair, auditors can’t be
expected to be hand-writing experts…can they? Mr. Calvert seems to think so
and told the Seattle Times that he plans on suing Moss Adams and Deloitte
for their roles. Oh, right! How do they fit in?
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm
"US tax implications for sovereign wealth funds of financial derivative
investments," PwC, January 20, 2011 ---
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=MSRA-8DAMJ4&SecNavCode=ASPP-4MVQZ3&ContentType=Content
SWFs have begun hedging the foreign currency and
interest rate exposures on their investments with financial derivatives.
Further, SWFs have also begun to utilize financial derivatives to achieve
the fundamental economic exposure that their fund managers may be seeking.
SWFs are key investors in many onshore and offshore fund complexes. Fund
managers for these fund complexes also have expanded their investment
parameters in similar ways to achieve the returns they are seeking.
Bob Jensen's threads on accounting for derivative financial instruments ---
http://www.trinity.edu/rjensen/caseans/000index.htm
"AT&T moves US$17 billion pension plan and benefit losses to the past," by
Peter Svensson, Canada Press via Google.com, January 14, 2011 ---
http://www.google.com/hostednews/canadianpress/article/ALeqM5gHEI63R21uiCbQNH_fVGXQbBKTPA?docId=5646102
Phone company AT&T Inc. on Thursday said it's
changing its accounting in a way that effectively puts US$17 billion in
losses that it would have to recognize in the future into the past.
It's a move that may be copied by other companies
seeking to put the effect on their pension plans of the 2008 financial crash
behind them, and out of future financial statements.
"AT&T is taking a step that no one's ever taken
before, to my knowledge," said accounting expert Robert Willens.
Like other companies, AT&T has been checking once a
year on the funding of its plans that cover pensions and other
post-retirement benefits, like health care. When there's been a shortfall of
funds compared to expected future payouts, it has spread out the resulting
charges over a decade or more years, smoothing out the effect of fluctuating
interest rates and values of plan assets.
Starting with the results for the latest quarter,
the phone company will instead recognize charges due to changes in interest
rates and asset values once a year, in the fourth quarter.
That will result in a pretax charge US$2.7 billion
for last year's fourth quarter, for which AT&T is due to report results on
Jan. 27.
AT&T is also adjusting results for previous
quarters, as if the accounting change had been in place then. For example,
the result for the fourth quarter of 2008 is now a loss of US$13.3 billion,
or $2.25 per share, rather than the originally reported profit of $2.40
billion, or 41 cents per share.
Cumulatively, the effect reduces past earnings by
$17 billion, an amount that would otherwise weigh on future results.
It also means that in future years, AT&T may have
large charges or gains from its plans in its fourth-quarter earnings report,
reflecting the actual performance of its plan.
Chief Financial Officer Rick Lindner said the new
policy "provides a much simpler and easier way for investors to understand
our benefit accounting and our benefit costs."
Manufacturer company Honeywell International Inc.
announced in November that it was making a related accounting change, moving
$7.5 billion in deferred losses from future periods to the past. However, it
retained some "smoothing" of pension plan effects, which AT&T did not.
"There's an expectation that a lot of companies are
going to do this, because they all have big losses from the market crash,
and they all want to put it behind them," Willens said.
The accounting change does not affect AT&T's cash
flow or pension funding requirements. Its pension and post-retirement
benefit obligations totalled $87 billion at the end of 2009, the latest
figure reported. The plan assets are $28.7 billion less.
"The underlying economics of AT&T's underfunded
post-retirement liabilities remains unchanged, and is a significant drag on
value when appropriately accounted for," said Sanford Bernstein analyst
Craig Moffett.
The charge to results for the most recent quarter
results mainly from last year's low interest rates on corporate bonds, which
affect the projected value of AT&T's fund. That was offset somewhat by
higher-than-expected returns on fund assets and by lower retiree health-care
costs. AT&T has implemented changes to its plans in recent years to rein in
growing costs.
Bob Jensen's threads on pension accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
"What Caused the Bubble? Mission accomplished: Phil Angelides
succeeds in not upsetting the politicians," by Holman W, Jenkins, Jr.,
The Wall Street Journal, January 29. 2011 ---
http://online.wsj.com/article/SB10001424052748704268104576108000415603970.html#mod=djemEditorialPage_t
The 2008 financial crisis happened because no one
prevented it. Those who might have stopped it didn't. They are to blame.
Greedy bankers, incompetent managers and
inattentive regulators created the greatest financial breakdown in nearly a
century. Doesn't that make you feel better? After all, how likely is it that
some human beings will be greedy at exactly the same time others are
incompetent and still others are inattentive?
Oh wait.
You could almost defend the Financial Crisis
Inquiry Commission's (FCIC) new report if the question had been who, in
hindsight, might have prevented the crisis. Alas, the answer is always going
to be the Fed, which has the power to stop just about any macro trend in the
financial markets if it really wants to. But the commission was asked to
explain why the bubble happened. In that sense, its report doesn't seem even
to know what a proper answer might look like, as if presented with the
question "What is 2 + 2?" and responding "Toledo" or "feral cat."
The dissenters at least propose answers that might
be answers. Peter Wallison focuses on U.S. housing policy, a diagnosis that
has the advantage of being actionable.
The other dissent, by Keith Hennessey, Bill Thomas
and Douglas Holtz-Eakin, sees 10 causal factors, but emphasizes the
pan-global nature of the housing bubble, which it attributes to ungovernable
global capital flows.
That is also true, but less actionable.
Let's try our hand at an answer that, like Mr.
Wallison's, attempts to be useful.
The Fed will make errors. International capital
flows will sometimes be disruptive. Speculators will be attracted to hot
markets. Bubbles will be a feature of financial life: Building a bunch of
new houses is not necessarily a bad idea; only when too many others do the
same does it become a bad idea. On that point, not the least of the
commission's failings was its persistent mistaking of effects for causes,
such as when banks finally began treating their mortgage portfolios as hot
potatoes to be got rid of.
If all that can't be changed, what can? How about
the incentives that invited various parties to shovel capital into housing
without worrying about the consequences?
The central banks of China, Russia and various
Asian and Arab nations knew nothing about U.S. housing. They poured hundreds
of billions into it only because Fannie and Freddie were perceived as
federally guaranteed and paid a slightly higher yield than U.S. Treasury
bonds. (And one of the first U.S. actions in the crisis was to assure China
it wouldn't lose money.)
Borrowers in most states are allowed to walk away
from their mortgages, surrendering only their downpayments (if any) while
dumping their soured housing bets on a bank. Change that even slightly and
mortgage brokers and home builders would find it a lot harder to coax people
into more house than they can afford.
Mortgage middlemen who don't have "skin in the
game" and feckless rating agencies have also been routine targets of blame.
But both are basically ticket punchers for large institutions that should
have and would have been assessing their own risk, except that their own
creditors, including depositors, judged them "too big to fail," creating a
milieu where they could prosper without being either transparent or
cautious. We haven't even tried to fix this, say by requiring banks to take
on a class of debtholder who would agree to be converted to equity in a
bailout. Then there'd be at least one sophisticated marketplace demanding
assurance that a bank is being run in a safe and sound manner. (Sadly, the
commission's report only reinforces the notion that regulators are
responsible for keeping your money safe, not you.)
The FCIC Chairman Phil Angelides is not stupid, but
he is a politician. His report contains tidbits that will be useful to
historians and economists. But it's also a report that "explains" poorly.
His highly calculated sound bite, peddled from one interview to the next,
that the crisis was "avoidable" is worthless, a nonrevelation. Everything
that happens could be said to happen because somebody didn't prevent it. So
what? Saying so is saying nothing.
Mr. Angelides has gone around trying to convince
audiences that the commission's finding was hard hitting. It wasn't. It was
soft hitting. More than any other goal, it strives mainly to say nothing
that would actually be inconvenient to Barack Obama, Harry Reid, Barney
Frank or even most Republicans in Congress. In that, it succeeded.
Jensen Comment
And then the subprime crisis was followed by the biggest swindle in the history
of the world ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
At this point time in 2011 there's only marginal benefit in identifying all
the groups like credit agencies and CPA audit firms that violated
professionalism leading up to the subprime crisis. The credit agencies,
auditors, Wall Street investment banks, Fannie Mae, and Freddie Mack were all
just hogs feeding on the trough of bad and good loans originating on Main
Streets of every town in the United States.
If the Folks on Main Street that Approved the Mortgage Loans in the First
Stage Had to Bear the Bad Debt Risks There Would've Been No Poison to Feed Upon
by the Hogs With Their Noses in the Trough Up to and Including Wall Street and
Fannie and Freddie.
If the Folks on Main Street that Approved the Mortgage Loans in the First
Stage Had to Bear the Bad Debt Risks All Would've Been Avoided
The most interesting question in my mind is what might've prevented the poison (uncollectability)
in the real estate loans from being concocted in the first place. What
might've prevented it was for those that approved the loans (Main Street banks
and mortgage companies in towns throughout the United States) to have to bear
all or a big share of the losses when borrowers they approved defaulted.
Instead those lenders that approved the loans easily passed those loans up
the system without any responsibility for their reckless approval of the
loans in the first place. It's easy to blame Barney Frank for making it
easier for poor people to borrow more than they could ever repay. But the fact
of the matter is that the original lenders like Countrywide were approving
subprime mortgages to high income people that also could not afford their
payments once the higher prime rates kicked in under terms of the subprime
contracts. If lenders like Countrywide had to bear a major share of the bad debt
losses the lenders themselves would've been more responsible about only
approving mortgages that had a high probability of not going into default.
Instead Countrywide and the other Main Street lenders got off scott free until
the real estate bubble finally burst.
And why would a high income couple refinance a fixed rate mortgage with a
risky subprime mortgage that they could not afford when the higher rates kicked
in down the road? The answer is that the hot real estate market before the crash
made that couple greedy. They believed that if they took out a subprime loan
with a very low rate of interest temporarily that they could turn over their
home for a relatively huge profit and then upgrade to a much nicer mansion on
the hill from the profits earned prior to when the subprime rates kicked into
higher rates.
When the real estate bubble burst this couple got left holding the bag and
received foreclosure notices on the homes that they had gambled away. And the
Wall Street investment banks, Fannie, and Freddie got stuck with all the poison
that the Main Street banks and mortgage companies had recklessly approved
without any risk of recourse for their recklessness.
Also see
"FCIC Gives Accounting Standards a Free Pass (Along with Practically
Everybody Else)," by Tom Selling, The Accounting Onion,
January 31, 2011 ---
http://accountingonion.typepad.com/theaccountingonion/2011/01/fcic-gives-accounting-standards-a-free-pass.html
If the Folks on Main Street that Approved the Mortgage Loans in the First
Stage Had to Bear the Bad Debt Risks There Would've Been No Poison to Feed Upon
by the Hogs With Their Noses in the Trough Up to and Including Wall Street and
Fannie and Freddie.
Bob Jensen's threads on this entire mess are at
http://www.trinity.edu/rjensen/2008Bailout.htm
"Washington’s Financial Disaster," by Frank Partnoy, The New York
Times, January 29, 2011 ---
http://www.nytimes.com/2011/01/30/opinion/30partnoy.html?_r=1&nl=todaysheadlines&emc=tha212
THE long-awaited Financial Crisis Inquiry
Commission report, finally published on Thursday, was supposed to be the
economic equivalent of the 9/11 commission report. But instead of a lucid
narrative explaining what happened when the economy imploded in 2008, why,
and who was to blame, the report is a confusing and contradictory mess, part
rehash, part mishmash, as impenetrable as the collateralized debt
obligations at the core of the crisis.
The main reason so much time, money and ink were
wasted — politics — is apparent just from eyeballing the report, or really
the three reports. There is a 410-page volume signed by the commission’s six
Democrats, a leaner 10-pronged dissent from three of the four Republicans,
and a nearly 100-page dissent-from-the-dissent filed by Peter J. Wallison, a
fellow at the American Enterprise Institute. The primary volume contains
familiar vignettes on topics like deregulation, excess pay and poor risk
management, and is infused with populist rhetoric and an anti-Wall Street
tone. The dissent, which explores such root causes as the housing bubble and
excess debt, is less lively. And then there is Mr. Wallison’s screed against
the government’s subsidizing of mortgage loans.
These documents resemble not an investigative
trilogy but a left-leaning essay collection, a right-leaning PowerPoint
presentation and a colorful far-right magazine. And the confusion only
continued during a press conference on Thursday in which the commissioners
had little to show and nothing to tell. There was certainly no Richard
Feynman dipping an O ring in ice water to show how the space shuttle
Challenger went down.
That we ended up with a political split is not
entirely surprising, given the structure and composition of the commission.
Congress shackled it by requiring bipartisan approval for subpoenas, yet
also appointed strongly partisan figures. It was only a matter of time
before the group fractured. When Republicans proposed removing the term
“Wall Street” from the report, saying it was too pejorative and imprecise,
the peace ended. And the public is still without a full factual account.
For example, most experts say credit ratings and
derivatives were central to the crisis. Yet on these issues, the reports are
like three blind men feeling different parts of an elephant. The Democrats
focused on the credit rating agencies’ conflicts of interest; the
Republicans blamed investors for not looking beyond ratings. The Democrats
stressed the dangers of deregulated shadow markets; the Republicans blamed
contagion, the risk that the failure of one derivatives counterparty could
cause the other banks to topple. Mr. Wallison played down both topics. None
of these ideas is new. All are incomplete.
Another problem was the commission’s sprawling,
ambiguous mission. Congress required that it study 22 topics, but
appropriated just $8 million for the job. The pressure to cover this wide
turf was intense and led to infighting and resignations. The 19 hearings
themselves were unfocused, more theater than investigation.
In the end, the commission was the opposite of
Ferdinand Pecora’s famous Congressional investigation in 1933. Pecora’s
10-day inquisition of banking leaders was supposed to be this commission’s
exemplar. But Pecora, a former assistant district attorney from New York,
was backed by new evidence of widespread fraud and insider dealings,
shocking documents that the public had never seen or imagined. His fierce
cross-examination of Charles E. Mitchell, the head of National City Bank,
Citigroup’s predecessor, put a face on the crisis.
This commission’s investigation was spiritless and
sometimes plain wrong. Richard Fuld, the former head of Lehman Brothers, was
thrown softballs, like “Can you talk a bit about the risk management
practices at Lehman Brothers, and why you didn’t see this coming?” Other
bankers were scolded, as when Phil Angelides, the commission’s chairman,
admonished Lloyd Blankfein, the chief executive of Goldman Sachs, for
practices akin to “selling a car with faulty brakes and then buying an
insurance policy on the buyer of those cars.” But he couldn’t back up this
rebuke with new evidence.
The report then oversteps the facts in its
demonization of Goldman, claiming that Goldman “retained” $2.9 billion of
the A.I.G. bailout money as “proprietary trades.” Few dispute that Goldman,
on behalf of its clients, took both sides of trades and benefited from the
A.I.G. bailout. But a Goldman spokesman told me that the report’s assertion
was false and that these trades were neither proprietary nor a windfall. The
commission’s staff apparently didn’t consider Goldman’s losing trades with
other clients, because they were focused only on deals with A.I.G. If they
wanted to tar Mr. Blankfein, they should have gotten their facts right.
Lawmakers would have been wiser to listen to
Senator Richard Shelby of Alabama, who in early 2009 proposed a bipartisan
investigation by the banking committee. That way seasoned prosecutors could
have issued subpoenas, cross-examined witnesses and developed cases.
Instead, a few months later, Congress opted for this commission, the last
act of which was to coyly recommend a few cases to prosecutors, who already
have been accumulating evidence the commissioners have never seen.
There is still hope. Few people remember that the
early investigations of the 1929 crash also failed due to political battles
and ambiguous missions. Ferdinand Pecora was Congress’s fourth chief
counsel, not its first, and he did not complete his work until five years
after the crisis. Congress should try again.
Frank Partnoy is a law professor at the University of San Diego and the
author of “The Match King: Ivar Kreuger, the Financial Genius Behind a
Century of Wall Street Scandals.”
Jensen Comment
Professor Partnoy is one of my all-time fraud fighting heroes. He was at one
time an insider in marketing Wall Street financial instrument derivatives
products and, while he was one of the bad guys, became conscience-stricken about
how the bad guys work. Although his many books are somewhat repetitive, his
books are among the best in exposing how the Wall Street investment banks are
rotten to the core.
Frank Partnoy has been a a strong advocate of regulation of the derivatives
markets even before Enron's energy trading scams came to light. His testimony
before the U.S. Senate about Enron's infamous Footnote 16 ---
http://www.trinity.edu/rjensen/FraudEnron.htm#Senator
I quote Professor Partnoy's books frequently in my Timeline of Derivative
Financial Instruments Frauds ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
Humor
January 1-31, 2010
Forwarded by Paula
Question: If you could live forever, would you and why?
Answer: "I would not live forever, because we should not live forever,
because if we were supposed to live forever, then we would live forever, but we
cannot live forever, which is why I would not live forever,"
--Miss Alabama in the 1994 Miss USA contest.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Whenever I watch TV and see those poor starving kids all over the world, I
can't help but cry. I mean I'd love to be skinny like that, but not with all
those flies and death and stuff."
--Mariah Carey
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Smoking kills. If you're killed, you've lost a very important part of your
life,"
-- Brooke Shields, during an interview to become spokesperson for federal
anti-smoking campaign
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"I've never had major knee surgery on any other part of my body,"
--Winston Bennett, University of Kentucky basketball forward.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Outside of the killings, Washington has one of the lowest crime rates in the
country,"
--Mayor Marion Barry, Washington , DC .
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"That lowdown scoundrel deserves to be kicked to death by a jackass, and I'm
just the one to do it,"
--A congressional candidate in Texas .
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Half this game is ninety percent mental."
--Philadelphia Phillies manager, Danny Ozark
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"It isn't pollution that's harming the environment. It's the impurities in
our air and water that are doing it.."
--Al Gore, Vice President
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"I love California . I practically grew up in Phoenix "
-- Dan Quayle
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"We've got to pause and ask ourselves: How much clean air do we need?"
--Lee Iacocca
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"The word "genius" isn't applicable in football. A genius is a guy like
Norman Einstein."
--Joe Theisman, NFL football quarterback & sports analyst.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"We don't necessarily discriminate. We simply exclude certain types of
people."
-- Colonel Gerald Wellman, ROTC Instructor.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Your food stamps will be stopped effective March 1992 because we received
notice that you passed away. May God bless you. You may reapply if there is a
change in your circumstances."
--Department of Social Services, Greenville , South Carolina
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"Traditionally, most of Australia 's imports come from overseas."
--Keppel Enderbery
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
"If somebody has a bad heart, they can plug this jack in at night as they go
to bed and it will monitor their heart throughout the night. And the next
morning, when they wake up dead, there'll be a record."
--Mark S. Fowler, FCC Chairman
Forwarded by Paula
Men Are Just Happier People NICKNAMES
· If Laura, Kate and Sarah go out
for lunch, they will call each other Laura, Kate and Sarah.
· If Larry, Dave and John go out,
they will affectionately refer to each other as Fat Boy, Dickhead and Shit for
Brains.
EATING OUT
· When the bill arrives, Larry,
Dave and John will each throw in $20, even though it's only for $32.50.
None of them will have anything smaller and none will actually admit they want
change back.
· When the girls get their bill,
out come the pocket calculators.
MONEY
· A man will pay $2 for a $1 item
he needs.
· A woman will pay $1 for a $2 item
that she doesn't need but it's on sale.
BATHROOMS
· A man has six items in his
bathroom: toothbrush and toothpaste, shaving cream, razor, a bar of soap, and a
towel.
· The average number of items in
the typical woman's bathroom is 337. A man would not be able to identify
more than 20 of these items.
ARGUMENTS
· A woman has the last word in any
argument.
· Anything a man says after that is
the beginning of a new argument.
FUTURE
· A woman worries about the future
until she gets a husband.
· A man never worries about the
future until he gets a wife.
SUCCESS
· A successful man is one who makes
more money than his wife can spend.
· A successful woman is one who can
find such a man.
MARRIAGE
· A woman marries a man expecting
he will change, but he doesn't.
· A man marries a woman expecting
that she won't change, but she does.
DRESSING UP
· A woman will dress up to go
shopping, water the plants, empty the trash, answer the phone, read a book, and
get the mail.
· A man will dress up for weddings
and funerals.
NATURAL
· Men wake up as good-looking as
they went to bed.
· Women somehow deteriorate during
the night.
OFFSPRING
· Ah, children. A woman knows
all about her children. She knows about dentist appointments and romances,
best friends, favorite foods, secret fears and hopes and dreams.
· A man is vaguely aware of some
short people living in the house.
THOUGHT FOR THE DAY
A married man should forget his mistakes. There's no use in two people
remembering the same thing!
World's Shortest Books…
THINGS I CANNOT
AFFORD
by Bill Gates
____________________________________
THINGS I DID TO DESERVE THE NOBEL PEACE PRIZE
by Barack Obama
____________________________________________
MY BLACK GIRLFRIENDS
by Tiger Woods
____________________________________________
THINGS I LOVE ABOUT MY COUNTRY
by Jane Fonda & Cindy Sheehan
Illustrated by Michael Moore
________________________________________
MY CHRISTIAN ACCOMPLISHMENTS
& HOW I HELPED AFTER KATRINA
by Rev Jesse Jackson & Rev Al Sharpton
______________________________________
THINGS I LOVE ABOUT BILL
by Hillary Clinton
_________________
Sequel: THINGS I LOVE ABOUT HILLARY
by Bill Clinton
_________________
THINGS WE KNOW TO BE TRUE
by Al Gore & John Kerry
_____________________________________
AMELIA EARHART'S
GUIDE TO THE PACIFIC
______________
TO ALL THE MEN WE HAVE LOVED BEFORE ......
by Ellen de Generes & Rosie O'Donnell
_______________
GUIDE TO DATING ETIQUETTE
by Mike Tyson
_________________________
THE AMISH PHONE DIRECTORY
_______________________________________
MY PLAN TO FIND THE REAL KILLERS
by O. J. Simpson
_________________________________________
HOW TO DRINK & DRIVE SAFELY
by Ted Kennedy
_________
MY BOOK OF MORALS
by Bill Clinton
with introduction
by the
Rev. Jesse Jackson
*******************************************************
Logical Reasons Why America Should Allow
Foreigners To Sneak In Illegally -
- and Then Give Them Welfare And Food Stamps
by Barack Obama and Barbara Boxer
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
AND, JUST ADDED :
My Complete Knowledge of Military
Strategy
by Nancy Pelosi
Maxine Says:
Let me get this
straight . . . .
We're going to
be "gifted" with a health care
plan we are forced to purchase and
fined if we don't,
Which
purportedly covers at least
ten million more people,
without adding a single new doctor,
but provides for 16,000 new IRS agents,
written by a
committee whose chairman
says he doesn't understand it,
passed by
a Congress that didn't read it but
exempted themselves from it,
and signed by a
President who smokes,
with funding administered
by a treasury chief who
didn't pay his taxes,
for which we'll
be taxed for four years before any
benefits take effect,
by a government
which has
already bankrupted Social Security and Medicare,
all to be
overseen by a surgeon general
who is obese,
and financed by
a country that's broke!!!!!
'What the
hell could
possibly go wrong?'
Worst First Date ---
http://www.snopes.com/love/dating/frozen.asp
Fart in the Dark ---
http://www.snopes.com/love/dating/fart.asp
Forwarded by Paula
Two businessmen in Florida were sitting down for a break in their soon-to-be
new store. As yet, the store wasn't ready, with only a few shelves set up.
One said to the other, "I bet any minute now some senior is going to walk by,
put his face to the window, and ask what we're selling."
No sooner were the words out of his mouth when, sure enough, a curious senior
walked to the window, had a peek, and in a soft voice asked, "What are you
sellin' here?"
One of the men replied sarcastically, "We're selling ass-holes."
Without skipping a beat, the old timer said, "Must be doing well... only two
left in the store."
Forwarded by Maureen
86-year Old Lady's Letter to Bank
Shown below, is an actual letter that was sent to a bank by an 86 year old
woman. The bank manager thought it amusing enough to have it published in the
New York Times.
Dear Sir:
I am writing to thank you for bouncing my check with which I endeavored to
pay my plumber last month. By my calculations, three nanoseconds must have
elapsed between his presenting the check and the arrival in my account of the
funds needed to honor it..
I refer, of course, to the automatic monthly deposit of my entire pension, an
arrangement which, I admit, has been in place for only eight years.
You are to be commended for seizing that brief window of opportunity, and
also for debiting my account $30 by way of penalty for the inconvenience caused
to your bank.
My thankfulness springs from the manner in which this incident has caused me
to rethink my errant financial ways. I noticed that whereas I personally answer
your telephone calls and letters, --- when I try to contact you, I am confronted
by the impersonal, overcharging, pre-recorded, faceless entity which your bank
has become.
>From now on, I, like you, choose only to deal with a flesh-and-blood person.
My mortgage and loan repayments will therefore and hereafter no longer be
automatic, but will arrive at your bank, by check, addressed personally and
confidentially to an employee at your bank whom you must nominate.
Be aware that it is an offence under the Postal Act for any other person to
open such an envelope.
Please find attached an Application Contact which I require your chosen
employee to complete.
I am sorry it runs to eight pages, but in order that I know as much about him
or her as your bank knows about me, there is no alternative.
Please note that all copies of his or her medical history must be
countersigned by a Notary Public, and the mandatory details of his/her financial
situation (income, debts, assets and liabilities) must be accompanied by
documented proof.
In due course, at MY convenience, I will issue your employee with a PIN
number which he/she must quote in dealings with me.
I regret that it cannot be shorter than 28 digits but, again, I have modeled
it on the number of button presses required of me to access my account balance
on your phone bank service.
As they say, imitation is the sincerest form of flattery.
Let me level the playing field even further.
When you call me, press buttons as follows:
IMMEDIATELY AFTER DIALING, PRESS THE STAR (*) BUTTON FOR ENGLISH
#1. To make an appointment to see me
#2. To query a missing payment.
#3. To transfer the call to my living room in case I am there.
#4 To transfer the call to my bedroom in case I am sleeping
#5. To transfer the call to my toilet in case I am attending to nature.
#6. To transfer the call to my mobile phone if I am not at home
#7. To leave a message on my computer, a password to access my computer is
required.
Password will be communicated to you at a later date to that Authorized
Contact mentioned earlier.
#8. To return to the main menu and to listen to options 1 through 7.
#9. To make a general complaint or inquiry.
The contact will then be put on hold, pending the attention of my automated
answering service.
#10. This is a second reminder to press* for English.
While this may, on occasion, involve a lengthy wait, uplifting music will
play for the duration of the call.
Regrettably, but again following your example, I must also levy an
establishment fee to cover the setting up of this new arrangement.
May I wish you a happy, if ever so slightly less prosperous New Year?
Your Humble Client
And remember: Don't make old People mad.
We don't like being old in the first place, so it doesn't take much to piss
us off.
Forwarded by Maureen
The Pope took a couple of days off to visit the rugged mountains of Alaska
for some sightseeing. He was cruising along the campground in the Pope Mobile
when there was a frantic commotion just at the edge of the woods. A helpless
man, wearing sandals, shorts, a 'Vote for Obama' hat and a 'Save the Trees'
T-shirt, was screaming while struggling frantically and thrashing around trying
to free himself from the grasp of a 10-foot grizzly.
As the Pope watched in horror, a group of loggers with 'Go Sarah' T-Shirts
came racing up. One quickly fired a 44 magnum into the bear's chest.. The other
two reached up and pulled the bleeding, semiconscious democrat from the bear's
grasp. Then using long clubs, the three loggers finished off the bear and two of
them threw it onto the bed of their truck while the other tenderly placed the
injured man in the back seat.
As they prepared to leave, the Pope summoned them to come over. 'I give you
my blessing for your brave actions!' he told them. 'I heard there was a bitter
hatred between loggers and environmental activists, but now I've seen with my
own eyes that this is not true.'
As the Pope drove off, one logger asked his buddies 'Who was that guy?' 'It
was the Pope,' another replied. 'He's in direct contact with Heaven and has
access to all wisdom.'
'Well,' the logger said, 'he may have access to all wisdom, but he doesn't
know squat about bear hunting! By the way, is the bait still alive, or do we
need to go back to Massachusetts and get another one?
Forwarded by Cousin Dick
St. Patrick's Day
The reason the Irish celebrate St. Patrick's Day is because this is when St.
Patrick drove the Norwegians out of Ireland.
It seems that some centuries ago, many Norwegians came to Ireland to escape
the bitterness of the Norwegian winter. Ireland was having a famine at the time,
and food was scarce. The Norwegians were eating almost all the fish caught in
the area, leaving the Irish with nothing to eat but potatoes. St. Patrick,
taking matters into his own hands, as most Irishmen do, decided the Norwegians
had to go.
Secretly, he organized the Irish IRATRION (Irish Republican Army to Rid
Ireland of Norwegians). Irish members of IRATRION passed a law in Ireland that
prohibited merchants from selling ice boxes or ice to the Norwegians, in hopes
that their fish would spoil. This would force the Norwegians to flee to a colder
climate where their fish would keep.
Well, the fish spoiled, all right, but the Norwegians, as every one knows
today, thrive on spoiled fish. So, faced with failure, the desperate Irishmen
sneaked into the Norwegian fish storage caves in the dead of night and sprinkled
the rotten fish with lye, hoping to poison the Norwegian invaders.
But, as everyone knows, the Norwegians thought this only added to the flavor
of the fish, and they liked it so much they decided to call it "lutefisk", which
is Norwegian for "luscious fish".
Matters became even worse for the Irishmen when the Norwegians started taking
over the Irish potato crop and making something called "lefse".
Poor St. Patrick was at his wit's end, and finally on March 17th, he blew his
top and told all the Norwegians to "GO TO HELL". So they all got in their boats
and emigrated to Wisconsin or Minnesota---- the only other paradise on earth
where smelly fish, old potatoes and plenty of cold weather can be found in
abundance.
Forwarded by Dr. Wolff
A fifth grader asked her mother the age-old question,
'How did I get here?'
Her mother told her, 'God sent you.'
'Did God send you, too?' asked the child.
'Yes, Dear,' the mother replied.
'What about Grandma and Grandpa?' the child persisted
'He sent them also,' the mother said.
'Did he send their parents too?' asked the child.
'Yes, Dear, He did,' said the mother patiently.
'So you're telling me that there has been NO sex in this family for 200
years?
No wonder everyone's so grouchy around here!'
Forwarded by Dick Haar
Admiral Nelson: "Order the signal, Hardy."
Captain Hardy: "Aye, aye sir."
Nelson: "Hold on, that's not what I dictated to
Flags. What's the meaning of this?"
Hardy: "Sorry sir?"
Nelson (reading aloud): " England expects every
person to do his or her duty, regardless of race, gender, sexual orientation,
religious persuasion or disability.' - What gobbledegook is this?"
Hardy: "Admiralty policy, I'm afraid, sir. We're
an equal Opportunities employer now. We had the devil's own job getting '
England ' past the censors, lest it be considered racist."
Nelson: "Gadzooks, Hardy. Hand me my pipe and
tobacco."
Hardy: "Sorry sir. All naval vessels have now
been designated smoke-free working environments."
Nelson: "In that case, break open the rum
ration. Let us splice the mainbrace to steel the men before battle."
Hardy: "The rum ration has been abolished,
Admiral. Its part of the Government's policy on binge drinking."
Nelson: "Good heavens, Hardy. I suppose we'd
better get on with it ... full speed ahead."
Hardy: "I think you'll find that there's a 4
knot speed limit in this stretch of water."
Nelson: "Damn it man! We are on the eve of the
greatest sea battle in history. We must advance with all dispatch. Report from
the crow's nest please."
Hardy: "That won't be possible, sir."
Nelson: "What?"
Hardy: "Health and Safety have closed the crow's
nest, sir. No harness; and they said that rope ladders don't meet regulations.
They won't let anyone up there until a proper scaffolding can be erected."
Nelson: "Then get me the ship's carpenter
without delay."
Hardy: "He's busy knocking up a wheelchair
access to the foredeck, Admiral."
Nelson: "Wheelchair access? I've never heard
anything so absurd."
Hardy: "Health and safety again, sir. We have to
provide a barrier-free environment for the differently abled."
Nelson: "Differently abled? I've only one arm
and one eye and I refuse even to hear mention of the word. I didn't rise to the
rank of admiral by playing the disability card."
Hardy: "Actually, sir, you did. The Royal Navy
is under represented in the areas of visual impairment and limb deficiency."
Nelson: "Whatever next? Give me full sail. The
salt spray beckons."
Hardy: "A couple of problems there too, sir.
Health and safety won't let the crew up the rigging without hard hats. And they
don't want anyone breathing in too much salt - haven't you seen the adverts?"
Nelson: "I've never heard such infamy. Break out
the cannon and tell the men to stand by to engage the enemy."
Hardy: "The men are a bit worried about shooting
at anyone, Admiral."
Nelson: "What? This is mutiny!"
Hardy: "It's not that, sir. It's just that
they're afraid of being charged with murder if they actually kill anyone.
There's a couple of legal-aid lawyers on board, watching everyone like hawks."
Nelson: "Then how are we to sink the Frenchies
and the Spanish?"
Hardy: "Actually, sir, we're not."
Nelson: "We're not?"
Hardy: "No, sir. The French and the Spanish are
our European partners now. According to the Common Fisheries Policy, we
shouldn't even be in this stretch of water. We could get hit with a claim for
compensation."
Nelson: "But you must hate a Frenchman as you
hate the devil."
Hardy: "I wouldn't let the ship's diversity co-ordinator
hear you saying that sir. You'll be up on disciplinary report."
Nelson: "You must consider every man an enemy,
who speaks ill of your King."
Hardy: "Not any more, sir. We must be inclusive
in this multicultural age. Now put on your Kevlar vest; it's the rules. It could
save your life"
Nelson: "Don't tell me - health and safety.
Whatever happened to rum, sodomy and the lash?"
Hardy: As I explained, sir, rum is off the menu!
And there's a ban on corporal punishment."
Nelson: "What about sodomy?"
Hardy: "I believe that is now legal, sir."
Nelson: "In that case... kiss me, Hardy."
Forwarded by Paula
A paraprosdokian sentence consists of two parts
(sometimes three) where the first is a figure of speech and the second an
intriguing variation of the first. They're used typically for humorous or
dramatic effect. Enjoy these!
Never argue with
an idiot. He'll drag you down to his level and beat you with experience.
Going to church
doesn't make you a Christian any more than standing in a garage makes you a car.
The last thing I
want to do is hurt you. But it's still on the list.
If I agreed with
you we'd both be wrong.
We never really
grow up, we only learn how to act in public.
Knowledge is knowing a tomato is a fruit;
Wisdom is not putting it in a fruit salad.
The early bird
might get the worm, but the second mouse gets the cheese.
How is it one
careless match can start a forest fire, but it takes a whole box to start a
campfire?
Dolphins are so
smart that within a few weeks of captivity, they can train people to stand at
the edge of a pool and throw fish.
I didn't say it was your fault, I said I was
blaming you.
Women will never
be equal to men till they can walk down the street with a bald head and a beer
gut and still think they're sexy.
A clear conscience is usually the sign of a
bad memory.
You don't need a
parachute to skydive, but you do need one to skydive again.
The voices in my
head may be fake, but they have good ideas!
Hospitality is making your guests feel like
they're at home, even if you wish they were.
I scream the same way whether I'm about to be
eaten by a shark or seaweed touches my foot.
Some cause happiness wherever they go, others
whenever they go.
There's a fine line between cuddling and
holding someone down so they can't get away.
You're never too old to learn something
stupid.
Where there's a will, I want to be in it.
"I
belong to no organized party. I am a Democrat." —
Will Rogers
"I've had a perfectly wonderful evening, but this wasn't it." —
Groucho Marx
"Time flies like an arrow; fruit flies like a banana." —
Groucho Marx
"I
want to die peacefully in my sleep like my father, not screaming and terrified
like his passengers." —
Bob Monkhouse
"A
modest man, who has much to be modest about." —
Winston Churchill (of
Clement Atlee)
"If
you are going through hell, keep going." —
Winston Churchill
"I
haven't slept for ten days, because that would be too long." —
Mitch Hedberg
"Take my wife—please." —
Henny Youngman
" It
has been said that democracy is the worst form of government except all the
others that have been tried."
Winston Churchill
"You can always count on Americans to do the right thing - after they've tried
everything else."
Winston Churchill
Humor Between November 1-December 31, 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/book11q1.htm#Humor013111
And that's
the way it was on January 31, 2011 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
|
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/
![](http://www.trinity.edu/rjensen/book10Q1_files/image001.jpg)
And that's the way it was on January 31, 2011 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 Realit
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
|
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/
Some
Accounting News Sites and Related Links
Bob Jensen at
Trinity University
Accounting and Taxation News Sites ---
http://www.trinity.edu/rjensen/AccountingNews.htm
Fraud News ---
http://www.trinity.edu/rjensen/AccountingNews.htm
XBRL News ---
http://www.trinity.edu/rjensen/AccountingNews.htm
Selected Accounting History Sites ---
http://www.trinity.edu/rjensen/AccountingNews.htm
Some of Bob Jensen's Pictures and Stories
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Free Tutorials, Videos, and Other Helpers
---
http://www.trinity.edu/rjensen/AccountingNews.htm
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
Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private
Companies ---
http://www.trinity.edu/rjensen/2008Bailout.htm
Health
Care News ---
http://www.trinity.edu/rjensen/Health.htm
Bob
Jensen's Resume ---
http://www.trinity.edu/rjensen/Resume.htm
574 Shields
Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Bob Jensen's Personal History in Pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
Bob Jensen's Homepage ---
http://www.trinity.edu/rjensen/