New Bookmarks
Year 2011 Quarter 2:  April 1 - June 30 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/.

Choose a Date Below for Additions to the Bookmarks File

2011

June 30 

April 30  

June 30, 2011

Bob Jensen's New Bookmarks May 1-June 30, 2011
Bob Jensen at Trinity University 

Humor Between May 1 and June 30, 2011 --- http://www.trinity.edu/rjensen/book11q2.htm#Humor063011   

Humor Between April 1 and April 30, 2011 --- http://www.trinity.edu/rjensen/book11q2.htm#Humor043011  

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 

Some of Bob Jensen's Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

Accounting Hall of Fame ---
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/

Congratulations to the latest inductees into the Accounting Hall of Fame. On August 8, 2011 the following well known scholars and researchers will be inducted into the Accounting Hall of Fame:

Gary John Previts
Reed K. Storey

I'm very sorry indeed that I will miss the induction breakfast on August 8 (Dan Jensen is kind enough to invite me every year even if we're not blood relatives). Following her 14th spine surgery, Erika will not be able to get on an airliner for at least six months. And I will not leave her by herself in this recovery period. Sorry to miss this ceremony and the other networking that takes place at the AAA Annual Meetings. In my case there are fewer and fewer professors that I know at these meetings and more and more new faces that look awfully young.

I'm especially sorry that I will miss Hall of Famer Steve Zeff's plenary session (Professor Zeff is the speaker chosen for the Presidential Address by current AAA President Kevin Stocks) ---
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/stephen-addam-zeff/
Steve will be focusing on the history of the IASC/IASB. I would rather he focused on the failings of accounting research over the past five decades ---
"Research on Accounting Should Learn From the Past"
by Michael H. Granof and Stephen A. Zeff
Chronicle of Higher Education, March 21, 2008
Scroll down at http://www.trinity.edu/rjensen/TheoryTAR.htm#Appendix01

Steve will also make a short presentation in a concurrent session following his plenary speech. That session will allow the audience to sneak in questions about how academic research could be doing a better job in helping the IASB. It seems obvious to me that if accountics research is to help the IASB then accountics research should first be validated with replications ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
I can sneak the replications topic into anything at any time --- even a Sunday School Picnic.

The Category "Recent Inductions" has not been brought up to date by Dan Jensen at
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/recent-inductions/

In 2010 there was only one inductee --- former Comptroller General and Deficit Fighter David Walker
Dan has not yet added David Walker to the list at
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/
I think it's time to remind Dan to bring the site up to date for 2010 and 2011.

In 2011 the inductees will be Gary and Reed as noted above.
Good choices.

Carl Olson's CPA Watch --- http://cpawatch.org/index.htm
What has gone wrong with CPA auditors? --- http://cpawatch.org/CPAsGoneWrong.htm

Question
What is "the" major difference between medical research and accounting research published in top research journals?

Answer
Medical researchers publish a lot of research that is "misleading, exaggerated, or flat-out wrong." The difference is that medical research eventually discovers and corrects most published research errors. Accounting researchers rarely discover their errors and leave these errors set in stone ad infinitum because of a combination of factors that discourage replication and retesting of hypotheses. To compound the problem, accounting researchers commonly purchase their data from outfits like Audit Analytics and Compustat and make no effort to check the validity of the data they have purchased. If some type of rare research finding validation takes place, accounting researchers go on using the same data. More commonly, once research using this data is initially published in accounting research journals, independent accounting researchers do not even replicate the research efforts to discover whether the original researchers made errors ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Nearly always published accounting research, accounting research findings are deemed truth as long they are published in top accounting research journals. Fortunately, this is not the case in medical research even though long delays in discovering medical research truth may be very harmful and costly.

MUCH OF WHAT MEDICAL RESEARCHERS CONCLUDE IN THEIR STUDIES IS MISLEADING, EXAGGERATED, OR FLAT-OUT WRONG. SO WHY ARE DOCTORS—TO A STRIKING EXTENT—STILL DRAWING UPON MISINFORMATION IN THEIR EVERYDAY PRACTICE? DR. JOHN IOANNIDIS HAS SPENT HIS CAREER CHALLENGING HIS PEERS BY EXPOSING THEIR BAD SCIENCE.

""Lies, Damned Lies, and Medical Science," by David H. Freedman, Atlantic, November 2010 ---
http://www.theatlantic.com/magazine/archive/2010/11/lies-damned-lies-and-medical-science/8269/
Thank you Chris Faye for the heads up.

. . .

But beyond the headlines, Ioannidis was shocked at the range and reach of the reversals he was seeing in everyday medical research. “Randomized controlled trials,” which compare how one group responds to a treatment against how an identical group fares without the treatment, had long been considered nearly unshakable evidence, but they, too, ended up being wrong some of the time. “I realized even our gold-standard research had a lot of problems,” he says. Baffled, he started looking for the specific ways in which studies were going wrong. And before long he discovered that the range of errors being committed was astonishing: from what questions researchers posed, to how they set up the studies, to which patients they recruited for the studies, to which measurements they took, to how they analyzed the data, to how they presented their results, to how particular studies came to be published in medical journals.

This array suggested a bigger, underlying dysfunction, and Ioannidis thought he knew what it was. “The studies were biased,” he says. “Sometimes they were overtly biased. Sometimes it was difficult to see the bias, but it was there.” Researchers headed into their studies wanting certain results—and, lo and behold, they were getting them. We think of the scientific process as being objective, rigorous, and even ruthless in separating out what is true from what we merely wish to be true, but in fact it’s easy to manipulate results, even unintentionally or unconsciously. “At every step in the process, there is room to distort results, a way to make a stronger claim or to select what is going to be concluded,” says Ioannidis. “There is an intellectual conflict of interest that pressures researchers to find whatever it is that is most likely to get them funded.”

Continued in article

Advice and Bibliography for Accounting Ph.D. Students and New Faculty by James Martin ---
http://maaw.info/AdviceforAccountingPhDstudentsMain.htm

"So you want to get a Ph.D.?" by David Wood, BYU ---
http://www.byuaccounting.net/mediawiki/index.php?title=So_you_want_to_get_a_Ph.D.%3F

Why accountancy doctoral programs are drying up and why accountancy is no longer
required for admission or graduation in an accountancy doctoral program ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

Bob Jensen's threads on what went wrong with "accountics research" can be found at
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Arrogant professors often assume that practitioner journals mostly publish fluff. In reality, practitioner journals often publish technical jargon papers for which academic experts are nonexistent or very rare finds by journal editors.

One of the great myths in academe is that academic research journals are more technical than practitioner journals. In reality sometimes academic journal editors cannot find a professor to referee a technical paper such as a very technical paper in insurance accounting, international tax accounting, ERP, XBRL, or many of the esoteric subtopics in FAS 133.

In reality, practitioner journals sometimes publish articles that are deemed too technical for academic accounting research journals. I mentioned previously that I submitted a rejoinder article to Issues in Accounting Education on accounting for derivative financial instruments for which the Editor could not find a single professor to referee the article. The IAE Editor then found to technical practitioners in Big Four firms to referee my paper --- http://www.trinity.edu/rjensen/CaseAmendment.htm 

As a second illustration, two of my best technical submissions were turned back by academic journal editors with comments that they were too narrow and too technical for their academic readership. I then found a practitioner journal that had both papers refereed by Wall Street experts --- http://www.trinity.edu/rjensen/Resume.htm#Published

June 11, 2011 reply from Robert Bruce Walker

On Sat, Jun 11, 2011 at 8:00 PM, Robert Bruce Walker <walkerrb@actrix.co.nz>  wrote:

I have thought about what practice focused accounting research would comprise and I have some difficulty seeing what it might be. For academic research to benefit practice necessitates that there be some generic problem of interest to practitioners. In civil engineering, for example, academic research might contribute by looking at the attributes of some new building material. Medicine benefits by study of new drugs or surgical techniques and so on. But accounting happens at the level of the particular. Each accounting problem is unique to itself. Accounting is the process by which double entry is applied to produce a representation of what happened (or what might happen I suppose).

Short of the academic actually participating in the messy practice of accounting I don’t see how they can contribute to the real business of accounting. But then that might be the answer. In my practice I have more accounting problems than I can practically deal with … where are the academics and their students to help me?

June 12, 2011 reply from Bob Jensen

Hi Robert,

Research is defined as a contribution to new knowledge whereas scholarship is the mastery of existing knowledge.

You raise three questions of interest.

• The most important question is whether research on professional problems is making a valuable contribution to the practice of accounting? Obviously there have been valuable and monumental changes in the practice of accounting such that it's obvious that somewhere at some time new knowledge (research) contributed to those changes in accounting practice. Otherwise accountants would still be sitting on three-legged stools making journal entries and postings with quill pens.
  
   
• The second question is whether academic researchers made the seminal contributions to valuable contributions to the practice of accounting?
  
   
• The third question is whether academic accounting researchers made valuable additions to seminal contributions to of practitioners and researchers in other academic disciplines?
  
   

The most important question is whether research (new knowledge) on professional problems is making a valuable contribution to the practice of accounting?
The answer to the first question is a resounding yes, although the "value" of "new knowledge" contributions varies greatly by topical area. Where would tax practice be today without research on international and domestic taxation, including legal and economic research? Where would accounting information systems (AIS) be today without research on design, software, security, hardware, etc. be without research? In your specialty, where would forensic accounting be today without research on how and why frauds and other types of cheating take place?

 

The second question is whether academic researchers made the seminal contributions to valuable contributions to the practice of accounting?
The second question is difficult and in some cases impossible to answer unless a "eureka moment" actually transpired that led to improvements in accounting practice. In most instances those monumental "eureka moments" just did not happen as research accumulated like bricks being added to a building. Or the "eureka moments" transpired so far down at the foundation level that they're sometimes forgotten when adding bricks to the upper walls. For example, we can trace computer hardware back to the "eureka moment" of the conception of a transistor (Shockley) and millions of other Eureka moments in science and engineering technology taking place over the past 100 years or even further back in time if we want to delve into the "eureka moments" in electricity.

On occasion we've identified some "eureka moments" to accounting practices. Bob Kaplan traces ABC costing back to such a moment in a John Deere factory. Dale Flesher traced dollar-value LIFO back to a practitioner. But those eureka moments are seldom identified since more often than not changes in accounting practice are rooted in new knowledge in underlying disciplines of science and engineering and the social sciences, including economics. When there've been "eureka moments" leading to changes in accounting practice,  those moments are almost never attributed to academic researchers. Understandably they arise from practitioners themselves seeking ways to improve their job functions and contributions.

Many changes in accounting practices are rooted in new knowledge of financial contracting. Although options contracts can be traced back to the Roman empire, things like interest rate swaps are rooted in an IBM contract in the 1980s. And a defeasance contract can be traced back to an Exxon contract in the 1980s. Major contributions to practice such as the Black-Scholes Option Pricing Model can be traced to seminal moments of academic researchers, but these seminal moments more often than not took place outside the discipline of accounting.

Many "eureka moments" in fraud can be traced back to the perpetrators themselves who dreamed up frauds that the rest of the world had never dreamed of before the frauds actually transpired. Sometimes the clever thinkers had not even finished high school.

The pickings are pretty slim when if we try to award "Walker Prizes" to accounting professors who made "eureka moment" seminal contributions to changes in accounting practice. As I stated above, changes in accounting practice came more from bricks being laid in a building than where one brick is designated as a cornerstone. The American Accounting Association has made five "Seminal Contributions to Accounting Literature Awards" over the years, but I doubt that most practitioners can name even one of the seminal literature pieces, although some might've expected Bob Kaplan to get an award for his work in ABC Costing. But Bob will be the first to admit that the seminal contribution to ABC Costing came from unknown practitioners in a John Deere plant.  The other recipients, including the Ball and Brown initial award, built upon earlier research with seminal contributions in economics and finance ---
http://aaahq.org/awards/awrd2win.htm
In any case, the changes in accounting practice that took place due to these particular seminal contributions are very difficult to link. Practitioners most likely would not have made any of these seminal research award.

 

 

The third question is whether academic accounting researchers made valuable additions to seminal contributions of practitioners and academic researchers in other academic disciplines?
If we confine ourselves to those contributions that changed practice, we must conclude that academic accountants have their names etched into parts of bricks put into practice buildings. Often the incremental value of academic accounting research is mixed into the clay and mortar along with other ingredients such that "Walker Prizes" would be very difficult to award in terms of a what a particular author contributed to a particular brick in the wall of practice. Certainly tax professors have added ingredients to changes in accounting practice. AIS professors like Bill McCarthy have added ingredients to changes in AIS practice. The academic works of some professors like Mary Barth have added ingredients to accounting standards even if we cannot point to a particular contribution that stands out above all other contributions.

If we examine the American Accounting Association's Notable Contributions to Accounting Literature Award we find few if any such awards that can be linked to specific changes in practice --- http://aaahq.org/awards/awrd3win.htm

Most practitioners (more than 99%) probably cannot name a single winner of the NCAL Award and randomly picked academic accounting teachers probably cannot do much better if pressed to name the title and/or author of one of the literature pieces that won the monetary NCAL Award. Most of these awards have been accoutics research awards chosen by accountics research professors. Some NCAL Award winning articles, especially before 1979, were actually aimed at changing accounting practice but the changes are generally difficult to trace into practice. There are no Nobel Prize winners here where practitioners can remember the importance of the literature piece.

Many of the contributions of academic accounting researchers have been important in theory even if they did not have marked impact on practice. My best example here is the 1976 NCAL Award to Yuji Ijiri. The contributions of Yuji to accounting practice in the Year 2080 may be more appreciated by practitioners than it is in the Year 2011 in part because as of 2011 Yuji's contributions are just not yet practical for practitioners. The same might be said for Carl Devine and many of the other recipients of this prize.

Very few NCAL Award recipients had immediate and marked impact on practice, although the contribution of Eric Lie is an exception. Regulators pounced upon his findings and changed practice immediately. Sadly he is a finance professor receiving an accounting prize for an article published in a non-accounting journal. Such is life on occasion when awarding a Notable Contribution to Accounting Literature.

In Conclusion
In conclusion Robert, I would have to argue that accounting practice has changed greatly in the past 700 years due to new knowledge, and new knowledge was generated mostly by some type of research. More often than not it was not accounting practitioners or academics who made the seminal contributions. And more often than not the seminal contributions were probably made by accounting practitioners vis-à-vis accounting professors, but it is naive to deny that accounting professors did not make research contributions that added to the clay and mortar going into the brick walls of accounting practice.

My best example of changes in accounting practice is XBRL that is now having and will soon have an even more monumental impact upon accounting practice. If we try to provide seminal awards to developers of XBRL where do we start since XBRL builds upon so many research contributions leading up to XBRL ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm#Timeline

XBRL is but one brick laid upon all the bricks that are laid under this brick ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

STATIC WEB TIMELINE Hypertext ---> PC ---> GUI,Mouse ---> GML,SGML --->Internet --->Hypermedia --->HTML, HTTP, WWW ---> DYNAMIC WEB TIMELINE                  CGI,Java,JavaScript,DHTML,ActiveX,ASP ---> XML/SMIL --->RDF and OWL ---> OLAP ---> XBRL - SEMANTIC WEB http://www.w3.org/DesignIssues/Semantic.html  and http://logicerror.com/semanticWeb-long "Opening Search to Semantic Upstarts: Yahoo's new open-search platform is giving semantic search a helping hand," by Kate Greene, MIT's Technology Review, September 8, 2008 --- http://www.technologyreview.com/Infotech/21342/?nlid=1322&a=f  EXTENSIVE COMPUTING TIMELINE http://www.accad.ohio-state.edu/~waynec/history/timeline.html    THE FUTURE OF SEARCH (or so says IBM) --- The Future of Search (or so says IBM) --- http://www.trinity.edu/rjensen/searchh.htm#FutureOfSearch   From the National Science Foundation  The Birth and Rise of the Internet --- http://www.nsf.gov/news/special_reports/nsf-net/?govDel=USNSF_51 Also see Richard Jensen's (History, U of Illinois-Chicago) --- Scholars' Guide to WWW

Charles Hoffman, a CPA practitioner, should probably get seminal credit for making the leap from XML to the XBRL reporting system. But since Charlie made his seminal contribution, many academic researchers in accounting and outside accounting have made valuable contributions to this evolving change in practice in accountancy.

It's new knowledge that leads to change Robert, and new knowledge is research!
And research contributions are only seldom identified "eureka moments."

Bob Jensen's threads on accounting theory and research are at:

http://www.trinity.edu/rjensen/Theory01.htm

http://www.trinity.edu/rjensen/Theory02.htm

Question
Remember the days when Professor Abe Briloff was scouring annual reports and publishing red flags in Barron's about departures from GAAP and GAAS that sometimes immediately affected stock prices of companies, warnings that might otherwise have been overlooked by analysts less diligent than Professor Briloff and his students? ---
http://www.trinity.edu/rjensen/Theory01.htm#Briloff

Barron's is still scouring quarterly and annual reports for red flags without the aid of Professor Briloff who is now over 90 years old and blind.

"Barron's Red Flags:  Do They Actually Work?" by Tim Loughrana; Bill McDonald,  Journal of Behavioral Finance Volume 12, Issue 2, 2011, Pages 90 - 
http://www.informaworld.com/smpp/content~content=a938559950~db=all~jumptype=rss

Abstract
Investors are often concerned that managers might hide negative information in filings. With advances in textual analysis and widespread document availability, individuals can now easily search for phrases that might be red flags indicating questionable behavior. We examine the impact of 13 suspicious phrases identified by a Barron's article in a large sample of 10-Ks. There is evidence that phrases like unbilled receivables signal a firm may subsequently be accused of fraud. At the 10-K filing date, phrases like substantial doubt are linked with significantly lower filing date excess stock returns, higher volatility, and greater analyst earnings forecast dispersion.

Jensen Comment
If these red flags really work, this runs counter to the infamous Efficient Market Hypothesis ---
http://www.trinity.edu/rjensen/Theory01.htm#EMH

Question
How are human beings more than the sum of their parts?
Try applying Industrial Revolution cost accounting discoveries to this factory.

Human Anatomy Video
Man as Industrial Palace: Famous 1926 Lithograph Brought to Life --- Click Here
http://www.openculture.com/2011/06/man_as_industrial_palace.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Jensen Comment
At first this seems totally unrelated to accounting, but there is an analogy here in the sense that much of managerial/cost accounting evolved from the industrial revolution and its factories as did the depiction of the human body as a factory. Factories of virtually all types are of interest to researchers in cost accounting and systems analysts.

The timing of this is even more interesting as we are in the dawn of a new era where parts of the human body in human parts factories.

I admit it's a bit far out, but that's one of the joys of being an accountant staring at mountains. I can afford the luxury of empty-headed daydreaming about the future of human beings and cost accounting.

Of course this also relates to the great debate over whether computers like HAL 9000 will one day think like humans and eventually become more creative than humans.

How long will it take to build a "human" factory that simulates the evolved "human" factory?

June 27, 2011 reply from Jagdish Gangolly

Bob,

The model depicted by  Fritz Kahn is a very partial model
(only anatomical aspects and physiological aspects only
at a very high level). In this model, the whole is a
sum of the parts. To be more than that, the model should
also exhibit evolution, learning,...

Work in that area goes by the name "artificial life". Some
interesting sites are:

http://en.wikipedia.org/wiki/Artificial_life
http://www.bbc.co.uk/news/10132762
http://alife.org/
http://www.pbs.org/wgbh/nova/sciencenow/3214/01.html


Jagdish
--
Jagdish S. Gangolly, (j.gangolly@albany.edu)
Vincent O'Leary Professor Emeritus of Informatics,
Director, PhD Program in Information Science,
Department of Informatics, College of Computing & Information
7A Harriman Campus Road, Suite 220
State University of New York at Albany, Albany, NY 12206.
Phone: (518) 956-8251, Fax: (518) 956-8247
URL: http://www.albany.edu/acc/gangolly

Question
What are two of the most  Freakonomish and Simkinish processes in accounting research and practice?

Accounting researchers may want to track Freakonomics publications along with the works of Mikhail Simkin at UCLA

Freakonomish and Simkinish processes in auditing pracice
The IASB and FASB are moving us ever closer into requiring subjective evaluations of unique items for which CPA auditors have no comparative advantages in evaluation. For example, CPAs have no comparative advantage in estimating the value of unique parcels of real estate (every parcel of real estate is unique). Another example would be the ERP system of Union Carbide that has value to Union Carbide but cannot be dismantled and resold to any other company.

The problem with many subjective evaluations is that the so-called experts on those items are not consistent in their own evaluations. For example, real estate appraisers are notoriously inconsistent, which is what led to many of the subprime mortgage scandals when appraisers were placing enormous values on tract housing as if the real estate bubble would never burst. And placing a fair value on the ERP system of Union Carbide is more of an art than a science due to so many unknowns in the future of that worldwide company.

Freakonomish and Simkinish processes in accounting research
Secondly, accounting researchers may want to track Freakonomics and  the related works of Mikhail Simkin at UCLA. Professor Simkin made quite a name for himself evaluating subjective evaluators and in illustrating the art and science of subjective and science evaluations ---
http://www.ee.ucla.edu/~simkin/

And the tendency of accounting researchers to accept their empirical and analytical academic publications as truth that does not even need a single independent and exacting replication if Freakonomish and Simkinish in and of itself ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

"Measuring The Quality Of Abstract Art: Abstract artists are only 4 per cent better than child artists, according to a controversial new way of evaluating paintings," MIT's Technology Review, June 14, 2011 ---
http://www.technologyreview.com/blog/arxiv/26882/?nlid=4597

Here's a bit of mischief from Mikhail Simkin at the the University of California, Los Angeles.

Simkin has a made a name for himself evaluating the relative performance of various groups and individuals. On this blog, we've looked at his work on the performance of congress, physicists and even World War I flying aces.

Today, he turns his attention to abstract artists. For some time now, Simkin has a run an online quiz in which he asks people to label abstract pictures either real art or fake. It's fun--give it a go.

One average, people answer correctly about 66 per cent of the time, which is significantly better than chance.

Various people have interpreted this result (and others like it) as a challenge to the common claim that abstract art by well-know artists is indistinguishable from art created by children or animals.

Today, Simkin uses this 66 per cent figure as a way of evaluating the work of well known artists. In particular, he asks how much better these professional artists are than children.

First, he points out the results of another well known experiment in which people are asked to evaluate weights by picking them up. As the weights become more similar, it is harder to tell which is heavier. In fact, people will say that a 100g weight is heavier than a 96g weight only 72 per cent of the time.

"This means that there is less perceptible difference between an abstractionist and child/animal than between 100 and 96g," says Simkin.

So on this basis, if you were to allocate artistic 'weight' to artists and gave an abstract artist 100g, you would have to give a child or animal 96g. In other words, there is only a 4 per cent difference between them.

That's not much!

Simkin goes on to say this is equivalent in chess to the difference between a novice and the next ranking up, a D-class amateur.

Continued in article

Bob Jensen's threads on what went wrong with accounting standard setting and academic accounting research are at
http://www.trinity.edu/rjensen/Theory01.htm

"A new approach to credit impairment is in the works ," Ernst & Young, June 23. 2011 --- Click Here
http://www.ey.com/global/assets.nsf/United%20Accounting/TothePoint_BB2149_Impairment_23June2011/%24file/TothePoint_BB2149_Impairment_23June2011.pdf

The FASB and the IASB are jointly developing a new credit impairment approach under which loans would be split into three buckets based on their underlying credit risk characteristics. Our To the Point publication summarizes the new approach.

Bob Jensen's threads on impairment issues ---
http://www.trinity.edu/rjensen/Theory02.htm#Impairment

"Collaboration as an Intangible Asset,"  by Robert J. Thomas, Harvard Business Review Blog, June 15, 2011 --- Click Here
http://blogs.hbr.org/cs/2011/06/collaboration_as_an_intangible.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
I did not see FAS 157 recommendations on how to capitalize and annually adjust the value of collaboration as an asset.

Investors who rely upon the balance sheet sums of IFRS-FASB fair values as surrogates of economic value are missing the big picture as much as our accounting standard setters are helping to mislead those investors. AC Littleton emphasized that historical cost accounting is not valuation whereas exit value accounting is valuation.

Bob Jensen's threads on intangibles and contingencies accounting are at
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes

"8 Simple Ways To Share Data Online," by David Strom, ReadWriteWeb, June 17, 2011 ---
http://www.readwriteweb.com/biz/2011/06/8-simple-ways-to-share-data-on.php

If you have to jointly author a spreadsheet with a colleague, what is the first thing that you do? Email it back and forth. This can be painful, particularly as you try to keep track of your partner's changes and hope the emails transit back and forth across the Internet. Add a third or fourth person, and things get worse. Luckily, there is a better way, and a number of Web-based service providers have stepped up with tools to make spreadsheet sharing a lot easier than sending attachments.

We've written about a few of them, including Longjump and Hyperbase (one of our products of the year for 2008), but I have tried a bunch others, and will show you what is involved and how they stack up.

The process is very straightforward: you either copy and paste data or take your spreadsheet and upload it to the service, after creating accounts for you and your collaborators. Then you can make changes via your Web browser, no other software is required. Some of the services allow for more bells and whistles. Setup time is minimal; your data is properly protected by the service and safe from harm. And you don't need to learn any Web/database programming skills either.

For many people, the spreadsheet is still one of the most popular low-end database applications. The rubric of a table of rows and columns is easily understood and can easily be used as a way to view records and fields of a database. Plus, you don't need to design special reports to view your data entries, and you can easily sort your data without having to create data dictionaries or other database structures, just use the appropriate Excel commands. Having a specialized service that can share this data makes it easier to collaborate too, whether your partners are across the office or on the other side of the world. As long as they have an Internet connection, they are good to go.

There are eight different services currently available, in order of increasing cost:

Online Spreadsheet Sharing Services

 

Service	Price	Storage limits
Pagos  Spreadsheetlive.com	Free (for now)	1 MB
Google Docs	Free	Really unlimited
Microsoft Live	Free	50 MB
Smartsheet.com	$10/mo for up to 10 spreadsheets	30 MB
Longjump Database	$19/mo for two users	3 MB
HyperBase	$175 setup plus $44/mo for 5 users	1.25 GB
TrackVia.com	$250/mo for 10 users	4 GB for entry plan
Intuit QuickBase	$299/mo for 10 users	1 GB for entry plan

Pricing and support

When you decide on the particular service, it pays to read the pricing fine print. There are discounts for annual subscriptions on most services, and some such as Smartsheet offer additional discounts for non-profit and educational institutions. All of these services have 14 day or 30 day free trials to get started, so you can get a feel of what is involved in manipulating your data and how easy it is to make changes, produce reports, and receive notifications.

Continued in article

Bob Jensen's threads on sending large files across the Internet ---
http://www.trinity.edu/rjensen/Bookbob4.htm#SendingLargeFiles

From Ernst & Young, June 2011
The Emerging Issues Task Force (EITF) reached final consensuses on a revenue recognition issue involving health care organizations and the accounting for fees health insurers will have to pay the federal government. The EITF also reached a consensus-for-exposure on accounting for the deconsolidation of a subsidiary that is in-substance real estate when the reporting entity loses control as a result of default on the debt secured by the real estate.
http://www.ey.com/global/assets.nsf/United%20Accounting/EITFUpdate_BB2150_24June2011/%24file/EITFUpdate_BB2150_24June2011.pdf

IFRS-FASB GAAP ‘Convergence’ Hits a Speed Bump (too bad it wasn't a cliff) ---
http://cpatrendlines.com/2011/06/20/accounting-convergence-hits-a-speed-bump/

This is a good summary of the FASB-IASB Joint Projects and Standards Convergence Initiatives
"Joint Project Watch FASB/IASB joint projects from a US GAAP perspective May 2011," Ernst & Young, 2011 ---
http://www.ey.com/global/assets.nsf/United%20Accounting/JointProjectWatch_BB2303_May2011/%24file/JointProjectWatch_BB2303_May2011.pdf

Also see
http://goingconcern.com/2011/06/confidential-to-sir-david-tweedie-mary-schapiro-isnt-hearing-encouraging-words-on-ifrs/

Jensen Comment
Major delays are caused by divergent rules on revenue recognition. But there are other hangups, particularly in accounting for derivative financial instruments and hedging activities. The FASB does not agree with the IASB on portfolio hedging, netting rules, embedded derivatives, hedge effectiveness testing, and other chuck holes in the road to convergence. As I mentioned to Tom Selling, accounting standards convergence is like laying of fiber optic cable where the last mile costs more than all the other miles combined.

Bob Jensen is opposed to accounting standards convergence because, once the honeymoon is over, the IASB may no longer be as responsive to particular needs of any one of the 160 nations of the world, including the United States. The U.S. gets a lot of attention during the convergence courtship, but when the honeymoon is over we're likely to be ignored or worse --- like being pounced upon by our enemies.

I also do not like the loosey-goosey subjective nature of principles-based IFRS standards (whatever they are?) erasing the bright lines of FASB standards. A prime example of this is the loosey-goosey nature of hedge effectiveness testing under IFRS vis-a-vis the bright lines of FAS 133.

However, the IASB can win me over if it puts income statement comparability on a higher plane than balance sheet comparability, but that has the same chances as finding beautiful ice castles in hell. Neither the IASB nor the FASB can even define net income other than that meaningless number left over when balance sheet changes in fair values are netted out. Bob Herz recommends that we stop displaying this number in financial statements along with deleting aggregations in general.

I'm a big advocate of multi-column financial statements with one column for audited historical cost balances and additional columns for fuzzy numbers such as unaudited fair value estimates.  But who care what I think?

Bob Jensen's threads on controversies in the setting of accounting standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting  

"India Is Still Balking at This Whole Convergence to IFRS Thing," by Adrienne Gonzalez, Going Concern, June 24, 2011 ---
http://goingconcern.com/2011/06/india-is-still-balking-at-this-whole-convergence-to-ifrs-thing/
(Aw shucks, no F-word often used by Adrienne in this one --- guess she reserves that word for her own Jr. Deputy Accountant blog.)

. . .

GAAP has obviously failed. The evaporation of capital in the United States over the last 3 years proves it. But the whole Adopt-or-Else plan isn’t necessarily any better either.

In my humble opinion, it just makes the IASB look desperate and India look awesome. For now.

"Condorsement Condorsers): FASB's Potential New Role Under IFRS," by Matthew G. Lamoreaux, Journal of Accountancy, April 4, 2011 ---
 http://www.journalofaccountancy.com/Web/20113940Part3.htm

Bob Jensen's threads on condoresment and covergence ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

"A Brief History of the Corporation: 1600 to 2100," by Venkat, RibbonFarm, June 8, 2011 ---
http://www.ribbonfarm.com/2011/06/08/a-brief-history-of-the-corporation-1600-to-2100/

June 23, 2011 reply from Rick Lilly

Hi Bob,

I am reading an interesting book titled Life Inc., How Corporatism Conquered the World, and How We Can Take It Back, by Douglas Ruskhoff (ISBN-13: 978-0812978506).  Below is the URL link to the Amazon.com web page.

Link:  http://www.amazon.com/Life-Inc-Corporatism-Conquered-World/dp/0812978501/ref=sr_1_3?s=books&ie=UTF8&qid=1308848737&sr=1-3

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

June 23, 2011 reply from Bob Jensen

June 23, 2011 reply from Jagdish Gangolly

Bob,

The years 1770-72 were also infamous for another reason. The East India Company which had earlier used the grant given to it by the Mughal emperor Akbar to the city of Calcutta had established its control over Bengal. Its disastrous tax and other policies, compounded by drought, led to the death by starvation of 10 million people.

Warren Hastings, who was the Governor General, was later impeached (for corruption) and later acquitted by the British Parliament. He was later made a Privy Councillor, a rather strange honour for one who stood like a Greek hero, counting the British tax revenues (which multiplied), while 10 million human beings died of starvation.

Venkat's lament about Alexander Fordyce's absconding for half a million pounds debt is a petty matter relative to the death of 10 million people caused by Hastings and his cohorts at the same British East India Company.

Sen asks a profound rhetorical question why there have been no famines in India since the British left. Democracy does not permit it.

Edmund Burke's speech in the British Parliament in the impeachment proceedings is, in my opinion, one of the finest pieces of writing in the English language. Here is a snippet:

_________________________________________________

My Lords, the East India Company have not arbitrary power to give him; the King has no arbitrary power to give him; your Lordships have not; nor the Commons, nor the whole Legislature. We have no arbitrary power to give, because arbitrary power is a thing which neither any man can hold nor any man can give. No man can lawfully govern himself according to his own will; much less can one person be governed by the will of another. We are all born in subjection -- all born equally, high and low, governors and governed, in subjection to one great, immutable, pre-existent law, prior to all our devices and prior to all our contrivances, paramount to all our ideas and all our sensations, antecedent to our very existence, by which we are knit and connected in the eternal frame of the universe, out of which we cannot stir.

This great law does not arise from our conventions or compacts; on the contrary, it gives to our conventions and compacts all the force and sanction they can have. It does not arise from our vain institutions. Every good gift is of God; all power is of God; and He who has given the power, and from Whom alone it originates, will never suffer the exercise of it to be practised upon any less solid foundation than the power itself. If, then, all dominion of man over man is the effect of the Divine disposition, it is bound by the eternal laws of Him that give it, with which no human authority can dispense neither he that exercises it, nor even those who are subject to it; and if they were mad enough to make an express compact that should release their magistrate from his duty, and should declare their lives, liberties, and properties dependent upon, not rules and laws, but his mere capricious will, that covenant would be void. The acceptor of it has not his authority increased, but he has his crime doubled. Therefore can it be imagined, if this be true, that He will suffer this great gift of government, the great, the best, that was ever given by God to mankind, to be the plaything and the sport of the feeble will of a man, who, by a blasphemous, absurd, and petulant usurpation, would place his own feeble, comtemptible, ridiculous will in the place of the Divine wisdom and justice?

The title of conquest makes no difference at all. No conquest can give such a right; for conquest, that is force, cannot convert its own injustice into a just title by which it may rule others at its pleasure. By conquest, which is a more immediate designation of the hand of God, the conqueror succeeds to all the painful duties and subordination to the power of God which belonged to the sovereign whom he has displaced, just as if he had come in by the positive law of some descent or some election. To this at least he is strictly bound: he ought to govern them as he governs his own subjects. But every wise conqueror has gone much further than he was bound to go. It has been his ambition and his policy to reconcile the vanquished to his fortune, to show that they had gained by the change, to convert their momentary suffering into a long benefit, and to draw from the humiliation of his enemies an accession to his own glory. This has been so constant a practice, that it is to repeat the histories of all politic conquerors in all nations and in all times; and I will not so much distrust your Lordships' enlightened and discriminating studies and correct memories as to allude to any one of them. I will only show you that the Court of Directors, under whom he served, has adopted that idea that they constantly inculcated it to him, and to all the servants that they run a parallel between their own and the native government, and, supposing it to be very evil, did not hold it up as an example to be followed, but as an abuse to be corrected that they never made it a question, whether India is to be improved by English law and liberty, or English law and liberty vitiated by Indian corruption. ... ...

Source: http://www.ourcivilisation.com/smartboard/shop/burkee/extracts/chap12.htm  ________________________________________________________________________

How profound and timely, in the context of all recent corruption scandals.

Jagdish -- Jagdish S. Gangolly, (j.gangolly@albany.edu) Vincent O'Leary Professor Emeritus of Informatics, Director, PhD Program in Information Science, Department of Informatics, College of Computing & Information 7A Harriman Campus Road, Suite 220 State University of New York at Albany, Albany, NY 12206. Phone: (518) 956-8251, Fax: (518) 956-8247 URL: http://www.albany.edu/acc/gangolly

 

Bob Jensen's accounting history threads ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

History of Fraud in America --- 
http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm
 

2010 PCAOB Annual Report --- http://www.iasplus.com/usa/pcaob/2010annualreport.pdf

Registration

The number of accounting firms registered with the PCAOB grew slightly in 2010. At the end of the year, 2,397 firms were registered with the PCAOB, including 1,503 domestic firms and 894 non-U.S. firms located in 86 jurisdictions.

In 2010, registered firms began filing annual reports and special reports on certain events.

Inspections

In 2010, the PCAOB conducted inspections of nine public accounting firms that performed more than 100 audits of public companies traded in U.S. markets. Inspectors examined portions of more than 350 audits performed by these firms. The PCAOB also inspected 245 firms with 100 or fewer public company audit clients, including 64 non-U.S. firms located in 20 jurisdictions.

In the course of those inspections, PCAOB staff examined portions of more than 600 audits.

Standards

In 2010, the Board adopted a suite of eight standards related to the assessment of and response to risk in an audit. The standards address many fundamental aspects of the audit, from the initial planning stages through the evaluation of audit results. Continued fallout from the financial crisis, as well as an increase in certain non-U.S. companies seeking capital in U.S. markets, prompted the PCAOB to alert auditors to existing standards relating to public companies’ use of unusual transactions; disclosure of potential liabilities related to mortgages and foreclosures; and reliance on the work of other firms or assistants engaged from outside the firm, including those based in non-U.S. jurisdictions, where the PCAOB may be barred from inspecting firms.

The Board also proposed new standards for confirmation procedures by auditors and for communications with audit committees. In 2010, the Board laid the groundwork for possible changes to the auditor’s report. PCAOB staff began a comprehensive outreach program to gather information from investors, preparers, issuers and auditors about the content and format of audit reports and the implications of potential changes.

Enforcement

In 2010, the Board initiated 15 formal investigations, conducted a number of informal inquiries and continued investigations that began in prior years. At the end of December 2010, the PCAOB was engaged in 23 formal investigations. PCAOB investigations are, by law, confidential and nonpublic.

The Board issued seven settled disciplinary orders in 2010, imposing sanctions ranging from censures to bars on association with registered accounting firms, as well as monetary penalties.

Other disciplinary proceedings were approved by the Board in 2010 and are in active litigation. Unlike similar auditor proceedings brought by the SEC, Board disciplinary proceedings are nonpublic as required by the Sarbanes-Oxley Act.

SEC Oversight

The Sarbanes-Oxley Act gives the Securities and ExchangeCommission oversight authority over the PCAOB.

Continued in article

"Haile Reviews Shaviro's Decoding the U.S. Corporate Tax," by Paul Caron, Tax Professor Blog, June 23, 2011 ---
http://taxprof.typepad.com/

Is it possible to make a book about reforming the U.S. corporate tax accessible and interesting? Daniel Shaviro does a credible job of both in Decoding the U.S. Corporate Tax. While tax policymakers and professors constitute the most likely audience to read and appreciate the book, Professor Shaviro’s entertaining writing style makes the book a useful primer for anyone interested in understanding the theoretical foundations (or lack thereof) of the existing corporate tax as well as possible future directions for the tax.

House Sales Tax in the Health Care Bill ---
http://www.snopes.com/politics/taxes/realestate.asp

Mixture of True and False Information That the Obamacare Legislation Kicks in a 3.8% Sales Tax

False:  Health care legislation imposes a 3.8% sales tax on all house sales in the United States

True:  Health care legislation imposes a 3.8% transactions tax on profits over the capital gains
          The calculation is really quite complicated

Question
Does this transactions tax apply to profits that are plowed back into another house?

Jensen Comment
Although New Hampshire has a no sales tax on most items other than restaurant and hotel bills, it does have a formidable sales tax on the prices paid for real estate. Typically, 7% of the price is paid by the buyer and 8% is paid by the seller, although who pays what can be negotiated in the sales contract. This came as a surprise to me after I made an offer to buy the mountain cottage where I now live.

“Capture” of Regulators by Fannie Mae and Freddie Mac," by Nobel Laureate Gary Becker, Becker-Posner Blog, June 12, 2011 ---
http://www.becker-posner-blog.com/2011/06/capture-of-regulators-by-fannie-mae-and-freddie-mac-becker.html

Political economists describe the process whereby government officials end up being the servants rather than the masters of the firms they are regulating as the “capture” by the industry of their regulators. When regulators are captured, much of what they do is motivated, consciously or not, by a desire to help the companies they are regulating, even when the social goals that the regulators should pursue are very different.

A famous illustration of capture is given by the way airlines were regulated under the Civil Aeronautics Board (CAB) from 1940 to 1978. Large airlines of those times, like American and Delta, naturally had a strong incentive to try to keep new airlines from entering the industry. As a compliant ally of the airline industry, the CAB did not approve one new interstate airline during this almost 40-year period. Many airlines entered the industry when President Carter abolished the CAB, and some of the old standbys, such as Pan Am and Eastern, ceased operations because they could not adjust to a competitive environment.

An economically disastrous example of the capture theory is provided by the disgraceful regulation of the two mortgages housing behemoths, Fannie Mae and Freddie Mac, before and leading up to the financial crisis. In their fascinating recent book, Reckless Endangerment, Gretchen Morgenson and Joshua Rosner explore in great detail how Fannie Mae used political connections and intimidation of anyone who stood in their way to gain a highly dominant position in the residential mortgage market. The authors’ show that various government officials, including congressmen and presidential cabinet members, closed their eyes to what these two government-supported enterprises (GSE) were doing. They allowed them to take on enormous risks, while publicly defending their behavior as not being highly risky.

Fannie Mae was created in 1938 as a government enterprise that purchased mortgages from banks that loaned money to homebuyers. It eventually became a private investment company regulated by the government, where investors expected that the government would help out if these companies got into trouble. By the beginning of the crisis in 2008, Fannie and Freddie held or guaranteed about half of the United States’ $12 trillion of assets in the residential mortgage market. In September 2008, both Fannie and Freddie were taken over by the federal government when they became insolvent. The loss to taxpayers is likely to be in the hundreds of billions of dollars because many of the mortgages are subprime and of little value.

Reckless Endangerment shows how the chief executive officers of Fannie Mae furthered the reach and reduced the regulatory control over their company by assiduously courting congressmen, Fed officials, the Congressional Budget Office, high-level officials of the U.S. Treasury, the Secretary of Housing and Urban Development, and major economists. The prominent and well informed congressman, Barney Frank, gets especially sharp criticism for his continual support of Fannie and Freddie while he was initially a member, and later chairman, of the House Financial Services Committee, the powerful committee charged with oversight of the housing and financial sectors. Barney Frank remained an unwavering supporter of Fannie and Freddie until 2010, when he admitted that they should have been more closely regulated. In a bit of irony, he is a principal author of the 2010 Dodd-Frank act that attempts to reform the financial sector mainly by giving even greater discretion to the regulators.

Fannie and Freddie had so much money and political power at their disposal that it became risky for anyone to oppose what they wanted: large increases in their holdings of subprime and other mortgages, with no questions asked. Different government agencies that were supposed to either regulate or oversee these GSEs ended up as advocates instead. Well-known economists wrote favorable articles downplaying the riskiness of the holdings of Fannie and Freddie. These articles were sometimes published in journals or other publications sponsored by these companies.

A few government officials were brave enough to risk the wrath of Fannie and Freddie. The authors give particular praise to June O’Neill (I am proud to say she is a former student of mine), who was then head of the Congressional Budget Office. A member of her staff wrote a report that was critical of the degree of risk to taxpayers from the assets held by Fannie and Freddie. These companies tried to get June to suppress the report- she refused- and then a few members of the House of Representatives in cahoots with Fannie and Freddie subjected her to vicious attacks when she steadfastly defended the report in testimony before Congress.

Continued in article

"Capture Theory and the Financial Crisis," by Richard Posner, Becker-Posner Blog, June 12, 2011 ---
http://www.becker-posner-blog.com/2011/06/capture-theory-and-the-financial-crisisposner.html

The phenomenon of regulatory capture—the transformation of a regulatory agency into an anticompetitive tool of the regulated industry—is real, but I think Fannie Mae and Freddie Mac are more accurately regarded as examples, though no less unlovely, of something else: a capitalist-socialist hybrid. They were not regulatory agencies; until they collapsed during the financial crisis of 2008 and were taken over by the federal government, they were private corporations that had been chartered by Congress to promote home ownership. Their status as GSEs (government-sponsored enterprises) created an expectation that the government would guarantee their debts. This expectation enabled them to borrow at lower interest rates than other private corporations. They were supposed to promote home ownership by buying or guaranteeing home mortgages. They did that; they also pioneered mortgage securitization—in effect turning mortgages into bonds, which are more liquid than mortgages and so could be sold all over the world, bringing more capital into the U.S. residential real estate market, thus promoting home ownership, just as Congress wanted. Because of the low interest rates they paid, Fannie and Freddie were immensely profitable until the financial crisis brought them down.

As Becker points out, Fannie and Freddie were effective in obtaining congressional and presidential assistance to ward off threats to their activities and their profits. But I don’t think that that assistance, unseemly as it was, and perhaps corrupt as well, was the basic problem of Fannie and Freddie, or the cause of their collapse; nor do I think their collapse was of any great consequence for the nation.

I don’t think there was ever a good reason to promote home ownership over renting (so I would favor the abolition of the deductibility of mortgage interest from federal income tax). It ties up a lot of the capital of individuals and reduces labor mobility. Maybe it makes for more responsible citizens by giving people a property interest, but there must be better candidates for federal largesse. And even if there were a good reason for government to promote home ownership, federal chartering of mortgage institutions would not be a sensible means of implementation. Are the external benefits of home ownership, if any, so great that the mortgage-interest tax deduction is not subsidy enough? True, the lower the interest rates that Fannie and Freddie paid to borrow money, the riskier the mortgage loans they would agree to underwrite by buying or guaranteeing the loans, but home ownership is not promoted in any meaningful sense by the granting of mortgages to people likely to default.

Conservative critics led by Peter Wallison of the American Enterprise Institute lay on Fannie and Freddie a significant measure of blame for the housing bubble of the early 2000s and the ensuing financial crisis of September 2008. But these critics have not persuaded me. Private banks like Morgan Stanley and Goldman Sachs and Countrywide bought mortgages, securitized them, and sold interests in them (these firms also bought mortgage-backed securities created by other financial firms)—a sequence wholly separate from the activities of Fannie and Freddie. It was an immensely profitable activity, so there is no reason to think that had there been no Fannie and Freddie the volume of mortgage-backed securities would have been less than it was. Whether a market has X firms or X – 1 firm is unlikely to affect the volume of market activity. I don’t think Fannie and Freddie took more risks than their competitors; the difference is that they were more deeply committed to the housing market (that was their mission) than most other firms, so less likely to survive a housing bubble.

The financial crisis might actually have been worse without Fannie and Freddie. They collapsed and were simply taken over by the federal government. Had their debts instead been debts of Morgan and Goldman and other private banks, those banks might have collapsed and been taken over by the federal government as well, providing daunting challenges to the government’s ability to run the banking system. The cost to society of the government’s taking over Fannie and Freddie is hard to estimate. The takeover resulted in a transfer payment to creditors of Fannie and Freddie from (ultimately) the federal taxpayer. Had there been no Fannie or Freddie, other mortgage companies would have had more debt, and the owners of that debt would also have been bailed out by the federal government, in all likelihood.

Congress would do well to abolish Fannie and Freddie. But it won’t. The constellation of political forces that supports subsidizing home ownership is too strong.

Continued in article

Barney's Rubble ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Rubble

The largest earnings management fraud in history and the firing of KPMG ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

Bob Versus Steve on What Needs to Be Done to Improve The Accounting Review ---
http://www.trinity.edu/rjensen/book11q2.htm#BobVsSteve

May 3, 2011 reply from Jim Martin

Although nearly all management and accounting journals are accessible by
issue through various data base providers (JSTOR, Proquest, etc.), I provide
an alphabetical listing of articles and place them into topic bibliographies
as well. The idea is to provide a more convenient way to search for articles
by author, by journal, and by topic than searching one issue at a time.
MAAW's TAR bibliography stops at the five year wall for JSTOR links
(1926-2005), but the AOS bibliography is fairly current 1976-2010.
Links to the these and other Journal Bibliographies are on the following
page. http://maaw.info/SelectedJournals.htm

Dropbox --- http://en.wikipedia.org/wiki/Dropbox_%28service%29 

"Dropbox misrepresented security features, researcher claims," MYCE, May 18, 2011 --- 
http://www.myce.com/news/dropbox-misrepresented-security-features-researcher-claims-45122/ 
Thank you Scott Bonacker for the heads up.

With online data security being at the forefront of consumers’ minds after several recent high-profile breaches, cloud storage service Dropbox is now coming under fire for the way they handle customers’ files.

Christopher Soghoian, PhD and security researcher for the University of Indiana recently sent a letter to the U.S. Federal Trade Commission stating that the company’s security practices do not live up to their advertised claim

. . . 

The company claims to have 25 million users who save up to 200 million files to their servers daily.

After reading through the complaint, Dropbox’s original statements about their security levels seem glaringly inaccurate compared to the reality they’ve admitted. I would be surprised if the FTC didn’t levy a fine on the company in addition to requiring refunds to customers.

Bob Jensen's threads on computer and network security are at 
http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection 

Unrelated Jensen Comments
Dah --- On Rebooting My Wireless Router
Even though I recently purchased a high end Windows 7 Dell laptop, I've very disappointed in the speed of the machine relative to my old reliable Dell XP machine. For example, Internet Explorer, Google Chrome, and IE are all much slower on the new machine even though I took pains to delete apps that were slowing the browsers down.

Last week my old and reliable XP laptop kept losing its wireless Internet connection. I thought it was the computer since my same home wireless router was still serving the Windows 7 computer reliably. I took the XP laptop to the local company (Amanoosic) that installed my wireless system, and their technician could find nothing wrong with my XP computer in his office. But when I brought it back home it was still being flaky about holding its Internet connection. Then I performed the dah task of rebooting my wireless system by simply pulling the power plug for 30 seconds. That solved my Internet connection problem on the XP computer.

I should've known better since I sometimes had to reboot my old hard-wired router to restore Internet connections. I guess I was misled since my new wireless router was working fine with my newer Windows 7 laptop. At least that's my excuse for today.

FrontPage --- http://en.wikipedia.org/wiki/Frontpage
Yesterday I paid $199 to order a complete "new" in-the-box 2003 version of FrontPage that Microsoft has not sold in years. I have a 2003 version on my XP machine but lost the installation disks when I retired from Texas to New Hampshire in 2006. Around 2006, Microsoft replaced FrontPage with Microsoft Expression Web. I assumed EW would be better than FrontPage --- wrong! From the very beginning EW has been ten or more times slower than FrontPage for various tasks, especially when loading and saving large files that are more than 2 Mb in size. FrontPage will load and save such files in seconds whereas EW takes 5-30 minutes to load and save a large htm file.

Hence, even though I have EW Version 4 on my new Windows laptop, I plan to uninstall it and replace it with the much faster and much older FrontPage. Microsoft admits it has been deluged with complaints about the slowness of EW and promises to have some fixes later in the year, but I'll only believe that when I put it to the test after Microsoft upgrades EW for more speed with large htm files. Microsoft might succeed in making EW more effective and efficient. Most readers probably do not recall that the early versions of FrontPage would not even create or load a large htm file. Then as if by magic, FrontPage became the best or one of the best programs for creating, loading, and saving very large htm files.

Both FrontPage 2003 and EW 4 are poorly coded according to computer scientists (who generally think almost everything from Microsoft is badly coded). But I've not yet found a better HTML editor for large htm files than FrontPage. Many of my htm files are in the 3 Mb to 19 Mb range and most of them do not even have pictures and other multimedia since I'm trying to keep size down when possible.

I know I should split my large htm files into fragments, but this makes word searching terribly inefficient for users of my htm files.

If people tell me they are MS Office users and ask my advice about creating htm files for their Web servers, I advise them to first look into creating MS Word doc (or docx) files for storage and editing. Then any file (large or small) to be sent to a Web server can be saved as an htm file. But this was not an option back in the 1990s when I commenced many of my large htm files. In those days it was not possible to also save a doc file as a htm file using MS Word.

"Morale Bad and Getting Worse at the SEC,"  by David Albrecht, Summa, June 9, 2011 ---
http://profalbrecht.wordpress.com/2011/06/09/sec-morale-bad-and-getting-worse/

Jensen Comment
What do you expect from SEC employees when you take their daily porn away ---
http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544
There are recent reports that porn is still a "problem" at the SEC.

AICPA Horizons Project Videos --- http://romantic-ideas.info/2025project/

Tags: future forum  Dallas  TSCPA  Michael Brown  Tom Hood  i2a  CPA Profession  CPA Horizons 2025  CPA Vision  future  AICPA 

Accountants are Blameless --- Really!

From the Tax Professor Blog on June 14, 2011 --- http://taxprof.typepad.com/

Tax Court Rejects Private Equity Manager's 'Blame the Accountant' Defense

The Tax Court yesterday denied the request of Stephen G. Woodsum, founding managing director of Summit Partners, a private equity firm, to waive a $104,000 penalty assessed by the IRS for his failure to report on his return $3.4 million of income from the termination of a swap transaction by Deutsche Bank for which he received a Form 1099-MISC. The Tax Court forcefully rejected his attempt to escape the penalty by blaming his accountant for the underreporting. Woodsum v. Commissioner, 136 T.C. No. 29 (June 13, 2011):

Mr. Woodsum terminated the swap ahead of its set termination date because his watchful eye noted that it was not performing satisfactorily as an investment. That is, when his own receiving of income was in question, Mr. Woodsum was evidently alert and careful. But when he was signing his tax return and reporting his tax liability, his routine was so casual that a halfmillion- dollar understatement of that liability could slip between the cracks. We cannot hold that this understatement was attributable to reasonable cause and good faith.

Questions
Here's something the IASB and FASB "failed to cover" in their guidelines for measuring fair value ---
How do you value lewd pictures sent to you by Rep. Weiner?
Does FAS 157 cover highly unpredictable value deflation after the balance sheet date?

"TLP: How Weiner's Women Got the Money Shots and Avoided the Mess," Adrienne Gonzales, Jr. Deputy Accountant, June 14, 2011 --- Z
http://www.jrdeputyaccountant.com/2011/06/tlp-how-weiners-women-got-money-shots.html

The practice was especially visible last week when ABC News ran an exclusive interview with Meagan Broussard, one of the women who was sent lewd photos by Anthony Weiner, after the network paid her about $15,000 for photos. ABC said it's extensive reporting, including the interview, led to Mr. Weiner’s admissions about his online behavior.

Continued in article

Jensen Comment
Seriously, how do you report fair value of an asset that deflates very quickly in value after the balance sheet date even though it had much higher value on the balance sheet date --- such as lewd photos paid for just before the fiscal-year cutoff on June 30, 2011?

Does FAS 157 cover this serious post-date valuation aspect of fair value accounting?
What if the valuation deflation is very hard to predict at the time the audited financial statements are released to the public?

Bob Jensen's threads on accounting blogs and accounting news sites are at
http://www.trinity.edu/rjensen/AccountingNews.htm

Jr Deputy Accountant and Going Concern Chosen as Top 50 Fantastic Accounting Blogs ---
http://www.jrdeputyaccountant.com/2011/01/jr-deputy-accountant-and-going-concern.html
Tom Selling also made the list with his Accounting Onion blog.

50 Fantastic Accounting Blogs --- http://www.onlineaccountingdegree.org/best-accounting-blogs

Jensen Comment
I applaud the sites that made the Top 50. However, I question the bias of the OnlineAccountingDegree.com site itself. It's sponsored by For-Profit universities that do not have AACSB accreditation when, in my viewpoint, students should first seek out online accounting degree programs in AACSB-accredited universities. Go to at http://www.onlineaccountingdegree.org/ and do a search for online accounting degree programs. None of those listed will have the quality mark of AACSB accreditation. All will be For-Profit online accounting degree programs.

No mention is made that in state-supported AACSB universities, the cost per credit hour may be much lower and the quality more reliable than accounting programs linked in For-Profit of the online accounting courses at  http://www.onlineaccountingdegree.org/
For example, the accounting programs listed in a search of "accounting programs" does not even list the online accounting degree programs available from AACSB accredited universities.

It should also be noted that Texas will not even allow candidates to sit for the CPA examination unless they've had at least five accounting courses onsite such that graduates of fully online programs cannot even sit for the CPA examination.

My advice to prospective online accounting students is to first look for distance education accounting degree programs in AACSB universities such as flagship state university programs such as those the University of Connecticut, Wisconsin, Maryland, Massachusetts, etc.

My favorite example of what I consider For-Profit university frauds are the For-Profit online accounting doctoral programs listed at http://www.onlineaccountingdegree.org/
If you want to embarrass and online accounting doctoral program, ask who will be advising the dissertations and look carefully to see if the curriculum is at all comparable to an accounting doctoral program at an AACSB accredited university ---
http://www.trinity.edu/rjensen/Crossborder.htm#CommercialPrograms
The fact of the matter is that graduates of these non-AACSB online accounting doctoral programs do not face the same academic job market alternatives that are available only to AACSB university accounting graduates.

In my judgment there is no respectable online accounting doctoral program in North America and probably will not be one until an accounting program in an AACSB-accredited university commences to offer an online accounting doctoral program. There are respectable online doctoral programs in other disciplines such as education, but there are none in accounting.

I have respect for the "50 Fantastic Accounting Blogs" but I've no respect for the company that chose these winners, OnlineAccountingDegree.com at
 http://www.onlineaccountingdegree.org/ 

Bob Jensen's links to listservs, blogs, and social networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm

Bob Jensen's threads on accounting news sites are at
http://www.trinity.edu/rjensen/AccountingNews.htm

"Boards to re-expose revenue proposal," Ernst & Young,, June 15, 2011 --- Click Here
http://www.ey.com/global/assets.nsf/United%20Accounting/TothePoint_BB2144_RevenueRecognition_15June2011/%24file/TothePoint_BB2144_RevenueRecognition_15June2011.pdf

Bob Jensen's threads on revenue reporting and frauds ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

University of Illinois: Gaming Initiative --- http://www.library.illinois.edu/gaming/index.html

The Realities of High Corporate Tax Rates in States Like Illinois and the Realities of Rotten Governmental Accounting
The same thing that drives corporations to set up sham corporate headquarters off shore (to keep profits out of reach of the IRS) also drives corporations to flee states that impose high corporate tax rates (like Illinois, New York, New Jersey, and California) to states that took on less unfunded entitlements burdens (like Texas and North Carolina). 

"Illinois Tax Firesale:  A case study in high corporate rates and special favors," The Wall Street Journal, June 9, 2011 ---
http://online.wsj.com/article/SB10001424052702304474804576370102955207570.html#mod=djemEditorialPage_t

Illinois gained nationwide notoriety in January when Governor Pat Quinn signed into law a 67% hike in the personal income tax rate while lifting the corporate tax rate to 9.5%, the fourth highest in the nation. How is that working out?

The good news is that corporate tax receipts in Springfield are up by about $300 million amid the economic recovery—though the state comptroller's office announced in April that the state still faces $8 billion in unpaid bills. The bad news is that, according to the state's Department of Commerce, Illinois has already shelled out some $230 million in corporate subsidies to keep more than two dozen companies from fleeing the state. And more are on the way.

The ink was barely dry on the new taxes before major employers announced their unhappiness. The equipment giant Caterpillar, the spinal cord of the Peoria economy, says the higher business and personal income taxes will cost the company and its 23,000 Illinois employees $40 million a year. "I want to stay here, but as the leader of this business I have to do what's right for Caterpillar when making decisions about where to invest," CEO Doug Oberhelman said in the wake of the tax increase, adding that Illinois "is not favorable to business."

Caterpillar has long built new facilities outside Illinois to avoid the United Auto Workers, most recently in Texas. And after the Quinn tax hike, at least six states—from Virginia to zero income tax South Dakota—offered lower costs if the firm relocated. Caterpillar is staying put for now.

When the cellphone business Motorola Mobility hinted this spring that it might leave for San Diego, Mr. Quinn bounced into action. "I know how to work with the big businesses," he declared to the media, as he rushed—taxpayer checkbook in hand—to keep the company in the state. Motorola pocketed $100 million in tax incentives last month to stay in Libertyville.

Mr. Quinn's latest quest is to keep Sears in the state. In May, the retailer—based in Hoffman Estates with some 6,000 workers—hinted that it may look for a new home because of expiring tax breaks. The suitors include Georgia, North Carolina, Tennessee, Texas and even New Jersey. "We will sit down with the Sears people," Mr. Quinn promised. "I'm sure we'll work something out."

No doubt he will, since in two years in office Mr. Quinn has doled out corporate welfare to at least 80 firms, costing the state nearly $500 million, according to a tally by the Chicago Tribune. Late last year Navistar, the commercial truck engine maker, secured $65 million in handouts. Continental Tire nabbed $19 million. Even deal-of-the-day Web business Groupon, which is preparing an IPO to raise $750 million, grabbed $3.5 million in tax credits to stay in Chicago. U.S. Cellular got a $7.2 million package to keep its headquarters in the Chicago area, while Chrysler received an "investment package" worth $62 million for its Belvidere assembly plant.

Continued in article

Jensen Comment
Some states suffer worse from unfunded long-term entitlements obligations --- like Illinois and California made promises they may not be able to keep for retired state worker and teacher pension and medical plans relative to North Carolina that has much more conservative fiscal management.

Some state governments have made entitlements promises that they may just not be able to keep. Governmental accounting has been a game of shadows and mirrors and wonderland dreams.

Voters are just beginning to realize how the accounting profession aided and abetted the deceits of lousy fiscal management in local, state, and national government
http://www.trinity.edu/rjensen/Entitlements.htm

"Escape From Illinois, Cont:. Now the Chicago Merc wants relief," The Wall Street Journal, June 15, 2011 ---
http://online.wsj.com/article/SB10001424052702303848104576383872937102498.html#mod=djemEditorialPage_t

The line of businesses looking for tax relief in Illinois keeps growing, with the latest plea coming from the owner of the iconic Chicago Mercantile Exchange and Chicago Board of Trade. CME Group Executive Chairman Terrence Duffy told a shareholders meeting last week that Illinois Governor Pat Quinn's 30% hike in the corporate tax rate enacted in January will cost the company $50 million this year. "We don't want to leave Chicago," Mr. Duffy said, but "we have to do what's right for our shareholders." A spokesman confirmed that the company is exploring all options to save money.

We reported last week that dozens of major Illinois firms—from Caterpillar to Motorola to Sears—are in open rebellion in the wake of Springfield's $6 billion revenue grab and new 9.5% corporate rate, fourth highest in the U.S. Mr. Quinn has already carved out some $230 million in special tax breaks this year to save companies from his own tax policies and keep these firms from fleeing.

Our guess is that Mr. Duffy's statement is also an attempt to bargain for better tax treatment, and it's hard to blame him. The Chicago Tribune reports that CME pays 8.9% of its income in state tax, while most businesses pay well below 7% and many pay no tax at all thanks to rich deductions. Mr. Quinn says he's having an "ongoing conversation" with CME, and we'll bet a February pork belly contract that he'll deliver the bacon.

Continued in article

Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting

"India's Powerful Can't Escape Jail:  A scandal over a telecom spectrum sale snares members of the elite," by Mehul Srivastava, Business Week, June 8, 2011 ---
http://www.businessweek.com/magazine/content/11_25/b4233013968530.htm?link_position=link2
(And jails in India are far worse that our Club Feds in the U.S.)

Jensen Comment
Jailing the rich and powerful is not as common in the United States where white collar crime generally pays even if you get caught. There are of course a few exceptions such as Bernie Madoff  and Bernie Ebbers. But those that spend a few years in Club Fed generally emerge to enjoy their stashed offshore loot or loot hidden by friends and family. Other rich and famous like Michael Milken, Martha Stewart, and Leona Helmsley legally remained billionaires after their vacations in Club Fed. White collar crime generally pays in the United States ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

June 4, 2011 message from Roger Collins about a prison where inmates prefer to be incarcerated (for the sex and drugs and protection)

Video of Club Fed in Venezuela
http://video.nytimes.com/video/2011/06/03/world/americas/100000000849275/venezuelas-prison-paradise.html?nl=todaysheadlines&emc=thab1 

Roger

Roger Collins
TRU School of Business & Economics

But, at the end of a day, your students walk out of the room looking exactly like they did when they first walked in (maybe a little sleepier). I think this is one of the reasons that teachers sometimes become mediocre. The results seem the same regardless of their efforts. They don’t get the positive reinforcement for their work that comes from seeing a tangible output. In fact, I’ll go so far as to say that I believe this has had negative consequences for the U. S. as it has morphed from a manufacturing economy to a service economy.
Joe Hoyle, "What do we accomplish?" Getting the Most From Your Students, June 9, 2011 ---
http://joehoyle-teaching.blogspot.com/2011/06/what-do-we-accomplish.html

Jensen Comment
I don't quite agree and neither does Joe in the end. At the end of a help session students who got it have bigger smiles, more confidence, and seem a bit more awake. Our best hope is that what they just learned will stick with them for the rest of their lives.

From Deloitte's IAS Plus on June 3, 2011 --- http://www.iasplus.com/index.htm

3 June 2011: IFRS Foundation publishes proposed IFRS Taxonomy 'common-practice' enhancements
 

The IFRS Foundation has published for public comment an exposure draft of the IFRS Taxonomy 2011 interim release: common-practice concepts. The proposed interim release contains supplementary tags for the IFRS Taxonomy that reflect disclosures that are commonly reported by entities in their IFRS financial statements. The supplementary tags are intended to enhance the comparability of financial information, and are consistent with IFRSs and with the XBRL (eXtensible Business Reporting Language) architecture of the IFRS Taxonomy 2011. The supplementary tags result from the IFRS Foundation previously announced intention to extend the IFRS Taxonomy. This was partially a response to United Statements Securities Exchange Commission (SEC) concerns about the suitability of the existing IFRS Taxonomy 2011 for US filing purposes, together and the outcomes of an pilot XBRL study. The SEC has issued a 'no action' letter in which it states foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB are not required to submit XBRL information to the SEC until it endorses an IFRS Taxonomy it considers suitable. The proposals are open for comment until 2 August 2011. Click for IFRS Foundation announcement (link to IASB website). More information about XBRL is available on our XBRL page.

Bob Jensen's sadly neglected threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

"Third Phase of XBRL Implementation Takes Effect June 15," Journal of Accountancy, June 7, 2011 ---
http://www.journalofaccountancy.com/Web/20114207.htm

The third phase of the SEC’s XBRL implementation program takes effect June 15, with nearly all public companies using U.S. GAAP now required to submit data in the fully searchable, digital format.

 

Over the past two years, the largest SEC reporting companies have begun submitting financial information in XBRL. The first phase, which took effect in 2009, required companies with a worldwide public equity float of $5 billion to file in XBRL; the second phase, for the next-largest tier of public companies, took effect in 2010.

 

XBRL allows computers to read financial information and use it in analytical tools, much like barcodes applied to merchandise are used for computerized inventory controls. In order to create an XBRL submission, filers must select tags from the U.S. GAAP taxonomy that best represent their financial reporting concepts.

 

The selected tags are then attached to the filer’s financial information by software programs or third-party service providers to complete the XBRL submission. XBRL helps to provide investors access to financial information in a form that’s ready for analysis and can help companies automate checks on the data quality in their reports. In addition, XBRL has helped companies enhance and streamline their reporting process. More and more companies are realizing this benefit and, as a result, there is demand to adopt XBRL across other reporting streams. Two bills currently are pending in the U.S. Congress – S. 904 and H.R. 1745, the Jobs, Opportunity, Benefits and Services Act of 2011 – that designate data reporting standards such as XBRL be used for the reporting of certain information under the Social Security Act.

 

In a company’s first year of XBRL compliance, each amount in the primary financial statements is tagged in XBRL, and each note to the financial statements and certain financial schedules is individually tagged as a block of text. In the second year of compliance, more detailed information is required, including: each accounting policy, each table and each amount in the notes and financial schedules also must be tagged separately in XBRL.

 

The only companies the XBRL rules do not apply to are investment companies registered under the Investment Company Act, business development companies and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X, according to the SEC. In addition, since the SEC has not yet approved the taxonomy for foreign private issuers that report under IFRS, these companies will not be required to submit XBRL exhibits.

 

For new XBRL filers, the rules include two permissible grace periods: a 30-day grace period for a company’s initial, basic tagged submission and, in the following year, a 30-day grace period for a company’s initial, more detailed tagged submission. The rules also include modified liability provisions for the first two years a company is required to provide XBRL submissions. The modified liability provisions are eliminated on Oct. 31, 2014.

 

For more information on XBRL filing, see the final rule on the SEC’s website, visit xbrl.org/us or see the EDGAR Filer Manual.

 

For additional resources, visit the AICPA’s XBRL resource center. This site includes links to additional articles, webcasts, events and other helpful information.

Bob Jensen's threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

A Pair of Grumpy Old Accountants Ask a Question About Accounting Leadership
Where Are the Accounting Profession's Leaders?
By: Anthony H. Catanach Jr. and J. Edward Ketz 
SmartPros, May 2011
http://accounting.smartpros.com/x71917.xml 

These are the concluding remarks by Tony and Ed:

Tom Selling has gone so far as to suggest that part of the audit model problem might be that:

…auditors might be good at verification of things which are capable of being verified, and very little else.

If Tom is right, then we may be closer to the edge of the fall than we realized, and too late for even credible leadership to help.

Jensen Comment
I still don't see why financial statements cannot have multiple columns with the first column devoted to measurement that auditors can verify such as amortized historical costs. Then we can add more columns as verification drifts off into the foggy ether of fair value accounting and changes in earnings that may or may not ever be realized (e.g., not ever for held-to-maturity assets and liabilities that will not be liquidated until maturity).

As to leadership, don't look to our academy for leaders in the profession. Academe was overtaken decades by accountics faculty who really do not make many if any significant contributions to practitioner journals, the AICPA, the IMA, and other professional bodies except in certain specialized subtopics like AIS, history,  and tax ---
http://www.trinity.edu/rjensen/Theory01.htm#WhatWentWrong

As of January 2011, the precursor of Bob Kaplan's great plenary speech is forthcoming in The Accounting Review (TAR) and can be downloaded before publication---
Accounting Scholarship that Advances Professional Knowledge and Practice
Robert S. Kaplan
The Accounting Review doi:10.2308/accr.00000031 Accepted Manuscript posted online October 2010
Abstract    Full Text: [ PDF (152 kB)  ]

Recent accounting scholarship has used statistical analysis on asset prices, financial reports and disclosures, laboratory experiments, and surveys of practice. The research has studied the interface among accounting information, capital markets, standard setters, and financial analysts and how managers make accounting choices. But as accounting scholars have focused on understanding how markets and users process accounting data, they have distanced themselves from the accounting process itself. Accounting scholarship has failed to address important measurement and valuation issues that have arisen in the past 40 years of practice. This gap is illustrated with missed opportunities in risk measurement and management and the estimation of the fair value of complex financial securities. This commentary encourages accounting scholars to devote more resources to obtaining a fundamental understanding of contemporary and future practice and how analytic tools and contemporary advances in accounting and related disciplines can be deployed to improve the professional practice of accounting. ©2010 AAA

Although all three speakers provided inspirational presentations, Steve Zeff and I both concluded that Bob Kaplan’s presentation was possibly the best that we had ever viewed among all past AAA plenary sessions. And we’ve seen a lot of plenary sessions in our long professional careers.

Now that Kaplan’s video is available I cannot overstress the importance that accounting educators and researchers watch the video of Bob Kaplan's August 4, 2010 plenary presentation
Note that to watch the entire Kaplan video ---
http://commons.aaahq.org/hives/531d5280c3/posts?postTypeName=session+video
I think the video is only available to AAA members.
Don’t miss the history map of Africa analogy to academic accounting research!!!!!

This dovetails with my Web document at
http://www.trinity.edu/rjensen/TheoryTAR.htm

"Accounting Giant KPMG LLP Faces $350 Million Gender Discrimination Class Action," PR Newswire, June 2, 2011 ---
http://www.prnewswire.com/news-releases/accounting-giant-kpmg-llp-faces-350-million-gender-discrimination-class-action-123021028.html

Although KPMG LLP – one of the "Big Four" accounting firms – publicly touts its commitment to diversity and equal opportunity, the numbers tell a different story entirely. Women comprise about half of KPMG's employees, but are conspicuously absent from the top leadership positions. The Company's 20-member global executive team and 24-member global board each have only one female representative. Similarly, women are only 18% of all KPMG Partners compared to nearly 50% of all employees.

Aiming to put an end to the systemic gender discrimination at KPMG, a former female Senior Manager filed a $350 million class action discrimination lawsuit against the company today in the U.S. District Court for the Southern District of New York. The Plaintiff, Donna Kassman, lives in New York and worked in KPMG's New York office for seventeen years before resigning as a result of gender discrimination. Plaintiff Kassman and the class are represented by Janette Wipper, Siham Nurhussein, and Deepika Bains of Sanford Wittels & Heisler, LLP.

KPMG is an audit, tax, and advisory services firm headquartered in Netherlands with U.S. offices headquartered in New York City. In 2010, KPMG reported global revenues of $20.63 billion.

Plaintiff Kassman alleges that KPMG engages in systemic discrimination against its female Managers, including but not limited to Managers, Senior Managers and Managing Directors. The lawsuit is intended to change KPMG's discriminatory pay and promotion policies and practices, as well as its systemic failure to properly investigate and resolve complaints of discrimination and harassment. The Plaintiff is filing this action on behalf of a class of thousands of current and former female employees who have worked as Managers at KPMG from 2008 through the date of judgment.

KPMG promotes fewer women to Partner (18%) than the industry average (23%) and fewer women to Senior Manager (35%) than the industry average (44%). "Across the accounting industry, women are conspicuously absent from leadership positions; but at KPMG, women fare even worse," said Janette Wipper. "As soon as women come within reach of partnership, the Company's male-dominated owners find ways to block their advancement,"

Despite Plaintiff Kassman's long tenure and stellar performance, KPMG refused to promote her along the partnership track. Ms. Kassman's supervisors repeatedly told her throughout 2008 and 2009 that she was next in line for a promotion to Managing Director. Around the time Ms. Kassman was to be promoted, however, two male employees complained that she was "unapproachable" and "too direct," thinly-veiled gender-based criticisms designed to derail her career advancement. Based on these unfounded, discriminatory comments, KPMG removed Ms. Kassman from the promotion track, subjected her to numerous hostile interrogations, and advised her to meet with a "coach" to work on her supposed issues. Instead of disciplining the two male employees for their campaign of harassment, KPMG rewarded them by putting them up for promotion.

KPMG's female Managers are not only under-promoted, but underpaid as well. In one particularly egregious act of discrimination, KPMG slashed Ms. Kassman's base salary by $20,000 while she was on maternity leave because she was paid "too much." KPMG cited no business justification for slashing her salary. When Ms. Kassman complained about the salary cut, her male supervisor asserted that she did not need the money because she "ha[d] a nice engagement ring."

"Unfortunately, Ms. Kassman's story is completely representative of the treatment of women at KPMG," Siham Nurhussein said. "Ms. Kassman repeatedly complained up the chain of command about the gender discrimination and harassment she was experiencing, and the Company reacted with neither surprise nor concern. Her supervising Partner told her matter-of-factly that her male colleague might have a problem working with women, and the Office of Ethics and Compliance told Ms. Kassman that men had ganged up on women at KPMG before. KPMG not only tolerates gender discrimination, but displays an active interest in perpetuating it."

Continued in article

June 6, 2011 reply from Glen Gray

Bob,

I don’t want to be too philosophical here, but your story below is about males behaving badly and you frequently send out emails about auditors behaving badly. Couldn’t someone ask where did the teachers/professors fail? You and I and many other professors on this list have been teaching for a long time—so these “bad” people were very likely our students. How come we didn’t put them on the correct ethical path? Or weed the bad apples out?

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

June 6, 2011 reply from Bob Jensen

Hi Glen,

You ask the question that's been asked and "answered" over and over for the past few decades. I personally think that there's only a limited benefit that comes from increased focus on ethics in accounting curricula, although I certainly don't think it's topic that should be neglected in any accounting, auditing, systems, or tax course. Ethical behavior or lack thereof is far too complex to expect educators to solve the problem any more than we can expect preachers to eradicate sin in their congregations.

I was forever impressed with a presentation years ago by long-serving audit senior executive and later accounting professor Bob Sack, a professional that I truly admire with extensive and varied service to the American Accounting Association.

Bob contends that perhaps the major solution to the problem is the "tone at the top" as set by both the example and the policies set by by executives at the very top of the organization. However, I think the alleged behavior of this latest huge lawsuit against KPMG illustrates that the tone at the top is certainly important but not enough. Most certainly alleged bad behavior within KPMG runs totally counter to the tone at the top of KPMG and all other large auditing firms and most smaller auditing firms.

Of course we must note the American legal tradition of not being guilty until confessions transpire or being declared guilty in a court of law. There are perhaps some sides of this particular lawsuit that have not yet been disclosed in the media.

There are a growing number of interesting references to gender and ethics course materials and literature cited at the AAA Commons. I really recommend accounting teachers and researchers to use these categories in the Commons.

Of course there is still evidence of glass ceilings in auditing firms, but experts (not me) on gender and minority issues admit that the issues are far more complex than despicable bias.

I certainly invite more messaging on the AECM from experts on these issues as long as we keep in mind that the dust has not really settled on this particular KPMG lawsuit.

Everybody is also waiting breathlessly for the U.S. Supreme Court ruling on Wal-Mart. Is this a genuine grievance or a legal lottery or both? It's the "both" part that disturbs me the most when and if the punitive damages are more of a jackpot for the lawyers than the plaintiffs.

Respectfully,
Bob Jensen

Bob Jensen's threads on the two faces of KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm

PCAOB Snags KPMG Yet Another Time (this time for a client named Motorola with dubious revenue recognition to meet an earnings target)

The oversight board said a significant portion of the company’s earnings for the 2006 third quarter came from two licensing agreements that were recorded during the last three days of the quarter. One was the Qualcomm deal that wasn’t signed until the fourth quarter. The board also cited other deficiencies in KPMG’s review of Motorola’s accounting for the transactions.
"Dirty Secrets Fester in 50-Year Relationships," byJonathan Weil, Bloomberg News, June 9, 2011 ---
http://www.bloomberg.com/news/2011-06-09/dirty-secrets-fester-in-50-year-relationships-jonathan-weil.html

Another financial scandal. Another cover-up by regulators. Four years ago, inspectors for the auditing industry's chief watchdog discovered that KPMG LLP had let Motorola Inc. record revenue during the third quarter of 2006 from a transaction with Qualcomm Inc. (QCOM), even though the final contract wasn’t signed until the early hours of the fourth quarter. That’s no small technicality. Without the deal, Motorola would have missed its third-quarter earnings target.

The regulator, the Public Company Accounting Oversight Board, later criticized KPMG for letting Motorola book the revenue when it did. Although KPMG had discussed the transaction’s timing with both Motorola and Qualcomm, the board said the firm “failed to obtain persuasive evidence of an arrangement for revenue-recognition purposes in the third quarter.” In other words, KPMG had no good reason to believe the deal shouldn’t have been recorded in the fourth quarter.

The oversight board didn’t tell the public that this happened at Motorola, though. The maker of wireless- communications equipment, now known as Motorola Solutions Inc., didn’t restate its earnings for the period in question. And there’s no sign the Securities and Exchange Commission ever followed up with an investigation of Motorola’s accounting, even though it oversees the board and had access to its findings.

All of this is business as usual for America’s numbers cops. Since the board’s creation by the Sarbanes-Oxley Act in 2002, its inspectors have found audit failures by large accounting firms at hundreds of U.S.-listed companies. Yet its policy is to keep the identities of those clients secret.

‘Issuer C’

Likewise, in August 2008 when the board released its annual inspection report on KPMG, it referred to Motorola as “Issuer C” in the section on the auditor’s work for the company. For what it’s worth, Motorola paid the firm $244.2 million from 2000 to 2010.

This is the third column I’ve written revealing the name of a client whose accounting practices were a subject of a major auditing firm’s inspection report. Motorola is the biggest yet. I hope a whistleblower comes forward someday to leak many more. This is information investors need to know.

The Sarbanes-Oxley Act authorizes the oversight board to disclose “such confidential and proprietary information as the board may determine to be appropriate” in the public portions of its inspection reports. So it’s the board’s call whether to disclose clients’ names, although the SEC could overrule it. The board never does, bowing to the wishes of the accounting firms.

Identity Revealed

Motorola’s identity was disclosed in public records last month as part of a class-action shareholder lawsuit against the company in a federal district court in Chicago. The plaintiffs in the case, led by the Macomb County Employees’ Retirement System in Michigan, filed a transcript of a September 2010 deposition of a KPMG auditor, David Pratt, who testified that Issuer C was Motorola. KPMG isn’t a defendant in the lawsuit.

Pratt also identified the Motorola customers cited in the board’s inspection report. It’s his deposition that allows me to describe the report’s findings using real names.

The oversight board said a significant portion of the company’s earnings for the 2006 third quarter came from two licensing agreements that were recorded during the last three days of the quarter. One was the Qualcomm deal that wasn’t signed until the fourth quarter. The board also cited other deficiencies in KPMG’s review of Motorola’s accounting for the transactions.

Making the Numbers

Motorola booked $275 million of earnings during the 2006 third quarter as a result of the Qualcomm deal, according to estimates by the plaintiffs in the shareholder suit. The plaintiffs allege that all of it was recorded in violation of generally accepted accounting principles. That’s 28 percent of the net income Motorola reported for the quarter.

A Motorola spokesman, Nicholas Sweers, said the company’s accounting complied with GAAP, and that the financial statements for the periods covered in the inspection report have never been the subject of an SEC investigation. He declined to discuss details of Motorola’s accounting, citing the litigation. A KPMG spokesman, George Ledwith, declined to comment. So did an oversight board spokeswoman, Colleen Brennan, and an SEC spokesman, John Nester.

The story doesn’t end there. Last week the board’s new chairman, James Doty, gave a speech in which he said the board should consider setting mandatory term limits for auditors at public companies. To prove his point, he cited two instances that were “galling in their simplicity” where auditors “have failed to exercise the required skepticism and have accepted evidence that is less than persuasive.”

Making a Match

One of his examples matched the fact pattern of KPMG’s 2006 review at Motorola exactly. “PCAOB inspectors found at one large firm that an engagement team was aware that a significant contract was not signed until the early hours of the fourth quarter,” Doty said. “Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target.”

Continued in article

Jensen Comment
Recall that KPMG was fired from the big Fannie Mae audit because of alleged cooperation in helping Fannie's top executives creatively meet earnings targets for their personal bonuses ---
http://www.trinity.edu/rjensen/Theory02.htm

Bob Jensen's threads on revenue recognition and Hypothetical Future Value are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

Bob Jensen's threads about the two faces of KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm

How KPMG will be specifically affected by any fallout will be interesting to see.
"KPMG UK Report Shows Libya’s Qaddafi Held Billions in US and UK Banks," by Lisa Chapman, Big Four Blog, May 28, 2011 ---
http://www.big4.com/blog/kpmg-uk-report-shows-libya%E2%80%99s-qaddafi-held-billions-in-us-and-uk-banks-76

In the Big Four world, truth sometimes appears to be stranger than fiction. A tale of how the Big Four firm KPMG is involved in a global financial intrigue is revealed by globalwitness.org which has obtained papers which were prepared by KPMG UK on Libyan leader Col. Muammar el-Qaddafi’s ill-gotten and stashed wealth.

First, globalwitness.org has obtained a leaked full investment profile of Libyan Investment Authority for the period ending June 30, 2010. http://www.globalwitness.org/sites/default/files/LIA.pdf

This report appears to be prepared by KPMG UK.

The New York Times notes, “The document, independently verified as authentic by The New York Times, is a summary of the Libyan Investment Authority’s investments, created for the fund by the London office of the KPMG consulting firm and dated June 30, 2010. “

And it is clear from this document that Qaddafi stashed $53 billion of Libyan oil revenues, with some big amounts with HSBC, Goldman Sachs, JP Morgan, HSBC Holdings and Société Générale. Goldman Sachs held $43 million in 3 accounts and HSBC held $292.69 million in 10 accounts. LIA also invested $1 billion in structured financial products through Société Générale and JPMorgan Chase; and in Central Bank of Libya, the Arab Banking Corporation and the British Arab Commercial Bank. The fund held large investments in top multinationals such as General Electric, Halliburton, Schlumberger, Caterpillar, BP and Nokia, and United States government bonds.

While this amount is mind boggling, it was not immune from market downtrends, the report notes that total market value of the fund’s investments fell 4.53% from $55.9 billion in March 2010 to $53.3 billion in June 2010.

The investments appear to have been legal at the time, although the United Nations, the European Union and the United States in February imposed targeted financial sanctions against the assets of Colonel Qaddafi and his family. The United States also froze the assets of Libyan government-owned and controlled entities.

Global Witness, which issued a statement on its website, said,” However the Libyan people could not know where it was invested or how much it was, because banks have no obligation to disclose state assets they hold. Global Witness asked both banks to confirm that they held funds for the state-owned Libyan Investment Authority, and whether they still hold them. They both refused, with HSBC citing client confidentiality. Numerous other banks and financial firms are listed including Societe Generale, UniCredit and the Arab Banking Corporation.”

Global Witness then pummels the banks….“It is completely absurd that banks like HSBC and Goldman Sachs can hide behind customer confidentiality in a case like this. These are state accounts, so the customer is effectively the Libyan people and these banks are withholding vital information from them,” said Charmian Gooch, director of Global Witness.

KPMG does not appear to be involved in any malfeasance or accused of any misdemeanor, as far as these public reports go, though it appears to have been the author of this leaked investment portfolio report.

How KPMG will be specifically affected by any fallout will be interesting to see.

Bob Jensen's threads on the two faces of KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm

Teaching Tips, Ideas, and Inspiration 

"Teaching Carnival 4.10," by Billie Hara, Chronicle of Higher Education, June 1, 2011 ---
http://chronicle.com/blogs/profhacker/teaching-carnival-4-10/33718?sid=wc&utm_source=wc&utm_medium=en

Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm

"The Costs of Bad Security:  Mounting threats to the security of information are forcing companies to make more sophisticated cost-benefit analyses when they craft their security strategies," by David Talbot, MIT's Technology Review, June 1, 2011 ----
http://www.technologyreview.com/business/37675/?nlid=4542

Jensen Comment
Accounting instructors who teach cost-benefit analysis may want to pass this article along to students.

Experiential Learning --- http://en.wikipedia.org/wiki/Experiential_learning

Experiential Learning in Tax Courses
"Towards a Better Tax Law Student (and Professor)," posted by Chris Brummer, The Conglomerate, May 31, 2011 ---
http://www.theconglomerate.org/2011/05/towards-a-better-tax-law-student-and-professor.html

Jensen Comment
One of the most difficult elements in experiential courses is evaluation of learning and assignment of grades. If testing and grading is standardized across multiple students in multiple learning circumstances, students tend to focus on what it takes for a grade rather than learning unique to experiential learning. If grading is adapted to each experiential learner there are limited benchmarks for grading and grades tend to become quite lenient for students who really put in genuine effort. Some of the most popular experiential learning courses are internships where students work for employers and then are graded by their college professors who coordinate the internships and evaluate the assigned internship course projects. Instructors should monitor employers to make sure that students are assigned to meaningful projects and are not just "gophers" doing mostly mundane tasks.

One of the most interesting experiential international accounting course was implemented on a trial basis in the late 1990s by Sharon Lightener at San Diego State University ---
http://www.trinity.edu/rjensen/255light.htm
The fact that this trial experiment was not continued illustrates problems of instructor burn out and lack of resources for innovative experiential learning courses.

Bob Jensen's threads on assessment are at
http://www.trinity.edu/rjensen/Assess.htm

A parallel civil complaint brought by the Securities and Exchange Commission said that Mr. Goffer’s nickname among his fellow traders was “Octopussy” — a reference to the James Bond movie — because his arms reached into so many sources of information.
Peter Lattman, "Zvi Goffer Found Guilty in Insider Trading Case," The New York Times, June 13, 2011 ---
http://dealbook.nytimes.com/2011/06/13/zvi-goffer-found-guilty-in-insider-trading-case/

A federal jury in Manhattan on Monday found Zvi Goffer and two co-conspirators guilty of insider trading, the latest development in the government’s investigation into insider trading at hedge funds.

Mr. Goffer, his brother Emanuel Goffer and Michael A. Kimelman were convicted of participating in an insider trading scheme that produced more than $20 million in illegal profits.

The case was connected to the prosecution of Raj Rajaratnam, the hedge-fund tycoon and co-founder of the Galleon Group who was found guilty last month in the largest insider trading case in a generation. Zvi Goffer, who sat in on much of Mr. Rajaratnam’s trial, was employed by Galleon.

Continued in article

Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm

How do do your favorite Websites rate in terms of age, popularity, and Google love?

May 31, 2011 message from Emily

Good Morning Dr. Jensen,
Hope you had a nice memorial weekend. I wonder whether you receive my email sent to you on the 23rd? Did you have a chance to review our site reviewandjudge.org? Perhaps it is a valuable resource to your visitors in your page www.trinity.edu/rjensen/fraudreporting .htm under the section Additional resources?

Please get back to me.
Best Regards,
Emily

Jensen Comment
This is an interesting Website for various things, including consumer frauds:
reviewandjudge --- http://reviewandjudge.org/HOME.htm

I don't know just why, but this site also has a link to having any Website you choose evaluated for age, popularity, and a Google love rating. For example, I keyed in my home page at
http://www.trinity.edu/rjensen/
Note that for some reason you have to delete the http:// part of the above URL to get this to work. Thus to make it work I key in only www.trinity.edu/rjensen
I got 5.0/5.0  stars for age of the Webpage (I've been maintaining this page for over 15 years), 3.5/5.0 stars for popularity, and 3.5/5.0 stars for a Google love rating.

In order to put it to a comparison test, I know that sociology professor Mike Kearl has one of the most popular academic Websites served up by Trinity University. When I keyed in
www.trinity.edu/mkearl
the results were  5.0/5.0  stars for age of Mike's Webpage, 3.5/5.0 stars for popularity, and 3.5/5.0 stars for a Google love rating.

Either Mike and I are running neck and neck or there's something suspicious going on here. So I read in Jim Mahar's popular finance professor blog (after removing http://) at
financeprofessorblog.blogspot.com/
He is doing much worse than Mike and me, although I think he has, in my viewpoint, one of the best finance blogs on the academic Web.

Next I read in the very popular blog maintained by economics Nobel laureate Gary Becker and famous law professor Richard Posner (after removing http://) at
uchicagolaw.typepad.com/beckerposner/
Becker and Posner also fared worse than Mike and me except that they did get a 3.5/5.0 Google love rating.

Next I typed in Lady Gaga's home page (after removing http://) at
www.ladygaga.com/bornthisway/
the results were   4.0/5.0 stars for popularity, and 3.5/5.0 stars for a Google love rating.
Yikes! Mike and I are doing almost as well with our dull academic sites as the site that links to many photos and videos of Lady Gaga in her underwear.

Next I read in the ABC News home page (after removing http://) at
http://abcnews.go.com/
the results were  5.0/5.0  stars for age of the ABC News page, 5.0/5.0 stars for popularity, and 4.0/5.0 stars for a Google rating.
Guess Mike and I aren't as popular as ABC News, but we're close, and this makes me slightly suspicious.

Next I read in the Stanford University home page at
www.Stanford.edu
the results were  5.0/5.0  stars for age of Stanford's home page, 4.5/5.0 stars for popularity, and 4.5/5.0 stars for a Google rating.

Next I read in the Harvard University home page at
www.Harvard.edu
the results were  5.0/5.0  stars for age of Harvard's home page, 4.5/5.0 stars for popularity, and 4.0/5.0 stars for a Google rating.
The bottom line is that Google loves Harvard a little less than Stanford, but Google's love for Harvard and Lady Gaga are identical.

One thing about which I'm certain --- this Web site rating site does is not based upon number of hits. In no way do Mike and I get hit as often as Lady Gaga, Stanford University, and Harvard University.

"Controversial Journal Rankings in Australia Affect Research Funds and Careers," by Jennifer Howard, Chronicle of Higher Education, May 8, 2011 ---
http://chronicle.com/article/Controversial-Journal-Rankings/127417/

When Anna Poletti found out she'd had an article accepted by the journal Biography: An Interdisciplinary Quarterly, the young Australian scholar of life writing­—autobiography, biography, letters, and other forms of recorded experience—was thrilled. "It got me a whole lot of attention in the field," she says, because Biography is highly regarded by her peers.

It is not so esteemed, however, by the Australian government. A new journal-ranking plan—which helps the government determine how research money is doled out to universities—has dropped Biography from the highest ranking, A*, to a lowly C. Judged that way, an association with Biography looked like more of a career killer than a coup.

"I am actually dragging down the overall score of my unit by publishing in a C journal," says Ms. Poletti, a lecturer in English at Monash University—her first tenure-track job.

The ranking is part of an overall evaluation system devised by the Australian Research Council, an agency that finances scholarship and innovation in the country through grants and through advice to other government departments. At stake is a share of about $1.63-billion (U.S.), which supports a multitude of activities including academic research, says Margaret M. Sheil, chief executive officer of the council. The system, called Excellence in Research for Australia, helps the government decide how much goes to a given research unit at a university.

Journal rankings are not just an Australian phenomenon. Scholars worldwide are tangling with what Ms. Poletti calls "the culture of audit." The United States does not have such a ranking system, but U.S.-based researchers and journal editors find their work drawn into such assessments anyway.

Biography, for instance, comes out of the University of Hawaii's Center for Biographical Research. Around the world—in Britain, South Africa, New Zealand, and elsewhere—cash-strapped governments are experimenting with schemes to measure the quality of the academic research they pay to support.

In Europe, the European Science Foundation is about to release a new round of journal rankings as part of its European Reference Index for the Humanities. Ms. Sheil, who talks regularly with assessors in other countries, has recently traveled to the United States to discuss Australia's evaluation system.

Continued in article

Jensen Comment
Do to the reaction of professors in Australia, this initiative to rank journals was later abandoned.

In my opinion citation indices are quite unreliable since for-profit journal publishing houses often urge paid editors and referees to push for citations to journals they publish. Hence, the bibliography of many research papers becomes somewhat artificial.

For academic accounting research journals see the following (slow loading):
http://www.trinity.edu/rjensen/theory01.htm#JournalRankings

At the AAA annual meeting in San Francisco in August, 2005, Judy Rayburn addressed the low citation rate of accounting research when compared to citation rates for research in other fields. Rayburn concluded that the low citation rate for accounting research was due to a lack of diversity in topics and research methods:

Accounting research is different from other business disciplines in the area of citations: Top-tier accounting journals in total have fewer citations than top-tier journals in finance, management, and marketing. Our journals are not widely cited outside our discipline. Our top-tier journals as a group project too narrow a view of the breadth and diversity of (what should count as) accounting research.
Rayburn [2006, p. 4]
As quoted at http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Her data was derived from a Texas !&M study headed up by Ed Swanson.

Journal rankings greatly affect tenure and promotion decisions and annual performance evaluations in virtually all top North American universities. Many universities, however, have customized rankings developed by their own faculty members. For example, the University of Texas at Dallas has a very unique ranking system in its college of business that results in its program ranking in the top 10 in the nation with respect to research (I'm not certain if UT Dallas still publishes this controversial ranking system that, in my viewpoint, cherry picked the journals to receive highest priority).

For a specialized finance journal ranking system see
http://69.175.2.130/~finman/Orlando/Papers/Rank13.pdf

For criticisms see
http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0475.2009.00483.x/abstract

Sheryl Sandberg (Chief Operating Officer of Facebook)  --- http://en.wikipedia.org/wiki/Sheryl_Sandberg

In Support of the Feminist Movement
"Sheryl Sandberg's Graduation Speech for the Ages," by Andrew McAfee, Harvard Business Review Blog, June 1, 2011 --- Click Here 
http://blogs.hbr.org/hbr/mcafee/2011/06/sheryl-sandbergs-graduation-sp.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

More on Where Accountics Research Went Wrong

June 10, 2010 reply from Richard Sansing

Dan,

I'm confident that you can answer the question you posed, but since you asked me I will answer.

The TAR article by Fellingham and Newman, "Strategic considerations in auditing", The Accounting Review 60 (October): 634-50, is certainly a compression of the the audit process. I find it insightful because it highlights the difference in alpha and beta risks when auditors and clients are thought of as self-interested, maximizing agents.

Richard Sansing

June 11, 2011 reply from Bob Jensen

Hi Richard,

Has there ever been an audit that measured Type II (Beta) error?? Do you have some great examples where Type II error is actually measured (or specified) in TAR, JAR, or JAE articles?

There are only a few, very few, books that I keep beside my computer work station inside the cottage. Most of my books are on shelves in my outside studio that's now more of a library than an office. One of my prized textbooks that I always keep close at hand is an old statistics textbook. I keep it beside me because it's the best book I've ever studied regarding Type tI error. It reminds me of how quality control engineers often measure Type II error, whereas accounting researchers almost never measure Type II error.

In one of my statistics courses (Stanford) years ago from Jerry Lieberman, we used that fantastic Engineering Statistics textbook book authored by Bowker and Lieberman that contained OC curves for Type II error.

In practice, Type II errors are seldom measured in statistical inference due to lack of robustness regarding distributional assumption errors (notably unknown standard deviations) , although quality control guys sometimes know enough about the distributions and standard deviations to test for Type II error using Operating Characteristic Curves. Also there are trade offs since the Type I and Type II errors are not independent of one another. Accounting researchers take the easy way out by testing Type I error and ignoring Type II error even though in most instances Type II error is the most interesting error in empirical research.

Of course increasing sample sizes solved many of these Type I and II inference testing problems, but for very large sample sizes what's the point of inference testing in the first place? I often chuckle at capital markets studies that do inference testing on very large sample sizes. These seem to be just window dressing to appease journal referees.

What might be more interesting in auditing are Type III and Type IV errors discussed by Mitroff and Silvers in their 2009 book entitled Dirty Rotten Strategies (ISBN 978-0-8047-5996-0). Type III errors arise from skilled investigation of the wrong questions. Type IV errors are similar except they entail deliberately selecting the wrong questions to investigate.

I think Fred Mosteller in 1948 was the first to suggest Type III error for correctly rejecting the null hypothesis for the wrong reasons --- http://www2.sas.com/proceedings/sugi30/208-30.pdf 

Has anybody ever tested Type III error in TAR, JAR, or JAE?

Bob Jensen

June 12, 2011 replies from Dan Stone and from Paul Williams

> Thanks Richard,

>

> Got it. Thanks for clarifying. Based on your response, here's a draft

> letter from you, Professor Demski, and Professor Zimmerman to parents,

> administrators, and legislators.

 

Dan Stone

 

Dan,

I have resisted entering this thread, but your hypothetical letter compels me to provide a few anecdotes about the 10% of the insightful compression papers that do make it into print.  The first two are very public episodes.  Watts and Zimmerman's Notable Contribution prize winning paper that "verified" the believability of P/A stories was replicated by McKee, Bell and Boatsman.  The significance of the replication was that it made more realistic statistical assumptions and, voila, the significance went away.  Of course that didn't deter anyone from continuing to tell this story or at least seek to tell richer, more insightful stories. 

 

The second involves another notable contribution paper published by W&Z, the famous Market for Excuses paper.  As Charles Christensen and later Tinker and Puxty demonstrated the paper was incoherent from the start since it was self-contradictory (among many other flaws). The paper may have been good libertarian politics but it was not very good science.

 

My third anecdote involves a comment I wrote for Advances in Public Interest Accounting many years ago.  It was a comment on a paper by Ed Arrington.  In that comment I used a widely cited P/A paper (one that made Larry Brown's list in his AOS classic papers paper) as an example to illustrate the ideologicial blinders that afflict too many accounting researchers; we always tend to find what we are looking for -- perhaps because the insightful compressions we are looking for have to be consistent with Demski and Zimmerman's views on the way the world should be (it certainly isn't the way the world is). One comment I made on this P/A paper pertained to the statistical analysis and it was, basically, that the statistically significant variables really explained nothing and that there was no story there. 

 

To seek assurance I was on some kind of solid ground I took my comments and the paper to a colleague who was an econometrician (a University of Chicago Ph.D).  Back in those days there was no college of management at NC State, only the department of economics and business, which was comprised of all economists except one finance prof and the folks in accounting.  Three days after I gave him the material he called me into to his office to assure me I was correct in my interpretation and he made a gesture quite profound, given the metaphor about waste baskets.  He picked up the paper (published in one of the premier journals) and threw it in his waste basket. He said, "That is where this paper belongs."   My issue with TAR, etc. is just this -- even the 10% of papers we do publish aren't very good "science" (which is not definitive of a "form" that scholarship must have).   

 

Paul Williams

Bob Jensen's threads on where accountics research went wrong ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

May 31, 2011 message from Roger Collins

Of possible interest...

http://www.nytimes.com/2011/05/29/books/review/book-review-reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner.html?ref=books

"It’s hardly news that the near meltdown of America’s financial system enriched a few at the expense of the rest of us. Who’s responsible? The recent report of the Financial Crisis Inquiry Commission blamed all the usual suspects — Wall Street banks, financial regulators, the mortgage giants Fannie Mae and Freddie Mac,
and subprime lenders — which is tantamount to blaming no one. “Reckless Endangerment” concentrates on particular individuals who played key roles.

The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O.,
James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly...."

continued in article...

Roger

Bob Jensen's threads on earnings management fraud at Fanny Mae ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

Bob Jensen's threads on slease in thesubprime scandals ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

Question
Is California really going to require 44 semester credits in accounting, 24 credits in business-related courses, and an added 10 credits in ethics courses for CPA licensure candidates?

"California to Unveil New CPA License Requirements," Accounting Today, May 31, 2011 ---
http://www.accountingtoday.com/news/California-Unveil-New-CPA-License-Requirements-58558-1.html

The California Board of Accountancy’s Accounting Education Committee and Ethics Curriculum Committee plan to hold a joint meeting to unveil their proposals for the 30 additional hours of education necessary for CPA licensure in California, beginning Jan. 1, 2014.

The Accounting Education Committee has been working on a framework for the 20 semester units of accounting study, while the Ethics Curriculum Committee has been working on a framework for the 10 semester units of ethics study. These additional hours were the result of the California Legislature’s passage of Senate Bill 819 in 2009. The new requirements are designed to enhance consumer protection by strengthening the competency of applicants as practitioners.

Continued in article

Also see http://www.dca.ca.gov/cba/lic_require.shtml
Also see http://www.dca.ca.gov/cba/misc_notices/not11-15.pdf

Jensen Comment
At present it's apparently possible in California, unlike in some other states, to take the CPA examination with only a 120-credit Baccalaureate degree such that the 150-credit requirement only applies for licensure in California. I had a student in Texas who got an accounting undergraduate degree and then beat the Texas law by flying to California to take the CPA examination because Texas would not allow him to take the CPA Examination without another 30 credits. He passed all parts on the first sitting in California, although he did not attempt to use that as a basis for a CPA license in Texas. He instead went on to become one of the top Law School graduates at the University of Texas. He's probably chasing ambulances now instead of CPA clients.

Under Current Regulations
Anyone applying for California CPA licensure for the first time (this includes candidates who have never been licensed anywhere as well as CPAs licensed out-of-state)—and cancelled California licensees applying for reissuance must pass the exam (Ethics Exam 411) for Professional Ethics for CPAs (PETH). The CalCPA Education Foundation is the exam's only state-designated provider as well as the largest provider of continuing professional education for California CPAs."
http://www.calcpa.org/Content/educationfoundation/candidates.aspx
I wonder if this is more for purposes of selling CPE credits than for raising the ethical quality of California CPAs?

California's First Time Applicant CPA Examination Handbook ---
http://www.dca.ca.gov/cba/publications/exambk1.pdf
Start on Page 3 for Education Requirements to Sit for the CPA Examination Requirements

Details of topic areas follow in ensuing pages http://www.dca.ca.gov/cba/publications/exambk1.pdf 

Added Jensen Comment
Texas has formidable course requirements to sit for the CPA examination plus a 150 semester credit requirement just to sit for the CPA examination in Texas (not just for licensure). In addition, Texas now requires that at least 15 of those credits (usually five semester courses) be taken onsite in an effort to restrict the number of courses that can be taken online even from AACSB accredited distance education programs like the University of Connecticut online accounting program. This also blocks out-of-state CPAs, like those from Connecticut, seeking licensure in Texas if they earned 150-credit distance education degrees without having the required onsite credits for designated accounting courses.

"Number of Accounting Grads Hits New High," AICPA, CPA Trendlines, May 27, 2011 ---
http://cpatrendlines.com/2011/05/17/record-high-accounting-grads/

Newly minted accountants have some of the brightest job prospects in the nation, with nearly 90 percent of accounting firms forecasting the same or increased hiring of graduates this year compared with 2010, and nearly three quarters, 71 percent, of the largest firms anticipating more hiring – an indicator of a rebounding economy.

That’s according to survey results in the 2011 “Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits” report by the American Institute of Certified Public Accountants. The report shows record numbers of accounting students and graduates, but also hints at a potential challenge for the profession: demand for new talent eventually could outpace supply.

“Opportunities in the accounting profession continue to expand as the needs of firms and businesses grow ever more complex and global,” said Jeannie Patton, AICPA vice president for students, academics and membership. “As the U.S. and global economies recover, and as seasoned professionals begin to retire in unprecedented numbers, it’s even more important to guard against a talent shortage. Employers increasingly want graduates with advanced degrees at the same time colleges, facing budget and other constraints, are restricted in their capacity to train all the students who want to join our profession.”

The AICPA report echoes findings from the U.S. Bureau of Labor Statistics, which expects accountants to experience “much faster than average” employment growth in the coming years. The bureau’s 2010-2011 “Occupational Outlook Handbook” estimates 22 percent growth in accounting and auditing jobs in the decade between 2008 and 2018, adding that job candidates with professional designations, particularly CPAs, and graduates with masters degrees have the brightest outlook.

All told, 226,108 students were enrolled in undergraduate or graduate accounting programs during the 2009-2010 academic year, 6 percent more than in 2007-2008, the last time the AICPA conducted its survey. A record 68,639 students graduated with accounting degrees in 2010. Nearly 4 in 10 accounting graduates hired last year by CPA firms had master’s degrees, compared with 26 percent in 2008. By contrast, 43 percent of graduates hired had bachelor’s degrees, down from 56 percent in 2008.

The shift reflects growing complexity and globalization of the accounting industry. And against that backdrop, colleges and universities are struggling to keep up. According to the AICPA report, a growing number of accounting programs are rejecting qualified applicants because they don’t have capacity to accept them. The increase likely is due to budget constraints at universities brought on by the economic downturn and a shortage of academically qualified professors as many longtime teachers reach retirement.

Jensen Comment
I have trouble reading the graph that seems to show greater numbers of graduates in some years before and after 1990,
Why is 2011 called a "new high" year in terms of the number of accounting graduates?

Bob Jensen's threads on accounting careers are at
http://www.trinity.edu/rjensen/BookBob1.htm#careers

A Rejoinder from the American Accounting Association Executive Committee

---

Dear AAA Members,

Over the last 12 months, many of you have received a series of emails from Dr. Larry Crumbley and Dr. Dennis Huber, sent from their personal email lists. These messages raise questions related to governance procedures and the legal standing of the American Accounting Association, unfairly maligning individual volunteers, and impugning the integrity of the Association. Allegations and misleading information have also been sent to organizations outside the AAA. As has been reported publicly in the AAACommons and based upon everything we know today (and have known since these e-mails began), we can categorically state that there is not, nor has there been, a problem threatening our organization's legal existence. Representatives of the State of Illinois, the State of Florida, legal counsel, and our audit firm have confirmed that there is no credible basis for any legal claim against the Association.

As an organization focused on scholarly interchange in accounting, it is our objective to promote a common set of values: integrity, objectivity, a sense of community, transparency, respect for others and high ethical values and standards. We are confident that these values have been upheld, and that accusations aimed at the organization and its member leadership are unfounded. To assure members of transparency and access to details, you'll find below a brief summary and a link to a detailed timeline and collection of source documents.

The "silver lining" in this situation has been our discovery of an administrative error, which caused no damage to the organization, its members, or any other party, but was necessary to resolve and has been dealt with. At no time during this process have questions or concerns about our legal status, or tax-exempt status been raised by representatives we have worked with in Illinois or Florida. Officials in both states as well as our attorney and auditors note the obvious good faith in which the organization has operated, filing 990s, and regular annual audits with audited financial reports published to members, etc.

We have been working over the last three weeks or so on a matter Karon Beyer, Bureau Chief in the Florida State Department described as an "administrative hiccup" that, while not ideal, is not uncommon in member-based non-profit organizations. In summary:

• As reported publicly in the AAACommons back in April, the Association was incorporated in the State of Illinois in 1935, maintaining incorporation there until 1996 when as a result of failing to file an annual report the association's incorporation was dissolved. 
• Incorporation is not required, and the AAA continued to operate in accordance with its bylaws until reinstating its corporate status in June 2011.  
• The fact that the AAA had lost its incorporated status was discovered by AAA leadership in 2002. Apparently, the advice given to the AAA at the time for how to correct the situation was to create an entirely new corporate entity by filing new articles of incorporation, rather than reviving the 1935 corporation. That approach, while not generally the preferred way to re-establish corporate status, could have been viable had the assets, liabilities, memberships, etc. of the 1935 entity been transferred to this new corporation, but that transfer never occurred. 
• As a result, the AAA continued to operate as the 1935 entity, albeit unincorporated. The 2002 corporate entity never become operational, existing as nothing more than an empty entity since its creation. 
• Also in 2002, AAA mistakenly "corrected" its registration in the State of Florida, paying a penalty of $2,100 to refile and realign our registration in Florida as a foreign entity with the errant 2002 entity in Illinois. Florida required that the Association use what they label a "Fictitious Name" or "Cross Reference Name", because at that time the name "American Accounting Association" was already in use. The AAA chose "American Accounting Educator's Association" doing business as American Accounting Association per state filing requirements.
• AAA leaders in 2002 were unaware that a confusing duplicate entity had been created in Illinois. 
• When the situation came to light in late April, the Executive Director immediately contacted Executive Committee leadership, the association's attorney, and the association's auditors. Our attorney contacted the State of Illinois, and began their regular process for addressing the issue (the cost of $251 total for completing the process is an indication of the minor level of concern from the State of Illinois).
• Our attorney provided the necessary forms, and the Executive Director completed those forms per the unanimous vote of the AAA Executive Committee during its strategic planning retreat in late May. Then implementing the procedure recommended by the State of Illinois we revived our 1935 corporate status while dissolving the 2002 entity. No membership vote was required to effect these actions, including dissolving the 2002 entity since it was a mistakenly created entity with no assets, members, etc. Illinois verifies that this process has been completed, our 1935 corporation revived, the 2002 entity dissolved, and our good standing confirmed.
• We are in process of filing necessary paperwork to align our Florida registration with the appropriate Illinois corporation which should involve a filing fee of about $52.50. There will not likely be a fine, as the Florida State Department's Bureau Chief noted that this is a simple and common administrative correction and we have obviously been registered and filing appropriate annual reports, 990s, etc. She provided all necessary forms to withdraw our current registration in Florida to the incorrect Illinois entity, and qualify to be properly filed in Florida in alignment with our revived 1935 corporation in Illinois.

During the early part of this series of questions it was possible to respond relatively quickly to questions raised by Dr. Huber and Dr. Crumbley about balloting and governance, and early responses to questions raised were posted publicly in the AAACommons, as has been all the work of our recent governance review (see FAQs at http://commons.aaahq.org/hives/eb01c0adea/summary).

The tone of more recent communications has made responding quickly more difficult. Messages questioning the integrity of the AAA and its volunteer leaders and staff have been sent to our exhibitors, our auditor, the press, and the States of Illinois and Florida. These messages point to Dr. Huber's charges published in the Journal of Forensic & Investigative Accounting (an independent journal with no affiliation with the AAA or its Sections, edited by Dr. Crumbley and published by Louisiana State University). The journal's website (as of June 17, 2011) abstract page lists "AAA Attorney" under the Dr. Huber's name as author. AAA attorneys were not in any way involved in the writing of the article, nor are the section's included in the article under the sub-heading "AAA Attorney response" responses quoted from or written by the AAA Attorney. These escalating challenges, and our increased need to respond to them through a deliberative process in communications, has created a significant distraction for the AAA staff and volunteer leaders, draining resources, time, and funds.

Responding to the need for deliberative process in communications related to escalating challenges has become a significant distraction, draining resources of time, focus, and funds.

Members can find a compiled a list of source documents and details related to the issues raised by Dr. Huber and Dr. Crumbley on the AAACommons http://commons.aaahq.org/hives/b5e22ebcfb/summary. You will need your user name and password to log into the AAACommons. If you have any questions, please feel free to contact any one of us.

Finally, we affirm that we have the utmost confidence in our professional and volunteer leadership serving throughout this period. In particular, Dr. Sutherland, prior volunteer leaders, and the Governance Review Task Force have worked tirelessly to make sure that our Association operates with the highest standards and that members are treated with respect and consideration. Allegations against their actions and character are unwarranted and should not be allowed to go undisputed. 

Volunteer leaders contribute an enormous amount of time, energy, and ideas to the Association. More than 150 colleagues are serving today as officers of our Regions, Sections, and the AAA, and many more serve in committee and other important roles. They do so because they believe in the AAA and its work.  While we may have differing individual views on how best to achieve what we wish for in the organization, we are confident that our leaders and community have upheld the shared values of the American Accounting Association.

Sincerely,

Kevin Stocks, President
Greg Waymire, President-Elect
Nancy Bagranoff, Past President
Karen Pincus, President-Elect-Nominee
Stacy Kovar, VP-Finance
Tracey Sutherland, Executive Director

Accounting, Finance, and Business Graduate Average Salaries are Neither in the Top Nor the Bottom Top Ten

"Major Decisions," by Kevin Kiley, Inside Higher Ed,  May 24, 2011--- Click Here
 http://www.insidehighered.com/news/2011/05/24/georgetown_study_of_salaries_for_different_majors_finds_big_discrepancy_women_and_minorities_in_low_paying_fields

Jensen Comment
I always advised my students that things other than starting salaries were often more important. For example, in accounting the most important factors are client exposure (clients often make the best offers to auditors and consultants), the professional nature of interesting work, and the amount and quality of the training are more important for the long haul than starting salaries.

Advancement opportunities are also very important. Consideration should also be given to travel demands (good news to some graduates and bad news to other graduates) and pressures such as compensation based upon sales commissions or other pressure cookers.

Also give consideration to the numbers of opportunities and the locations of where those opportunities take place. Naval Architecture and Marine Engineering graduates are paid well, but they are relatively few in number and face only a limited number of job opportunities and locales. One of my closest friends has a son who graduated as an engineer from Maine Maritime Academy and received all sorts of opportunities in the Merchant Marines. However, after recently getting married the romance of being stationed aboard Far East merchant vessels lost a lot of its appeal with his young and pretty wife living on a horse farm in Conway, New Hampshire. If he'd instead become a N.H. CPA he could probably have great opportunities in the Mt. Washington Valley and live each day on the farm.

And in some cases health and pension plans can be very important. Any career that provides a lifetime pension after only 20-30 years of service provides a tremendous opportunity for double dipping later in life. Consider running for the U.S. Congress where a short four-year stint can get you a lifetime pension with great medical benefits for a lifetime. Of course there's a lot of crap to wade through getting nominated and elected.

To me the most important factor is independence and freedom of time control such as those freedoms afforded to college professors. If I had it to do all over again I would get a PhD in accounting (since accounting PhDs are in such short supply for the tremendous needs of the market). I guess in the 1960s I was the maggot that was dropped by a soaring bird into the sweetest manure pile around.
http://www.jrhasselback.com/AtgDoctInfo.html

GirlGeeks --- http://www.girlgeeks.org/ 

Bob Jensen's threads on careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers

"Say Anything: The Big Four Defense Of Overtime Exemptions," by Francine McKenna, re:TheAuditors, June 20, 2011 ---
http://retheauditors.com/2011/06/20/say-anything-the-big-4-defense-of-overtime-exemptions/

"PricewaterhouseCoopers Headed For A Trial In California Overtime Case." by Francine McKenna, re:TheAuditors, June 17, 2011 ---
http://retheauditors.com/2011/06/17/pricewaterhousecoopers-headed-for-a-trial-in-california-overtime-case/

Jensen Comment
Francine discusses strategies used by large auditing firms to avoid paying overtime, often in conflict with both state laws and auditing standards. CPA firms are not unique in seeking out ways to avoid overtime pay laws. Similar ploys are taken by hospitals and medical clinics paying residents and universities paying adjunct faculty and graduate students.

Bob Jensen's threads on accountancy careers are at
http://www.trinity.edu/rjensen/BookBob1.htm#careers

How Accountants Hide the Pension Bomb in the Public Sectors

"The Hidden State Financial Crisis:  My latest research into opaque state financial statements suggests taxpayers will be surprised by how much pensions are underfunded.," by Meredith Whitney, The Wall Street Journal, May 18, 2011 ---
http://online.wsj.com/article/SB10001424052748703421204576329134261805612.html?mod=djemEditorialPage_t

Next month will be pivotal for most states, as it marks the fiscal year end and is when balanced budgets are due. The states have racked up over $1.8 trillion in taxpayer-supported obligations in large part by underfunding their pension and other post-employment benefits. Yet over the past three years, there still has been a cumulative excess of $400 billion in state budget shortfalls. States have already been forced to raise taxes and cut programs to bridge those gaps.

Next month will also mark the end of the American Recovery and Reinvestment Act's $480 billion in federal stimulus, which has subsidized states through the economic downturn. States have grown more dependent on federal subsidies, relying on them for almost 30% of their budgets.

The condition of state finances threatens the economic recovery. States employ over 19 million Americans, or 15% of the U.S. work force, and state spending accounts for 12% of U.S. gross domestic product. The process of reining in state finances will be painful for us all.

The rapid deterioration of state finances must be addressed immediately. Some dismiss these concerns, because they believe states will be able to grow their way out of these challenges. The reality is that while state revenues have improved, they have done so in part from tax hikes. However, state tax revenues still remain at roughly 2006 levels.

Expenses are near the highest they have ever been due to built-in annual cost escalators that have no correlation to revenue growth (or decline, as has been the case recently). Even as states have made deep cuts in some social programs, their fixed expenses of debt service and the actuarially recommended minimum pension and other retirement payments have skyrocketed. While over the past 10 years state and local government spending has grown by 65%, tax receipts have grown only by 32%.

Off balance sheet debt is the legal obligation of the state to its current and past employees in the form of pension and other retirement benefits. Today, off balance sheet debt totals over $1.3 trillion, as measured by current accounting standards, and it accounts for almost 75% of taxpayer-supported state debt obligations. Only recently have states been under pressure to disclose more information about these liabilities, because it is clear that their debt burdens are grossly understated.

Since January, some of my colleagues focused exclusively on finding the most up-to-date information on ballooning tax-supported state obligations. This meant going to each state and local government's website for current data, which we found was truly opaque and without uniform standards.

What concerned us the most was the fact that fixed debt-service costs are increasingly crowding out state monies for essential services. For example, New Jersey's ratio of total tax-supported state obligations to gross state product is over 30%, and the fixed costs to service those obligations eat up 16% of the total budget. Even these numbers are skewed, because they represent only the bare minimum paid into funding pension and retirement plans. We calculate that if New Jersey were to pay the actuarially recommended contribution, fixed costs would absorb 37% of the budget. New Jersey is not alone.

The real issue here is the enormous over-leveraging of taxpayer-supported obligations at a time when taxpayers are already paying more and receiving less. In the states most affected by skyrocketing debt and fiscal imbalances, social services continue to be cut the most. Taxpayers have the ultimate voting right—with their feet. Corporations are relocating, or at a minimum moving large portions of their businesses to more tax-friendly states.

Boeing is in the political cross-hairs as it is trying to set up a facility in the more business-friendly state of South Carolina, away from its current hub of Washington. California legislators recently went to Texas to learn best practices as a result of a rising tide of businesses that are building operations outside of their state. Over time, individuals will migrate to more tax-friendly states as well, and job seekers will follow corporations.

Continued in article

Jensen Comment
Some accountants naively assume that the new IASB-FASB agreement on fair value accounting will make pension obligations more transparent, especially if the GASB follows suit. What they don't really understand is that obligations that are not recognized in the first place are not going to be made more transparent with fair value accounting if they're hidden in the first place. For ten years Arnold Swartzenagger disclosed four kids and hid a fifth kid from his wife and the rest of the world. With pensions it's more like disclosing one kid and hiding four from the world.

Arnold pretty well ruined parts of his life when the that which was hidden was finally revealed. The same thing will happen to local, state, and national governments in the U.S. if hidden pension obligations are ever revealed. It will ruin everything in future elections if voters really understand how bad the hidden entitlements have really become ---
http://www.trinity.edu/rjensen/Entitlements.htm

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 disaster?

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

"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

Bob Jensen's threads on pension schemes to hide debt ---
http://www.trinity.edu/rjensen/theory02.htm#Pensions

"AIG Share Sale Aids Ohio Firefighters Burned by Stock Losses," by Noah Bahayar, Business Week, May 24, 2011 ---
http://www.businessweek.com/news/2011-05-24/aig-share-sale-aids-ohio-firefighters-burned-by-stock-losses.html?link_position=link21

American International Group Inc. investors including Ohio firefighters are being compensated for stock declines dating to Eliot Spitzer’s 2004 probe as the insurer raises funds to move beyond a U.S. rescue.

AIG will use $550 million from a share sale scheduled for today to pay for a settlement reached last year in a securities- fraud case brought by investors led by Ohio pension funds. The bailed-out insurer and U.S. Treasury Department are selling 300 million shares to replace government funds with private capital. The sale would raise about $9 billion at yesterday’s closing share price, with two-thirds going to Treasury.

Chief Executive Officer Robert Benmosche, 66, has been working to resolve legal disputes tied to probes by Spitzer, who won a $1.64 billion settlement with AIG in 2006 when he was New York attorney general. Benmosche needs to attract private investors as Treasury seeks to lower its stake in the New York- based insurer from 92 percent.

“The new shareholders, after day one of this share sale, they absolutely want a clean slate,” said Roddy Boyd, author of “Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide.” AIG’s management has “enough competitive pressures out there, having sold their crown jewels, that they don’t need things weighing on the share price.”

AIG has slipped 38 percent this year through yesterday in New York trading as the insurer was forced to add $4.2 billion to reserves after disclosing a shortfall in February. Benmosche, AIG’s fifth CEO since 2005, has sold the company’s biggest non- U.S. life insurance units to help repay the bailout.

‘Better Trajectory’

The 2006 settlement resolved Spitzer’s allegations that AIG misled investors, faked bids and cheated workers’ compensation programs. The deal, which Spitzer said would “send AIG off on a better trajectory,” failed to restore investor confidence in the firm and fueled the insurer’s disputes with other states, rival insurers, investors and ex-executives.

Record losses in 2008 cast doubt on whether AIG could compensate investors hurt in 2004, said Thomas A. Dubbs, senior partner for Labaton Sucharow LLP and lead counsel for the Ohio funds, which provide for the retirement of firefighters, police officers and teachers. In 2010, as AIG returned to profit and struck a deal to regain independence, Benmosche agreed to settle the case for $725 million, with an initial $175 million payment.

Raising the rest through the share offering was “a creative and outstanding result, given that in the fall of 2008, many people believed AIG might not survive,” said Dubbs.

The agreement also covered public pension funds in New Mexico, Mississippi and California. The group said AIG had fraudulently inflated results, causing the share price to plummet when the deception was uncovered.

‘Restoring the Value’

The accord allows “AIG to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise,” said Mark Herr, a spokesman for the insurer. AIG will use remaining proceeds from its portion of the share sale for general corporate purposes, the company said May 11.

AIG resolved legal disputes in 2009 with former CEO Maurice “Hank” Greenberg, who was forced out during the Spitzer probe. The insurer agreed to reimburse as much as $150 million in legal fees for Greenberg and ex-Chief Financial Officer Howard Smith.

State insurance regulators and AIG’s rivals said the Spitzer settlement didn’t account for all of the firm’s deception in shortchanging workers’ compensation pools and demanded additional funds. Benmosche agreed in December to pay $100 million in fines and $46.5 million in taxes to a group of state regulators.

Continued in article

From The Wall Street Journal Accounting Weekly Review on March 30, 2007

Bob Jensen's threads on audit firm professionalism and independence are at
http://www.trinity.edu/rjensen/fraud001.htm#Professionalism

Bob Jensen's threads on Ernst & Young are at
http://www.trinity.edu/rjensen/Fraud001.htm

Teaching Case on Auditing, Regulation, Sarbanes-Oxley Act, SEC, Securities and Exchange Commission

From The Wall Street Journal's Accounting Weekly Review on June 10, 2011

U.S. Falls Behind in Stock Listings
by: Aaron Lucchetti
May 26, 2011
Click here to view the full article on WSJ.com

TOPICS: Auditing, Regulation, Sarbanes-Oxley Act, SEC, Securities and Exchange Commission

SUMMARY: "A combination of mergers, fewer U.S. IPOs, lower listing costs abroad and a shift in how investors and stockbrokers do their jobs has driven down the number of U.S. stock listings by a startling 43% since the peak in 1997-all during a period when the number of listings outside the U.S. has more than doubled." The article begins by describing the LinkedIN Corp. executives participation in ringing the opening bell on May 26; the ringing of the closing bell was done by the head of Sybase in honor of a golf tournament, but that company is no longer listed on the NYSE because it has been taken over.

CLASSROOM APPLICATION: Questions ask students to understand the overall scenario described in the article as well as the impact of regulation on companies undertaking listings on U.S. stock exchanges. The article could be used in any course covering regulation, such as auditing, and the role of stock exchanges, such as a financial reporting class.

QUESTIONS: 
1. (Introductory) Overall, what has been the trend in new listings (initial public offerings, or IPOs) on U.S. stock exchanges as described in this article?

2. (Introductory) Access the interactive graphic related to the article. What are the locations of the stock exchanges competing for major listings that are depicted in the graphic? Describe the trend in activity on each of these exchanges and in total for the time period covered.

3. (Introductory) What recent merger agreement has been made by the company that owns the New York Stock Exchange (NYSE)? What is the strategy behind that merger? (Hint: the related video will be most helpful with this question.)

4. (Advanced) What is the impact of regulation, such as complying with Sarbanes-Oxley, on companies' willingness to launch IPOs on U.S. exchanges as opposed to elsewhere?

5. (Advanced) What other costs besides regulatory compliance were cited by HaloSource, the Seattle-based water-purification company, in deciding to list its shares in London as opposed to listing in the U.S.?
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Administration Isn't Serious About Regulatory Reform
by Nancy A. Nord, Commissioner, Consumer Product Safety Commission and others
Jun 01, 2011
Page: A18

 

"U.S. Falls Behind in Stock Listings," by Aaron Lucchetti, The Wall Street Journal on May 26, 2011 ---
http://online.wsj.com/article/SB10001424052748703421204576329400112880300.html?mod=djem_jiewr_AC_domainid

Executives from LinkedIn Corp., reveling in their enormously successful initial public offering last Thursday, rang the New York Stock Exchange's opening bell. Big money, big smiles, the kind of moment that made the NYSE the Big Board.

The day's closing ceremonies told a different tale: The head of Sybase, in honor of a golf tournament it sponsored, rang the bell to end the day's trading. The firm, having been taken over by a European company, is no longer listed on the Big Board.

The steady decline in the number of stocks listed in the U.S. finally reached the point this year where both of the nation's big stock exchanges took dramatic action—NYSE Euronext agreeing to a foreign takeover, and then Nasdaq OMX Group trying unsuccessfully to bust that up and take over the NYSE itself.

A combination of mergers, fewer U.S. IPOs, lower listing costs abroad and a shift in how investors and stockbrokers do their jobs has driven down the number of U.S. stock listings by a startling 43% since the peak in 1997—all during a period when the number of listings outside the U.S. has more than doubled.

The result is some 3,800 fewer companies trade on the U.S. exchanges today than in 1997, according to consulting firm Capital Markets Advisory Partners. Abroad, there are nearly eight times as many listings as in the U.S., with Hong Kong, China and India among the leading venues.

"We're losing the ecosystem that has helped buoy the U.S. economy over decades," said Kate Mitchell, co-founder of Scale Venture Partners, a Silicon Valley venture-capital firm.

The U.S. exchanges aren't competitive for some large global IPOs, according to Nasdaq Chief Executive Robert Greifeld. "You see companies such as Prada who in the past would list here in the States," he said in April, blaming in part a "fractured message coming out of the U.S." as the two exchanges compete fiercely against each other. Italy's Prada SpA plans to list in Hong Kong. More From Deal Journal

NYSE's Niederauer on the Decline Nasdaq's Greifeld on Global Competition for Stock Listings

U.S. exchanges will certainly continue to attract some big IPOs. U.S. exchanges remain a draw for companies in industries such as social media, where U.S. investors are willing to pay a high price because they see a burgeoning profit opportunity. Looming in future years are public offerings from companies like Facebook Inc., Groupon Inc. and Twitter Inc. that are expected to be as splashy as LinkedIn's debut or more so.

Large consumer-product companies with many of their employees in the U.S. also tend to be more loyal to a U.S. stock listing. And several smaller IPOs are on tap soon, such as Spirit Airlines and Freescale Semiconductor Holdings.

But NYSE Euronext CEO Duncan Niederauer has acknowledged that the heyday of U.S. exchanges in listing newly public companies is long gone. It is one reason he has fought for the deal to be acquired by Deutsche Börse AG, he said in an interview last month.

NYSE executives say that being more global will make them more attractive for emerging-market companies looking to list their stocks somewhere in addition to their home markets, and also will position the NYSE to be a better partner for exchanges in emerging economies that want a joint venture or merger.

"The capital markets are global just like every other industry," Mr. Niederauer said. "No matter what happens in the U.S., there are 5,000 more public companies in China" coming to the market in the next 10 to 15 years. Mr. Niederauer is expected to be the head of the combined NYSE-Deutsche Börse if the deal is approved by shareholders and regulators. U.S. antitrust officials blocked Nasdaq's bid for the NYSE this month.

One of the leading reasons for U.S. exchanges' difficulty in gaining more listings is a prolonged slump in U.S. initial public offerings. The annual supply of U.S. IPOs since 2000 has averaged just 156, down 71% from the pace in the 1990s, according to Capital Markets Advisory.

Some U.S. start-ups that in the past might have turned to a U.S. exchange when they needed capital now list abroad, where fees are lower and they don't face costs such as complying with the Sarbanes-Oxley corporate-governance law.

Other closely held companies get capital by borrowing, rather than going public, amid today's historically low interest rates.

And many more private companies now simply sell themselves to a larger company. In technology, especially, cash-rich behemoths like Google Inc. and Intel Corp. are on the prowl, making offers that start-ups and entrepreneurs find hard to resist.

Skype Technologies SA filed for an IPO last August and was headed for a listing on the Nasdaq Stock Market, but this month the Internet phone company instead decided to sell itself to Microsoft Corp. for $8.5 billion.

A Bay Area technology company called BigFix Inc. worked on an IPO for nearly three years and had even selected a Nasdaq ticker symbol. But amid a choppy stock market last summer, plus an earlier hiccup in the company's growth rate, it dropped the plan and accepted a buyout offer from International Business Machines Corp.

Continued in article

Bob Jensen's threads on corporate governance ---
http://www.trinity.edu/rjensen/Fraud001.htm#Governance

"Updating A Security Program," by Jerry Trites, IS Assurance, June 11, 2011 ---
http://uwcisa-assurance.blogspot.com/

Companies that have a security policy (don't all of them?) need to update it regularly. This has been a basic precept of good security. But in modern times, it still is not always done and the times point even more than ever to the need for it.

Ernst & Young has released a document called "Information Security in a Borderless World" in which it points out, based on a survey, that many companies feel their security risk has increased. The reasons relate to the increasing incidence of global attacks, the increase in cloud computing and the use of mobile devices. On the latter, the study points out that banning mobile devices will actually increase security, contrary to the instincts of some companies.

Continued in article

Download the article:
http://www.ey.com/GL/en/Services/Advisory/IT-Risk-and-Assurance/Information-Security-in-a-borderless-world--time-for-a-rethink

What I found interesting is that this tidbit was posted by Jerry at 3:30 a.m. I don't know whether he was up that early or had just not yet gone to bed.

Win Some and Lose Some:  Some Good News for Ernst & Young
"High Court Denies Suit Against E&Y Over Time-AOL Deal," by Samuel Howard, Law360.com, June 13, 2011 ---
http://www.law360.com/topnews/articles/250918/high-court-denies-suit-against-e-y-over-time-aol-deal
Thank you Caleb Newquist for the heads up!

The U.S. Supreme Court on Monday declined to hear an appeal brought by an AOL Inc. investor alleging that Ernst & Young LLP approved tainted financial statements related to Time Warner Inc.'s merger with AOL.

In rejecting the petition for certiorari, the high court dashed AOL investor Dominic Amorosa and co-petitioner attorney Christopher Gray’s claims that the Second Circuit failed to properly apply the Securities Litigation Uniform Standards Act of 1998 when it dismissed the fraud suit in February.

The decision brings an end to 2003 suit claiming that Ernst & Young, the independent auditor for AOL, Time Warner and the merged company, engaged in fraud and abetted the companies' fraud when it issued audited financial statements approving the companies' allegedly faulty accounting.

"My client and I believe that the certiorari petition raised significant and unsettled questions of law concerning an 'opt-out' securities plaintiff’s right to pursue individual claims under the Securities Exchange Act and state law," petitioner Christopher Gray said. "While we are disappointed with the denial of certioriari, obviously not every case can be heard by the U.S. Supreme Court on the merits and we look forward to moving on to other matters."

The Second Circuit found that Amorosa had failed to state a claim for loss causation because none of the events he identified as corrective disclosures addressed AOL’s accounting practices or in any way implicated Ernst & Young’s June 1999 audit opinion.

The petitioners argued that the high court previously established that a corrective disclosure explicitly reflecting the alleged false statement is not required state such a claim.

Amorosa and Gray also challenged the Second Circuit's finding in its Feb. 2 dismissal that SLUSA preempted Amorosa's state law claims.

SLUSA defines cases that are to be considered preempted as covered class actions — cases that seek damages for more than 50 people and that are joined, consolidated or otherwise proceed as a single action — but it does not preempt state law claims in individual securities lawsuits like Amorosa's, the petitioners argued.

Continued in article

Bob Jensen's threads on Ernst & Young are at
http://www.trinity.edu/rjensen/Fraud001.htm

"PwC & Puma produce first global environmental P&L account,"  by Rachael Singh, Accountancy Age, May 27, 2011 --- Click Here
http://www.accountancyage.com/aa/news/2074230/pwc-puma-produce-global-environmental-account?WT.rss_f=&WT.rss_a=PwC+%26+Puma+produce+first+global+environmental+P%26L+account.

PUMA HAS UNVEILED the first global environmental profit and loss account, with the help of PwC and analysts Trucost. It is the first time water usage and carbon emissions have been monetised.
The sportswear retailer values both commodities for 2010 to be in the region of €94.4m (£81.9m).

Trucost worked on collating the data with PwC organising and reporting the findings as well as valuing the commodities. The Puma board was hoping to complete the environmental P&L alongside its annual report however, it missed the deadline and has released the information as a standalone statement. In future the annual report will contain the environmental information as part of its financial statements.

Continued in article

Triple Bottom Reporting
"Sustainability reporting: Seven questions CEOs and boards should ask," Ernst & Young, May 2011 --- Click Here
http://www.ey.com/Publication/vwLUAssets/Seven_things_CEOs_boards_should_ask_about_climate_reporting/$FILE/Seven_things_CEOs_boards_should_ask_about_climate_reporting.pdf

1. Who issues sustainability reports?

More than 3,000 companies worldwide, including more than two-thirds of the Fortune Global 500.

2. Why report on sustainability if you don't have to?

Increasingly, external stakeholders such as institutional investors expect it. Reporting can also bring operational improvements, strengthen compliance, and enhance your corporate reputation.

3. What information should a sustainability report contain?

Reports should contain key performance indicators relevant to the reporter’s industry. Four principles for deciding what to include are materiality, stakeholder inclusiveness, sustainability context, and completeness.

4. What governance, systems and processes are needed to report on sustainability?

Governance requires a high-level mandate and clear reporting lines. Also needed: robust systems and processes that help companies collect, store and analyze sustainability information.

 5. Do sustainability reports have to be audited?

Not yet. But they are being more closely monitored than ever before. As this trend continues, users of sustainability information will come to expect that the information has been validated by a reliable third party.

6. What are the challenges and risks of reporting?

Sustainability reporting presents many challenges, including data consistency, striking a balance between positive and negative information, continually improving performance and keeping reports readable and concise.

7. How can companies get the most value out of sustainability reporting?

Sustainability reports should be mandatory reading for all employees, and can be a valuable tool for communicating with external audiences as well. Setting targets in the form of KPIs also forces the organization to meet publicly stated goals, which makes reporting an accountability tool.

Download the full report: Seven questions CEOs and boards should ask about triple bottom line reporting

Continued in article

Bob Jensen's threads on triple bottom reporting are at
http://www.trinity.edu/rjensen/Theory02.htm#TripleBottom

Thomas B. Fordham Foundation (education research) --- http://www.edexcellence.net/

Online Instructional Resources: Faculty Development Programs at Michigan State University --- http://fod.msu.edu/OIR/index.asp

Nobody Reads Financial Statements Any More
"No-one Reads Any More,"
by Paul Kedrosky, Infectious Greed, May 15, 2011 --- Click Here
http://paul.kedrosky.com/archives/2011/05/no-one-reads-any-more.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29

Also see
"Word Power: A New Approach for Content Analysis"
by Narasimhan Jegadeesh (Emory University - Department of Finance) and  Andrew Di Wu (University of Pennsylvania - The Wharton School)
SSRN, April 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1841786

ABSTRACT:
We present a new approach in financial content analysis to determine the strength of various words in conveying positive or negative tone. We apply our approach to quantify the tone of 10-K filings and find a significant relation between document tone and market reaction for both negative and positive words. Previous research has not been successful using positive words to quantify tone. We find that our measure of positive and negative tone is significantly related to filing period returns after controlling for factors such as earning announcement date return and accruals, while the earlier approaches in the literature are not. In addition, we find that the appropriate choice of term weighting in content analysis at least as important, and perhaps more important, than a complete and accurate compilation of the word list. We find that the market underreacts to the tone of 10-K’s, and this underreaction is corrected over the next two weeks.

Teaching Case on Fair Value Accounting Standards

From The Wall Street Journal Accounting Review on May 20, 2011

"Fair Value" Accounting Guidelines Tweaked
by: Michael Rapoport
May 14, 2011
Click here to view the full article on WSJ.com
 

TOPICS: Advanced Financial Accounting, Fair Value Accounting, Fair-Value Accounting Rules, International Accounting, International Accounting Standards Board, Valuations

SUMMARY: In furthering their convergence effort, the FASB and IASB are changing promulgated standards to provide a more consistent definition of fair value. As described in the article, most of the specific changes are relatively minor but are designed to achieve improvements in convergence. "Perhaps the most significant changes [result in requirements for companies to] disclose more about the processes and assumptions they use in their level 3 valuations." Changes also require disclosure of any movements of securities between Levels 1 and 2 of assets subject to fair value measurements.

CLASSROOM APPLICATION: The article is useful to introduce the topics of convergence and/or fair value measurement in U.S. GAAP and International Financial Reporting Standards. Instructors wishing to direct their students to investigate the Accounting Standards Update (ASU) in the U.S. and the promulgated IFRS 13 may wish to delete the remainder of this paragraph from student assignments. The Accounting Standards Update on which this article is based is No. 2011104, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The international authoritative guidance is IFRS 13, Fair Value Measurement.

QUESTIONS: 
1. (Advanced) Describe the process of convergence of U.S. and international accounting standards. What factors are driving this convergence effort?

2. (Introductory) How significant were the changes to U.S. GAAP discussed in this article? How significant were the changes to IFRS? Explain any difference in your answers between the two.

3. (Advanced) What is fair value? Why must promulgated accounting standards include a definition of this concept?

4. (Advanced) How is fair value measured under U.S.GAAP and IFRS?

5. (Advanced) What are the three levels of measuring fair value under U.S.GAAP and IFRS? What new disclosures must be made in U.S. GAAP reporting about assets measured at fair value? Identify your source for this information. Explain what benefits you think will be provided by these disclosures

6. (Advanced) When is this new standard to be applied by firms reporting under IFRS? How will this accounting change be handled? Identify your source for this information.
 

Reviewed By: Judy Beckman, University of Rhode Island

 

""Fair Value" Accounting Guidelines Tweaked." by: Michael Rapoport, The Wall Street Journal, May 14, 2011 ---
http://online.wsj.com/article/SB10001424052748704681904576319600471689190.html?mod=djem_jiewr_AC_domainid

Accounting rule makers tweaked their guidelines for valuing assets based on market prices, a move that will bring U.S. and international accounting rules closer together and will require companies to disclose more about how they value their most exotic assets.

The changes adopted by the Financial Accounting Standards Board and the International Accounting Standards Board will provide a more consistent definition of "fair value," which is the market value or the closest approximation of it. Though most of the specific changes are relatively minor and won't affect the core aspects of how companies calculate fair value, the move better aligns U.S. and global accounting rules on asset valuation.

Perhaps the most significant changes affect companies' disclosures about their "Level 3" assets, which are the risky, illiquid securities valued using a company's own estimates and models rather than market prices. Companies will have to disclose more about the processes and assumptions they use in their Level 3 valuations. They will also have to discuss what might happen to the company's valuations if the factors they are using were to change.

Companies will have to disclose any movements of securities between the other two classes of fair-value assets: Level 1, those valued strictly using market prices, and Level 2, those for which a blend of market prices and a company's own models are used.

The fair-value changes are part of the rule makers' "convergence" project, their attempt to bring U.S. and international rules closer together in an effort to standardize the accounting rules used world-wide. The Securities and Exchange Commission is expected to vote later this year on whether U.S. companies should switch to using international rules altogether.

Most companies will adopt the fair-value measurement changes in early 2012.

Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/theory02.htm#FairValue

"Telling It as It Is (to new first-year students), by Craig Stark, Inside Higher Ed, June 6, 2011 ---
http://www.insidehighered.com/views/2011/06/06/essay_on_how_honest_professors_should_be_to_students_about_the_economy

Jensen Comment
This article, perhaps appropriately, does not go into the ins and outs of choosing a major upon arrival at a college or university. With a few exceptions, this is perhaps a good idea except in certain majors where there prerequisite first-year courses are essential such as in engineering and pre-med. For accounting, the prerequisite first courses can usually be delayed until the sophomore year. But the above article really does not deal with choosing a major early on before students learn a lot about education and careers during their first year on campus. Much of what they learn comes from informal interactions with students who are in their second, third, fourth, and higher levels of study. I think it's a mistake for general curriculum teachers to try to sell students on particular types of majors or particular types of politics. Let students sort these things out for themselves as they advance through the first and even the second years of study.

This article does talk about debt loads. I personally think that students in the first term of college should learn about personal finance, tax issues, and debt risk since many of them will make horrible mistakes in college and after college.

Bob Jensen's threads on personal finance helpers ---
http://www.trinity.edu/rjensen/BookBob1.htm#InvestmentHelpers

"The Value of a Humanities Degree: Six Students' Views," by Jackie Basu et al., Chronicle of Higher Education, June 5, 2011 ---
http://chronicle.com/article/The-Value-of-a-Humanities/127758/?sid=wb&utm_source=wb&utm_medium=en

"Toward a Plausible Rationale for the Humanities," by Frank Donoghue, Chronicle of Higher Education, June 3, 2011 ---
http://chronicle.com/blogs/innovations/towards-a-plausible-rationale-for-the-humanities/29565?sid=cr&utm_source=cr&utm_medium=en

Bob Jensen's threads on Humanities Versus Business ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#HumanitiesVsBusiness

"The Risks of Quantification," by William Byers, Harvard Business Review Blog, May 18, 2011 --- Click Here 
http://blogs.hbr.org/cs/2011/05/the_risks_of_quantification.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Quantification — describing reality with numbers — is a trend that seems only to be accelerating. From digital technology to business and financial models, we interact with the world by means of quantification.

While we all interact with the world through more-or-less inflexible models, mathematics contributes to this lack of flexibility because it is seemingly precise and objective. Even though mathematical models can be very complex, you can use them without understanding them very well. A trader need not really understand the financial engineering models that he may use on daily basis. This uncritical acceptance amounts to the assumption that reality is identical to our rational reconstruction of reality — for example, that the economy or the stock market is captured by our latest model.

Hitting the bottom line is certainly easier when you know with precision what that bottom line is. Numbers give you this precision, making you feel more secure about where you are going — higher revenues, lower costs. Defining the risk of an unlikely event may make us feel like we've dealt with the threat. This is part of the contribution of the "quants" on Wall Street, people with doctorates in math and physics. They bring with them a culture of quantification that they carry over from the mathematical and physical sciences and then apply to economic and financial situations. The complex mathematical models that they use may be brilliant, but the better they are the greater their potential is to misrepresent the actual, human situation that they are looking at. Because they give people like CEOs and politicians the idea that everything is understood and under control, these models often have the perverse effect of generating new, unanticipated problems.

What we misunderstand is that introducing mathematics and quantification into any situation subtly changes that situation and this needs to be taken into account. We are attached to our analytic and computational tools and have become blind to their limitations.

Consider the following four issues:

1. Statistical models are all based on the notion of randomness, but no one can really understand randomness. Many people use the word random without realizing that random means what it says — randomness cannot be predicted or controlled. A model of randomness is no longer true randomness.
2. Because they are logically consistent, mathematical models screen out ambiguity. Ambiguity is real, but business and financial models have little to no room for it. Ambiguity arises whenever there are two (or more) courses of action that are equally important yet conflict with one another. For example, we need nuclear reactors to solve some of our energy needs and to mitigate global warming. At the same time, nuclear power, as we see from Japan, comes with huge downsides. This same ambiguity is at the heart of most policy and business decisions, but mathematical models have taken out the ambiguity.
3. Putting a situation into numbers enforces the belief that things are linear and events are necessarily comparable since for any two numbers one is larger and one is smaller. Suppose that you modeled teaching on a scale that goes from 1 to 10. You would conclude that a teacher with a score of 8.3 was better than one with 6.8, but this would inevitably ignore all kinds of qualitative factors. Models simplify things by ignoring certain aspects of the situation, but we can never be sure which factors should be included and which should be omitted.
4. Any system that involves human behavior, like economics or finance, is inherently self-referential. We are all participants in, not just observers of, these systems. Self-referential systems are notoriously difficult to control and predict because they are often chaotic, not deterministic. Most mathematical models do not take this element of self-reference seriously and anyhow chaotic systems, by definition, cannot be predicted.

How do we make use of the realization that uncertainty is inevitable and our best models have blind spots? Simple acknowledgment that uncertainty is unavoidable already changes things in a fundamental way. However, this acknowledgment must be authentic and must overcome our psychological aversion to uncertainty. Uncertainty tends to make situations more complex and, therefore, projects more costly — another reason why it tends to be ignored or downplayed.

Continued in article

Bob Jensen's threads on what went wrong with accountics research ---
http://www.trinity.edu/rjensen/Theory01.htm#WhatWentWrong

"Can Value Be Brought Back to the Auditor's Report? A Tale of Two Systems," by Jim Peterson, re:Balance, May 19, 2011 ---
http://www.jamesrpeterson.com/home/2011/05/can-value-be-brought-back-to-the-auditors-report-a-tale-of-two-systems.html

Is it the best of times, in the struggle to re-introduce value into the traditional auditor’s report – or the worst of times? The age of wisdom or the age of foolishness?

Latest to join the Dickensian-length of characters is the International Auditing and Assurance Board, which on May 16 released its consultation paper, “Enhancing the Value of Auditor Reporting: Exploring Options for Change” (here).

Compared to the others, whom to list takes up three full pages of its appendix, the IAASB brings the essential combination of intelligence and technical skills. Well it should, charged with the promulgation of international standards on auditing (ISA’s), thus conversant with such abstruse but centrally relevant topics as the auditor’s responsibility for published information other than financial statements (ISA 720), and use of “emphasis of matter” and other paragraphs in an auditor’s report (ISA 706). 

Among the most prominent of those heard from, and least likely to offer substantive contributions, is the United Kingdom’s upper legislative chamber, whose Economic Affairs Committee has this spring gotten its lordly knickers in a twist over the bogus suggestion of a malign influence of international accounting standards on the crisis-era reporting of the British banks (here), and also prodded the UK’s Office of Fair Trading into an inquiry as to the market dominance of the Big Four (here) – yet another tedious exercise destined to yield neither surprises nor constructive suggestions. 

Joining the Lords in fullness of volume and emptiness of ideas has been EU markets commissioner Michel Barnier, whose “green paper” consultation served mainly to remind anyone interested of the capacity of European bureaucrats to sacrifice forests of trees to document the lowest-hanging fruit on a fragile bush (here). 

Continued in article

Jensen Comment
This is a good article, although I would've changed the wording to "Can More Vlue Be Brought Back to ..." since I do not agree with Jim regarding the lack of value in present auditor reports.

Jim is saying some of what I've been saying about "pass-fail" audit report cards ---  but Jim says it better.
"The PCAOB's Concept Release: What Might a Truly Useful Auditors' Report Actually Say?" by Jim Peterson, re:Balance, June 28, 2011 ---
http://www.jamesrpeterson.com/home/2011/06/the-pcaobs-concept-release-what-might-a-truly-useful-auditors-report-actually-say.html

Bob Jensen's threads on professionalism in auditing are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism

Deferred Tax Asset Teaching Case

From The Wall Street Journal Accounting Weekly Review on May 27, 2011

Sony Expects Hefty Loss
by: Juro Osawa
May 24, 2011
Click here to view the full article on WSJ.com
 

TOPICS: Earning Announcements, Earnings Forecasts, Income Taxes, Supply Chains, Tax Deferrals

SUMMARY: "Sony Corp. warned it expects to post an annual loss of $3.2 billion, reversing a previous prediction of a return to profitability as the Japanese electronics giant struggles to recover from the March 11 earthquake and tsunami. Sony said it would take a $4.4 billion write-off on a certain portion of deferred tax assets in Japan, in what would be the company's third straight year of red ink....Sony said that under U.S. accounting standards, a third straight year of losses from the part of the company's operations based in Japan-due partly to the yen's strength-raised questions over the validity of its deferred tax assets in Japan."

CLASSROOM APPLICATION: The article is excellent for class use to cover deferred tax asset valuation allowances but it also touches on supply chain issues. The article is as well useful to discuss management forecasts (guidance), interim and annual reporting practices in Japan, foreign private issuers' filings on Form 20-F, and Sony's use of U.S. GAAP. One question also asks the students to consider whether the effects of the Great East Japan Earthquake and tsunami should be expected to be treated as extraordinary under U.S. GAAP. By the time students answer this last question, the company should have made its filing on Form 20-F which will allow for verification of the assessment.

QUESTIONS: 
1. (Introductory) Summarize your understanding of the announcement that Sony has made and that is reported in this article. For what time period is the company reporting? In your answer, comment on the usual fiscal year-end date for Japanese companies.

2. (Introductory) What is a deferred tax asset? What is a deferred tax asset valuation allowance?

3. (Introductory) For what reasons did Sony Corp. record deferred tax assets? Why must the company now write them down by establishing valuation allowances? In what reporting period will the company show the charge for this write down as a deduction in determining net income?

4. (Advanced) Why does this deferred tax asset write-down become an "admission that the March disaster has shattered its [Sony's] expectations for a robust current fiscal year"?

5. (Advanced) Access the Filing on Form 6-K which describes the investor briefing regarding the revision of management's forecast of consolidated results that is reported on in thie article. The filing is available at http://www.sec.gov/Archives/edgar/data/313838/000115752311003320/a6733820.htm Explain your understanding of the importance of the taxable income shown by "Sony Corporation as an unconsolidated unit and its consolidated tax filing group companies in Japan" to the loss that will be reported by Sony.

6. (Advanced) Why does Sony focus on the impact of the Japanese taxable income on accounting under U.S. GAAP? In your answer, comment on the financial reporting requirements for companies traded on U.S. stock exchanges.

7. (Introductory) What was the impact of the "Great East Japan Earthquake" on sales and operating profits in the last fiscal year? In the current year?

8. (Advanced) Do you think that the impact of the earthquake and tsunami described above will be give extraordinary item treatment under U.S. GAAP? Support your answer.
 

Reviewed By: Judy Beckman, University of Rhode Island

"Sony Expects Hefty Loss," by: Juro Osawa, The Wall Street Journal, May 24, 2011 ---
http://online.wsj.com/article/SB10001424052702304520804576340750302051690.html?mod=djem_jiewr_AC_domainid

Sony Corp. on Monday said it expects to post a $3.2 billion net loss for the just-ended fiscal year, blaming a $4.4 billion write-off on a certain portion of deferred tax assets in Japan, in what would be the company's third straight year of red ink.

The write-off is an admission from the entertainment and electronics conglomerate that the March 11 earthquake and tsunami has shattered its expectations for a robust current fiscal year. While the disaster's direct impact on the company's operating profit wasn't large, the post-quake outlook put Sony in a position where it had to set aside reserves of 360 billion yen on certain deferred tax assets in its fiscal fourth quarter.

Sony lowered its net outlook for the fiscal year that ended in March to a loss of 260 billion yen from the profit of 70 billion yen it forecast in February. In the previous fiscal year, the company racked up a loss of 40.8 billion yen.

The company, however, said it predicts a return to profitability for the current business year through March 2012.

Sony said that under U.S. accounting standards, a third straight year of losses from the part of the company's operations based in Japan—due partly to the yen's strength—raised questions over the validity of its deferred tax assets in Japan. But until March, Sony saw no need to write off the assets.

"Until the quake hit, we had been counting on a considerable recovery in earnings," in the current fiscal year, Sony Chief Financial Office Masaru Kato said at a news briefing.

But conditions have changed drastically since the earthquake and tsunami. In the wake of the disaster, Sony temporarily shut 10 plants in and around the quake-hit region. All but one of those plants have since resumed operations, at least partially.

Sony said the disaster siphoned off 22 billion yen from the company's sales and 17 billion yen from its operating profit in the just-ended business year.

The company left its forecast for operating profit unchanged at 200 billion yen, but lowered its revenue outlook to 7.18 trillion yen from 7.2 trillion yen.

Sony didn't disclose what it expects for the fiscal fourth quarter, but according to a Dow Jones Newswires calculation, it is estimated to have posted a net loss of 389.2 billion yen for the January-March quarter. That compares with a loss of 56.57 billion yen a year earlier.

Like other Japanese auto and electronics makers, Sony continues to face uncertainties because its recovery prospects are partially dependent on parts and materials suppliers, many of which have also been affected by the quake.

"The supply-chain situation should recover significantly in the second half of this fiscal year," Mr. Kato said.

In the current fiscal year, Sony estimates that the quake is likely to have a negative impact of about 440 billion yen on sales and 150 billion yen on operating profit, mainly through supply-chain disruptions.

Despite the quake's expected impact, Sony said it expects that its revenue will increase this fiscal year, and that its operating profit will be about the same as the previous fiscal year.

Continued in article

Bob Jensen's threads on FIN 48 are at
http://www.trinity.edu/rjensen/Theory02.htm#FIN48

Ernst & Young

Bob Jensen's threads on leasing are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases

Teaching Case on Microsoft's Purchase of Skype

From The Wall Street Journal Accounting Weekly Review on May 13, 2011

Microsoft Dials Up Change
by: Nick Wingfield
May 11, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
 

TOPICS: Mergers and Acquisitions

SUMMARY: "Microsoft made an unsolicited bid for the Internet company last month and clinched its deal late Monday...." The price, including taking responsibility for Skype's outstanding debt, totals $8.4 billion.

CLASSROOM APPLICATION: The article is useful for introducing business combinations but also includes discussion of EBITDA and operating profit versus net income as well as the fact that the cash Microsoft will use otherwise might stay overseas and be unavailable for investment. Microsoft has most of its huge cash balance held in overseas locations and would be subject to repatriated earnings tax in order to get access to it.

QUESTIONS: 
1. (Introductory) What was the Microsoft stock price reaction to this announcement that it will buy Skype?

2. (Introductory) What are two questions about the value of this investment to Microsoft? In your answer, address the question of how Microsoft can justify a purchase price of $8.5 billion when the company is not making a profit.

3. (Advanced) Skype is "EBITDA positive but doesn't have net income," says Nick Wingfield, a WSJ Reporter, on the related video. What does this statement mean?

4. (Advanced) Why might Skype have operating profit but not net income? In your answer, define these two financial terms.

5. (Advanced) Skype's previous owner, EBay Inc., "...bought Skype in 2005 for around $3.1 billion but took a $1.4 billion charge for the transaction in 2007 after it failed to produce hoped-for synergies." What type of a write down do you think this was? Why does this write down have implications for the current Microsoft purchase?

6. (Introductory) Where is the cash that Microsoft will use to make this purchase? Why is the cash not available to Microsoft in the U.S.? How might the tax implication of using that cash impact the price Microsoft would be willing to pay for Skype?
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Microsoft's Pricey Call on Skype
by Martin Peers
May 11, 2011
Page: C20

 

"Microsoft Dials Up Change," by: Nick Wingfield, The Wall Street Journal, May 13, 2011 ---
http://online.wsj.com/article/SB10001424052748703730804576314854222820260.html?mod=djem_jiewr_AC_domainid

Microsoft Corp. racked up a whopping $8.5 billion phone bill to buy Skype SARL even though there were no signs of other serious bidders for the provider of free online video and voice chats, as the software giant moved aggressively to ramp up its growth.

Microsoft made an unsolicited bid for the Internet company last month and clinched its deal late Monday, nixing a planned Skype public offering and short-circuiting any talks with competitors such as Google Inc. and Facebook Inc.

Steve Ballmer, Microsoft's chief executive, defended the price in an interview, saying the deal—the biggest in his company's 36-year history—will let Microsoft "be more ambitious, do more things."

While Facebook, Google and Cisco Systems Inc. had shown interest in Skype, Microsoft was by far the most determined buyer, people familiar with the matter said.

The price tag—three times what Skype fetched 18 months ago—is a sign of just how hungry Microsoft is for growth opportunities—especially in the mobile-phone and Internet markets. Those missed opportunities are increasingly worrisome to Microsoft investors as traditional profit engines, like its Windows software, are showing signs of slowing.

The Skype deal is a gamble by Mr. Ballmer that he can succeed where those that have gone before him have failed: using the phone-and-video-calling service to make money. Microsoft's ambitious goal is to integrate Skype into everything from its Xbox videogame console to its Office software suite for businesses.

Microsoft also hopes Skype can jump-start its effort to turn around its fortunes in the mobile-phone market, an area where it has lagged far behind Apple Inc. and Google. Phones running Microsoft software were just 7.5% of the smartphone market last quarter, according to Comscore Inc.

he Skype purchase comes as the technology industry's momentum is increasingly being fueled by consumers, with the explosive rise of social network Facebook, now at more than 600 million global members, and devices such as Apple's iPad and iPhone reshaping the cellphone and computer markets.

That has pushed many big tech companies that had largely relied on businesses for growth—from Dell Inc. to Cisco—to seek ways into consumer technologies.

Some of those moves haven't paid off, however. Cisco, for example, recently shut down the division that made its Flip video cameras, just two years after acquiring the business.

Whether Microsoft can make a Skype acquisition work—especially at such a rich price—is a question mark. EBay Inc. bought Skype in 2005 for around $3.1 billion but took a $1.4 billion charge for the transaction in 2007 after it failed to produce hoped-for synergies.

EBay decided to shed the business, and sold a 70% stake in Skype to a group of investors led by private-equity firm Silver Lake Partners about 18 months ago. The deal valued all of Skype at a $2.75 billion.

Mr. Ballmer said Microsoft and Skype have far more in common than Skype had with eBay since both companies are in the "communications business." He said communications technologies have been "the backbone" of Microsoft's growth in recent years and that Skype has "built a real business," with more than $860 million in 2010 revenue.

"I think our case for why to bring this together comes from a very different place," he said.

Overall, Skype has more than 170 million active users and 207 billion minutes of voice and video conservations flowing through its service. But despite its widespread use, it has been slow to convert users into paying customers and generate meaningful profits. It had a net loss of $7 million last year.

Continued in article

Bob Jensen's threads on mergers and acquisitions are at
http://www.trinity.edu/rjensen/Theory02.htm#Pooling

"Rating Agencies Face Crackdown," by Ben Protess, The New York Times, May 18, 2011 ---
http://dealbook.nytimes.com/2011/05/18/rating-agencies-face-crackdown/

Securities regulators are out to tame the credit rating agencies, crucial Wall Street players at the center of the financial crisis.

The Securities and Exchange Commission proposed sweeping new rules on Wednesday to overhaul the rating business — regulations that would force tougher internal controls, potentially curb conflicts of interest and even mandate that the agencies periodically test the competence of their employees.

“These rules are intended to help investors and other users of credit ratings better understand and assess the ratings,” Mary L. Schapiro, chairwoman of the S.E.C., said at a public meeting on Wednesday. “It is a massive proposal,” she said of the plan, which spans more than 500 pages.

The S.E.C.’s five commissioners unanimously agreed to advance the proposals, which are now open for public comment for 60 days.

The agency’s Republican commissioners indicated, however, that they would push for some changes. The proposals “could be life threatening” to small rating agencies,” Kathleen L. Casey, a Republican commissioner, said at the public meeting.

A rating agency, for instance, would have to take on the costs of periodically administering performance exams that would “test its credit analysts on the credit rating procedures and methodologies it uses,” according to a summary of the proposal.

The proposals stem from the Dodd-Frank Act, the financial overhaul law enacted last year. The S.E.C. has already proposed new policies under Dodd-Frank that would strip references to credit ratings from rules that govern securities offerings.

The rating agencies in recent years became a target in Washington, as regulators and lawmakers blamed them for feeding the mortgage bubble by awarding top grades to bonds backed by subprime mortgages. The investments later soured, driving the economy to the brink.

A Congressional panel that chronicled the crisis called the largest rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — “essential cogs in the wheel of financial destruction.”

The problems, critics say, stem from an inherent conflict of interest plaguing the rating agencies’ business model.

Banks and corporations that issue debt must pay the rating agencies to assign their bonds a letter grade. In the lead-up to the crisis, the rating agencies had a heavy hand in the mortgage bond business, as they advised big banks how to earn a top triple-A grade. In a quest for profits, the critics say, the agencies compromised the integrity of their ratings.

The S.E.C.’s proposal intends to mitigate some of those conflicts, which have long hurt the industry’s reputation.

The plan would prohibit analysts from issuing a rating if they also marketed their rating agency’s products or services. Small rating agencies can apply for an exemption from this rule.

The proposal also takes aim at the revolving door between the rating agencies and Wall Street firms that seek the grades.

Under the plan, the rating agencies would have to examine whether their former analysts awarded overly rosy ratings to a firm that later hired that person. In such cases, the rating agencies would have to “promptly determine whether the credit rating must be revised.”

Ms. Casey said that this proposal “threatened to cross the line” into dictating the substance of credit ratings. “I am concerned.

Continued in article

Bob Jensen's threads on which the top credit rating agencies got caught giving AAA ratings to junk bonds ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

From Paul Caron on May 10, 2011 --- http://taxprof.typepad.com/

Morgan: International Tax Law as a Ponzi Scheme

Ed Morgan (University of Toronto, Faculty of Law) has posted International Tax Law as a Ponzi Scheme, 34 Suffolk Transnat'l L. Rev. ___ (2011), on SSRN. Here is the abstract:

This paper explores the extent to which international tax law is more than the sum of its parts. It does so by examining three recent legal/policy decisions. The 2006 judgement of the Tax Court of Canada in MIL Investments decided that a statutory general anti-avoidance rule of interpretation does not operate to bar the practice of treaty shopping for corporate residence; the 2008 judgement of the United States Tax Court in Jameison determined that the alternative minimum tax credit limitation trumps the Canada-United States tax treaty foreign tax credit as the last-in-time enactment; and the Internationally Agreed Tax Standards issued by the OECD seek to implement a coordinated international standard for tax reporting. These decisions demonstrate that although tax treaty networks and a centralized OECD structure have been put in place, the interpretation and application of these instruments reflect much international law thinking in that they invariably circle back to unilateral state policy.

Bob Jensen's threads on Ponzi Schems --- http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

Are profit-seeking corporations hopeless sociopaths?
"Business-School Leaders Debate Corporate Responsibility," by Katherine Mangan, Chronicle of Higher Education, May 1, 2011 ---
http://chronicle.com/article/Business-School-Leaders-Debate/127361/

The nation's financial meltdown and the sweeping regulatory overhaul it sparked are providing business schools with plenty of sobering teaching material about ethics, corporate social responsibility, and the unintended consequences of financial reform, according to participants at the annual meeting here of AACSB International: the Association to Advance Collegiate Schools of Business.

The meeting, which wrapped up on Saturday, included spirited discussions about the role that business schools play in society and the lessons they should be passing on to the next generation of corporate movers and shakers.

More than 1,300 business educators and leaders from 53 countries and territories attended the meeting of the association, which accredits 620 institutions worldwide.

"This isn't just a teachable moment about the financial crisis," said Robert Glenn Hubbard, dean of Columbia Business School and a former chairman of the White House Council of Economic Advisers under President George W. Bush. "It's a teachable moment about how you connect the dots" so another crisis doesn't occur.

In addition to offering courses in corporate governance and ethics, business schools are struggling to educate students about the financial-overhaul legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173), that was enacted last year.

Many of the business educators here were skeptical about the value of the legislation, which mandated comprehensive regulation of financial markets and greater openness about complex investments called derivatives.

Franklin R. Edwards, director of the Center for the Study of Futures Markets at Columbia Business School, called the legislation "a hodgepodge of regulatory initiatives" that puts regulators in charge, despite their failure to protect consumers in the past.

"If I had to grade it as a professor, I'd be giving it a D-plus," he said. Misgivings About Graduates' Behavior

In another session, Ira A. Jackson, a visiting scholar at the Legatum Center for Development and Entrepreneurship at the Massachusetts Institute of Technology, said business schools should feel "humbled" by the role they may have played in the crisis. Their former students were among the people selling "grenade loans" to their competitors, hoping they would blow up on them, he said.

"Those were our graduates. Why weren't they figuring out how to help working-class people afford homes in a responsible way?" he said.

Arguing against him in the debate-style panel was Aneel G. Karnani, an associate professor of strategy at the Ross School of Business at the University of Michigan. Mr. Karnani explained why he dismisses the idea that corporations should be socially responsible as "useless" and even "dangerous."

Noting the slew of angry letters he received after an essay he wrote appeared in The Wall Street Journal, Mr. Karnani said that arguing against the idea that companies have a duty to act in the public interest "is kind of like coming out against motherhood and apple pie." Putting the Onus on Regulators

Mr. Karnani said business schools should stop demonizing government and regulation and recognize that the fiscal crisis was caused not by a lack of ethics but by a lack of regulation. Publicly held businesses should just follow rules set by the government and not try to solve the world's social problems if doing so cuts into their profits, he argued.

He added that corporate social responsibility is "fundamentally undemocratic" because company officials decide what values they are going to promote instead of letting the government and voters decide.

Mr. Jackson countered that students are demanding that business schools take a more proactive approach.

Continued in article

Islamic and Social Responsibility Accounting ---
http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting

Triple Bottom Accounting ---
http://www.trinity.edu/rjensen/theory02.htm#TripleBottom

Ernst & Young

Jensen Comment
There's an old saying when cable companies are bringing fiber to households:
"The last mile costs more than all the other miles."

The FASB and IASB may well have delayed the most controversial issues in standards convergence to the "last mile" items in that convergence like convergence on hedge accounting standards. At the moment there are quite a few big differences such as hedge accounting for embedded derivatives (that was abandoned by the IASB) and hedge accounting for portfolios where hedged item risks within a portfolio differ from hedging contract risks. These are not small pebbles in the convergence stream.

Thank you for this Tom --- Click Here
http://accountingonion.typepad.com/theaccountingonion/2011/05/hedge-accounting-convergence-crunch-time.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29
 

Accounting Doctoral Programs

PQ = Professionally Qualified under AACSB standards
AQ = Academically Qualified under AACSB standards

May 3, 2011 message to Barry Rice from Bob Jensen

Hi Barry,

Faculty without doctoral degrees who meet the AACSB PQ standards are still pretty much second class citizens and will find the tenure track hurdles to eventual full professorship very difficult except in colleges that pay poorly at all levels.

There are a number of alternatives for a CPA/CMA looking into AACSB AQ alternatives in in accounting in North American universities:

The best alternative is to enter into a traditional accounting doctoral program at an AACSB university. Virtually all of these in North America are accountics doctoral programs requiring 4-6 years of full time onsite study and research beyond the masters degree. The good news is that these programs generally have free tuition, room, and board allowances. The bad news is that students who have little interest in becoming mathematicians and statisticians and social scientists need not apply --- http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms 

As a second alternative Central Florida University has an onsite doctoral program that is stronger in the accounting and lighter in the accountics. Kennesaw State University has a three-year executive DBA program that has quant-lite alternatives, but this is only available in accounting to older executives who enter with PQ-accounting qualifications. It also costs nearly $100,000 plus room and board even for Georgia residents. The DBA is also not likely to get the graduate into a R1 research university tenure track.

As a third alternative there are now some online accounting doctoral programs that are quant-lite and only take three years, but these diplomas aren't worth the paper they're written on --- http://www.trinity.edu/rjensen/Crossborder.htm#CommercialPrograms  Cappella University is a very good online university, but its online accounting doctoral program is nothing more than a glorified online MBA degree that has, to my knowledge, no known accounting researchers teaching in the program. Capella will not reveal its doctoral program faculty to prospective students. I don't think the North American academic job market yet recognizes Capella-type and Nova-type doctorates except in universities that would probably accept the graduates as PQ faculty without a doctorate.

As a fourth alternative there are some of the executive accounting doctoral programs in Europe, especially England, that really don't count for much in the North American job market.

As a fifth alternative, a student can get a three-year non-accounting PhD degree from a quality doctoral program such as an economics or computer science PhD from any of the 100+ top flagship state/provincial universities in North America. Then if the student also has PQ credentials to teach in an accounting program, the PhD graduate can enroll in an accounting part-time "Bridge Program" anointed by the AACSB --- http://www.aacsb.edu/conferences_seminars/seminars/bp.asp 

As a sixth alternative, a student can get a three-year law degree in addition to getting PQ credentials in some areas where lawyers often get into accounting program tenure tracks. The most common specialty for lawyers is tax accounting. Some accounting departments also teach business law and ethics using lawyers.

Hope this helps.

Bob Jensen

PS
Case Western has a very respected accounting history track in its PhD program, but I'm not certain how many of the accountics hurdles are relaxed except at the dissertation stage.

May 3, 2011 reply from Jim Martin

Barry,

I have been developing a new topic on the MAAW site - "Advice for
Accounting Ph.D. Students and New Faculty. It includes a bibliography,
some blog notes, and several summaries. Your former student might find it
useful.
 

http://maaw.info/AdviceforAccountingPhDstudentsMain.htm

May 9, 2011 message from Denny Beresford

This is a very nice summary document – suitable both for explaining a public company audit to a business person or an accounting student.

Denny

 

From: Cindy Fornelli [mailto:cindy.fornelli@thecaq.org]
Sent: Monday, May 09, 2011 10:31 AM
To: Dennis R Beresford
Subject: In-Depth Guide to Public Company Auditing

 

May 9, 2011

Dear Friend of the CAQ:

I am pleased to share with you the CAQ’s newest publication, the In-Depth Guide to Public Company Auditing.

The booklet is designed for investors and others interested in understanding the external audit process for public companies and role the audit plays in our capital markets.

The In-Depth Guide to Public Company Auditing provides more detail about the audit process than the CAQ’s 2009 Guide to Public Company Auditing, which serves as an introduction and overview of public company auditing.

The CAQ’s continuing dialogue with individual investors indicates that many in the marketplace do not fully understand the scope of the audit process and the responsibilities placed on public company auditors. We hope the In-Depth Guide to Public Company Auditing will help to bridge that information gap.

The new Guide also will inform our future investor education activities. Last month, we launched the “For Investors” section of our Web site, www.TheCAQ.org, which provides information about auditing and links to financial literacy resources. Additional investor education activities are planned in the coming months.

The Guide can be accessed at http://www.thecaq.org/publications/In-Depth_GuidetoPublicCompanyAuditing.pdf.

 

As always, I welcome any feedback you may have about CAQ publications.

Sincerely,

Cindy Fornelli
Executive Director
Center for Audit Quality | 601 13th Street NW, Suite 800N | Washington, DC 20005 

May 10, 2010 message from Jim Peterson

Dear Bob --

With thanks for your posting about my thoughts on the Doty speech -- and a couple words of further observation for your thoughts.

First on the PCAOB's track record to date, it is important I think not to measure by inputs, but by results.  No grown-up would argue in favor of the the history of state-level and AICPA oversight as a satisfactory set of bench-marks, but the absence of beneficial impact on the tumultuous events of the last four years suggests that the question "where were the regulators?" remains appropriate. Counting the number of reports issued on a miniscule sample of the audits of public companies is a little like the police commissioner who claims success for hiring a bunch of new cops, without counting the actual impact on the crime statistics.

As for "hitting the ground running," the agency record on the international front itself is instructive -- the time and money wasted through the early years of frustrated foreign-firm registration and inspection are abysmal. Meanwhile although a blip on the government screen, the agency operates with a budget (and a salary structure!) that are disproportionate and out of line with its record.

(And, by the way, I accept that I am probably in a minority in my hostility to the entire adventure in internal controls reporting -- where the eventual cost to the profession for issuing those clean reports on companies whose own opinions are being litigated even today has yet to be reckoned. Again, the nuanced issue is not a matter of what "has been done," but what the results might have been had something else been done, including leaving the post-Enron era to the cyclical cleansing that I think would have been inevitable without the cost and disruption the SarBox imposed.)

While it may not always come across, I will assert a perspective different from that of McKenna, Turner, Levitt and the other unremitting critics of the profession, whose antagonism seems in my view to seek nothing less than the collapse of the large-firm organizations: namely, that on a career's worth of engagement with friends, partners and clients in the profession, I try to promote the goal of achievable and sustainable delivery of assurance value to the community of users. It is, unfortunately, necessary to be blunt to the point of lack of diplomacy to say that leadership in all sectors has -- following the basic DNA of each of the players -- been sadly lacking in both vision and execution.

Well -- enough. Thanks again and as always I welcome the dialog.

Best regards --

Jim

May 10, 2011 Reply from Bob Jensen

Burglar Bars
 

Hi Jim,

I agree to a point, but what I admire most about the PCAOB is the organization's willingness, from the very beginning, to tackle the myth that a more expensive audit from a Big Four firm is necessarily a superior audit and the myth that the Big Four firms always place investor interests ahead of their clients' interests. In many cases the Big Four audits are mostly conducted by fresh college graduates that are about as effective as Keystone cops going through the motions.

In a way, the PCAOB took over where Abe Briloff left off. Abe also only examined a minuscule portion of the public financial statements and found an even smaller proportion of Big Eight audit failures and evidence of lack of independence.

But one-by-one Abe's anecdotal disclosures of audit failures added up over the years to a point where the accumulated record was far more influential than most any fine or lawsuit. The Big Eight went after Briloff because over time his revelations really did knock them off their high horses. The same thing is happening with the PCAOB audit inspections. Please give them a little more time!

I think Briloff and now the PCAOB are doing more to improve audit professionalism than most any other single thing apart from multimillion losses in court settlements.

And I don't think we can wipe off the SOX successes with a sweep of the pen until we actually study the evidence of these successes and failures. Unfortunately, the biggest SOX successes are like auditing successes in general --- successes in ex ante prevention rather than ex post correction. After SOX, how many clients really invested a significant amount of time and money in improving internal controls so as not to be caught up with weaknesses that might be discovered later on in CPA audits? I think the investments were huge.

To me the real benefits of SOX and auditing in general are in the prevention benefits, and these are literally impossible to evaluate in terms of failures that would've happened had there not been prevention efforts.

It's a lot like the security bars (with fire escape locks)  on all windows and doors of our former San Antonio home.
San Antonio has an extremely high number of car thefts and home burglaries. In part, this is due to the high number of undocumented poor young men in San Antonio who sneaked across the Rio Grande and cannot find suitable jobs. Drug addictions also are heavily to blame, because hard core addicts will take great chances to get money for street narcotics.

We won't ever know the true benefit versus cost of our burglar bars in San Antonio. What we do know is that we never had a burglary when over a third of the other homes in our upscale neighborhood, including those with electronic security, were burglarized. One captured burglar said he skipped our house because of the bars. Instead he hit our immediate neighbor's home and was hauling off possessions of our dear friends when  police arrived at the scene.  How many other burglars passed on by our house while seeking out homes without bars on the windows and doors?

Burglar bars are a lot like investments in internal controls in that the unmeasurable preventative benefits most likely greatly exceed the costs. SOX made companies think more about the effectiveness of their preventative internal controls.

Respectfully,
Bob Jensen

 

2011 PCAOB Standards and Related Rules
Published by the AICPA
http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/AuditAttest/Standards/PCAOBStandards/PRDOVR~PC-057207/PC-057207.jsp

This is a good summary of the FASB-IASB Joint Projects and Standards Convergence Initiatives

"Joint Project Watch FASB/IASB joint projects from a US GAAP perspective May 2011," Ernst & Young, 2011 ---
http://www.ey.com/global/assets.nsf/United%20Accounting/JointProjectWatch_BB2303_May2011/%24file/JointProjectWatch_BB2303_May2011.pdf

Keeping up with the standard-setting activities of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) on their many joint projects can be challenging. But with several major projects in active stages, it’s important that you consider the potential effects of new standards on your company. The Boards recently revised their work plans, announcing delays on certain projects, but are still scheduled to complete work on many of these projects in 2011.

This publication is designed to give you a snapshot of key developments from a US GAAP perspective each month, along with our observations about the potential implications for companies. We also include references to other Ernst & Young publications that provide more background and detail on the projects and proposals. These publications are available at ey.com/us/accountinglink.

The following discussion is based on our observations of the standard setter meetings. The Boards are actively redeliberating many of these projects, making tentative decisions that may be different from earlier decisions and those in the exposure drafts (EDs). At this point, the Boards’ decisions and our observations are all subject to change.

Joint projects

Financial instruments ................................ ............................................................... 1

Revenue recognition ................................................................................................. 4

Leases......................................................................................................................... 5

Fair value measurement ..................... ...................................................................... 6

Insurance contracts ................................................................................................... 7

Other joint projects .................................................................................................... 8

Presentation of other comprehensive income .................................................................. 8

Reporting discontinued operations ................................................................................. 8

Consolidation ................................................................................................................ 9

Emissions trading schemes ............................................................................................. 9

Financial instruments with characteristics of equity ...... ................................................. 10

Financial statement presentation ................................................................................... 10

Joint projects timeline .............................................................................................. 11

 

Ernst & Young

Jensen Comment
There's an old saying when cable companies are bringing fiber to households:
"The last mile costs more than all the other miles."

The FASB and IASB may well have delayed the most controversial issues in standards convergence to the "last mile" items in that convergence like convergence on hedge accounting standards. At the moment there are quite a few big differences such as hedge accounting for embedded derivatives (that was abandoned by the IASB) and hedge accounting for portfolios where hedged item risks within a portfolio differ from hedging contract risks. These are not small pebbles in the convergence stream.

Bob Jensen's free tutorials on hedge accounting are at
http://www.trinity.edu/rjensen/caseans/000index.htm

Bob Jensen's threads on accounting standards controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

"State Audits on the Increase," NexusNegiotuator, May 6, 2011 ---
http://www.nexusnegotiator.com/blog/state-audits-on-the-increase/

Say the word “audit” and most people will immediately link it to the IRS. But we’re seeing an increase in state audits, as state governments try to replace missing revenues. We’re also hearing that these audits can be unpleasant and difficult experiences.

Audits are on the increase in California, New York, New Jersey, and Idaho. California announced in late 2010 that it had California’s tax collection agencies are getting an additional $226 million to hire more auditors and tax collectors and pay for new enforcement initiatives, including hiring attorneys in other states to assist with cross-border nexus collections and researching land records to find out-of-state property owners.

In New York, restaurant owners recently complained about state auditing methods that frequently changed, or created unrealistic sales projections, on which companies were then assessed uncollected sales tax. Owners also complained of confrontational auditors and unprofessional behavior.

In Illinois, officials recently announced the addition of 50 new auditors, bringing the state total to just under 200, to help with the increasing audit workload. And Connecticut announced it would be increasing the number of audits conducted in 2011 by 10% over previous year’s rates.

As states look to increase audits, one of the areas they are specifically targeting is out-of-state taxpayers who have created nexus for themselves in some fashion. For example, many states closely examine land records, looking for owners with out-of-state addresses, or companies that are not also registered as land-owners with the state. In addition, there are some states, including New York, where the failure to file a return can be a red flag. The state is looking to establish that someone has truly severed all ties to the state, rather than simply claiming a new principal residence elsewhere and continuing to maintain property in-state.

As financial pressure on states continues to increase, so to will the number of audits. If you think you may have a possible connection to another state, now is the time to act. There are options available, including a negotiated settlement between you and a state that can limit fines and penalties and unpaid taxes. However, once a state finds you, your negotiating power is limited. Talk to your CPA or tax advisor right away, and take the necessary steps.

The Newness Versus Rigor Tradeoff:  The "rigor" bar has been ratcheting up for the last 20-30 years

"FMA Decisions Are Out," The Unknown Professor, Financial Rounds, May 3 ---
http://financialrounds.blogspot.com/

. . .

This tale of two papers reminds me of a piece I read a while back (unfortunately, I can't recall its title). It discussed how there's a trade-off in research between "newness" and "required rigor". In other words, if you're working on a topic that's been done to death (e.g. capital structure or dividend policy), you'll be asked to do robustness tests out the yazoo. On the other hand, if it's a more novel idea, there's a lower bar on the rigor side, because the "newness" factor gets you some slack on the rigor side.

In general, however, the "rigor" bar has been ratcheting up for the last 20-30 years, regardless of the "newness" factor. To see this, realize that the average length of a Journal of Finance article in the early 80s was something like l6 pages - now it's more like 30-40. As further (anecdotal) evidence, a friend of mine had a paper published on long-run returns around some types of mergers in the Journal of Banking and Finance about 9 years back. They made him calculate the returns FIVE different ways.

Continued in article

I only wish "rigor" in accounting research demanded more independent validity research and replication ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Question
What clunkers erroneously got cash for clunkers?

Answer
In 473 cases, the tax agency erroneously allowed 439 prisoners who were in jail the entire year, 16 dead people and 18 children under the age of 15 to claim just over $1 million in deductions.

"Audit: IRS Erroneously Gave Out $151 Million In Auto Tax Breaks," by Kristina Peterson, Dow Jones Wires via Nasdaq.com, June 8, 2011 ---
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201106080015dowjonesdjonline000005&title=auditirs-erroneously-gave-out-151-million-in-auto-tax-breaks

The Internal Revenue Service stumbled in handling a tax incentive designed to promote automobile sales, handing out more than $151 million in erroneous deductions, as well as 473 credits given to people who were imprisoned, dead or underage, a Treasury Department report said Wednesday.

The IRS missed 4,257 individuals who claimed more than $151 million in undeserved tax deductions as part of the 2009 stimulus package program designed to boost automobile sales, according to an audit released Wednesday from the Treasury inspector general for tax administration.

In 473 cases, the tax agency erroneously allowed 439 prisoners who were in jail the entire year, 16 dead people and 18 children under the age of 15 to claim just over $1 million in deductions.

The tax incentive was designed to boost vehicle sales by allowing taxpayers up to a certain income level to deduct some state and local taxes from buying a car, light truck, motorcycle or motor home between February 2009 and January 2010. The deduction expired Dec. 31, 2009, and hasn't been extended.

Problematically, the IRS doesn't require individuals to supply independent documents proving that they bought a car that qualified for the tax deduction, leading them to permit the tax break in error at times, the report found. When auditors looked at a sample of 150 tax returns of individuals who applied for the deduction, they only found records that 65 of those people had actually purchased a qualified vehicle that year.

Even when the IRS does flag suspicious accounts, it doesn't always take the proper steps to decide whether the person deserves the deduction, the report concluded.

"It is imperative that the IRS address the weaknesses identified in this report," J. Russell George, the Treasury inspector general for tax administration said in a statement. "These are taxpayers' dollars, and the [IRS] must ensure that only those who deserve this and other tax benefits receive them."

The IRS agreed to review all of the cases flagged by the report.

Continued in article

Jensen Comment
At least I turned in a 1989 Cadillac that I inherited from my dad. It only had 70,000 miles and wasn't even a clunker. Unfortunately, it did not have four-wheel drive for these mountains.

Video
Quantitative versus Fundamental Value–Let’s get ready to RUMMMBLE!
May 8, 2011
http://blog.empiricalfinancellc.com/2011/05/quantitative-versus-fundamental-value-lets-get-ready-to-rummbbbllle/

Bob Jensen's threads on the Efficient Market Hypothesis ---
http://www.trinity.edu/rjensen/Theory01.htm#EMH

U.S. auditing firms are roaring tigers compared to Chinese auditing firms
Chinese Firms Need to Open Up Books

Question
What do Trojan Horse viruses, listed Chinese companies in the U.S., and many for-profit universities have in common?

Answer
They all entered by way of the back door. Trojan viruses are known for the the sneaky way they gain back door entry into computer systems. Many for-profit universities bought regional accreditation (especially from the lax Northwest Acceditation Commission) by purchasing small, failing, and nearly bankrupt non-profit colleges that had shaky lingering accreditation due mostly to laxness of the accrediting agencies). And here's how Chinese companies entered into U.S. capital markets by way of the back door:

 In the U.S., Chinese companies have used reverse mergers to gain access to the benefits of public listing without having gone through the rigorous regulatory process of an initial public offering. Further, Chinese companies listed in Hong Kong and other worldwide markets are allowed to use auditors from mainland China in producing financial statements for submission in fulfillment of listing requirements. However, China has no agreement with international regulators to allow supervision over the audit function in the country. "In testimony to U.S. lawmakers this past April, James Doty, the PCAOB's chairman, called the group's inability to inspect the work of registered firms in China 'a gaping hole in investor protection.'"
See below

Teaching Case
From The Wall Street Journal Accounting Weekly Review on June 24, 2011

Chinese Firms Need to Open Up Books
by: Peter Stein
Jun 20, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
 

TOPICS: International Accounting, International Auditing, Mergers and Acquisitions, Public Accounting, Sarbanes-Oxley Act, SEC, Securities and Exchange Commission

SUMMARY: In the U.S., Chinese companies have used reverse mergers to gain access to the benefits of public listing without having gone through the rigorous regulatory process of an initial public offering. Further, Chinese companies listed in Hong Kong and other worldwide markets are allowed to use auditors from mainland China in producing financial statements for submission in fulfillment of listing requirements. However, China has no agreement with international regulators to allow supervision over the audit function in the country. "In testimony to U.S. lawmakers this past April, James Doty, the PCAOB's chairman, called the group's inability to inspect the work of registered firms in China 'a gaping hole in investor protection.'"

CLASSROOM APPLICATION: The article may be used in an auditing class to relate the role of the PCAOB and the audit function to investor confidence in financial markets. It also may be used in an international accounting class to discuss current issues faced in globalization of financial markets.

QUESTIONS: 
1. (Advanced) What is the Public Company Accounting Oversight Board (PCAOB)?

2. (Advanced) What role does the PCAOB play that provides critical support to the Securities and Exchange Commission (SEC) and other regulators over U.S. markets?

3. (Introductory) What is the difference between the role the PCAOB fills with respect to U.S. publicly-traded companies and the role it can play regarding Chinese companies listed in the U.S.?

4. (Advanced) What is a "reverse merger"? How can this transaction avoid difficult requirements associated with an initial public offering (IPO)?

5. (Introductory) How do stock markets react to the uncertainty created by the current situation for Chinese companies with shares listed outside of their home country? What does it mean to say that these companies should "open their books" to resolve this uncertainty?

6. (Introductory) Refer to the related video. Who will get "left behind" as China moves to higher value added production as its economic focus? How does that possibility compare to the situation we face in the U.S.?
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
SEC Weighs Curbs on Backdoor Stock Listing
by Andrew Ackerman
Jun 22, 2011
Online Exclusive

 

"Chinese Firms Need to Open Up Books," by: Peter Stein, The Wall Street Journal, June 20, 2011 ---
http://online.wsj.com/article/SB10001424052702304453304576391273351090918.html?mod=djem_jiewr_AC_domainid

Poor access to information is a major culprit in the selloff of China's overseas-listed companies. If China hopes to limit the damage, it needs to open up.

The Securities and Exchange Commission is investigating accounting and disclosure issues at a number of U.S.-listed Chinese companies that acquired backdoor listings through so-called reverse mergers, and even top-name Chinese companies are inviting new scrutiny. Renren Inc., a social-networking site that launched its shares to much fanfare in early May, now trades at about half its IPO price. Renren itself stirred controversy when it lowered the growth rate of its user base without explanation in its IPO prospectus and the head of its audit committee resigned just before the listing.

Shares of Toronto-listed Sino-Forest Corp. have plunged 80% since late May after a short seller alleged problems in the forestry company's accounting, which the company denies. Hong Kong-listed Chinese companies, too, are drawing new scrutiny over their accounting.

Not all Chinese companies are shady. But investors are right to ask: How do you know which aren't?

One answer is access to information. Auditors need it to be sure a company's business is as good as management says it is. So do regulators who oversee the auditors.

In the case of Chinese companies, however, there are no arrangements that allow the Public Company Accounting Oversight Board, the U.S. government's accounting regulator, to inspect the work of accountants in China. So the PCAOB can't really know whether that work is reliable. Using U.S. accountants doesn't help because they outsource the real work to accountants in China anyway.

In testimony to U.S. lawmakers this past April, James Doty, the PCAOB's chairman, called the group's inability to inspect the work of registered firms in China "a gaping hole in investor protection."

The limited ability of Hong Kong regulators to access information on Chinese companies has long been a risk factor for the city's stock market, the primary venue through which foreign investors buy a piece of China. That ability suffered a new blow late last year when the local exchange agreed to let mainland Chinese companies listed in the territory use mainland auditors. As part of the new arrangement, Hong Kong's Securities and Futures Commission secured a promise that it would be able to examine records of auditors for companies it wants to investigate.

"Clearly the test will be when we have a live case to go through," Martin Wheatley, the outgoing head of the SFC, recently said in an interview. That hasn't yet happened.

Concerns about the transparency of Chinese companies put one Hong Kong-listed stock through the wringer last week. On Tuesday, Standard & Poor's withdrew its ratings for long-term corporate debt of a major Chinese packaging manufacturer, Nine Dragons Paper (Holdings) Ltd., after its analyst complained of being unable to get senior management to answer questions about the company's business. The stock plunged more than 17% after S&P's move, though it regained much of the loss the next day, when Nine Dragons said it was willing to cooperate with S&P and respond to requests for information.

Continued in article

Jensen Comment
Sometimes we think it might be nice to send these listed Chinese companies out the back door on the horse they road in on, but then we must face the reality that China is our banker that keeps the deficit-ridden United States afloat. It's wise to send your banker back out on the horse he rode in on.

It would seem that listed Chinese companies would have audits conducted by large international CPA firms in order to attract investors suspicious of Chinese accounting and auditing. Capital market efficiency is not entirely dead.

"(Francine) McKenna Covers The Berkshire Hathaway Annual Meeting," by Francine McKenna, re:TheAuditors, May 3, 2011 ---
http://retheauditors.com/2011/05/03/mckenna-covers-the-berkshire-hathaway-annual-meeting/

There are many ways journalists, investors, and Warren Buffett himself refer to the Berkshire Hathaway Annual Meeting, held in Omaha, Nebraska. These short-cuts and sobriquets add a larger-than-life aspect to what is typically, for almost any other public company, a rather perfunctory affair. Barring any significant controversy, expected or unexpected, no one that doesn’t absolutely have to show up at an annual meeting usually makes the trip.

I had the good fortune to spend some time on Saturday with the New York Bureau Chief of The Economist Matthew Bishop. He’s a UK native and co-author of the book “Philanthrocapitalism”. This was also his first time at the “Woodstock for Capitalism.”

(That’s what Warren Buffet calls the event in his Annual Letter to Shareholders but I think this “Buffettism” is oxymoronic.)

Bishop told me that in the UK there used to be much higher attendance at shareholder meetings, usually for the banks. This reliable audience consisted mainly of retirees because the companies served a lovely lunch in the City. When that stopped, most budget-minded pensioners no longer attended.

Every once and a while someone calls me a “gad-fly” with regard to audit industry reform. I don’t much like that term because it makes a buzzing sound in my ears. When they also mention fabled shareholders’ activist Evelyn Y. Davis in the same breath, I warm to the label. You can still count on her to stir up a fuss at an Annual Meeting.

Ms. Davis is a corporate governance legend. Here’s her tombstone.

The Berkshire Hathaway Annual Meeting draws a huge crowd because it features several hours of the wit and wisdom of Berkshire Hathaway CEO and Chairman Warren Buffett and his friend and Vice Chairman Charlie Munger. To say that Buffett, Munger, and Berkshire Hathaway have a cult-like following would be a significant understatement.

The atmosphere is a “Buffett-a-palooza” – a term used across the board by major media as well as bloggers.

Jeff Harding at The Daily Capitalist: I like the fact that our society elevates people like Buffett and Munger to celebrity status. After all, we don’t have kings to adore. We Americans like and respect money and we admire people who make money. Ask de Tocqueville who was amazed at the audacity of poor people who thought they could elevate themselves through diligence and hard work. We may love our athletes and movie stars, but we listen to the ultra wealthy.

This year there was more interest than ever in the Berkshire meeting because of the Sokol affair.

The Wall Street Journal, The New York Times, The Motley Fool, and assorted others such as WalletPop Canada’s Neil Jain live-blogged the meeting, which ran from 9:30am until 5:00pm. The most complete transcript of the Q&A I’ve seen can be found here: Notes from the Berkshire Hathaway 2011 Annual Meeting, prepared by a soon-to-be graduate who calls himself The Inoculated Investor.

Understand… The formal Annual Meeting with a legal recording of the votes on resolutions in the proxy, election of the slate of Board of Directors and confirmation of the auditor – Deloitte – was conducted during the last half hour of the day. The rest of the meeting was a Q&A session with Buffett and Munger, the two of them alone on a bare stage in front of 40,000 people. It was an example of high performance art, including Buffett playing straight man to Munger’s snappy jokes until Munger finally nodded off about 4:30pm – or, more accurately, carbo-crashed on stage, after munching constantly all day on See’s peanut brittle.

I’ll let the New York Times’ Michael de la Merced set the tone:

9:26 a.m. | Ladies and gents, take your seats

It’s almost showtime. A gravelly announcer – who sounds awfully similar to that guy from all the movie trailers – tells of those who have gathered for “one gloriously capitalistic weekend.” He further intones, “All roads led them to Omaha” before the big finish: “You’ve arrived at the Berkshire Hathaway shareholders meeting. The movie will begin in 10 minutes.”

Press were asked to arrive and check in between 5:45am and 6:30am. Yes, three hours in advance of the start time.  It was a good thing, too, that I already had my press pass.

Continued in article

"Koss suit against former auditor (Grant Thornton) to proceed," by Doris Hajewski, Journal Sentinel, June 22, 2011 ---
http://www.jsonline.com/business/124389194.html
Thank you Caleb Newquist for the heads up.

Koss Corp.'s lawsuit against the company's former auditor, Grant Thornton, will move forward in Cook County, Ill., according to a ruling from a judge in Chicago this week.

Koss accuses Grant Thornton of gross negligence for not uncovering the $34 million embezzlement by its former vice president of finance. Sujata "Sue" Sachdeva is serving an 11-year sentence in federal prison for the crime, which came to light in December 2009 when American Express notified Koss of the fraud.

Grant Thornton had sought to have the Cook County action dismissed.

In other litigation related to the embezzlement, a fairness hearing is scheduled Friday in Milwaukee County on a proposed settlement for a derivative lawsuit against the Koss board of directors, Sachdeva and Grant Thornton. The agreement, reached in May, calls for the dismissal with prejudice of claims against individual Koss directors. Claims against Grant Thornton and Sachdeva would be dismissed without prejudice, meaning they could be refiled

The suit didn't seek money for shareholders but asked the court to order corporate governance reforms at the company and for any money paid by defendants in that case to be paid to Koss.

Koss also has suits pending against firms that were involved in payments using embezzled money.

A Maricopa County court is considering Koss' request for reconsideration of the dismissal of its complaint against American Express. Koss claims Amex should have notified the company sooner when it discovered Sachdeva was using company money to pay her bills.

In another suit pending in Milwaukee County Circuit Court, Koss claims that Park Bank was lax in issuing checks to Sachdeva from company accounts and not detecting the fraud.

Bob Jensen's threads on Grant Thornton are at
http://www.trinity.edu/rjensen/Fraud001.htm

"Being Expedient: PwC Settles Satyam U.S. Class Action," Some additional commentary by Francine McKenna, re:TheAuditors, May 9, 2011 ---
http://retheauditors.com/2011/05/09/being-expedient-pwc-settles-satyam-u-s-class-action/

At the end of this posting Francine lists her previous blogs on the Satyam (pronounced Satan) scandals that were nearly a Divine Comedy.

Here’s the list of Francine's articles about Satyam, from earliest to most the recent prior to this one.

Satyam Scandal – PwC Turning Into Tandoori, January 8, 2009

Satyam – What We Know, What I Think, My Predictions, January 12, 2009

Price Waterhouse India’s Slumdog Millionaires – Cheating Pays, January 13, 2009

PwC and Satyam – Another Fine Mess You’ve Gotten Yourself Into, January 26, 2009

Round And Round She Goes, Where She Stops Nobody Knows, January 28, 2009

The Plot Thickens – Price Waterhouse India Plausibly Culpable, April 19, 2009

Satyam’s Bollywood Tragicomic Soap Opera, Apr. 23, 2009

American Insurance Group Scandals and PwC
A summary of writing on AIG, Maurice “Hank” Greenberg, PwC as auditors of AIG, and AIG’s relationship with Goldman Sachs during the financial crisis era.
By Francine McKenna
May 2011
http://www.cs.trinity.edu/~rjensen/FrancineGreenberg_AIG.pdf

Bob Jensen's on PwC's troubles are at
http://www.trinity.edu/rjensen/Fraud001.htm

"Online Courses Should Always Include Proctored Finals, Economist Warns," by David Glenn, Chronicle of Higher Education, May 10, 2011 ---
Click Here
http://chronicle.com/blogs/wiredcampus/online-courses-should-always-include-proctored-finals-economist-warns/31287?sid=wc&utm_source=wc&utm_medium=en

Online economics students do not absorb much material from homework and chapter tests during the semester—perhaps because they expect to be able to cheat their way through the final exam. That is the lesson from a study that Cheryl J. Wachenheim, an associate professor of agribusiness and applied economics at North Dakota State University, will present in July at the annual meeting of the Agricultural and Applied Economics Association.

Ms. Wachenheim is no enemy of distance education. As The Chronicle reported in 2009, she continued to teach her online courses even during a National Guard deployment to Iraq. But she has noticed that her online students perform much worse than their classroom-taught counterparts when they are required to take a proctored, closed-book exam at the end of the semester.

In her study—a previous version of which appeared in the Review of Agricultural Economics—Ms. Wachenheim looked at the performance of students in six sections of introductory-economics courses at North Dakota State. In online sections whose final exam was unproctored and open book, students’ exam grades were roughly the same as those of classroom-based students who took proctored, closed-book finals. But online sections that were asked to take proctored, closed-book final exams performed at least 15 points worse on a 100-point scale.

Ms. Wachenheim fears that students in those unproctored online sections really weren’t learning much, even though their grades were fine. In self-paced courses, many students appeared to cram most of the homework and chapter exams into the final week of the semester. Few of them bothered to do the ungraded practice problems offered by the online publisher.

Then there is the question of cheating. Ms. Wachenheim’s study did not gather any direct evidence, but she reports anecdotally that students have told her how they work in groups to compile huge caches of the publishers’ test-bank questions. She quotes one student as saying, “We may not learn the material, but we are guaranteed an A.”

Ms. Wachenheim’s findings parallel those of a 2008 study in the Journal of Economic Education. That study found indirect evidence that students cheat on unproctored online tests, because their performance on proctored exams was much more consistent with predictions based on their class ranks and their overall grade-point averages.

Continued in article

Jensen Comment
Since proctors are easily distracted and often miss peeking at cribbed notes and angled vision and pass the trash kinds of cheating, well placed videos can often be better than proctoring, especially when set up in individual cubicles.

See http://www.trinity.edu/rjensen/assess.htm#OnsiteVersusOnline

Bob Jensen's threads on assessment --- http://www.trinity.edu/rjensen/assess.htm

"What use is game theory?" by Steve Hsu, Information Processing, May 4, 2011 ---
http://infoproc.blogspot.com/2011/05/what-use-is-game-theory.html

Fantastic interview with game theorist Ariel Rubinstein on Econtalk. I agree with Rubinstein that game theory has little predictive power in the real world, despite the pretty mathematics. Experiments at RAND (see, e.g., Mirowski's Machine Dreams) showed early game theorists, including Nash, that people don't conform to the idealizations in their models. But this wasn't emphasized (Mirowski would claim it was deliberately hushed up) until more and more experiments showed similar results. (Who woulda thought -- people are "irrational"! :-)

Perhaps the most useful thing about game theory is that it requires you to think carefully about decision problems. The discipline of this kind of analysis is valuable, even if the models have limited applicability to real situations.

Rubinstein discusses a number of topics, including raw intelligence vs psychological insight and its importance in economics (see also here). He has, in my opinion, a very developed and mature view of what social scientists actually do, as opposed to what they claim to do.

Continued in article

Bob Jensen's threads on analytics can be found at
http://www.trinity.edu/rjensen/TheoryTAR.htm#Analytics

A History of Entrereneurship
"Who Are The Entrepreneurs: The Elite or the Everyday Man? A History of Entrepreneurship," by Heather A. Haveman, Jacob Habinek, and Leo A Googman, UC Berkeley,  2011 ---
http://www.escholarship.org/uc/item/392635v2;jsessionid=00ECE18AD2472F4956AAF2D00CC2132E#page-2
 Who Are The Entrepreneurs: The Elite or the Everyday Man? A History of Entrepreneurship

We trace the social positions of the men and women who found new enterprises from the earliest years of one industry’s history to a time when the industry was well established. Sociological theory suggests two opposing hypotheses. First, pioneering entrepreneurs are socially prominent individuals from fields adjacent to the new industry and later entrepreneurs are from an increasingly broad swath of society. Second, the earliest entrepreneurs come from the social periphery while later entrepreneurs include more industry insiders and members of the social elite. To test these hypotheses, we study the magazine industry in America over the first 120 years of its history, from 1741 to 1860. We find that magazine publishing was originally restricted to industry insiders, elite professionals, and the highly educated, but by the time the industry became well established, most founders came from outside publishing and more were of middling stature – mostly small-town doctors and clergy without college degrees. We also find that magazines founded by industry insiders remained concentrated in the three biggest cities, while magazines founded by outsiders became geographically dispersed. Finally, we find that entrepreneurship evolved from the pursuit of a lone individual to a more organizationally-sponsored activity; this reflects the modernization of America during this time period. Our analysis demonstrates the importance of grounding studies of entrepreneurship in historical context. Our analysis of this “old” new media industry also offers hints about how the “new” new media industries are likely to evolve.

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Bob Jensen's helpers for small business ---
http://www.trinity.edu/rjensen/BookBob1.htm#SmallBusiness

Oops! Is it too late?
"12 Ways To (Lawfully) Cheat The Canadian Taxman Before Tomorrow, Courtesy Ernst & Young," Big Four Blog, April 30, 2011 ---
http://www.big4.com/blog/12-ways-to-lawfully-cheat-the-canadian-taxman-before-tomorrow-courtesy-ernst-young-74

A great teaching case for students learning about capital budgeting and rationing

From The Wall Street Journal Accounting Weekly Review on June 24, 2011

Ford Ramps Asian Car Plans
by: Jeff Bennett
Jun 17, 2011
Click here to view the full article on WSJ.com
 

TOPICS: Capital Budgeting, Capital Spending, Cost Management, Product strategy, Revenue Forecast

SUMMARY: "Ford Motor Co. believes it can earn a 'competitive return' in China and India even as it rolls out string of new cars in those markets that will sell for much lower prices than the vehicles it sells in North America and Europe."

CLASSROOM APPLICATION: The article is excellent for use in managerial accounting classes to discuss planned production in support of sales strategy and the particular need for target costing in this situation.

QUESTIONS: 
1. (Introductory) Why is Ford focusing on its planned auto sales in Asia and India?

2. (Advanced) What is target costing? Why is that strategy particularly important in Ford's growth strategy described in this article?

3. (Advanced) What other factors must the company consider as it designs "from the ground up" models for China and India "to sell at low prices"?

4. (Advanced) Summarize Ford's production capacity issues in the Asia-Pacific region. How do these issues contribute to difficulties in planning production and estimating product costs?
 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Ford Ramps Asian Car Plans," by: Jeff Bennett, The Wall Street Journal, June 17, 2011 ---
http://online.wsj.com/article/SB10001424052702304186404576390024237701428.html?mod=djem_jiewr_AC_domainid

Ford Motor Co. believes it can earn a "competitive return" in China and India even as it rolls out a string of new cars in those markets that will sell for much lower prices than the vehicles it sells in North America and Europe.

Over the next four years, Ford plans to expand to 15 from five the number of vehicles it sells in China. Some of the new cars will sell for less than $14,500, Ford's Asia Pacific and Africa President Joe Hinrichs said on Thursday. In India, Ford will sell eight models, up from three, with some selling for under $8,500 like its Figo subcompact, he said.

Auto makers often find it difficult to make money on small, inexpensive cars because of it can cost hundreds of millions of dollars to develop a new model from the ground up.

But Mr. Hinrichs said Ford is confident it can profitably sell low-cost cars in China and India by sharing the basic designs with other Ford units around the world, increasing the company's economies of scale. "We are making money there now and we can continue to," Mr. Hinrichs said at Ford's Dearborn, Mich., headquarters. "It's all about the scale and the cost base."

Ford last week set a goal of increasing its global automotive sales by 50%, to eight million vehicles a year by 2020, with the bulk of the gain coming from the Asia-Pacific region. During the same period, the company also hopes to improve global automotive operating margins to about 9% from 6.1% last year.

Mr. Hinrichs said Ford needs to develop new models that sell at low prices to be able to expand rapidly in Asia. Vehicles with sticker prices below $14,500 make up about 70% of the market in China, and while those under $8,500 account for 70% of the Indian market, according to Ford. Ford's best-selling vehicle in China today costs about $16,500; in India, its top seller costs about $7,600.

Brian Johnson, an automotive analyst at Barclays Capital, said it will be a challenge for Ford. "If Ford can leverage the global engineering and the locally-tailored content to produce a cheap, but reliable product, then there is room for them to succeed," he said.

Local Chinese and Indian auto makers "don't have the global scale" that Ford can leverage, while some other western car companies are not yet moving quickly into low-cost cars, he added. Tata Motors made a splash in India in 2009 when it began selling its small Nano car for about $2,500 although the vehicle ran into some problems when a faulty switch led to fires in three cars.

Mr. Hinrichs took over Ford's Asia-Pacific region in late 2009 and was given the additional duties as China chief executive last year. Ford expects 45% of the global industry automotive sales to come from Asia-Pacific by 2020, dwarfing the more mature Americas market's 25%.

Last year, Ford began building the $7,600 Figo at a plant in Chennai, India. It developed the car by starting with an older version of the Fiesta originally designed for the European market. Ford modified the vehicle and stripped out about $1,000 in cost to sell it at a much lower price in India, Mr. Hinrichs said.

Ford's forthcoming models for China and India will be designed from the ground up to sell at low prices, Mr. Hinrichs said.

One hurdle facing Ford in Asia is production capacity. Demand is outstripping supply despite $3.4 billion in plant construction or expansions projects that Ford has announced in China, India, Thailand and Africa.

Construction on one of those new investments, an engine plant in Chongqing. China, began on Thursday. When open in 2013, the $500 million plant will enable the Changan Ford Mazda Automobile joint venture to double its output to 750,000 engines a year.

Continued in article

Bob Jensen's threads on managerial accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

For capital budgeting and valuation, also see
http://www.trinity.edu/rjensen/roi.htm

Humor Between May 1 and June 30, 2011

Darwin Awards --- http://www.darwinawards.com/darwin/

Hi Patricia,

Texas Instruments has a special relationship with TCU. You should explore various TI resources, including visiting speakers, TI home office tours, and access to various TI software and databases. For example, you might seek out TI experts on XBRL, SSARS 19, and Sox Section 404 on internal control auditing.

In answer to your question about auditing research courses, there's a Luleå University of Technology auditing research syllabus at
http://www.nordicaccounting.org/2010/05/seminar-in-auditing-research/

You might take a look at the various seminars available from the Institute of Internal Auditors ---
http://www.theiia.org/iia-training/seminars/

A major module in the course should be SSARS 19 ---
http://www.edzollars.com/SSARS19.pdf

If TCU has a student license to PwC's Comperio, I would devote a major component of an auditing research course to Comperio (which also has the FASB's Codification) --- http://www.pwc.com/comperio

Even if your students cannot all access Comperio, I recommend it for yourself when teaching virtually all accounting and auditing courses. You may find this the best teaching and research resource you've ever encountered.

Best if luck in your move to the land of the Horned Frogs.

Now comes my serious advice to you:

1. Preparing for a new auditing research course is not nearly as difficult as learning how to do high speed reverses and twirls in the Texas Two-Step. I suggest that you spend most of the summer learning the Texas honky tonk dances before you make your big move to Fort Worth ---
   http://www.youtube.com/watch?v=1BYqz4nz6ss
   http://www.youtube.com/watch?v=sbGMoyqYSsg
   
   Former U.S. Senator Tom Delay from Texas who discovered he can't Two-Step his way out of prison ---
   http://www.youtube.com/watch?v=PQBbadnGX3I
   
    
2. CPA's generally need Prozac if they're transferred out of Manhattan and have to give up Lincoln Center performances, the NYC opera season, and the live theatres on Broadway. But CPAs transferred from Fort Worth need a daily double dose of Prozac plus psychotherapy if they have to give up Billy Bob's --- the "world's largest honky tonk in the historic Fort Worth Stockyards" --- http://www.billybobstexas.com/
   
    
3. A typical Texas "good time"  line dance at Billy Bob's stretches for 63.49% of a mile, all under one roof.---
   http://www.youtube.com/watch?v=rs5f8CYyLBo
   
    
4. At Billy Bob's you can keep one eye on the bull rider and the other eye on the ambulance alongside the chutes. Another ambulance is available for aging accounting professors still trying the Boot Scootin' Boogie ---
   http://www.youtube.com/watch?v=d05tQrhNMkA
   
    
5. Patricia Walters will have to give up NYC Champaign and pet·it fours for higher calorie Fort Worth beer and BBQ and Zantac.
   
    
6. Patricia Walters really has to learn to think football if she's serious about a move to Fort Worth. TCU stands for Tenure Credit Utility player ---
   http://en.wikipedia.org/wiki/Glossary_of_American_football
   
    
7. TCU's head football coach, Gary Patterson, only dresses 14 players for games. The rest of his Horney Frog players have to get into their purple and white uniforms all by  themselves.

    

8. The biggest divorce stumbling block in Texas is who gets custody of the Cowboy Stadium season tickets.
   
    
9. Those guys waving sheep toward motorists late at night on Fort Worth street corners are pimps.
   
    
10. Muslims worship Allah; Christians have Jesus; and Texas CPAs have Texas
    State Board of Public Accountancy's director, Bill Treacy.
    I recently had a call from a Bloomberg reporter asking me to comment on Big Brother Treacy.
    
     
11. The Texas cosmetologist licensing examination has a section on how to castrate mean bulls, unruly stallions, and cowboys who never learned the meaning of the word "no." Cosmetologist stew is a popular in the far reaches of West Texas cafes.
    
     
12. George Straight lies when he says he hangs his hat in Tennessee ---
    http://www.youtube.com/watch?v=lMNw_-yUm_0
    
     
13. Fort Worth interior decorators don't make money innovating. How many ways can you decorate one big room with long horns over the fire place and stuffed taxidermy heads on all four walls --- wild boar heads, deer heads, eagle heads, hawk heads, turkey heads, horned frog heads, and the head of the feral hog you turned on a spit last Easter?
    
     
14. My best advice for you, Pat Walters, is to give your students a wide array of course project options at TCU. A team project for football players could be having to alphabetize a box of Alpha-Bits cereal. If they can't handle this, try a package of M&Ms.
    
     
15. Instead of moving your household goods from New York to Texas, fill the 54-foot moving van with bottles of water. You can get a 1,000% markup on the water and buy all new household goods. Sadly, you will eventually find yourself short of water. Think beer --- beer's probably cheaper than water in Fort Worth supermarkets.

Respectfully,
Bob Jensen

Geriatric Dirty Dancing --- http://www.youtube.com/embed/eSKCi9ml4ME

How to always come out a winner in Las Vegas
Fat Man at a Buffet --- http://www.stumbleupon.com/su/1B4AZI
The casinos will pay you $1,000 to leave the premises.

Nine Things That Will Disappear in our Lifetime ---
http://s3.zetaboards.com/Tranquility/topic/7489553/1/

Jensen Comment
I'm not so sure some of them will disappear so much as be transformed, e.g., music and television. And the Post Office may survive as a parcel carrying giant that competes with UPS and FedEx.

Can you think of other things that are likely to disappear?

• Will hard copy books disappear?
• Will campus and town library stacks disappear and become coffee and cyber cafes?
• Will we one day simply check out specially-loaded eReaders from our "libraries?"
• AIDs? (a recent edition of the Economist says that eradication of AIDs has become technologically feasible, more so than cancer)?
• Capitalism (as socialism takes over the private sector)?
• The FASB (as condorsement initiatives fail and IFRS wins lot, stock, and barrel)?
• Standardized college admission tests like the SAT, ACT, GRE, GMAT, MCAT, and LSAT (on grounds that they discriminate beyond knowledge)?
• Tenured teachers and professors (tenure's not entirely a bad thing to eliminate)?
• Tenure in legislatures (term limits are probably a good thing)?
• Houses of worship (apart from mosques, houses of worship are already pretty empty in Europe)?
  In the U.S., Christian worship is heavily being transformed from traditional synods to evangelical theater with music bands alongside the acting preachers.
• Cemeteries (as part of land reclamation for farming, forests, and high-rise buildings for the living instead of the dead)?
• Congressional boners on Twitter (or will there always be Weiners)?
• Circumcision (San Francisco is leading the way with a ballot initiative)?
• Jews in San Francisco (if the circumcision-ban ballot initiative succeeds)?
• The United States of America (which might be sold to pay off a miniscule part of its foreign debt)

From Maureen (who lives on the outskirts of Boston)

The geographical center of Boston is in Roxbury. Due north of the center we find the South End. This is not to be confused with South Boston which lies directly east from the South End. North of the South End is East Boston and southwest of East Boston is the North End.

Harvard Bridge The bridge connecting Boston and Cambridge via Massachusetts Avenue is commonly known as the Harvard Bridge. When it was built, the state offered to name the bridge for the Cambridge school that could present the best claim for the honor. Harvard submitted an essay detailing its contributions to education in America, concluding that it deserved the honor of having a bridge leading into Cambridge named for the institution. MIT did a structural analysis of the bridge and found it so full of defects that they agreed that it should be named for Harvard.

This is all true

Information on Boston and the Surrounding Areas:

There is no school on School Street, no court on Court Street, no dock on Dock Square, and no water on Water Street. Back Bay Boston streets are in alphabetical awddah: Arlington , Berkeley, Clarendon, Dartmouth, etc. So are South Boston streets: A, B, C, D, etc. If the streets are named after trees (e.g. Walnut, Chestnut, Cedar), you are on Beacon Hill. If they are named after poets, you are in Wellesley.

Massachusetts Avenue is Mass Ave. Commonwealth Avenue is Comm Ave. South Boston is Southie. The South End is the South End. East Boston is Eastie. The North End is east of the former West End. The West End and Scully Square are no more; a guy named Rappaport got rid of them one night. Roxbury is The Burree, Jamaica Plain is J.P.

How to say these Massachusetts city names correctly (Say it wrong and be shunned).

Worcester : Wuhsta (or Wistah) Gloucester : Glawsta Leicester: Lesta Woburn: Woobun Dedham : Dead-um Revere: Re -vee-ah Quincy: Quinzee Tewksbury : Tooks ber ry Leominster : Le-min-sta Peabody: Pee-ba-dee Waltham : Walth-ham Chatham: Chaddum Samoset: Sam-oh-set or Sum-aw-set, but nevah Summerset!

Definitions:

Frappes are made with ice cream; milkshakes are not. If it is carbonated and flavored, it is tonic. Soda means CLUB SODA. Pop refers to DAD. When we want Tonic WATER, we will ask for TONIC WATER. The smallest beer is a pint.< BR>Scrod is whatever they tell you it is, usually fish. If you paid more than $7/pound, you got scrod. It is not a water fountain; it is a bubblah. It is not a trashcan; it is a barrel. It is not a spucky, a hero, or a grinder; it is a sub. It is not a shopping caht; it is a carriage. It is not a purse; it is a pockabook.

They are not franks; they are haht dahgs; franks are money used Switzahland.

Police do not drive patrol units or black and whites; they drive a crewza. If you take the bus, your on the looza crooza. It is not a rubber band; it is an elastic. It is not a traffic circle, it is a rotary. "Going to the islands" means going to Martha's Vineyard or Nantucket.

The Sox = The Red Sox The Cs = The Celtics The Bs = The Bruins The Pats =The Patriots

Things not to do:

Do not pahk your cah in Hahvid Yahd. They will tow it to Meffa (Medford ) or Summahville (Somerville) . Do not sleep on the Common. (Boston Common) Do not wear orange in Southie on St. Patrick's Day.

Things you should know:

There are two State Houses, two City Halls, two courthouses, and two Hancock buildings (one is very old; one is relatively new). The colored lights on top the old Hancock tell the weatha: "Solid blue, clear view." "Flashing blue, clouds due." "Solid red, rain ahead." "Flashing red, snow instead." (except in summer, flashing red means the Red Sox game was rained out! Most people live here all their life and still do not know what the hell is going on with this one. Route 128 South is I-95 south. It is also I-93 north. The underground train is not a subway. It is the T, and it does not run all night (fah chrysakes, this ain't Noo Yawk). Order the cold tea in China Town after 2:00 am; you will get a kettle full of beer.

Bostonians: think that it is their God-given right to cut off someone in traffic. Bostonians: think that there are only 25 letters in the alphabet (no Rs, except in id). Bostonians: think that three straight days of 90+ temperatures is a heat wave. Bostonians: refer to 6 inches of snow as a dusting. Bostonians: always bang a left as soon as the light turns green, and oncoming traffic always expects it.. Bostonians: believe that using your turn signal is a sign of weakness. Bostonians: think that 63 degree ocean water is warm. Bostonians: think Rhode Island accents are annoying.

Forwarded by Paula

No NURSING HOME FOR me!!!

No nursing home for us. We'll be checking into a Holiday Inn!

With the average cost for a nursing home care costing $188.00 per day, there is a better way when we get old and too feeble. I've already checked on reservations at the Holiday Inn. For a combined long term stay discount and senior discount, it's $59.23 per night. Breakfast is included, and some have happy hours in the afternoon. That leaves $128.77 a day for lunch and dinner in any restaurant we want, or room service, laundry, gratuities and special TV movies. Plus, they provide a spa, swimming pool, a workout room, a lounge and washer-dryer, etc. Most have free toothpaste and razors, and all have free shampoo and soap. $5 worth of tips a day you'll have the entire staff scrambling to help you. They treat you like a customer, not a patient. There's a city bus stop out front, and seniors ride free. The handicap bus will also pick you up (if you fake a decent limp). To meet other nice people, call a church bus on Sundays. For a change of scenery, take the airport shuttle bus and eat at one of the nice restaurants there. While you're at the airport, fly somewhere. Otherwise, the cash keeps building up.

It takes months to get into decent nursing homes. Holiday Inn will take your reservation today. And you're not stuck in one place forever -- you can move from Inn to Inn, or even from city to city. Want to see Hawaii? They have Holiday Inn there too. TV broken? Light bulbs need changing? Need a mattress replaced? No problem.. They fix everything, and apologize for the inconvenience.

The Inn has a night security person and daily room service. The maid checks to see if you are ok. If not, they'll call an ambulance . . . or the undertaker. If you fall and break a hip, Medicare will pay for the hip, and Holiday Inn will upgrade you to a suite for the rest of your life.

And no worries about visits from family. They will always be glad to find you, and probably check in for a few days mini-vacation.

The grandkids can use the pool. What more could I ask for?

So, when I reach that golden age, I'll face it with a grin.

Forwarded by Paula
AIDs Warning for Senior Citizens

HEARING  AIDS   

BAND AIDS   

ROLL  AIDS   

WALKING AIDS    

MEDICAL AIDS   

GOVERNMENT  AIDS   

MOST OF  ALL,  

MONETARY  AID TO THEIR  KIDS!

Not   forgetting HIV
(Hair  is Vanishing)

Forwarded by Maureen

From the diary of a Pre-School Teacher

My five-year old students are learning to read. Yesterday one of them pointed at a picture in a zoo book and said, "Look at this! It's a frickin' elephant!"

I took a deep breath, then asked..."What did you call it?"

"It's a frickin' elephant! It says so on the picture!"

And so it does...

[Display picture of an African elephant!]

Hooked on phonics! Ain't it wonderful?

Jensen Comment
Trinity University retired chemist Ben Plummer gives us a picture of a frickn' elephant ---
http://www.trinity.edu/rjensen/tidbits/2011/tidbits042811.htm

Forwarded by Paula

A while ago a new supermarket opened in Topeka, KS. It has an automatic water mister to keep the produce fresh.

Just before it goes on, you hear the sound of distant thunder and the smell of fresh rain.

When you pass the milk cases, you hear cows mooing and you experience the scent of fresh mowed hay.

In the meat department there is the aroma of charcoal grilled steaks with onions.

When you approach the egg case, you hear hens cluck and cackle, and the air is filled with the pleasing aroma of bacon and eggs frying.

The bread department features the tantalizing smell of fresh baked bread and cookies.

I don't buy toilet paper there any more.

Forwarded by Gene and Joan

A six year old goes to the hospital with her grandmother to visit her Grandpa. When they get to the hospital, she runs ahead of her Grandma and bursts into her Grandpa's room ..."Grandpa, Grandpa," she says excitedly, "As soon as Grandma comes into the room, make a noise like a frog!"

"What?" said her Grandpa.

"Make a noise like a frog - because Grandma said that as soon as you croak, we're all going to DisneyWorld.

Dear God:  Here is a list of
just some of the things I must remember
to be a good dog:
1. I will not eat the cat's food before he eats
it or after he throws it up..
2. I will not roll on dead seagulls, fish,
crabs, etc., just because I like the way they smell.
3. The Litter Box is not a cookie jar.
4. The sofa is not a 'face towel'.
5. The garbage collector is not stealing our stuff.
6. I will not play tug-of-war with Dad's
underwear when he's on the toilet.
7.  Sticking my nose into someone's
crotch is an unacceptable way of saying 'hello'.
8. I don't need to suddenly stand
straight up when I'm under the coffee table.
9. I must shake the rainwater out of my fur before
entering the house - not after.
10. I will not come in from outside,
and immediately drag my butt across the carpet.
11. I will not sit in the middle of the living
room, and lick my crotch.
12. The cat is not a 'squeaky toy',
so when I play with him and he makes that noise,
it's usually not a good thing.

Why do American workers outsource their own jobs? ---
http://www.youtube.com/watch?v=rYaZ57Bn4pQ

Questions
What's more dangerous --- Tripping or Slipping?
Or put another way --- Where does all that kudzu end up?

Slip and Slide at Davidson College
From Inside Higher Ed on June 15, 2011

Davidson Turns Over a Tough Job to Goats

Kudzu is out of control on Davidson College's paths and trails, and officials fear that the growth could lead to walkers or runners tripping. After various human and machine efforts failed to match the kudzu, the college has rented 30 goats, which have been tasked with eating the problem away, WCNC News reported. The college is spending $3,000 to rent the goats, which eat 12-18 pounds of kudzu a day.

Jensen Comment
Being an old farm boy it struck me that the goats may leave something more hazardous on the trails.
And we hope runners take off their shoes before entering the dorms and cafeterias.

Accounting Case for Your Financial Accounting Courses
How will the lease on goats be accounted for under the new FASB leasing rules?

Hint:
This lease most likely will not be renewed if the goats succeed or fail!

When Deloitte's professionals assist in hammer-and-saw repair of poor peoples' homes
"Caption Contest Tuesday: Deloitte Has a Lot of Tools," by Caleb Newquist, Going Concern, June 14, 2011 ---
http://goingconcern.com/2011/06/caption-contest-tuesday-deloitte-has-a-lot-of-tools/

Jensen Comment
I recommend reading the comments.

 The comment I added reads as follows:
"These are just accountants accelerating depreciation."

Forwarded by Maureen

One evening a husband, thinking he was being funny, said to his wife,
'Perhaps we should start washing your clothes in 'Slim Fast' .
Maybe it would take a few inches off of your butt!'

His wife was not amused, and decided that she simply
couldn't let such a comment go unrewarded .

The next morning the husband took a pair of underwear out of his drawer .
'What the heck is this?' he said to himself as a little 'dust' cloud appeared when he shook them out .

' Cathy ', he hollered into the bathroom, 'Why did you put talcum powder in my underwear?'

She replied with a snicker . 'It's not talcum powder; it's 'Miracle Grow'!
 

Forwarded by Gene and Joan,

When asked by a young patrol officer "Do you know you were speeding? This 83-year-old woman talked herself out of a ticket by stating . . ..

"Yes, but I had to get there before I forgot where I was going."

Some Dilbert Links form Paul Caron's Tax Professor Blog

Prior TaxProf Blog Dilbert coverage:

• Dilbert on How to Tax the Rich (Jan. 30, 2011)
• Dilbert on Tax Policy (Jan. 25, 2011)
• Dilbert on the 'Dutch Sandwich' Tax Shelter Strategy (Dec. 28, 2011)
• Dilbert on the Tax Legislative Process (July 14, 2006)
• Dilbert on Pension Solvency (Oct. 27, 2005)
• Dilbert on Financial Disclosure After Enron (Oct. 11, 2005)
• Dilbert on EBITDA (June 16, 2004)

Forwarded by Aaron Konstam

Comments made in the year 1955!

I’ll tell you one thing, if things
keep going the way they are,
it’s going to be impossible to
buy a week’s groceries for $10.00.
X.MA1.1297470299@aol.com


Have you seen the new cars
coming out next year?  It won’t
be long before $1,000.00 will
only buy a used one.


X.MA2.1297470299@aol.com


If cigarettes keep going up in
price, I’m going to quit; 20 cents
a pack is ridiculous.
X.MA3.1297470299@aol.com
Did you hear the post office is
thinking about charging 7 cents
just to mail a letter.
X.MA4.1297470299@aol.com
If they raise the minimum wage
to $1.00, nobody will be able to
hire outside help at the store.
X.MA5.1297470299@aol.com
When I first started driving, who
would have thought gas would
someday cost 25 cents a gallon.
Guess we’d be better off leaving
the car in the garage.
X.MA6.1297470299@aol.com
I’m afraid to send my kids to the
movies any more.  Ever since they
let Clark Gable get by with saying
DAMN in GONE WITH THE WIND,
it seems every new movie has
either HELL or DAMN in it.
X.MA7.1297470299@aol.com


I read the other day where some
scientist thinks it’s possible to put
a man on the moon by the end of
the century. They even have some
fellows they call astronauts
preparing for it down in Texas .
X.MA8.1297470299@aol.com
Did you see where some baseball
player just signed a contract for
$50,000 a year just to play ball?
It wouldn’t surprise me if someday
they’ll be making more than the
President.
X.MA9.1297470299@aol.com
I never thought I’d see the day
all our kitchen appliances would
be electric.  They're even making
electric typewriters now.
X.MA10.1297470299@aol.com
It’s too bad things are so tough
nowadays.  I see where a few
married women are having to
work to make ends meet.
X.MA11.1297470299@aol.com
It won’t be long before young
couples are going to have to hire
someone to watch their kids so
they can both work.
X.MA12.1297470299@aol.com
I’m afraid the Volkswagen car
is going to open the door to a
whole lot of foreign business.
X.MA13.1297470299@aol.com
Thank goodness I won’t live to
see the day when the Government
takes half our income in taxes.  I
sometimes wonder if we are
electing the best people to
government.
http://images.google.com/hosted/life/f?q=Eisenhower
+&prev=/images?q=Eisenhower+%26
+Congress&hl=en&sa=G&biw=1280&bih=843&gbv=2&tbs=isch:1&imgurl=be341190ba0eb7d1


The fast food restaurant is
convenient for a quick meal,
but I seriously doubt they
will ever catch on.
X.MA15.1297470299@aol.com
There is no sense going on short
trips anymore for a weekend.  It
costs nearly $2.00 a night to stay
in a hotel.


X.MA16.1297470299@aol.com
No one can afford to be sick
anymore.  At $15.00 a day in
the hospital, it’s too rich for
my blood.
X.MA17.1297470299@aol.com


If they think I’ll pay 30 cents
for a haircut, forget it.
X.MA18.1297470299@aol.com
 

Humor Between May 1 and June 30, 2011 --- http://www.trinity.edu/rjensen/book11q2.htm#Humor063011 

Humor Between April 1 and April 30, 2011 --- http://www.trinity.edu/rjensen/book11q2.htm#Humor043011  

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 June 30, 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 Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.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

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 Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

April 30, 2011

Bob Jensen's New Bookmarks April 1-April 30, 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

Humor Between April 1 and April 30, 2011 --- http://www.trinity.edu/rjensen/book11q2.htm#Humor043011  

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 

Bob Versus Steve on What Needs to Be Done to Improve The Accounting Review --- Click Here

Email Message Virus Warning
THIS HAS BEEN CONFIRMED BY SNOPES ---. http://www.snopes.com/computer/virus/hereyouhave.asp

"In Case You Forgot, the Big 4 Are Hiring a Small Army of People This Year," by Caleb Newquist, Going Concern, March 31, 2011 ---
http://goingconcern.com/2011/03/in-case-you-forgot-the-big-4-are-hiring-a-small-army-of-people-this-year/

Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/BookBob1.htm#careers

The Pathways Project is a major joint program between the AICPA and the AAA in setting guides for the future of accounting education and practice
There is a good deal of information about the Pathways Project at the AAA Commons site.
Much of the responsibility for this project falls on the shoulders of Tennessee's Bruce Behn

"Pathways Commission Forges Ahead:  Recommendations on future of accounting education expected by 2012," by Paul Bonner, Journal of Accountancy, May 2011 ---
http://www.journalofaccountancy.com/Issues/2011/May/20103664.htm

Part 5 of a series of AICPA interviews with Leslie Seidman, the new Chair of the FASB who replaces Bob Herz ---
http://www.journalofaccountancy.com/Web/20113940Part5.htm

Poor Leslie did not get any stars from Tom Selling (he called her the First Goat in a series of "goats" who testified) after she testified in the Senate Hearings about the role of the accounting profession in preventing future economic crises in the United States (which will be even less of a role when the FASB turns over U.S. standard setting to the international  IASB) ---
http://accountingonion.typepad.com/theaccountingonion/2011/04/the-stars-and-goats-of-the-senate-hearing-on-accounting.html

Statement of Lynn E. Turner Before the Senate Subcommittee on Securities, Insurance and Investment; 
OnThe Role of the Accounting Profession in Preventing Another Financial Crisis
Dirksen Senate Office Building
April 6, 2011

http://goingconcern.com/2011/04/lynn-turner-doesnt-let-accountants-sec-fasb-off-the-hook-for-their-part-in-financial-crisis/#more-28171

Where were the auditors when over 1,000 banks failed in 2008 and 2009?
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms

When we lavish praise for accomplishments we must be careful that we are simply overlooking the failures that critics for years have tried and tried and tried to get those in power to try to correct. The SEC has acted shamefully in some instances (Madoff, hedge funds, and financial risk accounting) and the FASB fumbled many opportunities to save the horses before they bolted from the barn (e.g., off-balance sheet financing in banks).

More importantly, I think both the FASB and the SEC earn low grades in learning the lessons from Enron. Consider the following lessons to be learned at the turn of this century that are still with us a decade later because of FASB and SEC failures of accomplishment. And I'm ashamed to say that all too often members of this Academy get low grades for not doing more to help students learn these lessons:
http://www.citizenworks.org/corp/reforms.php

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!
We cannot take great pride in an FASB that allows this kind of financial reporting fiction writing to take place in our largest banks in the nation (or any U.S. banks for that matter). Members of the FASB and SEC should hang their heads in shame when they watch the above video.

How can the FASB take pride in allowing Lehman Brothers to follow the FAS 140 rules to the letter in an effort to cloud transparency and deliberately deceive investors and creditors about financial risk? How can the SEC take pride in letting Lehman and Ernst off the hook for such deliberate deceptive accounting?
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst

How can the SEC take pride in giving Enron the green light to deceptive accounting?
Here's part of a letter written by the then President of the Financial Executives International:
 

The FASB and IASB do not hold up well against their most vocal critics, in which case I am more proud of the critics than I am of the people who could've done more but caved in to pressures of industry and Congress to do less.

I think Tom Selling and others are correct in what I think is resistance to the course set by the FASB and the SEC to turn standard setting over to the IASB. We are being lulled into complacency by all the efforts of the FASB and IASB to jointly write convergence standards. The rest of the world has been silent while the U.S. for a time makes the IASB look puppets on our strings attached approach to convergence, but once we've made the final commitment there are 90+ nations of the world that will voice screaming complaints about continued U.S. condorser influence on the IASB. ]

Lastly, sometimes Tom Selling does not know when to back off. He's been wrong to personally attack Bob Herz for no good reason that I can figure out. Let bygones be bygones and more importantly, in true academic spirit, admit to your own mistakes.

But without our critics like Tom, Lynn, and sometimes me those having the power, authority, and responsibility might be lulled into complacency. I've recorded many tidbits that show a mismatch between the lavish praise this profession bestows upon itself in the midst of failures it glosses over all too often  In the years of building up my picture of this profession, I now conclude that the picture is quite ugly to date and is probably going to become more horrid before it gets better ---
http://www.trinity.edu/rjensen/Fraud001.htm

Lastly, I mention the post-Andersen speech of a former Andersen executive research partner:

Art Wyatt admitted:
"ACCOUNTING PROFESSIONALISM: THEY JUST DON'T GET IT" --- http://aaahq.org/AM2003/WyattSpeech.pdf 

And they Still Don't Get It!

Congratulations to the New Slate of Officers Guiding the American Accounting Association

2011-2012 Executive Committee and Council Officers Elected
Elections for the 2011-12 AAA Executive Committee and At-Large Council positions have come to an end and the nominees have been elected. Congratulations to the following AAA officers who are newly elected:
President-Elect - Karen Pincus, University of Arkansas
Vice President - David Stout, Youngstown State University
Vice President-Professional Relations - Ken Bouyer, Ernst & Young LLP
Vice President-International - Recep Pekdemir, Istanbul University
Vice President-Finance Elect - Dale Flesher, University of Mississippi
Council Member-at-Large - C. Richard Baker, Adelphi University
Council Member-at-Large - Samuel Tiras, Louisiana State University
International Council Member-at-Large - Jagdish Pathak, University of Windsor

Hi Linda,

While you were enjoying your wine last night on the prairie I gave some thought to possible content of your Socialism Accounting Course at Nebraska.

One module in that socialism course might ask students for creative suggestions for redesigning Nebraska's entire School of Accountancy curriculum if the U.S. became a socialist state and ended all financial capital markets, commodities markets, real estate markets, insurance markets, etc. We might even describe this as the dream of Paul Williams, Zafar Khan, and possibly even you Linda.

Virtually all accounting content based upon a market economy will have to be replaced. In fact, the entire curriculum will probably be changed to a series of governmental accounting and auditing courses.

Here are some changes and possibly some constants in the curriculum.

Change the Pacioli Equation from A=L+E to A=G
In Principles of Accounting all accountancy based upon market resource allocation would have to be modified. There would be no L for Pacioli's famous equation since there are no lenders seeking to profit from loans to companies. Obviously, there can no longer be an E in this equation since there are no equity markets under a full socialism economy that does not allow profits (and perhaps has a 100% tax rate on profits that might somehow arise). The new equation would be A=G and all accountancy courses based upon capitalism's markets would have to be replaced with governmental accounting and auditing courses.

Surprisingly, CPV Analysis Might Remain in the Curriculum
Initially one might think that there cannot be CPV Analysis if there are no "profits" in the economy and perhaps not even prices in a socialism resource rationing economy. But Lange prices can be used to implement demand and supply in place of capitalism's market resource allocations. Lange prices were invented by the famous Polish socialist Oskar Lange ---
http://en.wikipedia.org/wiki/Oskar_Lange

Years ago when I took Alan Manne's Operations Research Economics course in Stanford's doctoral program, we were required to eliminate market-driven prices and build a dynamic linear programming model to derive Lange prices to implement Central Planning Board (CPB) desired resource rationing. For example, in capitalist markets factories and their customers make pricing decisions based upon demand and supply markets for spikes (really huge nails) versus brads (tiny little nails). Oskar Lange devised a scheme for setting socialism prices so that a Polish war would not be lost for want of a single horseshoe nail.

The idea was that the CPB's resource allocations could be implemented using Lange prices in place of market prices. Factory managers and hardware store managers could then make production and purchase decisions based upon CPV analysis using Lange prices. This lends efficiency to socialism rationing since CPB rationing can be implemented without massive and complicated rationing schemes --- the pricing scheme that's so efficient in capitalism can thereby be utilized for decentralized demand and supply decisions using Lange prices. Of course any "profits" that accrue to factories and stores will probably be taxed later on at 100% since any profit incentives would turn factories and stores into sociopaths.

In this book, Lange advocated the use of market tools (especially the neoclassical pricing theory) in economic planning of socialism and Marxism. He proposed that central planning boards set prices through "trial and error", making adjustments as shortages and surpluses occurred rather than relying on a free price mechanism. If there were shortages, prices would be raised; if there were surpluses, prices would be lowered. Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production in order to prevent losses, which would eliminate the surplus. Therefore, it would be a simulation of the market mechanism, which Lange thought would be capable of effectively managing supply and demand. Proponents of this idea argue that it combines the advantages of a market economy with those of socialist economics.

By this idea, Lange also argued that a state-run economy could at least be as efficient as -— if not more efficient than —- a capitalist or private market economy. He argued that this was possible if the government planners used the price system as if in a market economy and instructed state industry managers to respond parametrically to the state-determined prices (minimize cost, etc.). Lange's argument was one of the pivots of the Socialist Calculation Debate with the Austrian School.

His works provided the earliest model of market socialism.

Of course the big problem socialism will then face when taxing all of the "profits" derived from Lange prices is that managers lose their incentives to be efficient. Why try to work harder to save money when all the profits will be confiscated? I recommend, Linda, that you pass over that stumbling block in socialism, although it was truly one of the worst problems when the Soviet Union was operating under socialism. The factories and stores were notoriously inefficient except where efficient black markets evolved that were (gasp) capitalist in nature.

Change from XBRL to GGRL
The purpose of XBRL is to aid security analysts and investors and creditors in making investment portfolio decisions. Since there are no investment portfolios under socialism, there is no more need for an eXtensible Business Reporting Language as we know it today. However, the CPB may still want to tag transactions to aid in socialism's resource allocations. Accordingly, XBRL will probably give way to an entirely new system of tagging known as Glorious Government Reporting Language tags.

No More Consolidation Accounting
Virtually everything we teach in the Advanced Accounting course will have to be replaced. There will be no equity-exchange mergers and acquisitions. And there will be no profit incentives to purchase and sell subsidiaries. All factory mergers and divorces become flat-out CPB decrees.

No More Accounting for Derivatives and Hedging Activities
Since there are no more futures, forwards, swaps, and options markets, it's pointless to teach accounting for derivatives and hedging activities. Not having to teach FAS 133 and IAS 39 and IFRS 9 should make accounting professors jump for joy.

No More Lease-Versus-Buy Accounting
There really is no more need for Lease-Versus-Buy accounting or even lease accounting in general since the government owns all the assets.

Conclusion
By now I think you get the idea, so I won't belabor my discussion of curriculum changes any further. Socialist schools of accountancy, however, face an even bigger problem. If all workers in an egalitarian system receive identical wages or rations, what is the incentive to study 22 boring courses in governmental accounting and auditing?

That's a problem that socialism theorists have never been able to solve with the Marxist Labor Theory of Value. Presumably a symphony cellist who studies intensely for 14 years in music school should earn the same monthly wage as a brain surgeon who studies intensely for 14 years in medical school. But that may lead to a great over supply cellists and an enormous under supply of brain surgeons.

At this point the pleasant dream of Paul Williams turns into a nightmare.
It may turn out that socialist economies might actually have to pay brain surgeons 1,000 times more than they pay cellists. But that has all sorts of ramifications when a poor cellist living in a tent by a stream looks up to a beautiful dacha at the top of the hill where a brain surgeon lives. This is probably another problem you should avoid in your Socialism Accounting Seminar, although it was an enormous problem in the Soviet Union when top surgeons and elite Communist Party members got all the nice country dachas.

Hence this all may be academic in a purist egalitarian Marxist system where nobody elects to major in boring old accounting or brain surgery unless wage differentials and (gasp) even black market profiteering returns to the socialism economy. There's no need for an accounting curriculum if there are no accounting students. It's much more fun to major in humanities or perhaps not even bother with school. Oh what a nightmare this is truly becoming for any egalitarian purist.

"A Requiem for Marx," by Frank E. Manuel, university professor emeritus at Brandeis University, in the spring issue of Daedalus
http://chronicle.com/article/A-Requiem-for-Marx/82253/

For the suffering of Karl Marx the exile, we can feel compassion; for his elaborate theoretical system, benign doubt and perhaps selective approval; for the abominable practices instituted in his name, loathing. A requiem for Marx cannot ignore the iniquities of his offspring -- prophets and messiahs must share the blame for the excesses of their followers -- but the banner that he unfurled need not be interred with his bones. Even a skeptical utopian like myself can still believe in the worth of the guiding principle: from each according to his abilities, to each according to his needs

"Key Insights for Companies With New XBRL Requirements," Ernst & Young's To the Point, April 21, 2011 --- Click Here
http://www.ey.com/global/assets.nsf/United%20Accounting/TothePoint_CC0321_XBRL_21April2011/%24file/TothePoint_CC0321_XBRL_21April2011.pdf

Bob Jensen's threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

 

Ernst & Young AccountingLink

---

 

29 April 2011 To the Point: Repo accounting amendments finalized The Financial Accounting Standards Board (FASB) today amended its guidance on accounting for repurchase agreements. The amendments simplify the accounting by eliminating the requirement that the transferor demonstrate it has adequate collateral to fund substantially all the cost of purchasing replacement assets. As a result, more arrangements could be accounted for as secured borrowings rather than sales. The attached To the Point summarizes what you need to know about the new guidance. It is also available online.

"Fatal Risk: The Must-Read Story Of AIG's Downfall," by John Hemton, Business Insider, April 18, 2011 ---
http://www.businessinsider.com/fatal-risk-the-must-read-story-of-aigs-downfall-2011-4

There are dozens of books on the financial crisis: I have read many of them and the Kindle samples for just about all of them. There are only two I would recommend: those are Bethany McLean and Joe Nocera’s excellent All the Devils are Here and the much more specifically detailed Fatal Risk from Roddy Boyd. Roddy's book is solely concerned with the failure of AIG.

Both books start without any strong ideological preconceptions and let the facts woven into a good story do the talking - and both wind up ambivalent about many of the major players - with many players having human weaknesses (gullibility, delusion, arrogance etc) but committing nothing that looks like a strong case for criminal prosecution. Reading these you can see why there are so few criminal prosecutions from the crisis. And you will also see just how extreme the human failings that caused the crisis are.

Continued in article
 

Bob Jensen's threads on the credit derivative disaster are at
http://www.trinity.edu/rjensen/2008Bailout.htm#IgnobleAgendas

Bob Jensen's Primer on Derivatives ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Primer

"Litigation Piling Up At Ernst & Young," by Francine McKenna, Forbes, April 26, 2011 ---
http://blogs.forbes.com/francinemckenna/2011/04/26/litigation-piling-up-at-ernst-young/

Bob Jensen's threads on additional Ernst & Young lawsuits and a big PCAOB fine see
http://www.trinity.edu/rjensen/Fraud001.htm

Here’s the speech and slides Francine used for the AAA Public Interest Conference on April 1-2 and Top X list of possible research topics for accounting and audit academics ---
http://retheauditors.com/2011/04/18/mckenna-speaks-at-american-accounting-assn-public-interest-conference/

Bob Jensen lists some research ideas at
http://www.trinity.edu/rjensen/theory01.htm#ResearchVersusProfession

"Are College Business Majors Slackers (relative to other majors in the college)?" by Louis Lavelle, Business Week, April 20, 2011 ---
http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2011/04/are_college_business_majors_slackers.html?link_position=link5

Jensen Comment
Or put another way, are business majors and sports basket weaving majors in a race to the bottom?

"Microsoft's Office 365 Hits Public Beta," by Audrey Watters, ReadWriteWeb, April 18, 2011 ---
http://www.readwriteweb.com/archives/microsofts_office_365_hits_public_beta.php
Also Office 365 Marketplace is also out for Beta testing

Innovative Corporate Performance Management: Five Key Principles to Accelerate Results
by Bob Paladino
ISBN: 978-0-470-62773-0 Hardcover 415 pages November 2010|
Amazon has it priced for under $37 new and $23 used
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470627735.html

Jensen Comment
This is a bit too much Harvard Business School-like for me, but it does cover much of what we teach in managerial accounting.

There seem to be a dearth of reviews of this book. I don't know why?

April 19, 2011 reply from Jim Martin

Performance management seems to be a relatively new catch-all term like
cost management, activity-based management etc. I have been following this
concept, or catch-all term for a while. I suspect most of the book can be
found in Paladino's earlier and most recent works mainly in Strategic
Finance.

Paladino, B. 2007. Five Key Principles of Corporate Performance
Management. John Wiley and Sons.

Paladino, B. 2007. Five key principles of corporate performance
management. Strategic Finance (June): 39-45.

Paladino, B. 2007. Five key principles of corporate performance
management. Strategic Finance (July): 33-41.

Paladino, B. 2007. Five key principles of corporate performance
management. Strategic Finance (August): 39-45.

Paladino, B. 2008. Strategically managing risk in today's perilous
markets. Strategic Finance (November): 26-33.

Paladino, B. 2010. Innovative Corporate Performance Management: Five Key
Principles to Accelerate Results. John Wiley and Sons.

Paladino, B. 2011. Achieving innovative corporate performance management.
Strategic Finance (March): 43-51.

Paladino, B. 2011. Achieving innovative corporate performance management.
Strategic Finance (April): 43-53.

Flip Video is No More --- http://en.wikipedia.org/wiki/Flip_Video

"Cisco's Flip Flop and (Mis)Managing the Obvious," by Michael Schrage, Harvard Business Review Blog, April 18, 2011 --- Click Here
http://blogs.hbr.org/schrage/2011/04/ciscos-flip-flop-and-mismanagi.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

"Did Cisco Slip on Flip or Was Flip a Flop?" by Rita McGrath, Harvard Business Review Blog, April 18, 2011 --- Click Here
http://blogs.hbr.org/hbr/mcgrath/2011/04/did-cisco-slip-on-flip-or-was-flip-a-flop.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

So riddle me this: A business that generates an estimated $400 million in revenue, with 550 employees, and which sells an iconic product that was regularly praised as a model of innovation, is going to be shut down. In an analysis of Cisco's decision to shut down its Flip video recorder division, the New York Times reported April 12, 2011, that the networking giant had finally given up on a business that, at one point, was destined to bring it to relevance in consumer markets (along with networking gear company Linksys). The company was purchased just two years ago for $590 million.

The story is a familiar one. Large organization swallows up innovative smaller one, resulting eventually in the departure of the acquired company's leadership, complaints that the large organization doesn't understand what the small one is all about, lack of attention and commitment to developing the small company's future technology, and eventual disappearance of the small firm. It happens in technology all the time.

Theories on why Flip ...uh... flopped, abound. Did smartphones with easy Internet access make its functionality obsolete? Is running a consumer business simply not in the DNA of a company whose heart and soul revolve around networking gear for corporate customers? That might be an argument that Geoff Moore would make, in his well known distinction between complex operations and high volume businesses (he's long said it's extremely difficult to house both under a single corporate umbrella). Or maybe analysts just hated Cisco's consumer strategy, and the company struggled for too long to justify the acquisition. Or maybe they concluded that the product had no future and just decided to bail, without even attempting to find a buyer for the business.

One other theory is that, under the parental umbrella, Flip was not really able to continue to develop the string of innovations that would allow it to go beyond being just a small video camera that would make it more relevant to people's lives. People that loved Flip really loved it. And sales were up 15% over the prior year. Flip was also the best-selling camcorder on Amazon. Despite these signs of relevance, the good news was insufficient to keep it from the corporate chopping block.

Whatever the reason, the prognosis for using small-company acquisitions to change the DNA of large, established ones hasn't historically been very good. I guess we'll add the story of Flip to that history.

 

"Q1 CPA Exam Pass Rates Worst in Three Years ," by Jr. Deputy Accountant Adrienne Gonzalez, Going Concern, April 8, 2011 ---
http://goingconcern.com/2011/04/q1-cpa-exam-pass-rates-worst-in-three-years/#more-28345

Jensen Comment
I always read the Jr. Deputy's articles from beginning to end just to find the dirty words. Other readers like me will be disappointed in this article if they are primarily seeking dirty words. Sometimes I have to read through the reader comments she posts to find the dirtiest words. Her Jr. Deputy Accountant Blog dirty word posts are at http://www.jrdeputyaccountant.com/
The dirtiest words Adrienne can think of is "Bernanke article" which I think she views as tantamount to the fermented vomit of a brainless yak.

Adrienne writes a lot about the CPA examination, although I'm not sure she's ever taken it. In her youth, however, she worked for a company selling CPA review materials. Actually she does have some good ideas about the CPA examination --- such as putting limits on the number of times failing candidates can retake the parts they keep failing.

Risk Management: it’s not rocket science:
It’s more complicated
Framing devices for thinking about risk
Grant's London Investment Conference February 24, 2011
The Dorchester London
 http://www.grantspub.com/UserFiles/File/Risk_Management.pdf

Black Swan Theory --- http://en.wikipedia.org/wiki/Black_swan_theory

Video of Interview with Nassim Taleb
"Nassim Taleb on Living with Black Swans," Knowledge@Wharton, April 13, 2011 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2755

The KPMG Foundation, under the excellent leadership of Bernie Milano, has spent millions of dollars and other resources in support of minority candidates in accountancy doctoral programs --- Click Here

But in the Masters Golf Tournament the KPMG hat will be on the head of Phil Mickelson rather than Tiger Woods ---
http://goingconcern.com/2011/04/phil-mickelson-and-his-kpmg-hat-looks-to-defend-his-masters-title/

What Do Libya and KPMG Have in Common?
http://goingconcern.com/2011/04/what-do-libya-and-kpmg-have-in-common/

Jensen Comment
Do not take any of this as in any way detracting from the record of the KPMG Foundation in support of minority accounting doctoral candidates. Minority professors provide essential role models for minority students, and we most certainly need more minority professors of accountancy.

"Mapping Novels with Google Earth," Chronicle of Higher Education, April 6, 2011 ---
http://chronicle.com/blogs/profhacker/mapping-novels/32528?sid=wc&utm_source=wc&utm_medium=en

Jensen Comment
Various accounting student team projects come to mind using the above technology. One could be an accounting history project in which students map important events in early accounting history, some of which are mentioned at
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Abacus Techniques by Totton Heffelfinger & Gary Flom.

Articles, Excerpts and Analysis

The Abacus vs.The Electric Calculator

In 1946, a contest held in Tokyo, pitted an abacus against an electric calculator; the abacus won, of course.
 

Feynman vs. The Abacus

Richard Feynman battles against the abacus; the result is not surprising (if you know Feynman).
 

Comparing the Chinese and the Mesoamerican Abacus

An analysis contributed by David B. Kelley.

 

The Roman Hand-Abacus

An analysis contributed by Steve Stephenson.

 

The Incan Khipu

String, and Knot, Theory of Inca Writing by John Noble Wilford.
Talking Knots of the Incas by Viviano and Davide Domenici.

 

Lost Tribes, Lost Knowledge

An article about the dangers of forgetting knowledge learned from the past, by Eugene Linden.

All Things Abacus

Additional Abacus Resources

Purchase  or build an abacus  ·  An abacus for your Palm  ·  Books about the abacus  ·  Java applet source code  ·  The Mesoamerican abacus
 

Resources For Teachers

The abacus in the classroom  ·  Abacus lesson plan  ·  Math and science resources for teachers
 

Photos

High-resolution photos of my abacus collection.

Early History of Mathematics and Calculating in China
The best general source for ancient Chinese mathematics is Joseph Needham's Science and Civilisation in China, vol. 3. In this volume you will learn, for example, that the Chinese proved the Pythagorean Theorem at the very latest by the Later Han dynasty (25-221 CE). The proof comes from an ancient text called The Arithmetical Classic of the Gnomon and the Circular Paths of Heaven. The book has been translated by Christopher Cullen in his Astronomy and Mathematics in Ancient China: The Zhou Bi Suan Jing. Needham also discusses the abacus, or suanpan ("calculating plate").
Steve Field, Professor of Chinese, Trinity University, September 24, 2008
Jensen Comment
Later Han Dynasty --- http://en.wikipedia.org/wiki/Later_Han_Dynasty_(Five_Dynasties)
Pythagorean Theorem Theorem --- http://en.wikipedia.org/wiki/Pythagorean_Theorem
Pythagorean Theorem (Gougu Theorem in China) History --- http://en.wikipedia.org/wiki/Pythagorean_Theorem#History
Suanpan --- http://en.wikipedia.org/wiki/Suanpan

A nice timeline of accounting history --- http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING

From Texas A&M University
Accounting History Outline --- http://acct.tamu.edu/giroux/history.html

Back in medieval times the charge and discharge statements are very early precedents for fiduciary accounting --- http://www.informaworld.com/smpp/content~db=all~content=a739280220~frm=abslink 

Abstract
An entry which appears on some medieval charge and discharge statements is the respite. This paper shows some of the forms a respite might take and how different ways of accounting for it may affect the balances of those statements. It examines in particular the significance of respites in the building accounts of Tattershall Castle 1434-72 and suggests that the nature of these respites was misinterpreted by Myatt-Price (1966). It concludes by considering Ross's explanation of respites in the fifteenth-century Talbot Household Accounts (Ross 1968).

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

---

Accounting History (across hundreds of years)
 A Change Fifty-Years in the Making, by Jennie Mitchell, Project Accounting WED Interconnect --- http://accounting.smwc.edu/historyacc.htm

Papyrus --- http://en.wikipedia.org/wiki/Papyrus
Early accounting records were written on papyrus

Serious Accounting Historians May Find Some Things of Use Here
Advanced Papyrological Information System from Columbia University --- http://www.columbia.edu/cu/lweb/projects/digital/apis/

Questions
What was an ancient Greek ploy to combat inflation?
How do you account for interest paid in cabbages during hyperinflation?

"The time has come," the Walrus said,
"To talk of many things:
Of shoes--and ships--and sealing-wax--
Of cabbages--and kings--
And why the sea is boiling hot--
And whether pigs have wings."
Lewis Carroll, The Walrus and the Carpenter --- http://www.jabberwocky.com/carroll/walrus.html

"Papyrus Research Provides Insights Into 'Modern Concerns' of Ancient World," Science Daily, October 30, 2010 --- Click Here
http://www.sciencedaily.com/releases/2010/10/101029092045.htm?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+sciencedaily+%28ScienceDaily%3A+Latest+Science+News%29

Origins of Double Entry Accounting are Unknown

• 1300s A.D. crusades opened the Middle East and Mediterranean trade routes
• Venice and Genoa became venture trading centers for commerce
• 1296 A.D. Fini Ledgers in Florence
• 1340 A.D. City of Massri Treasurers Accounts are in Double Entry form.
• 1458 A.D.Benedikt Kotruljevic (Croatian) (Dubrovnik,1416-L’Aquila,1469) (His Italian name was Benedetto Cotrugli Raguseo), wrote The Book on the Art of Trading which is now acknowledged to be the first person to write a book describing double-entry techniques (although the origins of double entry bookkeeping in practice are unknown)
• 1494 Luca Pacioli's Summa de Arithmetica Geometria Proportionalita (A Review of Arithmetic, Geometry and Proportions) which is the best known early book on double entry bookkeeping in algebraic form. 

Recall that double entry bookkeeping supposedly evolved in Italy long before it was put into algebraic form in the book Summa by Luca Pacioli  and into an earlier book by Benedikt Kotruljevic.

"A Brief History of Double Entry Book-keeping (10 Episodes) ," BBC Radio ---
http://www.bbc.co.uk/programmes/b00r401p
Thanks to Len Steenkamp for the heads up

Jolyon Jenkins investigates how accountants shaped the modern world. They sit in boardrooms, audit schools, make government policy and pull the plug on failing companies. And most of us have our performance measured. The history of accounting and book-keeping is largely the history of civilisation.

Jolyon asks how this came about and traces the religious roots of some accounting practices.

Eventually, educators might be able to get copies of these audio files.

October 3, 2009 message from Rick Dull

Benedikt Kotruljevic (Croatian) (Dubrovnik,1416-L’Aquila,1469) (His Italian name was Benedetto Cotrugli Raguseo), who in 1458, wrote "The Book on the Art of Trading" which is now acknowledged to be the first person to write a book describing double-entry techniques? See the American Mathematical Society’s web-site: http://www.ams.org/featurecolumn/archive/book1.html .

Rick Dull

And so on --- I think you get the idea.

One truly valuable research for an accounting history mapping project is the free Accounting Historians Journal archive (although not all of the publications are free online but should be free to students using the hard copy stacks in campus libraries) ---
http://www.olemiss.edu/depts/general_library/dac/files/ahj.html

Using MAAW and Jstor for Accounting History Research ---
http://maaw.info/

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory 

Why the Research Paper Isn't Working
I’m in love with this idea. I have long agreed with Richard Larson who wrote way back in 1982 that the research paper as taught in college is an artificial genre, one that works at cross-purposes to actually developing respect for evidence-based reasoning, a measured appreciation for negotiating ideas that are in conflict, or original thought. I’m honestly a bit amazed that anyone was surprised by the results of the Citation Project study, also presented at the conference, that found students “skimming the surface.” This is a problem that existed long before the Internet, but has only grown more obvious as students are asked to do more documented expository writing than ever before. (This finding was published in a national study published in the CCCC's journal in 2008; subscription required.)
Barbara Fister, "Why the Research Paper Isn't Working," Inside Higher Ed, April 12, 2011 ---
http://www.insidehighered.com/blogs/library_babel_fish

Bob Jensen's threads on Tricks and Tools of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm

Question
Were us oldsters from accounting degree programs harder workers and better students than today's accounting graduates?

"Business majors spend less time preparing for class than do students in any other broad field, according to the most recent National Survey of Student Engagement: Nearly half of seniors majoring in business say they spend fewer than 11 hours a week studying outside class."

"Business Educators Struggle to Put Students to Work." By David Glenn, Chronicle of Higher Education, Chronicle of Higher Education, April 14, 2011 ---
http://chronicle.com/article/Business-Educators-Struggle-to/127108/

Paul M. Mason does not give his business students the same exams he gave 10 or 15 years ago. "Not many of them would pass," he says.

Mr. Mason, who teaches economics at the University of North Florida, believes his students are just as intelligent as they've always been. But many of them don't read their textbooks, or do much of anything else that their parents would have called studying. "We used to complain that K-12 schools didn't hold students to high standards," he says with a sigh. "And here we are doing the same thing ourselves."

That might sound like a kids-these-days lament, but all evidence suggests that student disengagement is at its worst in Mr. Mason's domain: undergraduate business education.

Business majors spend less time preparing for class than do students in any other broad field, according to the most recent National Survey of Student Engagement: Nearly half of seniors majoring in business say they spend fewer than 11 hours a week studying outside class. In their new book, Academically Adrift: Limited Learning on College Campuses, the sociologists Richard Arum and Josipa Roksa report that on a national test of writing and reasoning skills, business majors had the weakest gains during the first two years of college. And when business students take the GMAT, the entry examination for M.B.A. programs, they score lower than do students in every other major.

This is not a small corner of academe. The family of majors under the business umbrella—including finance, accounting, marketing, management and "general business"—accounts for just over 20 percent, or more than 325,000, of all bachelor's degrees awarded annually in the United States, making it the most popular field of study.

Brand-name programs, like the Wharton School of the University of Pennsylvania and the University of Notre Dame's Mendoza College of Business, among a few dozen others, are full of students pulling 70-hour weeks, if only to impress the elite finance and consulting firms they aspire to join. But get much below Bloomberg BusinessWeek's top 50, and you'll hear pervasive anxiety about student apathy, especially in "soft" fields like management and marketing, which account for the majority of business majors.

Scholars in the field point to three sources of trouble. First, as long ago as 1959 a Ford Foundation report warned that too many undergraduate business students chose their majors "by default." Business programs also attract more than their share of students who approach college in purely instrumental terms: as a plausible path to a job, not out of curiosity about, say, Ronald Coase's theory of the firm.

"Business education has come to be defined in the minds of students as a place for developing elite social networks and getting access to corporate recruiters," says Rakesh Khurana, a professor at Harvard Business School who is a prominent critic of the field. It's an attitude that he first saw in M.B.A. programs but has migrated, he says, to the undergraduate level.

Continued in article

Jensen Comment
One of the reasons I did not continue teaching after reaching retirement age is that I got fed up with students who wanted to argue their ways to A-Grades rather than work for those A-Grades.

Bob Jensen's threads on grade inflation are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm#GradeInflation

David Albrecht was one of the first to come out with a summary of the Senate Hearings

"Live Blog: Role of Accounting Profession in Preventing Another Crisis," by David Albrecht, The Summa, April 6, 2011 ---
http://profalbrecht.wordpress.com/2011/04/06/role-of-accounting-profession-in-preventing-another-crisis/

This is followed by David's quotations of Adrienne Gonzalez, our Jr. Deputy Accountant who was "just thrilled" to shake Lynn Turner's hand. However, in spite of holding back her usual four letter word nouns and adjectives, Adrienne pretty well summarized the event's outcomes as follows:

If I wasn’t disappointed in the prospects for the profession going into this, I certainly felt that way walking out.

Jensen Comment
The biggest problem is that there's virtually nothing her e to pick up on by the likes of Diane Sawyer, Brian Williams, Jon Stewart, Jay Leno, or David Letterman.

Letterman probably won't even present "10 Best Reasons the Accounting Profession Will Not Prevent Another Another Crisis.."

You can find other "Top Ten" clips by David Letterman by doing a "David Letterman Top 10" search on YouTube.

My politically incorrect favorite is the following:

David Letterman's Ten Reasons Why Men Prefer Guns to Women
This is too politically incorrect to post on the AECM
Besides I don't prefer guns to women.

"Two guilty pleas in NJ in $880 Million Ponzi scheme," Reuters, April 4, 2011 ---
http://www.reuters.com/article/2011/04/04/shapiro-ponzi-plea-idUSN0427411120110404

Inside Job: 2010 Oscar-Winning Documentary Now Online --- Click Here
http://www.openculture.com/2011/04/inside_job.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

In late February, Charles Ferguson’s film – Inside Job – won the Academy Award for Best Documentary. And now the film documenting the causes of the 2008 global financial meltdown has made its way online (thanks to the Internet Archive). A corrupt financial industry, its corrosive relationship with politicians, academics and regulators, and the trillions of damage done, it all gets documented in this film that runs a little shy of 2 hours.

To watch the film, you will need to do the following. 1.) Look at the bottom of the film. 2.) Click the forward button twice so that it moves beyond the initial trailer and the Academy Awards ceremony. 3.) Wait for the little circle to stop spinning. And 4.) click play to watch film.

Inside Job (now listed in our Free Movie Collection) can be purchased on DVD at Amazon. We all love free, but let’s remember that good projects cost real money to develop, and they could use real financial support. So please consider buying a copy.

Hopefully watching or buying this film won’t be a pointless act, even though it can rightly feel that way. As Charles Ferguson reminded us during his Oscar acceptance speech, we are three years beyond the Wall Street crisis and taxpayers (you) got fleeced for billions. But still not one Wall Street exec is facing criminal charges. Welcome to your plutocracy…

Bob Jensen's threads on the global financial meltdown and its aftershocks are at
http://www.trinity.edu/rjensen/2008Bailout.htm

Teaching Case on What's Holding Women Back in the Workplace

Video ---
http://online.wsj.com/video/pepsi-indra-nooyi-on-balancing-work-and-family/44313778-BE51-4C1A-9323-8757ED876F78.html

From The Wall Street Journal Accounting Weekly Review on April 15, 2011

View from the Top
by: Alan Murray and Indra Nooyi
Apr 11, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
 

TOPICS: Accounting

SUMMARY: The WSJ held a conference for business and government leaders to examine "...what's holding women back in the workplace-and set out an action plan for creating new opportunities." Participants highlighted in the article include Chief Executive of PepsiCo Indra Nooyi; retired Supreme Court Justice Sandra Day O'Connor; Marissa Mayer, the first woman engineer at Google; and actress Geena Davis among other highly accomplished women. The program involved presentation results of research by McKiney & Co. , panel discussions, and presentation of task force recommendations for action to solve issues. The focus of this article is an interview with Indra Nooyi about what she did to get to the top. The article begins with a summary of the McKinsey research essentially saying that "...at each stage of [corporate] advancement, men have at least twice the odds of advancing as women" and asks, "How the hell did you do it?"

CLASSROOM APPLICATION: The related video is essentially repeated in the printed article, so this video could be used in a classroom viewing followed by the questions. It is a useful discussion for any business class, particularly entry level accounting classes often taken by all business majors or in MBA classes.

QUESTIONS: 
1. (Introductory) Ms. Nooyi says that to reach the top, women must obtain P&L management responsibilities as men do. What does the term "P&L" mean? What does it mean to have "P&L responsibility"?

2. (Introductory) What are the functions that Ms. Nooyi says are critical? How do those functions relate to business school education?

3. (Introductory) What does Ms. Nooyi say were her biggest sacrifices to advance has she has?

4. (Advanced) Do you think that the statistics regarding women's advancement in corporate America will change? Support your answer.

5. (Advanced) Do you think this interview and other articles contain important lessons for men as well as women? Explain your answer.
 

SMALL GROUP ASSIGNMENT: 
The questions may be discussed in classroom groups following viewing of the Nooyi interview with reporting out, perhaps also including proposed solutions. These solutions then might be compared to the recommendations found in the related WSJ articles covering the conference.

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Why Women Rarely Leave Middle Management
by Sue Shellenbarger
Apr 11, 2011
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From Kindergarten to the Boardroom: The Top Priorities
by WSJ Editors of the Women in the Economy Report
Apr 11, 2011
Page: R7

 

"View from the Top," by: Alan Murray and Indra Nooyi, The Wall Street Journal, April 15, 2011 ---
http://online.wsj.com/article/SB10001424052748704013604576247630655985522.html?mod=djem_jiewr_AC_domainid

Task-force participants at the conference had no end of recommendations for addressing the challenges—and opportunities—facing women in the economy. Give women more bottom-line responsibilities. Hold CEOs accountable. Recruit outside the regular channels. And so on.

To get insight into those issues, The Wall Street Journal's Alan Murray turned to one of the highest-ranking women in corporate America: Indra Nooyi, chairman and chief executive of PepsiCo. Here are edited excerpts from the discussion.

MR. MURRAY: McKinsey research, building on Catalyst research, shows this pipeline in corporate America. The majority of entrants are very high-qualified women—but at each stage of advancement, men have at least twice the odds of advancing as women. How the hell did you do it?

MS. NOOYI: I ask myself that question every day. Especially recently, I've been looking back and thinking about all of the trade-offs and sacrifices I've had to make to get here. My second daughter's going off to college this September, and I say, "My God, I missed so many things about her growing up." Hopefully, my two daughters will be in an environment where it's going to be easier for them.

 

MR. MURRAY: Are you suggesting that it could have been easier, and you still could have achieved the pinnacle you achieved?

INDRA NOOYI 'The harder the business, the bigger the turnaround, put your hand up and say "I want to do it." '

 

MS. NOOYI: From a family situation, I wanted it all, and it wasn't easy. But I lucked out in one way. I had a husband who said, "You're going to have true gender equality." He was working, I was working, but we juggled our schedules. I also had tremendous support from the extended family.

On the professional side, I had mentors who gave me feedback. For example, I'm a pretty honest and outspoken person. So, you sit in a meeting and somebody presents a three-year, five-year plan. Typically, a lot of the men in the room would say, "You know, that's very interesting. But maybe you could think about this slightly differently."

I just said, "That's crap. This is never going to happen." I'm sure they were all thinking that, but they were saying it in a much more gentle way. I'd come out of the meeting, and one of the guys would pull me aside and say, "You could have said the thing slightly differently. Maybe not the way I said it. Maybe not the way you said it. There might have been a middle ground."

I was very happy that these mentors stepped up and gave me feedback on how to interact in a world that is predominantly male. How can I keep my authenticity, yet adapt to the environment?

 

MR. MURRAY: Can you have an example of where you didn't make the compromise on authenticity?

MS. NOOYI: If my kids called in the middle of a meeting, I took the call. I never said, "Mom's not available." I said, "Excuse me, my kids need to talk to me."

The Leaky Pipe

MR. MURRAY: How do you account for the fact that the pipeline is, to use the adjectives that have been used here, leaky, blocked, broken?

MS. NOOYI: I think the pyramid starts narrowing for everybody, but disproportionately for women because the pipeline wasn't as rich as it needed to be coming up.

I think there might be three reasons why that's so. One, just law of numbers, there weren't enough women in the pipeline. Second, as you move up the organization, there are so many trade-offs and sacrifices to be made. Many women opted out. Third is the environment in many companies, because it's more male dominated. It's changing now, but the senior men belong to the older generation who talk differently and act differently.

Let's say Alan Murray made a presentation, and it was awful. The guys would go to Alan Murray, thump him on the back and say, "Alan, buddy, what happened? You screwed up, man." And Alan says, "You think so? Tell me what I did wrong." There's a locker-room conversation that goes on.

When a woman makes a presentation that's not so good, the men say, "She screwed up, God, she did." That's not locker room; that's heckling the woman.

Women need to go to women and say, "Hey, that presentation wasn't very good. Let me tell you how you could have done it better." But there's a reverse problem. When women give women feedback, women don't take it well. So, there's a funny psychological issue we need to address. Women can be better mentors to women, and women should be more willing to accept women mentors.

The Bottom Line

MR. MURRAY: Let's take a look at the list of priorities. Number one was that too many women are in support roles. In order to see women advance to the top, they needed to be put in positions where they could develop responsibility for the bottom line.

MS. NOOYI: Punching the ticket that you've done P&L management makes a huge difference. But roles like finance or HR or marketing are now critical to the functioning of a company. You can actually exert your influence from those roles. So, ask for a P&L role, get it out as soon as you can—and then figure out how to get into a critical function. But make sure that as you do this job, you expand your own definition of that job.

MR. MURRAY: Another recommendation was to hold CEOs accountable for hiring women in the top jobs and making sure pay was at an equal level.

MS. NOOYI: I agree with all of that, especially the pay parity, which is something we can fix right away. The thing to be very careful about, though, is that if you don't fix the issue of getting talented women in the pipeline, you can't fix the top-management issue overnight. That's a formula for disaster. You put women in there, and they don't succeed, and then it's a worse situation for women.

 

MR. MURRAY: Another idea was to promote women on potential. A phrase that's been repeated around here for the last few days is that men are promoted for potential, and women are promoted on performance. The implication is that there's a higher hurdle that women have to meet.

MS. NOOYI: I think that's changed a lot. The sensitivity, the awareness of these issues is rising, but I think we ought to keep the pressure on. As long as there are no women in the C-suite, these kinds of discussions won't happen.

Continued in article

Bob Jensen's threads on the Glass Ceiling (and in some cases lack thereof in CPA firms) are at
http://www.trinity.edu/rjensen/BookBob1.htm#careers

"B-School Research Tackles the Big Questions:  Business school faculty members have been churning out research on green initiatives, terrorism, and happiness," by Francesca Di Meglio, Business Week, March 24, 2011 ---
http://www.businessweek.com/bschools/content/mar2011/bs20110323_364816.htm?link_position=link1

There's not much credit given here to accounting research, but mention is made of research on vocal intonations of CEOs and CFOs on 1,647 earnings conference calls for 691 companies in 2007, a study by Duke's accounting professors William Mayew Mohan Venkatachalam.

I’m not going to hold my breath waiting for Porter to give some evidence of contrition about his mission to Tripoli. Sir Howard Davies may have resigned as director of the LSE (“The short point is that I am responsible for the school’s reputation and that has suffered”), but being a Harvard professor apparently means never having to say you’re sorry. Perhaps instead the university will find some way to rein in on its professors’ more self-serving ambitions.
David Warsh, "A Recent Exercise in Nation-Building by Some Harvard Boys," EconomicPrincipals.com, March 27, 2011 ---
http://www.economicprincipals.com/issues/2011.03.27/1248.html
Thank you Robert Walker for the heads up.

It was worth a smile at breakfast that morning in February 2006, a scrap of social currency to take out into the world. Michael Porter, the Harvard Business School management guru, had grown famous offering competitive strategies to firms, regions, whole nations.  Earlier he had taken on the problems of inner cities, health care and climate change.  Now he was about to tackle perhaps the hardest problem of all (that is, after the United States’ wars in Afghanistan and Iraq).

He had become adviser to Moammar Khadafy’s Libya.

There at the bottom of the front page of the Financial Times was a story that no one else had that day, or any other – a scoop. It turned out that Porter and his friend Daniel Yergin and the consulting firms which they had respectively co-founded and founded, Monitor Group and Cambridge Energy Research Associates, had been working for a year on a plan to diversify the Libyan economy away from its heavy dependence on oil. Their teams had conducted more than 2,000 interviews with “small- and medium-scale entrepreneurs as well as Libyan and foreign business leaders.” (Both men are better-known as celebrated authors:  Porter for Competitive Strategy: Techniques for Analyzing Industries and Competitors and The Competitive Advantage of Nations, Yergin for The Prize: the Epic Quest for Oil, Money and Power and The Commanding Heights: the Battle for the World Economy.)

The next day Porter would present the 200-page document they had prepared in a ceremony in Tripoli. Khadafy himself might attend. The FT had seen a copy of the report, which envisaged a glorious future under the consultants’ plan. If all went well, it said, then by 2019 – the 50th anniversary of the military coup that brought Col. Khadafy to power – Libya would have “one of the fastest rates of business formation in the world,” making it a regional leader contributing to the “wealth and stability of surrounding nations.”

. . .

We now know that Khadafy’s son bribed his way into his PhD from the London School of Economics (LSE); that Monitor Group had been paid to help him write his dissertation there (much of which apparently turns out to have been plagiarized, anyway); that the Libyan government was paying Monitor $250,000 a month for its services; that, according to The New York Times, Libya’s sovereign wealth fund today owns a portion of Pearson PLC, the conglomerate that publishes the Financial Times and The Economist; that the whole deal quietly fell apart two years later.

Sir Howard Davies resigned earlier this month as director of the LSE after it was disclosed he had accepted a ₤1.5 million donation in 2009 from a charity controlled by Saif Khadafy.

It turns out that Monitor also proposed to write a book boosting Khadafy as “one of the most recognizable individuals on the planet,” promised to generate positive press, and to bring still more prominent academics, policymakers and journalists  to Libya, according to Farah Stockman of The Boston Globe. She did a banner job of pursuing the details she found in A Proposal For Expanding the Dialogue Surrounding the Ideas of Moammar Khadafy, a proposal from Mark Fuller in 2007 that a Libyan opposition group posted on the Web.

Among those enlisted were Sir Anthony Giddens, former director of the LSE; Francis Fukuyama, then of Johns Hopkins University; Benjamin Barber, of Rutgers University (emeritus); Nicholas Negroponte, founder of MIT’s Media Lab; Robert Putnam and Joseph Nye, both former deans of Harvard’s Kennedy School of Government.  Nye received a fee and wrote a broadly sympathetic account of his three-hour visit with Khadafy for The New Republic. He also told the Globe’s Stockman he had commented on a chapter of Saif’s doctoral dissertation. (When The New Republic scolded Nye earlier this month, after Mother Jones magazine disclosed the fee, Nye replied that his original manuscript implied that he had been employed as a consultant by Monitor, but that the phrase had been edited out).

. . .

I’m not going to hold my breath waiting for Porter to give some evidence of contrition about his mission to Tripoli. Sir Howard Davies may have resigned as director of the LSE (“The short point is that I am responsible for the school’s reputation and that has suffered”), but being a Harvard professor apparently means never having to say you’re sorry. Perhaps instead the university will find some way to rein in on its professors’ more self-serving ambitions.

New Book --- Yeah Right!
Harvard Business Review on Making Smart Decisions --- Click Here
http://hbr.org/product/harvard-business-review-on-making-smart-decisions/an/10323-PDF-ENG?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
In Chile the Chicago Boys rebuilt a nation with honor. I Libya the Harvard Boys were apparently less honorable.

And look what a desert swamp we're mired in now!

. . . being a Harvard professor apparently means never having to say you’re sorry

Making Home Affordable --- http://www.makinghomeaffordable.gov/pages/default.aspx

Making Home Affordable is a key part of the Obama Administration's effort to help homeowners avoid foreclosure. If you are struggling with your monthly mortgage payments or have already missed a payment, now is the time to take action. Start today by learning more about the options available to you through MHA

Help for Homeowners Facing Foreclosure

Help for Homeowners Struggling With Mortgage Payments

Help for Homeowners Trying to Avoid Mortgage Troubles

Attend an MHA event in your area

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/BookBob1.htm#InvestmentHelpers

"PwC India Affiliates Settle with SEC, PCAOB Over Satyam Audit Failures," By Caleb Newquist, Going Concern, April 5, 2011 ---
http://goingconcern.com/2011/04/pwc-india-affiliates-settle-with-sec-pcaob-over-satyam-audit-failures/

The affiliates – Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta – must pay $6 million to the SEC, $1.5 million to the PCAOB and are barred from accepting U.S.-based clients for six months. The SEC fine is the largest ever levied against a foreign-based accounting firm in an SEC Enforcement Action and the PCAOB fine is the largest in the regulator’s history. PW India must also “establish training programs for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.” The SEC’s press release stated that the failures “were not limited to Satyam, but rather indicative of a much larger quality control failure throughout PW India.”

Continued in article

 Jim skillfully tells it like it is in this almost laughable settlement
"The PCAOB Settlement in Satyam: PwC Agrees to Fall on its Pen-Knife," by Jim Peterson, re:Balance, April 6, 2011 ---
http://www.jamesrpeterson.com/home/2011/04/the-pcaob-settlement-in-satyam-pwc-agrees-to-fall-on-its-pen-knife.html

. . .

From the PwC perspective, meanwhile, the chance for a cheap exit from a major problem would have been a no-brainer. Consider:

First, an enforcement ding on the Satyam engagements had to be coming, sooner or later. From the PCAOB’s order – which PwC agreed not to contest – the Indian engagement teams on the audits from 2005 through 2008 basically did not:

• Adequately audit the company’s cash positions
• Control the confirmation process on bank balances or accounts receivable
• Pursue indications of inconsistent information or control weaknesses
• Follow PwC global directives on audit execution
• Inform or advise higher-level quality oversight personnel
• Document the work actually done (or not) in the work-papers, until subsequent back-dating while already under regulatory scrutiny

So a strategic decision not to defend the indefensible indicates early recognition of a step toward sustainable credibility. 

As for the sanctions – PwC’s undertakings on future practice quality, staffing, training and internal oversight are no more than necessary for an enterprise with aspirations to professionalism; the two-year presence of an outside monitor only adds one more stranger to the list of foreign intruders imposed on its Indian practice; and the six-month restraint on new SEC clients runs only to the settling Indian firms, so does not inhibit either the global network or its other Indian affiliates.

And, lastly, the financial impact of the fines on the massive PwC network is no more than a dime added to a roll of nickels.

For good measure, with the week’s news cycle dominated by military activities in Libya and a threatened government shut-down in Washington, and subsidiary attention to post-earthquake Japan’s nuclear hazards and Silvio Berlusconi’s “bunga bunga” trial, the entire story will drop off the media screen in less than no time.

Predictably, critics of the accounting profession who are unwilling to settle for less than the scalps of the Big Four leaders nailed to an enforcer’s door will make their outrage known.

But they will fail to acknowledge that both the regulators and PwC itself are only acting in full accordance with their respective DNA.

So once again, this settlement points up the challenge to the long-term achievability of a valuable, sustainable assurance function, to serve the issuers and users of the financial information of global-scale companies: the terms of the discourse are revealed as hopelessly inadequate.

Bob Jensen's threads on PwC are at
http://www.trinity.edu/rjensen/Fraud001.htm

"Earnings effects of personality, education and IQ for the gifted," by Steve Hsu, MIT's Technology Review, April 2, 2011 ---
http://www.technologyreview.com/blog/post.aspx?bid=354&bpid=26600&nlid=4315

Thanks to a reader for pointing me to this recent paper by Heckman and collaborators, which makes use of data from the Terman study of gifted individuals (minimum IQ of 135 on the Stanford-Binet).

Of the personality factors, Conscientiousness and Extraversion had the largest (positive) effect on lifetime earnings -- see figures below. See here for more on Big 5 personality factors and a link to a personality test.

The Effects of Education, Personality, and IQ on Earnings of High-Ability Men

This paper estimates the internal rate of return (IRR) to education for men and women of the Terman sample, a 70-year long prospective cohort study of high-ability individuals. The Terman data is unique in that it not only provides full working-life earnings histories of the participants, but it also includes detailed profiles of each subject, including IQ and measures of latent personality traits. Having information on latent personality traits is significant as it allows us to measure the importance of personality on educational attainment and lifetime earnings.

Our analysis addresses two problems of the literature on returns to education: First, we establish causality of the treatment effect of education on earnings by implementing generalized matching on a full set of observable individual characteristics and unobserved personality traits. Second, since we observe lifetime earnings data, our estimates of the IRR are direct and do not depend on the assumptions that are usually made in order to justify the interpretation of regression coefficients as rates of return.

For the males, the returns to education beyond high school are sizeable. For example, the IRR for obtaining a bachelor's degree over a high school diploma is 11.1%, and for a doctoral degree over a bachelor's degree it is 6.7%. These results are unique because they highlight the returns to high-ability and high-education individuals, who are not well-represented in regular data sets.

Our results highlight the importance of personality and intelligence on our outcome variables. We find that personality traits similar to the Big Five personality traits are significant factors that help determine educational attainment and lifetime earnings. Even holding the level of education constant, measures of personality traits have significant effects on earnings. Similarly, IQ is rewarded in the labor market, independently of education. Most of the effect of personality and IQ on life-time earnings arise late in life, during the prime working years. Therefore, estimates from samples with shorter durations underestimate the treatment effects.
 

Here are a couple of interesting excerpts from the paper:
 

... Our third contribution is to show how the effect of personality on earnings varies through-out the men’s working lives. We find that without access to long follow-up data, the estimated effect would be understated. Note that even though the Terman sample has a restricted range of IQ, there is substantial variation in personality. In fact, the Terman men do not differ from the general population in terms of personality.

... note that even when controlling for rich background variables, IQ maintains a statistically significant effect on lifetime earnings. Even though the effect is slightly diminished from the un-controlled association of the first column, it is still sizable. Malcolm Gladwell claims rather generally in his book Outliers that for the Terman men, IQ did not matter once family background and other observable personal characteristics were taken into account. While we do not want to argue that IQ has a larger role for the difference between 50 and 100, for example, than for the difference between 150 and 200, we do want to point out that even at the high end of the ability distribution, IQ has meaningful consequences. [The syntax of this last sentence is strange. Presumably the impact of IQ variation from 50 to 100 (from severely handicapped to average) is larger than for 150 to 200, even though their results show a significant effect even in the very high range.]
 

Below are some nice figures (click for larger versions). Note the personality factor distribution among Termites was similar to that of the overall population, whereas the IQ range was restricted due to selection. Typical lifetime earnings for this group of exceptionally able men ranged from $2 to $3 million in 2008 dollars.

Continued in article

April 5, 2011 reply from Jim Fuehrmeyer

In my start group in Chicago over thirty years ago, there were six of us who were Sells award winners including the gold medalist. The gold medalist could take a test with the best of them but she couldn’t carry on an intelligent conversation and she lacked the ability to make judgments. Like I tell my students, accounting is not about solving problems; it’s about identifying the problem to be solved. I’m sure some of the smartest PhDs you’ve known in your career ended up being the poorest teachers; being smart doesn’t mean you can communicate your knowledge to others effectively.

Jim

Research that equates income levels to predictor factors suffers inevitably to the "criterion problem" discussed  at
 http://www.trinity.edu/rjensen/assess.htm#CriterionProblem.

No Fooling: Try This One Out With Students (adding sensitivity analysis with interest rates and inflation)
"Slow Compounding," by Floyd Norris, The New York Times, April 1, 2011 ---
http://norris.blogs.nytimes.com/2011/04/01/slow-compounding/

American Express has a full-page ad in today’s Times offering a savings account yielding 1.15 percent.

These days that is a good rate, a fact the people of my generation find astonishing. Such amazingly low rates cause great anxiety for those who saved money in the past and now find it yields so little.

I did a little arithmetic. My son is an 18-year-old college freshman. If he puts $100 into such an account now, and rates remain constant, he will have doubled his money in time for his 79th birthday party.

Of course, if you are investing for a child in kindergarten, there is still hope. A $100 investment today would double about the time he or she goes on Medicare.

Bob Jensen's personal finance helpers are at
http://www.trinity.edu/rjensen/BookBob1.htm#InvestmentHelpers

Question
Is your managerial/cost accounting course largely detached from the real world?

"Book Indicates Wrigley Faithful Care More About Beer Prices Than Winning: Chicagoist ," Chicagoist, April 4, 2011 ---
http://chicagoist.com/2011/04/04/book_indicates_wrigley_faithful_car.php 
Thanks to Jim Mahar for the heads up.

Leave it to a University of Chicago economist to lend credence to the belief that Wrigley Field is a background to being the World's Largest Beer Garden 81 times a year. Booth School of Business Finance Professor Tobias "Toby" Moskowitz is one of the co-authors of the new book Scorecasting. Moskowitz and Sports Illustrated senior writer Jon Wertham analyzed economic data related to baseball at Wrigley Field in relation to attendance and found that, more often than not. the one factor that tended to lead to decreases in attendance was increases in beer prices, even as tickets to Cubs games became more expensive.

Per the University of Chicago magazine;

From 1984 to 2009, “attendance was more than four times more sensitive to beer prices than to winning or losing.” That sensitivity is evident at the concession stand. A beer at Wrigley Field, Scorecasting reports, costs just $5, cheaper than everywhere except at Arizona Diamondbacks and Pittsburgh Pirates games.

Tickets to Cubs games, on the other hand, have followed a different trajectory. Since 1990, prices have increased 67 percent (the league average is 44.7 percent). Only the New York Yankees and the Boston Red Sox command more.

Yet people have continued to pay Wrigley Field’s escalating cover charge, filling the stadium to 99 percent capacity. Across town at US Cellular Field, ticket prices and attendance rise and fall based on White Sox wins and losses, but the same beer will run you a buck-fifty more than at Wrigley.

Continued in the article

Jensen Comment
This illustration might be used to portray the enormous gap between CPV analysis in the real world versus the pathetic simplification assumptions we make for CPV models in our cost and managerial accounting textbooks.

Firstly, the single product models where only one product bears the fixed cost almost never arise in the real world except in maybe for farmers who only grow one crop such as Kansas wheat or Idaho potatoes. But this leaves our students unprepared for the real world where they rarely encounter single-product firms.

Secondly, when we teach multiple-product CPV analysis we make the totally unrealistic assumption that product/sales mix ratios are constant over the relevant range. This leaves our students unprepared for the real world where they rarely encounter fixed product/sales mix ratios even in a relatively narrow relevant range.

The above Wrigley Field CPV problem from the real world illustrates a situation where two products, beer and park seating tickets, share common fixed costs but do so in a complicated way that makes the assumption of a fixed product/sales mix ratio is totally inappropriate. Pricing is especially complicated because at low seating prices we have more patrons who potentially but not necessarily will buy more beer. But at low beer prices we will apparently sell more seating tickets, but this becomes complicated by so many other factors. Demand appears to be more elastic to beer pricing than to ticket pricing according to findings in the above article. Add to this the park attendance complications caused by Cubs rankings in the National League, popularity of certain stars that emerge such a leading home run hitter, weather, unemployment, traffic, parking, and other factors affecting park attendance and beer drinking.

It might be of great value if some accounting professors collaborated to write a case about Wrigley Field CPV analysis leading up to pricing decisions and other variables that we commonly analyze in CPV analysis such as operating leverage.

It might be of great value if readers would tell us how they go beyond the textbooks to prepare students for real world complications of CPV analysis.

Bob Jensen's threads on managerial accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

"Programs that grow the next generation of global leaders," by Dan Black, Americas Director of Campus Recruitment, Ernst & Young, Ernst & Young Faculty Connection, Issue 32, April 2011 ---
http://www.ey.com/US/en/Careers/EY-Faculty-Connection-Issue-32---Programs-that-grow-the-next-generation-of-global-leaders

Our 141,000 people are part of a global network that spans more than 140 countries, and working effectively in a global marketplace is one of our key priorities. It helps foster our inclusive culture, and promotes global assignments and working on cross-cultural teams. That is why we offer a wide range of programs and experiences for our interns, new hires and early-career professionals to build their global mindsets.

The good news is that today’s college students are the most global generation to date. Research among the attendees of the Ernst & Young 2010 International Internship Conference shows that 88% have traveled outside their home country and 36% have studied abroad. These business leaders of tomorrow are hungry for international experience, and we at Ernst & Young are passionate about providing the tools they need to develop a global mindset.

We begin providing this training long before the students are hired. Our upcoming Emerging Leaders Summit, a pre-internship conference for high-performing college sophomores and juniors, includes workshops designed to build students’ global intellectual, psychological and social capital, the building blocks of a successful global mindset. Opportunities for international geographic mobility begin with overseas assignments in the Global Student Exchange Program, an exciting opportunity for Ernst & Young interns. Internships start in the students’ home office locations, then four weeks abroad at another Ernst & Young office. Participants then return and complete their internship back home. Flights, housing and work visas costs are paid for by Ernst & Young. In addition, Ernst & Young was the only ‘Big Four’ organization to hold an International Intern Leadership Conference in both 2009 and 2010. Attended by nearly 1,400 students from over 13 countries last year, the conference allows students to meet their intern counterparts from around the world, an invaluable first step to creating their global networks.

We are also very excited to announce a new experience geared towards helping our younger employees on their journey towards developing a global mindset. Our Global Exchange Program has been extended to offer second and third-year employees short-term international rotations, allowing more of our professionals to experience geographic mobility earlier in their careers. Already enjoying several years of success in our Europe, Middle East, India and Africa areas, the Americas pilot of this program will link people in our more junior ranks from Brazil, Canada and the US so that they can team internationally on select high-profile clients.

Continued in article

Bob Jensen's Threads on Accountancy Careers ---
http://www.trinity.edu/rjensen/BookBob1.htm#careers

Jensen Comment
Stanford University's Graduate School of Business added a globalization program with five new assistant professorships under the leadership of senior professor Condoleezza Rice, PhD

Although Stanford's program is a multidisciplinary business globalization education and research program, that's the nature of such programs in the spirit of Dan Black's article above.

Also new programs on globalization fit nicely into the initiatives undertaken by the new Pathways Commission formed in a joint program of the AAA and the AICPA --- http://commons.aaahq.org/files/ae7732e589/AEN_Fall10_PATHWAYS.pdf
Search under Bruce Behn for more detailed information about the Pathways Commission, which Bruce now chairs.

His wife is even for sale and marked down at that!
From The Wall Street Journal Accounting Weekly Review on April 8, 2011

A Tax Man Takes Account of His Life
by: Laura Saunders
Apr 05, 2011
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Education, Personal Taxation, Public Accounting, Tax Accounting, Tax Laws, Tax Planning, Taxation

SUMMARY: The article describes the lifestyle of Doug Stives, a CPA from Red Bank, NJ, who now can enjoy peak skiing season conditions out west after leaving his job as a partner at accounting firm The Curchin Group. His full-time position is now an accounting professor at Monmouth University in New Jersey. All of his accounting and tax practice work is now done as a self-employed contractor reporting on Schedule C.

CLASSROOM APPLICATION: The article is useful for a tax class discussing deductions , particularly on Schedule C, and for any class covering professional accounting work plans.

QUESTIONS: 
1. (Advanced) What type of income is reported on Schedule C as attached to U.S. Form 1040?

2. (Introductory) How did Mr. Stives's move from being a partner at an accounting firm to a position as an accounting professor and director of the MBA program at Monmouth University allow him to change reporting of his income on his U.S. Form 1040? Be specific.

3. (Introductory) How did that change in income reporting also change the deductibility of Mr. Stives's travel and other expenses?

4. (Advanced) How could the IRS challenge deductibility of Mr. Stives's travel expenses? Be specific in your description of the theory behind the potential issue.

5. (Advanced) Could you replicate Mr. Stives's approach immediately after college graduation? Explain your answer.
 

Reviewed By: Judy Beckman, University of Rhode Island

"A Tax Man Takes Account of His Life," by: Laura Saunders, The Wall Street Journal, April 5. 2011 ---
http://online.wsj.com/article/SB10001424052748703696704576222590253291266.html?mod=djem_jiewr_AC_domainid

In the thick of tax season, most certified public accountants are chained to their desks grinding out returns.

Doug Stives, a CPA from Red Bank, N.J., went skiing in Utah.

"I always dreamed of coming here for peak conditions," he said in mid-March between runs at Snowbasin Resort.

The trip is among the many perks that have accrued from his decision, in 2006, to become, in effect, The Most Tax-Efficient Man in America. The experiment has led to a new career, frequent travel and obsessive documentation of expenses, such as a $6 hot dog he recently bought in the Philadelphia airport.

The "aha" moment came to him, he says, after a college approached him about a teaching gig and he realized he could put into practice many of the tax strategies he had learned over the decades.

Step One was to change jobs. Mr. Stives had been a partner for 36 years at The Curchin Group, an accounting firm. By accepting an offer to teach tax and accounting courses full-time at the Leon Hess Business School of Monmouth University in New Jersey, he was able to tap into a broad array of tax-free employee benefits not available to him at the firm.

Step Two was the formation of Doug Stives LLC, the separate consulting business to which he attributes an impressive array of expenses. In general, people who are employees and have side businesses are often in the best position to maximize the tax code's benefits, say experts. Mr. Stives calls this "the best of all worlds."

The result, says Mr. Stives, is that while he earns less than 75% of his earlier pay, he takes home almost 90% as much. And he says he reaps another $40,000 a year in tax-free benefits from his college gig. Among other things, the school adds to his 401(k) contribution and provides tax-free, discounted health plans for Mr. Stives and his wife, plus disability insurance. As a partner in the accounting firm, he had to fund such expenses himself.

Not that all is perfect now. One peeve: dealing with what he calls "airline nonsense"—long lines, rising fees and canceled flights. But overall, he says, "my quality of life is so much higher."

His wife of 40 years, Elizabeth Stives, agrees. "We travel so much now for his business," she says. "Next is Lake Tahoe."

Mr. Stives, 64 years old, says he's too miserly to focus solely on maximizing deductions—a practice he calls a "rookie's mistake." In 2010, for example, he spotted a bonanza in "bonus depreciation" for large SUVs used in a business, but didn't need another car. "Sometimes my cheapness overcomes my love of tax savings," he says. "My wife will tell you I got her on sale."

Instead, he says, he uses the tax code's many quirks as the means through which he can live a fuller life.

Continued in article

Bob Jensen's threads on accountancy careers are at
http://www.trinity.edu/rjensen/BookBob1.htm#careers

Free Faxing Service
"HelloFax Makes Faxing Painless (Even without a Fax machine)," by Ryan Cordell, Chronicle of Higher Education, April 13, 2011 ---
http://chronicle.com/blogs/profhacker/hellofax-makes-faxing-painless-even-for-profs-hacker/32518?sid=wc&utm_source=wc&utm_medium=en

The very idea of faxing a document seems outdated to me. I suspect that many ProfHacker readers wouldn’t willingly fax something were there any option to submit it electronically. Nevertheless, I find myself needing a fax machine several times a year. What’s more, the things that must be faxed are, inevitably, essential documents: often tied to my finances or academic records.

So I was thrilled when Lifehacker recently posted (yes, Lifehacker again!) about HelloFax, a service that allows you to fax documents straight from your computer. Once you register for an account with HelloFax, you simply type in the destination fax number, upload your document, sign it electronically (if you want to), and send it. HelloFax sends you an email when the fax is delivered (or if the delivery fails). When you log into HelloFax, you can see the status of all of your faxes, and resend faxes that failed.

Since I read Lifehacker’s post, I’ve scanned and then “faxed” three separate documents using HelloFax. Each time the service was easy to use and my documents were delivered safely. With a free account you can send up to 5 pages per month (about all I ever need). HelloFax also offers paid accounts for more frequent faxers.

Continued in article

Bob Jensen's technology bookmarks ---
http://www.trinity.edu/rjensen/Bookbob4.htm

Sharp Ratio --- http://en.wikipedia.org/wiki/Sharpe_Ratio

The Sortino Ratio is an adjustment on the Sharpe Ratio in that it only penalizes downside volatility ---
http://thecuriousinvestor.com/2007/10/03/sortino-ratio/
Thanks to Jim Mahar for this April 4, 2011 heads up ---
http://financeprofessorblog.blogspot.com/2011/04/sortino-ratio.html

"Bribery and the Gathering Storm Over Compliance," by Peter J. Henning, The New York Times (DealB%k), April 1, 2011 ---
http://dealbook.nytimes.com/2011/04/01/bribery-and-the-gathering-storm-over-compliance/

While insider trading cases have been attracting much of the financial headlines, there is another issue that will have a much greater impact on corporate bottom lines: bribery.

The British Ministry of Justice has announced guidelines for the implementation of the far-reaching Bribery Act of 2010, which goes into effect on July 1. Meanwhile, while the Securities and Exchange Commission is set this month to announce rules required by the Dodd-Frank Act to encourage whistleblowers to disclose information about corporate misconduct, most likely including violations of the Foreign Corrupt Practices Act.

The Bribery Act is sure to drive up the costs of compliance programs for American companies doing business in Britain, while the Dodd-Frank Act’s whistleblower provisions may well render those programs superfluous, even though they will still be required by the Sarbanes-Oxley Act.

The Foreign Corrupt Practices Act prohibits individuals and companies from paying bribes to foreign officials to obtain or retain business in the country. It also requires corporations that file reports with the S.E.C. to maintain accurate books and records in accordance with the accounting rules. The law, first adopted in 1977, has grown in importance over the past decade as the Justice Department, working with the S.E.C., has brought a number of cases against multinational companies for corrupt payments, resulting in millions of dollars of fines and penalties.

Britain’s Bribery Act is broader in some respects than the Foreign Corrupt Practices Act, most importantly applying to any type of bribery, not just payments to foreign officials. The Bribery Act makes a company liable for the actions of those “associated” with a “commercial organization,” including any employee or agent who acts on its behalf, and the organization is strictly liable for any failure to prevent the bribery.

For American companies, a key facet of the Bribery Act is its application to any organization that “carries on a business” in Britain. The Ministry of Justice’s guidance is not particularly helpful on the scope of the law, noting that it would not apply to foreign company that did not have a “demonstrable business presence” in Britain, and that a company is not necessarily liable if it lists its shares on a British exchange or maintains a subsidiary in the country. Rather than explaining what the law does cover, the guidance simply describes what might fall outside the Bribery Act, while noting that the courts will finally decide the issue. This provides little clarity about the scope of the law.

The Bribery Act provides a defense for a company accused of a violation if it can show it had in place “adequate procedures” to prevent an associated person from engaging in bribery, something the Foreign Corrupt Practices Act does not recognize as a basis to avoid liability. The Ministry of Justice outlined six principles for preventing bribery that should guide companies in adopting or expanding a compliance program to help establish a defense to a charge. The principles focus on adequately assessing the risks of a violation and implementing a sufficiently rigorous program of prevention and monitoring.

While almost every publicly traded American company already has a compliance program in place, the potentially broad scope of the Bribery Act is likely to require companies doing any substantial amount of business in Britain to devote even greater resources to preventing bribery of any type, not just that involving foreign officials. Compliance is not cheap, of course, which means the lawyers, accountants and outside consultants who specialize in this field will see an uptick in business.

Continued in article

Bob Jensen's threads on Rotten to the Core are at
http://www.trinity.edu/rjensen/FraudRotten.htm

Bob Jensen's threads on whistleblowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

"The Big Screw Up": An "Ugly" PCAOB Audit Inspection Report of KPMG Bermuda

"Dirty Little Secret Unravels in Bermuda Blunder," by Jonathan Weil, Bloomberg, March 30, 2011 ---
http://www.bloomberg.com/news/2011-03-30/dirty-little-secret-outed-in-bermuda-blunder-commentary-by-jonathan-weil.html

One of the long-standing raps on the auditing profession is that too many of its practitioners suffer from a check-the-box mentality, where rigid adherence to mindless rules obscures their ability to see the bigger picture.

For once, that mindset has worked to investors’ advantage.

Two weeks ago, the Public Company Accounting Oversight Board released its triennial inspection report on the Hamilton, Bermuda-based affiliate of KPMG, the Big Four accounting firm. And it was an ugly one. In one of the audits performed by KPMG- Bermuda, the board said its inspection staff had identified an audit deficiency so significant that it appeared “the firm did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements.”

This being the hopelessly timid PCAOB, however, the report didn’t say whose audit KPMG-Bermuda had blown. That’s because the agency, as a matter of policy, refuses to name companies where its inspectors have found botched audits. It just goes to show that the PCAOB’s first priority isn’t “to protect the interests of investors,” as the board’s motto goes. Rather, it is to protect the dirty little secrets of the accounting firms and their corporate audit clients.

That’s why it gives me great pleasure to be able to break the following bit of news: The unnamed company cited in KPMG- Bermuda’s inspection report was Alterra Capital Holdings Ltd. (ALTE), a Hamilton-based insurance company with a $2.3 billion stock- market value, which used to be known as Max Capital Group Ltd.

One Client

You see, just like their checklist of instructions told them to do, the folks who wrote this report were kind enough to disclose the number of U.S.-listed companies that KPMG-Bermuda had as audit clients at the time it was inspected. That number, the report said, was one.

The report also said the board’s staff conducted their inspection in November 2009, and that the audit deficiency they found was “the failure to perform sufficient procedures to test the estimated fair value of certain available-for-sale securities.” Armed with those data points and some stock- screening software, I quickly found KPMG-Bermuda’s audit report on Alterra’s 2008 financial statements, dated Feb. 19, 2009.

Alterra actually was one of two U.S.-listed companies for which KPMG-Bermuda signed an audit report that year. The other one got acquired before the agency’s inspection work began. And of the two, Alterra was the only one that classified any of its securities as available-for-sale.

Big Screw-Up

It’s when you look at Alterra’s financial statements that the magnitude of KPMG-Bermuda’s screw-up becomes apparent. Available-for-sale securities are the single biggest line item on Alterra’s balance sheet. They represented almost half of the company’s $7.3 billion of total assets as of Dec. 31, 2008, and a little more than half of its $9.9 billion of total assets at the end of last year.

Continued in article

Jensen Comment
We might call this Bermuda Shorts in the auditing profession, but this might be going a bit too far.

Bob Jensen's threads on KPMG's good news and bad news ---
http://www.trinity.edu/rjensen/Fraud001.htm

Questions
Is it possible to eliminate a $1.5 trillion deficit by increasing rates for taxpayers earning more than $250,000 per year?
Is it possible to eliminate the above deficit by increasing tax rates for all taxpayers?

Answers
In theory no to Question 1 and yes to Question 2, but in reality, closing the Federal spending gap with tax rate increases would be a total disaster on the economy to a point where the government might take in less rather than more tax revenue.

Firstly the answer is no unless you more than double what the poor and middle class pay in taxes. And since nearly half the households in the U.S. do not pay any Federal income tax, Congress would probably have to figure how to squeeze blood out of turnips. This would have an extremely adverse impact on middle and lower income families already deep in debt to to pay medical, housing, and education expenses.

Secondly, the answer is no if you anticipate that most taxpayers that have any form of savings would probably stampede to invest in tax free alternatives such as tax free municipal bonds and bond funds. This would be a disaster for business firms seeking capital.

Thirdly, many taxpayers now paying something into the U.S. Treasury would be thrown out of work and impact on the economy would be far worse than the Great Depression of the 1930s.

But if we could wave a magic wand and prevent all the dynamic reactions to tax rate increases, one solution would look something like this --- keeping in mind that all of this is pure fantasy since the dynamic reactions really cannot be prevented. From Paul Caron's TaxProf Blog on April 18, 2011 ---
http://taxprof.typepad.com/

"Why Aren't The Rich Paying 50 Percent in Income Taxes?" by Nick Gillespie and Meredith Bragg, Reason Magazine, April 8, 2011 ---
http://reason.com/blog/2011/04/08/why-arent-the-rich-paying-50-p

Jensen Comment
Professor Blinder's main criticism is that the Ryan Plan is too long term and does not do enough to reduce the trillions in deficits over the next decade. But like most progressives he offers zero hints as to what will be a "better game in town" to reduce deficits now. Presumably he wants to confiscate the incomes of people now making over $250,000 per year, but he really doesn't want to discuss a proposed game plan for tax increases because he secretly knows this will not be enough to make much difference on the deficits and probably will be highly dysfunctional in terms of unemployment. Secretly he most likely supports his Princeton colleague's, Krazy Krugman's, solution of printing dollars to reduce deficits and pay for  my wife's forthcoming very expensive surgery.
 

Zimbabwe showed Ben Bernanke, Alan Blinder, and Paul Krugman the way to reduce government deficits. Why can't they convince the rest of us that printing presses are the answer to deficit reduction?
 

And, if we keep redefining inflation by taking more and more commodities and services out of the calculation, things won't look so bad while were printing $15 trillion dollars for starters.

Eventually, the "Core" CPI might only include empty houses and vacant yachts.

April 20, 2011 reply from Bob Jensen

Hi Louis and Linda,
I probably would never do research on privileged budget items because it is so complicated and confounded with externalities.


When it comes to government spending, one has to first distinguish those budget items that are discretionary versus non-discretionary. To do this we need some type of criterion. One criterion to consider is whether or not a contract would make the item binding in court. As I mentioned previously many retirement contracts allow beneficiaries to take breaches of contract to court, which is why Congress does not mess with cutting military pensions.


There are, of course, gray zones. Presumably Congress can choose to add surtaxes to all pensions that it pays, including military pensions and Social Security. Or it can choose to tax medical benefits that it pays such as taxes on usage of Veterans Hospitals or taxes and higher deductibles on Medicare claims.


Another gray area that makes non-discretionary budget items somewhat discretionary is already being practiced in Medicare. You can keep allowing less and less for medical  services such that claimants can only get cheap and inferior doctors. For example, the surgeon who performed my wife's surgeries three and four under Medicare would not do surgery Number 5 because he stopped accepting any Medicare patients. This means by law that he cannot accept patients who are eligible for Medicare even if they are willing to pay his fees from private funds. May wife had to find another surgeon in another state.


Under the Romney Care "universal" health insurance plan in Massachusetts, some hospitals discovered the plan was not paying enough to cover out-of-pocket expenses, especially malpractice insurance premiums. So those hospitals dropped the services that had the highest malpractice insurance premiums. Read that as meaning that those hospitals dropped obstetrics departments and refused obstetrics services to all women. These women can still find hospitals that offer such services but the distances are further and the lines are longer and the services are not nearly as good in many instances.


Also the outstanding orthopaedic hospital in Boston where my wife now has spinal surgeries dropped its emergency room services. An externality of Romney care was reduced medical services for all patients, including those that have premium medical insurance plans from employers. Those on premium plans have fewer choices for emergency rooms and trauma centers because of Romney Care.


There's a huge difference between General Motors and the government when it comes to budget cutting. General Motors cannot print money and reached a point where it was impossible to meet pension and health care contracts with retirees. In that case the bankruptcy court modified the contracts. In the case of government pensions and medical benefits for retirees, rather than declare bankruptcy our Federal government will probably just print the money needed to honor the contracts. Welcome to Zimbabwe.


Our state governments like California are in more of a bind. State governments might have to declare bankruptcy and have the bankruptcy courts restructure retirement contracts. At one time Canada came close to losing its national government in favor of provincial governments that would, among other things, print their own currencies. This is no longer entirely out of the question for our 50 states in the United States who would like an option to print their own currencies.


As far as "privileges" within government budget items deemed discretionary, the top privileges typically go to public safety. Police, fire, and National Guard budgets are being cut somewhat but they are protected from enormous cuts by fears in the minds of voters.  As far as Federal government military budgets are concerned, an extremely expensive item in budgets is for advanced warfare and defense technology. However, not many voters are willing to fall behind our enemies on warfare technology, including technology for blocking communications --- such as when an unnamed advanced-technology nation allegedly shut down the nuclear centrifuges in Iran.


Another extremely expensive budget item is our CIA, but not many voters will accept CIA budget cuts on the premise that "ignorance is bliss."


It's one thing to point out research about tax increases and spending cuts on a very broad scale, but when it comes to specifics it becomes an explosive debate that can be political suicide. We now have two choices with trillions in budget deficits. We can raise taxes and make huge spending cuts. Or we keep putting off remedies like we've done for the past two decades at reach a point where it's no longer possible to save the patient.


Some professors in ivory towers might think it is possible to totally eliminate our international fighting force in favor of a beefed up domestic police force. But the unfunded expenses of past wars will continue to linger over our heads. And it's questionable how many terror attacks this nation is willing to experience with an impotent international fighting force for prevention of future attacks.


But I really don't want to get into the question of line item budget cuts. This is also probably too explosive for the AECM in terms of politics. We can, however, debate broad issues like whether it's possible to tax ourselves out of trillion dollar deficits with very little serious budget cutting.


Respectfully,
Bob Jensen

"How a big US bank laundered billions from Mexico's murderous drug gangs," by Ed Vulliamy, The Guardian, April 3, 2011 ---
http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs
|Thank you Robert Walker for the heads up.