I submitted some pictures to the American Accounting Association's Picture
Contest.
Now it's your turn to submit some of the favorite photographs that you've taken
in life.
Help Us Decorate Our Office! ---
http://commons.aaahq.org/hives/06a813aecb/summary
National Center for Education Statistics ---
http://nces.ed.gov/
Public.Resource.Org ---
http://public.resource.org/
Jim Martin's listing of economic indicators on MAAW ---
http://maaw.info/EconomicIndicators.htm
Bob Jensen's threads on economic statistics ---
http://www.trinity.edu/rjensen/Bookbob1.htm#EconStatistics
"Notre Dame Tops List of Best (Undergraduate) College Business
Programs," by Geoff Gloeckler, Bloomberg Business Week, March 20,
2012 ---
http://www.businessweek.com/articles/2012-03-20/notre-dame-tops-list-of-best-college-business-programs
The 2012 Rankings ---
http://www.businessweek.com/interactive_reports/ugtable_3-20.html
Bob Jensen's threads on rankings controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
Never assume that the elite, Ivy League
departments are the highest-ranked or have the best placement rates. Some of
the worst-prepared job candidates with whom I've worked have been from
humanities departments at Yale, Harvard, and Princeton. Do not be dazzled by
abstract institutional reputations. Ask steely-eyed questions about
individual advisers and their actual (not illusory) placement rates in
recent years.
Karen Kelsky (See article below)
Jensen Comment
I think the above quotation is more wishful thinking than fact. In my opinion
the prestige of the overall university is still one of the most important
factors to tenure track appointments except in disciplines have a few stars that
are so respected that their doctoral students jump to the front of the placement
line. More likely than not these stars are in prestigious universities even if
they jumped from the Ivy League ship.
My advice is to enroll in the most prestigious university you can get into.
In doctoral programs, at least in accounting, the programs are virtually free in
most cases, although living costs in some locales may be problematic if the
university does not provide reasonably-priced housing for doctoral students.
In accounting it's more important to match your aptitude to the doctoral
program. For example, if you really want to focus on accounting history and
avoid much of the advanced mathematics, two programs have accounting history
tracks (Case Western and Ole Miss.). In most other AACSB-accredited universities
having accounting doctoral programs be prepared for advanced mathematics,
statistics, and econometrics ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
"Graduate School Is a Means to a Job," by Karen Kelsky, Chronicle
of Higher Education, March 27, 2012 ---
http://chronicle.com/article/Graduate-School-Is-a-Means-to/131316/
One of the most common questions I hear from
graduate students, whether they are in their first or their final year, is
what they can do now to prepare for the academic job market.
Excellent question. As a graduate student, your
fate is in your own hands, and every decision you make—including whether to
go to graduate school at all, which program to go to, which adviser to
choose, and how to conduct yourself while there—can and should be made with
an eye to the job you wish to have at the end.
To do otherwise is pure madness. I have
no patience whatsoever with the "love" narrative (we do what we do because
we love it and money/jobs play no role) that prevails among some advisers,
departments, and profoundly mystified graduate students. But for those
graduate students and Ph.D.'s who actually want a paying tenure-track job
and the things that go with it—health insurance, benefits, and financial
security—here is my list of graduate-school rules, forged after years of
working in academe as a former tenured professor and now running my own
career-advising business for doctoral students.
Before Graduate School
Ask yourself what job you want and whether an
advanced degree is actually necessary for it.
Choose your graduate program based both on its
focus on your scholarly interests and its tenure-track placement rate. If it
doesn't keep careful records of its placement rate, or does not have an
impressive record of placing its Ph.D.'s in tenure-track positions, do not
consider attending that program.
Choose your adviser the same way. Before committing
to an adviser, find out how many Ph.D.'s that potential mentor has placed in
tenure-track positions in recent years.
Go to the highest-ranked graduate department you
can get into—so long as it funds you fully. That is not actually because of
the "snob factor" of the name itself, but rather because of the ethos of the
best departments. They typically are the best financed, which means they
have more scholars with national reputations to serve as your mentors and
letter writers, and they maintain lively brown-bag and seminar series that
bring in major visiting scholars with whom you can network. The placement
history of a top program tends to produce its own momentum, so that
departments around the country with faculty members from that program will
then look kindly on new applications from its latest Ph.D.'s. That, my
friends, is how privilege reproduces itself. It may be distasteful, but you
deny or ignore it at your peril.
Never assume that the elite, Ivy League departments
are the highest-ranked or have the best placement rates. Some of the
worst-prepared job candidates with whom I've worked have been from
humanities departments at Yale, Harvard, and Princeton. Do not be dazzled by
abstract institutional reputations. Ask steely-eyed questions about
individual advisers and their actual (not illusory) placement rates in
recent years.
Meet, or at least correspond, with your potential
adviser ahead of time so that you understand whether he or she has a
hands-on approach to professionalization training and will be personally
invested in your success.
Do not attend graduate school unless you are fully
supported by—at minimum—a multiyear teaching assistantship that provides a
tuition waiver, a stipend, and health insurance that covers most of the
years of your program. The stipend needs to be generous enough to support
your actual living expenses for the location. Do not take out new debt to
attend graduate school. Because the tenure-track job market is so bleak,
graduate school in the humanities and social sciences is, in most cases, not
worth going into debt for.
Apply to 6 to 10 graduate programs. If you are
admitted with funding to more than one, negotiate to get the best possible
package at your top choice.
Be entrepreneurial before even entering graduate
school to locate and apply for multiple sources of financial support. Do not
forget the law of increasing returns: Success breeds success and large
follows small. A $500 book scholarship makes you more competitive for a
$1,000 conference grant, which situates you for a $3,000 summer-research
fellowship, which puts you in the running for a $10,000 fieldwork grant,
which then makes you competitive for a $30,000 dissertation writing grant.
Early in Graduate School
Never forget this primary rule: Graduate school is
not your job; graduate school is a means to the job you want. Do not settle
in to your graduate department like a little hamster burrowing in the wood
shavings. Stay alert with your eye always on a national stage, poised for
the next opportunity, whatever it is: to present a paper, attend a
conference, meet a scholar in your field, forge a connection, gain a
professional skill.
In year one and every year thereafter, read the job
ads in your field, and track the predominant and emerging emphases of the
listed jobs. Ask yourself how you can incorporate those into your own
project, directly or indirectly. You don't have to slavishly follow trends,
but you have to be familiar with them and be prepared to relate your own
work to them in some way.
Have a beautifully organized and professional CV
starting in your first year and in every subsequent year. When I was a young
assistant professor, a senior colleague told me that her philosophy was to
add one line a month to her CV. Set that same goal for yourself. As a junior
graduate student, you may or may not be able to maintain that pace, but keep
it in the back of your mind, and keep your eye out for opportunities that
add lines to your CV at a brisk pace.
Make strong connections with your adviser and other
faculty members in your department, and in affiliated departments. Interact
with them as a young professional, respectfully but confidently. Eschew
excessive humility; it inspires contempt. Do not forget the letters of
recommendation that you will one day need them to write.
Minimize your work as a TA. Your first year will be
grueling, but learn the efficiency techniques of teaching as fast as you
can, and make absolutely, categorically, sure that you do not volunteer your
labor beyond the hours paid. Believe me, resisting will take vigilance. But
do it. You are not a volunteer and the university is not a charity. You are
paid for hours of work; do not exceed them. Teach well, but do not make
teaching the core of your identity.
Continued in article
Jensen Comment
I also don't necessarily advise minimizing experience as a teaching assistant
and/or a research assistant. These experiences can be crucial to your later
quest for tenure. Firstly, there's the value of TA and RA experience in and of
itself. Secondly, there's the importance of those all-important letters of
recommendations from professors that you served under as a doctoral student.
"A Comparison of Forensic Accounting Corporations in the United States,"
by Wm. Dennis Huber, SSRN, March 27, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2029729
Abstract:
To call entities that issue certifications in forensic accounting
“organizations” camouflages their true nature and results in
misunderstanding what they really are. They are corporations. Recognizing
them as corporations enables forensic accountants who hold their
certifications to assess more realistically the costs and benefits of their
certifications. A survey reveals that a significant number of forensic
accountants believe it is important for forensic accounting corporations to
have qualified officers and directors. There are also a significant number
who mistakenly believe that the forensic accounting corporations that issued
their certifications have qualified officers and directors. However, several
forensic accounting corporations do not have qualified officers and
directors. Forensic accountants also believe forensic accounting
corporations have a duty to disclose the qualifications of their officers
and directors but several do not disclose the qualifications of their
officers and directors which violates their Codes of Ethics. This paper
presents for the first time an in-depth comparison of forensic accounting
corporations, their corporate history and the qualifications of their
corporate directors and officers. The paper concludes with a recommendation
for an independent agency to be established to oversee and accredit forensic
accounting corporations. As a matter of public policy regulators cannot let
this situation continue unabated. If an independent agency cannot be
established, then, as a matter of public policy, states should enact
statutes or adopt regulations to regulate forensic accounting corporations.
title:
MAAW's new Forensic Accounting Journal
Bibliographies
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
What do international standards (IFRS) and COSO’s New Internal-Control Guidance
sadly have in common?
Answer
Lack of real world examples and varied-circumstance implementation guides
"What’s Missing from COSO’s New Internal-Control
Guidance: The proposal lacks real-world examples. CFOs will
need to fill in the blanks," by Kristine Brands, CFO.com,
March 20, 2012 ---
Click Here
http://www3.cfo.com/article/2012/3/risk-management_coso-internal-control-guidance?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cfo%2Fdaily_briefing+%28Latest+Articles+from+CFO.com%29
Although a lot (OK most) people disagree with me, I've been a long-time
advocate of replacing the U.S. corporate income tax with a VAT tax
"US VAT Introduction versus the Proposed Changes of The ‘European Union’
VAT System," by Richard Cornelisse, Big Four Blog, March 24, 2012 ---
http://www.big4.com/ernst-young/us-vat-introduction-versus-the-proposed-changes-of-the-european-union-vat-system
Railroads: The Transformation of Capitalism ---
http://www.library.hbs.edu/hc/railroads/
Transcontinental Railroad Pictures and Exhibits ---
http://cprr.org/Museum/Exhibits.html
Union Pacific Railroad: History and Photos
http://www.uprr.com/aboutup/history/index.shtml
Steam and Electric Locomotives of the New Haven Railroad ---
http://railroads.uconn.edu/locomotives/index.html
The Erie Railroad Glass Plate Negative Collection
http://libwww.syr.edu/information/spcollections/digital/erierr/
Accounting History (Railroad)
"The Collapse of the Railway Mania & the Birth of Accounting," by Paul
Kedrosky, Paul Kedrosky,com, · July 18, 2011 ---
Click Here
http://paul.kedrosky.com/archives/2011/07/the-collapse-of-the-railway-mania-the-birth-of-accounting.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29
July 26, 2011 reply from Robert Bruce Walker
Another
excellent effort – thanks. It did not take me long before I discovered a
gem. This claim is of fundamental importance

The
detachment of reporting from accounting began here it would seem.
There is
just one thing I don’t understand. The text I found by following the link
says the author is a man named Odlyzko. Presumably that was the second
error?
September 20,
2010 message from Bob Jensen
Hi Denny,
Yes, I could
access the PwC re-rebranding video directly without having to log in:
http://www.pwc.ch/en/video.html?objects.mid=362&navigationid=3856
I do have a
PwC Direct password, but I really doubt that the Switzerland link is using a
cookie.
In any case
the home page of PwC does not require any login ---
http://www.pwc.com/
The video is now on this home page.
This takes
me back to the days when Bob Eliott, eventually as President of the AICPA,
was proposing great changes in the profession, including SysTrust, WebTrust,
Eldercare Assurance, etc. For years I used Bob’s AICPA/KPMG videos as
starting points for discussion in my accounting theory course. Bob relied
heavily on the analogy of why the railroads that did not adapt to
innovations in transportation such as Interstate Highways and Jet Airliners
went downhill and not uphill. The railroads simply gave up new opportunities
to startup professions rather than adapt from railroading to transportation.
Bob’s
underlying assumption was that CPA firms could extend assurance services to
non-traditional areas (where they were not experts but could hire new kinds
of experts) by leveraging the public image of accountants as having high
integrity and professional responsibility. That public image was destroyed
by the many auditing scandals, notably Enron and the implosion of Andersen,
that surfaced in the late 1990s and beyond ---
http://www.trinity.edu/rjensen/Fraud001.htm
This is a 1998 lecture given by
Bob Eliott before his world (the lofty public perception of CPA firm
integrity) collapsed ---
http://newman.baruch.cuny.edu/digital/saxe/saxe_1998/elliott_98.ht
The AICPA
commenced initiatives on such things as Systrust. To my knowledge most of
these initiatives bit the dust, although some CPA firms might be making
money by assuring Eldercare services.
The counter
argument to Bob Elliot’s initiatives is that CPA firms had no comparative
advantages in expertise in their new ventures just as railroads had few
comparative advantages in trucking and airline transportation industries,
although the concept of piggy backing of truck trailers eventually caught
on.
I still have
copies of Bob’s great VCR tapes, but I doubt that these have ever been
digitized. Bob could sell refrigerators to Eskimos.
Bob Jensen
title:
Columbia Historical Corporate Reports Online Collection
description:
Columbia Historical Corporate Reports Online
Collection ---
http://www.columbia.edu/cu/lweb/indiv/business/CorpReports.html
The Business and
Economics Library at Columbia University has digitized 770 historic
corporate annual reports from their very extensive print collection.
The reports are from 36 companies, and they range in dates from the
1850s to the 1960s, and are mainly from "corporations that operated
in and around New York City." Visitors can search for the reports
through an "Alphabetical List" or "Subject List", or browse by
clicking on "View the Full List (XLS)". The "Sample Images" that are
featured in the lower right hand corner of the homepage are from
"Edison Electric Illuminating" and "Hudson & Manhattan Railroad
Company". Once visitors choose an image to view, they will be able
to view all of the years' digitized reports for that corporation, by
clicking on the "Table of Contents" dropdown box. Visitors shouldn't
miss the greatly detailed illustration from 1911 of the "Hudson
Terminal Buildings", which is one of the chosen "Sample Images".
Bob Jensen's threads on accounting history are
at
http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory
Some Accounting History Sites and Links
"E&Y fined and reprimanded over audit work (in England)".
by
Kevin Reed, Accountancy Age, March 13, 2012 ---
http://www.accountancyage.com/aa/news/2159027/-fined-reprimanded-audit
"Audit Watchdog Fines Ernst
& Young $2 Million
(in the U.S.)," by Michael Rapoport
, The Wall Street Journal,
February 8, 2012 ---
http://online.wsj.com/article/SB10001424052970204136404577211384224280516.html
Ernst &
Young LLP agreed to pay $2 million to settle allegations by the
government's auditing regulator that the firm wasn't skeptical
enough in assessing how a client, Medicis Pharmaceutical Corp.,
accounted for a reserve covering product returns.
The Public
Company Accounting Oversight Board also sanctioned four current or
former partners of the Big Four accounting firm, including two whom
it barred from the public-accounting field. Ernst & Young and the
four partners settled the allegations without admitting or denying
the board's findings.
The $2
million fine is the largest monetary penalty imposed to date by the
board, which inspects accounting firms and writes and enforces the
rules governing the auditing of public companies.
The board
said Ernst & Young and its partners didn't properly evaluate
Medicis's sales-returns reserve for the years 2005 through 2007. The
firm accepted the company's practice of imposing the reserve for
product returns based on the cost of replacing the product, instead
of at gross sales price, when the auditors knew or should have known
that wasn't supported by the audit evidence, the board said.
Medicis
later revised its accounting for the reserve and restated its
financial statements as a result.
Continued in article
Jensen Comment
Sometimes E&Y's clients just don't get what they paid for
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
"Deloitte & Touche Sued in New York Over WG Trading Fraud," by Chris Dolmetsch and Bob Van Voris, Bloomberg, March 23, 2012 ---
http://www.bloomberg.com/news/2012-03-23/deloitte-touche-sued-in-new-york-over-wg-trading-fraud-1-.html
Bob Jensen's threads on the woes of Deloitte and Touche are at
http://www.trinity.edu/rjensen/Fraud001.htm
The AICPA's Model Tax Curriculum ---
http://aaahq.org/facdev/teaching/ModelTaxCurriculum02_15_07.pdf
This is recommended as a celebration cocktail for the 49.5% of U.S. taxpayers
who pay no income taxes:
"Next Time You're At the Bar, Order an Income Tax Cocktail," by Adrienne
Gonzalez (Jr. Deputy Accountant), Going Concern, March 20, 2012 ---
http://goingconcern.com/post/next-time-youre-bar-order-income-tax-cocktail
"Why Some Multinationals Pay Such Low Taxes," by Justin Fox,
Harvard Business Review Blog, March 26, 2012 ---
Click Here
http://blogs.hbr.org/fox/2012/03/why-some-multinationals-pay-su.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Ernst & Young
To the Point: PCAOB public
meeting on auditor independence and audit firm rotation
More than 40 panelists
participated in the PCAOB public meeting to discuss ways to enhance auditor
independence, objectivity and professional skepticism, including mandatory
audit firm rotation. Many of the panelists opposed mandatory audit firm
rotation and suggested alternatives. The Board also reopened the comment
period on its August 2011 concept release until 22 April 2012.
The attached To the Point provides highlights of the two-day meeting. It is
also
available online.
What you need to know
• Panelists expressed support for efforts to
further improve audit quality and enhance auditor independence, objectivity
and professional skepticism.
• There was consistent recognition that audit
quality has improved since the implementation of the Sarbanes-Oxley Act of
2002 (the Act) and that the PCAOB should consider strengthening the existing
structure created by the Act.
• Views were mixed on the costs and perceived
benefits of mandatory audit firm rotation, but nearly all parties supported
enhancing audit committees and improving transparency and communications
between auditors, audit committees, the PCAOB and shareholders.
• The PCAOB reopened the comment period on its
concept release on enhancing auditor independence, objectivity and
professional skepticism until 22 April 2012.
Overview
More than 40 panelists participated in a public meeting hosted by the Public
Company Accounting Oversight Board (PCAOB or Board) to discuss ways to
enhance auditor independence, objectivity and professional skepticism,
including mandatory audit firm rotation. The meeting followed a concept
release the PCAOB issued in August 2011 (the Concept Release).
The panelists included institutional investors,
former government officials, audit committee chairs of major corporations,
senior executives of issuers, representatives from trade associations,
academics and senior leaders of audit firms. Many of the panelists were
among the more than 600 people who submitted comment letters on the Concept
Release.
More than 90% of the letters opposed mandatory
audit firm rotation.
For further information on related topics, see our
AccountingLink site.
Bob Jensen's threads on professionalism and independence in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Jensen Comment
In my opinion audit firm rotation will turn auditors into nomads and destroy the
auditing profession as the best students turn to other professions that do not
require family living in motor homes and tents.
"How to Put More Distance Between Banks and Their Auditors," by
Francine McKenna, Forbes, March 26, 2012 ---
http://www.americanbanker.com/bankthink/PCAOB-mandatory-auditor-rotation-1047814-1.html
Mandatory rotation of a
company's external auditors is not a popular idea among the audit firms or
their clients.
The Public Company Accounting Oversight Board, the
audit industry regulator, sought input last week from investors, auditors,
academics and former regulators on a controversial "concept release" on the
idea. More than 45 speakers gave their opinions of various ways to put
rotation into practice. All of the suggestions made were intended to improve
auditor independence, professional skepticism and, hopefully, audit quality.
PCAOB Chairman Jim Doty opened the meetings this
week with the admission that fixed term limits for auditor relationships
"would significantly alter the status quo." That is an understatement. The
PCAOB received more than 600 comment letters, almost all in opposition to
mandatory rotation.
Audit committee members object to such mandates
because of the perceived cost. They also accuse the PCAOB of trying to usurp
the enhanced role and responsibilities delegated to audit committees by the
Sarbanes-Oxley Act. Audit firm CEOs say mandatory rotation would distract
them from audit quality assurance and force the partners to focus on
responding to constant requests for proposals and marketing activities. The
auditor firms would rather collect oligopolistic fees from a
government-mandated franchise without having to compete or justify those
fees.
Some company representatives claim they would have
to spend too much time and money getting new auditors up to speed on company
culture and complex customized systems. Academics and former regulators,
politically sensitive when in doubt, are divided on the advantages and
disadvantages of mandatory auditor swaps.
Data firm Audit Analytics says that about 175
companies in the S&P 500 have used the same auditor for 25 years or more.
The average tenure for audit firms at the top 100 U.S. companies by market
cap is 28 years and 20 of those companies used the same auditor for 50 years
or more.
Inertia is in evidence among the largest banks. In
2010, Citigroup (or rather the U.S. Treasury, which still owned 27% of the
bank’s stock at the time), reappointed KPMG to its 41st consecutive year as
auditor. JP Morgan Chase and Bank of America have both been using
PricewaterhouseCoopers for a while, since 1965 and 1958 respectively. KPMG
has been working with Wells Fargo since 1931.
And cozy ties between auditor and audited have an
inglorious history. Consider that Ernst & Young had audited Lehman Brothers
since before it was spun off from American Express in 1994, right up until
the investment bank failed in 2008. Three of four chief financial officers
at Lehman Brothers since 2000 were Ernst & Young alumni, including
David Goldfarb, a former senior partner of the
audit firm, who as Lehman’s CFO concoted the infamous Repo 105 balance sheet
window-dressing technique.
But I'm not in favor of mandatory auditor rotation,
in particular for the big banks. That's not because it costs too much or
disrupts the company. Good corporate governance costs money and that’s a
cost of doing good business.
Upsetting the relationships between banks and their
auditors is, unfortunately, very disruptive to audit firms because of
independence requirements. Rotation may force an audit firm to move all
accounts, lines of credit, and other funding facilities to another bank. SEC
rules prevent auditors from doing business with the bank that holds partner
and firm money.
Moreover, I oppose mandatory auditor rotation
because it's too much like term limits for elected officials. Both allow
abdication of the responsibility for booting bad actors. And it’s an
exercise in futility. Companies would be forced to move their audit from one
potentially corruptible audit firm to another.
One of the speakers at the PCAOB forum last week,
James Alexander, the head of equity Research at M&G Investment Management (a
division of the U.K. life and pensions company Prudential PLC), said the
implied guarantee by sovereigns for the too-big-to-fail banks means
investors already depend more on regulators than audits to reassure them
banks are safe and sound. In essence, for some banks, "audits don’t matter."
Large banks went down the drain during the crisis
with no warning or "going concern" qualification from the auditors prior to
the failure, bailout, or nationalization. In the U.K., the CEOs of the four
largest audit firms told the
House of Lords that they held back on "going
concern" qualifications for failing banks because the auditors were told the
government would bail out the banks.
Continued in article
PCAOB Just Won't Give Up on the Idea of Audit Firm Rotation
In the first round of responses to the idea of rotating audit firms, over 94%
of the 600 respondents wrote to the PCAOB that they did not think the idea of
required audit firm rotation was a good answer to increasing audit firm
independence. In fact a majority of the respondents declared that they thought
it was an atrocious idea
Click Here
http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2256_AuditFirmRotation_5January2012/$FILE/TechnicalLine_BB2256_AuditFirmRotation_5January2012.pdf
Now the PCAOB has decided that maybe these respondents were lying through
their teeth. So now before the PCAOB drives an unpopular idea down our throats
the PCAOB is going to run a coaching hearing with panelists trying persuade
these respondents that audit firm rotation is a good idea coupled with another
round where respondents have a chance to declare that they really lied through
their teeth the first time around ---
http://pcaobus.org/News/Releases/Pages/03072012_PublicMeeting.aspx
Its a little like having a municipal development project that voters
overwhelmingly turned down on the first year of voting. You can count on City
Hall and developers to keep calling another vote until they wear down the voters
and get their way in the end.
The real test case of City Hall strategy will come in Wichita when Wichita
developers keep coming back and back again for tax abatements on a development
project after voters won a referendum denying these abatements.
The PCAOB will just not listen on this one!
"When Agencies Go Nuclear: A Game Theoretic Approach to the Biggest Sticks
in an Agency’s Arsenal," by Brigham Daniels, George Washington University,
February 2012 ---
http://groups.law.gwu.edu/lr/ArticlePDF/80-2-Daniels.pdf
March 8, 2012 reply from Dennis Beresford
While I have my own view on this subject and wrote
same in a comment letter to the PCAOB, I would like to add something to
Bob’s comment on the hearings. This issue has been studied for many years
and the Concept Release generated about 600 letters, as Bob noted. Thus, one
might question what more the Board will learn at the hearings that hasn’t
already been gleaned from years of research that was well summarized in the
Concept Release as well as the 600 letters submitted.
One significant difference between the PCAOB
process and that of the FASB is that for the latter, public hearings (and
later roundtables) generally were/are open to all who submitted comment
letters and wished to have the opportunity to expand on their views in face
to face meetings with Board and staff members or respond to their questions.
These discussions were often quite useful as the Board members and staff
could analyze the letters in advance and be prepared to ask very specific
questions and contrast positions with other commentators, etc.
For the PCAOB hearings, as I understand the
situation, the Board hand-picked those who were asked to testify in order to
get a “balance” of views even though at least some of those who will comment
have not submitted a comment letter. I don’t know if those individuals will
be asked to submit position outlines in advance, but I doubt it based on
experience at other PCAOB meetings. Thus, the meeting will likely be a
recitation of the Concept Release, in effect letting various parties say why
they continue to support the position they do as has been well documented
through the Release and through the comment letters. Of course, this will
also allow the Board to demonstrate that there is “strong” support for
mandatory audit firm rotation as there will be user, academic, and analyst
panels that will offset the ones from accounting firms, corporate
executives, audit committees, and others who were among the 94% that Bob
mentioned.
I guess that when this many smart people get
together in one room there’s always the possibility of new information or a
different way of looking at the issue. But that looks fairly doubtful.
Denny Beresford
Question
What will be the major drawback of the Congressional proposal to ban audit firm
rotation mandates?
Answer
Many jobs will be lost because tens of tens of thousands of auditors will not
have to buy new motor homes for their families to live in.
From The Wall Street Journal Accounting Weekly Review on March 30,
2012
Auditor 'Rotation' Debate Heats Up
by: Michael Rapoport
Mar 28, 2012
Click here to view the full article on WSJ.com
TOPICS: Auditing, Auditing Services, Auditor Changes, Public
Accounting
SUMMARY: "Congress is poised to wade into the debate over 'term
limits' for audit firms, in a move that has some proponents worried that the
business community may be throwing its weight around to block a significant
overhaul." The draft of a bill will be discussed in a House subcommittee on
Wednesday, March 28, 2012.
CLASSROOM APPLICATION: The article is useful to discuss ethics and
public accounting business management as well as the Public Company
Accounting Oversight Board (PCAOB), most likely in an auditing class.
QUESTIONS:
1. (Advanced) What is the Public Company Accounting Oversight Board
(PCAOB)? What is its responsibility with respect to the auditing profession?
2. (Advanced) What has the PCAOB proposed in regards to auditor
rotation?
3. (Introductory) As described in the article, what are the
arguments in favor of the PCAOB's proposal?
4. (Introductory) What are the arguments against this proposal?
5. (Introductory) What course of action are some members of
Congress considering in relation to audit partner rotation?
Reviewed By: Judy Beckman, University of Rhode Island
"Auditor 'Rotation' Debate Heats Up," by: Michael Rapoport, The Wall
Street Journal, March 28, 2012 ---
https://mail.google.com/mail/?shva=1#inbox/13662348b23d75bf
Congress is poised to wade into the debate over
"term limits" for audit firms, in a move that has some proponents worried
that the business community may be throwing its weight around to block a
significant overhaul.
A draft bill expected to be discussed at a House
subcommittee hearing Wednesday would block regulators from requiring that
companies change their outside auditors regularly. The move would be a
pre-emptive strike against the Public Company Accounting Oversight Board,
the government's audit-industry regulator, which is considering so-called
rotation as a way of ensuring auditors don't get too cozy with their
clients.
Some supporters of rotation believe prominent
opponents, like the accounting industry and the U.S. Chamber of Commerce,
have enlisted Congress to come to their aid. Some big accounting firms and
the chamber have lobbied Congress on the issue or are major campaign
contributors to the congressmen involved with the draft bill, according to
trackers of campaign finance and lobbying reports.
"The business community has enormous resonance with
this Congress," said former Securities and Exchange Commission Chairman
Arthur Levitt, who supports rotation and spoken out in favor of it. Along
with legislation easing corporate-governance rules for new public firms,
blocking auditor rotation "would be a further erosion of investor
protection," he said.
PricewaterhouseCoopers LLP, one of the Big Four
accounting firms, says it hasn't asked Congress to weigh in even though the
firm opposes rotation. But "we recognize that others may have different
opinions about how best to engage the PCAOB," said Laura Cox Kaplan, the
firm's leader for U.S. government and regulatory affairs.
The chamber, the board and the other Big Four
firms—Ernst & Young LLP, KPMG LLP and Deloitte LLP—declined to comment or
didn't provide comment.
In testimony prepared for Wednesday's hearing,
however, chamber official Tom Quaadman supports a congressional ban,
contending that rotation is "a matter of corporate governance outside of the
PCAOB's realm."
A PCAOB spokeswoman said the Sarbanes-Oxley
corporate-overhaul law gives the board authority over auditor-independence
issues, subject to SEC approval.
The board is exploring whether companies should
have to change audit firms every several years and doesn't expect to make a
decision on the issue until next year. Last week it held a two-day meeting
to hear views on the issue.
If enacted, rotation would break up auditor-client
relationships that in some cases have lasted decades. Supporters say
rotation would improve auditor independence and lead to more healthy
skepticism among auditors in evaluating a company's books. Critics say it
would raise audit costs and deprive a company of a long-tenured auditor's
institutional knowledge.
The draft bill to be discussed Wednesday would
prohibit the board from requiring the use of "different auditors on a
rotating basis." The bill, sponsored by
Rep. Michael Fitzpatrick (R., Pa.), hasn't yet been introduced. But a draft
of the measure is featured on the web page announcing Wednesday's hearing by
the House Financial Services Committee's capital-markets subcommittee, and
the panel has invited witnesses at the hearing to comment on it.
According to data from the Center for Responsive
Politics, which tracks campaign finance, Rep. Fitzpatrick has gotten major
contributions from PricewaterhouseCoopers and Deloitte during the 2012
election cycle. PwC is his 10th-biggest contributor throughout his career in
Congress, and the accounting industry has given him a total of $108,779 over
his entire career.
Continued in article
"Auditor Rotation and Banks: If It Makes You Happy…," by Francine
McKenna, re:TheAuditors, March 26, 2012 ---
http://retheauditors.com/2012/03/26/auditor-rotation-and-banks-if-it-makes-you-happy/
Bob Jensen's threads on audit firm rotation ---
http://www.trinity.edu/rjensen/Fraud001c.htm
It's about time!
When I suggested this in a meeting and later in an email message a couple of
years ago a FASB board member gave me the brush off.
"FASB WILL TAKE ANOTHER LOOK AT REPO ACCOUNTING," by Anthony H. Catanach Jr.
and J. Edward Ketz, Grumpy Old Accountants, March 22, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/585
The FASB announced yesterday that it will take a
look at repo accounting. Again. As we don’t expect much improvement, we
wonder why it bothers.
Michael Rapoport of The Wall Street Journal
reports, “The Financial Accounting Standards Board agreed Wednesday to look
at further revisions to how companies must account for their use of
repurchase agreements, or ‘repos,’ a form of financing for
securities-trading firms, following a previous revision last year. In
particular, the board will look at ‘repos to maturity,’ a potentially risky
variant that contributed to MF Global’s collapse last year.”
The Lehman Brothers collapse led to some small,
insignificant changes in the repo rules. With the
collapse of MF Global, the board thinks it
desirable to consider some incremental but insignificant amendments. As
last year’s revision was impotent, we expect more of the same from any
revision this year.
What the board should have done a decade or two ago
was to focus on the economic substance of the transaction, and the substance
of a repurchase agreement is that it is a secured borrowing. Pure and
simple. Thus, all repurchase agreements should be accounted for as secured
borrowings.
The FASB’s statement yesterday says more about it
than it does repo accounting. The board is incredibly slow and, with old
age, is slowing down even further. The board is reactive instead of
proactive; apparently, it cannot think about an issue unless there is some
type of financial crisis. The board cannot think simple; instead, it seems
to complexify whatever issue is at hand. Finally, the board seems beholden
to banks and has been for some time. It appears to carry water for bankers,
whether the topic is special purpose entities, derivatives, fair value
accounting, or repurchase agreements.
Forget reforming repo accounting.
Let’s reform FASB instead. (so say Catanach and Ketz)
Jensen Comment
Question
Where did the missing MF Global $1+ billion end up?
Hint:
The the word "repo" sound familiar?
http://en.wikipedia.org/wiki/Repurchase_agreement
"MF Global and the great Wall St re-hypothecation scandal," by
Chrisopher Elias, Reuters, December 7, 2011 ---
http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/
More from the examiner’s report:
Lehman never
publicly disclosed its use of Repo 105 transactions, its accounting
treatment for these transactions, the considerable escalation of its total
Repo 105 usage in late 2007 and into 2008, or the material impact these
transactions had on the firm’s publicly reported net leverage ratio.
According to former Global Financial Controller Martin Kelly, a careful
review of Lehman’s Forms 10-K and 10-Q would not reveal Lehman’s use of Repo
105 transactions. Lehman failed to disclose its Repo 105 practice even
though Kelly believed “that the only purpose or motive for the transactions
was reduction in balance sheet”; felt that “there was no substance to the
transactions”; and expressed concerns with Lehman’s Repo 105 program to two
consecutive Lehman Chief Financial Officers – Erin Callan and Ian Lowitt –
advising them that the lack of economic substance to Repo 105 transactions
meant “reputational risk” to Lehman if the firm’s use of the transactions
became known to the public. In addition to its material omissions, Lehman
affirmatively misrepresented in its financial statements that the firm
treated all repo transactions as financing transactions – i.e., not sales –
for financial reporting purposes.
I've oversimplified the Repo 105 and 105
transactions by Lehman Brothers. For a more complete explanation, see the
following:
"Lehman's Demise and Repo 105:
No Accounting for Deception," Knowledge@Wharton, March 31, 2010 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2464
The collapse of Lehman Brothers in September 2008
is widely seen as the trigger for the financial crisis, spreading panic that
brought lending to a halt. Now a 2,200-page report says that prior to the
collapse -- the largest bankruptcy in U.S. history -- the investment bank's
executives went to extraordinary lengths to conceal the risks they had
taken. A new term describing how Lehman converted securities and other
assets into cash has entered the financial vocabulary: "Repo 105."
While Lehman's huge indebtedness and other
mistakes have been well documented, the $30 million study by Anton Valukas,
assigned by the bankruptcy court, contains a number of surprises and new
insights, several Wharton faculty members say.
Among the report's most disturbing revelations,
according to Wharton finance professor
Richard J. Herring, is the picture of
Lehman's accountants at Ernst & Young. "Their main role was to help the firm
misrepresent its actual position to the public," Herring says, noting that
reforms after the Enron collapse of 2001 have apparently failed to make
accountants the watchdogs they should be.
"It was clearly a dodge.... to circumvent the
rules, to try to move things off the balance sheet," says Wharton accounting
professor professor
Brian J. Bushee,
referring to Lehman's Repo 105 transactions. "Usually, in these kinds of
situations I try to find some silver lining for the company, to say that
there are some legitimate reasons to do this.... But it clearly was to get
assets off the balance sheet."
The use of outside entities to remove risks from
a company's books is common and can be perfectly legal. And, as Wharton
finance professor
Jeremy J. Siegel points out, "window
dressing" to make the books look better for a quarterly or annual report is
a widespread practice that also can be perfectly legal. Companies, for
example, often rush to lay off workers or get rid of poor-performing units
or investments, so they won't mar the next financial report. "That's been
going on for 50 years," Siegel says. Bushee notes, however, that Lehman's
maneuvers were more extreme than any he has seen since the Enron collapse.
Wharton finance professor professor
Franklin Allen suggests that the other firms
participating in Lehman's Repo 105 transactions must have known the whole
purpose was to deceive. "I thought Repo 105 was absolutely remarkable – that
Ernst & Young signed off on that. All of this was simply an artifice, to
deceive people." According to Siegel, the report confirms earlier evidence
that Lehman's chief problem was excessive borrowing, or over-leverage. He
argues that it strengthens the case for tougher restrictions on borrowing.
A Twist on a Standard Financing Method
In his report, Valukas, chairman of the law firm
Jenner & Block, says that Lehman disregarded its own risk controls "on a
regular basis," even as troubles in the real estate and credit markets put
the firm in an increasingly perilous situation. The report slams Ernst &
Young for failing to alert the board of directors, despite a warning of
accounting irregularities from a Lehman vice president. The auditing firm
has denied doing anything wrong, blaming Lehman's problems on market
conditions.
Much of Lehman's problem involved huge holdings
of securities based on subprime mortgages and other risky debt. As the
market for these securities deteriorated in 2008, Lehman began to suffer
huge losses and a plunging stock price. Ratings firms downgraded many of its
holdings, and other firms like JPMorgan Chase and Citigroup demanded more
collateral on loans, making it harder for Lehman to borrow. The firm filed
for bankruptcy on September 15, 2008.
Prior to the bankruptcy, Lehman worked hard to
make its financial condition look better than it was, the Valukas report
says. A key step was to move $50 billion of assets off its books to conceal
its heavy borrowing, or leverage. The Repo 105 maneuver used to accomplish
that was a twist on a standard financing method known as a repurchase
agreement. Lehman first used Repo 105 in 2001 and became dependent on it in
the months before the bankruptcy.
Repos, as they are called, are used to convert
securities and other assets into cash needed for a firm's various
activities, such as trading. "There are a number of different kinds, but the
basic idea is you sell the security to somebody and they give you cash, and
then you agree to repurchase it the next day at a fixed price," Allen says.
In a standard repo transaction, a firm like
Lehman sells assets to another firm, agreeing to buy them back at a slightly
higher price after a short period, sometimes just overnight. Essentially,
this is a short-term loan using the assets as collateral. Because the term
is so brief, there is little risk the collateral will lose value. The lender
– the firm purchasing the assets – therefore demands a very low interest
rate. With a sequence of repo transactions, a firm can borrow more cheaply
than it could with one long-term agreement that would put the lender at
greater risk.
Under standard accounting rules, ordinary repo
transactions are considered loans, and the assets remain on the firm's
books, Bushee says. But Lehman found a way around the negotiations so it
could count the transaction as a sale that removed the assets from its
books, often just before the end of the quarterly financial reporting
period, according to the Valukas report. The move temporarily made the
firm's debt levels appear lower than they really were. About $39 billion was
removed from the balance sheet at the end of the fourth quarter of 2007, $49
billion at the end of the first quarter of 2008 and $50 billion at the end
of the next quarter, according to the report.
Bushee says Repo 105 has its roots in a rule
called FAS 140, approved by the Financial Accounting Standards Board in
2000. It modified earlier rules that allow companies to "securitize" debts
such as mortgages, bundling them into packages and selling bond-like shares
to investors. "This is the rule that basically created the securitization
industry," he notes.
FAS 140 allowed the pooled securities to be moved
off the issuing firm's balance sheet, protecting investors who bought the
securities in case the issuer ran into trouble later. The issuer's
creditors, for example, cannot go after these securities if the issuer goes
bankrupt, he says.
Because repurchase agreements were really loans,
not sales, they did not fit the rule's intent, Bushee states. So the rule
contained a provision saying the assets involved would remain on the firm's
books so long as the firm agreed to buy them back for a price between 98%
and 102% of what it had received for them. If the repurchase price fell
outside that narrow band, the transaction would be counted as a sale, not a
loan, and the securities would not be reported on the firm's balance sheet
until they were bought back.
This provided the opening for Lehman. By agreeing
to buy the assets back for 105% of their sales price, the firm could book
them as a sale and remove them from the books. But the move was misleading,
as Lehman also entered into a forward contract giving it the right to buy
the assets back, Bushee says. The forward contract would be on Lehman's
books, but at a value near zero. "It's very similar to what Enron did with
their transactions. It's called 'round-tripping.'" Enron, the huge Houston
energy company, went bankrupt in 2001 in one of the best-known examples of
accounting deception.
Lehman's use of Repo 105 was clearly intended to
deceive, the Vakulas report concludes. One executive email cited in the
report described the program as just "window dressing." But the company,
which had international operations, managed to get a legal opinion from a
British law firm saying the technique was legal.
Bamboozled
The Financial Accounting Standards Board moved
last year to close the loophole that Lehman is accused of using, Bushee
says. A new rule, FAS 166, replaces the 98%-102% test with one designed to
get at the intent behind a repurchase agreement. The new rule, just taking
effect now, looks at whether a transaction truly involves a transfer of risk
and reward. If it does not, the agreement is deemed a loan and the assets
stay on the borrower's balance sheet.
The Vakulas report has led some experts to renew
calls for reforms in accounting firms, a topic that has not been
front-and-center in recent debates over financial regulation. Herring argues
that as long as accounting firms are paid by the companies they audit, there
will be an incentive to dress up the client's appearance. "There is really a
structural problem in the attitude of accountants." He says it may be
worthwhile to consider a solution, proposed by some of the industry's
critics, to tax firms to pay for auditing and have the Securities and
Exchange Commission assign the work and pay for it.
The Valukas report also shows the need for better
risk-management assessments by firm's boards of directors, Herring says.
"Every time they reached a line, there should have been a risk-management
committee on the board that at least knew about it." Lehman's ability to get
a favorable legal opinion in England when it could not in the U.S.
underscores the need for a "consistent set" of international accounting
rules, he adds.
Siegel argues that the report also confirms that
credit-rating agencies like Moody's and Standard & Poor's must bear a large
share of the blame for troubles at Lehman and other firms. By granting
triple-A ratings to risky securities backed by mortgages and other assets,
the ratings agencies made it easy for the firms to satisfy government
capital requirements, he says. In effect, the raters enabled the excessive
leverage that proved a disaster when those securities' prices fell to
pennies on the dollar. Regulators "were being bamboozled, counting as safe
capital investments that were nowhere near safe."
Some financial industry critics argue that big
firms like Lehman be broken up to eliminate the problem of companies being
deemed "too big to fail." But Siegel believes stricter capital requirements
are a better solution, because capping the size of U.S. firms would cripple
their ability to compete with mega-firms overseas.
While the report sheds light on Lehman's inner
workings as the crisis brewed, it has not settled the debate over whether
the government was right to let Lehman go under. Many experts believe
bankruptcy is the appropriate outcome for firms that take on too much risk.
But in this case, many feel Lehman was so big that its collapse threw
markets into turmoil, making the crisis worse than it would have been if the
government had propped Lehman up, as it did with a number of other firms.
Allen says regulators made the right call in
letting Lehman fail, given what they knew at the time. But with hindsight
he's not so sure it was the best decision. "I don't think anybody
anticipated that it would cause this tremendous stress in the financial
system, which then caused this tremendous recession in the world economy."
Allen, Siegel and Herring say regulators need a
better system for an orderly dismantling of big financial firms that run
into trouble, much as the Federal Deposit Insurance Corp. does with ordinary
banks. The financial reform bill introduced in the Senate by Democrat
Christopher J. Dodd provides for that. "I think the Dodd bill has a
resolution mechanism that would allow the firm to go bust without causing
the kind of disruption that we had," Allen says. "So, hopefully, next time
it can be done better. But whether anyone will have the courage to do that,
I'm not sure."
Lehman's Ghost Has Been Named
"Debt Masking"
The initials DM, however, stand for "Deception
Manipulation"
"Debt 'Masking' Under Fire:
SEC Considers New Rules to Deter Banks From Dressing Up Books; Ghost of Lehman,
by Tom McGinty, Kate Kelly, and Kara Scannell, " The Wall Street Journal,
April 21, 2010 ---
http://online.wsj.com/article/SB20001424052748703763904575196334069503298.html#mod=todays_us_page_one
Bob Jensen's threads on Repo Sales Gimmicks ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo
From The Wall Street Journal Accounting Weekly Review on March 30,
2012
Top MF Global Witness Talks Deal With Justice
by:
Aaron Lucchetti, Michael Rothfeld and Mike Spector
Mar 28, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Bankruptcy, Internal Controls
SUMMARY: This article describes the actions of two responsible
accountants at MF Global, Ms. Edith O'Brien, Assistant Treasurer, and Ms.
Christine Serwinski, Chief Financial Officer of MF Global's North America
Unit. These accounting executives conducted reviews of reconciliations for
missing customer funds on October 30, 2011, just prior to the firm's
collapse. Ultimately, customer funds totaling $1.2 billion were missing
following transfers from accounts containing both the firms' and its
customers' funds. NOTE: The related article was published December 31, 2011
and was covered in this Review. The Review is available on the WSJ's
Professor Journal web site at
http://www.profjournal.com/educators_reviews/article_page_new.cfm?article_id=35301.
Click on Search the Database; search for Accounting Discipline for keyword
MF Global. The summary of that review provides an answer to the first
question in this review.
CLASSROOM APPLICATION: The topic may be used when covering topics
in reconciliations in auditing, internal control systems, and financial
accounting classes.
QUESTIONS:
1. (Advanced) What is MF Global? What problems with customer
accounts came to light during the company's recent demise? (You may base
your answer on the related article.)
2. (Introductory) Who is Ms. Edith O'Brien? What was her role at MF
Global?
3. (Introductory) Who is Ms. Christine Serwinski? What was her role
at MF Global?
4. (Introductory) What is a reconciliation? What types of items
arise in reconciliations?
5. (Introductory) How can reconciliations between control accounts
and subsidiary ledger totals maintain internal controls in any business
operation? How can they help maintain control when accounts contain both the
firm's and its customers' funds?
6. (Advanced) Based on the information in the article, what types
of reconciliations were being investigated to find the source of the missing
customer funds that ultimately have become the subject of these
Congressional hearings?
7. (Introductory) What are the accountants' responsibilities with
respect to these missing funds? What are the possible outcomes of this
investigation into whether those responsibilities were upheld, particularly
for Ms. O'Brien?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Unraveling of MF Global
by Aaron Lucchetti and Mike Spector
Dec 31, 2011
Page: B1
"Top MF Global Witness Talks Deal With Justice," by: Aaron Lucchetti, Michael
Rothfeld and Mike Spector, The Wall Street Journal, March 28, 2012 ---
http://online.wsj.com/article/SB10001424052702303816504577307502611998054.html?mod=djem_jiewr_AC_domainid
The star witness in a congressional hearing about
MF Global Holdings Ltd.'s collapse has told Justice Department
representatives through her lawyers details about transactions that ended up
dipping into customer funds, people familiar with the matter said.
But Edith O'Brien, the assistant treasurer at MF
Global, isn't expected to reveal those details when she appears at
Wednesday's hearing of the House Financial Services Committee's oversight
and investigations subcommittee. Ms. O'Brien plans to invoke her
constitutional right against self-incrimination and to decline to answer
questions, people familiar with the matter said.
Ms. O'Brien, 46 years old, who has been working for
an MF Global bankruptcy trustee, wasn't expected as of Tuesday afternoon to
give a statement, but members of the subcommittee will still direct
questions to her, a person familiar with the matter said. After the hearing,
she is planning to depart Washington for a family vacation, another person
familiar with the matter said.
In recent months, lawyers for Ms. O'Brien offered a
so-called proffer at a meeting in New York as part of an effort to negotiate
immunity from prosecution in exchange for her cooperation with federal
investigators, one of the people said.
In a proffer, a person under investigation tells
the government how he or she would testify in exchange for immunity,
nonprosecution or leniency at sentencing. Normally, if the talks break down
the government can't use information it didn't already know in a subsequent
prosecution.
Enlarge Image mfglobal0208 mfglobal0208 Mario
Tama/Getty Images
Edith O'Brien's name was first brought into the
spotlight in December, when former MF Global chief Jon Corzine testified
before Congress that Ms. O'Brien was the back-office official who provided
him assurances that a $175 million transfer to an MF Global account in
London was proper..
It is unclear what Ms. O'Brien's attorneys
discussed with federal officials and it is unlikely that congressional
officials will be able to unearth details about the conversations.
A different MF Global official is expected to
testify Wednesday that she had concerns about apparent shortfalls in the
buffer of firm money meant to protect customer accounts just before the
firm's Oct. 31 bankruptcy filing. Customer funds aren't supposed to be
touched under federal regulations.
A big part of the MF Global investigation centers
on exactly what Ms. O'Brien knew. Because MF Global customer accounts
dropped into a deficit in the days before the bankruptcy filing,
investigators have scrutinized movements of customer money and the state of
mind of officials who ordered money to be moved to meet margin calls and
other needs as the firm tried to stay solvent.
Ms. O'Brien's name was first brought into the
spotlight in December, when former MF Global chief Jon Corzine testified
before Congress that Ms. O'Brien was the back-office official who provided
him assurances that a $175 million transfer to an MF Global account in
London was proper. She later declined to sign a document certifying that it
indeed followed the rules, and later, it was discovered that the money had
come ultimately from the firm's customer account.
The second MF Global official, Christine Serwinski,
said in her statement that she had concerns about the company's handling of
customer money on Oct. 27, four days before the firm collapsed and more than
$1 billion went missing from customer accounts.
Ms. Serwinski, chief financial officer of MF
Global's North America unit, said in remarks posted on a congressional
website Tuesday morning that she was "not comfortable with the firm putting
customer funds at risk," when she had learned that one metric for the
company's financial health had "showed a substantial deficit" for Wednesday,
Oct. 26.
MF Global officials who have testified and
discussed the shortfall in customer money previously have said they didn't
know the shortfall had developed until late on Oct. 30, four days after a
bankruptcy trustee later said it had started growing.
Ms. Serwinski, who like Ms. O'Brien was based in
Chicago, added in her testimony that she was told that the "firm had
borrowed money" from its futures unit, where some customer money was held,
"on an intraday basis and had missed the wire deadline to pay it back."
Checking in by email and telephone from a planned
vacation, Ms. Serwinski said she was "assured that the matter was under
control and being addressed and that the funds would be returned on
Thursday," Oct. 27.
Ms. Serwinski decided to cut her vacation short,
returning from a ballroom-dancing competition in Las Vegas on Sunday, Oct.
30.
"I was not alarmed, but I believed it would be
better to return early" to the office, she said in her statement.
When she returned that Sunday evening, Ms. O'Brien
and others at the company were investigating an apparent shortfall in
customer funds that was at the time blamed on an error in reconciling
accounts.
The witnesses at the hearing will also include MF
Global General Counsel Laurie Ferber and Chief Financial Officer Henri
Steenkamp, who may face questions about another MF Global trustee's plan to
pay performance bonuses.
Continued in article
Bob Jensen's threads on MF Global are at
http://www.trinity.edu/rjensen/Fraud001.htm
Conduct a word search for "MF Global"
The above search will lead to two additional teaching cases on the MF Global
Scandal.
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on derivatives scandals ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
"ZYNGA’S FIRST 10-K: ZESTFUL ZEPHYRS," by Anthony H. Catanach and J. Edward
Ketz, Grumpy Old Accountants Blog, March 26, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/581
A Bit of History
"Party Like A VC: It’s Not As Easy As It Looks," by Francine McKenna,
re:TheAuditors, August 11, 2010 ---
http://retheauditors.com/2010/08/11/latest-post-goingconcern/
Zinga FAQs ---
http://investor.zynga.com/faq.cfm
"The Man Who Broke Atlantic City," Value Investing World,
March 16, 2012 ---
Click Here
http://www.valueinvestingworld.com/2012/03/man-who-broke-atlantic-city.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ValueInvestingWorld+%28Value+Investing+World%29&utm_content=Google+Reader
Don Johnson won nearly $6 million playing blackjack
in one night, single-handedly decimating the monthly revenue of Atlantic
City’s Tropicana casino. Not long before that, he’d taken the Borgata for $5
million and Caesars for $4 million. Here’s how he did it.
Selling the debt in the left pocket to the right pocket: The Fed
is all smoke and mirrors
"Fed Is Buying 61 Percent of U.S. Government Debt," by Bob Adelmann,
The New
American, March 29, 2012 ---
http://thenewamerican.com/economy/commentary-mainmenu-43/11357-fed-is-buying-61-of-us-government-debt
In his attempt to explode the myth that there is
unlimited demand for U.S. government debt, former Treasury official Lawrence
Goodman
explained that there
is high perceived demand because the Federal Reserve is doing most
of the buying.
Wrote Goodman,
Last year the Fed
purchased a stunning 61% of the total net Treasury issuance, up from
negligible amounts prior to the 2008 financial crisis.
This not only creates
the false impression of limitless demand for U.S. debt but also blunts any
sense of urgency to reduce supersized budget deficits.
What about Japan and China? Aren’t they the major
purchasers of U.S. debt? Not any more, notes Goodman. Foreign purchases of
U.S. debt dropped to less than 2 percent of GDP (Gross Domestic Product)
from almost 6 percent just three years ago. And private sector investors —
banks, money market and bond mutual funds, individuals and corporations —
have cut their buying way back as well, to less than 1 percent of GDP, down
from 6 percent. This serves to hide the fact that the government can’t find
outside buyers willing to accept rates of return that are below the
inflation rate (“negative interest”) given the precarious financial
condition of the government. It also hides the impact of $1.3 trillion
deficits from the public who would likely get much more concerned if real,
true market rates of interest were being demanded for purchasing U.S. debt,
as such higher rates would increase the deficit even further. Finally it
takes pressure off Congress to “do something” because there is no public
clamor over the matter, at least for the moment.
One of those promoting the myth that buyers of U.S.
debt must exist because interest rates are so low is none other than one of
those recently seated at the Federal Reserve’s Open Market Committee table,
Alan
Blinder. Now a professor of economics at Princeton
University, Blinder was vice chairman of the Fed in the mid-nineties and
should know all about the Fed’s manipulations and machinations in the money
markets. Apparently not.
On January 19 Blinder
wrote in the Wall Street Journal that
Strange as it may seem
with trillion-dollar-plus deficits, the U.S. government doesn’t have a
short-run borrowing problem at all. On the contrary, investors all over the
world are clamoring to lend us money at negative real interest rates.
In purchasing power
terms, they are paying the U.S. government to borrow their money!
Blinder
repeated the error in front of the Senate Banking
Committee just one week later: "In fact, world financial markets are eager
to lend the United States government vast amounts at negative real interest
rates. That means that, in purchasing power terms, they are paying us to
borrow their money!"
Aggressive promotion of a myth never makes it a
fact. All it does is hide, for a period, the reality that the world isn’t
willing to lend to the United States at negative interest rates. This places
the burden on the Fed to make the myth appear real by expanding its own
balance sheet and gobbling up U.S. debt.
There are going to be consequences. As Goodman put
it,
The failure by officials
to normalize conditions in the U.S. Treasury market and curtail ballooning
deficits puts the U.S. economy and markets at risk for a sharp
correction…. [Emphasis added.]
In other words, budget
deficits often take years to build or reduce, while financial markets react
rapidly and often unexpectedly to deficit spending and debt.
The
recent
release by the Congressional Budget Office (CBO)
of future inflation expectations provides little assurance either as it
mimics the line that inflation will stay low for the foreseeable future: "In
CBO’s forecast, the price index for personal consumption expenditures
increases by just 1.2 percent in 2012 and 1.3 percent in 2013."
With the Fed continuing to buy U.S. government
debt, which keeps interest rates artificially low, when will reality set in?
Amity Shlaes has the answer.
Writing in Bloomberg last week, Shlaes explains:
The thing about [price]
inflation is that it comes out of nowhere and hits you….
[It] has happened to us
before. In World War I … the CPI [Consumer Price Index] went from 1 percent
for 1915 to 7 percent in 1916 and 17 percent in 1917….
In 1945, all seemed
well. Inflation was at 2 percent, at least officially. Within two years that
level hit 14 percent.
All appeared calm in
1972, too, before inflation jumped to 11 percent by 1974 and stayed high for
the rest of the decade….
One thing is clear:
pretty soon, we’ll all be in deep water.
Doug Casey agrees: “Don’t think there are no
consequences to our unwise fiscal and monetary course; a potentially ugly
tipping point is more likely than not at some point.”
Coninued in article
Behavioral Economics For Dummies [Paperback]
by Morris Altman (Author)
John Wiley & Sons Canada
2012
From the Back Cover
The guide to understanding why people really make
economic and financial decisionsThe field
of behavioral economics sheds light on the many subtle and not-so-subtle
factors that contribute to financial and purchasing choices. This
friendly guide explores how socialand psychological factors, such as
instinctual behavior patterns, social pressure, and mental framing, can
dramatically affect our day-to-day decision making and financial
choices. Based on psychology and sociology and rooted in real-world
examples, Behavioral Economics For Dummies offers the sort of
insights designed to help investors avoid impulsive mistakes, companies
understand the mechanisms behind individual choices, and governments and
nonprofits make public decisions.
- Make realistic assumptions for economic
analysis — investigate the assumptions
conventional economics makes, and discover how behavioral economists
introduce social, psychological, and cultural considerations
- Explore the relationship between the brain and
economics — understand how human behavior
and surroundings affect economic phenomena
- Examine the role of free choice in economic
decision making — review the conditions
that are necessary in order for people to make choices that reflect
their true preferences, given the constraints they face
- Get happy —
recognize that factors other than wealth and money are critically
important to a person's happiness, as defined by behavioral
economics
Learn to:
- Understand how social and psychological factors
affect our economic and financial decisions
- Grasp how governments and experts influence our
choices
- Avoid making impulsive and uninformed decisions
- Appreciate why ethics are important to our
choices
Open the book and find:
- The many subtle factors that contribute to our
financial and purchasing choices
- Why people really make financial decisions
- Real-world examples of how behavioral economics
affects our lives
- What social and psychological factors affect our
decision making
- How to use behavioral economics to be happier
- Why government policies affect the economy
- Helpful consumer tips
Go to Dummies.com for videos, step-by-step
examples, how-to articles, or to shop!
About the Author
Morris Altman, PhD, is a
professor of behavioral economics at Victoria University of Wellington
in New Zealand and a professor of economics at the University of
Saskatchewan in Canada. He is on the board of the Society for the
Advancement of Behavioral Economics and is a former president of that
organization. He also edited the Handbook of Contemporary Behavioral
Economics.
Behavioral Issues and Culture in Accounting Bibliographies (thank you
James Martin) ---
http://maaw.info/BehaveIssueMain.htm
Bob Jensen's threads on Behavioral and Cultural Economics ---
http://www.trinity.edu/rjensen/Theory01.htm#Behavioral
Robert Shiller ---
http://en.wikipedia.org/wiki/Robert_Shiller
Walt Whitman ---
http://en.wikipedia.org/wiki/Walt_Whitman
Myths of Economic Inequality
"Walt Whitman, First Artist of Finance (Part 1),"
by Yale Economist Robert Shiller, Bloomberg, March 5,
2012 ---
http://www.bloomberg.com/news/2012-03-05/walt-whitman-first-artist-of-finance-part-1-robert-shiller.html
"Finance Isn’t as Amoral as It Seems (Part 2)," by Yale Economist
Robert Shiller, Bloomberg, March 5, 2012 ---
http://www.bloomberg.com/news/2012-03-06/finance-isn-t-as-amoral-as-it-seems-part-2-commentary-by-robert-shiller.html
Don't forget to read the mostly negative comments.
"Don’t Resent the Rich; Fix the Tax Code (Part 3)," by Yale Economist
Robert Shiller, Bloomberg, March 6, 2012 ---
http://www.bloomberg.com/news/2012-03-07/don-t-resent-the-rich-fix-the-tax-code-part-3-robert-shiller.html
Don't forget to read the mostly negative comments.
"Logic of Finance Can Banish Corruption (Part 4)," by Yale Economist
Robert Shiller, Bloomberg, March 7, 2012 ---
http://www.bloomberg.com/news/2012-03-08/finance-logic-can-banish-corruption-part-4-commentary-by-robert-shiller.html
Don't forget to read the mostly negative comments.
Bob Jensen's threads on fraud and corruption ---
http://www.trinity.edu/rjensen/Fraud.htm
The American Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouse.htm
On the Myths of Income Inequality
Part 1 by Yale by Robert Shiller, Arthur M. Okun Professor
of Economics at Yale University and is a Fellow at the Yale
International Center for Finance
"Walt Whitman, First Artist of Finance (Part 1)," by Robert Shiller, Bloomberg,
March 4, 2012 ---
http://www.bloomberg.com/news/2012-03-05/walt-whitman-first-artist-of-finance-part-1-robert-shiller.html
One of the myths surrounding economic inequality in
our society is that high incomes are often the result of selfishness and
narrow-mindedness, rather than idealism and humanity. We tend to think that
those in careers other than our own are fundamentally different kinds of
people.
Personality and character differences are, indeed,
somewhat associated with occupation. But we tend to attribute the behavior
of others to personality differences far more often than is warranted.
We tend to think of philosophers, artists or poets
as the polar opposite of chief executive officers, bankers or
businesspeople. But the idea that those involved in business have
personalities fundamentally different from those in other walks of life is
belied by the fact that many often combine or switch careers. Consider a few
examples.
Continued in article
March 23. 2012 reply from Roger Collins
Two of seventeen comments on Robert Shiller's
article...
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
Peon2012 2 weeks ago
as far as I can tell all this article points out is that koons and hirst are
much more financially successful than Whitman and Thoreau. 1) Hirst and
Koons can't be considered artists, they are nothing better than con men. 2)
during his time on Walden Pond Thoreau did everything he could to avoid
transactions with outsiders. Taking one word, from one sentence of his and
misconstruing it totally perverts his whole philosophy 3) why has an
economics professor chosen a sample size of about 5? What about Tolstoy who
sought to give his entire legacy to the people? Rembrant who died penniless?
Kerouac, Orwell who endured poverty for their art, Lucian Freud who gambled
his money away cos he found it an impediment to painting..
This article is a poorly research justification of the writers' existing
beliefs.Written for an audience which wants to hear it.
Like
Reply
4 Likes
Frederic Mari in reply to Peon2012 2 weeks ago
I'd be slightly less ferocious and presume that Dr. Shiller's views are more
innocent than you do. However, I think that this comment "What about
Tolstoy who sought to give his entire legacy to the people? Rembrant who
died penniless? Kerouac, Orwell who endured poverty for their art, Lucian
Freud who gambled his money away cos he found it an impediment to
painting..." is key.
Sure, everyone needs to make a living and I don't actually believe that many
people believe "high incomes are often the result of selfishness and
narrow-mindedness". High incomes are the result of being in the right place,
at the right time with the right tools. And, if you become rich enough, then
you can manipulate the marketplace and the laws to be sure that the time,
the place and your tools remain connected, for your greater benefit...
Also: "People in the most spiritually minded professions -- those who work
in the church, the arts or philanthropy, for example -- are routinely
involved in managing financial resources and executing deals and contracts".
I wouldn't think anyone is in any doubt that the church, the arts and NGOs
are ideal place for crooks wanting to make a quick buck. You can use the
coat of virtue to cover all kinds of financial shenanigans... Not for
nothing are successful churches so rich, on average...
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
It will be interesting to see Part 2 of this series.
Roger
The American Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouse.htm
From IAS Plus
---
http://www.iasplus.com/index.htm
23 March 2012: IAASB issues updated standard on use of internal auditors
|
The International Auditing and Assurance Standards Board (IAASB) has
released a revised International Standard on Auditing (ISA) dealing
with the use of internal auditors in external audits.
The revised ISA 610 Using the Work of
Internal Auditors is the result of an exposure draft
issued in July 2010 and is designed to
enhance the performance of external auditors by enabling better
consideration and leveraging, as appropriate, of the knowledge and
findings of the internal audit function in making risk assessments,
and strengthening the framework for the evaluation and, where
appropriate, use of the work of internal auditors in obtaining audit
evidence.
The revised pronouncement is effective for
audits of financial statements for periods ending on or after 15
December 2013.
Click for
IAASB press release (link to IFAC website).
|
Bob Jensen's threads on professionalism and independence in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Outcomes Assessment
March 10, 2012 message from Penny Hanes
Can anyone point me to some good information on
course specific outcomes assessment in an accounting program?
Penny Hanes,
Associate Professor
Mercyhurst University
March 11. 2012 reply from Bob Jensen
Hi Penny,
Respondus has some testing software:
October 13, 2009 message from Richard Campbell
[campbell@RIO.EDU]
For anyone teaching online, this
software is a "must-have". They have released a new (4.0) version
with improved integration of multimedia. Below are some videos
(created in Camtasia) that demonstrate key features of the software.
http://www.respondus.com/
They have tightened up the
integration with publisher test banks.
Richard J. Campbell
mailto:campbell@rio.edu
Bob Jensen's threads for online assessment are at
http://www.trinity.edu/rjensen/Assess.htm#Examinations
There are different levels that you can approach such a topic. Many are
based on the mastery learning theory of Benjamin Bloom ---
http://en.wikipedia.org/wiki/Benjamin_Bloom
The best known accounting course assessment experiment using Bloom's
Taxonomy, for an set of courses for an entire program, was funded by an
Accounting Education Change Commission (AECC) grant to a very fine
accounting program at Kansas State University. The results of this and the
other AECC experiences are available from the AAA (ISBN
0-86539-085-1) ---
http://aaahq.org/AECC/changegrant/cover.htm
The KSU outcomes are reported in Chapter 3 ---
http://aaahq.org/AECC/changegrant/chap3.htm
I think Lynn Thomas at KSU was one of the principal investigators.
Michael Krause, Le Moyne College, has conducted some AAA programs on
Bloom's Taxonomy assessment.
Susan A. Lynn, University of Baltimore, has done some of this assessment for
intermediate accounting.
Susan Wolcott, Canada's Chartered Accountancy School of Business, has delved
into critical thinking assessment in accounting courses
Bob Jensen's threads on assessment are at
http://www.trinity.edu/rjensen/Assess.htm
"Make Your Own E-Books with Pandoc,"
by Lincoln Mullen, Chronicle of Higher
Education, March 20, 2012 ---
http://chronicle.com/blogs/profhacker/make-your-own-e-books-with-pandoc/39067?sid=wc&utm_source=wc&utm_medium=en
"2 New Platforms Offer Alternative to Apple’s Textbook-Authoring
Software," by Nick DeSantis, Chronicle of Higher Education,
February 17. 2012 ---
Click Here
http://chronicle.com/blogs/wiredcampus/2-new-platforms-offer-alternative-to-apples-textbook-authoring-software/35495?sid=wc&utm_source=wc&utm_medium=en
Bob Jensen's threads on Tools and Tricks of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's threads on E-Books are at
http://www.trinity.edu/rjensen/Ebooks.htm
Question
Does acceptance of racial cultural and religious diversity correlate with
national "happiness?
How about gender diversity?
Scroll way down at
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
The American Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouse.htm
American Dream ---
http://en.wikipedia.org/wiki/American_Dream
Often the goal of an American Dream is not so much betterment of your own
life but betterment of the lives of your children and grandchildren.
The Hendersons featured in this article have two of their own girls plus a
girl and boy that they adopted in China.
Could it be that tax revisionists in Denmark are beginning
to anticipate (by reducing tax rates)
value added from something like an American Dream being introduced in
Denmark?
Does the American Dream add more good than harm?
A Message from Jim Peters on the AECM
A couple of years ago, 60 minutes interview a
bunch of Danish citizens because the Danes had once again topped the
international surveys as the happiest people on earth. Americans, as
with most international measures, were somewhere in the middle of the
pack. The Dane's advice to Americans was to dump the American Dream
because it caused more harm than good. The core of the American
Dream seems to be equating wealth to happiness and setting off on a
constant quest for more wealth. The Danes advice was to focus more on
non-economic sources of happiness and learn to appreciate what you have.
Obviously, all this is an anathema to Americans
and some of the reaction to the Dane's comments included epithets like
"losers" and "hippies." But, the fact is that they are happier than
Americans.
Jim
Jensen Comment
I take issue with Jim's quoted phrase that the American Dream
in America "caused more harm than good." In my
opinion, most of what we have that is good in America was built in one way
or another on somebody's American Dream, a somebody willing to take
financial and even physical risks, work tirelessly to build or rebuild
something (possibly making creative innovations along the way), and pass the
fruits of entrepreneurial labor on so that other Americans can find jobs and
other Americans can enjoy the goods and services provided by the American
Dreams of others.
Continued with pictures at
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
The China Dream: Rise of the Billionaire Tiger Women from Poverty
"Tigress Tycoons,"
by Amy Chua, Newsweek Magazine Cover Story, March 12, 2012,
pp. 30-39 ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html
Like a relentless overachiever, China is eagerly
collecting superlatives. It’s the world’s fastest-growing major economy. It
boasts the world’s biggest hydropower plant, shopping mall, and crocodile
farm (home to 100,000 snapping beasts). It’s building the world’s largest
airport (the size of Bermuda). And it now has more self-made female
billionaires than any other country in the world.
This is not only because China has more females
than any other nation. Many of these extraordinary women rose from nothing,
despite living in a traditionally patriarchal society. They are a beguiling
advertisement for the New China—bold, entrepreneurial, and
tradition-breaking.
Four standouts among China’s intriguing new
superwomen are Zhang Xin, the factory worker turned glamorous real-estate
billionaire, with 3 million followers on Weibo (China’s Twitter); talk-show
mogul Yang Lan, a blend of Audrey Hepburn and Oprah Winfrey; restaurant
tycoon Zhang Lan, who as a girl slept between a pigsty and a chicken coop;
and Peggy Yu Yu, cofounder and CEO of one of China’s biggest online
retailers. None of these women inherited her money, and unlike many of the
richest Chinese who are reluctant to draw public scrutiny to their path to
wealth, they are proud to tell their stories.
How did these women make it to the top in the wild,
wild East? Did they pay a price, either in their family or their
professional lives? What was it that distinguished them from their famously
hardworking compatriots? As I set out to explore these questions, my
interest was partly personal. All four of my subjects lived for extended
periods in the West. As a Chinese-American, and now the infamous Tiger Mom,
I was curious: how “Chinese” were these new Chinese tigresses?
It turns out that each of these women, in her own
way, is a dynamic combination of East and West. Perhaps this is one secret
to their breathtaking success.
Zhang Xin is a rags-to-riches tale right out of
Dickens. She was born in Beijing in 1965. The next year Mao launched the
Cultural Revolution, and millions, including intellectuals and party
dissidents, were purged or forcibly relocated to primitive rural areas.
Children were encouraged to turn in their parents and teachers as
counterrevolutionaries. Returning to Beijing in 1972, Zhang remembers
sleeping on office desks, using books for pillows. At 14 she left for Hong
Kong with her mother, and for five years she worked in a factory by day,
attending school at night.
“I was a miserable kid,” she told me. With her chic
cropped leather jacket and infectious laughter, the cofounder of the $4.6
billion Soho China real-estate empire is today an odd combination of
measured calculation and warm spontaneity. “My mother drove me in school so
hard. That generation didn’t know how to express love.
“But it wasn’t just me. It was all of China. I
don’t think anybody was happy. If you look at photos from those days, no one
is smiling.” She mentioned the contemporary artist Zhang Xiaogang, who
paints “cold, emotionless” faces. “That’s exactly how we all grew up.”
. . .
But the four women I interviewed are a new breed.
Progressive, worldly, and open to the media, they are in many ways not
representative of China, past or present. Perhaps they are merely the lucky
winners of the 1990s free-for-all in China, a window that may already be
closing. Or perhaps they are the forerunners of a China still to come, in
which paths to success are far more open. Each has found a way to
dynamically fuse East and West, to staggering commercial success. It may
still be a long way off, but if China can achieve a similar alchemy—melding
its tremendous economic potential and traditional values with Western
innovation, the rule of law, and individual liberties—it would be a land of
opportunity tough to beat.
"Asian Women Taking GMAT On the Rise,"
by Allison Damast, Business Week, February 29, 2012 ---
http://www.businessweek.com/articles/2012-02-29/asian-women-taking-gmat-on-the-rise
If slow and steady wins the race, female
business school applicants are making their way closer and closer to the
finish line. In the last testing year, a record 106,800 women took the exam,
making up 41 percent of all test takers, up from 40 percent the year before,
according to the Graduate Management Admission Council (GMAC), which offers
the exam. This is the third consecutive year that more than 100,000 women
have sat for the Graduate Management Admission Test (GMAT), with much of the
increase continuing to be driven by East Asian women, says Michelle
Sparkman-Renz, GMAC’s director of research communications.
“It’s quite significant,” Sparkman-Renz says. “When
we first saw it happen in 2009, you wondered if it was a fluke or part of
the recession. But we’ve continued to see a new generation of women in MBA
and master’s programs, so it feels like it is here to stay.”
This year’s report is good news for business
schools, at which women are still far from a majority on most campuses.
Female enrollment at most top U.S. business schools still hovers at just
over 30 percent, though many business schools are making more concerted
efforts to attract women. This year, women make up 45 percent of the MBA
class at the University of Pennsylvania’s
Wharton School—the largest number in the school’s
history—and female enrollment jumped by nearly 40 percent this year at
several schools, including
Harvard Business School.
About 70 percent of full-time MBA programs reported
having made specialized outreach to women last year, up from 54 percent in
2010, GMAC says. Specialized master’s programs are also increasing their
efforts in this area, with half of master’s of accounting programs and a
quarter of master’s of finance programs reporting that they are trying to
increase the proportion of women in their applicant pool. Business schools,
especially those in the U.S., are trying to take advantage of surging
interest from female applicants, says Elissa Ellis-Sangster, director of the
Forté Foundation, a consortium of 39 business schools working to increase
the number of women pursuing MBAs.
“A lot of these outreach-and-marketing efforts in
master’s programs is directed towards reaching those younger women
students,” she says. “Schools are reaching deeper into the pipeline than
ever before.”
U.S. women still lead the way when it comes to
testing volume among women worldwide, even though fewer overall took the
exam last year. There were 45,735 U.S. women who took the GMAT in 2011, down
from 50,053 in 2010—a nearly 8 percent decrease. GMAC attributes the decline
to a strengthening U.S. economy, which typically results in a reduction in
applications to MBA programs.
East Asian and Southeast Asian women are largely
making up the difference. Of the 10 global regions that GMAC tracks, women
in East and Southeast Asia accounted for the largest portion of test takers
last year—58 percent, up from 54.6 percent in 2010—and are part of a rapidly
growing younger female GMAT pipeline. Worldwide, women younger than 25 now
make up more than half, or 54 percent, of female examinees, up from 45.5
percent in 2010, GMAC says.
Nowhere is this trend
more evident than in China, where younger women
are looking to burnish their resumes by getting master’s degrees from
prestigious Western business schools, says Peter von Loesecke, chief
executive officer and managing director of the MBA Tour, which organizes
admissions events with leading business schools in major cities around the
world. Women made up 64 percent of all GMAT test takers in China last year,
up from 62 percent in 2010, GMAC said.
The proportion of women registering for MBA Tour
events in Beijing and Shanghai jumped from 47 percent in 2006 to 56 percent
in 2010, von Loesecke says. Increasingly, many of these women have limited
or no work experience. In 2010, the vast majority of registrants without
work experience were women; in 2011, so many female registrants fell into
that category that for the first time the organization denied some younger
women admission to the Beijing and Shanghai tours, von Loesecke says.
“Rather than wait several years in a less-valued
job to get an MBA, more Chinese women than men are opting for a master’s to
launch their careers sooner,” von Loesecke wrote in an e-mail.
Continued in article
The American Dream versus the China Dream versus the Danish Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouse.htm
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
A Carnegie-Mellon Professor says the widening gap between the top 1% and the
remaining 99% is no proof that capitalism is unjust
"A Look at the Global One Percent: The remarkable similarity in
income distribution across countries over the past century means domestic policy
has less effect than many believe on who gets what,"
by Allan Meltzer, The Wall Street Journal, March 9, 2012 ---
http://online.wsj.com/article/SB10001424052970204653604577249852320654024.html?mod=djemEditorialPage_h
While the Occupy Wall Street movement may be
waning, the perception of growing income inequality in America is not. For
those on the left, the widening gap between the top 1% of earners and the
remaining 99% is proof that American capitalism is unjust and should be
traded in for an economic model more closely resembling the social
democracies of Europe.
But an examination of changes in income
distribution over nearly 100 years, not just in the United States but
elsewhere in the developed world, does not bear this out. In a 2006 study
titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish
economists Jesper Roine and Daniel Waldenström compared the income share of
the top 1% of earners in seven countries from the early 1900s to 2004. Those
countries—the U.S., Sweden, France, Australia, Britain, Canada and the
Netherlands—all practice some type of democratic capitalism but also a fair
amount of redistribution.
As the nearby chart from the Roine and Waldenström
study shows, the share of income for the top 1% in these seven countries
generally follows the same trend line. That means domestic policy can't be
the principal reason for the current spread between high earners and others.
Since the 1980s, that spread has increased in nearly all seven countries.
The U.S. and Sweden, countries with very different systems of
redistribution, along with the U.K. and Canada show the largest increase in
the share of income for the top 1%.
The main reasons for these increases are not hard
to find. Adding a few hundred million Chinese and Indians to the world's
productive labor force after 1980 slowed the rise in income for workers all
over the developed world. That's the most important factor at work. The top
1% gain relatively because they are less affected by the hordes of newly
productive workers.
But the top 1% have another advantage. Many of them
have unique skills that are difficult to replicate. Our top earners include
entrepreneurs, rock stars, professional athletes, surgeons and lawyers. Also
included are the managers of large international corporations and, yes,
bankers and financiers. (Interestingly, the Occupy movement seldom
criticizes athletes or rock stars.)
The most dramatic change shown in the chart is the
decline in the top 1% of Swedish earners' share of total income to between
5%-10% in the 1960s from well over 25% in 1903. The Swedish authors explain
that drop as mainly due to the decline in real interest rates that lowered
incomes of rentiers who depended on interest and dividends. Capitalist
development, not income redistribution, brought that change.
Income-redistribution programs that became
widespread in the 1960s and 1970s had a much smaller influence than market
forces. Between 1960 and 1980, the share going to the top 1% declined, but
the decline is modest. The share of the top percentile had been reduced
everywhere by 1960. Massive redistributive policies in Sweden did more than
elsewhere to lower the top earners' share of total income. Still, the
difference in 1980 between Sweden and the U.S. is only about four percentage
points. As the chart shows, the top earners in both countries began to
increase their share of income in 1980.
The big error made by those on the left is to
believe that redistribution permits the 99% or 90% to gain at the expense of
top earners. In much current political discussion, this is taken as an
unchallenged truth. It should not be. The lasting opportunity for the poor
is better jobs produced by investments, many of which are financed by those
who earn high incomes. It makes little sense to applaud the contribution to
all of us made by the late Steve Jobs while favoring policies that reduce
incentives for innovators and investors.
Our system is democratic capitalism. In every
national election, the public expresses its preference for taxation and
redistribution. It is a democratic choice, not a plot controlled by one's
most despised interest group. The much-maligned Congress is unable to pass a
budget because it is elected by people who have conflicting ideas about
taxes and redistribution. President Obama wants higher tax rates to pay for
more redistribution now. The Republicans, recalling Ronald Reagan and
Margaret Thatcher and much of the history of democratic capitalist
countries, want lower tax rates and less regulation to bring higher growth
and to help pay for some of the future health care and pensions promised to
an aging population.
Regardless of one's economic philosophy, the public
deserves an accurate presentation of the reasons for the change in income
distribution. The change is occurring in all the developed countries. The
chart shows that policies that redistribute wealth and income have at most a
modest effect on income shares. As President John F. Kennedy often said, the
better way is "a rising tide that lifts all boats."
Mr. Meltzer, a professor of public policy at
the Tepper School, Carnegie Mellon University and a visiting scholar at
Stanford University's Hoover Institution, is the author most recently of
"Why Capitalism?" just published by Oxford University Press.
"Adam Smith vs. Crony Capitalism: The Scottish philosopher's
suspicions about business people were well-founded,"
by Sheldon Richman, Reason Magazine, March 9, 2012 ---
http://reason.com/archives/2012/03/09/adam-smith-vs-crony-capitalism
I admit it: I like Adam Smith. His perceptiveness
never fails to impress. True, he didn’t foresee the marginal revolution that
Carl Menger would launch a century later (with, less significantly in my
view, Jevons and Walras), but give the guy a break. The Wealth of
Nations is a great piece of work.
One thing I find refreshing in Smith is his
wariness of business people. This is something we ought to frequently remind
market skeptics. Smith knew the difference between being sympathetic to the
competitive economy—which he called the “system of natural liberty”—and
being sympathetic to owners of capital (who might well have acquired it by
less-than-kosher means, that is, through political privilege). He knew
something about business lobbies.
This famous passage from
book 1, chapter of Wealth is often quoted by opponents of the
free market:
People of the same trade seldom meet together,
even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices.
The quote is used to justify antitrust law and
other government intervention. But as has often been pointed out in
response, Smith had no such policies in mind. We know this because he
immediately follows with:
It is impossible indeed to prevent such
meetings, by any law which either could be executed, or would be
consistent with liberty and justice. But though the law cannot hinder
people of the same trade from sometimes assembling together, it ought to
do nothing to facilitate such assemblies; much less to render them
necessary.
Prime Beneficiaries
Government should do nothing to encourage or enable
attempts to limit competition. But of course government does that all the
time at the behest of business and to the detriment of consumers and
workers. Hampering competition raises prices for the former and weakens
bargaining power—and therefore lowers wages—for the latter. Those groups
would be the prime beneficiaries of freed markets.
That’s not the only time Smith expresses his
anti-business sentiment. In the next
chapter he discusses the division of income among
landlords, workers, and owners of capital. Here Smith and the classicals
suffered from their lack of marginal analysis, subjectivism, and
thoroughgoing methodological individualism. As Professor Joseph Salerno
has written,
Regarding the question concerning the
determination of the incomes of the factors of production, the Classical
analysis was almost completely worthless because, once again, it was
conducted in terms of broad and homogeneous classes, such as “labor”
“land” and “capital.” This diverted the Classical theorists from the
important task of explaining the market value or actual prices of
specific kinds of resources, instead favoring a chimerical search for
the principles by which the aggregate income shares of the three classes
of factor owners—laborers, landlords and capitalists—are governed. The
Classical school’s theory of distribution was thus totally disconnected
from its quasi-praxeological theory of price, and focused almost
exclusively on the differing objective qualities of land, labor, and
capital as the explanation for the division of aggregate income among
them. Whereas the core of Classical price and production theory included
a sophisticated theory of calculable action, Classical distribution
theory crudely focused on the technical qualities of goods alone.
“Narrow the Competition”
Nevertheless, Smith’s chapter contains another
perceptive skeptical reference to “those who live by profit.” He writes:
Merchants and master manufacturers are . . .
the two classes of people who commonly employ the largest capitals, and
who by their wealth draw to themselves the greatest share of the
public consideration. As during their whole lives they are engaged
in plans and projects, they have frequently more acuteness of
understanding than the greater part of country gentlemen. As their
thoughts, however, are commonly exercised rather about the interest of
their own particular branch of business, than about that of the society,
their judgment, even when given with the greatest candour (which it has
not been upon every occasion) is much more to be depended upon with
regard to the former of those two objects, than with regard to the
latter. . . . The interest of the dealers . . . in any particular branch
of trade or manufactures, is always in some respects different from, and
even opposite to, that of the public. To widen the market and to narrow
the competition, is always the interest of the dealers. To widen the
market may frequently be agreeable enough to the interest of the public;
but to narrow the competition must always be against it, and can serve
only to enable the dealers, by raising their profits above what they
naturally would be, to levy, for their own benefit, an absurd tax upon
the rest of their fellow-citizens. [Emphasis added.]
Smith harbored no romanticism about those who have
long seen
rent-seeking as the path to wealth not available
in the freed market. In case we didn’t quite get his point, Smith goes on:
"The proposal of any new law or regulation of
commerce which comes from this order [that is, 'those who live by profit'],
ought always to be listened to with great precaution, and ought
never to be adopted till after having been long and carefully examined, not
only with the most scrupulous, but with the most suspicious attention.
It comes from an order of men, whose interest is never exactly the same with
that of the public, who have generally an interest to deceive and even to
oppress the public, and who accordingly have, upon many occasions, both
deceived and oppressed it." [Emphasis added.]
Continued in article
The American Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouse.htm
Every now and then the so-called "quants" in economics and finance make
enormous mistakes. Probably the best known mistake, before the
trillion-dollar CDO mistakes that came to light the collapse of the real
estate market in 2007, was the 1993 "Trillion Dollar Bet" made by two Nobel
Prize winning quants and their partners in Long-Term Capital Management
(LTCM) that came within a hair of destroying most big banks and investment
firms on Wall Street ---
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
Whenever I get news of increased power of quants on Wall Street, I think back
to "The Trillion Dollar Bet" (Nova
on PBS Video) a bond trader, two Nobel Laureates, and their doctoral
students who very nearly brought down all of Wall Street and the U.S. banking
system in the crash of a hedge fund known as
Long Term Capital
Management where the biggest and most prestigious firms lost an unimaginable
amount of money ---
http://en.wikipedia.org/wiki/LTCM
The Trillion Dollar Bet transcripts are free ---
http://www.pbs.org/wgbh/nova/transcripts/2704stockmarket.html
However, you really have to watch the graphics in the video to appreciate this
educational video ---
http://www.pbs.org/wgbh/nova/stockmarket/
Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster: The Formula That Killed Wall Street ---
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html
Some highlights:
"For five years, Li's formula, known as a
Gaussian copula function, looked like an unambiguously positive
breakthrough, a piece of financial technology that allowed hugely
complex risks to be modeled with more ease and accuracy than ever
before. With his brilliant spark of mathematical legerdemain, Li made it
possible for traders to sell vast quantities of new securities,
expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond
investors and Wall Street banks to ratings agencies and regulators. And
it became so deeply entrenched—and was making people so much money—that
warnings about its limitations were largely ignored.
Then the model fell apart." The article goes on to show that correlations
are at the heart of the problem.
"The reason that ratings agencies and investors
felt so safe with the triple-A tranches was that they believed there was
no way hundreds of homeowners would all default on their loans at the
same time. One person might lose his job, another might fall ill. But
those are individual calamities that don't affect the mortgage pool much
as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and
tranching still hadn't solved all the problems of mortgage-pool risk.
Some things, like falling house prices, affect a large number of people
at once. If home values in your neighborhood decline and you lose some
of your equity, there's a good chance your neighbors will lose theirs as
well. If, as a result, you default on your mortgage, there's a higher
probability they will default, too. That's called correlation—the degree
to which one variable moves in line with another—and measuring it is an
important part of determining how risky mortgage bonds are."
I would highly recommend reading the entire thing that gets much more
involved with the
actual formula etc.
The
“math error” might truly be have been an error or it might have simply been a
gamble with what was perceived as miniscule odds of total market failure.
Something similar happened in the case of the trillion-dollar disastrous 1993
collapse of Long Term Capital Management formed by Nobel Prize winning
economists and their doctoral students who took similar gambles that ignored the
“miniscule odds” of world market collapse -- -
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
The rhetorical question is whether the failure is ignorance in model building or
risk taking using the model?
Also see
"In Plato's Cave: Mathematical models are a
powerful way of predicting financial markets. But they are fallible" The
Economist, January 24, 2009, pp. 10-14 ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
Learning From Mistakes
"School for quants: Inside UCL’s Financial Computing Centre, the planet’s
brightest quantitative analysts are now calculating our future," by Sam
Knight, Financial Times Magazine, March 2, 2012 ---
http://www.ft.com/intl/cms/s/2/0664cd92-6277-11e1-872e-00144feabdc0.html#axzz1oEeYcqi8
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Please share this article with others using the link below, do not cut &
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ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/2/0664cd92-6277-11e1-872e-00144feabdc0.html#ixzz1pxufR2kw
On a recent winter’s afternoon, nine computer
science students were sitting around a conference table in the engineering
faculty at University College London. The room was strip-lit, unadorned, and
windowless. On the wall, a formerly white whiteboard was a dirty cloud,
tormented by the weight of technical scribblings and rubbings-out upon it. A
poster in the corner described the importance of having a heterogenous
experimental network, or Hen.
Every now and again, though, the discussion became
comprehensible. The students discussed annoyances – so much data about
animals! – and possibilities. One of the PhD students, Ilya Zheludev, talked
about “Wikipedia deltas” – records of deleted sections from the online
encyclopaedia. Immediately, the students hit on the idea of tracking the
Wikipedia entries of large companies and seeing what was deleted, and when.
The mood of the meeting was casual and exacting at
the same time. Galas, who is from Gdansk and once had ambitions to be a
hacker, is something of a giant at the Financial Computing Centre. One of
the first students to enrol in 2009, he has a gift for writing extremely
large computer programs. In order to carry out his own research, Galas has
built an electronic trading platform that he estimates would satisfy the
needs of a small bank. As a result, what he says goes. Galas closed the
meeting by giving the undergraduates a hard time about the overall messiness
of their programming. “I like beauty!” he declared, staring around the room.
The Financial Computing Centre at UCL, a
collaboration with the London School of Economics, the London Business
School and 20 leading financial institutions, claims to be the only
institute of its kind in Europe. Each year since its establishment in late
2008, between 600 and 800 students have applied for its 12 fully funded PhD
places, which each cost the taxpayer £30,000 per year. Dozens more
applicants come from the financial industry, where employers are willing to
subsidise up to five years of research at the tantalising intersection of
computers, data and money.
As of this winter, the centre had about 60 PhD
students, of whom 80 per cent were men. Virtually all hailed from such
forbiddingly numerate subjects as electrical engineering, computational
statistics, pure mathematics and artificial intelligence. These realms of
knowledge contain concepts such as data mining, non-linear dynamics and
chaos theory that make many of us nervous just to see written down. Philip
Treleaven, the centre’s director, is delighted by this. “Bright buggers,” he
calls his students. “They want to do great things.”
In one sense, the centre is the logical culmination
of a relationship between the financial industry and the natural sciences
that has been deepening for the past 40 years. The first postgraduate
scientists began to crop up on trading floors in the early 1970s, when
rising interest rates transformed the previously staid calculations of bond
trading into a field of complex mathematics. The most successful financial
equation of all time – the Black-Scholes model of options pricing – was
published in 1973 (the authors were awarded a Nobel prize in 1997).
Continued in article
Bob Jensen's threads on The Greatest Swindle in the History of the World
---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
"The Year Solar Goes Bankrupt,"
by John Ransom, Townhall, March 2012 ---
http://finance.townhall.com/columnists/johnransom/2012/03/12/the_year_solar_goes_bankrupt
Get ready for a new round of green bankruptcies, as
Europe trims back subsidies for solar companies and taxpayers lose their
appetite for subsidizing green power.
“The mini-bubble resulting from the rush to cash in
on solar subsidies in European and U.S. markets is ending, as feed-in
tariffs drop in Europe while loan guarantee and tax credit programs tighten
up in the U.S.,” says a new report from Bank of America Merrill Lynch
according to CNBC.com.
Germany is dialing back subsidies for solar this
month by 29 percent with subsequent decreases each month, according to
Bloomberg.com.
Rasmussen has recently released a survey of voters
that show a diminishing number of voters support subsidizing the production
of the Chevy Volt.
Only 29 percent of likely voters agree with Obama’s
latest proposal to include a $10,000 subsidy in the federal budget to
support the purchase of every electric vehicle.
Continued in article
Jensen Comment
Many buyers of electric cars like the
Chevy Volt
often overlook is that if gasoline hit $10 a gallon the price of electricity
used to charge a Chevy Volt will also soar, and states will commence to find
ways to tax Volt owners for road repair (because of lost road taxes as gas
pumps). There's no free lunch as far as electric cars are concerned.
The Chevy Volt is also a huge disappointment in many respects. It's so heavy
that it gets lousy gas mileage when the batteries run down. And those batteries
run down after after 25-50 miles depending upon such things as hills and
temperature. It's battery range is even less than 25 miles during the winter
where I live in these mountains. And it has a notoriously bad heater forcing
passengers to wear their long johns in wintertime.
It's taken for granted that the Chevy Volt is not a cost-effective net energy
saver at the present time. But what about the more popular
Toyota Prius?
ABC News just did a module on the payback of the added price to get the Prius
hybrid option. On average, ABC reported it takes 17 years of driving to pay back
the hybrid's additional price.
And those energy credits and deductions on houses and cars account for much
of the reason that 49.5% of the U.S. taxpayers pay zero income taxes or demand
net refunds.

February 24, 2012 reply from John Brozovsky
. . .
On a second note that has been carried in this
thread. Two years ago I would have qualified as one of the people that paid
no federal income tax. Plenty of other federal, state and local taxes due to
a healthy accounting faculty salary but not federal income tax. I adjusted
my behavior in a manner consistent with what the government ‘wanted’ to
promote. I put in a geothermal system in my house which carried a 30% tax
credit effectively wiping out my tax liability. While I do not think the
government should be promoting social agenda with the tax code, I will
certainly adjust to make use of it when it does.
Question
Can you lower income taxes for people who don't pay any income taxes?
Note that about half the taxpayers in the United States do not pay any income
taxes.
Answer
Of course. You can increase their refunds that their already receiving before
you "lower" their taxes.
"Can you cut taxes for people who don't pay taxes?"
Des Moines
Register, February 07, 2012 ---
http://www.rothcpa.com/archives/007655.php
The answer is yes if they pay not tax and collect refunds for things like
energy credits.
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
From The Wall Street Journal Accounting Weekly Review on March 30,
2012 ---
Tax Breaks Exceed $1 Trillion: Report
by: John D. McKinnon
Mar 24, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Tax Laws, Tax Reform, Taxation
SUMMARY: The article reports on a "...new report by the
non-partisan Congressional Research Service [which] underscores how
far-reaching..." are many of the most costly tax provisions in the U.S. tax
code. As highlighted in the related video, these items are likely to become
a focused issue in this election year. "House Republicans proposed in their
new budget this week to reduce or eliminate an unspecified array of tax
breaks in order to offset the costs of lowering top tax rates for both
corporations and individuals to 25% from the current 35%." President Obama
proposed reducing the top corporate tax rate only, from 35% to 28%, with
corresponding proposals to eliminate certain corporate tax breaks, such as
deductibility of the cost of corporate jets and tax treatment of foreign
earnings.
CLASSROOM APPLICATION: The article is useful to summarize the types
of items considered to be "tax breaks," and the current, election-year
proposals to simplify the U.S. tax code.
QUESTIONS:
1. (Introductory) Who produced the report on which this article is
based? How do you think the information was obtained?
2. (Introductory) Why is this report useful in considering ways to
overhaul the U.S. tax code?
3. (Advanced) What kinds of items are characterized as "tax breaks"
in the document on which this article reports?
4. (Advanced) Specifically describe the tax treatment of each of
the items listed in the graphic entitled "Popular Provisions." Who benefits
from each of these items?
5. (Advanced) Based on your answer to question 2, explain why
"House Republicans dismissed the report's significance saying it only
confirms that overhauling the tax code will be politically challenging."
Reviewed By: Judy Beckman, University of Rhode Island
"Tax Breaks Exceed $1 Trillion: Report,"
by: John D. McKinnon, The Wall Street Journal, March 24, 2012 ---
http://online.wsj.com/article/SB10001424052702303812904577299923495453562.html?mod=djem_jiewr_AC_domainid
A congressional report detailing the value of major
tax breaks shows they amount to more than $1 trillion a year—roughly the
size of the annual federal budget deficit—and benefit wide swaths of the
population.
The figures could be useful to lawmakers of both
parties and President Barack Obama, who are looking for ways to shrink
future deficits and offset the anticipated cost of overhauling the
much-criticized U.S. tax code, an effort likely to include tax-rate cuts.
Both parties are looking to trim or eliminate tax breaks to achieve those
goals.
Mr. Obama has suggested eliminating breaks for
corporate jets and oil and gas companies to reduce deficits. He also has
raised the possibility of reducing tax breaks for U.S. multinationals that
ship jobs overseas, as a way to offset the cost of lowering the corporate
tax rate to 28% from the current 35%. Research Report

House Republicans proposed in their new budget this
week to reduce or eliminate an unspecified array of tax breaks in order to
offset the costs of lowering top tax rates for both corporations and
individuals to 25% from the current 35%.
The new report, by the nonpartisan Congressional
Research Service, underscores how far-reaching many of the tax breaks are,
which makes changing them a politically daunting task.
They include the exclusion from taxable income for
employer-provided health insurance, the biggest break, at $164.2 billion a
year in 2014; the exclusion for employer-provided pensions, the
second-biggest, at $162.7 billion; and the exclusions for Medicare and
Social Security benefits.
Other big breaks include the mortgage-interest
deduction, third-largest; taxing capital-gains income at lower rates than
other income; the earned-income credit for the working poor; and deductions
for state and local taxes.
The report, citing political opposition, technical
challenges and other reasons, said that "it may prove difficult to gain more
than $100 billion to $150 billion in additional tax revenues" by eliminating
tax breaks. That likely would leave little for reducing tax rates, perhaps
only enough for one or two percentage points in the top individual rate,
while maintaining the same level of revenue, the report said.
Continued in article
Jensen Comment
I'm suspicious that this greatly underestimates the so-called "tax breaks" by
not mentioning exclusions from revenue. For example, hundreds of billions of
interest revenue from municipal bonds are excluded from taxable revenue
(federal). Many types of life insurance payments are tax exempt. Clerics get
some generous exemptions for housing allowances. And there are capital gains
exemptions in Roth IRAs and scores of other exclusions.
Case Studies in
Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates," by Rachel Johnson Joseph Rosenberg Roberton
Williams, Urban-Brookings Tax Policy Center, February 7, 2012 ---
http://www.taxpolicycenter.org/UploadedPDF/412497-ETR.pdf
The U.S. does not have a
significantly smaller welfare state than the European nations. We’re just better
at hiding it.
"America Is Europe,"
by David Brooks, The New York Times, February 23, 2012 ---
http://www.nytimes.com/2012/02/24/opinion/brooks-america-is-europe.html?_r=3&ref=opinion
We Americans cherish our myths. One myth is that
there is more social mobility in the United States than in Europe. That’s
false. Another myth is that the government is smaller here than in Europe.
That’s largely false, too.
The U.S. does not have a
significantly smaller welfare state than the European nations. We’re just
better at hiding it. The Europeans provide welfare provisions through direct
government payments. We do it through the back door via tax breaks.
For example, in Europe,
governments offer health care directly. In the U.S., we give employers a
gigantic tax exemption to do the same thing. European governments offer
public childcare. In the U.S., we have child tax credits. In Europe,
governments subsidize favored industries. We do the same thing by providing
special tax deductions and exemptions for everybody from ethanol producers
to Nascar track owners.
These tax expenditures are
hidden but huge. Budget experts Donald Marron and Eric Toder added up all
the spending-like tax preferences and found that, in 2007, they amounted to
$600 billion. If you had included those preferences as government spending,
then the federal government would have actually been one-fifth larger than
it appeared.
The Organization for
Economic Cooperation and Development recently calculated how much each
affluent country spends on social programs. When you include both direct
spending and tax expenditures, the U.S. has one of the biggest welfare
states in the world. We rank behind Sweden and ahead of Italy, Austria, the
Netherlands, Denmark, Finland and Canada. Social spending in the U.S. is far
above the organization’s average.
You might say that a tax
break isn’t the same as a spending program. You would be wrong.
The late David Bradford, a
Princeton economist, had the best illustration of how the system works.
Suppose the Pentagon wanted to buy a new fighter plane. But instead of
writing a $10 billion check to the manufacturer, the government just issued
a $10 billion “weapons supply tax credit.” The plane would still get made.
The company would get its money through the tax credit. And politicians
would get to brag that they had cut taxes and reduced the size of
government!
This is essentially what’s
been happening in sphere after sphere. Government controls more and more of
the economy. It just does it by getting people to do what it wants by
manipulating the tax code. Politicians get to take credit for addressing
problem after problem, but none of their efforts show up as unpopular
spending.
Many of these individual tax
expenditures are good for the country, like the charitable deduction and the
earned income tax credit. But, as the economist Bruce Bartlett demonstrates
in his impeccably fair-minded book, “The Benefit and the Burden,” the
cumulative effect of these tax breaks is terrible. Like overgrown weeds, the
tangle of tax breaks distorts behavior, clogs the economy and deprives the
government of revenue.
And because they are hidden,
many of the tax expenditures go to those who need them least, the well
connected and established over the vulnerable and the entrepreneurial.
The good news is that change
might finally be coming. The Obama administration has always theoretically
supported a simpler tax code even while operationally it has often muddied
it up. Nonetheless, this week, Treasury Secretary Timothy Geithner unveiled
a modest but sensible plan to simplify the corporate tax code. The plan is
not perfect. The Obama technocrats love tinkering and complexity. But
Geithner’s plan moves us a small step in the right direction and provides a
sensible foundation for the big tax negotiations to come.
Mitt Romney has a bigger
proposal, which reduces individual rates across the board and closes some
loopholes. It’s more comprehensive than the Geithner approach, but it
suffers from two weaknesses. First, it’s politics as usual. Romney is
specific about the candy — lower tax rates — but vague about the vegetables
— what loopholes would have to be closed to pay for them.
Moreover, it’s
unimaginative. Republicans are perpetually trying to do what Ronald Reagan
did. But top tax rates today aren’t as onerous as they were in 1980, so
lowering them won’t produce as many benefits. Imagine if Reagan ran for
office promising to recreate the glory days of Thomas Dewey and you get a
sense of how much G.O.P. thinking is stuck in the past.
Continued in article
Case Studies in
Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates,"
by Rachel Johnson Joseph Rosenberg Roberton
Williams, Urban-Brookings Tax Policy Center, February 7, 2012 ---
http://www.taxpolicycenter.org/UploadedPDF/412497-ETR.pdf
"Reimagining Capitalism." by Polly LaBarre, Harvard Business Review
Blog, February 27, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/02/reimagining_capitalism.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Summary of Major Accounting Scandals ---
http://en.wikipedia.org/wiki/Accounting_scandals
Bob Jensen's threads on such scandals:
Bob Jensen's threads on audit firm litigation and negligence ---
http://www.trinity.edu/rjensen/Fraud001.htm
Current and past editions of my
newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's fraud conclusions ---
http://www.trinity.edu/rjensen/FraudConclusion.htm
Bob Jensen's threads on auditor professionalism and
independence are at
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/Fraud001.htm#Governance
Free Textbooks: Advantages and Disadvantages
March 29, message from Ramesh Fernando
Prof. Jensen, I don't know if you have this link
but it's a great site
http://globaltext.terry.uga.edu/home
Accounting Principles both Financial Accounting and
Managerial Accounting
http://globaltext.terry.uga.edu/booklist?cat=Business
March 29, 2012 reply from Bob Jensen
Hi Ramesh,
Thank you Ramesh.
The Global Text Project seems to offer free alternatives for some textbooks
that are no longer totally free on Freeload Press ---
http://www.textbookmedia.com/Products/BookList.aspx
For example the following textbook is free from the Global Text Project:
8th Edition of Accounting Principles: A Business Perspective
(Managerial) by James Edwards, Roger Hermanson, Susan Ivancevich
[puff] ---
http://dl.dropbox.com/u/31779972/Accounting Principles Vol. 2.pdf
The above textbook is 1995 on Freeload Press is $16.95 ---
http://www.textbookmedia.com/Products/ViewProduct.aspx?id=3168
However, lecture and study guides are also available for a fee from Freeload
Press.
My worry about book and other free textbooks in general is how often they
are completely updated. The Global Text download of the 8th edition was last
revised in 2006, and this is 2012. In that period of time there have been
some changes in managerial accounting such as Lean Accounting ---
http://maaw.info/LeanAccountingMain.htm
The Edwards, Hermanson, and Ivancevich book does not mention Lean Accounting
to my knowledge.
Actually, I worry more about the updates for financial accounting
textbooks than updates of managerial accounting textbooks, because the FASB
and IASB are grinding out changes weekly with some things that need to be
put into revised editions of financial accounting textbooks as soon as
possible. Similar problems arise with auditing textbooks. It's virtually
impossible to have a long-term tax textbook that's not updated at least
annually is some way.
A huge problem with free or almost-free textbooks that pay no royalties
to authors is that the authors have fewer incentives to slave over revisions
vis-à-vis commercial textbooks that are paying tens of thousands of dollars
to successful authors year after year after year.
A second huge problem is some popular supplements available from
commercial publishers are not available from free or almost-free servers.
These supplements include test banks, videos, and software.
Teachers who use their own handouts in place of a textbook have some of
the same problems with updates. For example, think of all the financial
accounting handouts (including problems and cases) that must be revised when
the new joint standards ore issued on leases and revenue recognition.
Professors buried in teaching duties and research for new knowledge really
have to struggle to go back over 800 pages of student handouts to constantly
update these handouts. My advice is to find a very current revised textbook
and reduce the handouts to a more manageable 300 pages or less. Of course
the "handouts" can now be digital.
There are course certain courses for which there are no good textbooks
available for major modules of the course. I never found a good accounting
theory textbook that I though was suitable for my accounting theory course.
My students accordingly got 800 pages of my handouts ---
http://www.trinity.edu/rjensen/acct5341/acct5341.htm
But for my AIS course I had a great electronic textbook (Murthy and
Groomer) such that I only needed 300 pages of my handouts ---
http://www.trinity.edu/rjensen/acct5342/acct5342.htm
Incidentally, most free textbooks were once high-priced commercial
textbooks dropped by publishing companies that gave the copyrights back to
the authors. These textbooks were dropped in the past two decades largely
due to publishing company mergers and acquisitions. When Publisher A and
Publisher B have competing textbooks that are virtually identical when A and
B are merged a decision is usually made to drop one of the textbooks even
though it has been somewhat profitable before the merger. I have a number of
relatively close friends that experienced this type of copyright return
including Phil Cooley who had his successful basic finance textbook
copyright returned in one of these publishing house mergers
Respectfully,
Bob Jensen
Bob Jensen's threads on free textbooks are at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Bob Jensen's threads on free courses, lectures, videos, and course
materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Virtually every basic accounting course stresses the differences between
property (e.g., cash) dividends versus stock dividends versus stock splits.
From The Wall Street Journal Accounting Weekly Review on March 23,
2012
Apple Pads Investor Wallets
by:
Jessica E. Vascellaro
Mar 20, 2012
Click here to view the full article on WSJ.com
TOPICS: Dilution, Dividend, Tax Avoidance, Tax Laws, Taxation
SUMMARY: "Apple on Monday bowed to mounting pressure to return some
of its roughly $100 billion in cash reserves to shareholders by saying it
would issue a dividend and buy back stock....The last time Apple paid a
dividend was in December 1995, a year before [Steve] Jobs returned....But
following [Tim] Cook's appointment as CEO last August and the death of Mr.
Jobs in October, Apple's approach changed...." The company will pay a $2.65
a share quarterly dividend beginning in July; "Apple's board also authorized
a $10 billion share repurchase program to begin in the quarter starting
Sept. 30...."
CLASSROOM APPLICATION: The main article is useful to introduce
dividend policy and stock buyback decisions when introducing those topics in
financial accounting classes covering stockholders' equity. The related
article highlights tax issues in repatriating overseas cash faced by many
U.S. corporations.
QUESTIONS:
1. (Introductory) Why is it so newsworthy that Apple will begin to
pay dividends to its shareholders?
2. (Introductory) Based on the discussion in the article, what are
Mr. Cook's reasons for paying a dividend? What were the late Mr. Jobs's
reasons for not doing so?
3. (Advanced) How are stock repurchases similar to dividends?
4. (Advanced) According to the article, what is the specific
purpose of starting a stock repurchase plan? In your answer, define the term
"dilution."
5. (Advanced) Refer to the related article. Where is most of
Apple's significant cash balance held?
6. (Advanced) Again refer to the related article. Why is Apple, as
are many U.S. based international companies, facing "significant tax
consequences" if it decides to "repatriate" bring back overseas cash
balances? How is Apple balancing this concern with its need for cash to
continue to grow?
7. (Advanced) How is Apple balancing its tax concern with its need
for cash to continue to grow?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Apple's Move Puts Spotlight on Foreign Cash Holdings
by Maxwell Murphy
Mar 20, 2012
Page: A6
"Apple Pads Investor Wallets,"
by Jessica E. Vascellaro, The Wall Street Journal, March 20, 2012 ---
http://online.wsj.com/article/SB10001424052702304724404577291071289857802.html?mod=djem_jiewr_AC_domainid
Tim Cook is proving he's not simply the caretaker
of Apple Inc. AAPL -0.53% and the unyielding strategies set forth by his
predecessor, Steve Jobs.
Apple on Monday bowed to mounting pressure to
return some of its roughly $100 billion in cash reserves to shareholders by
saying it would issue a dividend and buy back stock, marking the technology
company's biggest break yet from Mr. Jobs's philosophy.
The last time Apple paid a dividend was in December
1995, a year before Mr. Jobs returned to Apple. Mr. Jobs largely resisted
returning cash to shareholders, whose clamoring for a cut of Apple's growing
cash stockpile increased in recent years, according to people familiar with
the matter.
Mr. Jobs had long argued that Apple's cash—which at
$97.6 billion as of Dec. 31 is the greatest of any nonfinancial U.S.
corporation—should be used to invest in areas such as Apple's supply chain,
retail stores, research and the rare acquisition. He spent little time with
shareholders and rarely discussed it at all.
Mr. Jobs was persuaded to do a buyback in the wake
of the Sept. 11, 2001, terrorist attacks as the stock market fell, according
to a person familiar with the matter. After that, several executives thought
the company should continue to do buybacks because the stock price seemed
very cheap, this person said. Journal Community
Apple hired bankers to study the impact of a
buyback, according to this person, who said Mr. Jobs rejected the idea
before it went anywhere. He felt the company could use the money to expand
the business by more than the bump to per-share earnings a buyback would
provide, this person said.
But following Mr. Cook's appointment as CEO last
August and the death of Mr. Jobs in October, Apple's approach changed. At a
company event honoring Mr. Jobs last Oct. 19, Mr. Cook recounted a
conversation in which the co-founder told him to run Apple as he saw fit.
"Just do what's right," Mr. Cook said he was told.
WSJ's Spencer Ante and Jennifer Valentino discuss
Apple CEO Tim Cook's emphasis on innovation and future products as part of
the company's announcement of a stock dividend and buyback.
Barron's associate editor Michael Santoli stops by
Mean Street to discuss the impact of Apple's dividend and buyback
announcement on the broader market. Photo: Reuters.
Mr. Cook grew more forthcoming publicly on the cash
topic. In a rare appearance at an investor conference in February, Mr. Cook
acknowledged that the Apple board was actively discussing what to do with
the cash, since the company had more than it needed to run its business.
That led to Monday's conference call, in which the
Cupertino, Calif., company announced it would pay a $2.65 a share quarterly
dividend in its quarter beginning in July. That represents a 1.8% yield
based on Apple's closing stock price before the news, roughly in line with
the yield on the Standard & Poor's 500 index and in the middle of the pack
of what some other dividend-issuing tech companies pay.
Apple's board also authorized a $10 billion share
repurchase program to begin in the quarter starting Sept. 30, largely to
offset dilution from issuing new restricted-stock units to employees. Apple
said the dividend and buyback programs would cost the company $45 billion in
the first three years and that it would continue to evaluate it.
"Even with these investments, we can maintain a war
chest for strategic opportunities and have plenty of cash to run our
business," Mr. Cook said Monday. "We have thought very deeply and very
carefully about our cash balance."
The package marked the most significant move to
date by Mr. Cook in putting his own imprint on Apple and reflects how he has
been more forthcoming with shareholders, investors say.
While Mr. Jobs flouted usual business practices and
outside influence, Mr. Cook's shift on cash removes Apple as one of the few
dividend holdouts among large technology companies. Over the past decade,
other tech behemoths such as Microsoft Corp., MSFT +0.27% Oracle Corp. ORCL
-2.65% and Cisco Systems Inc. CSCO -0.59% had also begun payouts to
shareholders as the companies matured.
But unlike those companies—which were experiencing
slower growth rates and whose initiation of a dividend was regarded as a
sign that some of their fastest growth was behind them—Apple is still
expanding rapidly. In its last reported quarter, Apple more than doubled its
profits and increased revenue 73%, largely on the strength of sales of its
hit iPad and iPhone devices.
Some investors and analysts have said in interviews
they wonder how long Apple's growth streak can last, particularly once the
company has saturated some of its current growth engines, like smartphones.
But Mr. Cook stressed Apple remains in a growth phase on Monday's call,
saying "we don't see ceilings to our opportunities."
Apple's cash shift is unlikely to have major ripple
effects on Wall Street, however. Trading volumes for Apple's stock could
increase as funds that have been shut out from holding the shares because it
didn't issue a dividend now can now buy it, potentially boosting its price.
Still, analysts noted the stock is already widely held and others said
expectations for a dividend have been factored into the current stock price.
Continued in article
Teaching Case on Preferred Stock Shares, Warrants, and Dividends
From The Wall Street Journal Accounting Weekly Review on April 28, 2011
Deal Journal: Warren Buffett's Profit on GE Investment: $1.2 Billion
by: Shira Ovide
Apr 22, 2011
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, Dividends, Financial Statement Analysis
SUMMARY: "In the
financial crisis, Warren Buffett loaned out his halo of respectability to
prop up sentiment about Goldman Sachs Group, Dow Chemical, General Electric
and other blue-chip companies." He invested nearly $3 billion in GE in
exchange for preferred stock and warrants issued together.
CLASSROOM APPLICATION: The
article is useful to cover a live example of issuing preferred stock and
warrants, typically covered in a second semester intermediate financial
accounting course. Questions also ask students to access the GE financial
statements (2010 Form 10-K on its investor relations web site) to examine
the presentation of the stock and warrants in stockholders' equity and the
preferred stock dividends deducted in calculating earnings available for
common shareholders in the statement of earnings.
QUESTIONS:
1. (Introductory) According the news article, Warren Buffet's
Berkshire Hathaway invested $3 billion in GE during the height of the
financial crisies. What types of securities did GE issue to Berkshire
Hathaway? What are the terms of that issuance?
2. (Advanced) Summarize the accounting for the combined issuance of
preferred stock and warrants.
3. (Advanced) Access the GE 2010 annual report available through
GE's investor relations web site at
http://www.ge.com/investors/financial_reporting/index.html Click on
Form 10-K 2010, locate the balance sheet and Note 15. Shareowners' Equity.
Describe how the preferred stock and warrants issued to Berkshire Hathaway
are presented in the GE financial statements.
4. (Introductory) Return to the Statement of Earnings (Income
Statement) in the 10-K filing. How are the preferred dividends that are
described in the article presented in this statement?
5. (Advanced) Based on the discussion in the article, do you think
these dividends have been paid? Comment on the deduction of dividends to
determine "Net earnings attributable to GE common shareowners" given your
answer to question 3 above.
Reviewed By: Judy Beckman, University of Rhode Island
"Deal Journal: Warren Buffett's Profit on GE Investment: $1.2 Billion," by:
Shira Ovide, The Wall Street Journal, April 22, 2011 ---
http://blogs.wsj.com/deals/2011/04/21/warren-buffetts-profit-on-ge-investment-1-2-billion/?mod=djem_jiewr_AC_domainid
In the financial crisis, Warren Buffett loaned out
his halo of respectability to prop up sentiment about Goldman Sachs Group,
Dow Chemical, General Electric and other blue-chip companies. Those bets
came with some heavy costs for the companies, and produced handsome profits
for the Oracle of Omaha.
GE reiterated today it plans to repay Buffett by
October for his $3 billion investment in the conglomerate, an agreement
struck in October 2008 when the financial world was coming apart at the
seams.
As in other reputation-bolstering investments
Buffett made during that stretch, GE agreed to pay the Oracle a 10% annual
dividend, or $300 million a year in GE’s case.
The numbers-loving Buffett carried around a coin
changer in his schoolboy days, and probably could tell you that his GE
dividend amounts to $9.51 a second. (That buys about 41% of a sirloin dinner
at Buffett hangout, Gorat’s Steak House.)
When GE pays Buffett back, they will owe him 10%
more than he paid, or $300 million on top of his $3 billion payback. Plus,
Buffett will have accumulated $900 million in cumulative dividends, assuming
GE repays the preferred-stock investment in October. All told, Buffett’s $3
billion investment will generate a total profit of $1.2 billion. Not too
shabby.
Now the bad news: Buffett’s investment also
entitled him to buy 134.8 million shares of GE common stock at an exercise
price of $22.25. With GE stock languishing below $20 a pop, those stock
warrants are worthless — for now. But fear not. The warrants were good for
five years, and GE shares can always move up and give Buffett an additional
windfall (or move down and permanently deny Buffett the cherry atop his
sundae of GE profit).
Buffett already has been repaid for other
investments he made during the financial crisis, including his purchase of
Swiss Reinsurance debt, and his $5 billion preferred investment in Goldman
Sachs. And Buffett, with a net worth of
$50
billion, has sounded downright downbeat about it.
“Goldman Sachs has the right to call our preferred
on 30 days notice, but has been held back by the Federal Reserve (bless
it!), which unfortunately will likely give Goldman the green light before
long,” Buffett wrote in February, in
his annual letter to Berkshire Hathaway investors.
Since then, Goldman has indeed repaid Buffett, who
can count roughly
$3.7 billion in profits on his investment,
including the value of his in-the-money warrants on Goldman stock. His Swiss
Re investment padded Buffett’s wallet by roughly
$1 billion.
Continued in article
Bob Jensen's threads on Accounting Theory are at
http://www.trinity.edu/rjensen/Theory01.htm
Problems With Absorption Costing
"Lots of Trouble: U.S. automakers used a common accounting practice
to justify huge run-ups in inventories, but the downside risks offer lessons
for all manufacturers," by Marielle Segarra, CFO Magazine, March
2012, pp. 29-31 ---
http://www.cfo.com/article.cfm/14620031?f=search
It's no secret that in the years leading up to the
Great Recession, the Big Three automakers were producing vehicles in excess
of market demand, leading to large inventories on dealers' lots across the
country. Now, some researchers say they know why the automakers acted as
they did, and they are warning other manufacturers to avoid the same
temptation.
By coupling excess production with absorption
costing, managers at GM, Ford, and Chrysler were able to boost profits and
meet short-term incentives, according to professors at Michigan State
University and Maastricht University in the Netherlands. (Their study on the
topic was recognized in January for its contribution to management
accounting by the American Institute of Certified Public Accountants and
other groups.) Ultimately, however, the practice hurt the automakers, in
part by driving up advertising and inventory holding costs and possibly
causing a decline in brand image, the researchers say.
From 2005 to 2006, long before GM and Chrysler
filed for bankruptcy and appealed for federal aid, the automakers had
abundant excess capacity. Then as now, they had enormous fixed costs, from
factories and machinery to workers whose contracts protected them from
layoffs when demand was low, says Karen Sedatole, associate professor of
accounting at Michigan State and a co-author of the study.
To "absorb" those massive costs, the automakers
churned out more cars while using absorption costing, a widely used system
that calculates the cost of making a product by dividing total manufacturing
costs, fixed and variable, by the number of products produced. The more
vehicles they made, the lower the cost per vehicle, and the higher the
profits on the income statement. In effect, the automakers shifted costs
from the income statement to the balance sheet, in the form of inventory.
Under Statement of Financial Accounting Standards
No. 151, companies can use absorption costing for "normal capacity" but must
treat "abnormal" excess capacity as a period cost, according to Sedatole.
But the standard doesn't clearly define what's normal, leaving room for
companies to overproduce in order to lower unit cost. Companies that do so
"are, in a way, managing earnings upward by trapping costs on the balance
sheet as inventory, so they won't hit the income statement," she says.
Eroding Brand Image But business leaders should
think twice before adopting this tactic, cautions Sedatole. Even though they
can make their companies appear more profitable in the short term by
concealing excess capacity costs on the balance sheet, holding so much
excess inventory can exact a price.
"When [the dealers] couldn't sell the cars, they
would sit on the lot," says Sedatole. "They'd have to go in and replace the
tires, and there were costs associated with that." The companies also had to
pay to advertise their cars, often at discounted prices. And by making their
cars cheaper and more readily available, they may have turned off potential
customers, she adds.
"If you see a $12,000 car in a TV ad is being
auctioned off for $6,000 at your local dealer, that affects your image of
that vehicle," says Sedatole. This effect on brand image is difficult to
quantify, but the researchers correlated 1% of rebate with a 2% decline in
appeal in the J.D. Power and Associates Automotive Performance Execution and
Layout Index.
Some might argue that it's good strategy for a
company already obligated to pay salaries to make products up to its
capacity. "An economist would say as long as I could sell the car for more
than its variable cost, I'm better off selling it," Sedatole says. But, she
adds, "that's a very, very short-term way of thinking" because it neglects
the costs that come with having a lot of excess inventory.
Lessons Learned Using absorption costing to monitor
efficiency can lead companies to make poor production decisions, says
Ranjani Krishnan, professor of accounting at Michigan State and a co-author
of the study (along with Alexander Brüggen, an associate professor at
Maastricht University). A company that does this could seem to be growing
less efficient when demand decreases. If a factory makes fewer cars this
year than last year, for instance, its cost per car will look higher, and it
may then overproduce in order to present itself more favorably to
shareholders, consumers, and analysts.
Instead, Krishnan suggests, companies should record
the cost of excess capacity as an expense on their internal income
statements, a practice that may help give them perspective.
Another way to avoid overproduction is to change
the way executives are paid. Like many companies, the automakers put their
managers under pressure to deliver in the short term by structuring
compensation incentives around metrics like labor hours per vehicle, which
the industry's Harbour Report uses to compare automaker productivity. With
fixed labor hours, the only way to look more efficient under this measure is
to produce more cars.
"A lot of this behavior was frankly driven by
greed," says Krishnan. "If you look at the type of managerial incentives
[the automakers] had during the time of our study, the executive-committee
deliberations, it was all about meeting short-term quarterly traffic numbers
or meeting analysts' forecasts so that they could get their bonuses."
Continued in article
Bob Jensen's threads on cost and managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
How to Buy a Car Using Game Theory ---
Click Here
http://mindyourdecisions.com/blog/2012/02/29/video-how-to-buy-a-car-using-game-theory/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+mindyourdecisions+%28Mind+Your+Decisions%29&utm_content=Google+Reader
Video ---
http://www.youtube.com/watch?v=LNrLfylgHE0
"When Agencies Go Nuclear: A Game Theoretic Approach to the Biggest Sticks
in an Agency’s Arsenal," by Brigham Daniels, George Washington University,
February 2012 ---
http://groups.law.gwu.edu/lr/ArticlePDF/80-2-Daniels.pdf
Over 45,000 lawyer jobs in the United States were lost since the 2008
economic meltdown
Should we break out the Champagne? (just kidding)
"Law Firm Recruiting Volumes Inch Up, Making Modest Gains After
Recession-Era Declines," NALP, 2012 ---
http://www.nalp.org/uploads/PerspectivesonFall2011.pdf
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
The Zimbabwe School of Economics: In effect
printing $2 trillion
"The High Cost of the Fed's Cheap Money Encouraging consumption at the
expense of saving inhibits long-term economic growth,"
by Andy Laperriere, The Wall Street Journal, March 5, 2012 ---
http://online.wsj.com/article/SB10001424052970203753704577255641618477730.html#mod=djemEditorialPage_t
During the past three years, the Federal Reserve
has tripled the size of its balance sheet—in
effect printing $2 trillion—something it
had never done in its nearly 100-year history. The Fed has lowered
short-term interest rates to zero and signaled that it will keep them at
that level for years. Inflation-adjusted short-term rates, or real rates,
have been in the minus 2% range during the past couple of years for the
first time since the 1970s.
The unfortunate fact is, as Milton Friedman
famously observed, there is no free lunch. After the Fed's loose monetary
policy helped spur the boom-bust in
Artificially reducing Treasury yields provides a
near-term benefit as federal borrowing costs are lower, but this unusually
low cost of borrowing is enabling Congress and the president to run an
unsustainable fiscal policy that could eventually lead to an economic
calamity. Governments like Greece and Italy benefited from artificially low
rates for years, and those low rates undoubtedly played a key role in those
governments not confronting their serious fiscal imbalances.
Low rates have helped those who have been able to
borrow or refinance their debts at lower rates, especially homeowners. But
this has come at a high cost to savers. Zero rates are a major problem for
any saver, but it is especially difficult for those in or near retirement.
Government bonds are investments that now offer return-free risk.
The Fed is hoping the lack of return in
certificates of deposit and bonds (or more accurately, negative returns,
adjusted for inflation) will prompt investors to take on more risk by
investing in stocks, high-yield corporate bonds and other investments. This
is pushing people who have a low risk tolerance to take on more risk than
may be advisable.
Moreover, QE and ZIRP are specifically designed to
discourage saving and encourage people to consume more now to boost
near-term gross domestic product. But saving is deferred consumption—people
save to earn a return so that they may consume more in the future (say, for
retirement or a major purchase). Scores of economists have testified before
Congress for decades that Americans don't save enough and that this inhibits
long-term economic growth. Prosperity does not come from spending; it comes
from work, saving and investment.
Defenders of QE and ZIRP would say that rather than
borrowing economic growth from the future, these policies merely smooth the
economic cycle and reduce the economic dislocation associated with deep
recessions or weak recoveries. Of course, that was the rationale for the
exceptionally low rates during the 2002-2004 period, which, like today, were
specifically aimed at depressing saving and encouraging consumption. Rather
than smooth the economic cycle, that strategy helped create an historic
boom-bust.
Some say we must encourage higher consumption
because it accounts for more than 70% of GDP, and the recovery is too
fragile to risk allowing a rise in the savings rate. But the recession was
officially over two years ago. For at least the past decade, monetary policy
has consistently punished prudent savers.
Worse, the Fed is promising to keep these policies
in place for years to come. When do we ever get to the point where we allow
interest rates to return to some kind of natural equilibrium and allow the
economy to gradually rebalance in a way that would boost long-term economic
growth?
There is no doubt the Fed is doing what it believes
is best. But in addition to the risk of inflation inherent in QE and ZIRP,
which Chairman Ben Bernanke has said he is 100% confident he can prevent,
Fed officials are dismissive of the notion that there are significant costs
or trade-offs associated with the policy they are pursuing.
This is disconcerting. Is there really no chance,
zero chance, the Fed will be late to pick up signs of inflation? What
accounts for such confidence—given that the Fed dismissed criticisms from
2002-2004 that its policies would distort economic decisions and cause
hard-to-predict imbalances, that it was oblivious to the housing collapse
well into 2007, and that to this day many Fed officials refuse to accept
that monetary policy played any role in creating the housing bubble?
During the bubble, Fed officials argued they
couldn't spot bubbles in advance, but that an aggressive monetary policy
response could limit the downside impact if a bubble were to burst. As it
turns out, the dislocation from the housing bust and the financial crisis
have been far more costly than almost anyone imagined. Shouldn't that cause
policy makers inside and outside of the Fed to ask hard questions as it
pursues its unprecedented campaign of quantitative easing and zero
rates?housing, it's remarkable how little attention has been devoted to
exploring the costs of Fed policy.
A few critics of quantitative easing (QE) and the
zero interest rate (ZIRP) have correctly pointed out that these policies
weaken the dollar and thereby reduce the purchasing power of American
paychecks. They increase the risk of future inflation, obscure the true cost
of the unsustainable fiscal policy the federal government is running, and
transfer wealth from savers to debtors.
But QE and ZIRP also reduce long-term economic
growth by punishing savers, reducing saving and investment over the long
run. They encourage the misallocation of resources that at a minimum is
preventing the natural rebalancing of our economy and could sow the seeds of
another painful boom-bust.
One intended effect of a loose monetary policy is a
weaker dollar, which can help gross domestic product by boosting exports.
But a weaker dollar also raises import prices (such as oil prices) for
American consumers. For the average American family, this adverse impact has
likely outweighed any positive impact from QE and ZIRP.
The cost of a weaker dollar for most people is not
offset by temporarily higher stock prices for two reasons. First, most
Americans don't own much stock. Second, stock prices are not going to be
higher 10 years from now because of the Fed's policies, so the effect is to
bring forward equity returns, not increase long-term returns.
Bob Jensen's threads on the pros and cons of the bailout as it evolved ---
http://www.trinity.edu/rjensen/2008Bailout.htm
IVSC = International Valuation Standards Council ---
http://www.ivsc.org/
The IVSC is now addressing the very, very difficult problem of valuing
certain types of derivative financial instruments ---
http://www.ivsc.org/news/nr/2012/nr120227.html
One of the major problems is that many derivatives
instruments contracts are customized unique contracts that are not exchange
traded, including forward contracts and most swaps contracts (portfolios of
forward contracts).
Bob Jensen's threads on how to value interest rate swaps ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
Note the book entitled PRICING DERIVATIVE SECURITIES, by
T W Epps (University of Virginia, USA) The book is published by World
Scientific ---
http://www.worldscibooks.com/economics/4415.html
Contents:
- Preliminaries:
- Introduction and Overview
- Mathematical Preparation
- Tools for Continuous-Time Models
- Pricing Theory:
- Dynamics-Free Pricing
- Pricing Under Bernoulli Dynamics
- Black-Scholes Dynamics
- American Options and 'Exotics'
- Models with Uncertain Volatility
- Discontinuous Processes
- Interest-Rate Dynamics
- Computational Methods:
- Simulation
- Solving PDEs Numerically
- Programs
- Computer
Programs
- Errata
Bob Jensen's threads on fair value accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
AICPA SURVEY FINDS OPPORTUNITY EXISTS FOR CPAS TO BETTER LEVERAGE TECHNOLOGY
Source: AICPA
Country:
US Date: 15/03/2012
Contributor: Bob Schneider Web:
http://www.aicpa.org/Pages/Default.aspx
Summary from Accounting Education ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151926
The American Institute of CPAs (AICPA) has released
its 2012 Top Technology Initiatives Survey. The Survey indicates
that, like other business professionals, CPAs continue to wrestle with the
best strategy to maximize the benefits of emerging technologies, such as
mobile devices and cloud computing.
Survey takers said they are successfully meeting most of their technology
priorities, from information protection and privacy to data management. A
majority said their organization has appropriate policies in place to deal
with data security concerns, and necessary steps have been taken to insulate
IT networks and servers from cyberattack. At the same time, CPAs were less
certain about avoiding a data breach due to the loss of a laptop, tablet or
other mobile device.
“The ability to tap critical information on the go, virtually whenever you
want, is changing the way CPAs do business,” said Anthony Pugliese, CPA,
CGMA, CITP, the AICPA’s senior vice president of finance, operations and
member value. “But it imposes new burdens, too. CPAs and the clients and
companies they work for need to stay on top of technological shifts, make
the right decisions on access, security and privacy, and map out new areas
of growth. It’s clear we’re still working our way through these challenges.”
Most survey takers said their firms had the knowledge, financial
wherewithal, and access to sufficient staff and training resources to adopt
new technologies. Yet they were significantly less confident about
developing new revenue streams from those innovations.
“CPAs by our DNA tend to be a pretty skeptical group,” said David Cieslak, a
principal in the computer consulting firm Arxis Technology and a CPA who
holds the Certified Information Technology Professional (CITP) credential.
“We tend to be very cautious. We see the potential of new technologies, but
we also want to be certain about their long-term viability and security.”
As in past years, the survey measures the anticipated impact of certain
issues over the next 12 to 18 months for CPAs and their clients. Topping the
2012 list are (1) information security, (2) remote access and (3) control
and use of mobile devices. All three have a bearing on the challenges that
stem from the growing ubiquity and mobility of data, and represent a slight
shift from last year.
The top three in 2011 were (1) control and use of mobile devices, (2)
information security and (3) data retention policies/structure.
This year’s survey asked respondents to rate their organizational goals for
technology in the coming year. The leading technology priorities for 2012,
and survey takers’ assessment of how well their organizations are meeting
them, are:
(1) Securing the IT environment (62 percent)*
(2) Managing and retaining data (61 percent)
(3) Managing risk and compliance (65 percent)
(4) Ensuring privacy (62 percent)
(5) Leveraging emerging technologies (34 percent)
(6) Managing system implementation (52 percent)
(7) Enabling decision support and managing performance (46 percent)
(8) Governing and managing IT investment/spending (56 percent)
(9) Preventing and responding to fraud (60 percent)
(10) Managing vendors and service providers (56 percent)
Continued in article
Exchange Traded Funds (ETF) ---
http://en.wikipedia.org/wiki/Exchange-traded_fund
Tutorial Video on ETF Creation and Redemption---
http://www.youtube.com/watch?feature=player_embedded&v=2SCiO0Aivi0
R. Allen Stanford ---
http://en.wikipedia.org/wiki/Allen_Stanford
"R. Allen Stanford Guilty in Ponzi Scheme,"
by Daniel Gilbert and Tom Fowler, The Wall Stre3et Journal, March 6, 2012
---
Click Here
http://online.wsj.com/article/SB10001424052970203458604577265490160937460.html?mod=WSJ_hp_LEFTWhatsNewsCollection
After a criminal case that dragged on for nearly
three years, a jury of eight men and four women on Tuesday convicted Mr.
Stanford on 13 of the 14 charges brought by prosecutors, including fraud,
obstructing investigators and conspiracy to commit money laundering. The
verdict is a victory for the U.S. government, which targeted the chairman of
Stanford Financial Group as part of a crackdown on white-collar crime
following the financial crisis.
He faces a maximum of 230 years in prison. Mr.
Stanford's attorneys, while still under a court order to not discuss the
case, told reporters they would appeal but didn't specify on what grounds.
Prosecutors declined to comment.
Robert Khuzami, enforcement director of the
Securities and Exchange Commission, said in a statement, "Today's guilty
verdicts send a resounding message that those who violate the law and
obstruct SEC investigations will be held accountable. We applaud the skill
and tenacity of the prosecutors handling the case."
The verdict, coming on the fourth full day of
deliberations after a monthlong trial, marks a remarkable downfall for Mr.
Stanford, 61 years old, who rose from owning a gym in Texas to becoming a
billionaire knighted in Antigua. As the verdict was read, Mr. Stanford,
wearing a dark suit and open-necked shirt, turned to family members sitting
in the courtroom and appeared to mouth the words, "It's OK." [stanford1]
Reuters
2012: Stanford enters a Houston court Tuesday.
On Monday, the judge ordered jurors to continue
deliberating after they said they couldn't reach a unanimous verdict on all
14 criminal counts.
Prosecutors estimated Mr. Stanford's $7.1 billion
fraud was among the largest in history, but it was overshadowed by an even
greater financial crime: the $17.3 billion Ponzi scheme orchestrated by
financier Bernard Madoff, who pleaded guilty in 2009.
The end of Mr. Stanford's criminal case could allow
investors to attempt to recover hundreds of millions of dollars from his
accounts and the assets of Stanford Financial Group. A judge has placed on
hold the civil suit brought against him by the SEC while the criminal case
is pending. An appeal of the verdict, however, may delay investors' recovery
efforts.
Cassie Wilkinson, a Stanford Financial investor,
said she was "relieved, happy and sad," about the verdict. "I feel sorry for
his family, for his mother," she said, referring to Sammie Stanford, the
81-year-old who has been in the courtroom every day since deliberations
began. "It's a tragic loss for so many families, for tens of thousands of
investors."
After the verdict, jurors began to hear the case on
the Justice Department's efforts to seize funds in bank accounts controlled
by Mr. Stanford, estimated to hold more than $300 million. The SEC, in a
separate civil action, could ask a judge for permission to move forward with
its case if it believes there are additional assets to recover.
Continued in article
Bob Jensen's threads on Ponzi fraud ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi
"Online Calculator for SEC Filings: A Killer App for
CFOs? Tool grabs grand prize as "most inventive and useful" application in
national XBRL contest," by David Rosenbaum, CFO.com, March 1, 2012 ---
http://www.cfo.com/article.cfm/14621303?f=search
Thank you Glen Gray for the heads up.
Today at Baruch College of the City University in
New York City, XBRL US, a nonprofit consortium for extensible business
reporting language standards, awarded Calcbench, a Cambridge,
Massachusetts-based, two-person start-up, its $20,000 grand prize for the
"most inventive and useful application" using XBRL-formatted data from the
Securities and Exchange Commission's EDGAR database. The app in question? A
handy-dandy calculator.
The Calcbench application, which went live in
December 2011 and has gone through several iterations since then, achieving
its current level of functionality in late January, was designed and
programmed by company founders Pranav Ghai and Alex Rapp. It is a
browser-based, configurable calculator that enables users to click on any
number in an XBRL-tagged SEC filing and automatically calculate changes in
any category - cash and cash equivalents, inventory, accounts payable,
whatever - over quarters or years, and also to compare those results between
companies.
Today at Baruch College of the City University in
New York City, XBRL US, a nonprofit consortium for extensible business
reporting language standards, awarded Calcbench, a Cambridge,
Massachusetts-based, two-person start-up, its $20,000 grand prize for the
"most inventive and useful application" using XBRL-formatted data from the
Securities and Exchange Commission's EDGAR database. The app in question? A
handy-dandy calculator.
The Calcbench application, which went live in
December 2011 and has gone through several iterations since then, achieving
its current level of functionality in late January, was designed and
programmed by company founders Pranav Ghai and Alex Rapp. It is a
browser-based, configurable calculator that enables users to click on any
number in an XBRL-tagged SEC filing and automatically calculate changes in
any category - cash and cash equivalents, inventory, accounts payable,
whatever - over quarters or years, and also to compare those results between
companies.
Continued in article
CalcBench Home Page ---
http://www.calcbench.com/
Bob Jensen's XBRL threads ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
A Comparative Analysis of State Tax on Business, Tax Foundation, 2012
---
http://www.taxfoundation.org/files/lm_2012_proof_08.pdf
. . .
Table 7 on Page 14
Overall Results
Another thing to consider are subsidies to business firms that offset taxes
and wages. For example, when threatened with a huge movements of business firms
out of Illinois (including huge firms like Caterpillar and Sears), Illinois
commenced to offset its high business taxes and wages with business subsidies.
With all the media focus on Governor Walker's recall challenge (funded my
labor unions across the nation) in Wisconsin, less attention is given to states
where there's somewhat more harmony with unions and voters.
Sometimes what it takes is Democratic Party leaders to achieve fiscal sanity
(California excepted) because labor unions are tied so close to the Democratic
Party.
I would certainly hate to have had to haul my large snow thrower to a service
center the 12+ times Sears came to my home to fix this machine before Sears
engineers finally got smart enough to solve what was an engineering problem with
the chute cables in cold weather.
I consider the Sears onsite extended warranty price to be reasonably priced
for people like me who live in remote parts of the country.
My problem is that on-site extended warranties, even from Sears, do not cover
all products. For example, no onsite extended warranty was available for Erika's
new sewing machine that we purchased from Sears in St. Johnsbury, Vermont.
However, rather than have to take it 100 miles to a Sears service center in
Manchester, NH we only have to take it 25 miles to the St. J store, and that
Sears store will handle all shipping free of charge to a service center.
The study you posted to the AECM was conducted by Harvard Business School
accountics scientists. Contemporaneously, similar studies were being conducted
elsewhere, notably at the University of Texas. This inspired me to note the
following editorial by Steve Kachelmeier.
This type of "validation" goes on much more commonly in capital markets even
studies than in other types of accountics science research. The reason is
usually because more than one team of researchers note capital markets events
worthy of empirical study. This type of thing also happens in real science such
as research in physics, chemistry, and medicine. Competition for early
publication often makes real scientists rush to be the first researchers to
publish findings.
The big difference between accountics science and real science comes after
the results are published. Real scientists generally conduct formal replication
studies after findings are published. In accountics science such exacting
replication research is rare.
Here is another example of accountics science styled contemporaneous research
that Steve talked about.
These phony education search programs sponsored by for-profit universities
are getting a bit more sophisticated by salting a very few not-for-profit
programs to make you think they are legitimate education and training search
programs. But in reality they are still phony for-profit university search
sites.
For example, I read in my old zip code 78212 into the search site
http://lpntobsnonline.org/
Sure enough, up pops the University of Phoenix and other for-profit university
alternatives. No mention is made of San Antonio's massive University of Texas
Health Science Nursing Alternative and other non-for-profit nursing education
alternatives in the area.
Boo/poo on this
http://lpntobsnonline.org/ site!
For-profit universities
provide some free Website services in an effort to lure people into signing up
for for-profit programs without ever mentioning that in most instances the
students would be better off in more prestigious non-profit universities such as
state-supported universities with great online programs and extension services.
One way for these so-called distance education search engines to become more
legitimate would be to add top not-for-profit distance education programs to
their search engine databases.
My guess is that most for-profit universities are not forthcoming with the
data requested by US News analysts. Note that the US News
condition that the set of online programs to be considered be regionally
accredited does not exclude many for-profit universities. For example, enter in
such for-profit names as "University of Phoenix" or "Capella University" in the
"College Search" box at
http://colleges.usnews.rankingsandreviews.com/best-colleges/university-of-phoenix-20988
These universities are included in the set of eligible regionally accredited
online degree programs to be evaluated. They just did not do well in the above
"Honor Roll" of outcomes for online degree programs.
For-profit universities may have shot themselves in the foot by not providing
the evaluation data to US News for online degree program evaluation. But
there may b e reasons for this. For example, one of the big failings of most
for-profit online degree programs is in undergraduate "Admissions Selectivity."
'Whatever you give a woman, she will make greater. If you give her sperm,
she'll give you a baby If you give her a house, she'll give you a home. If you
give her groceries, she'll give you a meal. If you give her a smile, she'll give
you her heart.
She multiplies and enlarges what is given to her. So, if you give her any
crap, be ready to receive a ton of shit.'
I was in the six item express lane at the store quietly fuming.
Completely ignoring the sign, the woman ahead of me had slipped into the
check-out line pushing a cart piled high with groceries. Imagine my delight when
the cashier beckoned the woman to come forward looked into the cart and asked
sweetly, "So which six items would you like to buy?"
Because they had no reservations at a busy restaurant, my elderly neighbor
and his wife were told there would be a 45-minute wait for a table.
"Young man, we're both 90 years old," the husband said. "We may not have 45
minutes."
They were seated immediately.
------------------------------------------------------------
The reason Politicians try so hard to get re-elected is that they would "hate"
to have to make a living under the laws they've passed.
All eyes were on the radiant bride as her father escorted her down the aisle.
They reached the altar and the waiting groom, the bride kissed her father and
placed something in his hand.
The guests in the front pews responded with ripples of laughter. Even the
priest smiled broadly.
As her father gave her away in marriage, the bride gave him back his credit
card.
Women and cats will do as they please, and men and dogs should relax and get
used to the idea.
Three friends from the local congregation were asked, "When you're in your
casket, and friends and congregation members are mourning over you, what would
you like them to say?"
Artie said, "I would like them to say I was a wonderful husband, a fine
spiritual leader, and a great family man."
Eugene commented, "I would like them to say I was a wonderful teacher and
servant of God who made a huge difference in people's lives.."
Smith climbs to the top of Mt. Sinai to get close enough to talk to God.
Looking up, he asks the Lord. "God, what does a million years mean to you?"
A man goes to a shrink and says, "Doctor, my wife is unfaithful to me. Every
evening, she goes to Larry's bar and picks up men. In fact, she sleeps with
anybody who asks her! I'm going crazy. What do you think I should do?"
"Relax," says the Doctor, "take a deep breath and calm down. Now, tell me,
exactly where is Larry's bar?"
John was on his deathbed and gasped pitifully, "Give me one last request,
dear," he said.
"Of course, John," his wife said softly.
"But I thought you hated Bob," she said..
A man goes to see the Rabbi. '
The man replied, "My wife is poisoning me.
The man then pleads, "I'm telling you, I'm certain she's poisoning me, what
should I do?"
The Rabbi then offers, "Tell you what. Let me talk to her, I'll see what I
can find out and I'll let you know."
A week later the Rabbi calls the man and says, "I spoke to her on the phone
for three hours. You want my advice?
There I was sitting at the bar staring at my drink when a large,
trouble-making biker steps up next to me, grabs my drink and gulps it down in
one swig.
"Well, whatcha' gonna do about it?" he says, menacingly, as I burst into
tears.
"Come on, man," the biker says, "I didn't think you'd CRY. I can't stand to
see a man crying."
"This is the worst day of my life," I say. "I'm a complete failure. I was
late to a meeting and my boss fired me. When I went to the parking lot, I found
my car had been stolen and I don't have any insurance. I left my wallet in the
cab I took home. I found my wife with another man... and then my dog bit me."
"So I came to this bar to work up the courage to put an end to it all, I buy
a drink, I drop a capsule in and sit here watching the poison dissolve; and then
you show up and drink the whole darn thing! But, heck, enough about me, how are
you feeling ?"
He was a widower and she a widow. They had known each other for a number of
years being high school classmates and having attended class reunions in the
last 20 years without fail.
This 50th anniversary of their class, the widower and the widow made a
foursome with two other singles.
They had a wonderful evening, their spirits high. The widower throwing
admiring glances across the table. The widow smiling coyly back at him.
After about six seconds of careful consideration, she answered, "Yes, yes I
will!"
The evening ended on a happy note for the widower. But the next morning he
was troubled.
Did she say “Yes” or did she say “No?” He couldn't remember. Try as he would,
he just could not recall. He went over the conversation of the previous evening,
but his mind was blank.
He remembered asking the question but for the life of him could not recall
her response. With fear and trepidation he picked up the phone and called her.
First, he explained that he couldn't remember as well as he used to. Then he
reviewed the past evening. As he gained a little more courage he then inquired
of her. "When I asked if you would marry me, did you say “Yes” or did you say
“No?”
"Why you silly man!" I said, ‘Yes. Yes I will.’ And I meant it with all my
heart."
The widower was delighted. He felt his heart skip a beat.
Then she continued. "And I am so glad you called because I couldn't remember
who asked me!”
These are classified ads, which were actually placed in U.K. Newspapers: FREE
YORKSHIRE TERRIER. 8 years old, Hateful little bastard. Bites!
FREE PUPPIES 1/2 Cocker Spaniel, 1/2 sneaky neighbor’s dog.
FREE PUPPIES. Mother is a Kennel Club registered German Shepherd. Father is a
Super Dog, able to leap tall fences in a single bound.
COWS, CALVES: NEVER BRED. Also 1 gay bull for sale.
JOINING NUDIST COLONY! Must sell washer and dryer £100.
WEDDING DRESS FOR SALE . Worn once by mistake. Call Stephanie.
**** And the WINNER is... ****
FOR SALE BY OWNER. Complete set of Encyclopedia Britannica, 45 volumes.
Excellent condition, £200 or best offer. No longer needed, got married, wife
knows everything.
TEACHER: Why are you late? STUDENT: Class started before I got here.
____________________________________
TEACHER: John, why are you doing your math multiplication on the floor? JOHN:
You told me to do it without using tables.
__________________________________________
TEACHER: Glenn, how do you spell 'crocodile?' GLENN: K-R-O-K-O-D-I-A-L'
TEACHER: No, that's wrong GLENN: Maybe it is wrong, but you asked me how I spell
it. (I Love this child) ____________________________________________
TEACHER: Donald, what is the chemical formula for water? DONALD: H I J K L M N
O. TEACHER: What are you talking about? DONALD: Yesterday you said it's H to O.
__________________________________
TEACHER: Winnie, name one important thing we have today that we didn't have ten
years ago. WINNIE: Me! __________________________________________
TEACHER: Glen, why do you always get so dirty? GLEN: Well, I'm a lot closer to
the ground than you are. _______________________________________
TEACHER: Millie, give me a sentence starting with ' I. ' MILLIE: I is..
TEACHER: No, Millie..... Always say, 'I am.' MILLIE: All right... 'I am the
ninth letter of the alphabet.' (Love this one! bbb)
________________________________
TEACHER: George Washington not only chopped down his father's cherry tree, but
also admitted it. Now, Louie, do you know why his father didn't punish him?
LOUIS: Because George still had the axe in his hand.....
______________________________________
TEACHER: Now, Simon , tell me frankly, do you say prayers before eating? SIMON:
No sir, I don't have to, my Mom is a good cook. ______________________________
TEACHER: Clyde , your composition on 'My Dog' is exactly the same as your
brother's.. Did you copy his? CLYDE : No, sir. It's the same dog.
As I was lying in bed pondering the problems of the world, I rapidly realized
that I don't really give a rat's ass.
1. If walking/cycling is good for your health, the postman would be immortal.
2. A whale swims all day, only eats fish, drinks water, and is fat.
3. A rabbit runs and hops and only lives 15 years.
4. A tortoise doesn't run and does nothing, yet it lives for 450 years.
And you tell me to exercise?? I don't think so. I'm a senior. Go around me!
Cancel your credit card before you die.
Be sure and cancel your credit cards before you die! This is so priceless,
and so easy to see happening, customer service being what it is today. A lady
died this past January, and Citibank billed her for February and March for their
annual service charges on her credit card, and added late fees and interest on
the monthly charge. The balance had been $0.00 when she died, but now somewhere
around $60.00. A family member placed a call to Citibank. Here is the exchange :
Family Member: 'I am calling to tell you she died back in January.'
Citibank: 'The account was never closed and the late fees and charges still
apply.'
Citibank: 'Either report her account to frauds division or report her to the
credit bureau, maybe both!'
Citibank: 'Excuse me?' Family Member : 'Did you just get what I was telling
you - the part about her being dead?'
Family Member: 'I'm calling to tell you, she died back in January with a $0
balance.'
Citibank: 'The account was never closed and late fees and charges still
apply.'
Citibank: 'Our system just isn't setup for death. I don't know what more I
can do to help.'
Family Member: 'Well, if you figure it out, great! If not, you could just
keep billing her. She won't care.'
A man came to visit his grandparents, and he noticed his grandfather sitting
on the porch in the rocking chair wearing only a shirt, with nothing on from the
waist down.
'Grandpa what are you doing? Your weenie is out in the wind for everyone to
see!' he exclaimed.
The old man looked off in the distance without answering.
'Grandpa, what are you doing sitting out here with nothing on below the
waist?' he asked again.
'Well....last week I sat out here with no shirt on and I got a stiff neck.
This is your grandma's idea.'
Humor Between
March 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor033112
Humor Between February 1-29, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor022912
Humor Between January 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor013112
Humor Between
December 1-31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor123111
Humor Between November 1 and November 30, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor113011
Humor Between October 1 and October 31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor103111
Humor Between September 1 and September 30, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor093011
Humor Between August 1 and August 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor083111
Humor Between July 1 and July 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor073111
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 March 31, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://www.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures ---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://www.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Accounting Educators)
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started
out as an accounting education technology Listserv. It has mushroomed
into the largest global Listserv of accounting education topics of all
types, including accounting theory, learning, assessment, cheating, and
education topics in general. At the same time it provides a forum for
discussions of all hardware and software which can be useful in any way
for accounting education at the college/university level. Hardware
includes all platforms and peripherals. Software includes spreadsheets,
practice sets, multimedia authoring and presentation packages, data base
programs, tax packages, World Wide Web applications, etc
Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners) http://pacioli.loyola.edu/cpas-l/
(closed down)
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Free
(updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
CPA
Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle ---
http://cpareviewforfree.com/
Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/

February 29, 2012
Bob
Jensen's New Bookmarks February 1-29, 2012
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
Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
Hasselback Accounting Faculty
Directory ---
http://www.hasselback.org/
Blast from the Past With Hal and Rosie Wyman ---
http://www.cs.trinity.edu/~rjensen/temp/Wyman2011.htm
Bob Jensen's threads on business, finance,
and accounting glossaries ---
http://www.trinity.edu/rjensen/Bookbus.htm
Upload Some of Your Best Photographs to for the Walls of the American
Accounting Association's Building ---
http://commons.aaahq.org/hives/06a813aecb/summary
The AAA headquarters office recently underwent a
complete renovation and now it’s time to decorate the walls. We invite you,
our members, to participate in this project by submitting your favorite
photos. From all of the submissions, the AAA Staff will select those to be
displayed as art on our office walls. We look forward to seeing your entries
and are eager to pick our favorites! We encourage you to tap into your
creative side and get started by clicking on the "Enter a Photograph" button
below. In our view, there is no better way to enhance our surroundings than
with a meaningful connection to our members and their unique experiences
captured through photos.
A few items to consider:
- only submit photos taken by you, your family,
friends, or students (no professional photographers please)
- by submitting your photo, you grant permission
to the AAA to reproduce, enlarge, crop or publicly display your entry as
wall art or other promotional material
- include a relevant description of the photo
such as location, names, year or circumstance so photos can be
identified
- use at least a 3.5 mega pixel digital
camera
- minimum photo size should be 6" x 9" at 300
dpi resolution and uploaded as a JPG, PNG, TIF or BMP file
- all photos submitted will also be used as part
of a display at the
2012 AAA Annual Meeting in Washington, D.C.
- submissions will close on June 30, 2012
Jensen Comment
I've uploaded a few of my own photographs to serve as illustrations of what I
think the AAA is seeking. I'm looking forward to some of your best photographs
under the above criteria.
More of Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
I submitted some pictures to the American Accounting Association's Picture
Contest.
Now it's your turn to submit some of the favorite photographs that you've taken
in life.
Help Us Decorate Our Office! ---
http://commons.aaahq.org/hives/06a813aecb/summary
The AAA headquarters office recently underwent a
complete renovation and now it’s time to decorate the walls. We invite you,
our members, to participate in this project by submitting your favorite
photos. From all of the submissions, the AAA Staff will select those to be
displayed as art on our office walls. We look forward to seeing your entries
and are eager to pick our favorites! We encourage you to tap into your
creative side and get started by clicking on the "Enter a Photograph" button
below. In our view, there is no better way to enhance our surroundings than
with a meaningful connection to our members and their unique experiences
captured through photos.
A few items to consider:
- only submit photos taken by you, your family,
friends, or students (no professional photographers please)
- by submitting your photo, you grant permission
to the AAA to reproduce, enlarge, crop or publicly display your entry as
wall art or other promotional material
- include a relevant description of the photo
such as location, names, year or circumstance so photos can be
identified using a small placard similar to those used in art galleries
- use at least a 3.5 mega pixel digital
camera
- minimum photo size should be 6" x 9" at 300
dpi resolution and uploaded as a JPG, PNG, TIF or BMP file
- all photos submitted will also be used as part
of a display at the
2012 AAA Annual Meeting in Washington, D.C.
- submissions will close on June 30, 2012
Note that I initially had
text on my submission pictures. Judy later asked me to submit the pictures
once again without text.
Put your favorite pictures on your computer and then click on the "Enter a
Photograph" button at
http://commons.aaahq.org/hives/06a813aecb/summary
You can view all of Bob Jensen's submissions here ---
http://www.cs.trinity.edu/~rjensen/temp/00AAAPhotos/
Question
What United States president was the first president to successfully enact the
income tax?
Answer
"Brief History of the Income Tax," by Paul Caron, Tax Prof Blog, February 28,
2012 ---
http://taxprof.typepad.com/
Income Tax in the United States ---
http://en.wikipedia.org/wiki/Income_tax_in_the_United_States
Case Studies in Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates," by Rachel Johnson Joseph Rosenberg Roberton
Williams, Urban-Brookings Tax Policy Center, February 7, 2012 ---
http://www.taxpolicycenter.org/UploadedPDF/412497-ETR.pdf

To help explain what is really going on with mortgage refinancings and
foreclosures I wrote a teaching case:
A Teaching Case: Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm
Is anecdotal evidence irrelevant?A subscriber to the AECM that we hear
from quite often asked me to elaborate on the nature of anecdotal evidence. My
reply may be of interest to other subscribers to the AECM.
Hi XXXXX,
Statistical inference ---
http://en.wikipedia.org/wiki/Statistical_inference
Anecdotal Evidence ---
http://en.wikipedia.org/wiki/Anecdotal_evidence
Humanities research is nearly always anecdotal. History research, for example,
delves through original correspondence (letters, memos, and now email messages)
of great people in history to discover more about causes of events in history.
This, however, is anecdotal research, and there are greatly varying degrees of
the quality of such historical anecdotal evidence.
Legal research is generally anecdotal, although court cases often use
statistical inference studies as part, but not all, of the total evidence
packages in the court cases.
Scientific research is both inferential and anecdotal. Anecdotal evidence often
provides the creative ideas for hypotheses that are later put to more rigorous
tests.
National Center for Case Study Teaching in Science ---
http://sciencecases.lib.buffalo.edu/cs/
But between the anecdote and the truly random sample is evidence that is neither
totally anecdotal nor rigorously scientific. For example, it's literally
impossible to identify the population of tax cheaters in the underground
cash-only economy. Hence, from a strictly inferential standpoint it's impossible
to conduct truly random samples on such unknown populations.
Nevertheless, the IRS and other researchers do conduct various types of
"anecdotal investigations" of how people cheat on their taxes, including
cheating in the underground cash-only economy. One approach is the IRS policy of
conducting a samplings (not random) of full audits designed not so much to
collect revenue or punish wrong doers as to discover how people comply with tax
rules and devise legal or illegal ploys for avoiding or deferring taxes. This is
anecdotal research.
In both instances of mine that you refer to I provided only anecdotal evidence
that I called "cases." In fact, virtually all case studies are anecdotal in the
sense that the statistical inference tests are not generally feasible ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
However, it is common knowledge that there's a vast underground cash-only
economy. And the court records are clogged with cases of persons who got caught
cheating on welfare, cheating on taxes, receiving phony disability insurance
settlements and Social Security payments, etc. But these court cases are
probably only the tip of the icebergs in terms of the millions more who get away
with cheating in the cash-only underground economy.
The problem with
accountics research published in TAR, JAR, and JAE is that it requires
statistical inference or analytics based upon assumed (usually unrealistic or
unproven) assumptions. The net result has been very sophisticated research
findings that are of little interest to the profession because the research
methodology and unrealistic assumptions limit
accountics
research to mostly uninteresting problems. Analytical
accountics
research problems are sometimes interesting problems but these
accountics
research findings are usually no better than or even worse than anecdotal
evidence due to unrealistic and unproven assumptions ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
It is obvious that
accountics researchers have limited themselves to mostly uninteresting
problems. In real science, scientists demand that interesting research findings
be replicated. Since
accountics scientists almost never demand or even encourage (by
publishing replications) that their studies be replicated this is
prima
facie evidence of
the lack of relevance of
accountics research findings since accountics researchers themselves do
not demand replications.
AAA leaders are now having retreats focused on how to make
accountics
research more relevant to the academic world (read that accounting teachers) and
professional world ---
http://aaahq.org/pubs/AEN/2012/AEN_Winter12_WEB.pdf
Anecdotal research in accounting generally focuses on the more interesting
problems than accountics
research. But anecdotal findings are not easily extrapolated to general
conclusions. Anecdotal evidence often builds up to where it becomes more and
more convincing. For example, it did not take long in the early 1990s to
discover that companies were entering into hundreds of billions and then
trillions in interest rate swaps because there were no domestic or international
accounting rules for even disclosing interest rate swaps let alone booking them.
In many instances companies were entering into such swaps for off-balance sheet
financing (OBSF).
As the anecdotal evidence on swap
OBSF mounted like
grains of sand, the Director of the SEC told the Chairman of the
FASB that the
three major problems to be addressed by the
FASB were to be
"derivatives, derivatives, and derivatives." And the leading problems of
derivatives was that forward contracts and swaps (portfolios of forward
contracts) were not even disclosed let alone booked.
Without having a single
accountics study of interest rate swaps amongst the mountain of anecdotal
evidence of OBSF
cheating with interest rate swaps we soon had
FAS 133 that
required the booking of interest rate swaps and at least quarterly resets of the
carrying values of these swaps to fair market value --- that is the power of
anecdotal evidence rather than
accountics
evidence.
In a similar manner, the IRS is making inroads on reducing tax cheating in the
underground economy using evidence piled up from anecdotal rather than strictly
scientific research. For example, a huge step was made when the IRS commenced to
require and code 1099 information into IRS computers. Before then, for example,
most professors who received small consulting fees and
honoraria forgot
about such fees when they filed their taxes. Now they're reminded after December
31 when they receive their copies of the 1099 forms files with the IRS.
But I can assure you based upon my anecdotal evidence, that the underground
economy still is alive and thriving in San Antonio when it comes to the type of
"cash only" labor that I list at
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
And I can assure you of this without knowing about a single
accountics study
of the underground cash-only economy that this economy is alive and thriving.
Mountains of anecdotal evidence reveal that the underground economy greatly
inhibits the prevention of cheating on taxes, welfare, disability claims,
Medicaid, etc.
Interestingly, however, the underground cash-only economy often makes it easier
to for poor people to attain the American Dream.
Case Studies in Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Question
What would be the best way to reduce cheating on taxes, welfare, Medicaid, etc.?
Answer
Go to a cashless society that is now technically feasible but politically
impossible since members of Congress themselves thrive on cheating in the
underground cash-only economy.
Respectfully,
Bob Jensen
Accounting News Links ---
http://www.trinity.edu/rjensen/AccountingNews.htm
The new AAA Digital Library ---
http://aaajournals.org/
Issues and Resources from the AAA (Some New and Important Stuff) ---
http://aaahq.org/resources.cfm
AAA Newsroom ---
http://aaahq.org/newsroom.cfm
AAA Commons ---
http://commons.aaahq.org/pages/home
AAA Faculty Development ---
http://aaahq.org/facdev.cfm
AAA FAQs ---
http://aaahq.org/about/faq.htm
Listservs, Blogs, and Social Media ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Accounting Career Helpers and Links ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Bob Jensen's Helpers for Accounting Educators ---
http://www.trinity.edu/rjensen/Default3.htm
Free online courses, lectures, videos, and course materials from prestigious
universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Education Technology Links ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's Threads (with many links to resources for educators) ---
http://www.trinity.edu/rjensen/threads.htm
U.S. National Debt Clock ---
http://www.usdebtclock.org/
Also see
http://www.brillig.com/debt_clock/
Tax Foundation Facts & Figures (Free) ---
http://taxfoundation.org/files/ff2012.pdf
Some Interesting State Comparisons on State& Local Taxation, Business
Climate, and Debt Per Capita
http://www.cs.trinity.edu/~rjensen/temp/StateComparisons2012.htm
FTC Identity Theft Center ---
http://www.ftc.gov/bcp/edu/microsites/idtheft/
Identity Theft Resource Center
---
http://www.idtheftcenter.org/
Note the tab for State and Local Resources
IRS Identity Protection
Specialized Unit at 800-908-4490
"IRS Warns on ‘Dirty Dozen’ Tax Scams for 2012," by Laura Saunders,
The Wall Street Journal, February 12, 2012 ---
http://blogs.wsj.com/totalreturn/2012/02/17/irs-warns-on-dirty-dozen-tax-scams-for-2012/?mod=google_news_blog
Every year during tax season the Internal Revenue
Service releases a list of its least-favorite tax scams. “Scam artists will
tempt people in-person, on-line and by email with misleading promises about
lost refunds and free money. Don’t be fooled by these,” warns Commissioner
Douglas Stives.
The list changes from year to year. Here’s what the
IRS is warning about for this tax season. For more information, click
here, or watch a video
here.
1. Identity theft
“An IRS notice informing a taxpayer that more than
one return was filed in the taxpayer’s name may be the first tipoff the
individual receives that he or she has been victimized.”
2. Phishing
“If you receive an unsolicited
email that appears to be from either the IRS or an organization closely
linked to the IRS, such as the Electronic Federal Tax Payment System, report
it by sending it to
phishing@irs.gov.”
3. Tax-preparer fraud
“In 2012 every paid preparer needs to have a
Preparer Tax Identification Number (PTIN) and enter it on the returns he or
she prepares.”
4. Hiding income offshore
“Since 2009, 30,000 individuals
have come forward voluntarily to disclose [undeclared] foreign financial
accounts. . . With new foreign account reporting requirements being phased
in over the next few years, hiding income offshore will become increasingly
more difficult.”
5. ‘Free money’ from the IRS and tax scams
involving Social Security
“Flyers and advertisements for
free money from the IRS, suggesting that the taxpayer can file a tax return
with little or no documentation, have been appearing at community churches
around the country.”
6. False/inflated income and expenses
“Claiming income you did not earn or expenses you
did not pay in order to secure larger refundable credits such as the Earned
Income Tax Credit could have serious repercussions…. Fraud involving the
fuel tax credit is considered a frivolous tax claim and can result in a
penalty of $5,000.”
7. False Form 1099 refund claims
“In this ongoing scam, the perpetrator files a fake
information return, such as a Form 1099 Original Issue Discount (OID), to
justify a false refund claim on a corresponding tax return.”
8. Frivolous arguments
“Promoters of frivolous schemes
encourage taxpayers to make unreasonable and outlandish claims to avoid
paying the taxes they owe. The IRS has a list of
frivolous
tax arguments that taxpayers should avoid.”
9. Falsely claiming zero wages
“Filing a phony information return
is an illegal way to lower the amount of taxes an individual owes.
Typically, a Form 4852 (Substitute Form W-2) or a ‘corrected’ Form 1099 is
used as a way to improperly reduce taxable income to zero. The taxpayer may
also submit a statement rebutting wages and taxes reported by a payer to the
IRS. ”
10. Abuse of charitable organizations and
deductions
“The IRS is investigating schemes
that involve the donation of non-cash assets – including situations in which
several organizations claim the full value of the same non-cash
contribution. Often these donations are highly overvalued or the
organization receiving the donation promises that the donor can repurchase
the items later at a price set by the donor.”
11. Disguised corporate ownership
“Third parties are improperly used to request
employer identification numbers and form corporations that obscure the true
ownership of the business…. The IRS is working with state authorities to
identify these entities and bring the owners into compliance with the law.”
12. Misuse of trusts
“IRS personnel have seen an increase in the
improper use of private annuity trusts and foreign trusts to shift income
and deduct personal expenses. As with other arrangements, taxpayers should
seek the advice of a trusted professional before entering a trust
arrangement.”
FTC Identity Theft Center ---
http://www.ftc.gov/bcp/edu/microsites/idtheft/
Identity Theft Resource Center
---
http://www.idtheftcenter.org/
Note the tab for State and Local Resources
IRS Identity Protection Specialized Unit at
800-908-4490
How Income Taxes Work (including history) ---
http://money.howstuffworks.com/income-tax.htm
Why not start with the IRS? (The best government agency web site
on the Internet)
http://www.irs.gov/
IRS Site Map ---
http://www.irs.gov/sitemap/index.html
FAQs and answers ---
http://www.irs.gov/faqs/index.html
Taxpayer Advocate Service ---
http://www.irs.gov/advocate/index.html
Forms and Publications, click on
Forms and
Publications
IRS Free File Options for Taxpayers Having Less Than $57,000 Adjusted
Gross Income (AGI) ---
http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=104
Free File Fillable Forms FAQs ---
http://www.irs.gov/efile/article/0,,id=226829,00.html
Visualizing Economics
Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011 and Other
Graphics ---
Click Here
http://visualizingeconomics.com/2012/01/24/comparing-tax-rates/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+VisualizingEconomics+%28Visualizing+Economics%29&utm_content=Google+Reader
Bob Jensen's tax filing helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
January 24, 2012 heads up from Barry Rice
Video 1
TurboTax SnapTax Mobile App - File Taxes on Your Android and iPhone!
http://www.youtube.com/watch?v=M-VyLXLAipg
Video 2
SnapTax From TurboTax Will Let You File Your Taxes From Your iPhone ---
http://www.youtube.com/watch?v=4jQ2xLQvbio
Jensen Advice
I instead recommend:
IRS Free File Options for Taxpayers Having Less Than $57,000 Adjusted
Gross Income (AGI) ---
http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=104
Free File Fillable Forms FAQs ---
http://www.irs.gov/efile/article/0,,id=226829,00.html
Tax Foundation Facts & Figures (Free) ---
http://taxfoundation.org/files/ff2012.pdf
Even if you're only one of a dozen coauthors on a submission, a referee may
be deciding on your tenure, promotions of seven of your coauthors, and a career
annuity of $2,000+ per year across the entire career of each of the 12
authors. It's no time for a referee to think of reasons to not accept this
paper. If Editor X does so his constituency may think he's (shudder) a
budget-obsessed Republican.
Brian Rathbun is an associate professor of International Relations at the
University of Southern California
"Dear Reviewers, a Word?" by Brian C. Rathbun, Inside Higher Ed,
February 28, 2012 ---
http://www.insidehighered.com/views/2012/02/28/essay-offers-guide-those-who-review-journal-submissions
Everyone gets rejected. And it never stops being painful
not matter how successful or how long you have been in
the business. Some of this is inevitable; not everyone
is above average. But some of it isn't. I thought that I
would offer some dos and don’ts for reviewers out there
to improve the process and save some hurt feelings, when
possible. Some are drawn from personal experience;
others, more vicariously. I have done some of the
"don’ts" myself, but I feel bad about it. Learn from my
mistakes.
First, and I can’t stress this enough, READ THE F*CKING
PAPER. It is considered impolite by authors to reject a
paper by falsely accusing it of doing THE EXACT OPPOSITE
of what it does. Granted, some people have less of a way
with words than others and are not exactly clear in
their argumentation. But if you are illiterate, you owe
it to the author to tell the editors when they solicit
your review. It is O.K. – there are very successful
remedial programs they can recommend. Don’t be ashamed.
Second, and related to the first, remember the stakes
for the author. Let us consider this hypothetical
scenario. In a safe estimate, an article in a really top
journal will probably merit a 2-3 percent raise for the
author. Say that is somewhere around $2,000. Given that
salaries (except in the University of California System)
tend to either stay the same or increase, for an author
who has, say, 20 years left in his/her career, getting
that article accepted is worth about $40,000 dollars.
And that is conservative. So you owe it more than a
quick scan while you are on the can. It might not be
good, but make sure. Do your job or don’t accept the
assignment in the first place. (Sorry, I don’t usually
like scatological humor but I think this is literally
the case sometimes.)
Third, the author gets to choose what he/she writes
about. Not you. He/she is a big boy/girl. Do not reject
papers because they should have been on a different
topic, in your estimation. Find fault with the paper
actually under review to justify your rejection.
Fourth, don’t be a b*tch. Articles should be rejected
based on faulty theory or fatally flawed empirics, not a
collection of little cuts. Bitchy grounds include but
are not limited to – not citing you, using methods you
do not understand but do not bother to learn, lack of
generalizability when theory and empirics are otherwise
sound. The bitchiness of reviews should be inversely
related to the audacity and originality of the
manuscript. People trying to do big, new things should
be given more leeway to make their case than those
reinventing the wheel.
Fifth, don’t be an a**hole. Keep your sarcasm to
yourself. Someone worked very hard on this paper, even
if he/she might not be very bright. Writing “What a
surprise!”, facetiously, is a dick move. Rejections are
painful enough. You don’t have to pour salt on the
wound. Show some respect.
Sixth, remember that to say anything remotely
interesting in 12,000 words is ALMOST IMPOSSIBLE.
Therefore the reviewer needs to be sympathetic that the
author might be able to fix certain problems when he/she
is given more space to do so. Not including a
counterargument from your 1986 journal article might not
be a fatal oversight; it might have just been an
economic decision. If you have other things that you
would need to see to accept an otherwise interesting
paper, the proper decision is an R&R, not a reject. Save
these complaints for your reviews of full-length book
manuscripts where they are more justifiable.
Seventh,
you are not a film critic. Rejections must be
accompanied by something with more intellectual merit
than "the paper did not grab me" or "I do not consider
this to be of sufficient importance to merit publication
in a journal of this quality." This must be JUSTIFIED.
You should explain your judgment, even if it is
something to the effect of, "Micronesia is an extremely
small place and its military reforms are not of much
consequence to the fate of world politics." Even if it
is that obvious, and it never is, you owe an
explanation.
Jensen Comment
In some cases it's lucky to be a coauthor of a paper that's been rejected by six
journals in succession. At that point stop submitting the paper for publication.
Instead you and your coauthors should submit the paper various phony
international conferences that accept virtually anything that's submitted
because what the organizers really want is the $1,000 registration fee from from
you and each of your coauthors. Chances are your coauthors will be the only ones
attending your presentation session, and afterwards you can all travel about
together as tourists. Each summer you can choose a different country such as
Germany, New Zealand, Sweden, England, China, and on and on milking that useless
cow you milk every year for another expense-paid vacation (your employer pays).
You laugh, but I have a close friend (an economics professor) who does this
by submitting the same paper to a different conference every summer. He chooses
the conference primarily on the basis of geography. His favorite country to
visit is Germany every time he wants a new Mercedes. It really is cheaper to buy
a new Mercedes in Germany than in the U.S.
You laugh, but I have an acquaintance who, with his wife, organizes such
conferences because he makes a very comfortable living from the conference
registration fees and gets wonderful free travel to romantic places every year.
Some of you on the AECM may even recognize who I'm talking about.
But it's necessary to publish and well as go on junkets. What Professor
Rathbun fails to mention that academics have protected themselves with a
succession of journals of last resort that will publish any paper that the dog
has not eaten. In some cases they charge by the page for publishing a paper, but
in most cases a paper in this low hurdles race does not have top go to that
extreme.
"A Plague of Journals," by Philip G.
Altbach , Inside Higher Ed, January 15, 2012 ---
http://www.insidehighered.com/blogs/plague-journals
Clever people have figured out that there is a
growing demand for outlets for scholarly work, that there are too few
journals or other channels to accommodate all the articles written, that new
technology has created confusion as well as opportunities, and (finally) and
somewhat concerning is that there is money to be made in the knowledge
communication business. As a result, there has been a proliferation of new
publishers offering new journals in every imaginable field. The established
for-profit publishers have also been purchasing journals and creating new
ones so that they “bundle” them and offer them at high prices to libraries
through electronic subscriptions.
Scholars and scientists worldwide find themselves
under increasing pressure to publish more, especially in English-language
“internationally circulated” journals that are included in globally
respected indices such as the Science Citation Index. As a result, journals
that are part of these networks have been inundated by submissions and many
journals accept as few as 10%.
Universities increasingly demand more publications
as conditions for promotion, salary increases, or even job security. As a
result, the large majority of submissions must seek alternative publication
outlets. After all, being published somewhere is better than not be
published at all. Many universities are satisfied with counting numbers of
articles without regard to quality or impact, while others, mostly
top-ranking, are obsessed with impact—creating increased stress for
professors.
A variety of new providers have come into this new
marketplace. Some scholarly organizations and universities have created new
“open access” electronic journals that have decent peer-reviewing systems
and the backing of respected scholars and scientists. Some of these
publications have achieved a level of respectability and acceptance, while
others are struggling.
Continued in article
Added Jensen Comment
Professors who are stuck at the associate professor level year-after-year just
have not learned how to game the academic publishing racket.
Gaming for Tenure as an Accounting Professor
---
http://www.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
Our Under Achieving Colleges ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#Bok
February 28, 2012 reply from Linda Kidwell
Bob,
Some of your follow-on comments have merit, but I
have to say the Rathbun commentary rings true to many of us in this
profession. I've certainly been the recipient of every type of reviewer
misbehavior cited and then some. While professors certainly do some shopping
around for a home for their papers, that doesn't negate the unprofessional
behavior on the part of some reviewers. I've seen comments that have no
relation to the paper I've submitted, and I've had juvenile commentary by
others. Perhaps part of the blame lies with editors. If they see a review
like those desribed in the commentary, perhaps they should find another
reviewer prepared to referee with a modicum of maturity. I've had a paper
returned with a desk rejection after 18 months at TAR with a simple
sentence, "Not of sufficient interest for our readership." That took 18
months?! I had another rejection that I can only call "Reject and Resubmit,"
where the comments were all manageable revisions, yet the paper was rejected
with the encouragement to try again as a new submission. I considered that
unethical on one of two fronts: either the new editor was trying to lower
the acceptance rate or he wanted to increase submission fees.
On the other hand, I've also been blessed to have
some great reviewers and editors read some of my papers and give me the kind
of insight that helped me write a dramatically improved version. Similarly,
I currently have a paper under review at a high quality journal where the
editor had trouble finding the right reviewers but made a real effort to get
it reviewed properly.
Linda
February 29, 2012 reply from Steve Kachelmeir
As a former TAR senior editor and a firm believer
in the value of TAR, I always feel compelled to respond to these kinds of
complaints. I am inferring (or at least hoping) that the anecdotes Linda
shares are dated. I cannot imagine a submission sitting on the editor's desk
for 18 months, followed by a desk rejection without even being sent out for
review. Desk rejections in my experience took less than 18 days, certainly
not 18 months. Indeed, the 2011 TAR Annual Report indicates that, for the
period from 6/1/08 to 5/31/11, the very longest time from submission to
decision was almost exactly five months. That was for a revision for which
we could not locate a key reviewer for several weeks. After we eventually
did (the reviewer was on extended leave during the summer), the report
leaned favorable and I accepted the manuscript for publication. I do not
know and cannot meaningfully comment on the turnaround statistics after
6/1/11 -- that will be in Harry Evans' first annual report to be published
(most likely) in November 2012.
I happen to agree with LInda on the "Reject and
Resubmit" (also known as "Reject/Revise") decision category that TAR used
several years ago, which is why I discontinued that category back in 2008.
Instead, starting in 2008, TAR started using an "uncertain" category when an
editor wished to give an author an opportunity to respond and revise, but,
at the same time, did not see any clear path to publication. We treated such
cases as we would any revision invitation, but with the full disclosure of
more outcome uncertainty than would be typical of an invitation to revise
and resubmit. To be sure, on occasion we would get a submission on an
interesting research question with good motivation, but with what appeared
to be a fatal design flaw. Sometimes those cases resulted in the rare letter
that rejected the manuscript under consideration due to the design flaw,
while also encouraging the author to continue working in the area and
considering TAR as a possible outlet for future efforts not subject to that
flaw. We tried to restrict such letters to genuine cases of rejection with
encouragement to undertake a new study, as opposed to a more ambiguous
letter that half suggested rejection and half suggested revisoin. As stated,
I think the old wording on former "reject-revise" letter was too ambiguous.
Thanks for raising your concerns. I will close by
inviting Linda and all others interested in TAR to read and consider the
comments and statistics in TAR's annual reports, published in the November
issue of each TAR volume, starting in 2008. These reports offer much greater
accountability, which I hope will help to address concerns such as those in
Linda's anecdotes.
Best,
Steve Kachelmeier
Here's an opportunity for you to be creative as a liberal or conservative,
get a prestigious publication, and win a prize from Harvard.
"Reimagining Capitalism." by Polly LaBarre, Harvard Business Review
Blog, February 27, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/02/reimagining_capitalism.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
The comments following this article range across the entire spectrum of
reactions we've seen for years about social responsibility accounting for
business. Milton Friedman, of course, argued that the only responsibility of
business is to obey the letter and spirit of the law without losing sight of the
main goal of profit maximization. Friedman argued that it's not the
responsibility of business firms to make externality resource allocation
decisions best left to government. This is reflected in the comment of Kozarms.
The concepts herein are very disturbing. This
strikes me as socialism, and a socialist mentality. "How do we build the
consideration of social return into every conversation and every decision at
every level in the organization?" That's easy - see any communist country,
and ask yourself if those are great societies full of innovation despite
their professions of acting for the common good. Who decides what is a good
social return - everyone all at once? The government? And: "inspire
sacrifice, stimulate innovation" - why would an innovator also being willing
to contribute his/her work as a sacrifice to the masses? The problems
attributed in this article to capitalism are problems are not related to
capitalism at all, but are problems of the mixed up ideaology of this mixed
economy. We need to return to the correct ideas about what capitalism really
means, not an ideaology where the true innovators/leaders first ask
permission from the masses.
Ian Ford-Terry replies:
Have you talked to Howard Bloom at all? His "Genius
of the Beast: A Radical Revision of Capitalism" laid out some very similar
concepts in 2009...
Jensen Added Comment
The supposed refutation of Friedman rests mainly on the idea of long-term versus
short-term profitability. This refutation proceeds along the lines that
short-term profit maximization may become self-defeating if constrains or
destroys the long-term profitability. For example, a company that strips the
tops off mountains in West Virginia to get at cheap coal (which is now
technically feasible and a controversial proposal) might maximize short-term
profits but destroy long-term profitability as such monumental degradation of
the earth triggers massive lawsuits for the destruction of human health (e.g.
leaching of heavy metals into water supplies), destruction of tourism, and the
putting off of research for alternative energy alternatives.
However, the long-term versus short-term "refutation" of Friedman is not
legitimate since, in my viewpoint, Friedman was more interested in the long-term
profitability and is falsely accused of being too short-term minded. I don't
really think Milton Friedman would've advocated mountain top removal mining for
the sake of short-term profits and then declaring bankruptcy before the
environmental lawsuits commence.
Mountain Top Removal Mining ---
http://en.wikipedia.org/wiki/Mountaintop_removal_mining
Critics contend that MTR is a destructive and
unsustainable practice that benefits a small number of corporations at the
expense of
local communities and
the
environment. Though the main issue has been over
the physical alteration of the landscape, opponents to the practice have
also criticized MTR for the damage done to the environment by massive
transport trucks, and the environmental damage done by the burning of coal
for power. Blasting at MTR sites also expels dust and fly-rock into the air,
which can disturb or settle onto private property nearby. This dust may
contain sulfur compounds, which corrodes structures and is a health hazard.
A January 2010 report in the journal
Science reviews current peer-reviewed studies
and water quality data and explores the consequences of mountaintop mining.
It concludes that mountaintop mining has serious environmental impacts that
mitigation practices cannot successfully address.[7]
For example, the extensive tracts of deciduous forests destroyed by
mountaintop mining support several endangered species and some of the
highest biodiversity in North America. There is a particular problem with
burial of headwater streams by valley fills which causes permanent loss of
ecosystems that play critical roles in ecological processes. In addition,
increases in metal ions, pH, electrical conductivity, total dissolved solids
due to elevated concentrations of sulfate are closely linked to the extent
of mining in West Virginia watersheds.[7]
Declines in stream biodiversity have been linked to the level of mining
disturbance in West Virginia watersheds.
Published studies also show a high potential for
human health impacts. These may result from contact with streams or exposure
to airborne toxins and dust. Adult hospitalization for chronic pulmonary
disorders and hypertension are elevated as a result of county-level coal
production. Rates of mortality, lung cancer, as well as chronic heart, lung
and kidney disease are also increased.[7]
A 2011 study found that counties in and near mountaintop mining areas had
higher rates of birth defects for five out of six types of birth defects,
including circulatory/respiratory, musculoskeletal, central nervous system,
gastrointestinal, and urogenital defects. These defect rates were more
pronounced in the most recent period studied, suggesting the health effects
of mountaintop mining-related air and water contamination may be cumulative.[37]
Another 2011 study found "the odds for reporting cancer were twice as high
in the mountaintop mining environment compared to the non mining environment
in ways not explained by age, sex, smoking, occupational exposure, or family
cancer history.”
A
United States Environmental Protection Agency (EPA)
environmental impact statement finds that streams
near some valley fills from mountaintop removal contain higher levels of
minerals in the water and decreased aquatic
biodiversity.
The statement also estimates that 724 miles
(1,165 km) of Appalachian streams were buried by valley fills between 1985
to 2001.[5]
On September 28, 2010, the U.S. Environmental Protection Agency’s (EPA)
independent Science Advisory Board (SAB) released their first draft review
of EPA’s research into the water quality impacts of valley fills associated
with mountaintop mining, agreeing with EPA’s conclusion that valley fills
are associated with increased levels of conductivity threatening aquatic
life in surface waters.
Although U.S. mountaintop removal sites by law must
be reclaimed after mining is complete, reclamation has traditionally focused
on stabilizing rock formations and controlling for erosion, and not on the
reforestation of the affected area. Fast-growing,
non-native flora such as
Lespedeza cuneata, planted to quickly provide
vegetation on a site, compete with tree seedlings, and trees have difficulty
establishing root systems in compacted backfill. Consequently,
biodiversity suffers in a region of the United
States with numerous
endemic species.[41]
In addition, reintroduced
elk (Cervus
canadensis) on mountaintop removal sites in Kentucky are eating tree
seedlings.
Advocates of MTR claim that once the areas are
reclaimed as mandated by law, the area can provide flat land suitable for
many uses in a region where flat land is at a premium. They also maintain
that the new growth on reclaimed mountaintop mined areas is better suited to
support populations of game animals.
Continued in article
Jim Martin's MAAW threads on social responsibility accounting ---
http://maaw.info/SocialAccountingMain.htm
Bob Jensen's threads Triple-Bottom (Social, Environmental, Human Resource)
Reporting --- "
http://www.trinity.edu/rjensen/Theory02.htm#TripleBottom
An accounting professor privately asked me about publishing a case-novel
about accounting for mergers and acquisitions.
My reply may be of general interest to the AECM
Hi XXXXX,Your question falls into two tracks. One track is where you
serve as your own marketing company. The other track is where you outsource
to a marketing company.
If you outsource the marketing there are three alternatives. One is to try
to get a major publisher like Wiley or Pearson take on the case. The second
is where you outsource to a case publishing outfit like ECCH (not much money
in this alternative) ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
The third is where you develop a CEP course marketed by Chartered
Accountants in Canada and the AICPA in the U.S.
The second track of doing your own marketing has a low probability of
success. I have an acquaintance named Pete Mazany in New Zealand who put a
major part of his life into writing and marketing his business strategy case
(actually a sophisticated simulation) called Mike's Bikes that also had a
bit of superficial accounting in the case as well. He was not successful
marketing the case on his own. He had more success with McGraw-Hill ---
http://mcgraw-hill.com.au/html/9780072504477.html
But having "more success" does not equate to having "great success."
You might contact Pete at the University of
Auckland for his expert advice in these matters. Pete is a really
competent guy --- PhD under Martin Shubik at Yale.
Pete did make a little money when the Australian CPA Society included his
CEP course on this case in their sponsored CEP courses. You might pursue
your marketing options with the Chartered Accountants in Canada and the
AICPA in the U.S.
If you're chosen to deliver a CEP course on this topic for the AICPA, the
AICPA will then publish your materials and try to market them online.
Off hand, I suspect your case is too advanced to have much of a market. It
will be hard to get a publisher to pick it up, although the publisher may
buy it from you for peanuts as a supplement for an advanced textbook.
I do have two friends who made a lot of money with two economics education
mystery novels. I really don't think their books were very good, but they
did get a positive testimonial from Milton Friedman (who was a close friend
of Bill Breit) that I think was more out of friendship than honesty. The key
to the the success of the Breit and Elzinga mystery novels was hitting the
high school book market. Scroll down to my tribute to Breit and Elzinga at
http://www.trinity.edu/rjensen/acct5341/speakers/muppets.htm
Actually, I was not totally honest when writing up this tribute. I could've
been a lot more critical of their mystery novels even though both of them
are class acts as teachers and researchers. Bill died last year.
I hate to be pessimistic, but if you want to make money think about writing
elementary stuff. If you want respect, pursue your dream on this one but
don't expect to make much return for your hours of time.
One thing you might add to your works on mergers is a set of links to the
many great articles in the archives of the NYT's Dealbook ---
http://dealbook.nytimes.com/
One service of great interest to me would be to set up a classification
system on types of mergers written up in Dealbook.
You might also contact the truly great Andrew Ross Sorkin who maintains the
Dealbook site ---
http://en.wikipedia.org/wiki/Andrew_Ross_Sorkin
Hope this helps,
Bob
RFID Chip Fraud Risk Video
WTHR_The Risk inside your credit card ---
http://www.youtube.com/watch?v=lLAFhTjsQHw&sns=em
"How CEO Pay Became a Massive Bubble," An interview with Mihir Desai
Harvard Business School, Harvard Business Review Blog, February 23, 2012
---
Click Here
http://blogs.hbr.org/ideacast/2012/02/how-ceo-pay-became-a-massive-b.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Bob Jensen's threads on outrageous executive compensation and golden
parachutes ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Some Things to Ponder When Choosing Between an Accounting Versus History
PhD
From The Chronicle of Higher Education, February 12, 2012 ---
http://chronicle.com/article/Where-Recent-History-PhDs/130720/
Warning:
It's often misleading to look at percentages of small numbers. For example, 25%
of Brown University history PhD graduates are reported as being employed in
tenure-track jobs, but this is only two of the eight graduates in 2010.
Where Recent History Ph.D.'s Are Working
History departments are facing increased pressure to track where
their Ph.D. recipients end up. Here are employment data for students
who received Ph.D.'s in 2010 from 17 of the top-20 history programs,
as ranked by U.S. News & World Report. Officials at history
departments at Cornell and Stanford Universities and at the
University of California at Berkeley said they could not provide
data because they were too busy.
University |
Total No. of Ph.D.'s |
Percent in tenure-track jobs |
Percent in postdocs |
Percent lecturers, sdjuncts, or visiting professors |
Percent in nonteaching academic jobs |
Percent high-school teachers |
Percent in nonacademic jobs |
Percent independent scholars |
Percent unemployed/unknown |
Brown U. |
8 |
25% |
13% |
25% |
|
|
|
|
38% |
Columbia U. |
21 |
28% |
19% |
14% |
10% |
5% |
10% |
|
14% |
Duke U. |
2 |
50% |
|
50% |
|
|
|
|
|
Harvard U. |
13 |
46% |
31% |
|
|
|
15% |
|
8% |
Johns Hopkins U. |
7 |
43% |
28% |
14% |
|
|
14% |
|
|
New York U. |
18 |
56% |
22% |
6% |
6% |
|
|
|
11% |
Northwestern U. |
9 |
33% |
|
22% |
|
11% |
11% |
|
22% |
Princeton U. |
20 |
55% |
15% |
5% |
|
|
|
|
25% |
Rutgers U. |
7 |
43% |
29% |
|
|
|
|
29% |
|
U. of California at Los Angeles* |
21 |
38% |
5% |
33% |
|
|
5% |
|
14% |
U. of Chicago |
25 |
18% |
14% |
55% |
|
|
5% |
|
6% |
U. of Michigan |
20 |
40% |
25% |
20% |
10% |
|
|
|
5% |
U. of North Carolina at Chapel Hill |
15 |
40% |
7% |
20% |
7% |
|
|
|
27% |
U. of Pennsylvania |
10 |
30% |
10% |
50% |
|
|
|
|
10% |
U. of Texas at Austin |
10 |
60% |
|
|
30% |
|
10% |
|
|
U. of Wisconsin at Madison |
15 |
30% |
10% |
20% |
|
|
|
|
10% |
Yale U. |
20 |
55% |
5% |
25% |
|
|
|
|
15% |
*Total includes 1 student who passed away.
Note: Some percentages do not add to 100% due to rounding.
Source: Chronicle reporting
Correction, 2/14/12 at 2:57 p.m.: Numbers for the
University of Wisconsin at Madison have been corrected. The
program had 15 Ph.D. graduates, not 10, and the proportion of
Madison's Ph.D.'s who were lecturers, adjuncts, or visiting
professors was 20 percent, not 50 percent.
In accountancy there are generally fewer PhD graduates than history PhD
graduates in any of the above universities. The large accountancy PhD accounting
mills decades ago, such as the University of Illinois and the University of
Texas, that each produced 10-20 accounting PhD graduates per year have shrunk
down to producing 1-5 graduates per year. Reasons for this are complicated, but
I don't hesitate to give my alleged reasons at
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
For comparative purposes compare the above table for History PhD graduates in
2010 with the 2010 column in the table of Accountancy PhD graduates table at ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
The largest numbers of accountancy PhD graduates from a single university were
the five graduates at Virginia Tech in 2010. But this may be a 2010 anomaly year
for Virginia Tech that normally produces two or fewer accounting PhD graduates
per year.
It takes a bit of work, but the employment status of 2010 Accountancy PhD
graduates can be determined from the table at
http://www.jrhasselback.com/AtgDoct/XSchDoct.pdf
Most 2010 accounting PhD graduates had multiple high-paying tenure track offers
(well over $100,000 for nine-month contracts) and are now in the tenure-track
positions of their first choices in 2010. Many in R1 research universities,
however, will move to tenure track positions in other universities after a few
years on the job. More often than not the first-time moves to other universities
is not due to tenure rejections per se. Sometimes new PhD graduates want to
start out at major R1 research universities to build research publications into
their resumes. But many of these graduates never intended to spend the rest of
their careers in R1 universities that highly pressure faculty year-after-year to
conduct research and publish in top research journals.
Unlike in engineering where most PhD graduates track into private sector
industries, most accounting PhD graduates settle into careers in tenure track in
academe. There are generally no comparative advantages of having a PhD for job
applicants in accounting firms, government, or business corporations. Hence it's
not surprising that most accountancy PhD graduates are in the Academy.
Closing Comment
Of course there are many other things to consider such as the fact that most
accountancy PhD programs admit only students with prior professional experience
in accounting. Accounting PhD programs may also take twice as long to complete
and are replete with courses in mathematics, statistics, econometrics,
psychometrics, and technical data mining. On the other hand, most accountancy
PhD programs offer free tuition and relatively handsome living allowances in
return for some teaching and research assistance. Usually at least one year is
also covered with a full-ride fellowship in an accountancy PhD program.
The KPMG Foundation is now providing great supplemental financial and other
support for minority students interested in accountancy PhD programs. This has
been a very successful program considering how difficult it is to lure minority
students back to the campus when they're successfully employed as CPAs, Treasury
Agents, and other accounting professionals with young families to support ---
http://www.kpmgfoundation.org/foundinit.asp
NEW CENTER FOR AUDIT QUALITY VIDEO DESCRIBES THE FINANCIAL STATEMENT AUDIT
---
February 13, 2012 ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151875
"Are Auditors Reporting Fraud And Illegal Acts? The SEC Knows But Isn’t
Telling," by Francine McKenna, re:TheAuditors, February 22, 2012 ---
Click Here
http://retheauditors.com/2012/02/22/are-auditors-reporting-fraud-and-illegal-acts-the-sec-knows-but-isnt-telling/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29
"THE AUDITOR’S EXPECTATIONS
GAP…NOT AGAIN! EXCUSES, EXCUSES, EXCUSES!" Anthony H. Catanach Jr. and
J. Edward Ketz, Grumpy Old Accountants Blog, February 13, 2012
---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/498
John Cassidy ---
http://en.wikipedia.org/wiki/John_Cassidy_%28journalist%29
Deception Using Statistics Can Become Very Subtle and Complicated
One man's politically biased analysis is another man's scholarly bipartisan
analysis --- so much depends upon the biased eyes of the beholder!
Lying with statistics can be as much a fault of the reader as the writer.
Before reading the February 6 article linked below it might be interesting to
read one of the comments that follow the article:
This is a much more in-depth examination of the
numbers than is available at most any other news outlet. So, thanks for
that. Furthermore, you make a good argument with raw numbers to back the
argument up. All of that being said, the real point as far as I am concerned
is the media's handling of this issue. It's really quite hard to envision
the same type of cheerleading and lack of investigation if Mitt Romney were
president right now. To the contrary, your piece would probably be one
of the more lightweight pieces on the subject as every mainstream news
outlet struggled to dig into the numbers to show how the lower rate was
either not Romney's fault or was not actually good just because it was
lower. Yes, the G.O.P. is making hay out of what they can but it is clear
that the media is doing the same in reverse. Again this piece is one of the
only in-depth pieces I have read on this matter.
Posted 2/7/2012, 5:53:01am by
gudmundsdottir
"The Jobs Report and the 'Missing 1.2 Million'," by
John Cassidy, The New Yorker,
February 6, 2012 ---
http://www.newyorker.com/online/blogs/johncassidy/2012/02/the-jobs-report-and-the-missing-12-million.html
Jensen Comment
I cannot imagine the liberally-biased New Yorker even publishing such an
article if Mitt Romney were president. But I could be mistaken.
However, the same author (John Cassidy)
in 2010 published an article in The New Yorker that was critical of
ObamaCare numbers.
Fuzzy CBO Accounting Tricks
"ObamaCare by the Numbers: Part 2," by
John Cassidy, The New Yorker,
March 2010 ---
http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html
. . .
The C.B.O.’s analysis can’t be dismissed out of
hand, but it is surely a best-case scenario.
Again, I come back to where I started: the scale of the subsidies on offer
for low and moderately priced workers. If economics has anything to say as a
subject, it is that you can’t offer people or firms large financial rewards
for doing something—in this case, dropping their group coverage—and not
expect them to do it in large numbers. On
this issue, I find myself in agreement with Tyler Cowen and other
conservative economists. Over time, the
“firewall” between the existing system of employer-provided group insurance
and taxpayer-subsidized individual insurance is likely to break down, with
more and more workers being shunted over to the public teat.
At that point, if it comes, politicians of both
parties will be back close to where they began: searching for health-care
reform that provides adequate coverage for all at a cost the country can
afford. What would such a system look like? That is a topic for another
post, but I don’t think it would look much like Romney-ObamaCare.
Read more:
http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html#ixzz0jrFSFK3j
Closing Comment
As an academic, I respect John Cassidy for
being a liberal economist and statistician who is honorable enough to present
both sides of issues when his analysis does not support his politics. Bravo to
John Cassidy! You would never catch Paul Krugman being "in agreement with Tyler
Cowen and other conservative economists" except maybe when he was sending his
consulting-fee bills to Enron.
Paul Krugman's liberal colleague at Princeton is worse.
How to lie with statistics:
"Four Deficit Myths and a Frightening Fact: We don't have a generalized
overspending problem. We have a humongous health-care problem," by
Alan S. Binder, The Wall Street Journal, January 19, 2012 ---
http://online.wsj.com/article/SB10001424052970204468004577164820504397092.html?mod=djemEditorialPage_t
Here's the clinker in Binder's liberal economics analysis:
According to the CBO, if nothing is done, the
primary deficit will bottom out at 2.6% of GDP in 2018 and then rise to 7.4%
of GDP by 2040. Where will the additional 4.8% of GDP come from? Remarkably,
every penny will come from health-care spending, which balloons from 6.6% of
GDP to 11.4% in the projections, or 4.8% more of GDP. This exact match is
just a coincidence, of course. If we use 2050 as the endpoint instead of
2040, the projected primary deficit increases by 6% of GDP, of which
health-care spending accounts for 6.6 percentage points. Yes, you read that
right: Apart from increased health-care costs, the rest of the primary
deficit actually falls relative to GDP.
The CBO projects federal spending on all purposes
other than health care and interest
to be roughly stable as a share of GDP from 2015 to 2035, and then to drift
lower. So no, America, we don't have a generalized overspending problem for
the long run. We have a humongous health-care problem.
The clinker is that health care and interest on the National Debt will soon
become the overwhelming, really overwhelming, components of federal spending.
What will the deficit's share of GDP be after factoring in health care and
interest be Professor Binder? Liberal economists like Princeton's Binder and
Krugman conveniently factor out the big clinkers in their rosy deficit scenrios.
This is analogous to saying that household pending on
all purposes other than food, rent,
utilities, and transportation to be roughly
stable as a share of GDP from 2015 to 2035, and then to drift lower.
Our Pentagon is now in the process of shifting military from other parts of
the world to the vicinity of China.
Did you hear about the scenario that says the only way we can go to war with
China is to borrow the money from China?
I think I'm going to be sick!
References for Comparisons of IFRS versus U.S. GAAP
US GAAP versus IFRS: The basics
2011 Edition, 56 Pages
Free from Ernst & Young
http://www.ey.com/Publication/vwLUAssetsAL/IFRSBasics_BB2280_December2011/$FILE/IFRSBasics_BB2280_December2011.pdf
IFRS and US GAAP: Similarities and Differences
2011 Edition, 238 Pages
From PwC
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!
From Deloitte
Comparisons of IFRS With Local GAAPS
http://www.iasplus.com/dttpubs/pubs.htm#compare1109
IFRS and US GAAP
July 2008 Edition, 76 Pages
http://www.iasplus.com/dttpubs/0809ifrsusgaap.pdf
Jensen Comment
At the moment I prefer the PwC reference
My favorite comparison topics (Derivatives and
Hedging) begin on Page 158 in the PwC reference
The booklet does a good job listing differences but, in my opinion, overly
downplays the importance of these differences. It may well be that IFRS is more
restrictive in some areas and less restrictive in other areas to a fault. This
is one topical area where IFRS becomes much too subjective such that comparisons
of derivatives and hedging activities under IFRS can defeat the main purpose of
"standards." The main purpose of an "accounting standard" is to lead to greater
comparability of inter-company financial statements. Boo on IFRS in this topical
area, especially when it comes to testing hedge effectiveness!
One key quotation is on Page 165
IFRS does not specifically discuss the
methodology of applying a critical-terms match in the level of detail
included within U.S. GAAP.
Then it goes yatta, yatta, yatta.
Jensen Comment
This is so typical of when IFRS fails to present the "same level of detail" and
more importantly fails to provide "implementation guidance" comparable with the
FASB's DIG implementation topics and illustrations.
I
have a huge beef with the lack of illustrations in IFRS versus the many
illustrations in U.S. GAAP.
I
have a huge beef with the lack of illustrations in IFRS versus the many
illustrations in U.S. GAAP.
I have a huge beef with the lack of
illustrations in IFRS versus the many illustrations in U.S. GAAP.
"How to Raise $1 Trillion Without a VAT or a Rate Hike," by Calvin H.
Johnson, University of Texas Law School, 2010 ---
http://www.utexas.edu/law/faculty/calvinjohnson/How_to_Raise 1_Trillion.pdf
Details are provided in the lengthy Table 1 of the article.
The most controversial item in my opinion is the repeal of the tax exemption for
tax-free bonds used by towns, counties, states, and school districts. At the
moment investors are willing to put their money in tax-exempt bonds having lower
returns than corporate bonds and in most instances higher default risks. Of
course comparisons are highly dependent upon what bond issues are being
compared.
See
http://seattletimes.nwsource.com/html/opinion/2016792850_guest18mcintire.html
What makes repeal of tax-free bonds is the enormous rise in interest rates
that must be paid by towns, counties, states, and school districts if
investors do not get a tax break. Of course, the Federal Government could
subsidize those jurisdictions, but this seems to be self-defeating in terms
raising revenues to reduce the Federal deficit.
And unless we elect Hugo Chavez as President of the United States, the
Federal Government probably cannot make present municipal bondholders eat the
tremendous loss in bond values. Calvin Johnson suggests that the Federal
government would have to make up these losses to present bondholders. The cost
of doing this would be tremendous.
President Obama has proposed capping the exemptions ---
http://www.reuters.com/article/2012/02/13/us-usa-budget-municipals-idUSTRE81C1AZ20120213
But he does not want to discuss the impact of this proposal on financing of
owns, counties, states, and school districts. His proposal is also inconsistent
with his desire to increase the quality and quantity of public schools.
Personally, I think he proposed this as a bargaining chip with no real intent to
pull the rug out from under towns, counties, states, and school districts.
And he must consider what his proposal will do to property taxes now used
primarily to fund education, county hospitals, etc. In my opinion it would send
property taxes (and according rents) through the roof. And the middle class and
poor bear a huge portion of these property taxes. This in turn would hit the
already-sick real estate market like a pandemic.
Teaching Case on How IFRS Resistance Was Futile All Along: A Revenue
Bonanza for CPA Firms, the AICPA, and Other Training Providers
From The Wall Street Journal Accounting Weekly Review in February 24,
2012
U.S. Nears Accounting Shift
by:
Michael Rapoport
Feb 21, 2012
Click here to view the full article on WSJ.com
TOPICS: FASB, Financial Accounting Standards Board, Financial
Reporting, International Accounting Standards, International Accounting
Standards Board, SEC, Securities and Exchange Commission
SUMMARY: James Kroeker of the SEC spoke at an IFRS advisory panel
in London on Monday, February 20, 2012. He discussed the SEC's current
thinking on adoption of IFRS and the role of the FASB in that system.
According to the article, his comments were made "in terms that hinted that
he and his staff were gravitating toward a middle-ground 'endorsement'
proposal, under which IFRS would be incorporated into U.S. rules and U.S.
rule makers would retain the authority to evaluate future global rules for
U.S. use."
CLASSROOM APPLICATION: The article is useful to bring to students'
attention the current status of a U.S. shift to global financial reporting
standards (IFRS) established by the IASB with review and endorsement by the
FASB.
QUESTIONS:
1. (Advanced) Who establishes International Financial Reporting
Standards (IFRS)?
2. (Advanced) Summarize the status of use of IFRS from comments in
this article, augmented by information on the web located at
http://www.ifrs.org/Use+around+the+world/Use+around+the+world.htm.
3. (Introductory) According to the article, why are "international
authorities...pushing the [U.S. Securities and Exchange Commission] to move
U.S. companies to use the global rules"? Why do accounting firms and large
multinational corporations also support this view?
4. (Advanced) What is principles-based standard setting? How is
this different from the approach generally taken under U.S. Generally
Accepted Accounting Principles (U.S. GAAP)?
5. (Introductory) According to the article, as the U.S. moves to
using IFRS, what will become the role of the Financial Accounting Standards
Board (FASB)?
SMALL GROUP ASSIGNMENT:
Access the SEC web site at
www.sec.gov. Search for the term "condorsement" through the Search field
in the upper right hand. Locate the speech by Deputy Chief Accountant Paul
A. Beswick on December 6, 2010, to the AICPA National Conference on Current
SEC and PCAOB Developments. Answer the following two questions: What does
this coined term "condorsement" mean? What role does this approach imply for
the FASB?
Reviewed By: Judy Beckman, University of Rhode Island
"U.S. Nears Accounting Shift," by Michael Rapoport, The Wall Street
Journal, February 21, 2012 ---
http://online.wsj.com/article/SB10001424052970204131004577235480168228286.html?mod=djem_jiewr_AC_domainid
Regulators are edging closer to switching U.S.
companies to global accounting rules, as the Securities and Exchange
Commission's top accountant suggested Monday he was moving toward
recommending a long-discussed compromise approach.
International authorities are pushing the SEC to
move U.S. companies to use the global rules, known as International
Financial Reporting Standards, to unify companies world-wide under the same
accounting system. American corporations are watching intently for a
recommendation from the SEC's staff about whether the commission should do
so. Big accounting firms and multinational companies say a move would
simplify their accounting and make it easier for them to raise capital
around the world, while skeptics say it would be too costly and burdensome.
Most companies world-wide now use IFRS, but the
U.S. still uses its own set of rules, known as generally accepted accounting
principles. IFRS allows companies more flexibility and judgment than GAAP.
The global system is centered on applying guiding principles of accounting
rather than following GAAP's set of detailed rules.
The SEC's staff hasn't made a recommendation yet.
But on Monday, SEC Chief Accountant James Kroeker discussed the matter in
terms that hinted that he and his staff were gravitating toward a
middle-ground "endorsement" proposal, under which IFRS would be incorporated
into U.S. rules and U.S. rule makers would retain the authority to evaluate
future global rules for U.S. use.
Speaking to an IFRS advisory panel in London, Mr.
Kroeker said that the rules to be used globally "would be the standards of
the IASB"—the International Accounting Standards Board, which created
IFRS—and that the Financial Accounting Standards Board, the U.S. rule maker,
would play "an endorsing role."
Joel Osnoss, Deloitte Touche Tohmatsu Ltd.'s global
leader for IFRS, said Mr. Kroeker's remarks "clearly confirm" that he and
his staff are heading toward a recommendation that the SEC use IFRS for
American companies.
Continued in article
Jensen Comment
ASC = Always Codification Stupidity
Kiss the FASB's Codification Database goodbye. It was probably a waste of
millions of dollars all along.
Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
The Jr. Deputy Accountant finally got around to Texas:
"Don't Worry, We Didn't Forget Those Texas College CPA Exam Results,"
Adrienne Gonzalez, Going Concern, February 15, 2012 ---
http://goingconcern.com/post/dont-worry-we-didnt-forget-those-texas-college-cpa-exam-results
Jensen Comment
Even though I'm proud of the performance of Trinity University in 2011, once
again I remind readers that there is much more variability among small
universities like Trinity University that have so few CPA exam takers each year.
The University of Texas at Austin is consistently at or near the top in Texas
with low variability because it has a relatively large number of CPA exam
candidates each year, and UT has relatively very high admission standards for
the masters of accounting program. Trinity, on the other hand, is more likely to
have good years and bad years due to small sample effects and loss of some of
the best graduates (see below).
Because of Trinity has much higher tuition for an accounting masters degree
than the state universities, there is some attrition of Trinity's four-year
accounting graduates to the state universities, especially to the University of
Texas at Austin. It was always sad to lose some of our best graduates to UT, but
we knew UT would take good care of them.
Texas CPA examination performances are heavily impacted by SAT/ACT/GMAT exam
scores of accountancy graduates. This is consistent with virtually all the other
50 states in the United States. Schools with the highest admission standards
will have the higher performing graduates on average.
I don't attribute high CPA exam scores to curricula focused more heavily on
teaching toward the CPA examination. When I left Trinity University, Trinity was
experimenting with a CPA exam review course at the very strong request of
accounting students in the masters program. I did not teach that course, but
when I retired in 2006 the professor (Katherine Lopez) teaching the CPA review
course was re-assigned to teach my Accounting Theory course. The CPA review
course was dropped from the curriculum without having any adverse impacts on CPA
exam performance of Trinity's graduates. I might add that when I taught
Accounting Theory my students complained that the course really did not help
them on the CPA examination. The topics covered (like accounting for
derivative financial instruments, portfolio theory, risk metrics, financial
structures, and securitization) are considered too complicated for the CPA
examination ---
http://www.trinity.edu/rjensen/acct5341/acct5341.htm
We should not give too much credit to accounting faculty when their top
students do well on the CPA examination. Because those students also are top
performers in terms of SAT/ACT/GMAT exam scores, those students have more
intellectual ability and motivation to get the most out of commercial CPA
examination review courses like Becker, Bisk, Gleim, etc. ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam
Stanford Business asked a random selection of faculty, students, and alumni
about their latest enjoyable non-required reading. Here are some selections that
demonstrate the diversity of the GSB community ---
http://www.gsb.stanford.edu/news/bmag/sbsm1201/nw_reading.html?utm_source=Knowledgebase&utm_medium=email&utm_campaign=February-12
"Why Companies Fail: GM’s stock price has sunk by a third since its
IPO. Why is corporate turnaround so difficult and rare? The answer is often
culture—the hardest thing of all to change," by Megan McArdle, The
Atlantic, March 2012 ---
http://www.theatlantic.com/magazine/archive/2012/03/why-companies-fail/8887/
Jensen Comment
There are some enormous causes not given enough credit in this article. For
example, GM failed largely because it signed off on commitments that doomed it
to failure such as underfunding of pensions by billions of dollars and agreeing
to union wages that could not be sustained due to labor competition both inside
the United States (e.g., from southern right-to-work states preferred by foreign
automakers building assembly plants in the U.S,) and outside the U.S. such as in
Mexico. Then there were the causes focused on in this article such as failure to
adapt to changed competition building higher quality vehicles with newer
technology.
While I was reading this article I kept wondering how much of it could be
extrapolated to the auditing industry that has and still is resisting change.
The number one ingredient of audit firm success is its integrity. That
ingredient seems to be crumbling with weekly headlines about one audit failure
after another. How long can this go on? Fortunately, the courts and the SEC have
given the U.S. audit industry new life by failing to punish it harshly for
shoddy audits in the subprime banking scandals. But such leniency may not
continue into the future, especially outside the U.S. where we're hearing
rumblings about anti-trust breakups of the large auditing firms.
Bob Jensen's threads on audit firm professionalism are at
http://www.trinity.edu/rjensen/Fraud001c.htm
Joe Hoyle advises students on how to improve their test scored in
Intermediate II ---
http://joehoyle-teaching.blogspot.com/2012/02/how-can-you-get-better.html
AAA PUBLISHES STUDY ON DISCLOSURE TONE AND SHAREHOLDER LAWSUITS ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151874
In the U.S. there
are both state and federal jurisdictions. And there can be individual or class
action lawsuits brought by plaintiffs. One of the better sources for federal
securities class action lawsuits is the Stanford University Law School Federal
Class Action Clearinghouse ---
http://securities.stanford.edu/
But this by no means covers most of the lawsuits against large auditing firms.
In fact, the database has surprisingly few hits for Big Four firms. Many of the
SEC lawsuits are not in this database.
For lawsuits
dealing with derivative financial instruments I also have a tidbit timeline at
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
Of course the
lawyers are going to use their very expensive legal research databases. A list
of sources in the U.S. is provided in
http://en.wikipedia.org/wiki/Legal_Research
Bob Jensen's threads on shareholder lawsuits ---
http://www.trinity.edu/rjensen/Fraud001.htm
US CHAMBER OF COMMERCE ISSUES REPORT FOR IMPROVING SEC OPERATIONS ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151862
Unitek IT Training from Cisco ---
http://www.unitek.com/training/
Bob Jensen's threads on online training alternatives ---
http://www.trinity.edu/rjensen/Crossborder.htm#Training
Possibly the Worst Academic Scandal in Past 100 Years: Deception
at Duke
The Loose Ethics of Co-authorship of Research in Academe
In general we don't allow faculty to have publications ghost written for
tenure and performance evaluations. However, the rules are very loose regarding
co-author division of duties. A faculty member can do all of the research but
pass along all the writing to a co-author except when co-authoring is not
allowed such as in the writing of dissertations.
In my opinion the rules are too loose regarding co-authorship. Probably the
most common abuse in the current "publish or perish" environment in academe is
the partnering of two or more researchers to share co-authorships when their
actual participation rate in the research and writing of most the manuscripts is
very small, maybe less than 10%. The typical partnering arrangement is for an
author to take the lead on one research project while playing only a small role
in the other research projects
Gaming for Tenure as an
Accounting Professor ---
http://www.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
Another common abuse, in my opinion, is where a senior faculty member with a
stellar reputation lends his/her name to an article written and researched
almost entirely by a lesser-known colleague or graduate student. The main author
may agree to this "co-authorship" when the senior co-author's name on the paper
improves the chances for publication in a prestigious book or journal.
This is what happened in a sense in what is becoming the most notorious
academic fraud in the history of the world. At Duke University a famous
cancer researcher co-authored research that was published in the most
prestigious science and medicine journals in the world. The senior faculty
member of high repute is now apologizing to the world for being a part of a
fraud where his colleague fabricated a significant portion of the data to make
it "come out right" instead of the way it actually turned out.
What is interesting is to learn about how super-knowledgeable researchers at
the Anderson Cancer Center in Houston detected this fraud and notified the Duke
University science researchers of their questions about the data. Duke appears
to have resisted coming out with the truth way to long by science ethics
standards and even continued to promise miraculous cures to 100 Stage Four
cancer patients who underwent the miraculous "Duke University" cancer cures that
turned out to not be miraculous at all. Now Duke University is exposed to quack
medicine lawsuit filed by families of the deceased cancer patients who were
promised phone 80% cure rates.
The above Duke University scandal was the headline module in the February 12,
2012 edition of CBS Sixty Minutes. What an eye-opening show about science
research standards and frauds ---
Deception at Duke (Sixty Minutes
Video) ---
http://www.cbsnews.com/8301-18560_162-57376073/deception-at-duke/
Next comes the question of whether college administrators operate under
different publishing and speaking ethics vis-à-vis their faculty
"Faking It for the Dean," by Carl Elliott, Chronicle of Higher Education,
February 7, 2012 ---
http://chronicle.com/blogs/brainstorm/says-who/43843?sid=cr&utm_source=cr&utm_medium=en
Added Jensen Comment
I've no objection to "ghost writing" of interview remarks as long as the ghost
writer is given full credit for doing the writing itself.
I also think there is a difference between speeches versus publications with
respect to citations. How awkward it would be if every commencement speaker had
to read the reference citation for each remark in the speech. On the other hand,
I think the speaker should announce at the beginning and end that some of the
points made in the speech originated from other sources and that references will
be provided in writing upon request.
Bob Jensen's threads on professors who let students cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#RebeccaHoward
Bob Jensen's threads on professors who cheat
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
"E.U. Commission & U.S. DOJ Approve Google's Acquisition of Motorola,"
by Dan Rowinski, ReadWriteWeb, February 13, 2012 ---
http://www.readwriteweb.com/archives/european_commission_approves_googles_acquisition_o.php
. . .
Ostensibly, Google is buying Motorola Mobility for
its 17,000 patents. Unlike Taiwanese smartphone maker HTC, Motorola has
faired well in the patent wars, winning battles against Apple in courts
around the world in recent weeks. Motorola lost the most recent battle over
"3G" technology in Germany but overall has faired better than other Android
device makers like Samsung.
Continued in article
Jensen Comment
This make for an interesting accounting problem when most of the fair value of
company is in intangibles.
Does this make the booked assets on the balance sheet seem irrelevant for
valuation purposes?
Megabanks Backing Away From Mark-to-Market Accounting
"Change In Loan-Tallying Method," by Liz Rappaport, The Wall Street Journal,
February 17, 2012 ---
http://online.wsj.com/article/SB10001424052970204059804577227602059483034.html?mod=dist_smartbrief
Goldman Sachs Group Inc. and Morgan Stanley have
reduced their use of "mark-to-market" accounting, shielding them from swings
in the value of some loans made to companies.
After several months of internal discussion, the
two companies are making an accounting change affecting a portion of
corporate loans that have a combined value of more than $100 billion. The
change will value that portion using so-called historical-cost accounting,
according to financial filings and people familiar with the matter.
Under that accounting method, assets generally are
held at their original value or purchase price. Goldman and Morgan Stanley
could set aside reserves against possible losses on the loans and hedge them
in other ways.
The banks are making the change in part because, as
a result of regulators' rules, securities firms using historical-cost
accounting won't have to hold much-larger amounts of capital against the
assets if their values go down. There also will be less fluctuation in
Goldman and Morgan Stanley's earnings, because marking the loans to market
creates immediate gains or losses for the companies as the values of the
loans fluctuate.
Goldman reported a loss of $450 million in the
fourth quarter on the New York company's overall portfolio of corporate
loans, including losses or gains on hedges. At the end of the third quarter,
its portfolio of loan commitments was $34 billion. Goldman hasn't disclosed
the size of its portfolio in the fourth quarter. It also hasn't disclosed
how much of its loan portfolio it plans change the accounting for.
Morgan Stanley is likely to change over a portion
of its $82 billion loan portfolio, said a person familiar with the matter.
As of the end of the year, Morgan Stanley had already moved $9.7 billion of
its loan portfolio to historical-cost accounting. The firms may use this
accounting method for new loans and commitments.
Morgan Stanley didn't disclose a gain or loss on
its loan portfolio in the fourth quarter of 2011. In the third quarter, it
took a loss of about $400 million on its portfolio of corporate loans.
Goldman and Morgan Stanley became bank-holding
companies in 2008, giving them access to emergency funds from the Federal
Reserve's discount window. But both companies now are subject to Fed
stress-test guidelines, which include weighing the financial impact of
economic and market shocks.
Under the stress tests and international capital
rules, Goldman and Morgan Stanley would be required to set aside more than
twice as much capital against the loans if they were marked down in value.
Using the new accounting treatment, Goldman and
Morgan Stanley must hold no capital against those loans. Instead, they set
aside reserves to cushion against possible losses.
"The focus on capital by the Fed and global
regulators is driving Goldman and other dealers to re-evaluate their
businesses and even accounting methodologies to improve their capital
metrics," said Roger Freeman, an analyst at Barclays Capital.
Goldman's Chief Financial Officer David Viniar said
in a conference call in January that Goldman's contemplating the change was
"driven by the more-onerous capital treatment."
Goldman executives including its Chairman and Chief
Executive Lloyd C. Blankfein have defended mark-to-market accounting, saying
wider use of the method might have forced financial firms to reckon with
their problems sooner during the crisis.
Continued in article
Pulling the New IFRS 13 Onto the Tarmac
"Are you ready for the new fair value accounting?" by Francisco Roque A.
Lumbres, Business World, January 23, 2012 ---
http://www.bworldonline.com/content.php?section=Economy&title=Are-you-ready-for-the-new-fair-value-accounting?&id=45461
Fair value accounting, often referred to
as mark-to-market accounting, has been the subject of much discussion
and controversy, and the fact that various ways of measuring fair value
were spread among different International Financial Reporting Standards
(IFRS) has contributed to many questions regarding fair value
accounting.
To create a uniform framework for fair
value measurements that consolidates into one single standard the
various ways of measuring fair value, the International Accounting
Standards Board (IASB) issued IFRS 13, Fair Value Measurements to reduce
complexity and improve consistency in the application of fair value
measurements. IFRS 13 also aims to enhance fair value disclosures to
help users assess the valuation techniques and inputs used to measure
fair value. IFRS 13 was published last May 12, 2011 and will become
effective by January 1, 2013. It is applied prospectively, and early
adoption is allowed.
IFRS 13 clarifies how to
measure fair value when it is required or permitted in IFRS. It does not
change when an entity is required to use fair value. Furthermore, IFRS
13 covers both financial and non-financial assets and liabilities.
Key
principles of IFRS 13
IFRS 13 applies when
another IFRS standard requires or permits fair value measurements or
disclosures. It does not, however, apply to transactions within the
scope of:
• International Accounting Standards (IAS) 17, Leases;
• IFRS 2 Share-Based Payments; and,
• Certain other measurements that are similar but are not fair value,
that are required by other standards, such as value in use in IAS 36,
Impairment of Assets and net realizable value in IAS 2, Inventories.
Fair
value defined
IFRS 13 now defines
“fair value” as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e., an exit price). Therefore,
the focus now is on exit price as against entry price.
Market
participant assumptions
When measuring fair
value, IFRS 13 requires an entity to consider the characteristics of the
asset or liability as market participants would. Hence, fair value is
not an entity-specific measurement; it is market-based.
Principal or most advantageous market
A fair value measurement
assumes that the transaction to sell the asset or transfer the liability
takes place in the “principal market” for the asset or liability or, in
the absence of a principal market, in the “most advantageous market” for
the asset or liability.
The principal market is
the market with the greatest volume and level of activity for the asset
or liability to which the entity has access to. On the other hand, the
most advantageous market is the market that maximizes the amount that
would be received for the sale of the asset or minimizes the cost to
transfer the liability, after considering transaction and transport
costs.
Highest and best use
The concept of “highest
and best use” applies to non-financial assets only. Fair value considers
a market participant’s ability to generate economic benefits by using
the asset in its highest and best use. Highest and best use is always
considered when measuring fair value, even if the entity intends a
different use of the asset.
Fair
value hierarchy
Fair value measurements
are classified into three levels which prioritize the observable inputs
to the valuation techniques used and minimize the use of unobservable
data.
• Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity can access at the measurement
date.
• Level 2: Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
• Level 3: Unobservable inputs for the asset or liability.
Valuation techniques and inputs
IFRS 13 describes the
valuation approaches to be used to measure fair value: the market
approach, income approach and cost approach. IFRS 13 does not specify a
valuation technique in any particular circumstance; it is up to the
entity to determine the most appropriate valuation technique.
• Market approach: Uses prices and other relevant information from
market transactions involving identical or similar assets or
liabilities. A commonly-used technique is the use of market multiples
derived from “comparables.”
• Income approach: Converts future amounts (e.g., cash flows or income
and expenses) to a single current (discounted) amount. Valuation
techniques may include a discounted cash flows approach, option-pricing
models, or other present-value techniques.
• Cost approach: Reflects the amount currently needed to replace the
service capacity of an asset (also known as the current replacement
cost)
Disclosure requirements
IFRS 13 expanded
required disclosures to help the users understand the valuation
techniques and inputs used to measure fair value and the impact of fair
value measurements on profit and loss. The required disclosures include:
• Information about the level of fair value hierarchy;
• Transfers between levels 1 and 2;
• Methods and inputs to the fair value measurements and changes in
valuation techniques; and
For level 3 disclosures,
quantitative information about the significant unobservable inputs and
assumptions used, and qualitative information about the sensitivity of
recurring level 3 measurements.
Business impact and next steps
Practically all entities
using fair value measurements will be subject to IFRS 13, which will
require certain fair value principles and disclosures that will
significantly impact application and practice. Therefore, management
should:
• Begin to assess the effect of IFRS 13 on valuation policies and
procedures;
• Have competent knowledge when making judgments in fair value
measurements;
• Consider whether it has appropriate expertise, processes, controls and
systems to meet the new requirements in determining fair value and
disclosures;
• Revisit loan covenants, compensation plans, shareholder communications
and analyst expectations;
• Have discussions with systems vendors, appraisers, investment advisors
and/or investment custodians; and,
• Be able to demonstrate to regulators and its external auditors that it
understands the requirements of IFRS 13. This will greatly assist both
regulators and external auditors in their annual examination and audit.
The mandatory
implementation of this new standard is less than a year away. The clock
is ticking; the time to act is now.
Fair Value Accounting for Liabilities
"VISA’s LITIGATION ESCROW FUND," by Anthony H. Catanach, Jr. and J.
Edward Ketz, Grumpy Old Accountants, January 2, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/470
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
"Using Google Docs to Check In On Students’ Reading," by Brian Croxall,
Chronicle of Higher Education, February 8 ,2012 ---
http://chronicle.com/blogs/profhacker/using-google-docs-to-check-in-on-students-reading/38405?sid=wc&utm_source=wc&utm_medium=en
Last semester I taught my favorite book, Mark Z.
Danielewski’s House
of Leaves. With
nightly reading assignments that take three to four hours, I expect students
to fall behind. So I wasn’t surprised when, a few days in, I asked if
everyone had done all the reading and the majority of the class avoided
looking at me. Such are the occupational hazards of teaching.
We’re only a few weeks into the semester, but
experience shows that it’s never too early for students to get behind in
their reading—even if you’re not teaching amazing post-print
fiction. While students clearly have the right to choose what they will and
will not read, when a significant portion of the class falls behind it can
make it very difficult to lead a class discussion.
Last semester, I heard a strategy from my friend
and colleague Alyssa Stalsberg-Canelli for dealing with exactly this
problem: have the students write down the page number they’ve reached in
their reading on a scrap of paper and pass it up to the front. Students can
then tell you, more or less anonymously, how far they’ve come in their
reading. Taking the class’s temperature in this manner allows you to adjust
your strategy for leading the class and saves you from asking questions that
no one will be able to answer, resulting in
the not-so-golden silence.
For just one more turn of the screw, I decided to
forego the pieces of paper and instead used Google Docs. (You want
posts about Google Docs? We got ‘em!) First, I created a
spreadsheet. As I’ve said before,
I use spreadsheets for everything! Then I clicked
the “Share” button in the upper right corner.
Continued in article
"Google Docs Can Now Be Exported Through Takeout," by Jon Mitchell,
ReadWriteWeb, January 24, 2012 ---
http://www.readwriteweb.com/archives/google_docs_data_can_now_be_exported_through_takeo.php
Bob Jensen's threads on Google Docs are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#GoogleApps
Visualizing Economics
Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011 and Other
Graphics ---
Click Here
http://visualizingeconomics.com/2012/01/24/comparing-tax-rates/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+VisualizingEconomics+%28Visualizing+Economics%29&utm_content=Google+Reader
Graphic: How Much People Pay for Health Care Around the World
---
http://visual.ly/how-much-people-pay-health-care-around-world
"5% of patients account for half of health care spending," by Kelly
Kennedy, USA Today, January 20, 2012 ---
http://www.usatoday.com/news/washington/story/2012-01-11/health-care-costs-11/52505562/1
Some Interesting State Comparisons on State& Local Taxation, Business
Climate, and Debt Per Capita
http://www.cs.trinity.edu/~rjensen/temp/StateComparisons2012.htm



"IRS: Identity Theft Crackdown Sweeps Across the Nation: More than
200 Actions Taken In Past Week in 23 States," SmartPros, February 1,
2012 ---
http://accounting.smartpros.com/x73338.xml
. . .
To help taxpayers,
the IRS earlier this month created a new, special section on IRS.gov
dedicated to identity theft matters, including YouTube videos, tips for
taxpayers and a special guide to assistance. The information includes how to
contact the IRS Identity Protection Specialized Unit and tips to protect
against “phishing” schemes that can lead to identity theft.
Identity theft occurs when someone uses another’s personal information
without their permission to commit fraud or other crimes using the victim’s
name, Social Security number or other identifying information. When it comes
to federal taxes, taxpayers may not be aware they have become victims of
identity theft until they receive a letter from the IRS stating more than
one tax return was filed with their information or that IRS records show
wages from an employer the taxpayer has not worked for in the past.
If a taxpayer
receives a notice from the IRS indicating identity theft, they should follow
the instructions in that notice. A taxpayer who believes they are at risk of
identity theft due to lost or stolen personal information should contact the
IRS immediately so the agency can take action to secure their tax account.
The taxpayer should contact the IRS Identity Protection Specialized Unit at
800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft
Affidavit, Form 14039, and follow the instructions on the back of the form
based on their situation.
Taxpayers looking for additional information can consult the Taxpayer Guide
to Identity Theft or the IRS Identity Theft Protection page on the IRS
website.
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
"IRS Defangs Credit Card Reporting Rule: The Internal Revenue Service
responds to business concerns by eliminating a requirement from its new pay card
reporting rule," by Marielle Segarra, CFO.com, February 14, 2012 ---
http://www3.cfo.com/article/2012/2/accounting-tax_irs-strikes-reconciliation-from-6050w-1099k-reporting-
Responding to an outcry from small-business
concerns, the Internal Revenue Service has taken some of the teeth out of a
tax reporting regulation that the National Federation of Independent
Business has called an “onerous and unnecessary” step for companies filing
tax returns to comply with laws governing credit and debit cards.
The rule, part of the Housing and Economic Recovery
Act of 2008, requires companies to explain any disparities between their own
records of receipts for payment card transactions with numbers that their
payment card processors must now report to the IRS.
It also requires payment processors – often banks
and online businesses like PayPal that keep track of payment card receipts –
to report the sum of transactions for each of their merchants in monthly
increments on 1099-K forms.
Starting next year, the IRS would have asked
companies to explain the differences between those numbers and their own
internal records on their tax returns. This new process was an attempt “to
increase voluntary tax compliance, improve collections and assessments
within IRS, and thereby reduce the tax gap,” the IRS wrote on its website.
But after meeting with the NFIB and other industry
groups, the IRS has agreed to strike the requirement that companies
reconcile the two numbers. The IRS has no intention of requiring
reconciliation in future years, IRS Deputy Commissioner Steven T. Miller
said in a Feb. 9 letter to the NFIB.
Business groups like the International Franchise
Association and the NFIB had protested the rule, saying it would increase
the administrative burden on businesses. A company’s internal record of
gross receipts would rarely match the amount its payment processors would
report on 1099-K forms, they contended.
The 1099-K figure would include cash refunds, sales
tax, tips, and other fees that merchants would not consider part of gross
receipts, says Chris Walters, senior manager of legislative affairs at the
NFIB. Businesses that sell lottery tickets get only a small part of a
ticket's sale price, for instance, but the complete revenue from the ticket
appears up as a charge on a credit card statement, Walters adds.
At the same time, businesses will usually refrain
from including the government portion of the sale in their gross receipts on
their internal records. With this almost-guaranteed disparity between the
amount reported on the 1099-K and a company’s internal record of receipts,
reconciling the sums would require small businesses to invest time and
capital in more-sophisticated accounting systems, Walters says.
But IRS has scotched the reconciliation
requirement. Now, when it comes to reporting gross receipts and sales,
company tax returns will revert to what they looked like in 2010. Still,
since payment processors will continue to submit 1099-K forms, companies may
have to change the way they keep their records, says Lewis Taub, tax
director at McGladrey and Pullen LLP.
Continued in article

Keep in mind that nearly half of all U.S. "taxpayers" pay zero or negative
income taxes!
"Working All Day For the I.R.S.," by James B. Steward, The New York
Times, February 17, 2012 ---
Click Here
http://www.nytimes.com/2012/02/18/business/working-all-day-for-the-irs-common-sense.html?_r=2&adxnnl=1&ref=business&adxnnlx=1329653387-Qk2jd7VEcw0/dRTE1VBETw
Mitt Romney is not alone. I thought Mr. Romney’s
13.9 percent federal tax rate would be hard to beat. But among the 400
Americans with the highest adjusted gross incomes in 2008, 30 of them paid
less than 10 percent and another 101 paid less than 15 percent. And these
people earned, on average, more than 10 times Mr. Romney’s $21.7 million —
an average of $270.5 million each.
¶ After I disclosed a few weeks ago that I pay 37
percent of my adjusted gross income and 74 percent of my taxable income in
combined federal, state and local income and payroll taxes, I asked the
Internal Revenue Service how that compares with other taxpayers. I never got
a simple answer (and an I.R.S. spokesman said the agency could not discuss
individual returns).
¶ But this week, the I.R.S. sent me reams of data,
including analyses of returns from taxpayers reporting adjusted gross income
of more than $200,000 and returns from the top 400 taxpayers. Some data were
from 2009, but most went back to 2008. (The agency offered no explanation as
to why it takes so many years to compile.) But the data helps explain why
many people are so angry about the tax code.
¶ Relatively few taxpayers pay an enormous
percentage of the total federal income tax, and most of them are people who
work for a living and have adjusted gross incomes of $100,000 to $500,000,
which is the sweet spot for tax revenue. They account for 20.2 percent of
total returns but pay a whopping 44.9 percent of total tax. The average tax
rate for this group ranges from 11.9 percent for those with less than
$200,000 in adjusted gross income to 19.6 percent for those with $200,000 to
$500,000. Above those income levels, the rate rises to close to 25 percent
and then declines to 22.6 percent for taxpayers earning more than $10
million.
¶ The I.R.S. doesn’t break down the data for
incomes above $10 million, but the results for the top 400 returns suggest
that the rate continues to decline as incomes rise. The top 400 paid an
average of $49 million, or 18.1 percent of their adjusted gross income, in
federal tax — lower than taxpayers in the $200,000 to $500,000 bracket. They
reported an average $14.1 million in state and local taxes, bringing their
total income tax level to about 23 percent of adjusted gross income, far
below my rate. And not one of them paid more than 35 percent of their
adjusted gross income in federal tax.
¶ I spoke this week to the investigative reporters
Don Barlett and Jim Steele, who are working on a sequel to their
best-selling book “America: What Went Wrong,” first published in 1992. They
said that tax inequities had gotten worse since 1994, when they published
“America: Who Really Pays the Taxes,” and described the tax system as “out
of control.”
¶ Now, “The tax code has been so skewed against
most people, with remarkable tax cuts for folks at the top, that the whole
concept of fairness has gone out the window,” Mr. Steele said. Mr. Barlett,
pointing to disparate rates even among people in the same income brackets,
added: “There’s enormous horizontal inequity, enormous.”
¶ The budget that President Obama unveiled this
week included some hot-button tax measures aimed at some of these
inequities: capping deductions and raising taxes on people earning more than
$1 million (the so-called Buffett Rule), scrapping the alternative minimum
tax and raising the tax on dividend income and carried interest. The liberal
Economic Policy Institute noted, “No budget is perfect,” but applauded the
president’s stab at tax reform. “The need for the Buffett Rule,” it said,
“is largely driven by the preferential tax treatment of investment income
over work income.”
The I.R.S. data makes clear that the differing
treatment of earned and unearned income accounts for most of the disparity
between tax rates for the ultrawealthy and those who make much less.
Salaries and wages accounted for only 8.8 percent of adjusted gross income
for the top 400 taxpayers. Interest and dividends made up 16 percent and net
capital gains accounted for nearly 57 percent. So on average, 73 percent of
their income was unearned and taxed at favorable rates.
For people with incomes of more than $200,000,
salaries and wages make up nearly 50 percent of their adjusted gross income.
Interest income accounted for 4 percent and dividends were just under 5
percent. Capital gains were 17.3 percent. “The people who pay all the taxes
are the same people who are working,” Mr. Barlett said. “If you’re paying a
huge amount of tax, then you’re working.”
While proponents of lower rates for capital gains
have argued that they stimulate capital investment, thereby generating jobs
and economic growth (while others dispute these claims), many people wrote
me to complain that by the same logic, higher rates on earned income
discourage people from working.
Teresa Allen-Piccolo told me that she and her
husband ran a small business in California that manufactured electronic
monitoring systems for the environment. “We represent what almost every
politician purports to love — self-made, no loans, no government assistance,
just hard work,” she wrote. “After decades of hard, virtually unpaid work,
in 2009 and 2010 the business finally picked up. Our total taxes went from
$17,000 to $106,000 in 2010 — about half of our taxable income! What can one
say? Were it not that we are committed to environmental protection and
giving employment, we would be much better off shutting down the business
and just doing some consulting work on the side.”
Jeff Hoopes noted that as a low-paid Ph.D.
candidate in accounting at the University of Michigan, his average tax rate
was low, but his marginal rate reached 35 percent because his earned-income
credit was reduced when he made extra money from “house-sitting, selling
books and tutoring.” He went on: “For providing incentives to work, the
marginal rate is what counts. So while my average rate suggests that I am
lightly taxed (perhaps unfair to others who pay more), my marginal rate
suggests I have lesser incentives to work, as I take home less than 65
percent of what I earn. It is the worst of both worlds.”
Mr. Obama’s proposal to raise taxes on dividends
attacks just one aspect of the disparity between the ultrarich and others,
but it is significant. The top 400 taxpayers reported average dividend
income of $25 million in 2008, which accounted for 4.55 percent of total
dividend income.
That such a tiny sliver of the population would
account for nearly one-twentieth of total dividend income “drives me crazy,”
Mr. Steele said. “Although roughly 50 percent of Americans own stocks or
mutual funds, dividends go overwhelmingly to the top 2 percent of the
taxpayers. Those are the people who rake in the dividends. Why should that
money be taxed at a lower rate?”
Like many defenders of the lower rate, Curtis Dubay,
senior policy analyst at the conservative Heritage Foundation, argues that
“the dividends tax is a double tax, since the corporate income that
dividends come from are already taxed 35 percent at the business level.” The
effective rate on dividends, Mr. Dubay maintained, “would stand at more than
63 percent if President Obama’s misguided policy became law. This would
significantly curtail investment and slow economic growth.”
Continued in article
Jensen Comment
For taxpayers that owe long-term capital gains taxes, the tax code will never be
fair until long-term capital gains are indexed for inflation ---
http://en.wikipedia.org/wiki/Inflation
See the graphs at
http://worldoftak.ning.com/forum/topics/the-long-goodbye-the-declining
http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/united-states.aspx
One thing President Obama never mentions in his quest to raise the taxation
of capital gains is that long-term gains should really be indexed for inflation.
The purchasing power of dollars invested in years earlier is being paid back in
current dollars that will buy a whole lot less. The injustice is that it's
possible to have a purchasing power loss on long term capital gains that
nevertheless gets taxed. Special capital gains rates are intended to give some
relief from this type of injustice and its disincentives to hold long-term
investments.
For example, the purchasing power of a 1913 dollar declined from 24 cents in
1971 to 4.6 cents in 2009. Most if not all the so-called gain of a 1971
long-term investment may well be a purchasing power loss. For example, an Iowa
farm purchased in 1950 may sell for over $1 million gain today that might well
be a purchasing power loss if the farm was purchased or inherited just after
World War 2.
Source:
http://worldoftak.ning.com/forum/topics/the-long-goodbye-the-declining

The American Dream: A Free
Ride
Nearly Half of All Americans Don’t Pay Income Taxes
http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/

Freshman Research Initiative (at the University of Texas) ---
http://fri.cns.utexas.edu/
Undergraduate Research Ethics Cases ---
http://www.udel.edu/chem/white/HHMI3/EthicsCases.html
Council on Undergraduate Research on the Web ---
http://www.cur.org/quarterly/webedition.html
JURF: The Journal of Undergraduate Research in Finance ---
http://www.openculture.com/2011/01/disneys_oscar-winning_adventures_in_music.html
To my knowledge there is no equivalent journal for undergraduate accounting
research. However, accountants can and do on occasion participate in the
National Conferences of Undergraduate Research ---
http://www.ncur.org/
Nearly 20 years ago Trinity University hosted the annual NCUR conference.
There were no accounting student submissions to be refereed that year and in
most years. We were told that accounting students rarely contribute submissions.
So I wrote a paper about this with the two Trinity University faculty members
who coordinated the NCUR presentations on Trinity's campus that year.
"Undergraduate Student Research Programs: Are They as Viable for
Accounting as They are in Science, Humanities, and Other Business Disciplines?"
by Robert E. Jensen, Peter A. French and Kim R. Robertson,
Critical Perspectives on Accounting , Volume
3, 1992, 337-357.
James Irving's Working Paper entitled "Integrating
Academic Research into an Undergraduate Accounting Course"
College of William and Mary, January 2010
ABSTRACT:
This paper describes my experience incorporating academic research into the
curriculum of an undergraduate accounting course. This research-focused
curriculum was developed in response to a series of reports published
earlier in the decade which expressed significant concern over the expected
future shortage of doctoral faculty in accounting. It was also motivated by
prior research studies which find that students engaging in undergraduate
research are more likely to pursue graduate study and to achieve graduate
school success. The research-focused curriculum is divided into two
complementary phases. First, throughout the semester, students read and
critique excerpts from accounting journal articles related to the course
topics. Second, students acquire and use specific research skills to
complete a formal academic paper and present their results in a setting
intended to simulate a research workshop. Results from a survey created to
assess the research experience show that 96 percent of students responded
that it substantially improved their level of knowledge, skill, and
abilities related to conducting research. Individual cases of students who
follow this initial research opportunity with a deeper research experience
are also discussed. Finally, I supply instructional tools for faculty who
might desire to implement a similar program.
January 17, 2010 message (two messages combined) from Irving,
James
[James.Irving@mason.wm.edu]
Hi Bob,
I recently completed the
first draft of a paper which describes my experience integrating research
into an undergraduate accounting course. Given your prolific and insightful
contributions to accounting scholarship, education, etc. -- I am a loyal
follower of your website and your commentary within the AAA Commons -- I am
wondering if you might have an interest in reading it (I also cite a 1992
paper published in Critical Perspectives in Accounting for which you were a
coauthor).
The paper is attached with
this note. Any thoughts you have about it would be greatly appreciated.
I posted the paper to my SSRN
page and it is available at the following link:
http://ssrn.com/abstract=1537682 . I appreciate your willingness to read
and think about the paper.
Jim
January 18, 2010 reply from Bob Jensen
Hi Jim,
I’ve given your paper a cursory
overview and have a few comments that might be of interest.
You’ve overcome much of the
negativism about why accounting students tend not to participate in
the National Conferences on Undergraduate Research (NCUR). Thank you
for citing our old paper.
French, P., R. Jensen, and K. Robertson. 1992. Undergraduate student
research programs:re they as viable for accounting as they are in
science and humanities?"
Critical
Perspectives on Accounting
3 (December):
337-357. ---
Click Here
Abstract
This paper reviews a recent thrust in academia to stimulate more
undergraduate research in the USA, including a rapidly growing
annual conference. The paper also describes programs in which
significant foundation grants have been received to fund
undergraduate research projects in the sciences and humanities.
In particular, selected humanities students working in teams in
a new “Philosophy Lab” are allowed to embark on long-term
research projects of their own choosing. Several completed
projects are briefly reviewed in this paper.
In April 1989,
Trinity University hosted the Third National Conference on
Undergraduate Research (NCUR) and purposely expanded the scope
of the conference to include a broad range of disciplines. At
this conference, 632 papers and posters were presented
representing the research activities of 873 undergraduate
students from 163 institutions. About 40% of the papers were
outside the natural sciences and included research in music and
literature. Only 13 of those papers were in the area of business
administration; none were even submitted by accounting students.
In 1990 at Union College, 791 papers were presented; none were
submitted by accountants. In 1991 at Cal Tech, the first
accounting paper appeared as one of 853 papers presented.
This paper
suggests a number of obstacles to stimulating and encouraging
accounting undergraduates to embark on research endeavours.
These impediments are somewhat unique to accounting, and it
appears that accounting education programs are lagging in what
is being done to break down obstacles in science, pre-med,
engineering, humanities, etc. This paper proposes how to
overcome these obstacles in accounting. One of the anticipated
benefits of accounting student research, apart from the
educational and creative value, is the attraction of more and
better students seeking creativity opportunities in addition to
rote learning of CPA exam requirements. This, in part, might
help to counter industry complaints that top students are being
turned away from accounting careers nationwide.
In particular you seem to have picked up on our
suggestions in the third paragraph above and seemed to be breaking
new ground in undergraduate accounting education.
I am truly amazed by you're
having success when forcing undergraduate students to actually
conduct research in new knowledge.
Please keep up the good work and maintain your
enthusiasm.
1
Firstly, I would suggest that you focus on the topic of replication
as well when you have your students write commentaries on published
academic accounting research ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
I certainly would not expect intermediate
accounting students to attempt a replication effort. But it should
be very worthwhile to introduce them to the problem of lack of
replication and authentication of accountancy analytic and empirical
research.
2
Secondly, the two papers you focus on are very old and were never
replicated.. Challenges to both papers are private and in some cases
failed replication attempts, but those challenges were not published
and came to me only by word of mouth. It is very difficult to find
replications of empirical research in accounting, but I suggest that
you at least focus on some papers that have some controversy and are
extended in some way.
For example, consider the controversial paper:
"Costs of Equity and Earnings Attributes," by Jennifer Francis, Ryan
LaFond, Per M. Olsson and Katherine Schipper ,The Accounting
Review, Vol. 79, No. 4 2004 pp. 967–1010.
Also see
http://www.entrepreneur.com/tradejournals/article/179269527.html
Then consider
"Is Accruals Quality a Priced Risk Factor?" by John E. Core, Wayne
R. Guay, and Rodrigo S. Verdi, SSRN, December 2007 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=911587
This paper was also published in JAE in 2007 or 2008.
Thanks to Steve Kachelmeier for pointing this controversy (on
whether information quality (measured as the noise in accounting
accruals) is priced in the cost of equity capital) out to me.
It might be better for your students to see how
accounting researchers should attempt replications as illustrated
above than to merely accepted published accounting research papers
as truth unchallenged.
3.
Have your students attempt critical thinking with regards to
mathematical analytics in "Plato's Cave" ---
http://www.trinity.edu/rjensen/TheoryTAR.htm#Analytics
This is a great exercise that attempts to make them focus on
underlying assumptions.
4.
In Exhibit 1 I recommend adding a section on critical thinking about
underlying assumptions in the study. In particular, have your
students focus on internal versus external validity ---
http://www.trinity.edu/rjensen/TheoryTAR.htm#SocialScience .
You might look into some of the
research ideas for students listed at
http://www.trinity.edu/rjensen/theory01.htm#ResearchVersusProfession
5.
I suggest that you set up a hive at the AAA Commons for
Undergraduate Research Projects and Commentaries. Then post your own
items in this hive and repeatedly invite professors and students
from around the world to add to this hive.
keywords:
Accounting Research, Analytics, Empirical Research,
Undergraduate Research
From Bryn Mawr College
Serendip [Often makes use of Flash Player] ---
http://serendip.brynmawr.edu/exchange/
Bob Jensen's threads on general education tutorials are at
http://www.trinity.edu/rjensen/Bookbob2.htm#EducationResearch
Most Cited Articles in Accounting, Organizations and Society ---
http://www.journals.elsevier.com/accounting-organizations-and-society/most-cited-articles/
Most Downloaded Articles in Accounting, Organizations and Society ---
http://www.journals.elsevier.com/accounting-organizations-and-society/most-read-articles/
Most Cited Articles in Critical Perspectives On Accounting ---
http://www.journals.elsevier.com/critical-perspectives-on-accounting/most-cited-articles/
Most Downloaded Articles in Critical Perspectives On Accounting ---
http://www.journals.elsevier.com/critical-perspectives-on-accounting/most-read-articles/
Jensen Comment
Note that there is a bit of timing bias in such lists. Current articles have not
yet had much a chance to be the most cited or the most downloaded.
Question
Can you lower income taxes for people who don't pay any income taxes?
Note that about half the taxpayers in the United States do not pay any income
taxes.
Answer
Of course. You can increase their refunds that their already receiving before
you "lower" their taxes.
"Can you cut taxes for people who don't pay taxes?" Des Moines
Register, February 07, 2012 ---
http://www.rothcpa.com/archives/007655.php
Jensen Comment
It was conservative economist and Nobel Prize winner Milton Friedman who
advocated simplifying the welfare system by introducing a negative income tax.
We seem to have a negative income tax in place without giving Professor Friedman
enough credit .
"Losing Is for Losers: It’s Easier Than Ever to Back Up Your Work," by
Carol Saller, Chronicle of Higher Education, February 3, 2012 ---
Click Here
http://chronicle.com/blogs/linguafranca/2012/02/03/losing-is-for-losers-it%E2%80%99s-easier-than-ever-to-back-up-your-work/?sid=wc&utm_source=wc&utm_medium=en
"Windows 7's Built-in Backup," Lincoln Spector,
PC World via The Washington Post,
January 20, 2010 ---
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/18/AR2010011802423.html?wpisrc=nl_tech
Robert wants to know if Windows 7's built-in backup
program is worth using.
Microsoft has a history of bundling really bad
backup programs with their operating systems. The company has been accused
of a lot of monopolistic behavior, but their backup programs often seemed
designed to not threaten the market for third-party competitors.
So I wasn't prepared to like Windows 7's Backup and
Restore. But much to my amazement, I kind of do. It does image backups for
system protection and file backups for regular data protection--and does
both for the Home Premium as well as the Business and Ultimate editions. For
file backups, it defaults to backing up exactly what you should be backing
up (libraries, appdata, and a few other important folders), and lets you
tell it to back up any other folders you want to protect.
Backup and Restore can backup files incrementally,
saving only those created and changed since the last backup. And it does
versioning--if several versions of a file have been backed up, you can pick
which you want to restore. It defaults to restoring the most recent backup,
and generally avoids the confusion that versioning causes in some people.
And it's all very easy and direct.
Not that it's perfect. Backup and Restore allows
you to pick which drive you wish to backup to, but won't let you pick a
folder in that drive. It can be pretty picky about restoring an image, to
the point where I wouldn't use it for image backup. You can save to a
network, but not over the Internet. If you're looking for something better,
see
7 Backup Strategies for Your Data, Multimedia, and System Files.
PC World Senior Editor Robert Strohmeyer
(full disclosure: He's my editor) created a
video showing how to
set up a scheduled, automatic backup with Backup and Restore. But since I
don't believe in automatic backups--at least not to local media like an
external hard drive--I'll tell you how to back it up manually.
(What do I have against automatic backups? For them
to work, the backup media must always be available. This is fine if you're
backing up over a network or the Internet, but an external drive that's
connected to your PC 24/7 is vulnerable to the same disasters that could
destroy the data on your internal hard drive. It's best to connect a backup
drive only when you need to.)
To launch the program, simply click Start,
type , and select Backup and Restore. Plug in your external hard
drive and click Set up backup. Make your own decisions in the setup
wizard, but when you get to the last page, click Change schedule.
Uncheck Run backup on a schedule (recommended), and click OK.
You're set up.
To back up your data (and you should do this every
day), plug in the external drive, launch Backup and Restore as described
above, and click Back up now.
You can continue working as you back up.
Bob Jensen's threads on storage alternatives ---
http://www.trinity.edu/rjensen/Bookbob4.htm#archiving
"THE AUDITOR’S EXPECTATIONS GAP…NOT AGAIN! EXCUSES, EXCUSES, EXCUSES!"
Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog,
February 13, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/498
Darn you
Caleb Newquist for depressing us with yet another
example of how Big Four accounting firm leaders think, not to mention how
little they regard the investing public! In discussing ways to improve
audit quality in the wake of his firm’s atrocious inspection report by the
Public Company Accounting Oversight Board (PCAOB), Deloitte’s CEO,
Joe Echevarria stated:
There is an “expectations gap” between what auditors do and what
the public expects, but auditors do have an obligation to detect and
report material (emphasis added) fraud.
These two Grumpy Old Accountants simply can’t
believe that today’s global accounting firms continue to rely on an almost
40 year-old excuse to justify their shoddy audit work. Yes, we know this
because we were accounting undergraduates when this feeble defense was
rolled out for the first time. While the “expectations gap” reasoning may
have been believable in our youth, today it is nothing but a meaningless
excuse. After all, independent audits now are dramatically improved over
days gone by (or so we are told), and the Big Four have had four decades
(two generations of investors) to re-educate the investing public on what an
independent audit really represents.
So what does this term “expectations gap” mean
anyway? Well it depends on whom you ask, and when you ask them? According
to Lee et al. (2009), the term appears to have been coined in 1974 by C.D.
Liggio who defined it as the difference between the levels of expected
performance “as envisioned by the independent accountant and by the user of
financial statements.” Interestingly enough, in 1978, the American
Institute of CPA’s Cohen Commission, which was appointed to investigate the
existence of the “expectation gap,” concluded that it did in fact exist, and
that users of financial statements were NOT principally responsible for its
existence. Of course this finding preceded the AICPA becoming the lapdog of
big accounting firms.
However, once academia got involved, the definition
became more Big Four friendly…there’s a surprise given who funds most
auditing research. Monroe and Woodliff (1993) defined the audit
expectations gap as the difference in beliefs between auditors and the
public about the duties and responsibilities assumed by auditors
and the messages conveyed by audit reports. And, ten years later,
at a forum convened by the
U.S.
Government Accounting Office, participants agreed
that “an ‘expectation gap’ of what an audit is and what users expect
continues to exist, especially with the auditor’s responsibility for fraud
detection.” So, it took almost 20 years for the big accounting firms to
move the “expectation gap” argument from “what performance is
expected of an auditor,” to “what an auditor’s responsibilities
are.” A subtle, but important change, especially if you are trying to avoid
billions in legal liabilities for bad audits.
And this “expectation gap” is not solely a U.S.
phenomenon. Lee et al. (2009) in their literature review, report evidence
of such a gap globally. They note that the issue has been investigated in
numerous countries including the United Kingdom, Australia, New Zealand,
China, Singapore, Malaysia, and the Middle East. Whatever the country, the
results are the same: the audit “expectation gap” still exists.
So how can the “expectations gap” be narrowed or
eliminated? One proposed solution has been to establish an independent
oversight authority for auditors to enhance independence, regulate audit
fees, and clarify auditor responsibilities to detect fraud. Yet, despite
the creation of the
PCAOB in the U.S. and
the Professional
Oversight Board in the U.K., the gap continues.
Another suggestion is that the audit report be
expanded to better convey what an audit does and implies. In fact, the 1978
Cohen Commission report noted that “evidence abounds that communication
between the auditor and users of his work –especially through the auditor’s
standard report – is unsatisfactory.” Almost 35 years later, the profession
has finally gotten around to this potential remedy with the PCAOB’s release
in June 2011 of a
concept release with suggestions on modifying the
auditor’s report. Not surprisingly, the big accounting firms through their
lobbying mouthpiece, the Center for Audit Quality, have voiced their usual
concerns to changing the audit status quo in a
September 2011 statement.
It also has been suggested that the “expectation
gap” can be narrowed by auditors’ increasing their use of decision aids.
Such aids include standard checklists, forms, or computer programs that
assist auditors in making audit decisions which ensure that they consider
all relevant information, and also assist them in weighting and combining
information to make a decision. As one might expect, this proposal is not
very popular as it changes the status quo, admits the possibility that the
audit process might actually be flawed, and potentially increases audit
costs. More significantly, despite the past decade’s dramatic changes in
audit technologies, the expectation gap remains.
Last, but not least is the solution most favored by
the Big Four: the educating the public approach. Why? Because
these big accounting firms don’t have to substantively change the way they
do business, and it makes the expectation gap the public’s problem, not
theirs. As Lee et al. (2009) point out, however, education is not a
practical approach because the majority of the public is not university
educated, and of the few that have been, even fewer have taken auditing
courses. More importantly, there is simply no public interest in the work
of auditors per se.
So, after almost 40 years, Deloitte’s Joe
Echevarria treats us to yet another dose of the “expectation gap.” But a
question remains…could the Big Four meet the public’s expectation if they
really wanted to? The answer seems to be yes. In fact, participants at the
December 2002
GAO forum
(see page 19) on governance and accountability
suggested that a “forensic-type” audit might improve the likelihood that
auditors will detect fraudulent financial reporting. A similar call was
voiced over 10 years ago in August 2000 by the Public Oversight Board’s
Panel on Audit Effectiveness (page x) to “create a
‘forensic-type’ fieldwork phase on all audits.”
And the Big Four clearly have consulting practice
lines to do forensic auditing: Deloitte (Forensic
Audit Assistance), E&Y (Fraud
Investigation & Dispute Services), KPMG (KPMG
Forensic), and PricewaterhouseCoopers (Forensic
Services). So why can’t they (or won’t they) tap
these skills to close the expectation gap by giving the investing public
what they want? We know the answer: money! As long as regulators are
willing to accept poor quality audits as adequate oversight, the Big Four
have no incentive to increase their service delivery costs to improve audit
quality. Instead, the Big Four have clear incentives to continue reducing
their audit efforts (and costs) just as far as the regulators will
tolerate. And don’t forget, the regulators also now protect them from
substandard products via the “too
few to fail” doctrine.
Continued in article
Bob Jensen's threads on audit firm professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Hi Dennis,You may want to look at Carla Carnagha's slide show entitled
"Strategies for Teaching the Accounting Theory Course:
Curriculum, Pedagogy and Resources"
http://commons.aaahq.org/files/8ba2111d71/AAA_Presentation_final.ppt
Bob Jensen's continuously updated two volumes on accounting
theory ---
http://www.trinity.edu/rjensen/Theory01.htm
In particular, note the module entitled:
Purpose of
Theory: Prediction Versus Explanation
http://www.trinity.edu/rjensen/Theory01.htm#Purpose
Hi Dennis,
I think there's a fundamental choice to make regarding whether to focus on
accounting theory in history versus contemporary accounting theory.
Contemporary accounting theory builds on contemporary theory and contracting in
finance and economics, including such topics as those listed below:
Financial Accounting Theory Extensions of the Following Topics:
Structured Finance ---
http://en.wikipedia.org/wiki/Structured_finance
Securitization ---
http://en.wikipedia.org/wiki/Securitization
Portfolio Theory (including the CAPM and Options Pricing) ---
http://en.wikipedia.org/wiki/Portfolio_theory
M&M Theory ---
http://en.wikipedia.org/wiki/Modigliani-Miller_theorem
Financial Instruments ---
http://en.wikipedia.org/wiki/Financial_instruments
Derivative Financial Instruments ---
http://en.wikipedia.org/wiki/Derivative_%28finance%29
Other topics listed at
http://www.trinity.edu/rjensen/Theory01.htm
The last time I taught a contemporary accounting theory course, the 2006
syllabus was the one at
http://www.trinity.edu/rjensen/acct5341/acct5341.htm
Managerial and Organizational Accounting Theory Extensions could build on the
following: ---
Great Minds in Management: The Process of Theory Development
---
http://www.trinity.edu/rjensen//theory/00overview/GreatMinds.htm
Great Minds in Sociology ---
http://www.sociosite.net/topics/sociologists.php
Also see Also see
http://www.sociologyprofessor.com/
Accounting history builds on content of accounting theory articles in the
published leading academic accounting journals such as TAR between the Years
1925 and 1990. After 1990, I think many accounting theory professors shifted
more toward contemporary accounting theory topics. As a result, most previous
accounting theory textbooks became history.
The older style accounting theory courses were often rooted more in philosophy.
For example, you could cherry pick topics from Harry Wolk's 2009 four-volume
set. If course this set is both too extensive and too expensive to serve as a
textbook for a single course.
Capsule Commentary Book Review, The Accounting Review, January
2012, pp. 356-357 ---
http://aaajournals.org/doi/full/10.2308/accr-10189
CAPSULE COMMENTARY
Stephen A. Zeff, Editor
HARRY I. WOLK (editor), Accounting Theory
(London, U.K.: Sage Publications Ltd., 2009, ISBN 978-1-84787-609-6, pp.
xlv, 1,518 in four volumes) ---
http://www.uk.sagepub.com/books/Book233127?siteId=sage-uk&prodTypes=any&q=Accounting+Theory&fs=1
Harry I. Wolk, the compiler of this collection of
74 previously published articles and other essays, died in October 2009 at
age 79. In 1984, he was assisted by two colleagues in writing a thoughtful,
wide-ranging textbook on accounting theory, which is now in its seventh
edition. He has, thus, been a close student of the accounting theory
literature for many years.
Wolk's valedictory contribution is this anthology,
which is divided into ten sections: philosophical background, accounting
concepts, conceptual frameworks, accounting for changing prices, standard
setting, applications of accounting theory to five measurement areas, agency
theory, principles versus rules, international accounting standards, and
accounting issues in East and Southeast Asia. Because he provides only a
two-and-a-half-page general introduction, we cannot know the criteria he
used to make these selections. The earliest of the articles dates from 1958,
and one infers that this collection represents the body of work that, over
his long career, mostly at Drake University, he found to be influential
writings.
Among the major contributors to the theory
literature represented in the collection are Devine, Mattessich, Davidson,
Solomons, Sterling, Thomas, Bell, Shillinglaw, Bedford, Ijiri, and Stamp.
Conspicuous omissions are Chambers, Baxter, Staubus, Moonitz, Sorter, and
Vatter. Although many of the earlier pieces have stood the test of time, a
number of the more recent selections would, inevitably, be open to
second-guessing. To be sure, most of these articles can be accessed
electronically, yet it is instructive to know the works that Harry Wolk
believed were worth remembering, and it is handy to have them all in one
collection.
The price tag of £600/$1,050
for the four-volume set will, unfortunately, deter all but the most
enthusiastic purchasers.
Jensen Comment
And to think my constantly-updated accounting theory book (in two volumes) has a
price tag of $0 (Sigh!)---
http://www.trinity.edu/rjensen/Theory01.htm
But I do thank Harry for providing me with an accounting illustration that
I turned into the most popular Excel illustration that I ever authored (i.e.,
popular in the eyes of my students over the years) ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
Table of Contents ---
http://www.uk.sagepub.com/books/Book233127?siteId=sage-uk&prodTypes=any&q=Accounting+Theory&fs=1#tabview=toc
SECTION I: PHILOSOPHICAL BACKGROUND Accounting - A System of Measurement
Rules Devine, Carl Radical Developments in Accounting Thought Chua, Wai Fong
Accounting as a Discipline for Study and Practice Bell, Philip W. Why Can
Accounting Not Become a Science Like Physics? Stamp, Edward Social Reality
and the Measurement of Its Phenomena Mattessich, Richard Toward a Science of
Accounting Sterling, Robert R. Methodological Problems and Preconditions of
a General Theory of Accounting Mattessich, Richard
SECTION II: INFORMALLY DEVELOPED ACCOUNTING CONCEPTS A. Realization and
Recognition The Critical Event and Recognition of Net Profit Myers, John
Recognition Requirements - Income Earned and Realized Devine, Carl The
Realization Concept Davidson, Sidney B. Matching Cash Movements and Periodic
Income Determination Storey, Reed Some Impossibilities - Including
Allocations Devine, Carl The FASB and the Allocation Fallacy Thomas, Arthur
Conservatism Conservatism in Accounting, Part I: Explanation and
Implications Watts, Ross Conservatism in Accounting, Part II: Evidence and
Research Opportunities Watts, Ross The Changing Time-Series Properties
ofEarnings, Cash Flows, and Accruals: Has Financial Accounting Become Mor
Conservative? Givoly, Dan and Carla Hayn D. Disclosure Information
Disclosure Strategy Lev, Baruch Corporate Reporting and the Accounting
Profession: An Interpretive Paradigm Ogan, Pekin and David Ziebart Financial
Reporting in India: Changes in Disclosure over the Period 1982-1990 Marston,
C. L. and P. Robson Corporate Mandatory Disclosure Practices in Bangladesh
M. Akhtaruddin Corporate Governance and Voluntary Disclosure L.L. Eng and
Y.T. Mak Ownership Structure and Voluntary Disclosure in Hong Kong and
Singapore Chau, Gerald and Sidney Gray E. Uniformity Uniformity Versus
Flexibility: A Review of the Rhetoric Keller, Thomas Differences in
Circumstances!: Fact or Fancy Cadenhead, Gary Toward the Harmonization of
Accounting Standards: An Analytical Framework Wolk, Harry and Patrick
Heaston
SECTION III: CONCEPTUAL FRAMEWORKS FASB's Statements on Objectives and
Elements of Financial Accounting: A Review Dopuch, Nicholas and Shyam Sunder
The FASB's Conceptual Framework: An Evaluation Solomons, David The Evolution
of the Conceptual Framework for Business Enterprises in the United States
Zeff, Stephen Criteria for Choosing an Accounting Model Solomons, David
Objectives of Financial Reporting Walker, R.G. Reliability and Objectivity
of Accounting Methods Ijiri, Yuji and Robert Jaedicke
SECTION IV: ACCOUNTING FOR CHANGING PRICES Replacement Cost: Member of
the Family, Welcome Guest, or Intruder? Zeff, Stephen Costs (Historical
versus Current) versus Exit Values Sterling, Robert R. A Defense for
Historical Cost Accounting Ijiri, Yuji The Case for Financial Capital
Maintenance Carsberg, Bryan Income and Value Determination and Changing
Price Levels: An Essay Towards a Theory Stamp, Edward
SECTION V: ACCOUNTING STANDARDS AND FINANCIAL STATEMENTS Get it off the
Balance Sheet! Dieter, Richard and Arthur Wyatt Political Lobbying on
Proposed Standards: A Challenge to the IASB Zeff, Stephen A Review of the
Earnings Management Literature and Its Implications for Standard Setting
Healy, Paul and James Wahlen Relationships among Income Measurements
Bedford, Norton Some Basic Concepts of Accounting and Their Implications
Lorig, Arthur Economic Impact of Accounting Standards - Implications for the
FASB Rappaport, Alfred An Analysis of Factors Affecting the Adoption of
International Accounting Standards by Developing Countries Zeghal, Daniel
and Kerim Mhedhbi The Relevance of IFRS to a Developing Country: Evidence
from Kazakhstan Tyrrall, David, David Woodward and A. Rakhumbekova Political
Influence and Coexistence of a Uniform Accounting System and Accounting
Standards: Recent Developments in China Xiao, Jason, Pauline Weetman and
Manli Sun
SECTION VI: APPLIED ACCOUNTING THEORY A. Income Tax Allocation
Comprehensive Tax Allocation: Let's Stop Taking Some Misconceptions for
Granted Milburn, Alex Acccelerated Depreciation and the Allocation of Income
Taxes Davidson, Sidney Discounting Deferred Tax Liabilities pp. 655-665
Nurnberg, Hugo B. Leases Lease Capitalization and the Transaction Concept
Rappaport, Alfred Leasing and Financial Statements Shillinglaw, Gordon
Accounting for Leases - A New Framework McGregor, Warren C. Pensions and
Other Postretirement Liabilities Alternative Accounting Treatments for
Pensions Schipper, Katherine and Roman Weil A Conceptual Framework Analysis
of Pension and Other Postretirement Benefit Accounting Wolk, Harry and Terri
Vaughan OPEB: Improved Reporting or the Last Straw Thomas, Paula and Larry
Farmer D. Consolidations An Examination of Financial Reporting Alternatives
for Associated Enterprises King, Thomas and Valdean Lembke Valuation for
Financial Reporting: Intangible Assets, Goodwill, and Impairment Analysis
and SFAS 141 and 142 Mard, Michael, James Hitchner, Steven Hyden and Mark
Zyla Proportionate Consolidation and Financial Analysis Bierman, Harold The
Evolution of Consolidated Financial Reporting in Australia Whittred, Greg
Foreign Currency Translation Research: Review and Synthesis Houston, Carol
The Implementation of SFAS Number 52: Did the Functional Currency Approach
Prevail? Kirsch, Robert and Thomas Evans Financial Accounting Developments
in the European Union: Past Events and Future Prospects Haller, Axel E.
Intangibles Accounting for Research and Development Costs Bierman, Harold
and Roland Dukes The Boundaries of Financial Accounting and How to Extend
Them Lev, Baruch and Paul Zarowin The Capitalization, Amortization, and
Value Added Relevance of R & D Lev, Baruch and Theodore Sougiannis
Accounting for Brands in France and Germany Compared With IAS 38 (Intangible
Assets: An Illustration of the Difficulty of International Harmonization)
Stolowy, Herve, Axel Haller and Volker Klockhaus Accounting for Intangible
Assets in Scandinavia, the U.K., and U.S. and the IASB: Challenges and a
Solution Hoeg-Krohn, Niels and Kjell Knivsfla
SECTION VII: POSITIVE ACCOUNTING THEORY The Methodology of Positive
Accounting Christenson, Charles Positive Accounting Theory: A Ten Year
Perspective Watts, Ross and Jerrold Zimmerman Positive Accounting Theory and
the PA Cult Chambers, Raymond Accounting and Policy Choice and Firm
Characteristics in the Asia-Pacific Region: an International Empirical Test
of Costly Contracting Theory Astami, Emita and Greg Tower
SECTION VIII: THE TRUE AND FAIR VIEW AND PRINCIPLES VERSUS RULES-BASED
STANDARDS Principles Versus Rules-Based Accounting Standards: The FASB's
Standard Setting Strategy Benston, George, Michael Bromwich and Alfred
Wagenhofer The True and Fair View in British Accounting Walton, Peter A
European True and Fair View Alexander, David Rules, Principles, and
Judgments in Accounting Standards Bennett, Bruce, Helen Prangell and Michael
Bradbury
SECTION IX: INTERNATIONAL ACCOUNTING AND CONVERGENCE The Introduction of
International Accounting Standards in Europe: Implications for International
Convergence Schipper, Katherine The Adoption of International Accounting
Standards in the European Union pp. 127-153 Whittington, Geoffrey Trends in
Research on International Accounting Harmonization pp. 272-304 Baker, C.
Richard and Elena Barbou The Quest for International Accounting
Harmonization: A Review of the Standard- Setting Agendas of the IASC, US,
UK, Canada and Australia, 1973-1997 Street, Donna and Kimberly Shaughnessy
From National to Global Accounting and Reporting Standards McKee, David, Don
Garner and Yosra AbuAmara McKee A Statistical Model of International
Accounting Harmonization pp. 1-29 Archer, Simon, Pascal, Delvaille and
Stuart McLeay
SECTION X: OTHER NATIONAL AND REGIONAL ACCOUNTING STUDIES The
Institutional Environment of Financial Reporting Regulation in ASEAN
Countries Saudogaran, Sharokh and J. Diga Corporate Financial Reporting and
Regulation in Japan Benston, George, Michael Bromwich, Robert Litan and
Alfred Wagenhofer Accounting Theory in the Political Economy of China Shuie,
Fujing and Joseph Hilmy Ownership Structure and Earnings Informativeness:
Evidence from Korea Jung, Kooyul and Kwon Soo Young Accounting Developments
in Pakistan Ashraf, Junaid and WaQar Ghani Accounting Theory in the
Political Economy of China Shuie, Fujing and Joseph Hilmy Ownership
Structure and Earnings Informativeness: Evidence from Korea Jung, Kooyul and
Kwon Soo Young Corporate Ownership and Governments in Russia Krivogorsky,
Victoria Accounting Developments in Pakistan
Jensen Comment
I have not yet read this book, although it is on order. The table of contents is
certainly very comprehensive. When I get the book I anticipate some major
strenghts (e.g., history) and some major weaknesses such as superficial coverage
of XBRL and financial instruments accounting, particularly derivative financial
instruments and hedging activities.
One problem with this book is bad timing. It has copyright date of 2009, but
most of the modules were written much earlier before major happenings in
accounting standard setting such as new standards and interpretations (domestic
and international) on leases, revenue recognition, consolidations, fair value
accounting, and hedging.
I think the book will also be weak in the following critical areas of my own
free accounting theory online book ---
http://www.trinity.edu/rjensen/Theory01.htm
Respectfully,
Bob Jensen
Because of the six-month time limits these are not like eBooks that you can
purchase for a lifetime
Harvard Business Review's Online Self-Paced Learning Programs in Accounting
---
Click Here
http://hbr.org/product/financial-accounting-online-course-introductory-se/an/4001HB-HTM-ENG?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
The Harvard Business School has not been as generous as MIT's Sloan School in
open sharing free learning materials ---
http://ocw.mit.edu/courses/#sloan-school-of-management
MIT's Open Sharing Courses in General ---
http://ocw.mit.edu/index.htm
Bringing Low Cost Education and Training to the Masses
Jensen Comment
Perhaps a better analogy than a Volkswagen versus a Porsche would be where a MIT
jumbo jet takes off in the evening from Differential Equations in the USA bound
for Bessel Functions, Germany. Passengers in First Class get live MIT professors
and one-on-one help in preparation for landing. Passengers in the economy
section are only given videos of the MIT professors and the MITx free course
handout materials. Beyond that the economy class passengers are on their own.
MIT professors keep first class passengers attentive whenever there's a hint
of a passenger falling asleep or day dreaming. They also require interactive
feedback. Back in the economy section 95% of the passengers grow bored and doze
off around midnight. But the others are even more driven than the first class
passengers to pass through customs at Bessel Functions.
Upon arrival each passenger is given a competency examination in Bessel
functions. Passage rates are 80% (24 passengers) for first class passengers and
5% (50 passengers) for economy class passengers. Those that fail must return to
the USA.
The point is that, in spite of having much higher failure rates, there are
many more MITx graduates passing through Bessel Functions competency
examinations than MIT graduates who paid for luxuries of live lectures and
interactive communications with their instructors.
The problem with MITx low cost (economy class) fares is that students that
are not highly motivated fail the competency examinations. Those students needed
first class live classes or online interactive inspirations and prodding to
learn.
The enormous problem with Professor Obama's drive to bring low cost education
to the masses is that there is such a high proportion of students who want top
grades without the scholastic blood, sweat, and tears it takes to attain
scholastic competency . These are the couch potatoes and the hard workers
dragged down by other duties (such as tending to two toddlers at their feet and
a baby in their arms) who are driven to learn but just have other duties and
priorities.
MIT is doing wonders with its MITx certificate program for intelligent and
highly motivated students. But MIT has not yet offered help to those students
not even motivated to bleed, perspire, and cry over college algebra, spelling,
and grammar.
Bob Jensen's threads on competency based assessment are at
http://www.trinity.edu/rjensen/Assess.htm#ComputerBasedAssessment
Bob Jensen's threads on the MITx certificate program are at
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
"Will MITx Disrupt Higher Education?" by Robert Talbert, Chronicle
of Higher Education, December 20, 2011 ---
http://chronicle.com/blognetwork/castingoutnines/2011/12/20/will-mitx-disrupt-higher-education/?sid=wc&utm_source=wc&utm_medium=en
MIT has been doing online access to education a lot
longer than most people, largely due to their invaluable
OpenCourseWare project. (Here’s an
interview MIT did with me last year on how OCW
strongly influenced my inverted-classroom MATLAB course.) Now they are
poised to go to the next level by
launching an online system called MITx in Spring 2012 that provides
credentialing as well as content:
Mr. Reif and Anant Agarwal, director of the
Computer Science and Artificial Intelligence Lab, said M.I.T.x would
start this spring — perhaps with just one course — but would expand to
include many more courses, as OpenCourseWare has done. [...]
The M.I.T.x classes, he said, will have online
discussions and forums where students can ask questions and, often, have
them answered by others in the class.
While access to the software will be free,
there will most likely be an “affordable” charge, not yet determined,
for a credential.
“I think for someone to feel they’re earning
something, they ought to pay something, but the point is to make it
extremely affordable,” Mr. Reif said. “The most important thing is that
it’ll be a certificate that will clearly state that a body sanctioned by
M.I.T. says you have gained mastery.”
The official FAQ reveals a couple of additional
points. First, the content of MITx courses will be free — which seems to
imply that MITx course content will be different than OCW course content,
and not just a certification layer on top of existing resources — and you’ll
only pay money for the certificate. Second, there will be no admissions
process. If you want a course, you just take it and then pay for the
credentialing if you feel like you’re up to it.
I think this last point about having no admissions
process may be the most significant piece of MITx. It seems to represent a
complete shift from the traditional way of providing access to higher
education. As far as I can tell, there will not even be a system of checking
prerequisites for MITx courses. If that’s so, then if you feel you can step
into, say, an Algorithms class and keep up with the material and demonstrate
your mastery, then nobody at MIT will care if you haven’t had the right
courses in basic programming, data structures, discrete math, or whatever.
MIT is basically saying, we won’t be picky about who we let take these
courses — if you can afford it and live up to our standards, we’re happy to
credential you.
Of course there are a lot of questions about MITx
that are yet to be answered. What is the “modest fee” they plan to charge,
and is it really affordable? How exactly will the credentialing process
work? (It’s interesting that the certification will be handled by a
non-profit organization to be formed within MIT. Is this a kind of
outsourcing of grading?) How will one “demonstrate mastery” and what will
MITx define as “mastery” in courses that are not strictly skills-based? Will
there eventually be a full enough slate of courses offered to make the whole
system compelling for learners? And perhaps most importantly, what will
employers, graduate schools, and even undergraduate institutions make of
applicants who come in with some of these MITx certifications? Without
external buy-in, MITx will likely be just another continuing education
program like hundreds of others.
We’ll hear a lot more about this in the future, but
for now this seems to have the potential to be genuinely disruptive in
higher education. What do you think?
"MIT Expands 'Open' Courses, Adds Completion Certificates," Inside
Higher Ed, December 19, 2011 ---
http://www.insidehighered.com/quicktakes/2011/12/19/mit-expands-open-courses-adds-completion-certificates
The Massachusetts Institute of Technology -- which
pioneered the idea of making course materials free online --
today announced a major expansion of the idea,
with the creation of MITx, which will provide for interaction among
students, assessment and the awarding of certificates of completion to
students who have no connection to MIT.
MIT is also starting a major initiative -- led by
Provost L. Rafael Reif -- to study online teaching and learning.
The first course through MITx is expected this
spring. While the institute will not charge for the courses, it will charge
what it calls "a modest fee" for the assessment that would lead to a
credential. The credential will be awarded by MITx and will not constitute
MIT credit. The university also plans to continue
MIT OpenCourseWare,
the program through which it makes course materials
available online.
An
FAQ from MIT offers
more details on the new program.
While MIT has been widely praised for
OpenCourseWare, much of the attention in the last year from the "open"
educational movement has shifted to programs like the
Khan Academy (through
which there is direct instruction provided, if not yet assessment) and
an initiative at Stanford University that makes
courses available -- courses for which some German universities are
providing academic credit. The new initiative would appear to provide some
of the features (instruction such as offered by Khan, and certification that
some are creating for the Stanford courses) that have been lacking in
OpenCourseWare.
"A Policy Wonk Brings Data on College Costs to the Table," by Goldie
Blumenstyk, Chronicle of Higher Education, February 5, 2012 ---
http://chronicle.com/article/A-College-Cost-Policy-Wonk/130662/
The dozen higher-education leaders summoned to the
White House in December to talk about college affordability included 10
prominent college presidents and the head of one of the nation's most
visible education foundations.
And the 12th person, the person seated right across
from the president to open and frame the discussion? A self-made number
cruncher named Jane Wellman, whose outspoken devotion to the power of data
has helped raise some uncomfortable questions about the way states and
colleges spend their higher-education dollars.
That Roosevelt Room meeting helped shape some of
the college-cost-control proposals Mr. Obama announced last month. It also
provided a notable reminder of the national influence Ms. Wellman and her
Delta Cost Project now wield.
With sophisticated analyses and an often-sardonic
delivery, Ms. Wellman has been a pull-no-punches critic of fiscal policies
that starve the institutions educating the biggest proportion of
students—"public universities are getting screwed, and the community
colleges in particular are getting screwed," she says.
She is just as dismissive of the "trophy-building
exercises" of public and private institutions that elevate their research
profiles by hiring professors who never teach or that dole out merit aid to
enhance their admissions pedigrees. And don't even get her started on the
climbing-wall craze or colleges whose swimming pools "have those fake rivers
for people to raft on."
But most of all, through the Delta Project and
other consulting work, she's been an advocate for using financial
information and other data to highlight spending patterns and bring into
greater relief the true costs of academic and administrative decisions. In
higher education, she says, policy makers and administrators too often
present "an analytically correct road to complete ground fog."
Her antidote, created in 2006, was the Delta
Project on Postsecondary Costs, Productivity, and Accountability, an
independent, grant-backed organization that produces the annual "Trends in
College Spending" and other reports. Over the past several years, the Delta
Project's
reports have
highlighted the spending shift from instruction to administration, the
rising cost of employee benefits, and how community colleges have been
disproportionately hurt by public disinvestment.
Notably, the reports are formatted to reflect the
diversity of institutions—the comparisons are organized by sector, so
community colleges aren't compared with research universities—and to reflect
several categories of spending, not simply revenues and expenses. Ms.
Wellman says that's deliberate. Too many of the generalizations about
higher-education costs are "based on one part of the elephant," she says. "I
wanted to neutralize that."
She has also been eager to bust open some of the
rationalizations that college leaders trot out, such as that higher
education's rising costs are justified because of uniquely high personnel
expenditures. "Everybody spends 80 percent on payroll, unless you're a
lumber mill," she says.
That mix of bluntness and evidence is what's
brought the Delta Project, and her, credibility and fans.
"It's the only place in higher ed that's really
laser-focused on the question 'How much do you get for how much you put
in?'" says Travis Reindl, program director for the education division of the
National Governors Association. "She has made the cost issue more
approachable than anybody else I can think of, especially for people who
don't eat, sleep, and breathe this stuff."
A Background in
Policy
But after five years, Ms. Wellman and the Delta
Project are undergoing a transition. Under an arrangement Ms. Wellman
masterminded, the organization last month merged its database of financial
information into the National Center for Education Statistics and moved the
policy-analysis side of its work to the American Institutes for Research,
where it will continue to produce reports as the Delta Cost Project AIR.
Ms. Wellman, 62, will remain an adviser to the
project, but will also devote more time to her role as executive director of
the National Association of System Heads, a group for presidents and
chancellors of public university and community-college systems. She says the
new role will give her a different kind of platform to articulate "the moral
imperative" of financing the institutions attended by a majority of
students—including those who are the neediest.
It's a natural step for her, says Charles B. Reed,
chancellor of the California State University system: "Jane has a vision,
and I think it's because of the work she's created in the Delta Project."
Ms. Wellman's interest in higher education began
largely by accident. She dropped out of the University of California at
Berkeley in the late 1960s to get a job and establish residency as an
in-state student. As she tells it, she "ended up typing for David Breneman,"
who was then finishing his dissertation before going on to become a
nationally known scholar on the economics of higher education. The subject
matter "resonated with my political interest," says Ms. Wellman.
She stayed at Berkeley for a master's in higher
education and then began working as policy analyst, first for the University
of California system and later as staff director for the Ways and Means
Committee in the California State Assembly. (The man who would become her
husband was working there, too, for a committee on prisons.) She was
frustrated by a lot of what she saw, both in Sacramento and when she moved
to Washington, in the early 1990s, and worked for two and a half years as a
lobbyist for the National Association of Independent Colleges and
Universities. Her higher-education colleagues would say things like
"Complexity is our friend" when preparing to talk budgets to
legislators—and to bury them with numbers.
By the mid-2000s, after about a decade of
consulting for the Cal State system and working on government and
association commissions on college costs—and seeing all of them "go to
naught"—she decided it was time "to create the data set and the methodology
that I knew was possible" to bring more clarity to the issues of spending.
"We were hugely helped by the recession," she says.
"At any other time, I would have gotten much more pushback from the
institutions."
Data for
Everybody
Richard Staisloff, a consultant on college finance
who teaches with Ms. Wellman at an executive doctoral program in education
at the University of Pennsylvania, says her contribution comes in "myth
busting." Often, he says, she makes it clear that where students are is not
where money is being spent. "It's hard to run from the data," says Mr.
Staisloff.
Mr. Reindl remembers getting together for coffee
with Ms. Wellman here in Washington and listening as "she sketched out on a
Starbucks napkin" her plans for the Delta Project (she chose the name since
it's the mathematical symbol for "change"). Those ideas have taken root, he
says. When people like Jay Nixon, the governor of Missouri and a Democrat,
talk about state spending and degrees per dollar spent, "that's really out
of Delta, and that's a governor talking," he says. "She has made it not only
OK to talk about outcomes and resources in the same sentence, she's made it
necessary."
At least one critic of rising college costs,
however, questions whether she's too much of an "establishment figure" to be
an effective reformer. Richard Vedder, a professor of economics at Ohio
University (and a blogger for The Chronicle), says her data are
good, but "Jane doesn't tell us what to do about it." He says he wishes
she'd do more to tie her information to data on what students are learning.
"Where does Academically Adrift fit into the picture?" he asks.
Continued in article
Jensen Comment
Having taught managerial and cost accounting for over 40 years, it seems to me
that Jane Wellman is overlooking some systemic problems
of cost accounting, cost allocations, and cost aggregations that can
make her numbers very misleading ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews
- Systemic Problem: Aggregation Issues With Vegetable Nutrition
- Systemic Problem: All
Aggregations Are Arbitrary
- Systemic Problem: All
Aggregations Combine Different Measurements With Varying Accuracies
- Systemic Problem: All
Aggregations Leave Out Important Components
- Systemic Problem: All
Aggregations Ignore Complex & Synergistic Interactions of Value and Risk
- Systemic Problem: Disaggregating of Value or Cost is Generally
Arbitrary
- Systemic Problem: Systems Are
Too Fragile
- Systemic Problem: More Rules
Do Not Necessarily Make Accounting for Performance More Transparent
- Systemic Problem: Economies
of Scale vs. Consulting Red Herrings in Auditing
- Systemic Problem: Intangibles
Are Intractable
Bob Jensen's threads on on other questionable attempts to derive and compare
costs of alternative degree tracks in colleges and universities and the "worth"
of professors ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#CostAccounting ---
Bob Jensen's threads on open source video and course materials from
prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's threads on education technology in general ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
THE COLLEGE OF 2020: STUDENTS ---
https://www.chronicle-store.com/Store/ProductDetails.aspx?CO=CQ&ID=76319&PK=N1S1009
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Bob Jensen's threads on online training and education alternatives ---
http://www.trinity.edu/rjensen/Crossborder.htm
"Treating Higher Ed's 'Cost Disease' With Supersize Online Courses,"
by Marc Parry, Chronicle of Higher Education, February 26, 2012 ---
http://chronicle.com/article/Treating-Higher-Eds-Cost/130934/?sid=wc&utm_source=wc&utm_medium=en
Oh my God, she's trying to replace me with a
computer.
That's what some professors think when they hear
Candace Thille pitch the online education experiment she directs, the Open
Learning Initiative at Carnegie Mellon University.
They're wrong. But what her project does replace is
the traditional system of building and delivering introductory college
courses.
Professors should move away from designing
foundational courses in statistics, biology, or other core subjects on the
basis of "intuition," she argues. Instead, she wants faculty to work with
her team to put out the education equivalent of Super Bowl ads: expensively
built online course materials, cheaply available to the masses.
"We're seeing failure rates in these large
introductory courses that are not acceptable to anybody," Ms. Thille says.
"There has to be a better way to get more students—irrespective of where
they start—to be able to successfully complete."
Her approach brings together faculty subject
experts, learning researchers, and software engineers to build open online
courses grounded in the science of how people learn. The resulting systems
provide immediate feedback to students and tailor content to their skills.
As students work through online modules outside class, the software builds
profiles on them, just as Netflix does for customers. Faculty consult that
data to figure out how to spend in-person class time.
When Ms. Thille began this work, in 2002, the idea
was to design free online courses that would give independent novices a shot
at mastering what students learn in traditional classes. But two things
changed. One, her studies found that the online system benefits on-campus
students, allowing them to learn better and faster than their peers when the
digital environment is combined with some face-to-face instruction.
And two, colleges sank into "fiscal famine," as one
chancellor put it. Technological solutions like Ms. Thille's promise one
treatment for higher education's "cost disease"—the notion, articulated by
William G. Bowen and William J. Baumol, that the expense of labor-heavy
endeavors like classroom teaching inevitably rises faster than inflation.
For years, educational-technology innovations led
to more costs per student, says Mr. Bowen, president emeritus of Princeton
University. But today we may have reached a point at which interactive
online systems could "change that equation," he argues, by enabling students
to learn just as much with less "capital and labor."
"What you've got right now is a powerful
intersection between technological change and economics," Mr. Bowen tells
The Chronicle.
Ms. Thille is, he adds, "a real evangelist in the
best sense of the word."
Nowadays rival universities want to hire her.
Venture capitalists want to market her courses. The Obama administration
wants her advice. And so many foundations want to support her work that she
must turn away some would-be backers.
But the big question is this: Can Ms. Thille get a
critical mass of people to buy in to her idea? Can she expand the Online
Learning Initiative from a tiny darling of ed-tech evangelists to something
that truly changes education? A Background in Business
Ms. Thille brings an unusual biography to the task.
The 53-year-old Californian spent 18 years in the private sector,
culminating in a plum job as a partner in a management-consulting company in
San Francisco. She earned a master's degree but not a doctorate, a gap she's
now plugging by studying toward a Ph.D. at the University of Pennsylvania.
She has never taught a college course.
Ms. Thille wasn't even sure she'd make it through
her own bachelor's program, so precarious were her finances at the time. Her
family had plunged from upper middle class to struggling after her father
quit his job at the Lockheed Missiles and Space Company because of his
opposition to the Vietnam War. But with jobs and scholarships, she managed
to earn a degree in sociology from Berkeley.
After college, Ms. Thille followed her fiancé to
Pittsburgh. The engagement didn't last, but her connection to the city did.
She worked as education coordinator for a rape-crisis center, training
police and hospital employees.
She eventually wound up back in California at the
consultancy, training executives and helping businesses run meetings
effectively. There she took on her first online-learning project: building a
hybrid course to teach executives how to mentor subordinates.
Ms. Thille doesn't play up this corporate-heavy
résumé as she travels the country making the case for why professors should
change how they teach. On a recent Tuesday morning, The Chronicle tagged
along as that mission brought Ms. Thille to the University of Illinois at
Chicago, where she was meeting with folks from the university and two nearby
community colleges to prepare for the development of a new pre-calculus
course.
It's one piece of a quiet but sweeping push to
develop, deploy, and test Open Learning Initiative courses at public
institutions around the country, led by an alphabet soup of education
groups.
The failure rate in such precalculus courses can be
so bad that as many as 50 percent of students need to take the class a
second time. Ms. Thille and her colleagues hope to improve on that record
while developing materials of such quality that they're used by perhaps
100,000 students each year. Facing Skepticism
But first the collaborators must learn how to build
a course as a team. As Ms. Thille fires up her PowerPoint, she faces a dozen
or so administrators and professors in Chicago. The faculty members
segregate themselves into clusters—community-college people mostly in one
group, university folks mostly in another. Some professors are learning
about the initiative in detail for the first time. There is little visible
excitement as they plunge into the project, eating muffins at uncomfortable
desks in a classroom on the sixth floor of the Soviet-looking
science-and-engineering building.
By contrast, Ms. Thille whirls with enthusiasm. She
describes Online Learning Initiative features like software that mimics
human tutors: making comments when students go awry, keeping quiet when they
perform well, and answering questions about what to do next. She discusses
the "dashboard" that tells professors how well students grasp each learning
objective. Throughout, she gives an impression of hyper-competence, like a
pupil who sits in the front row and knows the answer to every question.
But her remarks can sometimes veer into a
disorienting brew of jargon, giving the impression that she is talking about
lab subjects rather than college kids. Once she mentions "dosing" students
with a learning activity. And early on in the workshop, she faces a feisty
challenge from Chad Taylor, an assistant professor at Harper College. He
worries about what happens when students must face free-form questions,
which the computer doesn't baby them through.
"I will self-disclose myself as a skeptic of these
programs," he says. Software is "very good at prompting the students to go
step by step, and 'do this' and 'do that,' and all these bells and whistles
with hints. But the problem is, in my classroom they're not prompted step by
step."
Around the country, there's more skepticism where
that came from, Ms. Thille confides over a dinner of tuna tacos later that
day. One chief obstacle is the "not-invented-here problem." Professors are
wary of adopting courses they did not create. The Online Learning
Initiative's team-based model represents a cultural shift for a
professoriate that derives status, and pride, from individual contributions.
Then there's privacy. The beauty of OLI is that
developers can improve classes by studying data from thousands of students.
But some academics worry that colleges could use that same data to evaluate
professors—and fire those whose students fail to measure up.
Ms. Thille tells a personal story that illustrates
who could benefit if she prevails. Years ago she adopted a teenager, Cece.
The daughter of a drug user who died of AIDS, Cece was 28 days' truant from
high school when she went to live with Ms. Thille. She was so undereducated,
even the simple fractions of measuring cups eluded her. Her math teacher
told Ms. Thille that with 40 kids in class, she needed to focus on the ones
who were going to "make it."
Continued in article
Jensen Comment
In a way we already have something like this operating in colleges and
universities that adopt the Brigham Young University variable speed video disks
designed for learning the two basic accounting courses without meeting in
classrooms or having the usual online instruction. Applications vary of course,
and some colleges may have recitation sections where students meet to get help
and take examinations ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#BYUvideo
Although BYU uses this no-class video pedagogy, it must be recognized that
most of the BYU students learning accounting on their own in this manner are
both exceptionally motivated and exceptionally intelligent. For schools that
adopt the pedagogies of Me. Thile or BYU, the students must be like BYU
accounting students or the pedagogy must be modified for more hand holding and
kick-butt features that could be done in various ways online or onsite.
Perhaps Ms. Thille is being somewhat naive about turf wars in universities.
Certain disciplines are able to afford a core faculty for research and
advanced-course teaching with miniscule classes because teaching large base
courses in the general education core justifies not having to shrink those
departments with almost no majors.
Where Ms. Thille's pedagogy might be more useful is in specialty courses
where its expensive to hire faculty to teach one or two courses. For example,
it's almost always difficult for accounting departments to hire top faculty for
governmental accounting courses and the super-technical ERP courses in AIS.
Bob Jensen's threads on courses without instructors ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#NoInstructors
Of course Ms. Thille is not exactly advocating a pedagogy without instructors.
There are instructors in her proposed model.
Bob Jensen's threads on competency-based learning and assessment ---
http://www.trinity.edu/rjensen/Assess.htm#ECA
Watch the Video of Bradley Wheeler, CIO at Indiana University
"A Business Professor Turned CIO Practices What He Teaches," by Jeffrey
R. Young, Chronicle of Higher Education, February 26, 2012 ---
http://chronicle.com/article/A-Business-Professor-Turned/130913/?sid=wc&utm_source=wc&utm_medium=en
Apple is revered in business circles for its tough
bargaining with suppliers to keep down production costs on its popular
iPhones and computers. Colleges should emulate that aggressive stance when
buying their technology, argues Bradley C. Wheeler, chief information
officer at Indiana University at Bloomington.
Mr. Wheeler has spent most of his career as a
business professor, and he is applying the same lessons he teaches his
executive-MBA students to managing the university's technology.
Lately, that has meant getting involved in a
subject not usually handled by CIO's: textbooks.
The administrator has led a pilot effort at Indiana
to broker a deal with publishers that greatly lowers the per-book cost in
exchange for a guarantee that every student will buy the e-textbooks they
are assigned (by instituting a course-materials fee). Other universities are
following Indiana's lead.
In recent talks, he compares managing college
technology to a chess match, with colleges on one side and tech companies on
the other. "It is very collective," he says, and colleges need to work
together and look ahead several moves to try to picture what tomorrow's
technology and needs might be.
Collaboration has been his game plan for years. He
has led or participated in several efforts by colleges to build their own
open-source alternatives to commercial education software. The largest are
Sakai for virtual classrooms and Kuali for administrative functions.
The 47-year-old was raised on a farm in a
"one-flashing-light, peanut town" of 1,200 people in Oklahoma. His family
also owned a local car dealership, and he learned to help out in all areas
of the business.
In that small-town environment, he says he learned
that "no one's disposable—you have to make the relationships work over
time."
"Some people say I'm anticorporate, but nothing can
be further from the truth," he adds. "I just believe the buyer side has to
be organized and work as well as the seller side."
Continued in article
Watch the Video
Issues in Computing a College's Cost of Degrees Awarded and "Worth" of
Professors ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
"Professor Wants a New Job?" by David Albrecht, The Summa,
February 23, 2012 ---
http://profalbrecht.wordpress.com/2012/02/23/professor-want-a-new-job/
"SpiderOak Step by Step," by Natalie Houston, Chronicle of Higher
Education, February 28, 2012 ---
http://chronicle.com/blogs/profhacker/spideroak-step-by-step/38776?sid=wc&utm_source=wc&utm_medium=en
At ProfHacker, we write a lot about
backing up your files, because it’s one of the
simplest things you can do to make some future day easier (and possibly
prevent months or years of work from being lost). With
cloud-based backup solutions, backups are easy to
set up and automate. Six or seven years ago, whenever I heard a story about
someone experiencing a hard drive crash, it was a tale of stress and woe. It
seems telling to me that within the last month, I’ve spoken to two people
who had hard drives fail but who were completely untroubled (except for the
expense or time lost in replacing the drive), because they had automated
cloud backups in place and knew that all of their files were safe.
I’ve been using
SpiderOak
as my primary cloud based backup solution for over a
year and am very pleased with the level of security that they offer, as well
as the many options built into their service. SpiderOak not only gives me
automated, nearly-instantaneous backups of my files, but also lets me
synchronize files and folders across multiple computers. I routinely work
on three different computers, with some general differences as to the type
of work I do on each. For instance, I write teaching notes almost
exclusively at my desktop computer at the university. But I might work on
some projects on multiple machines. With SpiderOak’s file synchronization,
for example, when I’m writing a conference paper, I know that I’ll be
looking at same set of notes on both my laptop and my desktop computers. No
matter where I am, even on someone else’s computer, I can access any of my
files that have been backed up and download them from the SpiderOak service.
In explaining SpiderOak to friends and colleagues
over the past year, I’ve realized that
if you’re new to online backup, some of the terms and options available can
be a bit confusing. So the following guide is meant to help you get started
using SpiderOak, should you be interested in giving it a try. Of course,
SpiderOak’s website also offers
video tutorials
and answers to
frequently asked questions.
Getting Started
First, you create an account at SpiderOak’s
website. The most important thing to realize here is that: you and
only you will have knowledge of the account password you create.
SpiderOak does not keep a record of it, which is known as a
zero-knowledge policy. A basic free account will
store 2 GB of data. Users who sign up with an email address in an .edu
domain can receive a discount on paid plans.
Download the SpiderOak software for your operating
system (Windows, Mac, or Linux). Once installed, it will ask you to log in
with your account credentials.
Select What to Backup
From the Back Up tab in the software, you can
select which folders you want to have SpiderOak back up. You can either
select specific folders from the directory tree in the right-hand pane, or
just choose types of files (documents, photographs, etc) from the left-hand
pane.
Continue for step-by-step instructions
Bob Jensen's threads on archiving and backup ---
http://www.trinity.edu/rjensen/Bookbob4.htm#archiving
Federal Reserve Bank of San Francisco: Teacher Resources Index ---
http://www.frbsf.org/education/teachers/index.html
Apple does not have a corner on the market for innovations in textbook
authoring
"2 New Platforms Offer Alternative to Apple’s Textbook-Authoring Software,"
by Nick DeSantis, Chronicle of Higher Education, February 17. 2012 ---
Click Here
http://chronicle.com/blogs/wiredcampus/2-new-platforms-offer-alternative-to-apples-textbook-authoring-software/35495?sid=wc&utm_source=wc&utm_medium=en
Apple’s recent release of free software to build
e-textbooks has brought attention to custom publishing of academic
materials. But Apple’s software, called iBooks Author, lacks easy tools for
multiple authors to collaborate on a joint textbook project. Since most
books aren’t written in isolation, two new publishing platforms seek to make
that group collaboration easier.
The first,
Booktype,
is free and open-source. Once the platform is
installed on a Web server, teams of authors can work together in their
browsers to write sections of books and chat with each other in real time
about revisions. Entire chapters can be imported and moved around by
dragging and dropping. The finished product can be published in minutes on
e-readers and tablets, or exported for on-demand printing. Booktype also
comes with community features that let authors create profiles, join groups,
and track books through editing.
Inkling
Habitat, the other new offering, appears to have
even greater ambitions. Where iBooks Author is designed mostly for would-be
amateur publishers, Inkling Habitat creates a cloud-based platform for the
professional market. Matthew MacInnis, Inkling’s chief executive, said the
company’s tool is designed to give the global teams who work on
professionally published textbooks a single outlet to publish interactive
material for the iPad and the Web. Mr. MacInnis said hundreds of users can
access the same textbook content at once, and the software will keep track
of each step in the editing process.
Inkling Habitat also automates some of the editing
process that is unique to e-textbooks, like checking for broken links
between special terms and their definitions in a glossary. Those automatic
functions, Mr. MacInnis said, will allow e-textbook publishing to get easier
without requiring additional staff. “You can’t build the industry up around
digital content if you’re going to throw people at every problem,” he said.
Hi Richard,
Are iBooks superior to ToolBooks that will run on the other 99% of the
market?
You don't seem to mention your ToolBooks anymore.
Have you stopped writing ToolBooks?
http://www.sumtotalsystems.com/products/content-creation/toolbook_overview.html
I did not know that iBooks were superior to all eBooks (including ToolBooks)
on the market.
Is that what you're trying to tell us?
Does this justify having to pay Apple a huge royalty on every iBook an
author sells?
I'm sorry, but I despise eBook vendors that do not support open standards.
Apple shot itself in the 1980s with the Mac operating system. Now it's
shooting itself in the other foot by trying to be an iBook hardware
monopoly. The tech world resists vendors that do not support open standards.
Excellent authors trying to make money on iBooks will pay a price!
Windows still has about 92% of the PC Market. Add to this the other
alternatives that won't run iBooks like Linux. The last time I looked Kindle
still had the overwhelming share of the eBook reader market. Seems like an
aspiring author should consider market share.
Personally, at think at this stage of technology, a textbook author should
still focus on eBook and hardcopy open standard alternatives and provide
multimedia supplements. Eventually, hard copy books will have something like
a USB port to a multimedia chip embedded in the binding.
Respectfully,
Bob Jensen
Bob Jensen's threads on eBooks are at
http://www.trinity.edu/rjensen/Ebooks.htm
Another Way to Keep Unemployment Statistics Low
Unemployment benefits have time limits that vary be state. Social Security
disability payments continued until the day you die, and in some instances,
after you die. Furthermore, being declared disabled by a phony doctor allows
Medicare to kick in at any age without having to be 65 years old like other
people on Social Security who have not gamed the system.
"Millions of jobless file for disability when unemployment benefits run
out," New York Post via Fox News, February 19, 2012 ---
http://www.foxnews.com/politics/2012/02/19/report-millions-jobless-file-for-disability-when-unemployment-benefits-run-out/
Being unemployed for too long reportedly is
driving people mad and costing taxpayers billions of dollars in mental
illness and other disability claims.
The New York Post reported Sunday that as
unemployment
checks run out, many jobless are
trying to gain government benefits by declaring themselves unhealthy.
More than 10.5 million
people -- about 5.3 percent of the population aged 25 and 64 -- received
disability checks in January from the federal government, the Post wrote, a
18 percent jump from before the recession.
Among those claiming
disability, 43 percent are asking for benefits because of mental illness,
the Post wrote. A growing number of those people are older, former
white-collar workers.
Disability claims come
from the
Social Security Trust Fund, which is set to go
broke in 2018. Congress last week agreed to dip into the revenue stream to
give a 2-percentage point tax break to working Americans.
The Post noted that the
more people file for disability claims, the better for the
unemployment
picture since those people are
removed from the jobless rolls.
"The Public-Union Albatross What it means when 90% of an agency's workers
(fraudulently) retire with disability benefits (before age 65)," by Philip
K. Howard, The Wall Street Journal, November 9, 2011 ---
http://online.wsj.com/article/SB10001424052970204190704577024321510926692.html?mod=djemEditorialPage_t
The indictment of seven Long Island Rail Road
workers for disability fraud last week cast a spotlight on a troubled
government agency. Until recently, over 90% of LIRR workers retired with a
disability—even those who worked desk jobs—adding about $36,000 to their
annual pensions. The cost to New York taxpayers over the past decade was
$300 million.
As one investigator put it, fraud of this kind
"became a culture of sorts among the LIRR workers, who took to gathering in
doctor's waiting rooms bragging to each [other] about their disabilities
while simultaneously talking about their golf game." How could almost every
employee think fraud was the right thing to do?
The LIRR disability epidemic is hardly unique—82%
of senior California state troopers are "disabled" in their last year before
retirement. Pension abuses are so common—for example, "spiking" pensions
with excess overtime in the last year of employment—that they're taken for
granted.
Governors in Wisconsin and Ohio this year have led
well-publicized showdowns with public unions. Union leaders argue they are "decimat[ing]
the collective bargaining rights of public employees." What are these
so-called "rights"? The dispute has focused on rich benefit packages that
are drowning public budgets. Far more important is the lack of productivity.
"I've never seen anyone terminated for
incompetence," observed a long-time human relations official in New York
City. In Cincinnati, police personnel records must be expunged every few
years—making periodic misconduct essentially unaccountable. Over the past
decade, Los Angeles succeeded in firing five teachers (out of 33,000), at a
cost of $3.5 million.
Collective-bargaining rights have made government
virtually unmanageable. Promotions, reassignments and layoffs are dictated
by rigid rules, without any opportunity for managerial judgment. In 2010,
shortly after receiving an award as best first-year teacher in Wisconsin,
Megan Sampson had to be let go under "last in, first out" provisions of the
union contract.
Even what task someone should do on a given day is
subject to detailed rules. Last year, when a virus disabled two computers in
a shared federal office in Washington, D.C., the IT technician fixed one but
said he was unable to fix the other because it wasn't listed on his form.
Making things work better is an affront to union
prerogatives. The refuse-collection union in Toledo sued when the city
proposed consolidating garbage collection with the surrounding county.
(Toledo ended up making a cash settlement.) In Wisconsin, when budget cuts
eliminated funding to mow the grass along the roads, the union sued to stop
the county executive from giving the job to inmates.
No decision is too small for union micromanagement.
Under the New York City union contract, when new equipment is installed the
city must reopen collective bargaining "for the sole purpose of negotiating
with the union on the practical impact, if any, such equipment has on the
affected employees." Trying to get ideas from public employees can be
illegal. A deputy mayor of New York City was "warned not to talk with
employees in order to get suggestions" because it might violate the "direct
dealing law."
How inefficient is this system? Ten percent? Thirty
percent? Pause on the math here. Over 20 million people work for federal,
state and local government, or one in seven workers in America. Their
salaries and benefits total roughly $1.5 trillion of taxpayer funds each
year (about 10% of GDP). They spend another $2 trillion. If government could
be run more efficiently by 30%, that would result in annual savings worth $1
trillion.
What's amazing is that anything gets done in
government. This is a tribute to countless public employees who render
public service, against all odds, by their personal pride and willpower,
despite having to wrestle daily choices through a slimy bureaucracy.
One huge hurdle stands in the way of making
government manageable: public unions. The
head of the American Federation of State, County and Municipal Employees
recently bragged that the union had contributed $90 million in the 2010
off-year election alone. Where did the
unions get all that money? The power is imbedded in an artificial legal
construct—a "collective-bargaining right" that deducts union dues from all
public employees, whether or not they want to belong to the union.
Some states, such as Indiana, have succeeded in
eliminating this requirement. I would go further: America should ban
political contributions by public unions, by constitutional amendment if
necessary. Government is supposed to serve the public, not public employees.
America must bulldoze the current system and start
over. Only then can we balance budgets and restore competence, dignity and
purpose to public service.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on the entitlements disaster are at
http://www.trinity.edu/rjensen/Entitlements.htm
David Albrecht wrote a 2012 Valentines Day poem
---
http://profalbrecht.wordpress.com/2012/02/14/an-accountants-valentine-2012/
Yeah, it's pretty bad, but it's from the heart.
IPSASB publishes consultation paper on the fourth phase of its conceptual
framework project for public sector entities
From IAS Plus, February 1, 2012 ---
http://www.iasplus.com/index.htm
|
The International Public Sector Accounting
Standards Board (IPSASB)
has released for comment an Consultation
Paper, Conceptual Framework for General Purpose Financial
Reporting by Public Sector Entities: Presentation in General Purpose
Financial Reports. The paper arises from the fourth and final
phase of the IPSASB's conceptual framework project.
The paper explores concepts applicable to the presentation of
information in the general purpose financial reports of public
sector entities and considers presentation from the broader
perspective of financial reporting rather than adopting a narrow
focus just on the financial statements.
Although many of the concepts of International Public Sector
Accounting Standards (IPSASs) are based on International Financial
Reporting Standards (IFRSs), the IPSASB's conceptual framework
project is not an IFRS convergence project, and its purpose is not
to interpret the application of the IASB Framework to the public
sector.
Comments on the Consultation Paper close on 31
May 2012.
Click for the
IPSASB announcement (link to
IFAC website). |
Bob Jensen's threads on the sad state of public sector financial reporting
---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"Implications of Different Bases for a VAT," by Eric Toder, Jim Nunns,
and Joseph Rosenberg, Urban Institute and Brookings Institution, February 2012
---
http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Fiscal_and_Budget_Policy/Implications
of Different Bases for a VAT.pdf
Thank you Paul Caron for the heads up.
. . .
A VAT would be a new tax in the United States that,
while likely significantly less complex than the current income tax, would
nonetheless be quite complex and would affect businesses as well as
nonprofits and governments. Unlike the income tax, however, a VAT would
place low administrative costs on individuals, which would primarily be
related to claiming a rebate.
A VAT would require the IRS, or a new agency, to
establish a new administrative apparatus, with its own forms, instructions,
regulatory guidance, processing, taxpayer service, and collection and
enforcement activities. This would require a significant appropriation in
advance of the VAT’s startup to establish the VAT apparatus and for initial
taxpayer education programs, and annual appropriations thereafter.
Parallel to the federal government’s administrative
apparatus, businesses and other entities would have to establish the
internal systems needed to learn about and comply with the VAT. Small
businesses would likely be allowed to exempt themselves from the VAT, but
even businesses that choose exemption would have some compliance costs to
learn about the VAT and determine whether exemption is in their best
interests. Large businesses would all be directly involved in collecting and
remitting VAT, or, if not subject to VAT, at a minimum in determining their
eligibility for VAT refunds and filing refund claims. The commercial
activities of nonprofits and governments would be subject to VAT, entailing
compliance costs similar to those of any other business subject to VAT.
Further, the excluded activities of governments and nonprofits would entail
compliance costs similar to those of VAT-exempt businesses.
Administrative costs for the IRS and compliance
costs for businesses and other entities would likely increase with
exclusions from the base and other special provisions. Compliance rates, the
fraction of tax liabilities voluntarily paid when due, would also likely be
lower, since exclusions and other special provisions provide additional
avenues for evading tax.
A national VAT could provide a template to help
reform state and local retail sales taxes. It could be used to extend sales
tax bases to apply to services purchased by households, to remove the
cascading of tax that occurs from taxing sales between businesses, and to
resolve the taxation of Internet and other remote sellers. These reforms
would most easily be achieved if state and local sales taxes piggybacked on
the national VAT. Combining administration of a national VAT and piggybacked
state and local sales taxes would reduce compliance costs for businesses and
total administrative costs for governments.
Teaching Case: Bribery by Avon in China?
From The Wall Street Journal Accounting Weekly Review on February 17,
2012
Foreign Bribe Case at Avon Presented to Grand Jury
by:
Joe Palazzolo and Emily Glazer
Feb 13, 2012
Click here to view the full article on WSJ.com
TOPICS: Foreign Corrupt Practices Act, Foreign Subsidiaries,
Internal Auditing, Internal Controls
SUMMARY: "Federal prosecutors investigating whether U.S. executives
at Avon Products, Inc., broke foreign-bribery laws have presented evidence
in the probe to a grand jury...Authorities are focused on a 2005 internal
audit report by the company that concluded Avon employees in China may have
been bribing officials in violation of the Foreign Corrupt Practices Act [FCPA]...."
CLASSROOM APPLICATION: Questions ask students to consider what
audit steps they would undertake to investigate the issues identified in the
article. The article is useful in an auditing class to discuss internal
audit functions.
QUESTIONS:
1. (Introductory) Describe how Avon sells its products.
2. (Advanced) What is the Foreign Corrupt Practices Act (FCPA)? How
do the law's requirement, and general ethics, make it imperative to prevent
illegal payments or other corrupt acts?
3. (Advanced) How might Avon's business model make it difficult to
establish internal controls over items such as possible illegal payments to
foreign officials?
4. (Advanced) Define the internal audit function and compare it to
the audits done by external auditors.
5. (Introductory) How was the Avon Products, Inc. internal audit
function used in connection with the company's Chinese operations? What
evidence did the internal auditors apparently find in 2005?
6. (Advanced) Suppose you are a member of the Avon internal audit
team asked to investigate payments made out of Chinese operations. What
steps would you plan to investigate the propriety of the payments?
Reviewed By: Judy Beckman, University of Rhode Island
"Foreign Bribe Case at Avon Presented to Grand Jury," by: Joe Palazzolo and
Emily Glazer, The Wall Street Journal, February 13, 2012 ---
http://online.wsj.com/article/SB10001424052970203315804577209443264460570.html?mod=djem_jiewr_AC_domainid
Federal prosecutors investigating whether U.S.
executives at Avon Products Inc. broke foreign-bribery laws have presented
evidence in the probe to a grand jury, people familiar with the matter said.
Authorities are focused on a 2005 internal audit
report by the company that concluded Avon employees in China may have been
bribing officials in violation of the Foreign Corrupt Practices Act,
according to three people familiar with the matter. Avon had earlier said it
first learned of bribery allegations in 2008.
The audit found several hundred thousand dollars in
questionable payments to Chinese officials and third-party consultants in
2005, one of these people said. It came as Avon was pursuing a license to
conduct door-to-door sales in China. Some of the payments were recorded on
invoices as gifts for government officials, the person said. Avon secured
China's first such license to a foreign company in 2006.
The Federal Bureau of Investigation and U.S.
prosecutors in New York and Washington are trying to determine whether
current or former executives ignored the audit's findings or actively took
steps to conceal the problems, both potential offenses, two people familiar
with the matter said.
Executives at Avon headquarters in New York who saw
the audit report at the time didn't disclose its findings to the board's
audit committee, finance committee or the full board, according to people
familiar with the investigation. Board members didn't learn of the audit
report until after Avon launched its own internal investigation of overseas
bribery allegations in 2008, say the people familiar with the situation.
Legal experts say executives can be liable in
overseas bribery cases even if they didn't authorize illegal payments or try
to hide evidence of bribes. Under a legal concept known as willful
blindness, a person can also be found guilty of taking steps to avoid
learning of wrongdoing, they said, but prosecutors face a higher legal bar.
"We're not aware that a federal grand jury is
investigating this," said an Avon spokeswoman. She declined to confirm
whether there had been an audit in 2005 and declined to discuss how
executives handled any such audit. She said Avon is fully cooperating with
the investigation.
While grand juries gather information to determine
whether there is enough evidence to bring criminal charges, they also can
decline any action.
The investigation of Avon's headquarters comes as
members of Congress pressure the Justice Department to hold more high-level
executives accountable for corruption overseas. In December, the government
unveiled charges against a group of former executives of German conglomerate
Siemens AG. Siemens has said it is cooperating.
Avon opened an internal investigation into possible
bribery in China in 2008, more than two years after the purported audit
report. The company's internal review was later expanded to other regions of
the world. The door-to-door cosmetics company has said the internal probe
was triggered by an employee who sent a letter in 2008 to Chief Executive
Andrea Jung alleging improper spending on travel for Chinese government
officials.
The investigation put a cloud over the 12-year
tenure of Ms. Jung, who won plaudits for securing the direct-sales license
in China. She said in December she would step down once the company finds a
replacement CEO; her announcement came amid pressure from investors
concerned about Avon's financial performance. Avon has said questions about
the company's activities in China kicked off probes by the Justice
Department and Securities and Exchange Commission, as well as the audit
committee of Avon's board.
Ms. Jung declined to comment. She has said little
about the investigations in the past, except that the company is cooperating
with the government.
Some high-ranking Avon executives have lost their
jobs in the probe. The company said it fired Vice Chairman Charles Cramb on
Jan. 29 in connection with the overseas corruption probe and another
investigation into allegedly improper disclosure of financial information to
analysts. Mr. Cramb couldn't be reached for comment.
Continued in article
February 17, 2012 reply from Bob Jensen to Jagdish Gangolly
Hi Jagdish,
I never suggested profiling when it comes to things like policies on
investigating and prevention of plagiarism or cheating in general. The
policies must apply to all national origins, and rule enforcement must apply
to every student and faculty member. And this is not a racial thing since
many of our Asian, Irish, Norwegian, and Latin students were born and
educated in the U.S.
What is sad, however, in the United States is when being "street smart" is
synonymous knowing how to get away with cheating relative to people who are
more trusting and are not "street smart."
I do, however, believe that there is relativism of many things in different
nations, including their heritages for bribery customs and norms for
cheating/corruption ---
Corruption Perceptions Index 2009 | Transparency International
http://wbpllc.wordpress.com/2009/11/19/corruption-perceptions-index-2009-transparency-international/
The interactive map is at
http://media.transparency.org/imaps/cpi2009/
As a footnote when viewing the graphic at the above site, I notice how
greatly some nations vary from their neighbors. For example, Argentina is
perceived as being over twice as corrupt than Chile. Italy and France are
more more corrupt than Germany even though all three nations have similar
religious (Catholic) heritages. Religion is probably not the dominant factor
in controlling corruption.
Law and tax rule enforcement, however, can be very powerful. The
least-corrupt nations seem to rise above the other nations in terms of
vigorous law enforcement and tax collections.
However, law enforcement is not synonymous with brutality. Russia, for
example, has a brutal police and prison system that has not quelled
widespread corruption. The same is true for Viet Nam.
Respectfully,
Bob Jensen
"KPMG LOSES A COUPLE OF MOTIONS IN AN OVERTIME CASE," by Anthony H. Catanach
and J. Edward Ketz, Grumpy Old Accountants Blog, February 10, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/523
All of the large accounting firms are experiencing
litigation dealing with the issue of overtime. One such case that commenced
on January 19, 2011 is Pippins, Schindler, and Lambert v. KPMG, LLP. KPMG
filed several motions in this case and recently the judge denied two of
them. While early, it isn’t looking good for KPMG.
We earlier discussed these overtime cases in
“Consistency
in Accounting and Legal Discourses: The Overtime Cases.”
While we are sympathetic to the position of the Big
Four, we noted that they might have a hard time meeting the exemptions in
the Fair Labor Standards Act (FLSA), which normally requires payment of at
least 150 percent of one’s salary when the employee works overtime.
The FLSA provides two exemptions that might apply
in this case. The first exemption exists if the worker is an administrative
employee. For this to occur, the employee’s primary duty must involve the
management or general business operations of the firm. The second
exemption, the learned professional exemption, accrues if the worker’s
primary duty involves the performance of work that requires knowledge of an
advanced type and acquired by specialized intellectual instruction.
Difficulty arises with both of these possible
exemptions because they come face-to-face with Code of Professional Conduct
Rule 201 and PCAOB
Standard No. 10. Rule 201 and Standard No. 10
require partners and managers of audit firms to supervise the accounting
associates. They must inform them of the audit objectives and the audit
procedures; additionally, the partners and managers have to monitor the work
of the associates. Such oversight appears to negate any assertions for an
administrative or professional exemption.
Be that as it may, we find interesting recent
activity in the Pippins, Schindler, and Lambert v. KPMG case. The first
motion concerned whether KPMG has to preserve computer hard drives of its
former associates. The audit firm argued against this requirement primarily
because of the expense, which it estimated to be at least $1.5 million. It
claimed that the benefits did not justify the costs. KPMG suggested that it
preserve only a random sample of 100 hard drives. Further, KPMG sought the
court to order the plaintiffs to bear the costs of preserving the hard
drives.
Judge Colleen McMahon denied all parts of the
motion. She noted that plaintiffs desire access to the hard drives because
they might contain information pertaining to the job duties performed by the
audit associates and to the hours they worked. In addition, as the court
conditionally certified FLSA collective action, more employees or former
employees may opt-in the collective lawsuit. Accordingly, as information on
the hard drives is relevant to the case and because more individuals may
join the collective action, Judge McMahon ordered preservation of all the
hard drives.
The judge apparently was miffed at KPMG. She
chastises the firm as “unreasonable.” Specifically she calls unreasonable
(1)KPMG’s refusal to turn over so much as a
single hard drive so its contents could be examined; and (2) its refusal
to do what was necessary in order to engage in good faith negotiations
over the scope of preservation …
Thus, on February 3, 2012, Judge McMahon denied
KPMG’s motion in its entirety.
Continued in article
Bob Jensen's threads on KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm
It's troubling enough to study one university's financial reports. It's a
nightmare to compare universities.
"So You Want to Examine Your University's Financial Reports?" by
Charles Schwartz, Chronicle of Higher Education, February 7, 2012 ---
http://chronicle.com/article/So-You-Want-to-Examine-Your/130672/
With financial difficulties facing many
universities, some faculty members feel the urge to take a
critical look into their own institution's audited
financial reports and see what they can learn.
The impulse is admirable, but some guidance is
needed before you enter such unfamiliar territory. Having spent some time
looking at such things at my own institution (the University of California,
which provides an enormous amount of financial data online), I must warn
about the dreadful pitfalls awaiting any newcomer.
When you wade into those financial reports, you
should understand that the numbers are invariably correct. What you need to
be skeptical about are the words and labels attached to the numbers. There
is, of course, a large amount of jargon. For example, if you wanted to find
out how much money is spent on administration and management, you might
start with "institutional support," which covers high-level administration
on the campus; then there is "academic administration," (a subcategory of
"academic support"), which covers the deans' offices; and then there are
lower levels of administrative services buried in every other category.
It turns out that the trickiest category is the one
you would think faculty members understand the best: expenditures for
"instruction." Let me show you some data for my own university, looking at
its two most famous campuses. This chart comes from page eight of the latest
UC Annual Financial Report.
Operating Expenses by Function, 2010-11 ($ in Millions)
|
Total |
Instruction |
Research |
Medical Centers |
UC Berkeley |
$2,026 |
$ 566 |
$ 533 |
0 |
UC Los Angeles |
$4,563 |
$1,240 |
$ 702 |
$1,285 |
UCLA has a medical school and associated hospitals;
Berkeley doesn't. That mostly explains the large difference in total
expenditures between the two institutions. Otherwise, one thinks of the two
campuses as quite comparable in size and academic quality. So why is there
such a disparity in the expenditures for instruction? The answer is not easy
to find by simply reading the audited financial report.
The answer starts to appear when you search more
detailed financial reports (the best resource at my university is called
Campus Financial Schedules) and find tables relating revenues to
expenditures. For UCLA there is a contribution of $530 million for
instruction that comes from "sales and services of educational activities."
What is that? It turns out that faculty members in
the medical school not only teach and carry out research but are also
doctors who treat patients. That activity, called "clinical practice," is a
lucrative business that is conducted by the university. In the accounting
system, such revenues are lumped into the category "sales and services of
educational activities." Part of that money is used to cover costs of the
clinical practice (offices, supplies, personnel); and a large part of it is
paid out to the medical faculty members on top of their regular academic
salaries. It just happens that the accounting system lumps all of those
payments to faculty members under the heading of "expenditures for
instruction." Who knew?
Does that have any troublesome consequences? Yes.
There is a famous national repository for detailed data on the nation's
colleges and universities: the U.S. Department of Education's Integrated
Postsecondary Education Data System (IPEDS). One of the things you can get
from that lovely online source is the per-student expenditure for
instruction, for any college or university, in any year. And if you look up
that data for Berkeley and UCLA, you will find that the latter amount is
twice as big as the former. IPEDS uses data supplied by the individual
campuses, the very same data that I mentioned above. Nobody seems to be
aware of how misleading those numbers can be if the campus you ask about
happens to be in the medical-services business. (By the way, not all
campuses with medical enterprises use the same accounting procedures I
described.) IPEDS is seriously distorted.
Continued in article
Jensen Comment
Think of college and university financial reports as being fund-based accounting
reports similar to municipal, state, and federal government financial reports.
Reporting standards are so messed up for such financial reporting that it's
usually possible to hide anything from the public simply by overwhelming them
with a truck load of information that is not indexed or otherwise linked in a
comprehensible manner.
The Sad State of Not-for-Profit accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Issues in Computing a College's Cost of Degrees Awarded and "Worth" of
Professors ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#CostAccounting
"New Business-School (AACSB) Accreditation Is Likely to Be More
Flexible, Less Prescriptive," by Katherine Mangan, Chronicle of Higher
Education, February , 2012 ---
http://chronicle.com/article/New-Business-School/130718/
New accreditation standards for business schools
should be flexible enough to encourage their widely divergent missions
without diluting the value of the brand that hundreds of business schools
worldwide count among their biggest selling points.
That message was delivered to about 500 business
deans from 38 countries at a meeting here this week.
The deans represented the largest and most
geographically diverse gathering of business-school leaders to attend the
annual deans' meeting of AACSB International: the Association to Advance
Collegiate Schools of Business.
The association is reviewing its accreditation
standards, in part to deal with the exponential growth in the number of
business schools overseas, many of which are seeking AACSB accreditation.
The committee that is drawing up proposed new
standards gave the deans a glimpse at the changes under consideration, which
are likely to acknowledge the importance of issues like sustainable
development, ethics, and globalization in today's business schools. A
council made up of representatives of the accredited schools will have to
approve the changes for them to take effect, and that vote is tentatively
scheduled for April 2013.
Joseph A. DiAngelo, the association's chair-elect
and a member of the committee reviewing the standards, said that when the
rules are too prescriptive, schools' mission statements, which drive their
curricula and hiring patterns, all start to look the same.
"It's all vanilla. I want to see the nuts and the
cherries and all the things that make your school unique," said Mr. DiAngelo,
who is also dean of the Erivan K. Haub School of Business at Saint Joseph's
University, in Philadelphia.
The last time the standards were revised, in 2003,
schools were put on notice that they would have to measure how much students
were learning—a task some tackled with gusto. One business school Mr.
DiAngelo met with on a recent accreditation visit "had 179 goals and
objectives, and they only have 450 students," he said. "I said, You can't be
serious."
The committee's challenges include providing a more
flexible accreditation framework to allow schools to customize their
approaches without angering members that have already sweated out the more
rigorous and prescriptive process.
And even though many schools outside the United
States have trouble meeting the criteria for accreditation, especially when
it comes to having enough professors with Ph.D.'s, "We don't think it's
appropriate to have dual standards for schools in the U.S. and those outside
the U.S.," said Richard E. Sorensen, co-chair of the accreditation-review
committee and dean of the Pamplin College of Business at Virginia Tech.
Continued in article
Jensen Comment
In the 1970s when I guided the University of Maine at Orono to AACSB
accreditation the standards were relatively fixed for all business schools that
got accredited. By the 1990s when I participated (but did not lead) the AACSB
accreditation effort of Trinity University, the accreditation standards had
changed significantly. The relevant accreditation standards became menu driven.
Getting accreditation entailed choosing missions from the menu. In other words
attaining accreditation became mission driven. Whereas an R1 university's main
mission might be having a leading research reputation and a doctoral program, a
non-R1 university might have more focus on other missions such as teaching
reputation or innovative programs for minority student admissions.
There were and still are limits set on mission-driven AACSB accreditation
standards. For example, to my knowledge no program that has more online students
than onsite students to my knowledge as ever attained AACSB accreditation.
However, universities having prestigious online business and accounting programs
like the University of Connecticut can have online degree programs provided
their main missions are to serve onsite students. No North American for-profit
business program to my knowledge has ever been accredited, including some
prestigious MBA programs initiated by leading consulting firms. Outside North
America, however, the AACSB does seem to have a bit more flexibility in terms of
a for-profit mission.
In North America, the AACSB seems to fear opening Pandora's box to for-profit
universities. At the same time, I do not know of any for-profit university that
currently has admission standards and academic standards that I personally would
consider a great candidate for AACSB accreditation. This, of course, does not
mean that some questionable non-profit universities that somehow achieved AACSB
accreditation have stellar admission and academic standards. Maybe I'm a
snob, but I think the AACSB took this mission-driven thing a bridge too far.
The renewed effort to provide even more flexible standards may cheapen the
currency even more.
Sigh! Maybe I really am an old snob!
Unreliability of Higher Education's Accrediting Agencies
"Mend It, Don't End It," by Doug Lederman, Inside Higher Ed, February 4,
2011 ---
http://www.insidehighered.com/news/2011/02/04/education_department_panel_hears_ideas_about_improving_higher_education_accreditation
About two-thirds of the way through the first day
of the Education Department's
two-day forum on
higher education accreditation, something strange happened: a new idea
emerged.
Not that the conversation that preceded it was
lacking in quality and thoughtfulness. The discussion about higher
education's system of quality assurance included some of the sharper minds
and best analysts around, and it unfolded at a level that was quite a bit
higher than you'd find at, say, the typical Congressional hearing.
The discussion was designed to help the members of
the Education Department's National Advisory Committee on Institutional
Quality and Integrity understand the accreditation system, so it included a
wide range of voices talking about many aspects of quality, regulation and
oversight in higher education. The exchanges served largely to revisit
history and frame the issues in a way that probably seemed familiar, at
least to those who follow accreditation closely.
The basic gist on which there was general
agreement:
- Higher education accreditation is imperfect
(seriously so, in the eyes of some), with many commentators citing how
rarely the agencies punish colleges and how inscrutable and mysterious
their process is to the public.
- Politicians and regulators are asking
accrediting agencies to do things they were never intended to do, like
make sure colleges don't defraud students.
- Despite those flaws, most seemed less than
eager to try to create a wholly different system to assure the quality
of America's colleges and universities, because they see it as either
difficult or undesirable.
Yet given Education Secretary Arne Duncan's
formal charge to the newly reconstituted panel,
which was distributed at its
first formal meeting in December, most of the
higher education and accreditation officials who attended the policy forum
said they had little doubt that the panel is strongly inclined to recommend
significant changes, rather than just ruminating about how well the system
is working.
Continued in article
Jensen Comment
On of the biggest abuses is the way for-profit universities buy out failing
non-profit colleges for the main purpose of gaining accreditation by buying it
rather than earning it. The scandal is that the accrediting agencies,
especially the North Central accrediting agency, let for-profits simply buy
this respectability. For-profit universities can be anywhere and still buy a
North Central Association accreditation.
I do not know of any successful attempt of a for*profit university to buy out
a failing university that has AACSB accreditation.
Bob Jensen's threads about accreditation are at
http://www.trinity.edu/rjensen/Assess.htm#AccreditationIssues
LIBOR ---
http://en.wikipedia.org/wiki/LIBOR
"UBS, Credit Suisse Among Banks in Swiss Libor-Fixing Probe," by Elena
Logutenkova, Bloomberg News, February 3, 2012 ---
http://www.bloomberg.com/news/2012-02-03/switzerland-s-comco-opens-investigation-into-ubs-credit-suisse.html
UBS AG (UBSN) and Credit Suisse Group AG (CSGN) are
among 12 banks facing a Swiss inquest into possible manipulation of the
London interbank offered rate, the latest probe into how the benchmark for
$350 trillion of financial products is set.
“Collusion between derivative traders might have
influenced” Libor and its Japanese equivalent, Tibor, the Swiss competition
watchdog, Comco, said in an e-mailed statement today. “Market conditions
regarding derivative products based on these reference rates might have been
manipulated too.”
Comco said it opened the investigation after
receiving an application for its “leniency program,” which indicated that
traders from various banks might have influenced the rate. Libor is set
daily by the British Bankers’ Association based on data from banks, which
report how much it would cost them to borrow from each other for various
periods of time. Regulators in the U.S., U.K. and European Union have been
examining how Libor is set, while Japan’s securities watchdog has probed
Tibor.
“We are taking these investigations very seriously
and are fully cooperating with the authorities,” said Yves Kaufmann, a
spokesman for UBS in Zurich. UBS, the biggest Swiss bank, said in July that
it was granted conditional immunity from some agencies, including the U.S.
Department of Justice.
A spokesman for Credit Suisse said the bank is “not
in the position” to comment at the moment.
Jensen Comment
This could be really huge since hundreds of thousands of derivatives financial
instruments and hedging contracts use LIBOR as an underlying. Although LIBOR is
not technically a risk free interest rate, it fundamentally assumes that traders
are not manipulating the rate for devious purposes. It's probably the most
popular interest rate underlying in derivatives financial instruments contracts.
Bob Jensen's helpers in accounting for derivative financial instruments
and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm
Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Accounting for Derivative Financial Instruments and Hedging Activities
Hi Patricia,
The bottom line is that accounting authors, like intermediate textbook
authors, provide lousy coverage of FAS 133 and IAS 39 because they just do not
understand the 1,000+ types of contracts that are being accounted for in those
standards. Some finance authors understand the contracts but have never shown an
inclination to study the complexities of FAS 133 and IAS 39 (which started out
as a virtual clone of FAS 133).
My 2006 Accounting Theory syllabus before I retired can be viewed at
http://www.trinity.edu/rjensen/acct5341/acct5341.htm
There are some great textbooks on derivatives and hedging written by finance
professors, but those professors never delved into the complexities of FAS 133
and IAS 39. My favorite book may be out of print at the moment, but this was a
required book in my theory course: Derivatives: An Introduction by Robert A
Strong, Edition 2 (Thomson South-Western, 2005, ISBN 0-324-27302-9)
Professor Strong's book provides zero about FAS 133 and IAS 39, but my
students were first required to understand the contracts that they later had to
account for in my course. Strong's coverage is concise and relatively simple.
When first learning about hedging, my Trinity University graduate students
and CPE course participants loved an Excel workbook that I made them study at
www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls
Note the tabs on the bottom that take you to different spreadsheets.
There are some really superficial books written by accounting professors who
really never understood derivatives and hedging in finance.
Sadly, much of my tutorial material is spread over hundreds of different
links.
However, my dog and pony CD that I used to take on the road such as a
training course that I gave for a commodities trading outfit in Calgary can be
found at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/ T
his was taken off of the CD that I distributed to each participant in each CPE
course, and now I realize that a copyrighted item on the CD should be removed
from the Web.
In particular, note the exam material given at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/ExamMaterial/
My students had access to this material before they took my exams.
Note that some of the illustrations and exam answers have changed over time.
For example, the exam material on embedded derivatives is still relevant under
FASB rules whereas the IASB just waved a magic wand and said that clients no
longer have to search for embedded derivatives even though they're not "clearly
and closely related" to the underlyings in their host contracts. I think this is
a cop out by the IASB.
Links to my tutorials on FAS 133 and IAS 39, including a long history of
multimedia, can be found at
http://www.trinity.edu/rjensen/caseans/000index.htm
Probably the most helpful thing I ever generated was the glossary at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
What made me the most money consulting in this area can be found at
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
But the core of what I taught about derivatives and hedge accounting in my
accounting theory course can be found in the FAS 133 Excel spreadsheets listed
near the top of the document at
http://www.cs.trinity.edu/~rjensen/
I also salted my courses with real world illustrations of scandals regarding
derivatives instruments contracts, a continuously updated timeline of which is
provided at
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
Hope this helps. Once again you may want to look at the exam material at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/ExamMaterial/
The bottom line is that accounting authors like intermediate textbook authors
provide lousy coverage of FAS 133 and IAS 39 because they just do not understand
the 1,000+ types of contracts that are being accounted for in those standards.
Some finance authors understand the contracts but have never shown an
inclination to delve into the complexities of FAS 133 and IAS 39 (which started
out as a virtual clone of FAS 133).
Respectfully,
Bob Jensen
Hi again Patricia,
If a student asks why FAS 133 had to become so complicated
tell them that it's because of the difference between economists and
accountants. Economists allow hedging even when hedged items have not been
booked by accountants. This causes all sorts of misleading accounting
outcomes if hedge accounting relief is not provided for derivative contracts
that are hedges rather than speculations.
Students may still ask why FAS 133 became the most complicated accounting
standard in the history of the world.
Before FAS 133, companies were getting away with enormous
off-balance-sheet-financing (OBSF) with newer types of derivative financial
instruments. FAS 80 covered booking of options and futures contracts, but
forward contracts and swaps were not booked when they were either
speculations or hedges. After interest rate swaps were invented by Wall
Street n the 1980s, for example, swap contracting took off like a rocket in
worldwide finance. Trillions of dollars in swap debt were being transacted
that were not even booked until FAS 133 went into effect in the 1990s.
Originally the FASB envisioned a relatively simple FAS 133. Most derivative
financial instruments contracts (forwards, swaps, futures, and options)
would be initially booked at fair value (with is zero in most instances
except for options) and then reset to changed fair value at least every 90
days. All changes in value would then be booked as current earnings or
current losses. Sounds simple except for some dark problems of trying to
value some of these contracts.
But then, in the exposure draft period, companies made the FASB aware of an
enormous problem that arose because of a difference between economists and
accountants. Economists invented hedging contracts without caring at all
whether a hedged items were booked or not booked by accountants. For
example, the hedged item might be a forecasted transaction by Corp X to
issue $100 million in bond debt at spot rates ten months from now.
Economists showed Corp X how to hedge the cash flow risk of this unbooked
forecasted transaction with a forward contract or swap contract.
Perfect hedges have zero effect on accounting earnings volatility when
both the hedged item and its hedging derivative contract are booked by
accountants --- such as when existing booked debt is changed from
floating rate debt to fixed rate debt with an interest rate swap derivative
contract.
Perfect hedges could have an enormous effect on earnings volatility when the
hedged item is not booked and the hedging derivative contract is
booked. For example, all changes up and down in the fair value of the booked
derivative contracts would not be offset in the books by changes in
value of the unbooked hedged items even though from an economics standpoint
there is no change in economic earnings when changes in value of the booked
derivative contract are perfectly offset by changes in value of the unbooked
hedged item.
And most hedging circumstances are such that the hedging contract is booked
under FAS 133 and the hedged item is not booked such as forecasted
purchases of jet fuel by Southwest Airlines over the next two years.
Companies that hedged unbooked assets or liabilities would thereby
punished with enormous accounting earnings volatility when they hedged
economic earnings. The FASB ultimately agreed that this was misleading
and thereby introduced hedge accounting relief in FAS 133 by keeping
changes in the booked value of hedging contracts out of booked current
earnings. For cash flow hedges and foreign currency hedges this is
accomplished by using OCI. OCI is not used for fair value hedging, but
hedge accounting relief is provided for fair value hedges in other ways.
Look up fair value hedging under "Hedge" at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#H-Terms
Because there are thousands of types of hedging contracts, FAS 133
became the most complicated standard ever issued by the FASB. It's the
only standard that became so complicated that an implementation group
(called the DIG) was organized by the FASB to field implementation
questions by auditors and their clients. DIG pronouncements, in turn,
became so complicated that at times most accountants could not
understand these pronouncements. DIG links are surrounded by red boxes
at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
One of the most difficult aspects of FAS 133 is that hedge accounting
relief is allowed only to the extent that hedges are effective. Hedges
are seldom perfectly effective in terms of value changes at interim
points in time even though they may be perfectly effective when hedges
mature. Hedge effectiveness tests have become extremely complicated. FAS
133 still has some bright lines whereas the IASB in IFRS 9 is making
hedge effectiveness testing principles based in IFRS 9. That's like
giving an alcoholic a case of booze every week.
Thus if a student asks why FAS 133 had to become so complicated tell
them that it's because of the difference between economists and
accountants. Economists allow hedging even when hedged items have not
been booked by accountants. This causes all sorts of misleading
accounting outcomes if hedge accounting relief is not provided for
derivative contracts that are hedges rather than speculations.
Respectfully,
Bob Jensen
Question
What is the main advantage and main disadvantage of speculating or hedging with
purchased options?
Main Advantage
The main advantage of purchased options is that the total loss is bounded by the
premium paid initially. In the case of other derivatives like forwards, futures,
swaps, and written options, the risks are generally not bounded unless they are
bounded by other hedging contracts. Strategies thereby become more complicated.
Main Disadvantage
The main disadvantage is the cost (premium) that must be paid initially for
purchased options. Most other alternatives have no up front premiums although
premiums can be written into more complex OTC alternatives.
Question
What are reverse convertible securities?
"Simple options thrive in risky world - SuperDerivatives," by Toni
Vorobyova, Reuters, February 8, 2012 ---
http://uk.reuters.com/article/2012/02/08/uk-superderivatives-idUKLNE81701V20120208
Investors want simple derivative products to
cushion the pain of stock market losses and have turned their back on
complex, custom-built products which were earning a fortune for investment
banks, the head of equities at a leading derivatives pricing firm said.
The collapse of Lehman Brothers - the largest
bankruptcy in U.S. history which left the bank facing billions of dollars in
derivatives claims - has burnt many investors, choking off demand for more
complex options, according to Mikael Benguigui, head of equities at
SuperDerivatives.
Such trends were last week acknowledged by Deutsche
Bank (DBKGn.DE),
which noted lower revenue for equity derivatives sales
and trading compared with 2010 as a result of what it said was a more
challenging environment and lower client activity.
"The market has changed completely. Banks are not
willing to take on risk. There is a general consensus in the market now to
avoid going into too-complex, too-exotic options," Benguigui said.
"What we see is that people are pricing fairly
simple structured products, fairly commoditised products. It's not what we
saw five or six years ago when every month banks were inventing a new
product."
The pace of growth in the equity derivatives market
has slumped from the 33 percent seen in 2007 - before the 2008 collapse of
Lehman - to 9 percent in 2011, according to data from the World Federation
of Exchanges. Within that, stock index options are the most popular category
and are enjoying the strongest growth.
The timeframe on such products has also shrunk:
five-year options are popular, but banks are reluctant to take on the risk
of offering products for seven years or longer. This is in contrast to
pre-crisis days, when they would quote for 12 years or more, Benguigui, a
derivatives veteran who also worked at Citi (C.N)
and JPMorgan (JPM.N),
said.
"The feedback from the investment banking side is
that a lot of them are struggling. We are coming back to less complicated
options and less complicated strategy, so it's more plain vanilla. And plain
vanilla means less room for margin - it's more liquid, it's easy to put
banks into competition," he said.
NO BIG UPSIDE
SuperDerivatives offers equity derivatives pricing
tools - from a live platform to a one-off portfolio valuation service - to
banks, hedge funds, asset managers, custodians and hedge fund administrators
in more than 60 countries.
Among the most popular are so-called reverse
convertible securities, which are linked to an underlying stock or index and
offer a high coupon.
Upon maturity, if the value of the stock or index
is above a certain level, the holder gets back the full investment.
Otherwise, they get a pre-agreed number of shares.
Such a product ensures a steady relatively high
return, in exchange for which investors give up their right to benefit from
any unexpected surge in a share price.
"The big upside - no one really believes in it.
There might be moderate upside, but they are happy to have a fixed coupon.
Moderate downside can happen and they don't want to suffer on that, so they
are happy to have the investment back. If they are completely wrong and
something really bad happens, it's no worse than being long the stock from
day one," Benguigui said.
"This sort of super-easy product has big, big flows
in the UK and also in Switzerland."
Regulation is key to regaining investor confidence
in a market where many found themselves unable to exit positions as the
global financial crisis unfurled.
"Right now, every regulatory body is pushing for
more transparency, better liquidity. They are asking the buy side to be more
independent by using a platform where you can price everything
independently," Benguigui said.
"When the market changes like this, the volume is
going to come back. But ... investment banks are not going to be allowed to
do what they did before in terms of taking risk or playing with the capital.
I don't think we are going to see huge volumes again on complex instruments
where banks were making fortunes."
Links to my tutorials on derivative financial instruments, including a long history of
multimedia, can be found at
http://www.trinity.edu/rjensen/caseans/000index.htm
Also look up "Option" at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#O-Terms
Ernst & Young
Audit committee:
leading practices and trends
This
publication outlines key considerations for audit committees as they focus
on risk oversight, committee composition and self-assessment. Also included are
suggestions for executive sessions, interaction with other board committees,
continuing education and new member orientation ---
Click Here
http://www.ey.com/Publication/vwLUAssets/AuditCommitteeLeadingPractices_BB2278_February2012/$FILE/AuditCommitteeLeadingPractices_BB2278_February2012.pdf
"The Fed Votes No Confidence The prolonged—'emergency'—near-zero interest
rate policy is harming the economy," by Charles Schwab, The Wall Street
Journal, February 6, 2012 ---
http://online.wsj.com/article/SB10001424052970204740904577197374292182402.html?mod=djemEditorialPage_t
We're now in the 37th month of central government
manipulation of the free-market system through the Federal Reserve's
near-zero interest rate policy. Is it working?
Business and consumer loan demand remains modest in
part because there's no hurry to borrow at today's super-low rates when the
Fed says rates will stay low for years to come. Why take the risk of
borrowing today when low-cost money will be there tomorrow?
Federal Reserve Chairman Ben Bernanke told
lawmakers last week that fiscal policy should first "do no harm." The same
can be said of monetary policy. The Fed's prolonged, "emergency" near-zero
interest rate policy is now harming our economy.
The Fed policy has resulted in a huge infusion of
capital into the system, creating a massive rise in liquidity but negligible
movement of that money. It is sitting there, in banks all across America,
unused. The multiplier effect that normally comes with a boost in liquidity
remains at rock bottom. Sufficient capital is in the system to spur
growth—it simply isn't being put to work fast enough.
Average American savers and investors in or near
retirement are being forced by the Fed's zero-rate policy to take greater
investment risks. To get even modest interest or earnings on their savings,
they move out of safer assets such as money markets, short-term bonds or CDs
and into riskier assets such as stocks. Either that or they tie up their
assets in longer-term bonds that will backfire on them if inflation returns.
They're also dramatically scaling back their consumer spending and living
more modestly, thus taking money out of the economy that would otherwise
support growth.
We've also seen a destructive run of capital out of
Europe and into safe U.S. assets such as Treasury bonds, reflecting a
world-wide aversion to risk. New business formation is at record lows,
according to Census Bureau data. There is still insufficient confidence
among business people and consumers to spark an investment and growth boom.
We're now in the 37th month of central government
manipulation of the free-market system through the Federal Reserve's
near-zero interest rate policy. Is it working?
Business and consumer loan demand remains modest in
part because there's no hurry to borrow at today's super-low rates when the
Fed says rates will stay low for years to come. Why take the risk of
borrowing today when low-cost money will be there tomorrow?
Federal Reserve Chairman Ben Bernanke told
lawmakers last week that fiscal policy should first "do no harm." The same
can be said of monetary policy. The Fed's prolonged, "emergency" near-zero
interest rate policy is now harming our economy.
The Fed policy has resulted in a huge infusion of
capital into the system, creating a massive rise in liquidity but negligible
movement of that money. It is sitting there, in banks all across America,
unused. The multiplier effect that normally comes with a boost in liquidity
remains at rock bottom. Sufficient capital is in the system to spur
growth—it simply isn't being put to work fast enough.
Average American savers and investors in or near
retirement are being forced by the Fed's zero-rate policy to take greater
investment risks. To get even modest interest or earnings on their savings,
they move out of safer assets such as money markets, short-term bonds or CDs
and into riskier assets such as stocks. Either that or they tie up their
assets in longer-term bonds that will backfire on them if inflation returns.
They're also dramatically scaling back their consumer spending and living
more modestly, thus taking money out of the economy that would otherwise
support growth.
We've also seen a destructive run of capital out of
Europe and into safe U.S. assets such as Treasury bonds, reflecting a
world-wide aversion to risk. New business formation is at record lows,
according to Census Bureau data. There is still insufficient confidence
among business people and consumers to spark an investment and growth boom.
Jensen Comment
Bob Jensen's threads on the bailout mess are at
http://www.trinity.edu/rjensen/2008Bailout.htm
Bob Jensen's threads on The Greatest Swindle in the History of the World
---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
"Audit Watchdog Fines Ernst & Young $2 Million," by Michael Rapoport,
The Wall Street Journal, February 8, 2012 ---
http://online.wsj.com/article/SB10001424052970204136404577211384224280516.html
Ernst & Young LLP agreed to pay $2 million to
settle allegations by the government's auditing regulator that the firm
wasn't skeptical enough in assessing how a client, Medicis Pharmaceutical
Corp., accounted for a reserve covering product returns.
The Public Company Accounting Oversight Board also
sanctioned four current or former partners of the Big Four accounting firm,
including two whom it barred from the public-accounting field. Ernst & Young
and the four partners settled the allegations without admitting or denying
the board's findings.
The $2 million fine is the largest monetary penalty
imposed to date by the board, which inspects accounting firms and writes and
enforces the rules governing the auditing of public companies.
The board said Ernst & Young and its partners
didn't properly evaluate Medicis's sales-returns reserve for the years 2005
through 2007. The firm accepted the company's practice of imposing the
reserve for product returns based on the cost of replacing the product,
instead of at gross sales price, when the auditors knew or should have known
that wasn't supported by the audit evidence, the board said.
Medicis later revised its accounting for the
reserve and restated its financial statements as a result.
Continued in article
Bob Jensen's threads on Ernst & Young ---
http://www.trinity.edu/rjensen/Fraud001.htm
How to paint rosy scenarios with principles-based artistic brushes
"IFRS Might Produce Better Earnings, Study Predicts," Compliance Week,
February 3, 2012 ---
http://www.complianceweek.com/ifrs-might-produce-better-earnings-study-predicts/article/226132/
Putting a College Diploma Inside a Tool Belt
"The Future of American Colleges May Lie, Literally, in Students' Hands,"
Chronicle of Higher Education, February 5, 2012 ---
http://chronicle.com/article/Tools-for-Living/130615/?sid=cr&utm_source=cr&utm_medium=en
Jensen Comment
The risk in this education/training module is that it will do a poor job of
meeting both goals. My advice would be to keep the academic standards high and
provide more of a survey of what trade workers do rather than get bogged down in
how they do it. For example, it is doubtful that a graduate of such a program
will be able to work in a transmission shop without much more tech schooling and
apprenticeship. The hard thing about being a mechanic or a plumber is becoming
experienced in the highly variable problems that are encountered on the job. For
example, automobiles now contain computers that greatly complicate automotive
repair relative to taking the head off a Model T Ford and scraping off the
carbon.
National Association of Colleges and Employers (NACE) ---
http://www.naceweb.org/home.aspx

"2011 Accounting Graduates Earning Average Salaries of $50,000,"
AccountingWeb, January 31, 2012 ---
http://www.accountingweb.com/topic/education-careers/2011-accounting-graduates-earning-average-salaries-50000
Accounting major college graduates earned an
average of $50,500. Entry-level accounting and finance jobs tend to see
steady growth. Highest-paying employers of accounting majors were
securities, commodities, and financial investments employers.
Continued in article
NACE Salary Calculator Center ---
http://www.jobsearchintelligence.com/NACE/salary-calculator-intro/
Jensen Comment
I always warned students to look more at career potential than starting
salaries. For example, a student's lowest starting salary from a public
accountancy firm may be that student's best offer in terms of career training,
experience with quality clients, working atmosphere, travel requirements,
work-at-home opportunities, promotion prospects, etc. Some firms are better than
others in terms of chances of being admitted into the partnership. Some firms
are better than others in terms of working with clients that offer job change
opportunities.
For example, the highest starting salaries for accounting, finance, and
economics graduates are usually Wall Street securities, commodities, banking,
and investments employers. But these are usually accompanied by high costs of
living and possibly time consuming commutes. Compensation may depend heavily on
commissions and bonuses. And a given starting employee may be only one of
hundreds of new hires competing for recognition and promotion. Accepting a lower
salary in a Big Four auditing firm or even a smaller auditing firm in Des Moines
may actually be a better career choice even if the starting salary is less than
$60,000.
Bob Jensen's threads on career opportunities and warnings are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
STEM (Science, Technology, Engineering, and Mathematics) ---
http://en.wikipedia.org/wiki/STEM_fields
"Re-Engineering Engineering Education to Retain Students," by Josh
Fischman, Chronicle of Higher Education, February 19, 2012 ---
http://chronicle.com/blogs/percolator/re-engineering-engineering-education-to-retain-students/28745?sid=wc&utm_source=wc&utm_medium=en
Vancouver, British Columbia—Alarmed by the
tendency of engineering programs to hemorrhage undergraduates, at a time
when the White House has called for
an additional million degrees in science, technology, engineering and math
fields—known as STEM—education researchers here at
the annual meeting of the American Association for the Advancement of
Science proposed ways to improve the numbers. At a symposium on engineering
education, one group outlined a broad revamping of curriculum, while another
proposed more modest changes to pedagogy.
The re-evaluation of curriculum is an effort called
Deconstructing Engineering Education Programs. The
project is led by Ilene Busch-Vishniac, the provost of McMaster University
in Ontario and a mechanical engineer, and involves faculty from nine
universities, including large public institutions like the University of
Washington and small private ones like Smith College.
Patricia Campbell, a collaborator on the project
who leads an education-consulting firm in Groton, Mass., said that the time
to get an engineering degree was a major reason that undergraduates dropped
the major. “We call these four-year schools,” she said. “But 64 percent of
STEM undergraduates complete their degrees in six years.” In engineering,
she continued, that was largely due to two factors: a proliferation of
courses, called “topic creep,” and rigid chains of prerequisite courses that
students had to follow to move on to higher courses.
Matthew Ohland, an associate professor of
engineering education at Purdue University, added that the rigid structure
not only prevented students from getting out of these programs with a
degree, but it also kept potential students from migrating in. For example,
he said, an industrial-engineering program might insist its students take a
particular economics course to fulfill the program’s general-education
requirements. But sophomores and juniors might have already taken a related
but different econ course. To join the program, they would have to retake
economics, a strong disincentive.
Ms. Campbell (who was formerly a professor at
Georgia State University) and her colleagues attempted to streamline this
system, focusing on mechanical engineering. At nine schools, they identified
mechanical engineering courses that covered 2,149 topics. But after closely
looking at the coursework, they found a number of similar topics with
different names, and narrowed the list of unique topics to 833. Ultimately
they grouped the courses on those topics into 12 clusters, each of which
contained chains of classes focused around closely related topics, and
required few courses from another cluster. The clusters covered all 833
topics, and instructional times ranged from 52 to 115 hours, with an average
length of 91 hours. That corresponds, roughly, to four hours of course time
each week for one semester on the low end or one year on the high end.
That means, Ms. Campbell said, that a
mechanical-engineering student could cover all the required topics, but do
so in four years, by taking three clusters each year.
It would also, she claimed, meet the standards of
the Accreditation
Board for Engineering and Technology, because it
includes everything that accredited engineering programs do. Mr. Ohland, who
works as an evaluator for the board, said the accreditor is open to new
approaches like these, although he acknowledged there were many of what he
called “horror stories” about the accreditor being very traditional and
resistant to change. “If you do something too wild, you have to convince
[the board] that it won’t hurt students.”
No institution has adopted the cluster formulation.
Ms. Campbell said that faculty members were leery of the new course
formulations, which grouped topics that they usually taught with other
topics they did not. The solution, she said, was team-teaching of a course,
but that’s something that pushes many professors beyond their comfort
levels.
A less-radical approach would be to improve
teaching techniques in existing courses, said another symposium participant,
Susan S. Metz, executive director of the Lore-El Center for Women in
Engineering and Science at Stevens Institute of Technology in Hoboken, N.J.
She leads the Engage
project, a consortium of engineering schools at 30
institutions, supported by the National Science Foundation, to identify best
practices in teaching.
Continued in article
Jensen Comment
In accountancy we face somewhat similar problems in that even in four-year
degree programs accounting majors are required to take more courses in their
major than most other majors on campus, including majors in economics, finance,
marketing, and management. To that we now add a fifth year of courses required
to sit for the CPA examination.
But in accountancy we face a different job market than engineers. There are
no shortages of top accounting majors to meet the available entry level jobs in
CPA firms, corporations, and government agencies in most states. There is a
shortage of accounting PhD graduates, but these shortages are not caused by
undergraduate professional accountancy curricula. The main problem lies in that
accountancy PhD degrees take twice as long as most other doctoral degrees and
require mathematics and statistics prerequisites not taken by former accounting
majors ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
In the roaring 1990s there was great worry among the CPA firms that
accounting was losing top majors to the soaring bubble of jobs in computer
science, IT, and finance. But that bubble burst big time making homeless people
out of computer science, IT, and finance graduates. Students who had not yet
declared majors returned to the accounting fold in spite of the expanding
requirements to have a fifth year (150-credits) to sit for the CPA examination.
The curriculum of accountancy has been and probably always will be dictated
by content of the CPA examination. For example, when the CPA examination
commenced to have larger and tougher problems in governmental accounting,
accounting programs beefed up governmental accounting courses. The same beefing
up is now taking place with ethics content in the curricula. Perhaps this isn't
such a bad thing until more shortages of accounting graduates arise.
The problem with the CPA-exam focus of accounting curricula lies in finding
accounting instructors qualified to teach upper division accountancy, auditing,
tax, and AIS courses. There's a huge shortage of accountancy PhD graduates and
many of them are econometricians not qualified to teach upper division
accounting courses. As a result accounting programs are turning more and more to
the AACSB's Professionally Qualified (PQ) adjunct instructors who are strong in
accountancy but do not have doctoral degrees. A few even have doctoral degrees
but are not interested in doing accountics research and publishing required for
AQ tenure tracks.
Hence even though we could streamline accounting curricula along the same
lines suggested for engineering majors in the above article, I personally don't
think there's a need to meet the supply of available jobs in accountancy in the
United States and Canada.
And apart from engineering and technology, I'm not certain that we are not
deluding high school students about career opportunities in science and
mathematics opportunities. For example, chemistry and physics are now ranked
among the "most useless" majors and students with four-year degrees or even PhD
degrees in these disciplines have to branch into other fields to find careers.
"Texas May Cut Almost Half of Undergrad Physics Programs," Inside
Higher Ed, September 27, 2011 ---
http://www.insidehighered.com/news/2011/09/27/qt#271341
Note that "useless" in context means an oversupply of graduates relative to
job opportunities in a discipline. The jobs themselves may be high paying,
but 300 may apply for a single opening such that the 299 that got turned
away wish they'd majored in some other discipline.
As college
seniors prepare to graduate, The Daily Beast crunches the
numbers to determine which majors—from journalism to psychology
—didn’t pay.
Some
cities are better than others for
college graduates. Some college courses are
definitely hotter than others. Even
some iPhone apps are
better for college
students than others. But when it comes down to it, there’s only
one question that rings out in dormitories, fraternities, and
dining halls across the nation: What’s your major?
Slide Show
01.Journalism
02. Horticulture
03. Agriculture
04. Advertising
05. Fashion Design
06. Child and Family Studies
07. Music
08. Mechanical Engineering Technology
(but not Mechanical Engineering per se)
09.
Chemistry
10. Nutrition
11. Human Resources
12. Theatre
13. Art History
14. Photography
15. Literature
16. Art
17.Fine Arts
18. Psychology
19. English
20. Animal Science
Private Equity ---
http://en.wikipedia.org/wiki/Private_equity
Leveraged Buyout (LBO) ---
http://en.wikipedia.org/wiki/Leveraged_buyout
"Private Equity: Fact, Fiction and What Lies in Between,"
knowledge@whrton, February 8, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2939
What good is private equity, anyway?
As its critics see it, these investment pools make
money the wrong way -- buying "target companies," slashing jobs, piling on
debt and selling the prettied-up remnants, which by then are doomed to fail.
To make matters worse, private equity firms get a stunning tax break, paying
15% on profits instead of 35%.
But the industry and its defenders, including
presidential candidate Mitt Romney who made his fortune in PE, say it is a
strong creator of jobs and value, and a vital source of outsized returns for
pension funds, university endowments and other investment pools that serve
ordinary people.
Which is true?
While there is fodder for both views, academic
research finds that the truth for the industry as a whole is not so
dramatic. If the entire PE industry were to disappear overnight, the economy
probably would not feel much effect, positive or negative. "In the absence
of private equity firms and funds, there are a lot of other types of capital
that are trying to do very similar types of things," says Wharton accounting
professor
Wayne Guay.
Adds Wharton finance professor
Richard J. Herring: "The question of whether they
add value, in my mind, is really one of whether they only undertake
financial restructuring ... or whether they replace management and the
board, and undertake an operational restructuring that improves the
efficiency of the enterprise."
Continued in article
Also see Tom Selling's Accounting Onion post at
Click Here
http://accountingonion.typepad.com/theaccountingonion/2012/02/vulture-capitalism-accounting-and-mitt-romney.html
Separating Fact from Hype and Wishful Thinking about Education Technology
"Hurdles Remain Before College Classrooms Go Completely Digital," by Dave
Copeland, ReadWriteWeb, February 20, 2012 ---
http://www.readwriteweb.com/archives/hurdles_remain_before_college_classrooms_go_comple.php
OnlineUniversities.com came out with an
optimistic infographic last week about how college
classrooms are going digital.
But as someone who makes as much as a quarter of
his income from teaching college classes in any given year, and who also
spends a good amount of time speaking at conferences trying to help
professors incorporate technology and social media into their curriculum,
the view from the trenches is very different than the iPad-in-every-backpack
proponents would have you believe.
This is not to say that tech isn't changing the way
we teach and the way students learn: it most certainly is. But probably not
as fast as some people outside of higher ed think it is.
Since 2006,
Mashery has managed the APIs for more than 100 brands such as The
New York Times, Netflix, Best Buy and Hoovers. Powering the more than
10,000 apps built upon these APIs, Mashery enables its customers to
distribute their content, data or products to mobile devices and web
mashups.
People who say
we're at the dawn of a new way of learning at the college level are
overlooking some rather significant economic and cultural hurdles. At
the same time, academic freedom means professors can choose to implement
technology a lot, a little bit or not at all into their curriculum. And
implementing it "a lot" isn't always a good thing, particularly if it
isn't used in a way that boosts learning outcomes.
We (Don't) Have
The Technology
If you were to
visit the library on the campus where I teach, you would see students
waiting to use outdated desktops in the computer labs and library,
particularly around midterms and finals week. It seems odd at first,
considering the school has a laptop requirement for all undergraduates.
That means you have to have a laptop computer when you enroll, and
presumably, as an instructor, I can require my students to bring them to
any class.
But here's the
reality: laptops break, and students can't afford replacements.
The mainstream
media has sold us a myth of college still being the place for the
ultra-elite, for kids who start compiling "brag sheets" in the fourth
grade and have parents that shell out five figures to hire a college
admissions coach.
But in
practice, most college students these days are like the ones I teach at
a four-year state college: they are, by-and-large, the first in their
family to attend college. Almost all of my students work, and many work
full-time or multiple part-time jobs. Some are parents. An increasing
number are so-called nontraditional students and are enrolling after an
extended break from education. These students often support families
and, in many case, have college-aged children who need their own
laptops.
Now factor in
that the fastest growing segment of higher education are community
colleges, which by-and-large draw kids from working class backgrounds or
cater to people who have been laid off and are trying to get trained for
a new career.
For a lot of
students, replacing a broken laptop is a choice between skipping a rent
payment or sucking it up and waiting in those long lines at the computer
lab. Asking them to shell out for an iPad on top of the laptop just
isn't feasible for many college students, and that means its going to
take longer to get everyone on board with the tech revolution in higher
ed.
Tenure Doesn't
Equal Tech Savvy
One of the
concerns among students on the campus where I teach is that the
university employs an alert system that sends them text and email
messages if there is a life-threatening emergency on campus (think
Virginia Tech in 2007). But what are they supposed to do, these students
ask, if they're in a class where the teacher bans them from using
smartphones and laptops?
Academic
freedom means professors get to run their classrooms in the way they
want, and that includes choosing the tools they use to teach. Having sat
in meetings where faculty members have threatened to file union
complaints because email means students can - GASP! - contact them at
any time, I think we're a ways off from blanket incorporation of social
media and tablet textbooks across the curriculum.
These same
professors, many of whom predate the Internet era in higher ed, never
concede that email also means fewer student visits during office hours
for simple questions, which means more time to get actual work done.
This isn't meant as a knock on them, but there are varying degrees of
enthusiasm for incorporating tech into teaching and, unlike high
schools, tech enthusiasm can't be mandated by a curriculum committee.
High School's
Chilling Effects
Career
academics are not, however, the only ones to blame. A lot of students
come to college with backward views of what social media is and what it
can accomplish. And most importantly, what is and isn't acceptable on
social media.
And why shouldn't they? They come from
schools where teachers can be reprimanded or even fired for connecting
with students on social networks. Several schools across the country are
implementing bans on teachers friending not only current students but
former students on
Facebook.
There's no easy
fix for overcoming these preexisting biases. Step one, as a professor,
is make sure you don't use Facebook for classwork: even though it's the
default social network for so many of us, there's still too much of a
creep factor in crossing that student-professor line (and, frankly, with
Facebook's ever-shifting privacy policies, even if you think you're
protected you may end up seeing stuff about your students you'd be
better off not knowing about).
But that leaves
us to decide which social network we should use with our students.
Dedicated social networks like the one being rolled out for students by
Microsoft seem like a good idea, but my own experience is that a site
students check for reasons other than school tends to produce more
frequent check-ins and a more organic discussion about classwork, which
is exactly what I want to accomplish with social media in my classes.
I tried using
Google+
last September, only to be thwarted in a freshman writing class where
some of the students were not yet 18. Google has since relaxed its age
restrictions, but the social network is still too new for students to
gravitate toward it. In my experiment, students found it confusing, or
at least less intuitive than Facebook, and I was finding most would only
use it if I mandated it.
I've had the best luck with
Twitter,
including the use of it in a film class so we can
discuss the film as we're screening it each week (for a sample, see this
storify of tweets from the class discussion of Shawshank Redmeption).
But, again, only about half of my
students will use it if I don't require it. And of the students who
start using it because I require it in my class, fewer than 10% will
continue to use it when the semester ends.
Hope On The
Horizon: The Kindle Effect
The people I
thought would be stingiest about adopting technology in their classrooms
have, in many cases, been the most willing to change. I now see a lot of
those seemingly stodgy old English professors walking around campus with
a Kindle tucked under their arm.
Continued in article
Bob Jensen's threads on the hope and hype of education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Bob Jensen's threads on the dark side of education technology ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
"Suspended Lawyer Who Wrote ‘Bulletproof Asset Protection’ Pleads Guilty
in Tax Case, Must Pay $40M," by Martha Neil, ABA Journal, February 15, 2012
---
http://www.abajournal.com/news/article/suspended_lawyer_who_authored_bulletproof_asset_protection_pleads_guilty_in/
A suspended Colorado lawyer who authored the book
Bulletproof Asset Protection pleaded guilty in federal court in Las
Vegas on Monday to multiple tax-related charges.
William S. Reed, 61, of Santa Barbara, Calif., was
indicted in July, along with two other defendants, on accusations he
participated in a business scheme between 1998 and 2006 that helped others
hide assets from creditors and the Internal Revenue Service, the Las Vegas
Review-Journal reports.
He pleaded guilty to conspiracy to defraud the
United States, attempted tax evasion and aggravated identity theft, and
agreed to pay about $40 million to the IRS and the Federal Trade Commission.
The two other defendants await trial.
Reed allegedly had $70,000 in cash hidden in his
vehicle when he was arrested last year, reports KLAS. He faces up to 12
years when he is sentenced in May.
"IRS Warns on ‘Dirty Dozen’ Tax Scams for 2012," by Laura Saunders,
The Wall Street Journal, February 12, 2012 ---
http://blogs.wsj.com/totalreturn/2012/02/17/irs-warns-on-dirty-dozen-tax-scams-for-2012/?mod=google_news_blog
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Chicago Called Most Corrupt City In Nation," CBS Chicago TV, February
14, 2012 ---
http://chicago.cbslocal.com/2012/02/14/chicago-called-most-corrupt-city-in-nation/
A former Chicago alderman turned political science
professor/corruption fighter has found that Chicago is the most corrupt city
in the country.
He cites data from the U.S. Department of Justice
to prove his case. And, he says, Illinois is third-most corrupt state in the
country.
University of Illinois professor Dick Simpson
estimates the cost of corruption at $500 million.
It’s essentially a corruption tax on citizens who
bear the cost of bad behavior (police brutality, bogus contracts, bribes,
theft and ghost pay-rolling to name a few) and the costs needed to prosecute
it.
“We first of all, we have a long history,” Simpson
said. “The first corruption trial was in 1869 when alderman and county
commissioners were convicted of rigging a contract to literally whitewash
City Hall.”
Corruption, he said, is intertwined with city
politics
“We have had machine politics since the Great
Chicago Fire of 1871,” he said. “Machine politics breeds corruption
inevitably.”
Simpson says Hong Kong and Sydney were two
similarly corrupt cities that managed to change their ways. He says Chicago
can too, but it will take decades.
He’ll be presenting his work before the new Chicago
Ethics Task Force meeting tomorrow at City Hall.
University of Illinois at Chicago Report
on Massive Political Corruption in Chicago
"Chicago Is a 'Dark Pool Of Political Corruption'," Judicial Watch,
February 22, 2010 ---
http://www.judicialwatch.org/blog/2010/feb/dark-pool-political-corruption-chicago
A major U.S. city long known as a hotbed of
pay-to-play politics infested with clout and patronage has seen nearly 150
employees, politicians and contractors get convicted of corruption in the
last five decades.
Chicago has long been distinguished for its
pandemic of public corruption, but actual cumulative figures have never been
offered like this. The astounding information is featured in a
lengthy report published by one of Illinois’s
biggest public universities.
Cook County, the nation’s second largest, has been
a
“dark pool of political corruption” for more than
a century, according to the informative study conducted by the University of
Illinois at Chicago, the city’s largest public college. The report offers a
detailed history of corruption in the Windy City beginning in 1869 when
county commissioners were imprisoned for rigging a contract to paint City
Hall.
It’s downhill from there, with a plethora of
political scandals that include 31 Chicago alderman convicted of crimes in
the last 36 years and more than 140 convicted since 1970. The scams involve
bribes, payoffs, padded contracts, ghost employees and whole sale subversion
of the judicial system, according to the report.
Elected officials at the highest levels of city,
county and state government—including prominent judges—were the perpetrators
and they worked in various government locales, including the assessor’s
office, the county sheriff, treasurer and the President’s Office of
Employment and Training. The last to fall was renowned
political bully Isaac Carothers, who just a few
weeks ago pleaded guilty to federal bribery and tax charges.
In the last few years alone several dozen officials
have been convicted and more than 30 indicted for taking bribes, shaking
down companies for political contributions and rigging hiring. Among the
convictions were fraud, violating court orders against using politics as a
basis for hiring city workers and the disappearance of 840 truckloads of
asphalt earmarked for city jobs.
A few months ago the city’s largest newspaper
revealed that Chicago aldermen keep a
secret, taxpayer-funded pot of cash (about $1.3
million) to pay family members, campaign workers and political allies for a
variety of questionable jobs. The covert account has been utilized for
decades by Chicago lawmakers but has escaped public scrutiny because it’s
kept under wraps.
Judicial Watch has extensively investigated Chicago
corruption, most recently the
conflicted ties of top White House officials to
the city, including Barack and Michelle Obama as well as top administration
officials like Chief of Staff Rahm Emanual and Senior Advisor David Axelrod.
In November Judicial Watch
sued Chicago Mayor Richard Daley's office to
obtain records related to the president’s failed bid to bring the Olympics
to the city.
Bob Jensen's threads on the
sad state of governmental accounting are at
http://www.trinity.edu/rjensen/theory01.htm#GovernmentalAccounting
Bob Jensen's threads on political
corruption are at
http://www.trinity.edu/rjensen/FraudRotten.htm#Lawmakers
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/fraudUpdates.htm
Our goal is for our economy to look more like Texas,
and a lot less like California.
Sam. Brownback, 2012 Governor
of Kansas ---
http://en.wikipedia.org/wiki/Sam_Brownback
"The Heartland Tax Rebellion: More states want to repeal their
income taxes," The Wall Street Journal, February 7, 2012 ---
http://online.wsj.com/article/SB10001424052970203889904577200872159113492.html#mod=djemEditorialPage_t
Oklahoma Governor Mary Fallin is starting to feel
surrounded. On her state's southern border, Texas has no income tax. Now two
of its other neighbors, Missouri and Kansas, are considering plans to cut
and eventually abolish their income taxes. "Oklahoma doesn't want to end up
an income-tax sandwich," she quips.
On Monday she announced her new tax plan, which
calls for lowering the state income-tax rate to 3.5% next year from 5.25%,
and an ambition to phase out the income tax over 10 years. "We're going to
have the most pro-growth tax system in the region," she says.
She's going to have competition. In Kansas,
Republican Governor Sam Brownback is also proposing to cut income taxes this
year to 4.9% from 6.45%, offset by a slight increase in the sales tax rate
and a broadening of the tax base. He also wants a 10-year phase out. In
Missouri, a voter initiative that is expected to qualify for the November
ballot would abolish the income tax and shift toward greater reliance on
sales taxes.
South Carolina Governor Nikki Haley wants to
abolish her state's corporate income tax. And in the Midwest, Congressman
Mike Pence, who is the front-runner to be the next Republican nominee for
Governor, is exploring a plan to reform Indiana's income tax with much lower
rates. That policy coupled with the passage last week of a right-to-work law
would help Indiana attract more jobs and investment.
That's not all: Idaho, Maine, Nebraska, New Jersey
and Ohio are debating income-tax cuts this year.
But it is Oklahoma that may have the best chance in
the near term at income-tax abolition. The energy state is rich with oil and
gas revenues that have produced a budget surplus and one of the lowest
unemployment rates, at 6.1%. Alaska was the last state to abolish its income
tax, in 1980, and it used energy production levies to replace the revenue.
Ms. Fallin trimmed Oklahoma's income-tax rate last year to 5.25% from 5.5%.
The other state overflowing with new oil and gas
revenues is North Dakota thanks to the vast Bakken Shale. But its
politicians want to abolish property taxes rather than the income tax.
They might want to reconsider if their goal is
long-term growth rather than short-term politics. The American Legislative
Exchange Council tracks growth in the economy and employment of states and
finds that those without an income tax do better on average than do high-tax
states. The nearby table compares the data for the nine states with no
personal income tax with that of the nine states with the highest personal
income-tax rates. It's not a close contest.
Skeptics point to the recent economic problems of
Florida and Nevada as evidence that taxes are irrelevant to growth. But
those states were the epicenter of the housing bust, thanks to overbuilding,
and for 20 years before the bust they had experienced a rush of new
investment and population growth. They'd be worse off now with high
income-tax regimes.
The experience of states like Florida, New
Hampshire, Tennessee and Texas also refutes the dire forecasts that
eliminating income taxes will cause savage cuts in schools, public safety
and programs for the poor. These states still fund more than adequate public
services and their schools are generally no worse than in high-income tax
states like California, New Jersey and New York.
They have also recorded faster revenue growth to
pay for government services over the past two decades than states with
income taxes. That's because growth in the economy from attracting jobs and
capital has meant greater tax collections.
The tax burden isn't the only factor that
determines investment flows and growth. But it is a major signal about how a
state treats business, investment and risk-taking. States like New York,
California, Illinois and Maryland that have high and rising tax rates also
tend to be those that have growing welfare states, heavy regulation,
dominant public unions, and budgets that are subject to boom and bust
because they rely so heavily on a relatively few rich taxpayers.
The tax competition in America's heartland is an
encouraging sign that at least some U.S. politicians understand that they
can't take prosperity for granted. It must be nurtured with good policy, as
they compete for jobs and investment with other states and the rest of the
world.
"Our goal is for our economy to look more like
Texas, and a lot less like California," says Mr. Brownback, the Kansas
Governor. It's the right goal.
Continued in article
State Individual Income Tax Rates in the 50 States, 2000-2011 ---
http://www.taxfoundation.org/taxdata/show/228.html
On a per capita basis ---
50-State Table of State and Local Individual Income Tax Collections Per
Capita
Comparison of Corporate Income Tax Rates in the 50 States ---
http://www.taxfoundation.org/taxdata/show/230.html
On a per capita basis ---
http://www.taxfoundation.org/taxdata/show/281.html
This is a little misleading since many states like Illinois give their
largest corporate employers "Get Out of Tax Free" cards (or offsetting
subsidies)
State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State,
2000-2010 ---
http://www.taxfoundation.org/publications/show/245.html

PBS Video: What Do Tax Rates' Ups and Downs Mean for
Economic Growth?
http://video.pbs.org/video/2176062522
Thank you Paul Caron for the heads up.
Marginal Tax Rates Around the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html
Tax Foundation ---
http://en.wikipedia.org/wiki/Tax_Foundation
Video from the Tax Foundation --- How Much Do U.S. Corporations Really Pay
in Taxes? New Video Documents High Effective Rates
http://taxfoundation.org/news/show/27953.html
Thank you Paul Caron for the heads up at the Tax Prof blog
U.S. companies pay among the highest corporate tax
rates in the world, even after accounting for all deductions and loopholes,
according to a new video produced by the Tax Foundation. This explanation of
“effective” tax rates for corporations, based on recent academic studies of
tax systems around the globe, is the third in a 5-part series on corporate
taxes. “The impression that a large number of U.S. companies are using
loopholes and creative accounting to get out of paying taxes could not be
more wrong,” said Tax Foundation president Scott Hodge. “American
corporations are consistently paying at the highest levels in the world, and
that burden impacts their ability to compete both at home and abroad.”
Jensen Comment
The Tax Foundation has been around since 1937, but it has been recently heavily
criticized by liberals like Paul Krugman for misleading research.
Note that just because a corporation elects to not transmit profits earned
abroad back to the United States, thereby deferring U.S. corporate taxes, does
not mean it is not paying taxes on these profits that are often subject to
foreign corporate taxes that are usually lower than U.S. corporate taxes on
those profits.
Bob Jensen's threads on taxation ---
http://www.trinity.edu/rjensen/Bookbob1.htm#Taxation
Center for Audit Quality (CAW) ---
http://en.wikipedia.org/wiki/Center_for_Audit_Quality
New CAQ Video Explains the Financial Statement Audit ---
http://www.thecaq.org/newsroom/release_02062012.htm
Where do the audit firms go wrong in financial statement audits? ---
http://www.trinity.edu/rjensen/Fraud001.htm
From Rice University (as far as I can tell nothing is yet available for
accountancy)
"Why Pay for Intro Textbooks?" by Mitch Smith, Inside Higher Ed,
February 7, 2012 ---
http://www.insidehighered.com/news/2012/02/07/rice-university-announces-open-source-textbooks
If ramen noodle sales spike at the start of every
semester, here’s one possible reason: textbooks can cost as much as a class
itself; materials for an introductory physics course can easily top $300.
Cost-conscious students can of course save money
with used or online books and recoup some of their cash come buyback time.
Still, it’s a steep price for most 18-year-olds.
But soon, introductory physics texts will have a
new competitor, developed at Rice University. A free online physics book,
peer-reviewed and designed to compete with major publishers’ offerings, will
debut next month through the non-profit publisher
OpenStax College.
Using Rice’s
Connexions
platform, OpenStax will offer free course
materials for five common introductory classes. The textbooks are open to
classes anywhere and organizers believe the programs could save students $90
million in the next five years if the books capture 10 percent of the
national market. OpenStax is funded by grants from the William and Flora
Hewlett Foundation, the Bill & Melinda Gates Foundation, the 20 Million
Minds Foundation and the Maxfield Foundation.
Traditional publishers are quick to note that the
new offerings will face competition. J. Bruce Hildebrand, executive
director for higher education of the Association of American Publishers,
said any textbook’s use is ultimately determined by its academic value.
“Free would appear to be difficult to compete with,” Hildebrand said. “The
issue always, however, is the quality of the materials and whether they
enable students to learn, pass their course and get their degree. Nothing
else really counts.”
In the past, open-source materials have failed to
gain traction among some professors; their accuracy could be difficult to
confirm because they hadn't been peer-reviewed, and supplementary materials
were often nonexistent or lacking because they weren't organized for
large-scale use.
OpenStax believes it addressed those concerns with
its new books, subjecting the texts to peer review and partnering with
for-profit companies to offer supplementary materials for a cost.
Whether the books are used at Rice is up to each
professor, but several colleges and universities – “in the low 10s” said
Connexions founder and director Richard Baraniuk – have already signed on
for the first batch of texts. Baraniuk sees a quality product with the
potential to defray a student’s total cost and increase access to higher
education and expects more colleges to integrate the books as word spreads.
While open-source materials are nothing new, a
series of free self-contained textbooks designed to compete head-to-head
with major publishers is. Instructors building a class with open-source
materials now must assemble modules from several different places and verify
each lesson’s usefulness and accuracy.
The new textbooks eliminate much of that work,
which Baraniuk thinks will be make the free materials more palatable to
professors who have been reluctant to adopt open-source lessons. In the next
five years, OpenStax hopes to have free books for 20 of the most common
college courses.
OpenStax used its grant money to hire experts to
develop each textbook and then had their work peer reviewed. The process has
taken more than 18 months and will go live next month with sociology and
physics books. The only cost to users comes if an instructor decides to use
supplementary material from a for-profit company OpenStax partners with,
such as Sapling Learning.
Two introductory biology texts, one for majors and
another for nonmajors, are slated to go online in the fall along with an
anatomy and physiology book. Students and professors will be able to
download PDF versions on their computers or access the information on a
mobile device. Paper editions will be sold for the cost of printing. The
600-page, full-color sociology book is expected to sell for $30 for those
who want a print version -- those content with digital will pay nothing.
Leading introductory sociology texts routinely cost between $60 and $120
new.
Continued in article
Jensen Comment
These open source textbooks work best in disciplines that are not being
constantly updated with updates --- like mathematics. However, the textbooks
available to date for OpenStax include such introductory textbooks as biology
which changes more quickly than introductory mathematics.
In accounting, intermediate accounting is particularly problematic even with
for-profit publishing houses as new domestic and international accounting
standards and implementation guides keep coming forth on a weekly basis.
I have a directory for free textbooks in various academic disciplines,
including accountancy and finance. Many of these were previous hot selling books
that were dropped when publishers merged and thinned out their product lines
after the mergers (giving copyrights to authors whose books were dropped)
---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
But I find it increasingly difficult for me to recommend some of those free
books because there is no economic incentives for authors to keep updating free
textbooks and supplements (like answer books and text banks) when the textbooks
are free.
Ambitious instructors may be better off scouring for course materials from
prestigious universities. These course materials are more likely to be updated
relative to older free textbooks ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Creative Accounting Inflation of Reported Cash from Operations
I have long argued that if cash flow statements were not accompanied by
accrual accounting financial statements, managers would manipulate the timings
of cash flows in cash collections and terms of contracts. Here's some empirical
evidence that this happens in spite of being accompanied by accrual accounting
financial statements.
"Incentives to Inflate Reported Cash from Operations Using Classification
and Timing," by Lian Fen Lee, The Accounting Review, January
2012, pp. 1-34
ABSTRACT:
This study examines when firms inflate reported
cash from operations in the statement of cash flows (CFO) and the mechanisms
through which firms manage CFO. CFO management is distinct from earnings
management. Unlike the manipulation of accruals, firms cannot manage CFO
with biased estimates, but must resort to classification and timing. I
identify four firm characteristics associated with incentives to inflate
reported CFO: (1) financial distress, (2) a long-term credit rating near the
investment/non-investment grade cutoff, (3) the existence of analyst cash
flow forecasts, and (4) higher associations between stock returns and CFO.
Results indicate that, even after controlling for the level of earnings,
firms upward manage reported CFO when the incentives to do so are
particularly high. Specifically, firms manage CFO by shifting items between
th estatement of cash flows categories both within and outside the
boundaries of generally accepted accounting principles (GAAP), and by timing
certain transactions such as delaying payments to suppliers or accelerating
collections from customers.
Data Availability: Data are available from public sources identified in
the study.
Keywords: classification shifting, real activities manipulation, cash
flow reporting
Bob Jensen's threads on creative accounting and earnings management ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
New (2012) Evidence That
Blaming Bank Failure on Fair Value Accounting Standards Was Pure
BS
(Except in Terms of Executive Bonus Payments)
Former FDIC Director William Isaac ---
http://en.wikipedia.org/wiki/William_Isaac
Bankers were quick to blame fair value accounting standards for the banking
failures following the bursting of the real estate bubble in 2007
Must of us accounting professors suspected that this was
pure scapegoating bullshit
This type of naive and dangerous reasoning was started on September 19, 2008 by
former FDIC director Bill Isaac
In my opinion, Bill Isaac is an ignorant advocate of horrible and
dangerous bank accounting
First of all he blamed the subprime collapse of thousands of banks on the FASB
requirements for fair value accounting (totally dumb) ---
http://www.trinity.edu/rjensen/2008bailout.htm#FairValue
Now he wants the FASB to continued to grossly under estimate loan loss
reserves (now that the FASB is finally trying to fix the problem)
“AccountingWEB Exclusive: Former FDIC Chief says FASB proposal is
'irresponsible'," AccountingWeb, June 3, 2010 ---
http://www.accountingweb.com/topic/accounting-auditing/aw-exclusive-former-fdic-chief-says-fasb-proposal-irresponsible
Bull Crap Teaching Case 1
From The Wall Street Journal Accounting Weekly Review on
Bank Capital Gets Stress Test
by Deborah
Solomon and Jon Hilsenrath
Feb 26, 2009
Click here to view the full article on WSJ.com
http://online.wsj.com/article/SB123557705225772665.html?mod=djem_jiewr_AC
TOPICS: Bad
Debts, Banking, Financial Analysis, Financial Statement Analysis
SUMMARY: The
Obama administration is proposing new bank capital requirement tests that
will be designed to assess whether "...banks can survive even if the
unemployment rate rises above 10% and home prices fall by another
25%....worse than most economists and the Federal Reserve currently expect."
If banks fail to demonstrate sufficient capital to weather those
circumstances, they may either raise additional funds privately or accept
further investment from the U.S. government. "The government's investment
would come in the form of convertible preferred shares, which institutions
could choose to convert into common equity at any time....Officials said
they expect banks would convert the shares to common equity as needed to
help protect against losses."
CLASSROOM APPLICATION: Questions
help students to understand the meaning of capital beyond the balance sheet
definition of assets - liabilities = equity and to understand the
relationship between economic forecasting and bank capital requirements. The
article also discusses the use of preferred shares versus common stock and
the use of convertible preferred shares.
QUESTIONS:
1. (Introductory)
Define bank capital in terms of the balance sheet equation.
2. (Advanced)
What tests are used to assess a bank's health based on the level of its
capital or equity? (Hint: for background information and an international
perspective, you may investigate the Basel and Basel II Accords of the Basel
Committee on Banking Supervision of the Group of Ten nations. See the
related articles.)
3. (Introductory)
How can economic and financial advisors relate the potential unemployment
rate and mortgage default rate in the U.S. economy to banks' capital needs?
4. (Advanced)
If financial institutions fail capital requirement tests based on new
thresholds as outlined by the Obama administration, the U.S. government may
invest in "...convertible preferred shares, which institutions could choose
to convert into common equity at any time." Define and describe the
differences between preferred and common shares. Also define convertibility
features.
5. (Introductory)
Why might financial institutions not want to issue common shares of stock
but be allowed to do so by converting preferred shares whenever they so
choose?
6. (Introductory)
What is the difference between financial institutions issuing stock to the
U.S. government in the ways described in this article and nationalizing our
financial institutions?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Rules on Capital Roil U.S. Bankers
by Damian Paletta
Nov 01, 2006
Page: C3
http://online.wsj.com/article/SB116234873761209749.html
by Damian Paletta and Alistair MacDonald
Mar 04, 2008
Page: 03/04
"Bank Capital Gets Stress Test," by Deborah Solomon
and Jon Hilsenrath, The Wall Street Journal, Feb 26, 2009
http://online.wsj.com/article/SB123557705225772665.html?mod=djem_jiewr_AC
The Obama administration, in unveiling details of
its financial-rescue plan, laid out a dark economic scenario it expects
banks to be able to withstand, the starting point for what could become a
significant new infusion of government cash into the banking system.
To ensure banks can survive even if the
unemployment rate rises above 10% and home prices fall by another 25%, the
administration will require some institutions to either raise private money
or accept a bigger investment from the U.S. government. U.S. officials don't
expect the economy to deteriorate that sharply, but they want to be sure
banks are prepared nonetheless.
The first step in the latest effort to shore up the
banking sector will be a series of "stress tests" to assess whether the
largest U.S. banks can survive a protracted slump. The tests aren't expected
to be finished until April. Banks will then have up to six months to address
any shortfall.
Unlike the Bush administration's effort to pump
$250 billion into banks, the Obama team didn't commit a set amount of money
to the effort and President Barack Obama said Tuesday it is likely that
banks will need additional funds beyond the $700 billion rescue package
approved by Congress last fall.
The government's investment would come in the form
of convertible preferred shares, which institutions could choose to convert
into common equity at any time. Regulators and investors have become more
concerned about the amount of common stock banks hold, since that is a
bank's first line of defense against losses.
To ensure their balance sheets are strong, the
biggest banks will be required to undergo a tough assessment, including
whether they have the right type of capital. Officials said they expect
banks would convert the shares to common equity as needed to help protect
against losses.
A bank's capital is its cushion against losses, a
buffer that ensures its depositors and other lenders will get paid even if
the bank runs into trouble.
Economists said most of the nation's largest banks
will likely have to raise capital under the economic assumptions that
regulators plan to use. The stress test assumes an unemployment rate
averaging 8.9% in 2009 and 10.3% in 2010. Because that is an average for a
whole year, the test envisions the jobless rate reaching higher than those
levels on a monthly basis during these stretches. It was 7.6% in January
Under some circumstances, the government might end
up owning majority stakes in banks.
"I think you'll find most firms need more capital
and that Bank of America and Citigroup are going to need a boatful of new
capital," said Douglas Elliott, a fellow at the Brookings Institution.
Discuss Would nationalizing banks improve or worsen
the crisis? Share your thoughts at Journal Community.Banks that get a
government investment will have to comply with strict executive-compensation
restrictions, including curtailed bonuses for top executives and earners.
The securities will pay a 9% dividend -- higher than the 5% banks are
required to pay under the Bush-era program -- and banks would be restricted
in paying dividends and from buying back their own stock. The securities
would automatically convert to common stock after seven years.
Banks that have already sold preferred shares to
the government as part of the $250 billion program would also be able to
swap the preferred shares for convertible securities that can convert to
common shares.
Administration officials said the effort is an
attempt to avoid nationalizing banks and to make sure institutions can lend
money. While officials said most banks are considered well capitalized,
uncertainty about economic conditions is hindering their ability to lend
money or attract private capital.
Treasury Secretary Timothy Geithner sought to knock
down speculation that the government may nationalize banks, saying such a
move is "the wrong strategy for the country and I don't think it's the
necessary strategy." Mr. Geithner, speaking on The NewsHour with Jim Lehrer,
said there may be situations where the government provides "exceptional
support" but that the best outcome is if the banks "are managed and remain
in private hands."
U.S. officials will demand that financial
institutions test the resilience of their portfolios and capital against a
grim, though not catastrophic, economic landscape. The test assumes a 3.3%
contraction in gross domestic product in 2009, which would be the worst
performance since 1946. And it assumes home-price declines of another 22% in
2009 and 7% in 2010.
That would be worse than most economists and the
Federal Reserve currently expect. Private economists on average forecast a
2% contraction in economic output this year and a 2% rebound next year, with
the jobless rate remaining below 10%.
Some private forecasters said they can imagine
worse.
"I don't have any problem believing the
unemployment rate is going to move to 12% or that vicinity," said Laurence
Meyer, vice chairman of Macroeconomic Advisers LLC, a forecasting firm whose
models are widely used in Washington and New York.
Mr. Meyer said regulators had to strike a delicate
balance in designing their test. If they painted a truly grim scenario --
the economy contracted by 9% in 1930, 6% in 1931 and 13% in 1932 -- it could
force banks to raise more capital than they are capable of raising, driving
them further into the government's arms.
"You don't want to know the answer to some of the
questions you might ask," Mr. Meyer said.
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory01.htm
Bob Jensen's threads on the bailout mess ---
http://www.trinity.edu/rjensen/2008Bailout.htm
Bull Crap Teaching Case 2
Forbes serves up barf --- No it's worse than barf!
It's clear that Forbes never read the excellent December 2008 SEC research
report on this topic.
"Obama Repeats Bush's Worst Market Mistakes: Bad accounting rules are the cause
of the banking crisis," by Steve Forbes, The Wall Street Journal, March 6, 2009
---
http://online.wsj.com/article/SB123630304198047321.html?mod=djemEditorialPage
What is most astounding about President Barack
Obama's radical economic recovery program isn't its breadth, but its
continuation of the most destructive policies of the Bush administration.
These Bush policies were in themselves repudiations of Franklin Delano
Roosevelt, Mr. Obama's hero.
The most disastrous Bush policy that Mr. Obama is
perpetuating is mark-to-market or "fair value" accounting for banks,
insurance companies and other financial institutions. The idea seems
harmless: Financial institutions should adjust their balance sheets and
their capital accounts when the market value of the financial assets they
hold goes up or down.
That works when you have very liquid securities,
such as Treasurys, or the common stock of IBM or GE. But when the credit
crisis hit in 2007, there was no market for subprime securities and other
suspect assets. Yet regulators and auditors kept pressing banks and other
financial firms to knock down the book value of this paper, even in cases
where these obligations were being fully serviced in the payment of
principal and interest. Thus, under mark-to-market, even non-suspect assets
are being artificially knocked down in value for regulatory capital (the
amount of capital required by regulators for industries like banks and life
insurance).
Banks and life insurance companies that have
positive cash flows now find themselves in a death spiral. Of the more than
$700 billion that financial institutions have written off, almost all of it
has been book write-downs, not actual cash losses. When banks or insurers
write down the value of their assets they have to get new capital. And the
need for new capital is a signal to ratings agencies that these outfits
might deserve a credit-rating reduction.
So although banks have twice the amount of cash on
hand that they did a year ago, they lend only under duress, or apply onerous
conditions that would warm Tony Soprano's heart. This is because they know
that every time they make a loan or an investment there is a risk of a book
write-down, even if the loan is unimpaired.
If this rigid mark-to-market accounting had been in
effect during the banking trouble in the early 1990s, almost every major
commercial bank in the U.S. would have collapsed because of shaky Latin
American and commercial real estate loans. We would have had a second Great
Depression.
But put aside for a moment the absurdity of trying
to price assets in a disrupted or non-existent market, of not distinguishing
between distress prices and "normal" prices. Regulatory capital by its
definition should take the long view when it comes to valuation; day-to-day
fluctuations shouldn't matter. Assets should be kept on the books at the
price they were obtained, as long as the assets haven't actually been
impaired.
Continued in article
Jensen Comment
By now investors know which large banks are stuck with trillions of dollars in
non-performing loans. Wrapping them gold ribbons by reporting them way above
market value is hardly going to induce investors to go out an buy enormous
amounts of common shares of CitiBank, Bank of America, Wells Fargo, and JP
Morgan. This artificial gilding of capital ratios does nothing to solve the
problem of detoxifying the poison of non-performing loans and poisonous
collateralized bonds.
This type of naive and dangerous reasoning was started on September 19, 2008
by former FDIC director Bill Isaac ---
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValueAccounting
It's certain that FAS 157 needs some amending for broken markets, but what
Isaac and Forbes are proposing serve as no basis for improvements on FAS 157.
After Isaac proposed elimination of fair value accounting for troubled banks,
Congress ordered, in no uncertain terms, the SEC to do a research study on what
was causing so many bank failures like the huge failures of WaMu and Indy Mac.
Although the SEC has been disgraced for a lot of reasons as of late, the
particular study that emerged in a very short period of time (December 2008) is
an excellent study of why banks were failing.
But political
pressures mounted in spite of the SEC research findings. On April 2, 2009 in a
3-2 vote the FASB reached a highly controversial decision to ease fair value
accounting in such a way that banks will be able to report higher earnings due
to changes in accounting rules.
New Empirical Evidence Highlights the Bullshit of Bill Isaac
and His Banking Cronies
"A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during
the Financial Crisis," by Brad A. Badertscher, Jeffrey J. Burks, and Peter
D. Easton, The Accounting Review, January 2012, pp. 59-90 ---
ABSTRACT:
Critics argue that fair value provisions in U.S.
accounting rules exacerbated the recent financial crisis by depleting banks'
regulatory capital, which curtailed lending and triggered asset sales,
leading to further economic turmoil. Defenders counter-argue that the fair
value provisions were insufficient to lead to the pro-cyclical effects
alleged by the critics. Our evidence indicates that these provisions did not
affect the commercial banking industry in the ways commonly alleged by
critics. First, we show that fair value accounting losses had minimal effect
on regulatory capital. Then, we examine sales of securities during the
crisis, finding mixed evidence that banks sold securities in response to
capital-depleting charges. However, the sales that potentially resulted from
the charges appear to be economically insignificant, as there was no
industry- or firm-level increase in sales of securities during the crisis.
. . .
ABSTRACT:
Critics argue that fair value provisions in U.S.
accounting rules exacerbated the recent financial crisis by depleting banks'
regulatory capital, which curtailed lending and triggered asset sales,
leading to further economic turmoil. Defenders counter-argue that the fair
value provisions were insufficient to lead to the pro-cyclical effects
alleged by the critics. Our evidence indicates that these provisions did not
affect the commercial banking industry in the ways commonly alleged by
critics. First, we show that fair value accounting losses had minimal effect
on regulatory capital. Then, we examine sales of securities during the
crisis, finding mixed evidence that banks sold securities in response to
capital-depleting charges. However, the sales that potentially resulted from
the charges appear to be economically insignificant, as there was no
industry- or firm-level increase in sales of securities during the crisis.
JEL Classifications: M41; M42; M44.
Data Availability: Data are available from sources identified in the
article.
Keywords: regulatory capital, standard setting, other-than-temporary
impairments, fair value accounting, mark-to-market, pro-cyclical, contagion,
credit crisis, asset sales
Bob Jensen's threads on the banker bullshit criticisms of fair value
accounting ---
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValue
Deloitte's Diamond in the Rough
On Wednesday, Diamond said its audit committee found
that a "continuity" payment made to growers in August 2010 of approximately $20
million and a momentum payment made to growers in September 2011 of
approximately $60 million weren't accounted for in the correct periods. The
audit committee also identified what it called material weaknesses in the
company's internal controls. Diamond said it will restate its results for both
years.
From The Wall Street Journal Accounting Weekly Review on February 10,
2012
Snack CEO Ousted in Accounting Inquiry
by:
Emily Glazer, Joann S. Lublin, and John Jannarone
Feb 09, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting Fraud, Debt Covenants, FASB, Financial Statement
Analysis, Financial Statement Fraud, Restatement
SUMMARY: The Diamond Foods Inc. Board of Trustees launched an
investigation into accounting for payments made to walnut growers in August
2010 and September 2011 after a WSJ investigative report questioned the
transactions. That WSJ article was covered in this review and is listed as a
related article. "Diamond originally maintained that the [2010] payments
were an advance on the 2011 walnut crop. But three growers contacted by The
Wall Street Journal said they were told by the company's representatives to
go ahead and cash the checks even though they didn't intend to deliver
walnuts [in 2011]." The investigation has found a material weakness in
internal controls and that payments to walnut growers were not properly
accounted for. "The company will restate its results for both years."
CLASSROOM APPLICATION: Note to instructors: you likely will want to
remove the above summary before distributing to students and use it as a
solution to question #1. The article is useful in accounting systems or
auditing classes to discuss internal control weaknesses; in financial
reporting classes to discuss restatements, debt covenants, and/or business
acquisitions; and in any class to discuss corporate management ethics.
QUESTIONS:
1. (Introductory) Summarize the events at Diamond Foods reported in
this article and the first related article.
2. (Introductory) What has happened to the CEO and CFO as a result
of their alleged actions? What do you think was their motive for these
alleged actions?
3. (Advanced) What financial statement results will be restated by
Diamond Foods? Describe the specific changes you expect to see in the
balance sheet, the income statement, and the statement of stockholders'
equity.
4. (Advanced) What are debt covenants? How might problems with debt
covenants because of these recent events affect Diamond Foods Inc.'s
operations?
5. (Advanced) Refer to the second related article. Identify all
financial statement ratios listed in that article, explaining their meaning
and how they might be affected by the items you listed in answer to question
2 above.
6. (Introductory) What is a material weakness in internal control?
What must be done when such a weakness is found at any company? What further
must be done when the company is public?
7. (Advanced) Why is Procter & Gamble now concerned about selling
its Pringles operations line to Diamond Foods?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Diamond Payments Questioned By Growers
by Hannah Karp
Dec 12, 2011
Page: B1
Walnuts Leave Diamond in the Rough
by John Jannarone
Feb 09, 2012
Online Exclusive
"Snack CEO Ousted in Accounting Inquiry," by Emily Glazer, Joann S. Lublin,
and John Jannarone, The Wall Street Journal, February 9, 2012 ---
http://online.wsj.com/article/SB10001424052970204369404577211490040427400.html?mod=djem_jiewr_AC_domainid
Diamond Foods Inc. fired its chief executive and
chief financial officer, and said it would restate financial results for two
years, after an internal probe found it had wrongly accounted for payments
to walnut growers.
The findings mark a stunning comedown for the
once-obscure walnut growers' cooperative, which under Chief Executive
Michael J. Mendes tried to become a force in the snacks business through a
series of acquisitions since 2005. Those efforts peaked last April, when
Diamond agreed to pay $2.35 billion to buy the Pringles canned-chips
business from Procter & Gamble Co.
P&G is now highly unlikely to complete the sale, a
person familiar with the matter said Wednesday. Diamond's shares, already
down by about 60% since late September, fell more than 40% on Wednesday
after the company's board audit committee released the findings of its
investigation.
Results of the internal probe—which was launched
after The Wall Street Journal raised accounting questions in September—will
now be turned over to the U.S. Securities and Exchange Commission and the
San Francisco U.S. attorney's office, which have been investigating Diamond
and how it handled the payments, a person familiar with the matter said.
Federal investigators have progressed slowly in recent weeks, because they
were waiting for the audit committee to produce its report, two people
familiar with the matter said.
The board notified Mr. Mendes and his chief
financial officer, Steven M. Neil, late Tuesday that they had been removed
from their jobs and placed on administrative leave. Mr. Mendes cleaned out
his office early Wednesday morning, a person familiar with the matter said.
Mr. Neil's attorney, Mike Shepard, said: "I think
it's very disappointing news what we saw from the company in light of the
fact that experts in the area say the company's accounting was strongly
supported."
Mr. Mendes couldn't immediately be reached for
comment.
The executives will remain on leave while the
company negotiates their severance, their exit from their board seats and
possibly clawbacks of previously awarded pay, a person familiar with the
matter said Wednesday.
Diamond board member Rick Wolford will serve as
acting CEO. Michael Murphy, managing director at Alix Partners LLP, will
serve as acting CFO. The board also appointed Robert J. Zollars as chairman.
The company said it will begin searching for permanent replacements.
The accounting controversy sprung out of
California's walnut groves, which once sold
the bulk of their output to Diamond. But the interests of growers and the
company began to separate after the company began to answer to public
shareholders. Growers have complained that Diamond, which sets walnut prices
in secret and pays for crops in a series of payments months after they are
delivered, began paying less than other buyers in recent years, according to
growers and investors who have conducted their own surveys.
At issue in the audit committee's investigation
were payments made in August 2010 and September 2011, according to the
company. The September payments, which the company called "momentum
payments," confused growers who couldn't tell whether they were for the
current or prior fiscal year.
Diamond originally maintained that the payments
were an advance on the 2011 walnut crop. But three growers contacted by The
Wall Street Journal said they were told by the company's representatives to
go ahead and cash the checks even though they didn't intend to deliver
walnuts last year. At the time, Diamond said its agreements with growers are
confidential.
That question mattered a lot for Diamond's
financial reports. Shareholders suing the company allege the payments may
have been used to shift costs from the last fiscal year into the current
one, burnishing Diamond's earnings and improperly boosting its stock price.
The company declined to comment on shareholders'
claims that the payments had been used to inflate its earnings. Those suits
have been consolidated.
On Wednesday, Diamond said its audit committee
found that a "continuity" payment made to growers in August 2010 of
approximately $20 million and a momentum payment made to growers in
September 2011 of approximately $60 million weren't accounted for in the
correct periods.
The audit committee also identified what it called
material weaknesses in the company's internal controls. Diamond said it will
restate its results for both years.
Around the time of the September payments, Diamond
reported that its earnings for the year ended July 31 had nearly doubled, to
$50 million, sending its shares soaring above $90. The shares began a steep
decline soon afterward, after The Wall Street Journal raised questions about
the company's accounting for the payments.
The probe has caused Diamond Foods to delay its
planned acquisition of the Pringles snack brand from P&G.
P&G in April agreed to sell the potato-crisp maker
to Diamond Foods, a deal that would allow it to triple the size of its snack
business.
That deal is now in question, as Diamond is
covering most of the purchase price by issuing stock to P&G's shareholders.
The deal was initially valued at $2.35 billion. Since the deal was
announced, Diamond's stock has lost nearly two-thirds of its value.
P&G had said completing the deal depends on a
favorable resolution of the accounting probe.
"We're obviously disappointed by the information
released by Diamond Foods," says Paul Fox, a P&G spokesman. "We need to
evaluate our next steps…either retain the business or we sell it. It's
already attracted considerable interest from outside parties."
Diamond Foods had annual sales just shy of $1
billion in the latest fiscal year. Pringles has annual sales of nearly $1.4
billion.
Diamond said in November it had opened an
investigation into the payments. The audit committee, advised by law firm
Gibson, Dunn & Crutcher LLP and accounting firm KPMG LLP, looked at hundreds
of thousands of documents, a person familiar with the matter said.
The committee reached its conclusion that the
company's accounting was flawed on Tuesday, Diamond said in a securities
filing. Once it had, the board moved quickly to make changes. It decided
that day to remove Messrs. Mendes and Neil because of "a loss of confidence
by the board more than anything else,'' a person familiar with the matter
said.
The restatements could put Diamond in violation of
its lending agreements. That means it may have to negotiate with creditors,
which in theory could impose increases in Diamond's debt costs.
The company had just over $500 million in debt as
of its last official filing.
The new executives were appointed Tuesday with the
exception of Mr. Murphy, the new CFO, who took his job Wednesday, according
to the filing. Diamond informed P&G about the probe's results less than an
hour before issuing a news release, people familiar with the matter said.
The audit committee didn't uncover any evidence of
intent to deceive shareholders, according to a person familiar with the
matter. "There was a breakdown of controls,'' the person said.
Continued in article
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Diamond Foods, Inc.
San Francisco, California
We have audited the accompanying
consolidated balance sheets of Diamond Foods, Inc. and subsidiaries (the
“Company”) as of July 31, 2010 and 2009, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the three years
in the period ended July 31, 2010. We also have audited the Company’s internal
control over financial reporting as of July 31, 2010, based on criteria
established in
Internal
Control — Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described
in “Management’s Report on Internal Control over Financial Reporting”,
management excluded from its assessment the internal control over financial
reporting at Kettle Foods, which was acquired on March 31, 2010 and whose
financial statements constitute less than 10% of consolidated assets, and less
than 15% of consolidated net sales of the consolidated financial statement
amounts as of and for the year ended July 31, 2010. Accordingly, our audit did
not include the internal control over financial reporting at Kettle Foods. The
Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Report on Internal Control over
Financial Reporting.” Our responsibility is to express an opinion on these
financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A company’s internal control over
financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of the inherent limitations of
internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2010
and 2009, and the results of their operations and their cash flows for each of
the three years in the period ended July 31, 2010, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of July 31, 2010, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Deloitte & Touche LLP
San Francisco, California
October 5, 2010
A December 21, 2011 WSJ Article on Those Startling Deloitte Audits That Are
Beginning to Remind Us of Those Sorry Andersen Audits
"Accounting Board Finds Faults in Deloitte Audits," by Michael Rapaport,
The Wall Street Journal, December 21, 2011 ---
http://online.wsj.com/article/SB10001424052970204879004577110922981822832.html
Inspectors for the government's audit-oversight
board found deficiencies in 26 audits conducted by Deloitte & Touche LLP in
its annual inspection of the Big Four accounting firm.
The report from the Public Company Accounting
Oversight Board, released Tuesday, said some of the deficiencies it found in
its 2010 inspection of Deloitte's audits were significant enough that it
appeared the firm didn't obtain enough evidence to support its audit
opinions.
The 26 deficient audits found were out of 58
Deloitte audits and partial audits reviewed by PCAOB inspectors. The
inspectors found that, in various audits, Deloitte didn't do enough testing
on issues like inventory, revenue recognition, goodwill impairment and fair
value, among other areas. In one case, follow-up between Deloitte and the
audit client led to a change in the client's accounting, according to the
report.
The board didn't identify the companies involved,
in accordance with its typical practice.
The report is the first PCAOB assessment of
Deloitte's performance issued since the board rebuked Deloitte in October by
unsealing previously confidential criticisms of the firm's quality control.
Deloitte said in a statement that it is "committed
to the highest standards of audit quality" and has taken steps to address
both the PCAOB's findings on the firm's individual audits and the board's
broader observations on Deloitte's quality control and audit quality. The
firm said it has been making a series of investments "focused on
strengthening and improving our practice."
Last month, the board released its annual reports
on PricewaterhouseCoopers LLP, in which it found 28 deficient audits out of
75 reviewed, and KPMG LLP, in which it found 12 deficient audits out of 54
reviewed. The yearly report on the fourth Big Four firm, Ernst & Young LLP,
hasn't yet been issued.
The PCAOB conducts annual inspections of the
biggest accounting firms in which it scrutinizes a sample of each firm's
audits to evaluate their performance and compliance with auditing standards.
The first part of the report is released publicly, but a second part, in
which the board evaluates the firm's quality controls, remains confidential
as long as the firm resolves any criticisms to the board's satisfaction
within a year.
Only if that doesn't happen does the PCAOB release
that section of the report, as it did with Deloitte in October, the first
time it had done so with one of the Big Four. In that case, the board made
public a section of a 2008 inspection report in which it said Deloitte
auditors were too willing to accept the word of clients' management and that
"important issues may exist" regarding the firm's procedures to ensure
thorough and skeptical audits.
Bob Jensen's threads on Deloitte and the Other Large Auditing Firms ---
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on professionalism and independence in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
From The Wall Street Journal Accounting Weekly Review on February 10,
2012
On 'Bleak' Street, Bosses in Cross Hairs
by:
Liz Moyer
Feb 08, 2012
Click here to view the full article on WSJ.com
TOPICS: Compensation, Restatement, Stock Options
SUMMARY: Goldman Sachs and Morgan Stanley have announced clawback
provisions that affect managers as well as their traders if those traders
put the firms at risk "of substantial financial or legal repercussions. The
firms said the policy disclosure...shows [that] the companies won't just go
after the excessive risk-takers if bad trades hurt the firms' profits." The
policies resulted from proxy fights initiated by the New York City
Comptroller John Liu who is responsible for the city's pension funds. The
provisions apply to both stock and cash bonus compensation plans. "In its
proxy last year, Goldman said its clawback policy allowed for forfeiture of
stock awards "in the event that conduct or judgment results in a restatement
of the firm's financial statements or other significant harm to the firm's
business." The firm also can claw back pay for misconduct that results in
legal or reputational harm."
CLASSROOM APPLICATION: The article is useful when introducing the
incentives associated with compensation plans-either cash or stock--in
financial accounting classes for intermediate level undergraduates or MBA
students. It also can be used to discuss general corporate governance
issues, particularly as they are being raised by institutional investors.
QUESTIONS:
1. (Introductory) What are compensation "clawback" provisions?
2. (Advanced) What improvement in incentives do clawback provisions
help to implement?
3. (Introductory) Who will be affected by the clawback provisions
announced by Goldman Sachs and Morgan Stanley?
4. (Advanced) What is the notion of corporate governance? How have
corporate governance activists influenced the decisions and disclosures by
Goldman Sachs and Morgan Stanley management?
Reviewed By: Judy Beckman, University of Rhode Island
"On 'Bleak' Street, Bosses in Cross Hairs," by: Liz Moyer. The Wall
Street Journal, February 8, 2012 ---
http://online.wsj.com/article/SB10001424052970204136404577209383447837986.html?mod=djem_jiewr_AC_domainid
Wall Street's bleak bonus season just got bleaker
at Goldman Sachs Group Inc. and Morgan Stanley, where it is becoming clear
that traders aren't the only ones at risk of having their pay taken back.
Their bosses are on the hook, too.
The Wall Street securities firms said they would
seek to recover pay from any employee whose actions expose the firms to
substantial financial or legal repercussions. The firms said the policy
isn't new, but the disclosure shows the companies won't just go after the
excessive risk-takers if bad trades hurt the firms' profits. The latest
disclosures clarify for the first time that managers are on the line.
The companies disclosed the clawback policies
separately in Securities and Exchange Commission filings in late January and
early February, in connection with agreements they reached to end proxy
fights being waged by the office that runs New York City's pension funds.
New York City Comptroller John Liu filed papers
last year seeking to force the firms to strengthen their clawback policies.
The move comes at a touchy time on Wall Street,
where pay is in decline after a year of mixed financial performance and
stock-price declines. At Goldman Sachs, compensation and benefits dropped
21% from a year ago to $12.22 billion, taking per capita pay and perks down
to $367,000, a level last seen in the financial crisis. The firm cut 2,400
jobs last year, joining roughly two dozen firms around the globe that plan
to shed more than 100,000 positions.
"These two firms have set the standard for clawback
policies in the banking industry," said Mr. Liu in a statement Tuesday. "We
appreciate the dialogue we've had on this issue and will continue to call
for them to disclose the amount of clawbacks if forthcoming regulation does
not require it."
Goldman Sachs and Morgan Stanley declined to
comment.
Though soft economic growth, volatile markets and
tighter rules rank as bigger worries for most on Wall Street than clawbacks
triggered by the actions of traders, it is hard to ignore the risk
completely. UBS AG, Switzerland's largest bank by assets, said Tuesday that
it will cut investment-bank bonuses 60% following a retrenchment that
started after a London-based employee made unauthorized trades that cost the
bank $2.3 billion.
Regulators have pressured banks to detail clawbacks
in compensation agreements since the financial crisis, when, they contend,
incentives encouraged Wall Street workers to overlook risk in pursuit of
profit.
The banks said they adopted clawback policies but
said little beyond that.
It is unclear how effective clawback policies have
been in reining in risky behavior. Michael Deutsch, an employment lawyer who
specializes in Wall Street pay, said that despite their prevalence, "the
actual implementation of a clawback has been pretty rare."
Now, under pressure from shareholders such as the
New York comptroller's office, Goldman Sachs and Morgan Stanley are
clarifying their stance. The shareholder group also made these demands on
J.P. Morgan Chase & Co. The firm hasn't addressed the proposal.
Goldman Sachs and Morgan Stanley separately said
they anticipate a new global regulation from the Basel Committee on Banking
Supervision that requires they disclose aggregate dollar amounts clawed back
in a given year.
"We believe clawbacks are a focus for our
regulators," Goldman Sachs said in correspondence with the comptroller's
office disclosed in an SEC filing.
In exchange for the clarifications, the shareholder
group withdrew proxy proposals that called on the banks to broaden the scope
of their policies, hold managers and supervisors accountable to clawbacks,
and publicly disclose clawbacks.
Continued in article
"Clawbacks Without Claws," by Gretchen Morgenson, The New York
Times, September 10, 2011 ---
http://www.nytimes.com/2011/09/11/business/clawbacks-without-claws-in-a-sarbanes-oxley-tool.html?_r=2&emc=tnt&tntemail1=y
AFTER the grand frauds at Enron, WorldCom and
Adelphia, Congress set out to hold executives accountable if their companies
cook the books.
Fair Game Clawbacks Without Claws By GRETCHEN
MORGENSON Published: September 10, 2011
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AFTER the grand frauds at Enron, WorldCom and
Adelphia, Congress set out to hold executives accountable if their companies
cook the books. Add to Portfolio
Diebold Inc New Century Financial Corp NutraCea
Go to your Portfolio »
Under the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission was encouraged to hit executives where it
hurts — in the wallet — if they certified financial results that turned out
to be, in a word, bogus.
SarbOx was supposed to keep managers honest. They
would have to hand back incentive pay like bonuses, even if they didn’t
fudge the accounts themselves.
That, anyway, was the idea. The record suggests a
bark decidedly worse than its bite. The S.E.C. brought its first case under
Section 304 of SarbOx in 2007. Since then, it has filed cases demanding that
only 31 executives at only 20 companies return some pay.
In 2007 and 2008, most of the cases involved
shenanigans with stock options and produced some big recoveries. In the wake
of the financial crisis, the dollars recouped have amounted to an asterisk.
Since the beginning of 2009, the S.E.C. has pursued 18 executives at 10
companies. So far, it has recovered a total of $12.2 million from nine
former executives at five. The other cases are pending.
“It seems like a dormant enforcement tool,” Jack T.
Ciesielski, president of R. G. Associates and editor of The Analyst’s
Accounting Observer, says of the SarbOx provision. “It was supposed to be a
deterrent, but it’s only really a deterrent if they use it.”
How assiduously the S.E.C. enforces this aspect of
Sarbanes-Oxley is important. Only the S.E.C. can bring cases under Section
304. Companies can’t. Nor, it appears, can shareholders. In 2009, the Court
of Appeals for the Ninth Circuit ruled that there was no private cause of
action for violations of Section 304.
Half the companies pursued by the S.E.C. during the
past three years have been small and relatively obscure.
For example, the commission sued executives at
SpongeTech Delivery Systems (2008 revenue: $5.6 million), contending that
the company had booked $4.6 million in phony sales that year. NutraCea, a
maker of dietary supplements with 2008 sales of $35 million, was sued along
with Bradley D. Edson, its former chief executive, over what the S.E.C.
called its recording of $2.6 million in false revenue. An executive at
Isilon Systems, a data storage company, was pursued because, the S.E.C.
maintained, the company had inflated sales by $4.8 million during 2007.
No money has been recovered in the SpongeTech or
Isilon matters, which are still pending. Mr. Edson, who could not be reached
for comment, returned his 2008 bonus of $350,000.
In all cases when executives have returned money,
they have neither admitted nor denied allegations.
The S.E.C. typically recovers more money from
executives at bigger companies. But top executives are rarely compelled to
return all their incentive pay.
In a case brought last year against Navistar, for
example, the S.E.C. contended that the company had overstated its income by
$137 million from 2001 through 2005. Daniel C. Ustian, who is Navistar’s
chief executive and who was not charged with wrongdoing, returned common
stock worth $1.32 million. He had received $2.2 million in incentive pay and
restricted stock during the time that the S.E.C. says Navistar inflated its
accounting. A company spokeswoman said Mr. Ustian would not comment.
Robert C. Lannert, Navistar’s former chief
financial officer, who also was not charged, gave back stock worth $1.05
million. His incentive pay consisted of only $828,555 during the years that
the S.E.C. said the company misstated its results. He didn’t return a phone
call seeking comment.
ANOTHER case brought by the S.E.C. last year
involved Diebold, a maker of automated teller machines. Contending that
Diebold had overstated its results by $127 million between 2002 and 2007,
the commission sued to recover money from three former executives. Walden W.
O’Dell, who is a former C.E.O. and who was not charged, repaid $470,000 in
cash, and 30,000 Diebold shares and 85,000 stock options. During the years
that the S.E.C. alleged that results were overstated, he received bonuses
totaling $1.9 million, in addition to restricted stock worth $261,000 and
295,000 stock options. Mr. O’Dell didn’t return a message seeking comment.
The cases against the other Diebold executives are pending. A company
spokesman said it had settled with regulators and declined to comment
further.
Continued in article
"Commissioner slams SEC settlement," SmartPros, July 13, 2011
---
http://accounting.smartpros.com/x72323.xml
One of the SEC's five
commissioners has taken the extraordinary step of publicly dissenting from
an enforcement action on the grounds that it was too weak.
Commissioner Luis
A. Aguilar said the Securities and Exchange Commission should have
charged a former Morgan Stanley trader with fraud in view of what he
called "the intentional nature of her conduct."
The dissent
comes weeks after the SEC took flak for negotiating a $153.6 million
fine from J.P. Morgan Chase in another enforcement case but taking no
action against any of the firm's employees or executives.
Under a
settlement announced Tuesday, the SEC alleged that former Morgan Stanley
trader Jennifer Kim and a colleague who previously settled with the
agency had executed at least 32 sham trades to mask the amount of risk
they had been incurring and to get around an internal restriction.
Their trading
contributed to millions of dollars of losses at the investment firm, the
SEC said.
Without
admitting or denying the SEC's findings, Kim agreed to pay a fine of
$25,000.
Aguilar said
the settlement was "inadequate" and "fails to address what is in my view
the intentional nature of her conduct."
"The settlement
should have included charging Kim with violations of the antifraud
provisions," Aguilar wrote.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Clawback Teaching Case: Earnings Management and
Creative Accounting"Clawbacks: Prospective
Contract Measures in an Era of Excessive Executive Compensation and Ponzi
Schemes," by Miriam A. Cherry and Jarrod Wong, SSRN, August 23, 2009 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1460104
Abstract:
In the spring of 2009, public outcry erupted over the multi-million
dollar bonuses paid to AIG executives even as the company was receiving
TARP funds. Various measures were proposed in response, including a 90%
retroactive tax on the bonuses, which the media described as a "clawback."
Separately, the term "clawback" was also used to refer to remedies
potentially available to investors defrauded in the multi-billion dollar
Ponzi scheme run by Bernard Madoff. While the media and legal
commentators have used the term "clawback" reflexively, the concept has
yet to be fully analyzed. In this article, we propose a doctrine of
clawbacks that accounts for these seemingly variant usages. In the
process, we distinguish between retroactive and prospective clawback
provisions, and explore the implications of such provisions for contract
law in general. Ultimately, we advocate writing prospective clawback
terms into contracts directly, or implying them through default rules
where possible, including via potential amendments to the law of
securities regulation. We believe that such prospective clawbacks will
result in more accountability for executive compensation, reduce
inequities among investors in certain frauds, and overall have a
salutary effect upon corporate governance.
Clawback in the Context of TARP ---
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
On October 14, 2008,
Secretary of the Treasury Paulson and President Bush separately
announced revisions in the TARP program. The Treasury announced their
intention to buy senior preferred stock and warrants in the nine largest
American banks. The shares would qualify as Tier 1 capital and were
non-voting shares. To qualify for this program, the Treasury required
participating institutions to meet certain criteria, including: "(1)
ensuring that incentive compensation for senior executives does not
encourage unnecessary and excessive risks that threaten the value of the
financial institution; (2) required clawback of any bonus or incentive
compensation paid to a senior executive based on statements of earnings,
gains or other criteria that are later proven to be materially
inaccurate; (3) prohibition on the financial institution from making any
golden parachute payment to a senior executive based on the Internal
Revenue Code provision; and (4) agreement not to deduct for tax purposes
executive compensation in excess of $500,000 for each senior executive."
The Treasury also bought preferred stock and warrants from hundreds of
smaller banks, using the first $250 billion allotted to the program.
The first allocation of
the TARP money was primarily used to buy preferred stock, which is
similar to debt in that it gets paid before common equity shareholders.
This has led some economists to argue that the plan may be ineffective
in inducing banks to lend efficiently.[15][16]
In the original plan
presented by Secretary Paulson, the government would buy troubled
(toxic) assets in insolvent banks and then sell them at auction to
private investor and/or companies. This plan was scratched when Paulson
met with United Kingdom's Prime Minister Gordon Brown who came to the
White House for an international summit on the global credit
crisis.[citation needed] Prime Minister Brown, in an attempt to mitigate
the credit squeeze in England, merely infused capital into banks via
preferred stock in order to clean up their balance sheets and, in some
economists' view, effectively nationalizing many banks. This plan seemed
attractive to Secretary Paulson in that it was relatively easier and
seemingly boosted lending more quickly. The first half of the asset
purchases may not be effective in getting banks to lend again because
they were reluctant to risk lending as before with low lending
standards. To make matters worse, overnight lending to other banks came
to a relative halt because banks did not trust each other to be prudent
with their money.[citation needed]
On November 12, 2008,
Secretary of the Treasury Henry Paulson indicated that reviving the
securitization market for consumer credit would be a new priority in the
second allotment
From The Wall Street Journal Accounting Weekly Review
on August 13, 2010
Clawbacks Divide SEC
by: Kara Scannell
Aug 07, 2010
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Auditing, Executive Compensation, Restatement, Sarbanes-Oxley Act, SEC,
Securities and Exchange Commission, Stock Options
SUMMARY: During
the settlement with Dell, Inc. in which founder Michael Dell agreed to
pay a $4 million penalty without admitting or denying wrongdoing,
Commissioner Luis Aguilar raised the issue of "clawing back"
compensation to executives based on inflated earnings. "The SEC alleged
Mr. Dell hid payments from Intel Corp. that allowed the company to
inflate earnings....Under [Section 304 of the 2002 Sarbanes-Oxley law],
the SEC can seek the repayment of bonuses, stock options or profits from
stock sales during a 12-month period following the first time the
company issues information that has to be restated." The SEC has been
working on a formal policy to guide them in cases in which an executive
has not been accused of personal wrongdoing, "but hammering out a policy
acceptable to the five-member Commission...may be difficult." The
related article announced the clawback provision when it was enacted
into law in July and compares it to the previous requirements related to
executive compensation under Sarbanes-Oxley.
CLASSROOM APPLICATION: The
article covers topics in financial reporting related to restatement,
executive compensation topics, the Sarbanes-Oxley law, and the SEC's
recent enforcement efforts in general.
QUESTIONS:
1. (Introductory) Based on the main and related article, define
and describe a "clawback" policy.
2. (Introductory) Why will most publicly traded companies
implement change as a result of the new law and resultant SEC
requirements?
3. (Advanced) When must a company restate previously reported
financial results? Cite the authoritative accounting literature
requiring this treatment.
4. (Advanced) Describe one executive compensation plan impacted
by reported financial results. How would such a plan be impacted by a
restatement?
5. (Introductory) What is the difficulty with applying the new
clawback provisions to executive stock option plans? Based on the
related article, how are companies solving this issue?
6. (Advanced) Is it possible that executives who are innocent
of any wrongdoing could be affected financially by these new clawback
provisions? Do you think that such executives should have to repay to
their companies compensation amounts received in previous years? Support
your answer.
7. (Advanced) Refer to the main article. Consider the specific
case of Dell Inc. founder Michael Dell. Do you believe Mr. Dell should
have to return compensation to the company? Support your answer.
8. (Introductory) How do the new requirements under the
financial reform law enacted in July exceed the requirements of
Sarbanes-Oxley? In your answer, include one or two statements to define
the Sarbanes-Oxley law.
Reviewed By: Judy Beckman, University of Rhode
Island
RELATED ARTICLES:
Law Sharpens 'Clawback' Rules for Improper Pay
by JoAnn S. Lublin
Jul 25, 2010
Online Exclusive
"Clawbacks Divide SEC," by: Kara Scannell, The Wall
Street Journal, August 7, 2010 ---
http://online.wsj.com/article/SB10001424052748703988304575413671786664134.html?mod=djem_jiewr_AC_domainid
A dispute over how to
claw back pay from executives at companies accused of cooking the books
is roiling the Securities and Exchange Commission.
Commissioner Luis
Aguilar, a Democrat, has threatened not to vote on cases where he thinks
the agency is too lax, people familiar with the matter said. That
prompted the SEC to review its policies for the intermittently used
enforcement tool.
"The SEC ought to use all
the tools at its disposal to try to seek funds for deterrence," Mr.
Aguilar said in an interview on Tuesday. "It's important for us to the
extent possible to try to deter, and part of that means using tools
Congress has given us."
The issue of clawbacks
came up during the SEC's recent settlement with Dell Inc. and founder
Michael Dell, people familiar with the matter said.
The SEC alleged Mr. Dell
hid payments from Intel Corp. that allowed the company to inflate
earnings. He agreed to pay a $4 million penalty to settle the case
without admitting or denying wrongdoing, but didn't return any pay.
Mr. Aguilar initially
objected to the Dell settlement, according to people familiar with the
matter. It is unclear whether the penalty—considered high by historical
standards for an individual—swayed Mr. Aguilar's vote or whether he
removed himself from the case.
In the interview, Mr.
Aguilar spoke generally about clawbacks and declined to discuss Dell or
other specific cases.
A spokesman for the SEC
declined to comment.
Section 304 of the 2002
Sarbanes-Oxley law gave the SEC the ability to seek reimbursement of
compensation from the chief executive and chief financial officer of a
company when it restates its financial statements because of misconduct.
Under the law, the SEC
can seek the repayment of bonuses, stock options or profits from stock
sales during a 12-month period following the first time the company
issues information that has to be restated.
Last year, the SEC used
the tool for the first time against an executive who wasn't accused of
personal wrongdoing.
In that case the SEC sued
Maynard Jenkins, the former chief executive of CSK Auto Corp., for $4
million in bonuses and stock sales. Mr. Jenkins is fighting the
allegations.
SEC attorneys have been
working on a more formal policy to guide them in such cases, people
familiar with the matter said. They were seeking to tie the amount of
the clawback to the period of wrongdoing, these people said.
Mr. Aguilar felt the
emerging new policy wasn't stringent enough and told the SEC staff he
would recuse himself from cases when he didn't agree with the
enforcement staff's recommendations, the people said.
Amid the standoff, SEC
enforcement chief Robert Khuzami has halted the initial policy and set
up a committee to take another look at the matter, the people said.
Hammering out a policy
acceptable to the five-member commission, which has split on recent
high-profile cases, may be difficult.
The divisions worry some
within the SEC because the absence of an agreement could affect cases in
the pipeline, especially on close calls where Mr. Aguilar's vote might
be necessary to go forward.
Mr. Aguilar's hard line
on clawbacks was bolstered by the Dodd-Frank law, signed by President
Obama on July 21. It says stock exchanges need to change listing
standards to require companies to have clawback policies in place that
go further than the Sarbanes-Oxley policy.
Section 954 of the law
says that pay clawbacks should apply to any current or former employee
and instructs companies to seek pay earned during the three-year period
before a restatement "in excess of what would have been paid to the
executive under the accounting restatement."
Since becoming a
commissioner in late 2008, Mr. Aguilar has called for a tougher
enforcement approach, including a rework of the agency's policy of
seeking penalties against companies.
In a speech in May, Mr.
Aguilar took up the issue of executive pay in the context of the SEC's
lawsuit against Bank of America Corp. for failing to disclose to
shareholders the size of bonuses paid to Merrill Lynch executives. The
bank agreed to pay $150 million to settle the matter.
Mr. Aguilar said that
penalty "pales" in comparison to the $5.8 billion in bonuses paid during
the merger.
"Perhaps what should
happen is that, when a corporation pays a penalty, the money should be
required to come out of the budget and bonuses for the people or group
who were the most responsible," he said.
Bob Jensen's threads on outrageous executive
compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Hi Dennis,
I do not have direct answers to your specific questions. However, I did combine
two tidbits that may be of interest to you and to other subscribers to the AECM.
These specialty certifications are commonly held by persons seeking to be paid
for expert witnessing. In my opinion, there's a lack of accountability of most
of these so-called "certificates" and the organizations that grant such
certificates.
On the other hand, there's also merit in some of the complaints by these
associations directed at our most respected colleges and universities. For
example, most college accounting programs teach about valuation accountics
science models (such as residual income and free cash flow models) that are
typically more misleading than helpful when it comes to real world valuation of
business firms. It's not common to find college professors who have a history of
outstanding professional experience in valuation or forensics. The problem with
professors of accounting is that they have no comparative advantages when it
comes to valuation of items of value that are not booked such as value of human
resources and other intangibles and interactions thereof.
College curricula in accounting and finance are terribly lacking in courses and
research professors knowledgeable about the professions of valuation or
forensics. For example, most of our auditing courses spend more time stressing
how financial audits are not designed to detect fraud rather than becoming
professionally focused on ways to detect fraud. We do have course modules on
internal controls, but these typically are very superficial relative to what
graduates will encounter in the real world of fraud and systems weaknesses.
The bottom line is that both valuation and forensics are topics that are poorly
covered at the university level. And coverage by mysterious associations
offering certificates do not always pass the smell tests of credibility.
Bob Jensen's threads on valuation are at
http://www.trinity.edu/rjensen/roi.htm
The National Association of Certified Valuators and Analysts (NACVA)
---
http://www.nacva.com/
Business Valuation Standard ---
http://en.wikipedia.org/wiki/Business_valuation_standard
Business Valuation Standards (BVS) are codes of practice
that are used in
business valuation. Each of the three major United States valuation
societies — the
American Society of Appraisers (ASA),
American
Institute of Certified Public Accountants (CPA/ABV), and the
National Association of Certified Valuation Analysts (NACVA) — has its
own set of Business Valuation Standards, which it requires all of its
accredited members to adhere to.[1]
The AICPA's standards are published as
Statement on Standards for Valuation Services No.1 and the ASA's
standards are published as the ASA Business Valuation Standards. All
AICPA members are required to follow SSVS1. Additionally, the majority of
the State Accountancy Boards have adopted SSVS1 for CPAs licensed in their
state.
Criticism of the abovementioned organizations
are as follows:
1) These are neither the major valuation
societies, nor are they the only valuation societies. They are however,
organizations which engage in considerable self-promotion among their
members to foster the delusion among their members, that by the mere fact of
membership, their members are more qualified to perform business appraisal
than non-members.
2) These are all privately held organizations, in which membership is
voluntary.
3) There are no regulations mandating that one must belong to any of these
organizations in order to practice as a business appraiser.
4) In that these are voluntary membership organizations, their standards
have little or no weight with either the business valuation community at
large or with the legal and judicial community who appraisers often serve.
5) The standards and ethics of these organizations are constructed to be
vague and self-serving, with numerous exceptions, designed more to excuse
conflicts of interest, membership poor performance and unsupported opinion,
than to encourage, independence, scientific analysis and high quality work.
Conflicts of interest are a problem, particularly among CPA/Appraisers, who
regularly join these organizations so that they can offer valuation services
to their existing accounting clients, in violation of independence rules and
ethics.
6) The education which these organizations offer is unaccredited and of low
quality, in that it does not reach the threshold level of education in
finance of an accredited university.
7) Educational standards have to be kept low to attract new members and
membership dues.
8) The credentials which these organizations issue are often issued for
reasons of favoritism and cronyism over merit.
9) The purpose of these organizations is often tarnished by the politics of
a few active, insider members who consider themselves more entitled then
other members, and consequently use the organization resources to further
their own self-interests over the interests of the membership at large.
10) There is no accounting of the membership dues paid into these membership
organizations. Consequently, members do not know where, to whom, or on what
their dues money is spent.
Forensic Accounting ---
http://en.wikipedia.org/wiki/Forensic_accounting
American College of Forensic Examiners International (ACFEI) ---
http://www.acfei.com/
The ACFEI is mulit-disciplinary, only one discipline of which is accounting
Association of Certified Fraud Examiners (ACFE) ---
http://www.acfe.com/
The ACFE is more focused in on accounting and business fraud than the ACFEI
Other Forensic Associations ---
http://www.hgexperts.com/forensic-science.asp
To my knowledge, the only AACSB-accredited university to offer a forensic
accounting certificate is the University of West Virginia ---
http://www.be.wvu.edu/fafi/index.htm
There are also tracks for forensic accounting in the Masters of Public
Accounting Degree curriculum.
"Forensic Accounting And Auditing: Compared And Contrasted To Traditional
Accounting And Auditing," by Dahli Gray, American Journal of Business Education,
Volume 1, Number 2, 2008 ---
http://scholar.googleusercontent.com/scholar?q=cache:lnY92RzjASgJ:scholar.google.com/+ACFE+ACFEI+"lawsuit"&hl=en&as_sdt=0,20
Forensic versus traditional accounting and auditing
are compared and contrasted. Evidence gathering is detailed. Forensic
science and fraud symptoms are explained. Criminalists, expert testimony and
corporate governance are presented.
"Financial Reporting Quality in U.S. Private Firms," Ole-Kristian
Hope, Wayne B. Thomas, and Dushyantkumar Vyas, SSRN, January 29, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1995124
Abstract:
We provide
a large-scale investigation of financial reporting quality (FRQ) among U.S.
private firms. Private firms are vital to the economy but have received
limited attention from researchers due to a lack of available data. Using a
new database that contains accounting data for a large sample of U.S.
private firms, we provide interesting new evidence on their FRQ. Relative to
publicly traded companies, we find that private firms have lower FRQ as
proxied for by several commonly used FRQ measures and are less conservative.
Further, we provide the first exploration of cross-sectional variations in
the FRQ of private firms. Specifically, we show that private firms with
greater external financing needs and a greater presence of long-term debt
have higher FRQ and greater conservatism. Private firms with greater
owner-manager separation (i.e., C corporations) tend to exhibit lower FRQ
but more conservatism.
Number of Pages in PDF File: 45
Keywords: Private firms, financial reporting quality, public versus
private, within private examination, demand, opportunism
Bob Jensen's threads on accounting theory and practice are at
http://www.trinity.edu/rjensen/Theory01.htm
"Top 5 Weirdest Companies on the Market," by Katie Morel, Open
Forum, January 27, 2012 ---
http://www.openforum.com/articles/top-5-weirdest-companies-on-the-market?extlink=em-openf-SBdaily
PBS Video: What Do Tax Rates' Ups and Downs Mean for Economic
Growth?
http://video.pbs.org/video/2176062522
Thank you Paul Caron for the heads up.
Marginal Tax Rates Around the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html
Although I favor raising taxes at all income levels with much higher marginal
rates for the wealthy, keep in mind that there are limits. A close friend in
Sweden argued that at one point for certain wealthy Swedes like him the marginal
tax rate exceeded 100% --- which has to really
discourage both working and investing risk capital.
In the 1970s and 1980s economic growth in Sweden was very low compared to other
Western European nations, and much of this is attributed to high marginal
tax rates (80+%) on workers in general and even higher
for wealthy Swedes, many of whom shifted their wealth and even themselves out of
Sweden ---
http://en.wikipedia.org/wiki/Sweden
A bursting
real estate bubble caused by
inadequate controls on lending combined with an
international recession and a policy
switch from anti-unemployment policies to anti-inflationary policies
resulted in a fiscal crisis in the early 1990s.]
Sweden's GDP declined by around 5%. In 1992, there was a run on the
currency, with the central bank briefly jacking up interest to 500%.
The response of the government was to cut spending and institute a multitude
of reforms to improve Sweden's competitiveness, among them reducing the
welfare state and
privatising public services and
goods. Much of the political establishment promoted EU membership, and the
Swedish referendum passed with 52% in favour of joining the EU on 13
November 1994. Sweden joined the
European Union on 1 January 1995.
Marginal Tax Rates by Country ---
http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-marginal-tax-rate-individual
By 2009, Sweden had dropped its marginal tax rate of
well over 80% to 57%. This still leaves Sweden with the third-highest
marginal tax rate. At a marginal
tax rate of 35%, the United States is tied with many nations at Rank 37.
The reason almost half of U.S. taxpayers, many of whom are well above the
poverty level, pay zero or very low income tax is that
there are so many ways to avoid or defer income taxes, especially with all the
newer types of credits available in the revised U.S. Tax
Code.
Sometimes what appears to be a raising of income taxes is merely a shifting of
taxes such as when huge and painful increases on a state's cost of capital are
passed to its more regressive sales and property taxes and apartment rentals. It
will be very tough if school districts, towns, cities, counties, and states must
compete head-to-head in bond markets with corporations.
The problem with tax exempt bonds is that there are
gazillions of dollars invested in these bonds such that even small increases in
tax-exempt cost of capital can clobber citizens in need
of schools, road repairs, welfare, etc.Rates Versus
Enforcement
Marginal Tax Rates by Country ---
http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-marginal-tax-rate-individual
One of the problems in comparing marginal tax rates and economic growth by
country is the enormous problem of variations in tax enforcement between
nations. Countries (read that Greece and Italy) may have relatively high
marginal tax rates where enforcement is a sham. Illinois just imposed one of the
largest tax rate increases among all 50 states in the United States. But
Illinois is handing out "Get Out of Tax Free" cards right and left for large
corporations that threaten to pull up stakes in Illinois and move on to states
that have lower tax rates.
Benefits Covered in Tax Payments
Marginal Tax Rates by Country ---
http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-marginal-tax-rate-individual
Another problem in comparing marginal tax rates and economic growth by
country is that countries vary in terms of what taxpayers receive in return.
Many nations provide health care benefits for all citizens in revenues collected
from taxes. Others provide less health services from taxation. Some nations can
keep taxes lower because they are protected by the military might of neighbors.
Canada, for example, has never had to invest heavily in its military because it
lives under the powerful military umbrella of the United States. Israel is a
high taxation state, but taxes would soar through the roof if the United States
did not heavily subsidize military protection of Israel.
To help explain what is really going on here I wrote a teaching case:
A Teaching Case: Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm
Question
Why won't Freddie Mac provide more relief to homeowners having mortgages that
are under water --- meaning the prepayment balance due is more than 80% of the
current value of the property?
"Freddie Mac’s big bet against homeowners," by Suzy Khimm, The
Washington Post, January 31, 2012 ---
http://www.washingtonpost.com/blogs/ezra-klein/post/freddie-macs-big-bet-against-homeowners/2012/01/30/gIQAQ8tYcQ_blog.html
ProPublica’s Jesse Eisinger and NPR’s Chris Arnold
have discovered that Freddie Mac has used a complex derivative transaction
to place large bets that rely on millions of American homeowners remaining
in overpriced mortgages to pay off. The bets in Freddie’s investment
portfolio — which totaled $3.4 billion in 2010 and 2011 — directly
contradict the housing giant’s stated mission to provide affordable
mortgages to Americans.
Freddie’s bet against refinancing — known as an
“inverse floater,” which depends on mortgages interest payments —
underscores a central tension between the White House and the Federal
Housing Finance Agency, which gained conservatorship of Fannie and Freddie
after the crisis. When Freddie and Fannie’s huge investment portfolios
profit, it helps reduce the potential burden on taxpayers. That’s been a
priority for FHFA under Edward DeMarco’s leadership. At the same time,
Fannie and Freddie could, by easing the way for homeowners to lower their
payments, help heal the housing market. That’s the priority for the White
House. As such, Freddie Mae made “a direct bet against the administration’s
public policy effort,” Christopher Mayer, professor of housing finance at
Columbia University, tells me.
When it comes to refinancing, “there’s always been
this lingering question — why aren’t the GSEs doing more? Everyone says it’s
because of their portfolio, ” said Mayer, who’s been a proponent of mass
refinancing through Fannie and Freddie. He points out that Freddie, in
recent months, had tighter rules for refinancing than its counterpart
Freddie. “Now we know why,” Mayer says.
Continued in article
Jensen Comment
To help explain what is really going on here I wrote a teaching case:
A Teaching Case: Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm
"Once a Castle, Home is Now a Debtors' Prison," Nicolas P. Retsinas,
Harvard Business School, February 2, 2012 ---
http://hbswk.hbs.edu/item/6791.html
We have created a housing hybrid in America,
refashioning the single-family home into a mini debtors' prison. Almost 11
million dot the landscape. In Las Vegas and Phoenix, over 50 percent of
homeowners live in one.
Forget the notion of the home as "castle,"
protecting the owner from greedy landlords. Forget too the expectation that
a physical nest will morph into a nest egg. For 22 percent of people who
hold mortgages, those notions are anachronistic—relics of a long-ago era
before unemployment soared, the Dow plummeted, and credit default swaps
surfaced. In today's jargon, these owners are underwater—they owe more than
the value of their homes.
But underwater is a misnomer. People underwater
either swim or drown.
These underwater owners linger, trapped in their
very own debtors' prisons. Their task is Sisyphean: they work, pay the
monthly debt to the lender, yet see a perpetual gap between payments and
value. The payments can seem like an extortion episode from The Sopranos.
Exit strategies are few. If an owner sells the
house for less than the mortgage, the owner must pay the lender the
difference. Owners will still need to find someplace else to live.
An owner can walk away from the loan and join the
"strategic defaulters," who defaulted not because they could not pay but
because they did not want to. Their house was a bad investment. The
advantage of this maneuver is real: strategic defaulters save money.
Sometimes they can rent a comparable home. But they risk a lower credit
rating, which could bar them from buying another home for up to seven years.
Understandably, most owners do not grab either of
these solutions; instead, they live shackled in what the Chinese call
fang nu—slaves to their house.
One owner's misery is personal; when over a fifth
of mortgage-holders are shackled, the personal misery becomes national. For
the country, these homes are an economic shackle, hobbling the housing
market. They also distort the labor market: people offered jobs far afield
stay put, reluctant (and unable) to leave their underwater homes. Since the
recovery of the housing market will undergird any broader recovery, we must
address these debtors' prisons.
Novel solutions
The solutions will force lenders to throw out their
textbooks.
First, lenders can recognize the wisdom of short
sales, accepting less than the face value of the mortgage. Currently banks
do accept short sales but only after protracted negotiations. One advice
columnist recently advised sellers eager to unload an underwater house to
keep trying—on the third try, a bank might relent. A short sale will put the
house on the market, opening it to another buyer, letting the seller move.
Lenders could proactively set prices for short sales.
Continued in article
To help explain what is really going on here I wrote a teaching case:
A Teaching Case: Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm
"UCLA MBA Applicants Rejected for Plagiarism Totals 52," by: Louis
Lavelle, Business Week, February 2, 2012 ---
http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2012/02/ucla_mba_applicants_rejected_for_plagiarism_totals_52.html
The number of MBA applicants at UCLA’s
Anderson School of Management that have been
rejected because of plagiarism has grown exponentially, with 40 more
rejected in the second round of applications.
The new cases of plagiarism bring the total to 52.
As we reported yesterday,
12 cases of plagiarism were discovered in a batch
of 870 first-round applications. An additional 40 cases were discovered in
the applications submitted for the second-round, says Elise Anderson, a
spokeswoman for the school. The third round, which has an April 18 deadline,
typically gets another 500 to 700 applications, Anderson says. So it’s
possible that more plagiarized essays will be found in the third round.
The plagiarism was discovered through the use of a
service called Turnitin for Admissions, which scans admissions essays
looking for text that matches any documents in the Turnitin database. The
archive contains billions of pages of web content, books and journals, as
well as student work previously submitted to Turnitin for a plagiarism
check. Turnitin flags any matches it finds, but individual schools determine
if the similarity constitutes plagiarism. The service is now in use by
nearly 20 business schools, including those at
Penn State, Iowa State, Northeastern, and Wake Forest.
Anderson said the school does not currently notify
applicants that their essays will be checked through Turnitin. She said the
school is determining what, if any, disclosure should be made on its web
site.
Research done by Turnitin suggests that plagiarism
in admissions essays is vast. The company's study of 453,000 "personal
statements" received by more than 300 colleges and universities in an
unnamed English-speaking country found that "more that 70,000 applicants
that applied though this system did so with statements that may not have
been their own work." That's more than 15 percent.
For schools that do not currently vet application
essays with Turnitin, the apparent prevalence of plagiarized essays raises
an interesting question: Is it ethical for a school to turn a blind eye to
this and award degrees to people who got their foot in the door by lying?
And for those that do screen essays, there's
another issue. Many students use the same essays (with minor modifications)
at every school they apply to, but there's no mechanism in place to flag
plagiarized essays discovered by one school to all the other schools where
that essay may have been submitted. One way to do this would be for the
school discovering the plagiarism to notify the Graduate Management
Admission Council, and have GMAC send a notice to every school that received
the applicant's GMAT scores.
Continued in article
Bob Jensen's threads on plagiarism are at
http://www.trinity.edu/rjensen/Plagiarism.htm
One year alternative to a two-year MBA program
"An MBA Alternative: MIT Sloan's Master of Finance Program," Bloomberg
News, February 13, 2012 ---
http://www.businessweek.com/business-schools/an-mba-alternative-mit-sloans-master-of-finance-program-02132012.html
For years, MIT’s Sloan School of Management offered
no degree to rival the master of finance programs at Princeton, Columbia,
and Carnegie Mellon. That changed in 2008, when the university made finance
its first new one-year master’s program in more than 25 years. (It
previously offered a finance certificate.) “MIT produces new degrees very
rarely,” says Andrew Lo, the director of Sloan’s Laboratory for Financial
Engineering.
Enrollment in the MFin program will increase to 120
students for the class of 2013, up from 57 for the class of 2010. Despite
this growing popularity, however, administrators face a number of industry
challenges, including how Wall Street’s troubles have begun to take a toll
on graduates’ career prospects.
The program reported 92 percent of its 2011 class
had job offers three months after graduation, down from 100 percent for the
class of 2010. More than 220,000 job cuts are expected in the global
financial-services industry this year, eclipsing 174,000 dismissals in 2009,
Bloomberg data show. And in a fluid regulatory environment, teaching finance
grows more complex. The so-called Volcker rule proposes to separate the
investment banking, private equity, and hedge fund businesses of banks from
their consumer lending units.
MIT expects students who aim to work in finance,
and who may have opted for an MBA in the past, to gravitate toward an MFin
in the future. Sloan MFin students are younger than MBAs on average (71
percent of the 2011 class had work experience of six months or less, vs. an
average of five years for MBAs). And the MFin student body is predominately
international, with about 78 percent of the 2011 class coming from outside
the U.S. The median salary for 2011 MFin graduates was $82,000, and
BlackRock, Cambridge Associates, Citigroup, Deloitte, and Morgan Stanley
were the class’s top hirers.
Lo spoke with Bloomberg Businessweek‘s
Erin Zlomek about the
program. Here is an edited transcript of their conversation:
With so many cuts in the financial
industry, how are your graduates finding jobs, and what opportunities are
they taking?
The international focus is a strength of our
program and is partly dictated by our diverse class. These students are
eclectic in the kinds of positions they want and the cities they want to
interview in. We have a variety of small and large firms that recruit with
us. Students also go on international job treks. (A recent trip was to Banco
Santander.)
Students who are passionate about finance are
likely interested in the notion of risk and reward and how different
resources are channeled through different securities markets. When this is
true, careers can develop across many industries, even outside of finance.
Take health care. One of the most challenging aspects in health care is
figuring out how to finance innovation–it is very expensive and risky. An
industry as far removed from finance as health care requires financial
innovation, and with the right kind of vehicles, tremendous innovation can
occur.
Also, I think our students recognize that when an
industry is in flux, those are the times when the most opportunities are
being created.
What skills do graduates of the MFin
program tend to have?
Our grads understand particular programming
languages–namely, Matlab, which is common in the financial world. Our
students are trained in areas like risk management and derivatives, and they
know how to deal with financial data. They’ve been exposed to different
trading strategies. They also know how trading systems can fail and cause
significant loss if not properly managed.
How does the application process compare
with that of the MBA?
The applications are quite similar. Where it
differs are the essays: We want the applicant to be specific about why they
are interested in finance. We want applicants to have a good appreciation
for different career paths in the industry. In this program, we are not
trying to turn out a better day trader–we are trying to turn out responsible
financial innovators.
Describe your curriculum.
We start all of our students with a rigorous
introduction into financial theory and cover the basic capital markets,
corporate finance, and accounting. This gives them a solid foundation of the
mathematics and economics of these markets. Students can then take electives
on topics such as investments, risk management, and fixed income. There are
also action learning courses, such as a seminar in financial engineering,
where they get to work on actual problems posed by financial institutions.
There is also an externship, where students spend two to four weeks also
working on actual projects.
Continued in article
Home page of the MIT's Master of Finance Program ---
http://mitsloan.mit.edu/academic/mfin/
Program
- What are the M. Fin. requirements?
Required courses, restricted and general electives, a proseminar, and an
optional Master's thesis. The M.Fin. program easily meets the
Institute's requirement of a minimum of 66 units of graduate level
credit, including at least 42 H-level units.
- How long does it take to complete the program?
Approximately one year. Students typically spend the summer plus two
academic terms (fall and spring) in residence, and graduate in June. MIT
undergraduates who have already taken 15.401 and 15.402 will need just
nine months (fall and spring terms) to complete the program
requirements.
- Would the summer session occupy the full summer term?
No, we plan an intensive program of approximately 6 weeks that begins in
July.
- What happens in the summer for MIT undergraduates who have
already completed 15.401 and 15.402?
These students will be encouraged to take finance jobs or internships
during the summer to gain practical experience.
- Why not offer a degree in Financial Engineering?
Finance is broader than just financial engineering, which suggests
“quants and traders only.” The M.Fin. addresses the broader area of
finance.
- Is there a possiblity for students to attain an internship
in their field of interest while taking classes?
Practical training is an important component of a student's preparation.
M.Fin. students are expected when possible to take advantage of IAP
(January) as an opportunity to gain practical experience in an area of
finance. One opportunity for students is to take advantage of our
optional Research Practicum. During the research practicum, students
spend three months working directly with client teams at companies like
Goldman Sachs, JP Morgan, Credit Suisse, BlackRock, and Fairhaven
Capital. International students must check with the ISO to ensure
compliance with immigration regulations before participating in
practical training.
- Can one complete the M.Fin. Program part-time or via
distance learning?
No, the M.Fin. program is full-time only and takes place on the MIT
campus.
Jensen Comment
MIT has no comparable Master of Accounting program, and the number of accounting
courses is quite limited relative to universities attempting to prepare students
to take and pass the CPA examination ---
http://mitsloan.mit.edu/academic/courses-list.php?list=Accounting1
MIT does offer a finance track within its two-year MBA program.
A humanities graduate having no prerequisites in accounting, business, and
economics can be admitted to the MBA program. However, it's not clear how such a
humanities undergraduate could complete a Master of Finance degree in one year.
The online literature is somewhat vague about what an applicant needs to enter
and complete the Master of Finance degree program in one year.
A Professor Asks Former Students to Pump Up His RateMyProfessor Scores
"UNC Law Prof Sends a ‘Rather Embarrassing’ Request, Asks Former Students to
Help His Online Rating," by Christopher Danzig, Above the Law, February
23, 2012 ---
http://abovethelaw.com/2012/02/unc-law-prof-sends-a-rather-embarrassing-request-asks-former-students-to-help-his-online-rating/
With the proliferation of online rating sites, an
aggrieved consumer of pretty much anything has a surprising range of avenues
to express his or her discontent.
Whether you have a complaint about your
neighborhood coffee shop or an
allegedly unfaithful ex-boyfriend, the average Joe
has a surprising amount of power through these sites.
Rating sites apparently even have the power to
bring a well-known
UNC Law
professor to his electronic knees.
It’s not every day that a torts
professor
sends his former students a “rather embarrassing
request” to repair his online reputation. It’s also certainly not every day
that the students respond en masse….
On Tuesday, Professor
Michael Corrado sent the following email to 2Ls
who took his torts class last year, basically pleading for their help (the
entire email is reprinted on the next page):
Continued in article
RateMyProfessor Site ---
http://www.ratemyprofessors.com/
The Number One Scandal in Higher Education is Grade Inflation
And RateMyProfessor is one of the main causes of grade inflation
http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor
"The Law School System Is Broken," National Jurist, February
2012 ---
Click Here
http://www.nxtbook.com/splash/nationaljurist/nationaljurist.php?nxturl=http%3A%2F%2Fwww.nxtbook.com%2Fnxtbooks%2Fcypress%2Fnationaljurist0212%2Findex.php#/18/OnePage
Thank you Paul Caron for the heads up
Companies are starting to realize they don't get a
bump in stock price because they paid extra for another audit firm's name.
Trent Gazzaway
"Fewer Companies Changing Auditors," by Tammy Whitehouse, The Wall
Street Journal, January 31, 2012 ---
http://professional.wsj.com/article/TPCOMPWK0020120130e81v00004.html?mod=wsj
Fewer companies changed their auditor last year,
according to a Compliance Week analysis, and while smaller firms made some
inroads, the pecking order among major audit firms remained relatively
stable in 2011.
Among the Big 4 firms, KPMG won more new public
company audit clients in 2011 and Deloitte & Touche lost the largest number,
but the smaller firms outshone the Big 4 overall in winning new business.
CLICK HERE TO SEARCH OUR AUDITOR CHANGES DATABASE!
CLICK HERE TO DOWNLOAD A SPREADSHEET OF AUDITOR CHANGES FOR 2011.
KPMG and its affiliates lost 27 audit engagements
in 2011 but picked up 43 new ones, for a net gain of 16 audits, according to
a Compliance Week review of Form 8-K filings announcing auditor changes in
2011. Deloitte, however, lost 30 clients and replaced them with only 8 new
engagements for a net slide of 22. That was the largest swing among any of
the first- and second-tier firms, but still a small move overall considering
that 938 public companies changed auditors last year.
The turnover was flatter at PwC, where 23
departures and 25 hirings produced a net gain of two clients for the year.
Ernst & Young suffered a net loss of five clients, on 26 departures replaced
by 21 engagements.
Second-tier firms made small gains on the Big 4.
Overall, the Big 4 firms lost more clients than they gained, but the
opposite is true for the next tier of audit firms—that is, those audit shops
large enough to be inspected annually by the Public Company Accounting
Oversight Board, but who aren't among the Big 4. Those firms—BDO, Crowe
Horwath, Grant Thornton, McGladrey & Pullen, MaloneBailey, and ParenteBeard—lost
a total of 65 clients but scooped up 93 more, for a net gain of 28. In
contrast, the Big 4 collectively suffered a net loss of eight clients.
Still, second tier firms remain miles behind the
Big 4 in terms of net client billings, according to data compiled by
Bowman's Accounting Report based on 2010 fiscal year billings. The smallest
Big 4 firm, KPMG, is nearly four times larger than the next firm, RSM
McGladrey & Pullen, with $5.02 billion in net billings compared to $1.38
billion for McGladrey.
Across the entire audit market, churn dropped 22
percent, from 1,205 in 2010 to only 938 last year.
Reasons for auditor turnover vary widely, and
“losing a client” is not always a bad thing. For example, a company may
indeed decide to switch to another auditing firm because it was offered
better service or a lower price—but an audit firm might also decide to
resign an account because the client was too risky to keep. Of the total 938
auditor changes executed last year, 646 were cases where the company
dismissed the auditor; in 244 cases the audit firm resigned (although it's
not always clear whether the auditor walked away from the client or the
client asked the firm to resign); in 35 cases, the auditor was terminated.
In 14 cases the filings did not include a specific reason for the change.
The data is not surprising to Erick Burchfield,
senior director and financial consulting lead at the Kennedy Consulting
Research & Advisory firm. He describes 2011's data as fairly typical for
audit engagements, with changes concentrated among middle-market or smaller
companies and audit firms. Larger companies tend to change auditors
infrequently, he says, because of the complexity of the engagements and the
cost and difficulty associated with a transition to a new firm.
The differences among Big 4 firms are perhaps more
noteworthy, although not easy to explain. None of the Big 4 firms were
willing to discuss the data, except KPMG to provide some updates and
corrections to Compliance Week's auditor-change database. Burchfield says
Deloitte's drop in engagements could stem from any number of issues. As the
Big 4 pursue growth strategies, they focus more on advisory and tax services
than audit, he says. “Nowhere is that more true than at Deloitte,” he says.
The Big 4 firms are taking careful note of the
regulatory tone these days too— particularly in Europe, where the European
Commission is considering measures to force the creation of audit-only firms
and mandatory rotation, and in the United States where the PCAOB is flirting
with mandatory rotation as well. Profit margins are already stronger in
non-audit areas for the major accounting firms, so their growth strategies
revolve around investing in those areas, Burchfield says. And Deloitte's
recent unflattering reviews from the PCAOB probably haven't helped it win
new business.
“Companies are starting to realize they don't get a
bump in stock price because they paid extra for another audit firm's name.”
—Trent Gazzaway,
National Managing Partner,
Grant Thornton
While all four firms have had their share of
shareholder litigation and fraud entanglements, Deloitte is still the only
Big 4 firm to suffer a public disciplinary action from the PCAOB, and the
only firm to have its audit quality control methods openly criticized by the
PCAOB. It also remains in a standoff with the Securities and Exchange
Commission over audit documentation at a Chinese affiliate in connection
with accounting fraud allegations at Longtop Financial.
Still, the rest of the Big 4 are in the same
uncomfortable spotlight as Deloitte. The PCAOB has issued blistering reports
to the entire group lately based on audit inspections that found all the
firms had a higher frequency of poor audits. While all Big 4 firms
experienced nearly a doubling of failed audit inspections, Deloitte fared
the worst, with failed inspections jumping from 22 percent in 2009 to 45
percent in 2010.
Independent accounting analyst Art Bowman says
litigation and regulatory enforcements are not likely to cause a Big 4 firm
like Deloitte to lose business. “I'm not thinking Deloitte has a
quality-control problem with its clients,” he says. “When they were the Big
8 or Big 6 and they would get beaten up occasionally and fined, it meant
something. In these days, it's just a cost of doing business. A $1 million
fine is not even an erasure mark on a spreadsheet.”
According to Bowman, perhaps the biggest factor
that might lead to auditor turnover, especially away from Big 4 firms and
toward middle market or smaller firms, is cost. “The economy is a big
factor,” he says. “Every company out there is looking for ways to save
money.”
Small Proposition
Not surprisingly, the smaller firms make the same
argument. Trent Gazzaway, national managing partner for audit services at
Grant Thornton, says smaller firms have had a great value proposition to
compete against larger firms over the past few years. Following the swinging
pendulum in the 2000s—when the Sarbanes-Oxley Act compelled the Big 4 to
shed audit clients early on, then woo them back as internal control auditing
matured—tough economic times have forced companies to scrutinize what they
spend on audit services.
Continued in article
Companies are starting to realize they don't get a
bump in stock price because they paid extra for another audit firm's name.
Trent Gazzaway
Jensen Comment
I think that the PCAOB inspection reports over the years clearly demonstrate
that switching to a more expensive audit firm does not necessarily buy you a
better audit.
On the other hand the Madoff fraud most certainly demonstrates that having an
auditor with deep pockets may be in the best interest of investors and
creditors.
If a rule requiring rotation of audit firms ever goes into effect, there
already are home designs for the nomadic auditing profession ---
Click Here
http://www.openculture.com/2012/02/the_instant_mongolian_home.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Not shown are the easily-moved Oh Boys (complete with showers over the toilets)
that can be set up beside the newly constructed houses
Teaching case from The Wall Street Journal Accounting Weekly Review on
February 4, 2012
Amazon's Spending Habit Hurts Profit
by:
Stu Woo and John Letzing
Feb 01, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Financial Statement Analysis, Interim Financial Statements,
Operating Income, Ratios
SUMMARY: Amazon first sold its Kindle Fire tablet product in this
holiday quarter. The company showed increased revenues compared to the
fourth quarter of 2010, but operating costs increased 38% and profits
dropped even further by 57%. The stock price fell 8.8% after the
announcement. The company does not report separately its sales of Kindles,
but analyst have estimated they sell the product at break even or a bit of a
loss under the "razor blade" model, expecting profits from online book sales
and other applications for the product. The related article analyzes balance
sheet amounts of cash (decreasing) and accounts payable (increasing) and a
drop in free cash flow.
CLASSROOM APPLICATION: The article is useful to introduce revenues,
operating margin, quarterly reporting, and some balance sheet ratios for a
company and a product with which students should be familiar.
QUESTIONS:
1. (Introductory) Define the accounting terms revenues, operating
margin, and operating margin percent.
2. (Introductory) How did Amazon's revenues compare between the
further quarter of 2011 and the corresponding period of 2010? Was the
company profitable during the fourth quarter of 2011?
3. (Advanced) Explain why the stock price reacted negatively to
Amazon's announcement about its performance in the fourth quarter of 2011.
4. (Advanced) Analysts estimate that Amazon sells its Kindle Fire
at a loss. Why would the company do this? How does that strategy impact the
2011 4th quarter profits discussed above?
5. (Advanced) Refer to the related article. What financial
statement ratios are used to assess the results reported by Amazon? List
every ratio you find in the article and describe how they are calculated.
6. (Introductory) U.S. markets are often accused of having too much
of a short term perspective on publicly traded companies' operating results.
How is that perspective evident in the results discussed in these articles?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Turning Amazon Cash to Kindling
by John Jannarone
Feb 01, 2012
Page: C14
"Amazon's Spending Habit Hurts Profit," by Stu Woo and John Letzing, The
Wall Street Journal, February 1, 2012 ---
http://online.wsj.com/article/SB10001424052970204740904577195371567545142.html?mod=djem_jiewr_AC_domainid
Amazon.com Inc. is struggling to make money as
quickly as it spends it, putting the squeeze on the online retailer's latest
financial results and crimping its outlook.
The Seattle-based e-commerce giant on Tuesday said
its fourth-quarter revenue rose 35% from a year earlier, but profit plunged
57% as the company continued to spend on warehouses, technology and its
Kindle electronic devices. Amazon's operating expenses rose 38% in the
quarter from a year earlier. Journal Community
Amazon also forecast lower-than-expected sales in
the current quarter, estimating first-quarter revenue of $12 billion to
$13.4 billion. Analysts had been expecting $13.4 billion. The company said
it could report an operating loss for the first quarter.
Amazon's shares fell 8.8% in after-hours trading to
$177.31, after ending 4 p.m. trading at $194.44.
For more than a year, the Seattle-based company's
formula was quick sales growth—often more than 40%—paired with high
spending. Amazon's latest results surprised analysts because while the
retailer continued to spend, the revenue growth didn't follow. The fourth
quarter, which encompasses the crucial holiday shopping season, is also a
barometer of Amazon's performance.
"It's a disappointment against relatively high
expectations," said Steve Weinstein, an analyst with ITG Investment
Research, adding that Amazon's spending "reflects a company making a lot of
investments in their business."
In a conference call with analysts, Amazon's
finance chief, Tom Szkutak, defended the company's spending. "We feel very
good about the investments that we're making," he said. "We're still
experiencing very high growth."
Amazon did widen its operating margin to 1.5%, up
from 0.7% a quarter earlier but down from 3.8% a year earlier.
Amazon also continues to outpace the growth of
overall Internet sales, which Forrester Research estimates are rising at
roughly 10% a year.
Amazon has evolved from its roots as an online
peddler of physical books to an Internet equivalent of Wal-Mart Stores Inc.
In recent years, it has also banked on its Kindle devices as a revenue
stream. Amazon has sold its black-and-white Kindle reading devices since
2007. Last fall, it introduced the Kindle Fire, a $199 tablet computer that
is cheaper than Apple Inc.'s market-leading iPad.
Amazon declined to reveal precise Kindle sales
figure for the holiday quarter, saying only that sales of all Kindle devices
increased 177% in the holiday period compared with a year earlier. Jordan
Rohan, a Stifel Nicolaus analyst, estimated that Amazon sold six million
Kindle Fires in the fourth quarter.
For the fourth quarter, Amazon reported a profit of
$177 million, down from $416 million a year earlier. Revenue was $17.43
billion, compared with $12.95 billion last year. For all of 2011, Amazon
earned $631 million in profit on $48.1 billion in sales, compared with $1.2
billion in profit and $34.2 billion in revenue a year earlier. Operating
expenses rose 44% to $47.2 billion. Part of that spending ramp-up comes from
Amazon's staggering hiring rate. It ended the year with 56,200 employees, up
67% from 2010.
Amazon is known to sacrifice profits for revenue.
Piper Jaffray analyst Gene Munster estimated that the company loses at least
$11 per customer on its Prime program, which offers unlimited quick shipping
to customers who pay a $79 annual fee. Online-retail analysts estimate that
Amazon recoups some of that cost because Prime members triple their spending
on Amazon after joining the program.
The retailer also sells its Kindle gadget for a
loss, losing as much as $15 per device, Mr. Munster estimated. Amazon makes
up for that by selling digital books, music, software and video on those
devices.
Amazon can also offset some losses by letting
third-party retailers sell products on its marketplace. Mr. Szkutak said
Amazon has made improvements to the marketplace to help both buyers and
sellers. "It was great for the bottom line," he said.
Continued in article
Bob Jensen's threads on CPV analysis are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
"GROUPON CFO’S SPIN RAISES MORE RED FLAGS," by Anthony H. Catanach and J.
Edward Ketz, Grumpy Old Accountants Blog, February 15, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/530
This past week, CFO.com asked for our opinion on
Groupon’s Fourth Quarter 2011 operating results. Regular readers of our blog
will not be surprised to learn that we took exception to Groupon’s continued
emphasis on non-GAAP financial metrics at the expense of complete and
transparent operating cash flow (OCF) disclosures. After all, we first
raised the red flag on these two issues almost eight months ago in Groupon:
Comedy or Drama?.
What is news is that Groupon’s chief financial
officer now finds it necessary to defend his reporting practices from the
critique of these two Grumpy Old Accountants! Unfortunately, the Groupon CFO
only raises more red flags about the Company, the quality of its management,
and of course, it’s financial reporting.
In defending his continued use of non-GAAP
measures, Groupon’s CFO argues that he has been “transparent” as to why the
Company relies on these disclosures, namely “to help investors better
evaluate the company,” because “sometimes GAAP metrics don’t tell the entire
story.” That may be true, but it doesn’t imply that non-GAAP metrics add
anything substantive to the story. Often non-GAAP numbers tell significantly
less of the story.
Take consolidated segment operating income (CSOI)
for example. It starts with GAAP operating income and adds back very large
expense amounts for stock-based compensation and acquisition-related
expenses. Or how about pro-forma net income which starts with GAAP net
income and again adds back the very same large expenses related to stock
based compensation and acquisition-related charges. These metrics pretend
that stock-based compensation and acquisition-related costs are unimportant
when they are very real costs that the entity has incurred. Instead of being
transparent, managers who eliminate these items are merely trying to find a
nonnegative number to report.
We just don’t see how such metrics (which only bias
reported performance upward) help analysts unless you believe analysts can’t
read financial statements or add and subtract. Could the Company be feeding
the “sell side” analyst community performance results that will make it
easier for them to sell Groupon stock? After all, these are the only
analysts we know of that don’t read and can’t add.
And then there is Groupon’s Magic Cash Machine!
Groupon’s CFO took exception to our criticism about providing only aggregate
cash flow data that failed to explain the 234 percent improvement in 2011
OCF. But even he recognizes that “it is pretty unusual to have a business
that loses money from a GAAP income perspective, but actually generates
free-cash flow.” Sorry Mr. CFO, “pretty unusual” does not hack it…this
situation refutes all logic!
In most growth companies, OCF tend to lag net
income, not the other way around. If costs exceed revenues, how is it
possible to create and report huge and increasing cash flows? We know of
only two ways: either delay payments to vendors or lie about what your cash
flows really are! So, instead of dismissing our suggestion as “silly” that
Groupon is boosting its reported cash flows by delaying payments and playing
the float, prove us wrong by releasing a complete, detailed statement of
cash flows. Surely, the CFO has this handy.
Continued in article
Multiple Teaching Cases About Accounting at Groupon
From The Wall Street Journal Accounting Weekly Review in February 4,
2012
Groupon and Its 'Weird' CEO
by:
Shayndi Raice
Jan 31, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Cash Flow, Financial Reporting, Financial Statement
Analysis, SEC, Securities and Exchange Commission, Segment Analysis
SUMMARY: The article quotes excerpts from Groupon, Inc. CEO Andrew
Mason's comments in an interview with the WSJ. The related video shows Mr.
Mason's responses to written questions flashed on screen. Accounting topics
addressed in the interview are two topics with which the SEC was concerned
during the company's IPO process: (1) the company's use of "Adjusted
Consolidated Segment Operating Income, which showed the company's revenue
minus certain marketing costs" and (2) Mr. Mason's writing of a memo about
the firm to employees which was then leaked to the press during a quiet
period imposed by SEC just prior to the IPO. The stock is now trading at
$21.49 as of the date of this writing, slightly above the $20/share IPO
price.
CLASSROOM APPLICATION: The article is useful in discussing segment
reporting requirements, handling of marketing costs, and the overall IPO
process.
QUESTIONS:
1. (Introductory) What two accounting and financial reporting
issues impacted Groupon during its process of becoming a publicly traded
company?
2. (Introductory) What is Groupon CEO Andrew Mason's assessment of
having used an unusual accounting metric in the company's first filing for
its initial public offering (IPO)?
3. (Advanced) Refer to the related article. What was the unusual
accounting metric? How is this metric justified in Mr. Mason's current
interview with TWSJ?
4. (Advanced) Consider the requirements for segment reporting. How
may operating income as reported by business segment differ from total
consolidated operating income presented on the income statement? State your
source for accounting requirements that allow this treatment.
5. (Introductory) What is an S-1 registration statement and what is
a "quiet period"? How and why did Mr. Mason violate this requirement for a
quiet period?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Groupon's Accounting Lingo Gets Scrutiny
by Shayndi Raice and Nick Wingfield
Jul 28, 2011
Page: A1
"Groupon and Its 'Weird' CEO," by: Shayndi Raice, The Wall Street
Journal, Jan 31, 2012,---
http://online.wsj.com/article/SB10001424052970203920204577193181377853716.html?mod=djem_jiewr_AC_domainid
Groupon Inc. Chief
Executive Andrew Mason wants to prove his company is worth the fuss after
its roller-coaster ride to an initial public offering last year.
The 31-year-old
founder took his Chicago-based daily deals site public in November at a
valuation of $13 billion, well below the $15 billion to $20 billion price
tag Groupon once thought it could command. The IPO also brought on questions
about another bubble in the Internet sector and the viability of the
daily-deals business model.
Critics pointed out
that Groupon was unprofitable and was spending heavily to acquire new
subscribers amid a flood of competition from daily-deal clones. The company
also raised eyebrows at the Securities and Exchange Commission over an
unusual accounting metric called Adjusted Consolidated Segment Operating
Income, which showed the company's revenue minus certain marketing costs.
Groupon's stock
soared 31% above its $20 IPO price on its first day of trading, but withered
in following weeks. Shares closed at $19.63, down 2.1%, in 4 p.m. trading
Monday. The company is set to report its first quarterly results as a public
company next week.
Mr. Mason, who
sometimes posts online videos of himself in his underwear doing yoga or
dancing, sat down for a recent interview in his Chicago office to discuss
challenges facing the company and his ability to handle them. Edited
excerpts:
WSJ: Do you think
you're mature enough to be the CEO of a multi-billion dollar company?
Mr. Mason: I got
the company this far. To the degree I was weird, I was weird before we were
a public company and managed to get it worth whatever it's worth. I'm going
to continue doing my thing and work my butt off to add value for
shareholders and as long as they and the board see fit to keep me in this
role, I feel enormously privileged to serve.
WSJ: Groupon has
been criticized by analysts and investors for not being profitable. How
important is profitability?
Mr. Mason: We
believe that the most important thing for us to be focused on is growing the
business, building something that our consumers and our merchant partners
love. And when you focus on those inputs, revenue and profitability is the
output and it follows naturally.
WSJ: Some critics
say the daily deal model is too easy to replicate.
Mr. Mason: There's
proof. There are over 2,000 direct clones of the Groupon business model.
However, there's an equal amount of proof that the barriers to success are
enormous. In spite of all those competitors, only a handful are remotely
relevant.
WSJ: Why?
Mr. Mason: People
overlook the operational complexity. We have 10,000 employees across 46
countries. We have thousands of salespeople talking to tens of thousands of
merchants every single day. It's not an easy thing to build.
WSJ: You had a
rough IPO. What was the hardest part?
Mr. Mason: After
filing the S-1, we entered a quiet period that greatly restricted our
ability to have a conversation with the public. It was frustrating to not be
able to directly address many of the concerns that people raised about the
business.
WSJ: Including
discussing "Adjusted Consolidated Segment Operating Income?" You were
accused by critics of trying to hide your high marketing costs from
investors.
Mr. Mason: Groupon
spends money on marketing in a way that's different from traditional
Internet and e-commerce companies. Our marketing spend is designed to drive
subscribers to our daily mailing list. A traditional e-commerce company is
driving transactions. Our own proprietary advertising network can
continually advertise to our customers at virtually no additional cost.
There's an upfront investment that we know pays off over the long-term.
WSJ: Was it a
mistake to include that metric?
Mr. Mason: In
retrospect, I think it was naive, and I wouldn't have included it. The list
of companies that have added their own financial metrics is not a savory
group. It created a distraction that wasn't worth the benefit.
WSJ: The SEC also
took issue with a memo you wrote to employees during the quiet period that
was leaked to the press.
Mr. Mason: I wrote
the memo because 23-year-olds were coming into my office and asking how they
should respond to their parents when they ask if Groupon is about to go
bankrupt. The risks of not communicating to my employees were greater than
the risks of doing otherwise.
If I knew it was
going to leak, I would have been less bizarre, and I wouldn't have made a
joke about my now-wife. She was upset. (He joked that his then-girlfriend
asked him why he never said anything nice about her.)
WSJ: Groupon's
stock price is trading below its IPO price of $20. Why?
Mr. Mason: Luckily
there are people smarter than me in this world that know the answers to
those kinds of questions. I leave that to the financial community.
Continued in article
Question
How can a company that's "technically insolvent" have any sort of IPO success?
"GROUPON IS TECHNICALLY INSOLVENT,"
by Anthony H. Catach Jr. and J. Edward Ketz, Grumpy Old Accountants,
October 21, 2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/362
Two Update Teaching Cases on Groupon: IPO, Working Capital, and Cash Flow
From The Wall Street Journal Weekly Accounting Review on November 11,
2011
Case 1
Exclusive Deal Floats Groupon
by: Rolfe
Winkler
Nov 05, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: business
combinations, Financial Analysis, Goodwill, Impairment
SUMMARY: Groupon
filed its initial public offering (IPO) on Friday, November 4, 2011, selling
only a total of 6.4% of the company's total shares. The IPO proceeds brought
in $805 million, the third smallest total for all IPOs since 1995, only
larger than the IPOs of Vonage Holdings and Orbitz in total proceeds. In
terms of the percent of outstanding shares sold, only Palm has sold a
smaller percentage in that same time frame. Quoting from the related
article, "Silicon Valley and Wall Street took Groupon's stock market debut
as a sign that investors are still willing to make risky bets on
fast-growing but unprofitable young Internet companies....Groupon shares
rose from their IPO price of $20 by 40% in early trading, and ended at the 4
p.m. market close at $26.11, up 31%. The closing price valued Groupon at
$16.6 billion...."
CLASSROOM
APPLICATION: Questions focus on measuring the implied fair value of
an entire business from the value of only a portion. The concept is used in
accounting for business combinations and in goodwill impairment testing.
QUESTIONS:
1. (Introductory) Summarize the Groupon initial public offering
(IPO). How many shares were sold? At what price?
2. (Introductory) Describe the market activity of the stock on its
first day of trading. How does that activity show that "investors
are...willing to make risky bets on...young Internet companies"?
3. (Advanced) How has the Groupon stock fared to the date you write
your answer to this question?
4. (Advanced) Define the term "implied fair value". How did sale of
only 6.3% of the shares outstanding translate into an overall firm valuation
of $12.8 billion? Show your calculation.
5. (Advanced) Given the range of trading reported in the article
and your answer to question 3 above, what is the range of total firm value
shown during this short time of public trading of Groupon stock? Again, show
your calculations. How does the small percentage of shares contribute to the
size of this range?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Groupon IPO Cheers Valley
by Shayndi Raice and Randall Smith
Nov 05, 2011
Page: B3
"Exclusive Deal Floats Groupon," by: Rolfe Winkler, The Wall Street
Journal, November 5, 2011 ---
http://online.wsj.com/article/SB10001424052970203716204577017892088810560.html?mod=djem_jiewr_AC_domainid
Even by dot-com standards,
Groupon's initial public offering is puny in terms of the number of shares
it actually sold to the public. According to Dealogic, dating back to 1995
just three U.S. tech companies floated a smaller percentage of their shares
in their IPOs. Palm sold 4.7% of its shares in a $1 billion offering; Portal
Software sold 6.2% in a tiny $64 million offering, and Ciena sold 6.2% in a
$132 million offering. Then comes Groupon, which sold 6.3% this week as part
of its $805 million offering.
That is well below the
median of 21% for the 50 largest technology IPOs dating back to 1995,
according to Dealogic.
Groupon's limited float
strategy isn't new. Two of this year's other big Internet IPOs, LinkedIn and
Pandora Media also sold a limited number of shares, just 9.4% of the total
outstanding for both companies. Those deals were also led by Morgan Stanley.
Considering doubts about
Groupon's business model, in order to ensure a strong first day's trading,
the underwriters not only limited the free-float, but they also scaled back
their original valuation target.
At Friday's close of
trading, Groupon shares were at $26.11 apiece, 31% above the IPO price. That
puts Groupon's market capitalization at about $17 billion, or roughly eight
times next year's likely revenue. That is steep, considering that the
daily-deals Internet company is still unprofitable and that growth appears
to be slowing quickly.
Case 2
Groupon Holds Cash Tight
by: Sarah E.
Needleman and Shayndi Raice
Nov 10, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Cash
Flow, Cash Management, Financial Statement Analysis
SUMMARY: Groupon
finally completed its IPO on Friday, November 4, 2011, and interest in the
company is therefore naturally high. Competitors to Groupon attempt to
obtain market share from the newly public company by offering quicker
payment terms to the small business which provide the merchant benefits
offered by Groupon. Small businesses need their working capital as fast as
possible and therefore some complain about the Groupon terms. Groupon argues
that its terms are designed to ensure that merchant suppliers cannot use
Groupon for a quick infusion of cash just prior to closing operations.
CLASSROOM
APPLICATION: Questions ask students to analyze Groupon's financial
statements-particularly its working capital components-to assess the issues
with the company's payment terms.
QUESTIONS:
1. (Introductory) What are Groupon's payment terms? How do those
terms help Groupon's customers, the buyers of its electronic coupons?
2. (Introductory) How do Groupon's payment terms help Groupon's own
financial position and operating results? In your answer, define the
financial concepts of cash flow and working capital mentioned in the
article.
3. (Advanced) Groupon issued its initial public offering of stock
(IPO) on Friday, November 4, 2011. Access the S-1 registration statement
filed with the SEC for this offering on June 2, 2011. It is available on the
SEC web site at
http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm
Click on the link to the Table of Contents, then on Index to Consolidated
Financial Statements, then on Consolidated Balance Sheets. As of December
31, 2010, how much working capital did the company have? Did this amount
improve through the quarter ended March 31, 2011?
4. (Advanced) Given your measurement of Groupon's working capital,
how easy do you think it would be for Groupon to address its competition by
changing its payment terms? Support your answer.
5. (Advanced) Continue working with the Groupon audited
consolidated financial statements as of December 31, 2010 and the unaudited
quarterly statements. What items comprise Groupon's Accounts Receivable? How
collectible are these amounts?
6. (Advanced) What items comprise Groupon's Accounts Payable,
accrued Merchants Payable, and Accrued Expenses? Given your knowledge of
Groupon's payment terms, can you identify how soon each of these payments
must be made?
7. (Advanced) Consider how you would schedule a detailed estimate
of the timing of Groupon's cash flows for the three current liabilities
discussed above.
Reviewed By: Judy Beckman, University of Rhode Island
"Groupon Holds Cash Tight by: Sarah E. Needleman and Shayndi Raice, The
Wall Street Journal, November 10, 2011 ---
http://online.wsj.com/article/SB10001424052970204358004577027992169046500.html?mod=djem_jiewr_AC_domainid
Rivals of Groupon Inc. are
threatening the daily deal site leader by offering quicker payment to
merchants, possibly jeopardizing a key part of Groupon's business model.
Groupon keeps itself in cash
by collecting money immediately when it sells its daily coupons to consumers
while extending payments to the merchants over 60 days. For instance, a hair
salon might run a deal offering $100 of services for just $50 on Groupon's
website, which then keeps as much as half of the total collected and sends
the remainder to the salon in three installments about 25 to 30 days apart.
"The payment timing is so
erratic you can't count on any of that money helping to pay your bills,"
says Mark Grohman, owner of Meridian Restaurant in Winston-Salem, N.C.
After running three Groupon
promotions this year and last, Mr. Grohman says he won't use the service
again in part because it puts too big a strain on his cash flow. "With
smaller margins in restaurants, you need that capital in the bank as fast as
possible," he says.
Heissam Jebailey, co-owner
of two Menchie's frozen-yogurt franchises in Winter Park, Fla., says he also
has begun to view Groupon's installment payments as too slow.
Enlarge Image SBGROUPON
SBGROUPON
"You want to get paid in
full as quickly as possible," says Mr. Jebailey, who has run deals with both
Groupon and its rival LivingSocial Inc. offering customers $10 of frozen
yogurt for $5. He says both promotions were successful but that he'd only
use Groupon again if the service promises to pay faster. "We're the ones
that have to cover the cost of goods for giving away everything at half
price," he says. "I will not do another deal with Groupon unless they agree
to my terms."
Groupon executives have no
plans to change payments terms, said a person familiar with the matter.
Because Groupon has a backlog of 49,000 merchants in line to offer a deal
with the site, executives feel confident that they don't need to make any
changes to payment terms, said another person.
While Groupon pays merchants
in installments of 33% over a period of 60 days, LivingSocial and Amazon.com
Inc.'s Amazon Local pay merchants their full share in 15 days. Google Inc.'s
Google Offers promises 80% of the merchant's cut within four days, and the
remainder over 90 days.
Groupon pays in installments
for a reason, according to a person familiar with the matter: It has seen
some merchants try to use Groupon to get a quick infusion of cash before
going out of business, leaving customers with vouchers that can't be
redeemed.
The Chicago-based start-up
has a policy of offering refunds to customers who aren't satisfied, and as a
result it is cautious about doing deals with merchants who may not carry
through on their end, says the person familiar with the matter.
Groupon also says it pays
merchants before they provide services to customers and will accelerate
payments if merchants experience unusually fast consumer redemption.
"We believe Groupon's
payment terms are fair to merchants and important to protect consumers,"
says Julie Mossler, director of communications for Groupon.
It also is in Groupon's best
interest to stretch out payments to its customers for as long as possible,
says John Hanson, a certified public accountant and executive director at
Artifice Forensic Financial Services LLC in Washington, D.C. "It makes their
cash position look stronger on their books."
Steady cash flow has helped
fuel the valuation of Groupon, which first sold shares to the public last
week. Groupon's stock was down nearly 4% Wednesday, bringing its share price
of $23.98 closer to the company's IPO price of $20 a share. Based on the
5.5% of shares that trade, the company has a valuation of about $15 billion.
But its working-capital deficit has ballooned to $301.1 million as of Sept.
30, and the amount it owes its merchants is also way up.
Groupon's "accrued merchant
payable" balance increased to $465.6 million as of Sept. 30, from $4.3
million at year-end 2009, its filings say. This merchant payable balance
exceeded Groupon's cash and contributed to the company's working capital
deficit, according to the company's filing.
Offering merchants faster
payment terms could hurt its cash flow and force it to raise funds to cover
its day-to-day cash needs, Groupon said in a recent securities filing. In
international markets, the company pays merchants only once a coupon has
been redeemed.
Every one-day reduction in
Groupon's merchant payables represents a risk of about $14 million in free
cash flow, according to estimates by Herman Leung, a Susquehanna analyst.
"It's a key driver of cash flow dollars and a key assumption in the Groupon
model," he says of the 60-day payment period. "It's highly sensitive."
To be sure, Groupon has faced waves of competition
for more than a year, and many of those challengers already have come and
gone.
Continued in article
Teaching cases on the accounting scandals at Groupon (especially
overstatement of revenues) and its auditor (Ernst & Young) ---
See Below
"GROUPON IS TECHNICALLY INSOLVENT,"
by Anthony H. Catach Jr. and J. Edward Ketz, Grumpy Old Accountants, October 21,
2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/362
Today
(October 21) Groupon issued
amendment Number 6 to its S-1 filing. The most
interesting data are on page 9 of the report, which we repeat below.
What stands out to
us is that stockholders’ equity on September 30 is
negative—the firm has
become technically insolvent!
Our prediction that Groupon has a high probability of failure remains
intact.
Continued in article
Jensen Comment
This illustrates that on occasion insolvent firms may have value depending upon
the net value of all the things that don't get posted to the balance sheet under
GAAP. Common examples include contingency assets/liabilities that are not yet
booked, intangibles such as the value of employees, and a boatload of other
items that accountants just cannot measure with enough confidence and stability
to put into the general ledger.
One of the best examples is the early
years of Amazon.com that every year incurred relatively large losses in the
income statement but managed to continue to sell equity shares because investors
sniffed out huge value in the air surrounding the net assets.
Groupon of course is another matter,
Catenach and Ketz, the grumps, have never liked the stench surrounding the air
over Groupon as if it was a pile of something that smells very bad.
Trust No one, Particularly Not Groupon's Accountants and Auditors (Ernst &
Young)
From The Wall Street Journal Weekly Accounting Review on September 30,
2011
Groupon Unsure on IPO Time
by: Shayndi
Raice and Randall Smith
Sep 26, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Accounting
Changes and Error Corrections, Audit Report, Auditing, Disclosure,
Disclosure Requirements, Financial Accounting, Financial Reporting, SEC,
Securities and Exchange Commission
SUMMARY: This
article presents financial reporting and auditing issues stemming from the
Groupon planned IPO. Groupon originally filed for an initial public offering
in June 2011. At the time, the filing contained a measure Adjusted
Consolidated Segment Operating Income that is a non-GAAP measure of
performance. The SEC at the time required the company to change its filing
to use GAAP-based measures of performance. The SEC has continued to
scrutinize the Groupon financial statements and has required the company to
report revenue based only on the net receipts to the company from sales of
its coupons after sharing proceeds with the businesses for which it makes
the coupon offers.
CLASSROOM
APPLICATION: The article is useful in financial accounting and
auditing classes. Instructors of financial accounting classes may use the
article to discuss reporting of the change in measuring revenues and related
costs. Instructors of auditing classes may use the article to discuss
non-standard audit reports. Links to SEC filings are included in the
questions. The video is long; discussion of Groupon's issues stops at 5:30.
QUESTIONS:
1. (Introductory) According to the article, what accounting and
disclosure issues have delayed the initial public offering of shares of
Groupon, Inc.? What overall economic and financial factors are also
affecting this timing?
2. (Introductory) What was the problem with Groupon CEO Andrew
Mason's letter to Groupon employees? Do you think Mr. Mason intended for
this letter to be made public outside of Groupon? Should he have reasonably
expected that to happen?
3. (Advanced) What accounting change forced restatement of the
financial statements included in the Groupon IPO filing documents? You may
access information about this restatement directly at the live link included
in the online version of the article.
http://online.wsj.com/public/resources/documents/grouponrestatement20110923.pdf
4. (Introductory) According to the article, by how much was revenue
reduced due to this accounting change?
5. (Introductory) Access the full filing of the IPO documents on
the SEC's web site at
http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm
Proceed to the Consolidated Statements of Operations on page F-5. How are
these comparative statements presented to alert readers about the revenue
measurement issue?
6. (Advanced) Move back to examine the consolidated balance sheets
on page F-4. Do you think this accounting change for revenue measurement
affected net income as previously reported? Support your answer.
7. (Advanced) Proceed to footnote 2 on p. F-8. Does the disclosure
confirm your answer? Summarize the overall impact of these accounting
changes as described in this footnote.
8. (Advanced) What type of audit report has been issued on the
Groupon financial statements in this IPO filing? Explain the wording and
dating of the report that is required to fulfill requirements resulting from
the circumstances of these financial statements.
Reviewed By: Judy Beckman, University of Rhode Island
Groupon's Fast-growing Business Faces a Churning Point
by: Rolfe
Winkler
Sep 26, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Cost
Accounting, Cost Management, Disclosure, Financial Statement Analysis,
Managerial Accounting
SUMMARY: This
article focuses on financial statement analysis of the Groupon IPO filing
documents including some references to cost measures. "Forget the snappy
'adjusted consolidated segment operating income.' That profit measure...was
rightly rejected by regulators. It is the complete absence of details on
subscriber churn that is more problematic. How often are folks unsubscribing
from Groupon's daily emails?...The issue is important since...the cost of
adding new subscribers has increased quickly."
CLASSROOM
APPLICATION: The article may be used in a financial statement
analysis or managerial accounting class.
QUESTIONS:
1. (Introductory) What is the overall concern about Groupon's
business condition that is expressed in this article?
2. (Advanced) The author states that the cost of adding new
subscribers has increased. How was this cost determined? How does this
calculation make the cost assessment comparable from one period to the next?
3. (Advanced) What does Groupon CEO Andrew Mason say about the
company's cost of acquiring customers? What income statement expense item
shows this cost? How does the increasing unit cost discussed in answer to
question 2 above bring the CEO's assertion into question?
4. (Advanced) In general, how does the author of this assess the
quality of the filing by Groupon for its initial public offering? Why should
that assessment impact the thoughts of an investor considering buying the
Groupon stock when it is offered?
Reviewed By: Judy Beckman, University of Rhode Island
"Groupon: Comedy or Drama?" by Grumpy Old Accountants Anthony H.
Catanach Jr. and J. Edward Ketz, SmartPros, July 2011 ---
http://accounting.smartpros.com/x72233.xml
"Trust No one, Particularly Not Groupon's Accountants," by Anthony H.
Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, August 24,
2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/
"Is Groupon "Cooking Its Books?" by Grumpy Old Accountants Anthony
H. Catanach Jr. and J. Edward Ketz, SmartPros, September 2011 ---
http://accounting.smartpros.com/x72233.xml
Teaching Case
When Rosie Scenario waved goodbye "Adjusted Consolidated Segment Operating
Income"
From The Wall Street Journal Weekly Accounting Review on August 19,
2011
Groupon Bows to Pressure
by: Shayndi
Raice and Lynn Cowan
Aug 11, 2011
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, SEC, Securities and Exchange Commission, Segment
Analysis
SUMMARY: In
filing its prospectus for its initial public offering (IPO), Groupon has
removed from its documents "...an unconventional accounting measurement that
had attracted scrutiny from securities regulators [adjusted consolidated
segment operating income]. The unusual measure, which the e-commerce had
invented, paints a more robust picture of its performance. Removal of the
measure was in response to pressure from the Securities and Exchange
Commission...."
CLASSROOM
APPLICATION: The article is useful to introduce segment reporting
and the weaknesses of the required management reporting approach.
QUESTIONS:
1. (Introductory) What is Groupon's business model? How does it
generate revenues? What are its costs? Hint, to answer this question you may
access the Groupon, Inc. Form S-1 Registration Statement filed on June 2,
011 available on the SEC web site at
http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm
2. (Advanced) Summarize the reporting that must be provided for any
business's operating segments. In your answer, provide a reference to
authoritative accounting literature.
3. (Advanced) Why must the amounts disclosed by operating segments
be reconciled to consolidated totals shown on the primary financial
statements for an entire company?
4. (Advanced) Access the Groupon, Inc. Form S-1 Registration
Statement filed on June 2, 011 and proceed to the company's financial
statements, available on the SEC web site at
http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm#dm79801_selected_consolidated_financial_and_other_data
Alternatively, proceed from the registration statement, then click on Table
of Contents, then Selected Consolidated Financial and Other Data. Explain
what Groupon calls "adjusted consolidated segment operating income" (ACSOI).
What operating segments does Groupon, Inc., show?
5. (Introductory) Why is Groupon's "ACSOI" considered to be a
"non-GAAP financial measure"?
6. (Advanced) How is it possible that this measure of operating
performance could be considered to comply with U.S. GAAP requirements? Base
your answer on your understanding of the need to reconcile amounts disclosed
by operating segments to the company's consolidated totals. If it is
accessible to you, the second related article in CFO Journal may help answer
this question.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Groupon's Accounting Lingo Gets Scrutiny
by Shayndi Raice and Nick Wingfield
Jul 28, 2011
Page: A1
CFO Report: Operating Segments Remain Accounting Gray Area
by Emily Chasan
Aug 15, 2011
Page: CFO
"Groupon Bows to Pressure," by: Shayndi Raice and Lynn Cowan, The Wall
Street Journal, August 11, 2011 ---
https://mail.google.com/mail/?shva=1#inbox/131e06c48071898b
Groupon Inc. removed from
its initial public offering documents an unconventional accounting
measurement that had attracted scrutiny from securities regulators.
The unusual measure, which
the e-commerce had invented, paints a more robust picture of its
performance. Removal of the measure was in response to pressure from the
Securities and Exchange Commission, a person familiar with the matter said.
In revised documents filed
Wednesday with the SEC, the company removed the controversial measure, which
had been highlighted in the first three pages of its previous filing. But
Groupon's chief executive defended the term Wednesday. [GROUPON] Getty
Images
Groupon, headquarters above,
expects to raise about $750 million.
Groupon had highlighted
something it called "adjusted consolidated segment operating income", or
ACSOI. The measurement, which doesn't include subscriber-acquisitions
expenses such as marketing costs, doesn't conform to generally accepted
accounting principles.
Investors and analysts have
said ACSOI draws attention away from Groupon's marketing spending, which is
causing big net losses.
The company also disclosed
Wednesday that its loss more than doubled in the second quarter from a year
ago, even as revenue increased more than ten times.
By leaving ACSOI out of its
income statements, the company hopes to avoid further scrutiny from the SEC,
the person familiar with the matter said. The commission declined comment.
Groupon in June reported
ACSOI of $60.6 million for last year and $81.6 million for the first quarter
of 2011. Under generally accepted accounting principles, the company
generated operating losses of $420.3 million and $117.1 million during those
periods.
Wednesday's filing included
a letter from Groupon Chief Executive Andrew Mason defending ACSOI. The
company excludes marketing expenses related to subscriber acquisition
because "they are an up-front investment to acquire new subscribers that we
expect to end when this period of rapid expansion in our subscriber base
concludes and we determine that the returns on such investment are no longer
attractive," the letter said.
There was no mention of when
that expansion will end, but the person familiar with the matter said the
company reevaluates the figures weekly.
Groupon said it spent $345.1
million on online marketing initiatives to acquire subscribers in the first
half and that it expects "to continue to expend significant amounts to
acquire additional subscribers."
The latest SEC filing also
contains new financial data. Groupon on Wednesday reported second-quarter
revenue of $878 million, up 36% from the first quarter. While the company's
growth is still rapid, the pace has slowed. Groupon's revenue jumped 63% in
the first quarter from the fourth.
The company's second-quarter
loss was $102.7 million, flat sequentially and wider than the year-earlier
loss of $35.9 million.
Groupon expects to raise
about $750 million in a mid-September IPO that could value the company at
$20 billion.
The path to going public
hasn't been easy. The company had to file an amendment to its original SEC
filing after a Groupon executive told Bloomberg News the company would be
"wildly profitable" just three days after its IPO filing. Speaking publicly
about the financial projections of a company that has filed to go public is
barred by SEC regulations. Groupon said the comments weren't intended for
publication.
Continued in article
"Groupon, Zynga and Krugman's Frothy Valuations," by Jeff Carter,
Townhall, September 2011 ---
http://finance.townhall.com/columnists/jeffcarter/2011/09/13/groupon,_zynga_and_krugmans_frothy_valuations
Jensen Comment
In the 1990s, high tech companies resorted to various accounting gimmicks to
increase the price and demand for their equity shares ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
Bob Jensen's threads about cooking the books ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's threads on Groupon are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Compensation and the Myth of the Corporate Superstar," by Charles M.
Elson and Craig K. Ferrere, Harvard Business Review Blog, February 1,
2012 ---
Click Here
http://blogs.hbr.org/cs/2012/02/compensation_and_the_myth_of_t.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
The public is up in arms about some of the big
bonuses being paid to the CEOs of big bailed-out banks.
The boss of Britain's RBS, one of the biggest casualties of the banking
crash, has felt obliged to turn down a $1.5 million bonus in the face of
mounting anger and the threat of legislation.
It all used to be very different.
Al
Dunlap, the former Sunbeam CEO, and once
handsomely rewarded corporate icon, was fond of reminding his investors that
"the best bargain is an expensive CEO." Great managers, the argument went,
deserve the big bucks because of the tremendous wealth they create.
According to this logic, expecting RBS to pay its CEO, Stephen Hester, less
is analogous to asking that it pay less for any other necessary business
commodity. If executive talent has a price, a firm will get only that which
it pays for. So if Stephen Hester were not paid his bonus, another firm
would bid away his services and RBS would not be able to attract and retain
similar talent at more modest pay levels.
This notion that there is an open and competitive
market for highly talented executives is at the heart of the process by
which CEO pay is set. Board compensation committees rely almost exclusively
on comparisons to CEO compensation at companies of similar size and in
similar industries.
This practice, known as peer benchmarking, is used
to approximate the next best employment option for that executive in the
labor-market, the reservation wage. Pay is typically targeted at the 50th,
75th, or 90th percentile of this group. The implicit assumption is that a
talented manager is interchangeable between firms, and thus should be paid
very nearly what other executives are paid.
But although the notion that talent is a
competitive market is both attractive and plausible, it is highly
questionable. Executive talent is not fully transferable between
companies. Scholars have long recognized a distinction between firm-specific
and general skills. It is quite apparent that successful CEOs leverage not
only their intrinsic talents but also, and more importantly, a vast
accumulation of firm-specific knowledge developed over a multi-year career.
Whether it is deep knowledge of an organization's personnel or the processes
specific to a particular operation, this skill set is learned carefully over
a long tenure with a company and not easily capable of quick replication at
other firms. In fact, when "superstar" executives change companies, the
result is usually disappointing.
If this is true, then the CEO labor market is less
competitive than CEO compensation committees implicitly assume. Executives
are in fact to a great extent captive to their companies, which ought to
provide boards with scope for negotiating actively on compensation rather
than relying on peer comparisons. The best bargain in corporate America,
then, is not Al Dunlap's superstar CEO, but rather the home-grown executive,
with whom fair and modest pay is negotiated, often less than suggested by
peer comparisons.
Continued in article
Bob Jensen's threads about outrageous executive compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
"Facebook Accounting Policies Look Ultra-Conservative," by Emily
Chasan, The Wall Street Journal, February 1, 2012 ---
http://blogs.wsj.com/cfo/2012/02/01/facebook-accounting-policies-look-ultra-conservative/?mod=wsjpro_hps_cforeport
Facebook appears to be staying conservative in its
accounting choices, after several other Internet IPOs sparked questions over
how they presented their financial reports this year.
While Groupon came under fire for its use of
non-GAAP measures and Zynga’s “average daily bookings” figures raised some
eyebrows, Facebook is avoiding deviations from standard accounting
principles.
In Facebook’s nearly 200-page S-1 filing,
“non-GAAP” is mentioned only once, when the company discusses how it
monitors free cash flow . . .
Continued in article
Jensen
Since Facebook's CEO has a one-dollar annual salary and no bonus plan, it is
unlikely that he will be cooking the books to pad his bonus like many other CEOs
dreaming up creative accounting to pad their bonuses (the worst case in history
being Franklin Raines when he was CEO of Fannie Mae --- for which he and
Fannie's audit firm, KPMG, were both fired) ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Of course this does not mean that in the future that Facebook, like virtually
all companies, will not face temptations now and then to chose less-conservative
accounting alternatives. It appears at this moment in time that investors are so
hell-bent on getting in on the Facebook IPO that conservative accounting choices
probably did not really matter like they might've mattered in the Groupon IPO if
Groupon had not been caught cooking the books.
"FACEBOOK GETS AN “A” IN FINANCIAL REPORTING," by Anthony H. Catanach Jr. and
J. Edward Ketz, Grumpy Old Accountants, February 6, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/519
From Ernst & Young on February 4, 2012
2011 year-end issues
audit committees should consider
Audit committees continue to face change, economic volatility and regulatory
uncertainty as they head into the year-end reporting season. Our publication,
2011
year-end issues audit committees should consider, discusses the key
challenges facing audit committees and lays out 20 questions audit committees
should consider as they prepare for their upcoming discussions. Our publication
also provides additional insights and references to other Ernst & Young
publications.
See (free registration required)
http://www.ey.com/UL/en/AccountingLink/Current-topics-More-topics
February 4, 2012 message from Dan Stone
You've got to admire a guy that knows what he wants, picks up accounting
skills, and thinks big..... I hope someone will start case study research on
"jailhouse CPAs."
Dan Stone
-------------------------------------------------
source:
http://www.syracuse.com/news/index.ssf/2012/01/how_jailhouse_cpa_ronald_willi.html
As he sat in a state prison in 2006, Ronald
Williams claimed he made $500,000. The IRS didn’t question it.
The IRS sent Williams a refund check for $327,456
to his address: Camp Gabriels Correctional Facility in northern New York.
But when prison staff opened his mail April 10,
2007, imagine the surprise: Prisoners don’t get six-figure tax refund
checks.
Corrections staff sent the check back to the IRS,
gave Williams a copy and put him on notice: no more fake tax forms.
But baited by the hundreds of thousands of dollars
he almost received, Williams tried 11 more times, using income amounts that
went up and up — the highest was $293 million, according to Assistant U.S.
Attorney Tamara Thomson.
While the prisons are full of jailhouse lawyers,
Williams was instead a jailhouse CPA: He helped at least one other inmate
prepare similar returns in exchange for stamps and canned food — prison
currency.
Williams, 48, of Buffalo, was convicted Thursday in
U.S. District Court in Syracuse of 11 counts of filing false tax returns and
one count of helping another prisoner do it.
..... <continued at source>
From Paul Caron's Tax Prof Blog on February 20, 2012 ---
http://taxprof.typepad.com/
I am thrilled that our
Law Professor
Blogs Network has been named one of
The 10 Best Websites for Law Students by The
National Jurist:
For law students
who know what legal field they are interesyted in
Law
Professor Blogs is a great resource. Broken
down by specialty, the blogs on the site are created by law professors,
for law professors. The blogs contain links to recent news in their
fields, as well as abstracts of newly published papers.
The other sites in the Top 10 are:
Bob Jensen's threads on accountancy and tax news sites are at
http://www.trinity.edu/rjensen/AccountingNews.htm
"Just How Efficient Is The Market?" Seeking Alpha, February
3, 2012 ---
http://seekingalpha.com/article/339761-just-how-efficient-is-the-market
For much of the last 25 years, most of the
investment management world has promoted the idea that individual
investors can't beat the market. To beat the market, stock pickers of
course have to discover mispricings in stocks, but the Nobel-acclaimed
Efficient Market Hypothesis (EMH) claims that
the market is a ruthless mechanism acting instantly to arbitrage away
any such opportunities, claiming that the current price of a stock is
always the most accurate estimate of its value (known as
"informational efficiency"). If this is true, what hope can there be for
motivated stock pickers, no matter how much they sweat and toil, vs.
low-cost index funds that simply mechanically track the market? As it
turns out, there's plenty!
The (absurd) rise of the Efficient
Market Hypothesis
First proposed in University of Chicago
professor Eugene Fama’s 1970 paper
Efficient Capital Markets: A Review of Theory and Empirical Work,
EMH has evolved into a concept that a stock price
reflects all available information in the market, making it impossible
to have an edge. There are no undervalued stocks, it is argued, because
there are smart security analysts who utilize all available information
to ensure unfailingly appropriate prices. Investors who seem to beat the
market year after year are just lucky.
However, despite still being widely taught in
business schools, it is increasingly clear that the efficient market
hypothesis is "one of the most remarkable errors in the history of
economic thought" (Shiller). As Warren Buffett famously quipped, "I'd be
a bum on the street with a tin cup if the market was always efficient."
Similarly, ex-Fidelity fund manager and
investment legend
Peter Lynch said in a 1995 interview with
Fortune magazine: “Efficient markets? That’s a bunch of junk, crazy
stuff.”
So what's so bogus about EMH?
Firstly, EMH is based on a set of absurd
assumptions about the behaviour of market participants that goes
something like this:
- Investors can trade stocks freely in any
size, with no transaction costs;
- Everyone has access to the same
information;
- Investors always behave rationally;
- All investors share the same goals and the
same understanding of intrinsic value.
All of these assumptions are clearly
nonsensical the more you think about them but, in particular, studies in
behavioural finance initiated by Kahneman, Tversky and Thaler has shown
that the premise of shared investor rationality is a seriously flawed
and misleading one.
Secondly, EMH makes predictions that do not
accord with the reality. Both the Tech Bubble and the Credit
Bubble/Crunch show that that the market is subject to fads, whims and
periods of irrational exuberance (and despair) which can not be
explained away as rational. Furthermore, contrary to the predictions of
EMH, there have been plenty of individuals who have managed to
outperform the market consistently over the decades.
Continued in article
"Just How Efficient Is The Market?" Seeking Alpha, February
3, 2012 ---
http://seekingalpha.com/article/339761-just-how-efficient-is-the-market
"Fama Says Too-Big-to-Fail `Distorting' Financial System (of
efficient markets)" Bloomberg Video ---
http://www.bloomberg.com/video/64476076/
Question for Fama and French ---
http://www.dimensional.com/famafrench/2009/03/qa-confidence-in-the-bell-curve.html#more
It would be very enlightening if you would comment on the Nassim Nicholas Taleb
("The Black Swan") attack on the use of Gaussian (normal bell curve) mathematics
as the foundation of finance. As you may know, Taleb is a fan of Mandelbrot,
whose mathematics account for fat tails. He argues that the bell curve doesn't
reflect reality. He is also quite critical of academics who teach modern
portfolio theory because it is based on the assumption that returns are normally
distributed. Doesn't all this imply that academics should start doing
reality-based research?
Answer from Gene Fama (Chicago)
EFF: Half of my 1964 Ph.D. thesis is tests of market efficiency, and the
other half is a detailed examination of the distribution of stock returns.
Mandelbrot is right. The distribution is fat-tailed relative to the normal
distribution. In other words, extreme returns occur much more often than
would be expected if returns were normal.
There was lots of interest in this issue for about
ten years. Then academics lost interest. The reason is that most of what we
do in terms of portfolio theory and models of risk and expected return works
for Mandelbrot's stable distribution class, as well as for the normal
distribution (which is in fact a member of the stable class). For passive
investors, none of this matters, beyond being aware that outlier returns are
more common than would be expected if return distributions were normal.
For other applications, however, the difference can
be critical. Risk management by financial institutions is a good example.
For example, portfolio insurance, which was the rage in the early 1980s,
bombed in the crash of October 1987, because this was an event that was
inconceivable in their normality based return model. The normality
assumption is also likely to be a serious problem in various kinds of
derivatives, where lots of the price is due to the probability of extreme
events. For example, news story accounts suggest that AIG blew up because
its risk model for credit default swaps did not properly account for outlier
events.
Answer from Kenneth French (Dartmouth)
KRF: I agree with Gene, but want to make another point that he is
appropriately reluctant to make. Taleb is generally correct about the
importance of outliers, but he gets carried away in his criticism of
academic research. There are lots of academics who are well aware of this
issue and consider it seriously when doing empirical research. Those of us
who used Gene's textbook in our first finance course have been concerned
with this fat-tail problem our whole careers. Most of the empirical studies
in finance use simple and robust techniques that do not make precise
distributional assumptions, and Gene can take much of the credit for this as
well, whether through his feedback in seminars, suggestions on written work,
comments in referee reports, or the advice he has given his many Ph.D.
students over the years.
The possibility of extreme outcomes is certainly
important for things like risk management, option pricing, and many
complicated "arbitrage" strategies. Investors should also recognize the
potential effect of outliers when assessing the distribution of future
returns on their portfolios. None of this implies, however, that the
existence of outliers undermines modern portfolio theory or asset pricing
theory. And the central implications of modern portfolio theory and asset
pricing—the benefits of diversification and the trade-off between risk and
return—remain valid under any reasonable distribution of returns.
Who is Nassim Nicholas Taleb? ---
http://en.wikipedia.org/wiki/Taleb
Many finance professors make students watch some of Taleb's videos, especially
the Black Swan ---
Click Here
http://video.google.com/videosearch?q=taleb+black+swan+&www_google_domain=www.google.com&emb=0&aq=f&aq=f#
Black Swan Financial Collapse Black Swan ---
http://www.dailymotion.com/video/x720r3_black-swan-paradigm-financial-colla_tech
(People underestimate the probability of rare events)
"How Dragon Kings Could Trump Black Swans Power laws have a hidden
structure that reveals why extreme events are more common than we'd thought,"
MIT's Technology Review, August 4, 2009 ---
http://www.technologyreview.com/blog/arxiv/
Sornette gives as an example the distribution of
city sizes in France which follows a classic power law, meaning that there
are many small cities and only a few large ones. On a log-log scale, this
distribution gives a straight line. Except for Paris, which is an outlier,
many times larger than it ought to be if it were to follow the power law.
Paris is an outlier because it has been hugely
influential in the history of France and so has benefited from various
positive feedback mechanisms that have ensured its outsize growth.
Apparently London occupies a similarly outlying position in the distribution
of cities in the UK.
Sornette goes on to identify a number of data sets
showing power laws with outliers that he says are the result of positive
feedback mechanisms that make them much larger than their peers. He calls
these events dragon kings. What's interesting about them is that they are
entirely unaccounted for by a current understanding of power laws, from
which Nassim Nicholas Taleb built the idea of black swans.
The special characteristic of dragon kings is that
a positive feedback mechanism creates faster-than-exponential growth making
them larger than expected.
So what to make of this? Sornette makes one
interesting observation. The seemingly ubiquitous existence of these dragon
kings in all kinds of data sets means that extreme events are significantly
more likely than power laws alone suggest.
That's important. If you've ever wondered why we've
experienced not just a single 100-year financial crises in the last couple
of decades but two or three, here's your answer. It also implies that you'll
experience a few more before your time is up.
But Sornette goes further. He argues that dragon
kings may have properties that make them not only identifiable in real time
but also predictable. He puts it like this: "These processes provide clues
that allow us to diagnose the maturation of a system towards a crisis."
That's much more speculative. It's one thing to
identify the feedback mechanisms that cause faster-than-exponential growth
(and it's not clear that Sornette can do even this) but quite another to
spot the event that trigger a crash.
Sornette looks to be onto something interesting
with his notion of dragon kings: outliers that exist beyond the usual realm
of power laws. That could be a hugely infuential. But his contention that
these outliers are in some way more easily predictable than other events
smacks more of wishful thinking than good science.
Ref:
arxiv.org/abs/0907.4290:
Dragon-Kings, Black Swans and the Prediction of Crises
Modern Portfolio Theory ---
http://en.wikipedia.org/wiki/Portfolio_theory
Capital Asset Pricing Model (CAPM) ---
http://en.wikipedia.org/wiki/CAPM
This is a Must Read
Dartmouth Professor Ken French comes in for the
rescue of CAPM!
"How to use the Fama French Model," Empirical Finance Blog,
August 1, 2011 ---
http://blog.empiricalfinancellc.com/2011/08/how-to-use-the-fama-french-model/
The CAPM is prolific, but doesn’t appear to
work!
For example, in the figures below I’ve plotted
the Fama-French 25 (portfolios ranked on size and book-to-market)
against beta.
In the first figure, I plot the average excess
return to the FF 25 against the average excess return one would expect,
given beta.
If you’d like to see how I calculated the
charts above, please reference the excel file
here.
Given such a poor track record, is
anyone still using the CAPM?
Lot’s of people, apparently…
Welch (2008) finds that ~75% of professors
recommend the use of the model when estimating the cost of capital, and
Graham and Harvey (2001) find that ~74% of
CFOs use the CAPM in their work.
A few quotes from Graham and Harvey 2001 sum up
common sentiment regarding the CAPM:
“While the CAPM is popular, we show later
that it is not clear that the model is applied properly in practice.
Of course, even if it is applied properly, it is not clear that the
CAPM is a very good model [see Fama and French (1992)].
“…practitioners might not apply the CAPM or
NPV rule correctly. It is also interesting that CFOs pay very little
attentionto risk factors based on momentum and
book-to-market-value.”
Of course, there are lots of arguments to
consider before throwing out the CAPM. Here are a few:
- Everyone learns about it and knows how to
use it (although, Graham and Harvey suggest that many practitioners
don’t even apply the CAPM theory correctly)
- Data is easy to obtain on betas.
-
Roll’s critique–maybe the CAPM isn’t a
junk theory, rather, the empirical tests showing the CAPM doesn’t
work are bogus.
Regardless, being that this blog is dedicated
to empirical data and evidence, and not about ‘mentally masturbating
about theoretical finance models,’ we’ll operate under the assumption
that the CAPM is dead until new data comes available.
The Fama French Alternative?
Given the CAPM doesn’t work that well in
practice, perhaps we should look into the Fama French model (which isn’t
perfect or cutting edge, but a solid workhorse nonetheless). And while
the FF model inputs are highly controversial, one thing is clear: the FF
3-factor model does a great job explaining the variability of returns.
For example, according to
Fama French 1993, the 3-factor model explains
over 90% of the variability in returns, whereas the CAPM can only
explain ~70%!
The 3-factor model is great, but how the
heck does one estimate the FF factors?
Dartmouth Professor Ken French comes in for the
rescue!
Continued in article
Ken French's Link
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
"The Impact of Asymmetry on Expected Stock Returns: An Investigation of
Alternative Risk Measures," by Stephen P. Huffman and Cliff Moll, SSRM,
September 7, 2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924048
February 8, 2012 reply from Paul Williams
Bob, It is astonishing that we are still having
this debate. What always goes unremarked in these debates is the underlying
political motivation for the development of EMH. It is not a coincidence
that devotees of a free market ideology were the inventors of both EMH
(randomness connotes irrationality so let's make randomness rational) and
principal-agent theory (Berle and Means raised the prospect of managerial
power, so let's construct a fable that concludes that concentrated economic
power is still efficient). The mathematician David Orrell, in his book The
Future of Everything, uses EMH as an example of misguided belief in
modeling/prediction. As he notes: "In its insistence on rationality, the EMH
is therefore a strange inversion of reality. Its primary aim, it appears, is
not to predict the future, but to make it look like we all know what we're
doing. This is dangerous for two reasons (p. 264)." The first reason Orrell
cites is the one familiar from the work of Taleb, much discussed on this
network. Less discussed, but perhaps more important is the second: "
The second danger comes from the insidious idea
that "the market is always right," that it is some kind of hyper-rational
being that can outwit any speculator or government regulator. This view of
the economy, enshrined in EMH, turns the market into a deity who is watched
over, granted legitimacy, and explained to the rest of us by the economic
priesthood (ibid)." This priesthood includes most of accounting scholarship
(the "rigorous research" (accountics) crowd) at least in the U.S. This
theology has had disastrous consequences -- Alan Greenspan, a true believer,
expressed some remorse over how wrong he was about the god he worshipped.
Markets, particularly financial ones, left to their own devices, do not
self-regulate, are not omnicient, and should never be left without public
control (Adam Smith was quite adamant about this particularly with respect
to "projectors" (18th jargon for "speculators"). The lack of innovation in
accounting scholarship that AAA president Greg Waymire has made his
presidential theme (Seeds of Innovation) is largely attributable to the EMH
dogma that has held the AMerican academy in its thrall for over 40 years.
Dogmas don't innovate; indeed innovation is characterized by the destruction
of dogmas. "Ah, but faith tis pleasant 'til tis past; the trouble is, twill
not last."
Paul
Bob Jensen's threads on the EMH are at
http://www.trinity.edu/rjensen/theory01.htm#EMH
Reconsidering California Transport Policies: Reducing Greenhouse Gas
Emissions in an Uncertain Future ---
http://www.rand.org/pubs/rgs_dissertations/RGSD292.htm
Jensen Comment
An explosive externality (nonconvexity in mathematical economics) is centers on
greenhouse gas emissions and the setting of laws and regulations on such
emissions. If we get beyond the outlier sensationalism of the "emissions are
destroying the planet" versus "humans need jobs" extremes, there is a laboratory
of sorts to study the emissions problems in our troubled state of California
that has some of the worst air pollution problems in the United States and some
of the worst economic problems (job losses, traffic congestion, refinery
shortages, budget deficits, high taxes, labor strife, etc.) in the United
States.
This is also one of the most troubling research problems in accountancy where
the problems of measuring the costs of externalities are known but the research
answers range from "we can't measure these costs" to "superficial research"
recommendations that should be published as sick humor rather than academic
research. Some of the less-than-stellar accounting research in this area,
including my own not-so-great research publications, are cited at
http://maaw.info/SocialAccountingMain.htm
Accounting issues brought up in the above Rand Corporation study could be
pursued to great depths by researchers who have both accounting and engineering
backgrounds. Several examples are shown below:
Page 14
The second reason for the large discrepancy in
estimated impact is an accounting problem. To the extent that liquid fuel
providers are able to comply with the LCFS, they must do so by purchasing
credits from non-liquid fuel providers (like utilities that provide
electricity) and blending low carbon ethanol. Any electricity consumed for
transportation in the CALD-GEM model is automatically credited to the fuels
industry (and treated as a transfer between the purchasers of liquid motor
fuels and electricity, bearing no net cost). So the only compliance strategy
available within the model (and arguably, in reality as well), is to blend
lower carbon ethanol. The accounting problem arises from the fact that the
state’s GHG inventory and emissions targets are based on x combustion,
rather than the life-cycle perspective used in the LCFS. Practically, this
means that a substitute fuel must produce fewer greenhouse gas emissions
during the combustion stage than the one it displaces in order to affect GHG
reductions for the inventory targets. While the LCFS does indeed force fuel
providers to blend lower carbon ethanol (either from Brazilian sugarcane or
cellulosic ethanol made from one of many different feedstocks and conversion
processes), this ethanol is chemically no different from the corn ethanol
that is prominent now. Ethanol produces fewer greenhouse gas emissions
through combustion than California’s blended gasoline, but the low-carbon
intensity ethanol is no better than corn in this respect. Emissions
reductions do occur over the life-cycle of the fuel, reducing the total GHG
emissions for which California can be said to be responsible, but these
“upstream” reductions accrue in other states — during the cultivation of
ethanol feedstocks and across the transportation and distribution phases of
the fuel, rather than during combustion. These emissions reductions do not
contribute to the targets. Only by increasing the overall quantity of
ethanol consumed — for example, by subsidizing the consumption of E85 — and
displacing gasoline, can the LCFS affect reductions in GHG emissions.
Unfortunately, the ARB’s estimated emissions savings from the program simply
represents a 10% reduction in the CO2 emissions from the combustion of motor
fuels based on the goal of the standards to reduce emissions by 10%
(California Air Resources Board, 2009e). However, one cannot expect fuel
providers to reduce the emissions from motor fuel combustion when the
standard allows them to achieve credits by reducing the CO2 emissions in
other stages of the fuels’ life-cycle, even though they occur beyond
California’s boarders. The accounting discrepancy is not a large problem for
electricity, which incurs most of its life-cycle carbon emissions when it is
generated, but represents a considerable challenge for compliance strategies
that rely heavily on ethanol blending.
Page 15
This is a shortcoming of California’s current
strategy, and represents an important disconnect between the accounting
methodology used to calculate the state’s Greenhouse Gas Inventory and the
methodology used to estimate savings from the LCFS. Updating the LCFS
standards for carbon intensity so that they are based on the baseline GHG
emissions from combustion, rather than the full life-cycle, could induce the
desired GHG savings from combustion, but would change the nature of the
standards. Alternatively, since emissions reductions would occur in other
states as a result ...
Page 90
The ARB estimates the carbon intensity of Midwestern
corn ethanol to be 98gCO2/MJ, compared to the most current EPA estimate of
75gCO2/MJ. If the ARB revises its estimates downward, making conventional
corn ethanol significantly less carbon intensive, the program costs
associated with the LCFS could drop dramatically. However, the carbon
intensity of Brazilian sugarcane is even more adversely impacted by the
current land-use impact estimate than Midwestern corn ethanol and would
benefit even more if the EPA’s carbon intensity values are used. If the
carbon intensity estimates are revised for all fuels in the program
(including California reformulated gasoline (E10), the baseline fuel on
which the carbon intensity targets are based) based on EPA’s methodology,
Brazilian sugarcane would be an even more attractive alternative to corn
ethanol. However, such accounting changes will also, predictably, lead to
lower consumption of lignocellulosic ethanol until it is fully
cost-competitive with existing corn-based products. Program changes that
make readily-available Brazilian ethanol more attractive could reduce
program costs and provide reassurance to fuel providers worries about the
rate of progress in the advanced ethanol market.
Page 98
One important distinction to note in a carbon specific policy, whether tax
or permit based, is that carbon can be assessed either at the point where
fuel is burned or through the entire life-cycle of the fuel. Using a
life-cycle perspective requires additional accounting on the part of
regulators, and increases the burden of monitoring transportation fuel
providers to ensure that the fuels brought to market use approved pathways
(for production, distribution, etc). These estimates of carbon intensity for
fuel pathways are likely to be contentious, as providers petition for lower
regulatory estimates of carbon intensity for their fuel products.
Page 142
The remaining facets of the policy are modeled
faithfully. The LCFS regulations allow for some flexibility in credit
accounting from one year to the next. In particular, fuel providers
(industry, in this case) may carry credits over from one year to the next.
Page 184
Transportation fuels are likely to enter the state’s
cap-and-trade program in some capacity by 2016, but the precise accounting
methodology by which the passenger transportation sector complies with a
carbon cap has yet to be defined. As a simplification, all of the potential
VMT levers are modeled as fuel tax increases — above the current California
fuel excise tax of $0.355/gallon and federal fuel excise tax of
$0.184/gallon. These policies are implemented in 2016 and are fixed at the
same level until the end of the simulation in 2020.
Page 198
The methodology used to estimate statewide carbon
emissions is still evolving and being integrated into the regulatory
definitions of the state’s cap-and-trade program, which will also be
administered by the Air Resources Board. This creates ambiguity about the
carbon accounting methodology for transportation fuels, which are scheduled
to enter the cap-and-trade program in 2015.
Page 216
The second reason for the large discrepancy in
estimated impact is an accounting problem. To the extent that liquid fuel
providers are able to comply with the LCFS, they must do so by purchasing
credits from non-liquid fuel providers (like utilities that provide
electricity) and blending low carbon ethanol. Any electricity consumed for
transportation in the CALD-GEM model is automatically credited to the fuels
industry (and treated as a transfer between the purchasers of liquid motor
fuels and electricity, bearing no net cost).
Page 281
Definitions and accounting practices are
important considerations
February 26, 2012 message from Dennis
Beresford
Bob,
Warren Buffett's annual letter to shareholders,
available at the Berkshire Hathaway website, is, as always, a must read. Of
particular interest is his comment on page 15 about a very nonsensical
aspect of GAAP for business combinations.
Denny
After which Bob Jensen added the
following tidbit
Abpve is a message from Denny about the Uselessness of GAAP for Business
Combinations
I don't think anybody considers GAAP the most useful input to management when
making decisions regarding mergers and acquisitions since GAAP mainly deals with
booked items and management focuses very heavily on the values and risks of
unbooked items like human resources, contingencies, and interaction (covariance)
values of booked and unbooked items.
But GAAP could conceivably be of more interest to investors when evaluating
the stewardship of management with respect to mergers and acquisitions.
Added Note:
I've always enjoyed the folksy writing style in these shareholder letters. If
you peruse through all of them you will get a greater sense of the value added
by corporate executives on investments.
BERKSHIRE
HATHAWAY
INC.SHAREHOLDER
LETTERS ---
http://www.berkshirehathaway.com/letters/letters.html
Shareholder Letter
for 2011 ---
http://www.berkshirehathaway.com/letters/2011ltr.pdf
. . .
Partially
offsetting this overstated liability is $15.5 billion of “goodwill”
attributable to our insurance companies that is included in book value as an
asset. In effect, this goodwill represents the price we paid for the
float-generating capabilities of our insurance operations. The cost of the
goodwill, however, has no bearing on its true value. If an insurance
business produces large and sustained underwriting losses, any goodwill
asset attributable to it should be deemed valueless, whatever its original
cost. Fortunately, that’s not the case at Berkshire. Charlie and I believe
the true economic value of our insurance goodwill – what we would pay to
purchase float of similar quality – to be far in excess of its historic
carrying value. The value of our float is one reason
. . .
Let’s use IBM as an example. As all
business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb
job in moving IBM from near-bankruptcy twenty years ago to its prominence
today. Their operational accomplishments were truly extraordinary.
But their financial management was
equally brilliant, particularly in recent years as the company’s financial
flexibility improved. Indeed, I can think of no major company that has had
better financial management, a skill that has materially increased the gains
enjoyed by IBM shareholders. The company has used debt wisely, made
value-adding acquisitions almost exclusively for cash and aggressively
repurchased its own stock. Today, IBM has 1.16 billion shares outstanding,
of which we own about 63.9 million or 5.5%.
Naturally, what happens to the
company’s earnings over the next five years is of enormous importance to us.
Beyond that, the company will likely
spend $50 billion or so in those years to repurchase shares. Our quiz for
the day: What should a long-term shareholder, such as Berkshire, cheer for
during that period? I won’t keep you in suspense. We should wish for IBM’s
stock price to
languish throughout the five years.
Let’s do the math. If IBM’s stock
price averages, say, $200 during the period, the company will acquire 250
million shares for its $50 billion. There would consequently be 910 million
shares outstanding, and we would own about 7% of the company. If the stock
conversely sells for an average of $300 during the five-year period, IBM
will acquire only 167 million shares. That would leave about 990 million
shares outstanding after five years, of which we would own 6.5%.
If IBM were to earn, say, $20 billion
in the fifth year, our share of those earnings would be a full $100 million
greater under the “disappointing” scenario of a lower stock price than they
would have been at the higher price. At some later point our shares would be
worth perhaps $11⁄2
billion more than if the
“high-price” repurchase scenario had taken place.
The logic is
simple: If you are going to be a net buyer of stocks in the future, either
directly with your own money or indirectly (through your ownership of a
company that is repurchasing shares), you are hurt when stocks rise.
You benefit when stocks swoon. Emotions, however, too often
complicate the matter: Most people, including those who will be net buyers
in the future, take comfort in seeing stock prices advance. These
shareholders resemble a commuter who rejoices after the price of gas
increases, simply because his tank contains a day’s supply.
Charlie and I
don’t expect to win many of you over to our way of thinking – we’ve observed
enough human behavior to know the futility of that – but we do want you to
be aware of our personal calculus. And here a confession is in order: In my
early days I, too, rejoiced when the market rose. Then I read Chapter Eight
of Ben Graham’s The Intelligent Investor, the chapter dealing with
how investors should view fluctuations in stock prices. Immediately the
scales fell from my eyes, and low prices became my friend. Picking up that
book was one of the luckiest moments in my life.
In the end, the
success of our IBM investment will be determined primarily by its future
earnings. But an important secondary factor will be how many shares the
company purchases with the substantial sums it is likely to devote to this
activity. And if repurchases ever reduce the IBM shares outstanding to 63.9
million, I will abandon my famed frugality and give Berkshire employees a
paid holiday.
. . .
Certain
shareholders have told me they hunger for more discussions of accounting
arcana. So here’s a bit of GAAP-mandated nonsense I hope both of them enjoy.
Common
sense would tell you that our varied subsidiaries should be carried on our
books at their cost plus the earnings they have retained since our purchase
(unless their economic value has materially decreased, in which case an
appropriate write-down must be taken). And that’s essentially the reality at
Berkshire – except for the weird situation at Marmon.
We
purchased 64% of the company in 2008 and put this interest on our books at
our cost, $4.8 billion. So far, so good. Then, in early 2011, pursuant to
our original contract with the Pritzker family, we purchased an additional
16%, paying $1.5 billion as called for by a formula that reflected Marmon’s
increased value. In this instance, however, we were required to immediately
write off $614 million of the purchase price retroactive to the end of 2010.
(Don’t ask!) Obviously, this write-off had no connection to economic
reality. The excess of Marmon’s intrinsic value over its carrying value is
widened by this meaningless write-down.
. . .
There is little new to report on our
derivatives positions, which we have described in detail in past reports.
(Annual reports since 1977 are
available at www.berkshirehathaway.com.) One important industry
change,however, must be noted: Though our existing contracts have very minor
collateral requirements, the rules have changed for new positions.
Consequently, we will not be initiating any major derivatives positions. We
shun contracts of any type that could require the instant posting of
collateral. The possibility of some sudden and huge posting requirement –
arising from an out-of-the-blue event such as a worldwide financial panic or
massive terrorist attack – is inconsistent with our primary objectives of
redundant liquidity and unquestioned financial strength.
Our insurance-like derivatives
contracts, whereby we pay if various issues included in high-yield bond
indices default, are coming to a close. The contracts that most exposed us
to losses have already expired, and the remainder will terminate soon. In
2011, we paid out $86 million on two losses, bringing our total payments to
$2.6 billion. We are almost certain to realize a final “underwriting profit”
on this portfolio because the premiums we received were $3.4 billion, and
our future losses are apt to be minor. In addition, we will have averaged
about $2 billion of float over the five-year life of these contracts. This
successful result during a time of great credit stress underscores the
importance of obtaining a premium that is commensurate with the risk.
Charlie and I continue to believe that
our equity-put positions will produce a significant profit, considering both
the $4.2 billion of float we will have held for more than fifteen years and
the $222 million profit we’ve already realized on contracts that we
repurchased. At yearend, Berkshire’s book value reflected a liability of
$8.5 billion for the remaining contracts; if they had all come due at that
time our payment would have been $6.2 billion.
Tom Selling has
some posts of possible interest on business combinations:
Business Combinations
http://accountingonion.typepad.com/theaccountingonion/business-combinations/
Goodwill ---
http://accountingonion.typepad.com/theaccountingonion/goodwill/
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
"The Perils of High CFO Incentive Pay: Negatives like future
lawsuits are greater for high CFO bonuses even than for high CEO incentives, a
Harvard Business School study says," by Ed Zwirn, CFO World, January
30, 2012 ---
http://www.cfoworld.com/compensation/30379/perils-high-cfo-incentive-pay
Performance-based pay, of course, is an important
instrument for aligning the interests of managers with the interests of
shareholders. But an abundance of recent evidence suggests that these
high-powered incentives also provide managers with incentives to cook the
books.
And while previous literature on the relationship
between incentive pay and earnings manipulation has focused largely on CEOs,
a yet-to-be-published paper by Harvard Business School’s Felix Oberholzer-Gee
and Julie Wulf takes this focus to the level
of CFOs and division managers as well. And it finds that high chief
financial officer pay levels may deserve special scrutiny by companies.
“Companies report significantly higher
discretionary accruals, excess sales and have a higher incidence of future
lawsuits when CFOs are paid larger bonuses,” write Oberholzer-Gee and Wulf.
“The magnitudes of these effects are much larger for CFOs in comparison to
both CEOs and division managers.”
Higher bonuses lead CFOs to increase accruals
upward and to shift revenues toward the fourth quarter, they find, with a
one-standard deviation in CFO bonuses increasing excess Q4 sales by 71.5% of
their mean value. The comparable figure for CEO bonuses is 45.9% and that
for division managers is an “insignificant” 37%.
A similar calculation of the CFO stock option
effect finds that excess sales rise by 66.6% of their mean value, while the
comparable CEO effect is 45.8%.
Companies whose CFOs receive a large number of
options were also found to report higher discretionary accruals and
experience a greater likelihood of future lawsuits.
Also supported by their research, the authors add,
are changes “in the SEC requirements regarding disclosure of CFO
compensation” motivated “by concerns about increases in equity incentives
and the effect this might have on the quality of financial statements.”
Continued in article
Bob Jensen's threads on outrageous executive compensation ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
A USB Port of Sorts for the mobile phones, iPads, Kindle Fires, and other
tablet computers
"For iPad And Mobile Devices, a 'Port' out of the Norm," by Water S.
Mossberg, The Wall Street Journal, February 9, 2012 ---
http://online.wsj.com/article/SB10001424052970204136404577211141651710950.html
The pocket-size USB flash drive has become nearly
ubiquitous in the PC world, for moving files among machines and for adding
extra storage. But it can't be used with most tablets because they lack
standard USB ports.
Now, there's a special, modified, pocket flash
drive that works as usual with PCs and Macs, but can transfer and stream
files to popular mobile devices without standard USB ports, such as
Apple's iPad and iPhone, Amazon's Kindle Fire and
many other Android devices. Its secret: It has built-in Wi-Fi to beam the
files to and from tablets and smartphones wirelessly. It can even stream
files like videos to many devices simultaneously.
It's called the AirStash and is made by a tiny
company called Wearable Inc., and distributed by Maxell Corp. It's available
at
Amazon.com and a few other retailers for $150 for
an 8 gigabyte model, which can increase the storage capacity of a base iPad
by 50%. An AirStash model with 16 gigabytes is $180.
The AirStash is a clever device that solves a
genuine problem, though not without some issues. In my tests, it worked as
advertised, without crashing or exhibiting bugs. But it's pricey and has one
big drawback: When a device is connected to the AirStash via Wi-Fi, it can't
be connected to the Internet. The company plans a fix for that as early as
next month.
The AirStash looks like other USB flash drives,
except a bit wider. Its storage is provided by a removable SD memory card
that pops into the bottom edge. You can substitute your own larger card. In
fact, you can swap in the memory card from your camera and beam your photos.
[PTECH] Wearable Inc.
The AirStash drive with removable SD memory card
This product is aimed at the iPad and iPhone, and
the company has a free app for those products that makes it easy to manage
and view the files on the drive. But its wireless file transfers also work,
via the Web browser, on non-Apple devices, even computers. And the company
plans an Android version of the app.
A typical way to use the AirStash would be to first
plug it into your computer like any flash drive and copy onto it photos,
documents, videos, podcasts or songs. Then remove it from the computer and
press a small button on the front of the AirStash that turns on its Wi-Fi
network. Next, you connect your iPad to this network, launch the AirStash
app and all the files on the drive show up.
Enlarge Image PTECH-JUMP PTECH-JUMP Wearable Inc.
The AirStash app allows an iPad to wirelessly
import photos from the drive.
Enlarge Image PTECH-JUMP PTECH-JUMP Wearable Inc.
The AirStash app allows an iPad to create a new
directory on the drive, below.
From the app, you can view documents, play songs,
watch videos, view photos or listen to podcasts. On a non-Apple device,
there's no special app, but you can still access the content on the drive.
You just link up to the AirStash Wi-Fi network, launch your Web browser and
go to airstash.net. A page appears with a list of the drive's contents.
AirStash performed some feats I found impressive.
In one test, I was able, from about 75 feet away, to flawlessly watch three
movies stored on the AirStash at the same time on three devices. I had
"Inception" playing on an iPad; "The King's Speech" playing on a Kindle
Fire; and "Star Trek" playing on a Dell laptop. I stress, none of these
movies was stored on the devices—all were stored on the AirStash.
In another test, I was able to watch a movie on an
iPad, play a song on an Android-based Motorola Droid and read a PDF file on
a Mac, simultaneously. Once again, all these files were stored on an
AirStash drive 75 feet away.
The AirStash can beam material to as many as eight
devices at once, except for video, where the limit is three devices. It can
beam the same video to three devices at the same time. A parent could use
one AirStash to provide different videos to each of three kids during a
drive in the car.
Wearable, the maker of the AirStash, boasts it
works in both directions: You can also write files to the AirStash from a
device like an iPad. Technically, this is true. For instance, from the
AirStash app, you can export photos stored on an iPad or iPhone to the
drive.
But several iPad apps for viewing or editing
documents, which the company says work with AirStash, require a geeky setup
process, and I couldn't get them to send edited documents back to the drive.
There are some other limitations. For instance, on
non-Apple devices, the Web interface is rudimentary, and on the Kindle Fire,
music can't be streamed from the AirStash.
Continued in article
Video Tutorial
"Windows on an Ipad," MIT's Technology Review, January 30, 2012
---
http://www.technologyreview.com/video/?vid=796&nlid=nldly&nld=2012-01-31
"Working In Word, Excel, PowerPoint on an iPad," by Walter S.
Mossberg, The Wall Street Journal, January 12, 2012 ---
http://online.wsj.com/article/SB10001424052970203436904577154840906816210.html?mod=WSJ_Tech_RightMostPopular
Although Apple's popular iPad tablet has been able
to replace laptops for many tasks, it isn't a big hit with folks who'd like
to use it to create or edit long Microsoft Office documents.
While Microsoft has released a number of apps for
the iPad, it hasn't yet released an iPad version of Office. There are a
number of valuable apps that can create or edit Office documents, such as
Quickoffice Pro, Documents To Go and the iPad version of Apple's own iWork
suite. But their fidelity with Office documents created on a Windows PC or a
Mac isn't perfect.
This week, Onlive Inc., in Palo Alto, Calif., is
releasing an app that brings the full, genuine Windows versions of the key
Office productivity apps—Word, Excel and PowerPoint—to the iPad. And it's
free. These are the real programs. They look and work just like they do on a
real Windows PC. They let you create or edit genuine Word documents, Excel
spreadsheets and PowerPoint presentations.
I've been testing a pre-release version of this new
app, called OnLive Desktop, which the company says will be available in the
next few days in Apple's app store. More information is at
desktop.onlive.com.
My verdict is that it works, but with some caveats,
limitations and rough edges. Some of these downsides are inherent in the
product, while others have to do with the mismatch between the iPad's touch
interface and the fact that Office for Windows was primarily designed for a
physical keyboard and mouse.
Creating or editing long documents on a tablet with
a virtual on-screen keyboard is a chore, no matter what Office-type app you
choose. So, although it isn't a requirement, I strongly recommend that users
of OnLive Desktop employ one of the many add-on wireless keyboards for the
iPad.
OnLive Desktop is a cloud-based app. That means it
doesn't actually install Office on your iPad. It acts as a gateway to a
remote server where Windows 7, and the three Office apps, are actually
running. You create an account, sign in, and Windows pops up on your iPad,
with icons allowing you to launch Word, Excel or PowerPoint. (There are also
a few other, minor Windows programs included, like Notepad, Calculator and
Paint.)
In my tests, the Office apps launched and worked
smoothly and quickly, without any noticeable lag, despite the fact that they
were operating remotely. Although this worked better for me on my fast home
Internet connection, it also worked pretty well on a much slower hotel
connection.
Like Office itself, the documents you create or
modify don't live on the iPad. Instead, they go to a cloud-based repository,
a sort of virtual hard disk. When you sign into OnLive Desktop, you see your
documents in the standard Windows documents folder, which is actually on the
remote server. The company says that this document storage won't be
available until a few days after the app becomes available.
To get files into and out of OnLive Desktop, you
log into a Web site on your PC or Mac, where you see all the documents
you've saved to your cloud repository. You can use this Web site to upload
and download files to your OnLive Desktop account. Any changes made will be
automatically synced, the company says, though I wasn't able to test that
capability in my pre-release version.
Because it's a cloud-based service, OnLive Desktop
won't work offline, such as in planes without Wi-Fi. And it can be finicky
about network speeds. It requires a wireless network with at least 1 megabit
per second of download speed, and works best with at least 1.5 to 2.0
megabits. Many hotels have trouble delivering those speeds, and, in my
tests, the app refused to start in a hotel twice, claiming insufficient
network speed when the hotel Wi-Fi was overloaded.
The free version of the app has some other
limitations. You get just 2 gigabytes of file storage, there's no Web
browser or email program like Outlook included, and you can't install
additional software. If many users are trying to log onto the OnLive Desktop
servers at once, you may have to wait your turn to use Office.
In the coming weeks, the company plans to launch a
Pro version, which will cost $10 a month. It will offer 50 GB of cloud
document storage, "priority" access to the servers, a Web browser, and the
ability to install some added programs. It will also allow you to
collaborate on documents with other users, or even to chat with, and present
material to, groups of other OnLive Desktop users.
The company also plans to offer OnLive Desktop on
Android tablets, PCs and Macs, and iPhones.
In my tests, I was able to create documents on an
iPad in each of the three cloud-based Office programs. I was able to
download them to a computer, and alter them on both the iPad and computer. I
was also able to upload files from the computer for use in OnLive Desktop.
OnLive Desktop can't use the iPad's built-in
virtual keyboard, but it can use the virtual keyboard built into Windows 7
and Windows' limited touch features and handwriting recognition. As noted
above, I recommend using a wireless physical keyboard. But even these aren't
a perfect solution, because the ones that work with the iPad can't send
common Windows keyboard commands to OnLive Desktop, so you wind up moving
between the keyboard and the touch screen, which can be frustrating. And you
can't use a mouse.
Another drawback is that OnLive Desktop is entirely
isolated from the rest of the iPad. Unlike Office-compatible apps that
install directly on the tablet, this cloud-based service can't, for
instance, be used to open Office documents you receive via email on the iPad.
And, at least at first, the only way you can get files into and out of
OnLive Desktop is through its Web-accessible cloud-storage service. The free
version has no email capability, and the app doesn't support common
file-transfer services like Dropbox or SugarSync. The company says it hopes
to add those.
OnLive Desktop competes not only with the iPad's
Office clones, but with iPad apps that let you remotely access and control
your own PCs and Macs, and thus use Office and other computer software on
those.
Continued in article
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Auditing Cloud Computing: A Security and Privacy Guide
by Ben Halpert
ISBN: 978-0-470-87474-5
August 2011
I don't see any reviews here at the moment
Graham & Dodd and Modern Financial Analysis
by Joseph Calandro, Jr.
Jacob Wolinsky Book Review
January 19, 2012
Value Walk ---
http://www.valuewalk.com/2012/01/graham-dodd-and-modern-financial-analysis-by-joseph-calandro-jr/#.TybSn8hSRup
I had the privilege to hear Joseph Calandro, Jr speak
on value
investing at a recent NYSSA event,
sponsored by the Value Investing. Committee (the
Committee is consulting with Joe and using his ‘Suggestions for Modern
Security Analysts’ paper as a blueprint when planning future events). Joe
keeps a low profile, but he is the author of a fantastic book on value
investing; Applied
Value Investing: The Practical Application of Benjamin Graham and
Warren Buffett’s Valuation Principles to
Acquisitions, Catastrophe Pricing and Business Execution.
The presentation focused on
Warren Buffett’s acquisition of
GEICO, and calculating intrinsic value for the company at the time.
I will not focus much
on my notes as they do not do justice to the presentation. However, the
presentation outline has been embedded below for readers’ viewing. It is
highly recommended that readers see Joe’s guest post here and
interview
here.Special
thanks to Chris Goulakos, Richard Ivey MBA Candidate, and NYSSA
Value
Investing Committee member for
chairing and helping to organize the event.
"Temple U. Project Ditches Textbooks for Homemade Digital Alternatives,"
by Nick DeSantis, Chronicle of Higher Education, February 7, 2012 ---
Click Here
http://chronicle.com/blogs/wiredcampus/temple-project-ditches-textbooks-for-homemade-digital-alternatives/35247?sid=wc&utm_source=wc&utm_medium=en
When students groan about buying traditional
textbooks, their grievances follow a familiar refrain: They’re expensive and
usually boring. So this fall, a team of Temple University professors heeded
those complaints and abandoned the old-fashioned texts for low-cost
alternatives that they built from scratch.
The pilot project gave 11 faculty members $1,000
each to create a digital alternative to a traditional textbook. To enliven
their students’ reading, the instructors pulled together primary-source
documents and material culled from library archives. Steven J. Bell, the
associate university librarian for research and instructional services at
Temple, said the project tried to create new kinds of learning experiences
while saving students money at the same time. The textbooks covered a
variety of subjects, including biomechanics, writing, and marketing. The
Temple program mirrors a similar effort announced at the University of
Massachusetts at Amherst in December.
Kristina M. Baumli, a lecturer in Temple’s English
department, said she was motivated to join the project because textbook
content doesn’t always meet the intellectual curiosity of students. Her
students reacted “with glee” at the online book’s free price tag, she said.
She used Blackboard to bring together content for the paperless text, but
said that her students weren’t stuck reading in front of a screen every
night. The course’s local ethnography project ensured that students could go
outside and experience the material firsthand.
“It pushed them from the computer out into the real
world,” Ms. Baumli said.
She acknowledged that her online text sometimes
allowed students to get distracted by Facebook or other Web sites during
class, but added that those same students would probably waste time sending
text messages in a class using a traditional textbook anyway. By requiring
students to grapple with primary sources and find their own journal
articles, she said, she could teach in a way that emphasized process rather
than memorization of facts in a book. One of her colleagues in the project
even required students to submit assignments to be included in their
marketing textbook, which was eventually used as study material for the
final exam.
Continued in article
Jensen Comment
One hope from such a project is that it will force commercial textbook
publishers to provide better quality materials. For example, one comparative
advantage of commercial publishers is is the number of video supplements that
accompany their textbooks. But in accountancy, the videos themselves are low
quality in most instances. In an effort to compete, perhaps these publishers
will upgrade the quality of their multimedia supplements, student guides,
end-of-chapter problems and cases, test banks, Excel practice sets, etc.
In some accountancy courses, I think it is asking a lot of faculty to
maintain constantly-updated textbook materials. It may be much more efficient to
adopt a commercial textbook and then provide supplemental materials on topics
that are constantly changing.
The bottom line is that I think better use can be
made of faculty time then to pay them peanuts to develop high quality textbook
replacements.
Bob Jensen's threads on free textbook alternatives (which may not be
updated very often if updated at all) ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
The above page also provides links to faculty who extensively share their own
course materials for free.
Free videos and course materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
The above page also provides links to faculty who extensively share their own
course materials for free.
"Top 3 Rules for Good Facebook Manners," by Richie Frieman, Quick
and Dirty Tricks, December 2, 2011 ---
http://manners.quickanddirtytips.com/top-3-rules-for-good-facebook-manners.aspx?WT.mc_id=0
I added the above link to the Writing Forum on the AAA Commons ---
http://commons.aaahq.org/posts/c5fdcaace5
Jensen Comment
Another good manners idea is to give credit where credit is due, particularly on
heads up messages. However, when you have friends who often send you messages
you should understand their wishes. I have friends, often from CPA firms, who
send me messages that as a rule they would like me to post but not associate
their names with the posts.
And I have friends who send me messages who generally want me to give them
credit for their finds. For example, David Albrecht sometimes sends me humor
finds that he would like to have me give him credit for finding.
For example, a few days ago David sent me links to the following hilarious
videos:
http://www.youtube.com/v/gBnvGS4u3F0?hl=en&fs=1&autoplay=1
http://www.youtube.com/v/mgCIKGIYJ1A?hl=en&fs=1&autoplay=1
http://www.youtube.com/v/LuVPnW0s3Vo?hl=en&fs=1&autoplay=1
Bob Jensen's helpers for writers ---
http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries
CMS = LMS = Learning Management System ---
http://en.wikipedia.org/wiki/Learning_management_system
"A 'More Modern' LMS From Blackboard ," Chronicle of Higher
Education, February 8, 2012 ---
http://www.insidehighered.com/quicktakes/2012/02/08/more-modern-lms-blackboard
Blackboard today unveiled a “more modern” look for
its industry-leading learning management system, Blackboard Learn, which has
been criticized in some quarters for being hard to use and unappealing to
look at. The new interface is meant to “surface” some of the system’s
features — especially its real-time assessment tools — in the hope that
instructors will use them more frequently. The new design also puts an
emphasis on customization: a “course entry wizard” guides instructors
through the process of setting up courses “based on different pedagogical
models and content models,” according to Brad Koch, director of product
development. Afterward, instructors can manually rearrange items on their
course pages and select from a buffet of design themes (“pizzazz,” “coral,”
“mosaic,” etc.). Notably, the new interface will be capable of assuming the
form of the LMS interfaces for WebCT and Angel Learning, which Blackboard
bought years ago — a possible attempt to keep those clients as the company
begins to stop supporting the legacy versions of the WebCT and Angel LMS
products.
In recent months, competitors have attempted to
cast Blackboard as aesthetically retrograde and more concerned with the
needs of high-level administrators than those of individual instructors.
During a demo of the new interface last week, Ray Henderson, the president
of Blackboard Learn, said the company was aware of the knocks against its
interface. And while he insisted that back-end integrations with campus
information systems were still Blackboard’s trump card against more
lightweight entrants to the LMS marketplace, “We think design and user
experience [will only get] more important,” Henderson said.
Bob Jensen's threads on the history of CMS/LMS systems ---
http://www.trinity.edu/rjensen/290wp/290wp.htm
Bob Jensen's threads on Blackboard ---
http://www.trinity.edu/rjensen/Blackboard.htm
"ECONOMIC IMPACTS OF CAPITALIZING LEASES: THE ELF STUDY," by Anthony H.
Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, January 30,
2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/491#more-491
The Equipment Leasing & Financing (ELF) Foundation
issued a study on leases in December. We assume these elves were hoping
Santa would present them a gift of no amendments to lessee accounting.
After all, why report economic reality if you don’t have to?
Specifically, ELF issued “Economic
Impacts of the Proposed Changes to Lease Accounting Standard”
in an attempt to display the dysfunctional
consequences of the
FASB’s exposure draft on the topic. The
foundation empirically studied the impact of this proposal on more than
1,800 publicly traded companies. The results show deteriorations in
corporate balance sheets and income statements, so ELF concluded the new
lease accounting will be disastrous for the U.S. economy.
Before we lob grenades at the FASB for its lack of
support for capitalism, let’s take a closer look at the study and its
conclusions. When we do, we find biases and myths that render the report’s
conclusions worthless.
Let’s begin with the comment letters. The FASB
received about
800 letters on this leasing project; upon reading
them, one finds a number of concerns from the letter writers, including
ambiguities in the exposure draft, the need for more explanation, the
magnitude of implementation costs, and the problem of debt covenants. We
dismiss these concerns and the letters in general because corporate managers
acting in their self-interest have long orchestrated major campaigns to
smear the FASB whenever it attempted to improve financial reporting. The
number of letters doesn’t mean a thing; the source says it all.
While there are indeed some items that need
conceptual editing, and perhaps even some parts that could use more
explanations, these features too often are a smokescreen to force the FASB
to compromise its principles to better align with managerial objectives. As
to implementation costs, we think the argument silly for the necessary data
should already be collected if these firms have good internal control
systems, particularly in light of developing fair value disclosure
requirements. Any firm that does not currently assimilate these data is
admitting poor stewardship.
With respect to debt covenants, we thought that
corporate managers and general counsel would have figured out that one
should always include in these contracts a provision to hold accounting
methods constant. And surely, these highly compensated legal minds are
familiar with waivers and modifications of debt covenants, aren’t they? Any
firm foolish enough not to immunize itself contractually from accounting
changes deserves whatever consequences it faces.
With respect to the empirical analysis by ELF, for
the most part, it is well done and corresponds closely with academic
research over the last 30 years. In particular, ELF estimates the direct
and indirect impacts from the capitalization of leases. As other studies
have found, this research reports large increases to reported debt and some
decreases to net income because of the front-loading effect in capitalized
leases. Analysts (and our accounting students) have known this for
decades…there is no news here.
The report also points out that these effects vary
by industry and by firm. For example, the impacts are greatest for firms
such as CVS and Walgreen and for industries such as banking and airline.
The impact is smallest, of course, for those who do not employ leases.
For the U.S. economy, the study estimates the
addition of $2 trillion of reported debt, an 11 percent increase, and a
decrease in pre-tax income of 2.4 percent. ELF concludes that these effects
will have deleterious effects on the economy and thus recommends opposing
the FASB’s exposure draft. At this point, however, it confuses reported
items on the financial statements with real and fictional constructs. The
question the authors should be asking is whether the stuff currently omitted
from financial reports is real.
In particular, is the lease obligation that arises
in capital leases real? Of course. Does the non-capitalization of leases
change this? Of course not! Because the lessee has signed a contract with
a lessor that requires it to make certain future payments, the liability is
real whether or not the firm records it. That’s why sophisticated financial
analysts have been estimating lease obligations for at least two decades.
That’s why rating agencies have been estimating lease obligations for
several years. If you want to know the truth and the corporation does not
disclose the truth, sophisticated investors and their analysts will make
their own assessments and include them in their analyses.
Because of these changes in the reported numbers,
the ELF study group posits “induced impacts” and claims a variety of
dysfunctional consequences such as job losses and increased interest rates.
Unfortunately, because the researchers ignored the fact that many financial
analysts and investors already estimate the effects of leases and recast the
financial statements accordingly, these induced impacts are exaggerated and
thus misleading. Stock and debt markets already incorporate such
information into their models; therefore, the aggregate effects of
capitalizing leases are likely nil.
The authors mention the fact that capitalization
will make cash flow from operating activities higher, but they do not
emphasize it. We wonder whether this de-emphasis is because they don’t want
to report any positive effects from adopting this accounting proposal.
Further, if they continue to believe that markets are naïve in their
assimilation of financial information, they would have to conclude that
higher free cash flows imply higher stock prices.
Continued in article
"A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for
Leases," by the American Accounting Association's Financial Accounting
Standards Committee (AAA FASC): Yuri Biondi et al., Accounting Horizons,
December 2011, pp. 861-877
. . .
The committee members are in agreement about the
importance of lease accounting for users of financial statements. Overall,
we are pleased to see that this exposure draft introduces the “right-of-use”
model, rather than the ownership model, which has worked so poorly in
practice. Unfortunately, current lease accounting is plagued by loopholes,
transaction structuring, and other actions by management to circumvent the
intent of the standard. Preventing all transaction structuring is of course
a difficult endeavor. The ED makes a good effort at dealing with the current
problems of lease accounting, but some big loopholes (concerning especially
scope, SPE and intragroup operations, definition of lease term, discounting,
and executory contracts for services) remain that need to be closed off.
With regard to revaluation, we prefer the current FASB approach (impairment
testing), but are opposed to fair value assessments and reassessments that
create structuring opportunities.
The ED as currently specified is not ready for use
and needs significant modification. In response to comments from this
committee and others, the FASB/IASB have held a number of re-deliberation
meetings in 2011 and directed staff to re-examine several issues. Key focus
has been on the scope and definition of a lease, measurement of contingent
rentals, renewal options, revaluations, the discount rate to be used, lack
of consistency between the lessor and lessee accounting, and consistency
with current revenue recognition and financial statement presentation
projects.
As of March 27, 2011 (see
IASB 2011), the FASB/IASB have affirmed the scope
and definitions used in the lease ED, the need to distinguish a lease from a
service contract, the need to separate lease and non-lease components of a
contract, and to have two types of leases called finance leases (current
IASB terminology) and other than finance leases (like current operating
leases in U.S. GAAP). Additional clarification has been issued about the
discount rate to be used by the lessor and lessee (the rate charged by the
lessor to the lessee) though this is complicated because the lessor's rate
may not be known by the lessee. Additional guidance has also been issued to
count a renewal option in the lease term “when there is a significant
economic incentive for an entity to exercise an option to extend the lease.”
The need to align this standard with the revenue recognition, consolidation,
and financial statement presentation projects indicate that the board has
continued need for re-deliberation, and is struggling to construct a lease
standard that will achieve consistent and comparable financial reporting.
Yuri Biondi
(principle author), Robert J. Bloomfield,
Jonathan C. Glover, Karim Jamal, James A. Ohlson, Stephen H. Penman, Eiko
Tsujiyama, and T. Jeffrey Wilks
Bob Jensen's threads on lease accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases
Question About Accounting for Revenues
Who had the audacity to insult IFRS by saying:
It is easy to see that in the case of multiple elements, prescribing a
principles-based accounting with guiding implications is an unattainable goal.
Answer
American Accounting Association's Financial Accounting Standards Committee (AAA
FASC): James A. Ohlson, Stephen H. Penman, Yuri Biondi, Robert J. Bloomfield,
Jonathan C. Glover, Karim Jamal, and Eiko Tsujiyama
"Accounting for Revenues: A Framework for
Standard Setting,"
American Accounting Association's Financial Accounting Standards Committee (AAA
FASC): James A. Ohlson, Stephen H. Penman, Yuri Biondi, Robert J. Bloomfield,
Jonathan C. Glover, Karim Jamal, and Eiko Tsujiyama
Accounting Horizons, September 2011
http://aaajournals.org/doi/full/10.2308/acch-50027
This paper proposes an
accounting for revenues as an alternative to the proposals currently being
aired by the FASB and IASB. Existing revenue recognition rules are vague,
resulting in messy application, so the Boards are seeking a remedy. However,
their proposals replace the traditional criteria—revenue is recognized when
it is both “realized or realizable” and “earned”—with similarly vague
notions that require both the identification of a “performance obligation”
and the “satisfaction” of a performance obligation. Our framework aims for
the concreteness that yields practical accounting solutions. It has two
features. First, revenue is recognized when a customer makes a payment or a
firm commitment to pay. Second, revenue recognition and profit recognition
are combined, with profit recognition determined on the basis of objective
criteria about the resolution of uncertainty under a contract, and then
conservatively so. Two alternative approaches are offered: the complete
contract method (where profit is recognized only on the termination of a
contract) and the profit margin method (where a profit margin is applied to
recognized revenues throughout the contract as the contract profit margin
becomes clear. The latter requires resolution of uncertainty, so the
completed contract method is the default.
. . .
It is easy to see that in the
case of multiple elements, prescribing a principles-based accounting with
guiding implications is an unattainable goal. Suppose we start out with a
very simple setting in which the economics of the contract is fully certain.
This certainty does not tell us anything about how one is supposed to
allocate the total revenue to a given performance element, let alone how one
is supposed to allocate some expense to each and every element. The
allocation issues now introduce uncertainty in the income measurement, not
an appealing feature when there is no uncertainty in the first instance.
Again, of course, one can argue that argument is not fair insofar as it does
not deal with realities. That said, the point to be made here is that an
allocation on the basis of revenues (constant profit margin in case of
certainty) would seem to be of greater appeal than other alternatives.
The next point is now rather
obvious. A setting with multiple elements and uncertainties in total
contract price and total expense becomes very baffling. No wonder that GAAP
has developed standards on the basis of “types” of contracts as found across
industries. No other solution is available, as far as we are concerned.
A framework that focuses on
the decomposition of contracts into multiple performance elements cannot, in
our view, provide a solid foundation for revenue and expense measurement.10
The following prediction can be offered: if FASB and IASB retain the idea of
accounting for revenue recognition via multiple elements of performance
satisfaction, then whatever framework they come up with will lack in
operational implications when it comes down to working out specific
standards. In fact, we would argue that it is exceedingly unlikely that such
an approach can spell out useful benchmarks of how accounting should be done
in simple, baseline settings. Like Concepts Statement 5 on revenue
recognition, it will be long on some general characterizations of what
constitutes the governing ideas in revenue recognition, but short on
operational implications when it comes to the standard setting. Under these
circumstances, regulators will go on with their task without ever having to
refer to a framework that rules out certain kinds of accounting currently
prevalent. No reasonable practical precepts of accounting will be ruled out
and, thus, one can expect the occasional roles for the completed contract
method and profit margin methods.11 In sum, the idea of a standard setting
for revenue recognition without any prior constraints will remain firmly in
place.12
We should perhaps stress that
our critique of a “performance-based” accounting for revenues and related
expenses is not conceptual per se. To the contrary, we would argue that such
an approach to the accounting is sound, provided that the
performance-element is clearly observable and unambiguous as to what has
been performed, what it is worth to the contractor, and what the allocated
cost ought to be. In other words, the setting is such that one can, as a
practical matter, break the contract into smaller units without introducing
hard-to-resolve ambiguities. But this would seem to be the exception rather
than the rule, and one might reasonably argue that it is intrinsic to
contracts that they rarely can be split into objective “elements.” Customers
typically do not do so. Thus, one has to move away from
“performance-elements” and substitute the correlative, namely, customer
payments, and then address profit recognition as a matter of uncertainty
resolution. When everything is said and done, we think any accounting
standards dealing with revenue recognition will drift into this perspective
in practice.
CONCLUDING REMARKS
It is hard to avoid complex
accounting principles to the extent their dependence on transactions has to
pick up all sorts of fine print. Conversely, relatively straightforward
accounting principles require easy-to-understand events on which the rules
are based. One can think of this as reflecting a trade-off between
easy-to-understand and simple accounting, as opposed to more sophisticated
accounting that may pose considerable difficulties to implement and
appreciate. The former means that the accounting depends only on few basic
observable inputs, with a corresponding drawback that some economically
relevant aspects may be neglected by the accounting. A more sophisticated
accounting, by contrast, means that the accounting tries to pick up on a
large set of relevant features at the cost of making the accounting much
more subjective. Revenue recognition must deal with these issues, of course.
It should be fairly apparent that our tilt is toward a straightforward
accounting. We contend that a framework works best when it focuses on rules
with relatively straightforward inputs. With such a framework in place,
standard setters can proceed to address what refinements are advisable as
additional subtleties are introduced (such as industry and business models).
In sum, we believe it can be quite useful to settle certain recurring
revenue recognition issues up front in a concrete, easy-to-understand
manner.
In our
view, the FASB-IASB Exposure Draft is remiss on this dimension. It simply
does not pay enough attention to (1) what should be the basic transactions
and events on which the accounting must rest, and (2) how the input maps
into recognition and measurement rules. Discussion evolves over time, so
there is ample room for a “new-and-improved” FASB-IASB standard that differs
substantially from the current document.
Ernst & Young
Technical Line: Revenue recognition proposal - automotive
The Financial Accounting Standards Board (FASB) and the International
Accounting Standards Board (IASB) recently re-exposed their joint revenue
recognition proposal, which would converge revenue recognition guidance
under US GAAP and IFRS into a single model and replace essentially all
revenue recognition guidance, including industry-specific guidance.
This industry-specific publication supplements our Technical Line,
Double-exposure: The revised revenue recognition proposal,
and highlights some of the more significant implications that the latest
revenue recognition proposal may have on the
automotive sector.
Ernst & Young comments on FASB proposals on consolidation and accounting for
investment companies and investment property entities
In our comment letter on the
consolidation proposal, we express
support for the Board's efforts to more closely align the guidance in US
GAAP with IFRS and our belief that the proposed principal-agent guidance
would alleviate many concerns investors in the asset management industry had
with FASB Statement No. 167. Given that the proposal would substantially
reduce the differences between the two consolidation models in US GAAP, we
also encourage the Board to consider moving toward a single model.
In our letter on the
investment company proposal, we express
support for the objective of amending the investment company definition to
clarify whether an entity is within the scope of Topic 946. However, we
believe more outreach with preparers and users is critical to determine
whether the proposed changes are appropriate and respond to user needs. In a
related letter, we oppose creating specialized accounting for
investment property entities and
suggest that existing diversity in practice among real estate entities would
be better addressed by refining the definition of and accounting by an
investment company. We believe that a single set of criteria for investment
entities that measure their investments at fair value with all changes in
fair value recognized in net income would be preferable.
Deloitte's
IFRS Insights of Revenue Recognition ---
http://www.iasplus.com/insight/revenue.pdf
Bob Jensen's
threads on revenue recognition ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
How to paint rosy scenarios with principles-based artistic brushes
"IFRS Might Produce Better Earnings, Study Predicts," Compliance Week,
February 3, 2012 ---
http://www.complianceweek.com/ifrs-might-produce-better-earnings-study-predicts/article/226132/
Bob Jensen's
threads about principles-based versus rules-based (bright line) accounting
standards ---
http://www.trinity.edu/rjensen/Theory01.htm#BrightLines
"What You Can Learn From Mitt Romney's (203 page) Tax Return?"
WSJ via Paul Caron's Tax Prof Blog, January 29, 2011 ---
http://taxprof.typepad.com/
Wall Street Journal,
What You Can Learn From Mitt's Tax Return, by Laura Saunders:
Watch the Video ---
Click Here
http://online.wsj.com/video/heres-what-we-learned-from-romneys-taxes/C6F7C4F0-0431-4D69-90DB-7A6F3472EDCE.html?KEYWORDS=What+You+Can+Learn+From+Mitt+Romney%27s+Tax+Return
[Mitt
Romney's tax returns] lift the veil on how the wealthy can use the
tax code to their advantage. Here are some lessons the experts have
gleaned:
- Avoid salary, wages and tips to the extent possible
- Muni-bond interest isn't the be-all and
end-all
- Strive for "qualified" dividends
- If you have a "Schedule C" business, think twice before claiming a
home-office deduction
- Generate income from long-term capital gains
- Know the score on itemized deductions
- Capital gains and dividends can help trigger the AMT
- Beware of small benefits requiring large tax-prep efforts
- Offshore investments can save onshore taxes
Capital Gains Tax History and Debates ---
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
Jensen Comment
I think the rich should be taxed at possibly higher rates through a tougher
alternative minimum tax rather than increases in the capital gains tax. For
example, the AMT should be worked to include capital gains. The AMT
has a less direct impact on starving the nation's risk and venture capital relative to
increases in the capital gains tax. Increases in the capital gains tax simply
make it less profitable to risk savings for investments in new startup
businesses and expansion of small businesses as well as buying into risky IPOs.
Low capital gains taxes give some relief to investors for holding on to
long-term investments over decades of inflation such as selling farm land that
has been owned for 50 years. If capital gains rates are
increased they should be offset with inflation index adjustments much like we
see in certain types of investments like U.S. Treasury Inflation Protected
Securities (TIPS) investments ---
http://www.investopedia.com/terms/t/tips.asp
Also see inflation index bond ---
http://en.wikipedia.org/wiki/Inflation-indexed_bond
Current (low?) capital gains tax rates provide some inflation relief but in
many instances they are not sufficient to offset declines in the purchasing
power of the dollar between when an investment is purchased and when it is sold
decades later. There are some inflation protections (exclusions) for primary
residence homes but not for most other types of long-term holdings.
The problem is that there are so many loopholes in the U.S. Tax Code that
wealthy people will find other avenues to avoid or defer taxes other than
investing their capital in risky ventures and long-term ties ups of their
capital. Purportedly Warren Buffet has positioned himself so he will not have to
pay the Buffet Tax he proposes for other wealthy people. Wealthy people may have
many alternatives for shifting funds into better tax deals such as special
provisions for urban development and other sweet deals built in to current tax
rules.
Taxes need to be reformed, although I do not think the flat tax is the best
way to go about tax reform. There are too many externalities to be considered
before changing economic behavior in this nation so drastically in one swoop.
Bob Jensen's helpers for taxpayers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Writing Rules by Henry Miller, Elmore Leonard, Margaret Atwood, Neil
Gaiman & George Orwell ---
Click Here
http://www.openculture.com/2012/01/writing_rules.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
I added the above tidbit to the Writing Forum on the AAA Commons ---
http://commons.aaahq.org/posts/c5fdcaace5
Bob Jensen's helpers for writers are at
http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries
"Everybody: Singular or Plural," Grammar Girl, January 27, 2012
---
http://grammar.quickanddirtytips.com/indefinite-pronouns.aspx?WT.mc_id=0
. . .
When
it comes to indefinite pronouns,
grammarians disagree about whether words such as
everyone and somebody are singular or plural when you use
a pronoun to refer to them. Several listeners have recently asked about this
conundrum.
For example, Linda asks, “Is everyone and, likewise, everybody
singular or plural?” And Connie from College Station, Texas, asks, “Are you
hanging in there on pronoun references to singular forms such as
everyone and everybody?”
Although I'll focus on the words everyone and everybody,
the same rules apply to the words no one, nobody, anyone,
anybody, someone, and somebody. Earlier I stated that
grammarians don’t agree on the issue of indefinite pronouns. There are
actually two issues concerning this topic: Are the words everyone
and everybody singular or plural? And can I use a plural pronoun
(such as their) to refer to these words? Grammarians actually agree
that the words everyone and everybody are singular.
Grammar Girl (that is I!) herself explains the answer in
her book. She says, everyone sounds like
a lot of people, but in grammar land, everyone is a singular noun and takes
a singular verb. For example:
-
Everyone loves Squiggly. (This is right because everyone is
singular and paired with a singular verb, loves.)
-
Everyone are happy. (This is wrong because it's pairing the singular
noun everyone with a plural verb, are.)
-
Everyone hates
subject-verb agreement. (This is right because
everyone and hates are both singular.)
It’s OK to
hate subject-verb agreement, but sometimes you just have to do things you
don’t want to do. I promise to pick weeds if you promise to make sure your
subjects agree with your verbs. Now, if you’re in Britain, you don’t have to
worry so much about everyone and everybody because
sometimes they’re considered plural. In Britain, it’s standard to use
everyone and everybody with a singular verb and plural pronoun
(1).
Subject-Verb
Agreement
That's not
so in America, however. So we’re now ready to tackle the second question:
whether it’s OK to use the plural pronouns their, them,
and they to refer to everybody or everyone.
American grammarians don't agree on this issue. Some feel that if you can't
write, “Everyone are happy,” then you shouldn't be able to write, “Everyone
is putting a smile on THEIR face.” These grammarians cringe when they hear
the word their used this way.
The
root of this problem is that English doesn't have a word to refer to a
singular noun of
undetermined gender. As a solution, grammarians in
the past have suggested that writers use just his to refer to
everyone or everybody, but most now consider this solution to
be sexist. Some alternate his with her; some use the
phrase his or her. But I can’t imagine most of
you could comfortably utter the following sentence: “Everyone is putting a
smile on his or her face.” Therefore, I don’t recommend you use this type of
construction unless you want to sound like a crusty old curmudgeon.
Sticklers have to face reality, though. For example, noted grammarian Bryan
Garner has this to say about writers' tendencies to use their to
refer to these singular pronouns: “Disturbing though these developments may
be to purists, they’re irreversible. And nothing that a grammarian says will
change them (2).”
The
Write-Around
Grammarians agree that there is no perfect solution to this problem. I favor
the advice that Grammar Girl has given
in a previous episode.
One of her suggestions is to rewrite the sentence to avoid the problem. So
let’s go back to the problematic sentence we saw earlier: “Everyone is
putting a smile on their face.” This one is fairly easy to rewrite: you
could say, “Everyone is smiling.” Let’s make up another one: “Everyone had
their hands in their pockets because it was so cold.” It wouldn’t sound so
bad to write, “All the people had their hands in their pockets because it
was so cold.” Just make sure your rewritten sentence fits in with the other
sentences around it.
If rewriting isn't possible and the people you are writing for don't have a
style guide, Grammar
Girl suggested using “he or she if you want to
play it safe, or using they if you feel bold and are prepared to
defend yourself.”
The Curious Case of the Misplaced
Modifier
Finally, thanks again to today's guest-writer, Bonnie Trenga, who is the
author of
The Curious Case of the Misplaced Modifier and who
blogs at
http://sentencesleuth.blogspot.com.
I added the above tidbit to the Writing Forum on the AAA Commons ---
http://commons.aaahq.org/posts/c5fdcaace5
Bob Jensen's helpers for writers are at
http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries
"My Favorite Quotes about Teaching – Number Five," by Joe Hoyle,
January 26, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/01/my-favorite-quotes-about-teaching_26.html
"Exiting watchdog sees flaws in SEC's rulewriting," by Sarah N. Lynch,
Reuters, January 30, 2012 ---
http://www.reuters.com/article/2012/01/30/us-sec-cost-benefit-report-idUSTRE80T0IV20120130
In his final act before departing the U.S.
Securities and Exchange Commission on Friday, the agency's inspector
general, David Kotz, criticized how the agency analyzes the economic impact
of some of its Dodd-Frank rules.
Kotz's criticism, contained in a report, could have
ramifications for the SEC, which has lost several court battles over the
years because of flaws in how it demonstrates that the benefits of a rule
outweigh its costs.
"We found that the extent of quantitative
discussion of cost-benefit analyses varied among rulemakings," Kotz wrote in
his report. "Based on our examination of several Dodd-Frank Act rulemakings,
the review found that the SEC sometimes used multiple baselines in its
cost-benefit analyses that were ambiguous or internally inconsistent."
Last year, U.S. business groups successfully
convinced a federal appeals court to overturn one of the SEC's Dodd-Frank
rules that aimed to empower shareholders to more easily nominate directors
to corporate boards.
In rejecting the rule, the court said the agency
failed to properly weigh the economic consequences.
Some of the business groups, such as the U.S.
Chamber of Commerce, have since raised similar concerns with other
rulemakings pending before the SEC.
Congress passed the Dodd-Frank act in 2010 to more
closely police financial markets and institutions after the 2007-2009
financial crisis. The legislation gives the SEC responsibility to write
roughly 100 new rules.
Although the SEC is not subject to an express
statutory requirement to conduct a cost-benefit analysis of its rules, other
laws do require the agency to consider the effects of its rules on capital
formation, competition and efficiency.
In addition, the SEC must also follow federal
rulemaking procedures, such as providing the public with an opportunity to
comment on its proposals.
This is the second report Kotz has issued looking
at the quality of the SEC's cost-benefit analysis.
Both reports were issued after certain members of
the Senate Banking Committee, including ranking Republican Richard Shelby,
voiced concerns about whether regulators were adequately examining the
economic impact of Dodd-Frank rules.
To determine how well the SEC is faring, Kotz's
office retained Albert Kyle, a finance professor at the University of
Maryland's Robert H. Smith School of Business, to help carry out the review.
Friday's report covered a sample of Dodd-Frank
rulemakings, including a rule allowing shareholders a non-binding vote on
compensation, several asset-backed securities rules and two proposals
pertaining to the reporting of security-based swap data.
Kotz's report was critical of the agency in a
number of areas.
In one instance, the report cites a memo in which
former General Counsel David Becker gave his opinion that the SEC should do
thorough cost-benefit analyses on rules that are not explicitly required by
Congress.
Rules mandated by Congress, however, generally
would not need the same level of cost-benefit research, the memo said.
The report suggested that the agency should
reconsider these guidelines, or else it risks "not fulfilling the essential
purposes of such analyses."
SEC management, in a written response to the
report, disagreed with that point.
"We believe Professor Kyle's opinion fails to
appreciate both the practical limitations on the scope of cost-benefit a
regulator can conduct, and the distinct roles of Congress and administrative
agencies," they said.
Continued in article
Jensen Comment
The main problem of cost-benefit analysis of rules and laws arises mainly from
externalities and interactions (covariances) that are seemingly impossible to
measure. For example, Congress can study the direct revenue and cost impacts of
dropping mortgage interest deductions in computing income tax (possibly on a
flat tax basis), but it's seemingly impossible to measure the impact of such a
tax law change will have on families, home maintenance, and retirement savings.
For example, it's naive to assume that couples who elect to rent a home rather
than to buy a home because of the loss of a tax deduction will save an
equivalent amount each month toward a retirement nest egg.
Similarly, when the accounting standard setters finally agree on a new
standard for lease accounting, there may well be tremendous externalities in
such a major shift in accounting lease and ownership contracting, employment,
the business cycle, etc.
"Former Penn State Prof Charged With $3M Fraud," Inside Higher Ed,
February 1, 2012 ---
http://www.insidehighered.com/quicktakes/2012/02/01/former-penn-state-prof-charged-3m-fraud
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Elsevier Publishing Boycott Gathers Steam Among Academics," by Josh
Fischman, Chronicle of Higher Education, January 30, 2012 ---
http://chronicle.com/blogs/wiredcampus/elsevier-publishing-boycott-gathers-steam-among-academics/35216?sid=wc&utm_source=wc&utm_medium=en
Elsevier, the global publishing company, is
responsible for The Lancet, Cell, and about 2,000 other
important journals; the iconic reference work Gray’s Anatomy, along
with 20,000 other books—and one fed-up, award-winning mathematician.
Timothy Gowers of the University of Cambridge, who
won the Fields Medal for his research, has organized a boycott of Elsevier
because, he says, its pricing and policies restrict access to work that
should be much more easily available. He asked for a boycott in a
blog post on January 21, and as of Monday evening,
on the boycott’s Web site
The Cost of
Knowledge, nearly 1,900 scientists have signed
up, pledging not to publish, referee, or do editorial work for any Elsevier
journal.
The company has sinned in three areas, according to
the boycotters: It charges too much for its journals; it bundles
subscriptions to lesser journals together with valuable ones, forcing
libraries to spend money to buy things they don’t want in order to get a few
things they do want; and, most recently, it has supported a proposed federal
law (called the
Research Works Act) that would prevent agencies
like the National Institutes of Health from making all articles written by
its grant recipients freely available.
Hal Abelson, a professor of computer science at the
Massachusetts Institute of Technology and an open-publishing advocate,
signed the pledge and wrote that “With the moves of these megapublishers, we
[are] seeing the beginning of monopoly control of the scholarly record.”
Benjamin R. Seyfarth, an associate professor in the School of Computing at
the University of Southern Mississippi, wrote that “nearly all university
research is funded by the public and should be available for free.”
Continued in article
Jensen Comment
How Elsevier and various other oligopoly academic journals rip off campus
libraries ---
http://www.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals
You could join in on the boycott by requesting that your campus library
cancel its subscriptions to the following journals. However, this is probably
too extreme since virtually all the research published in these accounting
journals is not funded by taxpayers like the real science research in question.
Note especially that Elsevier publishes both the Journal of Accounting and
Economics (JAE) and Accounting, Organizations and Society (AOS).
You could join in on the boycott by requesting that your campus library
cancel its subscriptions to the following journals. However, this is
probably too extreme
Results 1 - 25 of 681 << Previous |
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Journal 1.
Critical Perspectives On Accounting
Journal
2.
Accounting, Organizations and Society
Journal
3.
Journal of Accounting and Economics
Journal
4.
The British Accounting Review
Journal
5.
The Real Life Guide to Accounting Research (Paperback Edition)
Book, 2008, by Christopher Humphrey
6.
Journal of Accounting and Public Policy
Journal
7.
The Real Life Guide to Accounting Research
Book, 2004, by Christopher Humphrey
8.
Advances in International Accounting
Book, 2007, by J. Timothy Sale
9.
An Accounting Thesaurus
Book, 1995, by Richard Chambers
10.
Research in Accounting Regulation
Book, 2007, by Gary Previts
11.
Journal of Accounting Education
Journal
12.
Research in Accounting Regulation, Volume 13
Book, 1999, by N. Chandar
13.
Advances in International Accounting
Book, 2006, by J. Timothy Sale
14.
Advances in Accounting
Book, 2006, by Philip Reckers
15.
Accounting and Business Valuation Methods
Book, 2007, by Malcolm Howard
16.
Accounting for Improvement
Book, 1996, by Sten Jonsson
17.
Accounting Forum
Journal
18.
International Journal of Accounting Information Systems
Journal
19.
Advances in Accounting
Journal
20.
China Journal of Accounting Research
Journal
21.
Accounting, the Social and the Political
Book, 2005, by Norman Macintosh
22.
The Evolution of International Accounting Standards in Transitional and
Developing Economies
Book, 1998, by V.K. Zimmerman
23.
UK Accounting Standards
Book, 2005, by Robert Kirk
24.
Advances in International Accounting, Volume 11
Book, 1998, by J.T. Sale
25.
Research in Accounting Regulation
Book, 2006, by Gary Previts
Advances in International Accounting
Book, 2003, by J. Timothy Sale
27.
Accounting for sustainable development performance
Book, 2007, by Jan Bebbington
28.
Advances in Accounting
Book, 2005, by Philip Reckers
29.
Challenge of Management Accounting Change
Book, 2003, by John Burns
30.
The International Journal of Accounting
Journal
31.
Management Accounting Research
Journal
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Advances in International Accounting
Book, 2001, by J. Timothy Sale
33.
Research in Accounting Regulation
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34.
Research in Accounting Regulation
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35.
Advances in International Accounting, Volume 10
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Journal of International Accounting, Auditing and Taxation
Journal
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International Accounting Standards
Book, 2007, by Paul Rodgers
38.
Advances in Accounting
Book, 2003, by Philip Reckers
39.
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40.
Journal of Contemporary Accounting and Economics
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42.
Advances in International Accounting
Book, 2004, by J. Timothy Sale
43.
Research in Accounting Regulation
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44.
Advances in International Accounting, Volume 13
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Research in Accounting Regulation
Journal
46.
Environmental Cost Accounting
Book, 2002, by Rupert Howes
47.
Advances in International Accounting
Book, 2005, by J. Timothy Sale
48.
Risk Accounting and Risk Management for Accountants
Book, 2008, by Dimitris Chorafas
49.
Advances in Accounting
Book, 2001, by Philip Reckers
50.
CIMA Official Exam Practice Kit Fundamentals of Management
Accounting 2011-2012 edition
51.
CIMA Revision Cards Fundamentals of Management Accounting 2011-2012 edition
Book, 2011
52.
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CIMA Official Study Text Fundamentals of Management Accounting 2011-2012 edition
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Management Accounting and Strategic Human Resource Management
Book, 2001, by John Innes
56.
Advances in Accounting
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57.
Management Accounting- Information Strategy: May 2002 Exam Questions & Answers
Book, 2002, by Graham Eaton
58.
Advances in Accounting
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59.
Handbook of Management Accounting Research
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60.
International Accounting
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61.
Accounting in a Nutshell
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62.
Advances in Accounting Behavioral Research
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CIMA Revision Cards Fundamentals of Financial Accounting
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64.
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CIMAstudy.com Fundamentals of Management Accounting
Book, 2009, by Jo Avis
66.
Handbooks of Management Accounting Research 3-Volume Set
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CIMA Official Study Text Fundamentals of Financial Accounting 2011-2012 edition
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68.
CIMA Official Study Text Test of Professional Competence in Management
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69.
CIMA Nov 2007 Q&A Test of Professesional competence in Management Accounting
Book, 2008, by Graham Eaton
70.
Management Accounting in Enterprise Resource Planning Systems
Book, 2009, by Severin Grabski
71.
Accounting for Risk in the NHS
Book, 2000, by P. Fenn
72.
Management Accounting in Small Growth Orientated Service Sector Businesses
Book, 2000, by L. Perren
73.
Management Accounting- Business Strategy May 2004 Exam Q&As
Book, 2004, by Graham Eaton
74.
Management Accounting- Case Study May 2004 Exam Q&As
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75.
Environmental Management, Environmental Accounting and Financial Performance
Book, 2000, by J. Toms
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Environmental Accounting for Sustainable Development
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Handbook of Management Accounting
Book, 2008, by Julia Smith
83.
Research in Accounting Regulation
Book, 2008, by Gary Previts
84.
Management Accounting
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Contemporary management accounting practices in UK manufacturing
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87.
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MANAGEMENT ACCOUNTING, HUMAN RESOURCE POLICIES AND ORGANISATIONAL PERFORMANCE IN
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92.
Risk and Management Accounting
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96.
Advances in Accounting Behavioral Research
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97.
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Book, 2010, by Walter Allan
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Management Accounting Case Study: Nov 2002 Exam Questions & Answers
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Management Accounting Official Terminology
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Success and Failure of Activity-Based Techniques
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Accountants' Response to Ethical Issues as Work
Book, 2000, by C. Fisher
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Humor for February 1-29, 2012
Forwarded by Paula
I just took a leaflet out of my mailbox informing
me that I can have sex at 79.
I'm so happy, because I live at number 71. So it's
not too far to walk home afterwards. And it’s the same side of the street. I
don’t have to cross the road!
February 6, 2012 message from David Albrecht
Bob
A friend sent these to me. They're pretty funny.
Dave
There are 3 of them, don't wanna miss any of them, they are a hoot and
short (about 30 seconds each).
http://www.youtube.com/v/gBnvGS4u3F0?hl=en&fs=1&autoplay=1
http://www.youtube.com/v/mgCIKGIYJ1A?hl=en&fs=1&autoplay=1
http://www.youtube.com/v/LuVPnW0s3Vo?hl=en&fs=1&autoplay=1
Forwarded by Paula
A lady goes to the bar on a cruise ship and orders a Scotch with two drops of
water. As the bartender gives her the drink she says 'I'm on this cruise to
celebrate my 80th birthday and it's today.' The bartender says 'Well, since it's
your birthday, I'll buy you a drink. In fact, this one is on me.' As the woman
finishes her drink the woman to her right says 'I would like to buy you a drink,
too.' The old woman says 'Thank you. Bartender, I want a Scotch with two drops
of water.' 'Coming up' says the bartender
As she finishes that drink, the man to her left says 'I would like to buy you
one, too.' The old woman says 'Thank you. Bartender, I want another Scotch with
two drops of water.' 'Coming right up' the bartender says.
As he gives her the drink, he says 'Ma'am, I'm dying of curiosity. Why the
Scotch with only two drops of water?' The old woman replies 'Sonny, when you're
my age, you've learned how to hold your liquor... Holding your water, however,
is a whole other issue.' '
OLD' IS WHEN.... Your sweetie says 'Let's go upstairs and make love' and you
answer: 'Pick one, I can't do both!'
OLD' IS WHEN... Your friends compliment you on your new alligator shoes And
you're barefoot! '
OLD' IS WHEN... A sexy babe or hunk catches your fancy ... And your pacemaker
opens the garage door!
OLD' IS WHEN... Going braless pulls all the wrinkles out of your face.
OLD' IS WHEN.... You don't care where your spouse goes ... Just as long as
you don't have to go along.
OLD' IS WHEN... You are cautioned to slow down by the doctor instead of by
the police
'OLD' IS WHEN.. 'Getting a little action' Means you don't need to take any
fiber today
OLD' IS WHEN... 'Getting lucky' means you find your car ... In the parking
lot.
OLD' IS WHEN... An 'all nighter' means not getting up To use the bathroom.
Forwarded by Gene and Joan
> > The reason the Irish celebrate St. Patrick's Day is because
> > this is when St.Patrick drove the Norwegians out of Ireland.
> >
> > It seems that some centuries ago, many Norwegians came
> > to Ireland to escape the bitterness of the Norwegian
> > winter. Ireland was having a famine at the time, and food was
> > scarce. The Norwegians were eating almost all the fish caught
> > in the area, leaving the Irish with nothing to eat but
> > potatoes. St. Patrick, taking matters into his own hands, as
> > most Irishmen do, decided the Norwegians had to go.
> >
> > Secretly, he organized the Irish IRATRION (Irish Republican
> > Army to Rid Ireland of Norwegians). Irish members of IRATRION
> > passed a law in Ireland that prohibited merchants from selling
> > ice boxes or ice to the Norwegians, in hopes that their fish
> > would spoil. This would force the Norwegians to flee to a
> > colder climate where their fish would keep.
> >
> > Well, the fish spoiled, all right, but the Norwegians, as
> > every one knows today, thrive on spoiled fish. So, faced with
> > failure, the desperate Irishmen sneaked into the Norwegian
> > fish storage caves in the dead of night and sprinkled the
> > rotten fish with lye, hoping to poison the Norwegian invaders.
> >
> > But, as everyone knows, the Norwegians thought this only added
> > to the flavor of the fish, and they liked it so much they
> > decided to call it "lutefisk", which is Norwegian for
> > "luscious fish".
> >
> > Matters became even worse for the Irishmen when the Norwegians
> > started taking over the Irish potato crop and making something
> > called "lefse".
> >
> > Poor St. Patrick was at his wit's end, and finally on March
> > 17th, he blew his top and told all the Norwegians to "GO TO
> > HELL". So they all got in their boats and emigrated
> > to Minnesota or the Dakotas---- the only other paradise on
> > earth where smelly fish, old potatoes and plenty of cold
> > weather can be found in abundance.
> >
> > The End.
> >
> > And now you know the true story.
Forwarded by Paula
Mildred, the church gossip, and self-appointed monitor of the church's
morals, kept sticking her nose into other people's business.
Several members did not approve of her extra-curricular activities, but
feared her enough to maintain their silence.
She made a mistake, however, when she accused Frank, a new member, of being
an alcoholic after she saw his old pickup parked in front of the town's only bar
one afternoon.
She emphatically told Frank (and several others) that every one seeing it
there would know what he was doing!
Frank, a former Marine and man of few words, stared at her for a moment and
just turned and walked away.
He didn't explain, defend, or deny. He said nothing.
Later that evening, Frank quietly parked his pickup in front of Mildred's
house.... walked home.... and left it there all night
History Repeating Itself
Greece is collapsing, the Iranians are getting aggressive, and Rome is in
disarray. Welcome back to 430 BC
John Cleese
Forwarded by Auntie Bev
ALERTS TO THREATS IN 2012 EUROPE : BY JOHN CLEESE
The English are feeling the pinch in relation to recent events in Libya, Egypt
and Syria and have therefore raised their security level from "Miffed" to
"Peeved." Soon, though, security levels may be raised yet again to "Irritated"
or even "A Bit Cross."
The English have not been "A Bit Cross" since the blitz in 1940 when tea
supplies nearly ran out. Terrorists have been re-categorized from "Tiresome" to
"A Bloody Nuisance." The last time the British issued a "Bloody Nuisance"
warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from "Pissed Off" to "Let's get the
Bastards." They don't have any other levels. This is the reason they have been
used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert
level from "Run" to "Hide." The only two higher levels in France are
"Collaborate" and "Surrender." The rise was precipitated by a recent fire that
destroyed France's white flag factory, effectively paralyzing the country's
military capability.
Italy has increased the alert level from "Shout Loudly and Excitedly" to
"Elaborate Military Posturing." Two more levels remain: "Ineffective Combat
Operations" and "Change Sides."
The Germans have increased their alert state from "Disdainful Arrogance" to
"Dress in Uniforms and Sing Marching Songs." They also have two higher levels:
"Invade a Neighbour" and "Lose."
Belgians, on the other hand, are all on holiday as usual; the only threat they
are worried about is NATO pulling out of Brussels .
The Spanish are all excited to see their new submarines ready to deploy. These
beautifully designed subs have glass bottoms so the new Spanish navy can get a
really good look at the old Spanish navy.
Australia ,meanwhile, has raised its security level from "No worries" to "She'll
be alright, Mate." Two more escalation levels remain: "Crikey! I think we'll
need to cancel the barbie this weekend!" and "The barbie is cancelled." So far
no situation has ever warranted use of the final escalation level.
-- John Cleese - British writer, actor and tall person.
A final thought -“Greece is collapsing, the Iranians are getting aggressive, and
Rome is in disarray. Welcome back to 430 BC”.
Humor Between February 1-29, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor022912
Humor Between January 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor013112
Humor Between
December 1-31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor123111
Humor Between November 1 and November 30, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor113011
Humor Between October 1 and October 31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor103111
Humor Between September 1 and September 30, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor093011
Humor Between August 1 and August 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor083111
Humor Between July 1 and July 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor073111
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 February 29, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://www.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
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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
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http://www.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
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Open Sharing Courses ---
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Bob
Jensen's Resume ---
http://www.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Accounting Educators)
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started
out as an accounting education technology Listserv. It has mushroomed
into the largest global Listserv of accounting education topics of all
types, including accounting theory, learning, assessment, cheating, and
education topics in general. At the same time it provides a forum for
discussions of all hardware and software which can be useful in any way
for accounting education at the college/university level. Hardware
includes all platforms and peripherals. Software includes spreadsheets,
practice sets, multimedia authoring and presentation packages, data base
programs, tax packages, World Wide Web applications, etc
Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners) http://pacioli.loyola.edu/cpas-l/
(closed down)
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Free
(updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
CPA
Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle ---
http://cpareviewforfree.com/
Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/

January 31, 2012
Bob
Jensen's New Bookmarks January 1-31, 2012
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
Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
Hasselback Accounting Faculty
Directory ---
http://www.hasselback.org/
Blast from the Past With Hal and Rosie Wyman ---
http://www.cs.trinity.edu/~rjensen/temp/Wyman2011.htm
Bob Jensen's threads on business, finance,
and accounting glossaries ---
http://www.trinity.edu/rjensen/Bookbus.htm
Accounting News Links ---
http://www.trinity.edu/rjensen/AccountingNews.htm
The new AAA Digital Library ---
http://aaajournals.org/
Issues and Resources from the AAA (Some New and Important Stuff) ---
http://aaahq.org/resources.cfm
AAA Newsroom ---
http://aaahq.org/newsroom.cfm
AAA Commons ---
http://commons.aaahq.org/pages/home
AAA Faculty Development ---
http://aaahq.org/facdev.cfm
AAA FAQs ---
http://aaahq.org/about/faq.htm
Listservs, Blogs, and Social Media ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Accounting Career Helpers and Links ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Bob Jensen's Helpers for Accounting Educators ---
http://www.trinity.edu/rjensen/Default3.htm
Free online courses, lectures, videos, and course materials from prestigious
universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Education Technology Links ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's Threads (with many links to resources for educators) ---
http://www.trinity.edu/rjensen/threads.htm
U.S. National Debt Clock ---
http://www.usdebtclock.org/
Also see
http://www.brillig.com/debt_clock/
Money Chart ---
http://xkcd.com/980/huge/#x=-8064&y=-2880&z=4
Thank you George Wright for the heads up.
How Income Taxes Work (including history) ---
http://money.howstuffworks.com/income-tax.htm
Why not start with the IRS? (The best government agency web site
on the Internet)
http://www.irs.gov/
IRS Site Map ---
http://www.irs.gov/sitemap/index.html
FAQs and answers ---
http://www.irs.gov/faqs/index.html
Taxpayer Advocate Service ---
http://www.irs.gov/advocate/index.html
Forms and Publications, click on
Forms and
Publications
IRS Free File Options for Taxpayers Having Less Than $57,000 Adjusted
Gross Income (AGI) ---
http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=104
Free File Fillable Forms FAQs ---
http://www.irs.gov/efile/article/0,,id=226829,00.html
Bob Jensen's tax filing helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Hint:
If you plan to cheat, use TurboTax since our U.S. Treasury Secretary in charge
of the IRS explained how to get away with cheating by using Turbo Tax ---
http://www.youtube.com/watch?v=eKVxGlkPRlo
Here's what happens if you don't use TurboTax
So why not the Turbo Tax Defense?
"Former Ohio State Bar President Gets One Year in Prison for Tax Fraud,"
by Paul Caron, Tax Prof Blog, January 19, 2012 ---
http://taxprof.typepad.com/
Leslie Hines, a former senior antitrust partner in
Thompson Hine's Cleveland office, was sentenced Tuesday to serve a year and
a day in prison in connection with his guilty plea on a federal tax fraud
charge, according to a press release issued by the Justice Department.
Federal prosecutors had been seeking a sentence of
up to 16 months in prison for Jacobs, who was charged last October with
filing false tax returns and overstating his business expenses by more than
$250,000.
According to court filings [PDF], Jacobs filed four
federal income tax returns between 2004 and 2007 that inflated his business
expenses by as little as $25,000 and as much as $94,000 in an effort to
lower the taxable income he collected from his Thompson Hine partnership.
Prosecutors said Jacobs's income in each of those years should have ranged
from $633,303 to $759,973.
Jensen Comment
A better lawyer would've embezzled more than that from clients.
Even a lousy accountant could've fabricated expense receipts better than that.
Hence Mr. Hines should've been either an accountant or a better lawyer.
Better yet he should've used the TurboTax Defense that works for big
crooks ---
Watch the video how how Mr. Hines should6ve
proceeded ---
http://www.youtube.com/watch?v=eKVxGlkPRlo
January 24, 2012 heads up from Barry Rice
Video 1
TurboTax SnapTax Mobile App - File Taxes on Your Android and iPhone!
http://www.youtube.com/watch?v=M-VyLXLAipg
Video 2
SnapTax From TurboTax Will Let You File Your Taxes From Your iPhone ---
http://www.youtube.com/watch?v=4jQ2xLQvbio
Jensen Advice
I instead recommend:
IRS Free File Options for Taxpayers Having Less Than $57,000 Adjusted
Gross Income (AGI) ---
http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=104
Free File Fillable Forms FAQs ---
http://www.irs.gov/efile/article/0,,id=226829,00.html
Some of the following science tutorial links might be useful resources in
accountancy PhD programs and PhD preparation programs such as the prep masters
degree program at BYU that won an AAA Innovation in Accounting Education Award.
These links are taken from the thousands of tutorial links at
http://www.trinity.edu/rjensen/Bookbob2.htm
The Sourcebook for Teaching Science: Employing Scientific
Methods ---
http://www.csun.edu/science/books/sourcebook/
Free Mathematics and Statistics Tutorials ---
http://www.trinity.edu/rjensen/Bookbob2.htm#050421Mathematics
Pathways to Science ---
http://www.pathwaystoscience.org/index.asp
Pathways to Science: STEM
http://www.pathwaystoscience.org
Life Sciences - FREE Teaching and Learning Resources ---
http://free.ed.gov/subjects.cfm?subject_id=54&toplvl=41
The Scientist --- Multimedia
http://the-scientist.com/category/multimedia/
STEM Planet ---
http://www.stemplanet.org/
Salvadori Center [STEM Education Resources] ---
http://www.salvadori.o
New York State STEM Education Collaborative
http://www.nysstemeducation.org/index.html
Afterschool Alliance: Afterschool and STEM ---
http://www.afterschoolalliance.org/STEM.cfm
I-STEM ---
http://www.istem.illinois.edu/index.html
Office of Science Education - LifeWorks ---
http://science.education.nih.gov/LifeWorks.nsf/feature/index.htm
Planet Earth ---
http://www.learner.org/resources/series49.html
Biography of an Experiment ---
http://www.haverford.edu/kinsc/boe/
What Do I Do Now? Laboratory Tales From Teaching Assistants ---
http://www.udel.edu/chem/white/C601/TA-Tales.pdf
Research Techniques Workbook Modules [biology]
http://biology.hunter.cuny.edu/tech/table_of_contents.htm
What is Bioinformatics? ---
http://abacus.bates.edu/bioinformatics1/
"Garage Demos": Physical models of Biological Processes
http://www.researchandteaching.bio.uci.edu/lecture_demo.html
Great Science For Girls ---
http://www.greatscienceforgirls.org/
Try Engineering ---
http://www.tryengineering.org
STEM Resources for Teachers and Students ---
http://www.thinkfinity.org/stem
Life Sciences Education (Journal) ---
http://www.lifescied.org/
NOVA: scienceNOW: Explore Teacher's Guides ---
http://www.pbs.org/wgbh/nova/sciencenow/educators/subject-anth.html
Nova Video: The Fabric of the Cosmos ---
http://www.pbs.org/wgbh/nova/physics/fabric-of-cosmos.html#fabric-time
NOVA: Journey of the Butterflies ---
http://www.pbs.org/wgbh/nova/nature/journey-butterflies.html
Center for Science & Technology Policy Research ---
http://sciencepolicy.colorado.edu/
National Institute of General Medical Sciences ---
http://www.nigms.nih.gov/Education/
The MacKinney Collection of Medieval Medical Illustrations
---
http://www.lib.unc.edu/dc/mackinney/
Tough Talk: A Toolbox for Medical Educators ---
http://depts.washington.edu/toolbox/
National Institutes of Health: Science Education: Research &
Training ---
http://www.nih.gov/science/education.htm
Biography of an Experiment ---
http://www.haverford.edu/kinsc/boe/
Research Techniques Workbook Modules [biology]
http://biology.hunter.cuny.edu/tech/table_of_contents.htm
What is Bioinformatics? ---
http://abacus.bates.edu/bioinformatics1/
"Garage Demos": Physical models of Biological Processes
http://www.researchandteaching.bio.uci.edu/lecture_demo.html
Case Studies in Primary Health Care ---
http://ocw.jhsph.edu/courses/casestudiesinphc/index.cfm
Teaching Medical Physics ---
http://www.nationalstemcentre.org.uk/elibrary/collection/565/teaching-medical-physics
Physics to go videos ---
http://www.physics.org/article-interact.asp?id=59
TSG@MIT Physics ---
http://scripts.mit.edu/~tsg/www/
The Richard Feynman Trilogy: The Physicist Captured in Three Films ---
Click Here
http://www.openculture.com/2012/01/the_richard_feynman_film_trilogy.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Celebrate Stephen Hawking’s 70th Birthday with Errol Morris’ Film, A Brief
History of Time ---
Click Here
http://www.openculture.com/2012/01/celebrate_stephen_hawkings_70th_birthday_with_the_errol_morris_film_of_ia_brief_history_of_timei.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Neil deGrasse Tyson on the Decline of Scientific Research in America ---
Click Here
http://www.openculture.com/2012/01/neil_degrasse_tyson_on_the_decline_of_scientific_research_in_america.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Findings (in medical research) ---
http://publications.nigms.nih.gov/findings/
Free Social Science and Philosophy Tutorials
---
http://www.trinity.edu/rjensen/Bookbob2.htm#Social
Video course covers Plato, Aristotle, Machiavelli, Hobbes, Locke, Rousseau,
and Tocqueville.
Introduction to Political Philosophy: A Free Yale Course"---
Click Here
http://www.openculture.com/2011/07/introduction_to_political_philosophy.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Also see the BBC's "Big Thinker" Lecture Series ---
Click Here
http://www.openculture.com/2011/07/bertrand_russell_bbc_lecture_series_.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Free Science and Medicine Tutorials ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Science
Healthy Sleep ---
http://healthysleep.med.harvard.edu/healthy/
Free Education Discipline Tutorials ---
http://www.trinity.edu/rjensen/Bookbob2.htm#EducationResearch
Thousands of links to free tutorials
http://www.trinity.edu/rjensen/Bookbob2.htm
Free online courses, lectures, videos, and course materials from
prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Big Brother Watch
"Hiding Income? Look Out, Here Comes the 1099-K What merchants need to know
about a new form that requires payment processors to report transactions to the
IRS," by Karen E. Klein, Bloomberg Business Week, January 24, 2012
---
http://www.businessweek.com/small-business/hiding-income-look-out-here-comes-the-1099k-01242012.html
Starting this month, business owners will begin
getting
new tax forms issued by their credit-card and
online-payment processors and intended to keep businesses from hiding
income. The form, called 1099-K, will document all 2011 transactions
processed for sellers with more than 200 transactions and $20,000 in annual
gross receipts. The IRS estimates that 53 million forms will be issued by
such processors as eBay, PayPal, and Amazon as well as credit-card
companies, says Steven Aldrich, chief executive officer of Outright.com,
which makes online bookkeeping applications for self-employed people and
small business owners. Aldrich spoke with Smart Answers columnist Karen E.
Klein about how small business owners should handle the new forms. Edited
excerpts of their conversation follow.
The new 1099-K requirement was signed into
law by President George W. Bush in 2008 but is just now taking effect. Why
is the government mandating this?
Electronic payments are a growing part of our
economy, but up to now they have not been officially reported to the IRS.
People were on their scout’s honor to report this income. This new form is
designed to help close the gap between what businesses and individuals owe
the IRS and what they actually pay. It is expected to bring about $9.5
billion into the U.S. Treasury over 10 years by taxing revenue flowing
through electronic networks.
That’s a big number.
It is a big number, but our concern is keeping the
burden on small business low enough so they don’t lose their competitiveness
and don’t have a big burden of extra time they have to put into dealing with
this. All businesses will get these, not just small businesses, but larger
businesses have got tax teams and people to handle these matters and small
business people usually do not. Our concern is that small business owners
could be distracted and worried when they get this form and not know what to
do with it.
This is going out for the first time to
individuals such as eBay and Etsy online sellers. Have they gotten any
notice about the form?
The payment processors were required to obtain
sellers’ tax identification numbers for these forms, so many of them sent
out notices last year when they were verifying the information and making
sure the right people got the right form.
What information will the form list?
It’s actually very simple. At the top is a box with
your total gross revenue for the year, processed by PayPal or whichever
payment processor you use. Beneath that box is a breakdown of revenue month
by month.
How is that number going to be compared
with what’s reported on an individual’s tax return?
The IRS will look at the gross sales amount
reported on the 1099-K and compare it with the total gross receipts reported
on an individual’s Schedule C. The amount on the tax return has to be at
least as much as what’s reported on the 1099-K.
The interesting thing is that these amounts
reported to the IRS are gross sales numbers. But businesses never actually
make their gross sales because of refunds, frauds, exchanges, and returns.
But none of those expenses are taken out of the gross sales amount.
And business owners don’t pay taxes on
gross income, but on net income.
Exactly. So it will be incumbent on the business
owner to take the gross amount reported on the 1099-K and capture all the
transaction fees, charges, and returns, in addition to the other expenses of
running their business, in their tax reporting.
Is that going to be a big burden for
micro-businesses?
It’s not going to be a big deal if you have good
record keeping. The problem is that most small business owners are still
using paper and pencil and spreadsheets to track their business data. This
reporting is really a clarion call to move those people into the digital
age. Certainly, if you’re taking electronic payments, you need to move to a
digital form of keeping your books.
Are there other pitfalls related to the
1099-K?
For service providers, like consultants, who are
taking advantage of electronic payment systems, they might get a
1099-MISC for some part of their consulting
revenue. But that income would also show up on the 1099-K if it was
processed electronically. That could result in double counting that income,
so that’s something to be very careful about, especially as more people in
the service industry are starting to use services such as PayPal or mobile
credit-card readers instead of taking cash or check payments.
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
"Note to a Former Student," by Joe Hoyle, January 21, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/01/note-to-former-student.html
Free CPA Review Courses and Practice Examinations (managed by
Professor Joe Hoyle) ---
http://cpareviewforfree.com/
Free accounting textbook from a generous accounting
professor ---
http://www.ibtimes.com/prnews/20081218/ny-flat-world-knowldg.htm
Also see
http://www.flatworldknowledge.com/Joe-Hoyle-Podcast
"Ernst & Young: Named Top Employer In 2012 Stonewall Workplace Equality
Index," by Erica deVry, Big4.com, January 20, 2012 ---
http://www.big4.com/ernst-young/eernst-young-named-top-employer-in-2012-stonewall-workplace-equality-index
The Stonewall Workplace Equality Index, which
showcases the UK’s top 100 public and private sector employers for gay,
lesbian, and bisexual staff, has named Ernst & Young Employer of the Year
for 2012, climbing from third place last year. The firm also received top
ranking in Stonewall’s inaugural ‘Global Best Practice Index’.
Commenting on Stonewall’s recognition, Harry
Gaskell, Managing Partner for Advisory and Head of Diversity and
Inclusiveness at Ernst & Young said:
“Being named the 2012 Employer of the Year is an
achievement that we’re very proud of. I’m really happy with the great
progress the firm has made since it first entered the Workplace Equality
Index in 2005 and look forward to continuing to champion diversity and
inclusiveness in 2012.”
Ernst & Young’s leading role in developing the
concept of inclusive leadership, its sponsorship of National Student Pride,
its engagement with clients about sexual orientation as a workplace issue,
and strong leadership driven from the top are some of the progressive
initiatives attributed to the firm’s success.
"Deloitte Given Perfect Rating on Human Rights Campaign Corporate Equality
Index," by Kalen Smith, Big4.com, January 13, 2012 ---
http://www.big4.com/uncategorized/deloitte-given-perfect-rating-on-human-rights-campaign-corporate-equality-index
The Human Rights Campaign has named Deloitte one of
the best places to work for the sixth year in a row. In their 2012 Corporate
Equality Index, the HRC noted that it gave Deloitte a 100 percent rating.
Deloitte chief talent officer, Jennifer Steinmann,
said that Deloitte is constantly working to provide a workplace that
employees will be proud of. Steinmann said that they offer a culture that
helps the LGBT community and encourages all of its employees to feel
accepted.
Steinmann said that Deloitte offers a number of
solutions to the variety of challenges they face as they strive to create an
environment that increases employee morale and gives all employees the
opportunity to thrive. Deloitte has used a number of Business Resource
Groups to educate employees and offer them the resources they need to
address the challenges they face in the workplace.
HRC is making its standards increasingly strict.
Due to the changes in their eligibility standards, about 50 percent of
companies have fallen off of the list. New standards include providing a
culture for members of the LGBT community and promoting company citizenship.
Steinmann and other representatives at Deloitte
state that they are proud of the fact that Deloitte has consistently earned
this recognition since 2006.
Bob Jensen's threads on the best places to work are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Question
Does the Nortel scandal reaffirm the PCAOB implication that Deloitte is the
worst of the Big Four auditing firms?
What happens when a company intentionally falsifies its restatements of
financial statements to the tune of $1 billion?
"Nortel executives shifted accounting funds to achieve results," by Janet
mcfarland, Globe and Mail, January 17, 2012 ---
http://www.theglobeandmail.com/report-on-business/nortel-executives-shifted-accounting-funds-to-achieve-results-crown/article2305453/
Nortel Networks Corp. executives knew as early as
the fall of 2002 that they were facing losses in the first half of 2003, but
manipulated accounting reserves to ensure a profit in the period so they
could trigger their “return to profitability” bonus payments, a Toronto
court heard Tuesday.
In his opening statement in the fraud trial of
three former Nortel executives, Crown attorney Robert Hubbard said the
executives even turned an unexpected profit into a loss in the final quarter
of 2002 because it came too early to trigger their bonuses.
“Contrary to Nortel’s own policy for closing its
books, senior executives solicited further [accounting] accruals from across
the company to turn a profit into a loss,” Mr. Hubbard told Mr. Justice
Frank Marrocco of the Ontario Superior Court.
Continued in article
Crown alleges Nortel CEO also falsified results restatement ---
http://www.theglobeandmail.com/report-on-business/crown-alleges-nortel-ceo-also-falsified-results-restatement/article2300479/
"Nortel's auditors flagged no fraud at company, defence lawyer says,"
The Canadian Press, January 19, 2012 ---
http://www.canadianbusiness.com/article/66615--nortel-s-auditors-flagged-no-fraud-at-company-defence-lawyer-says
Defence lawyers in the fraud trial of three former
Nortel Networks executives say the company's independent auditors gave their
stamp of approval to financial matters at Nortel.
The lawyers say that contradicts Crown allegations
the men were conspiring to defraud the company by cooking its books and
manipulating profit reports.
David Porter, counsel for Nortel's ex-CEO Frank
Dunn, says accounting firm Deloitte and Touche closely and continuously
reviewed and approved the finances of the fallen telecom equipment maker.
He says that external approval negates the Crown's
allegations the accused oversaw a widespread scheme to falsify Nortel's
records.
He says the kind of white collar crime ring
described by the Crown would be unprecedented and would have to involve
hundreds of accredited accountants at both Nortel and Deloitte.
Porter delivered opening arguments on behalf of all
three accused as the court hears from the defence after a 2 1/2 day opening
statement by the Crown.
Continued in article
Question
Does this reaffirm the PCAOB implication that Deloitte is the worst of the Big
Four auditing firms?
Personally, I doubt it since all four auditing firms seem to be making a lot
of mistakes lately.
"Deloitte Faulted by PCAOB Over Unresolved Audit Deficiencies," by
Jesse Hamilton, Business Week, October 17, 2011 ---
http://www.businessweek.com/news/2011-10-17/deloitte-faulted-by-pcaob-over-unresolved-audit-deficiencies.html
Deloitte & Touche LLP repeatedly failed to support
assumptions in audits examined in a 2007 inspection, the Public Company
Accounting Oversight Board said in the first public report of unresolved
deficiencies involving one of the so-called Big Four accounting firms.
The firm’s quality controls and independence
systems give “cause for concern,” the PCAOB said in its report, which was
released today. The Washington-based nonprofit, created in 2002 to oversee
audits of public companies after the collapses of Enron Corp. and WorldCom
Inc., gives audit firms at least a year to fix deficiencies and only
releases the reports in cases where auditors fail to make sufficient
improvements.
“These deficiencies may result, in part, from a
Firm culture that allows, or tolerates, audit approaches that do not
consistently emphasize the need for an appropriate level of critical
analysis,” the PCAOB said in the Deloitte report, which didn’t name the
clients involved in the cited audits.
The PCAOB in 2007 looked at Deloitte’s practices
through inspections at the company’s New York headquarters and 18 other
offices. The report made public today lays out instances in which the firm
insufficiently weighed clients’ valuation of assets and income-tax
assumptions. The watchdog also faulted Deloitte’s independence procedures,
saying it “has no formal system in place to monitor the services its foreign
affiliates actually perform.”
“In our drive for continuous improvement, we have
been making a series of investments focused on strengthening and improving
our practice,” Deloitte Chief Executive Officer Joe Echevarria said in a
statement. Echevarria, who has been with the firm since 1978, was elected to
the top job in April.
The disclosure isn’t a disciplinary action, said
Colleen Brennan, a PCAOB spokeswoman. Dozens of smaller registered public
accounting firms have had similar criticisms made public and have retained
their registration, she said.
The 2007 Inspection Report is at
http://pcaobus.org/Inspections/Reports/Documents/2008_Deloitte.pdf
Bob Jensen's threads about Deloitte ---
http://www.trinity.edu/rjensen/Fraud001.htm

"Fitch: Major Global Accounting Changes Hover as Standard-Setting Fatigue
Sets In," Market Watch, January 18, 2012 ---
http://www.marketwatch.com/story/fitch-major-global-accounting-changes-hover-as-standard-setting-fatigue-sets-in-2012-01-18
Thank you Patricia Walters for the heads up.
Once you suck at rating bonds enough, obviously the
next logical step is to start predicting the progress made by a couple of
rulemaking bodies who have a solid track record of stretching out a timeline
to nowhere:
Fitch Ratings expects the U.S. will still move
forward with plans to incorporate International Financial Reporting
Standards (IFRS) into U.S. GAAP, although in a prolonged, cautious and
incremental way, according to a new report. Fitch believes a renewed
emphasis on issuing converged, 'high quality' accounting standards and
the need to re-expose updated proposals for comments has significantly
slowed the completion of many accounting projects jointly initiated by
FASB and the IASB. The major priority projects initially scheduled for a
June 2011 completion are still at various stages of completion in 2012
and some will likely extend into 2013.
[via Fitch]
January 19, 2012 message from Pat Walters
Fitch Ratings has just issued its Global Accounting
and Financial Reporting Outlook for 2012. Among other topics, the report
summarizes the various approaches to incorporating IFRS into national
standards and which option is the likely one for the SEC (and why) as well
as what the SEC's options might be IF it decides to require or permit US
companies to use IFRS.
This paper doesn't take a position about whether
this is a good idea or not. It simply presents the options on the table,
makes assessments as to the likelihood that one would be taken, and assesses
the impacts of the various options.
I find the Fitch accounting reports to be well
thought out and well written. They are certainly accessible to students.
The report also compares the three FASB models
(current, 2010, revised/expected 2012) and IFRS 9 in a nice table.
On mandatory auditor rotation, the report concludes
"The proposal stands moer of a change to become final in the E.U., while
stiff resistance by accounting firms and issuers may prove to be too
formidable for the proposal to become law in the U.S."
Enjoy,
Pat
January 19, 2012 reply from Bob Jensen
Hi Pat,
Thank you for this. I agree that it is a very good summary document and
probably makes the best guess as the way "condorsement" will take place over
many years to come.
See the attached table.
I'm bothered by the lack of definition "country-specific" in terms of
condorsement. I assume the U.S. will be able to stay on LIFO since the U.S.
Tax Code is obviously country specific.
But there's a huge gray zone that bothers me. For example consider embedded
derivatives in financial instruments. IFRS 9 says to forget about hunting
for embedded derivatives since they are ipso facto (ha ha) insignificant.
Since U.S. companies deal in possibly more financial instruments that the
rest of the world combined, my prior experience with corporate executives
who have made presentations in some of my hedge accounting dog and pony
shows is that it is both common for financial instruments to have embedded
derivatives and that the risk metrics in the embedded derivatives frequently
differ from risk metrics in the host contracts.
If U.S. companies are in fact taking advantage of the IFRS 9 loophole to
hide risk, does this make the issue "country specific??
The embedded derivatives way to hide risk is only one of many other possible
"country specific" issues. Suppose U.S. companies begin taking misleading
advantage of the softness of IFRS 9 in testing for hedge effectiveness. This
is another huge loophole that will allow for hiding of risk if auditors go
soft on client efforts to declare questionable hedges as effective.
Actually the list of gray areas can possibly go on infinitum in terms of
what become "country specific" issues.
And worse, if there is too much condorsement on "country specific" issues
departures of U.S. IFRS from London IFRS grows wider and wider and wider.
This could become self-defeating in terms of the original intent of
convergences.
And if such gray zone condorsement catches on with over 100 other nations
who turn gooey on the way they define their "country specific" departures
from IFRS, then we're back to another tower of Accountancy Babel.
It appears to me that the major goal of having one set of worldwide
accounting standards always was and will forever be an impossible dream. But
then again, those of us that have a knee-jerk hatred for monopoly power are
greatly relieved.
Thanks again,
Bob Jensen
January 19, 2012 reply by Bob Jensen
Hi Saeed,
If the condorsement track is to be taken, there are two opposing
alternatives that must also be resolved by the SEC?
Alternative 1
Is the fundamental basis of accounting to be IFRS with condorsement
(country-specific) exceptions that are to be blended in piecemeal year after
year ad infinitum? And if so, when will the foundational shift to IFRS take
place?
Alternative 2
Is the fundamental basis of accounting to be the FASB Codification database
with IFRS substitutions to take place piecemeal year after year ad
infinitum? The issue of timing is less earth shaking in this latter
alternative for clients, professors, and students.
The big international auditing firms and the AICPA prefer Alternative 1
since that alternative will abruptly lead to hundreds of millions of dollars
more in up front revenues for IFRS client training courses, IFRS consulting,
and IFRS study materials relative to Alternative 2. And there will be fewer
differences accounting rules to contend with under Alternative 1 until the
condorsement exceptions are blended in piecemeal over the years.
Client and security analyst positions on these alternatives are harder to
predict and probably more varied. Alternative 2 will have many more delayed
expenses in IFRS training and software conversions. But many of the clients
want the marshmallow principles-based standards to get around the barbed
wire of FASB rules based standards. SEC studies to date reveal that security
analysts and investors probably favor the slower Alternative 2 track.
So we wait on pins and needles until the SEC can make up its mind!
We also wait on pins and needles until we get a working definition of
"country-specific."
Respectfully,
Bob Jensen
Question
What is the most downloaded article published by the Journal of Accounting
Research?
Answer
"International Accounting Standards and Accounting Quality," JAR, March 2008 ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2008.00287.x/full
It was at the JAR site on Wiley.com ---
http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291475-679X
Most Accessed
Most Cited
The Effect of SOX Internal Control Deficiencies on Firm Risk and Cost of Equity
HOLLIS ASHBAUGH-SKAIFE, DANIEL W. COLLINS, WILLIAM R. KINNEY JR, RYAN LAFOND
A September 2007 version of this paper may be downloaded free from SSRN ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=688041
Abstract:
We examine whether application of
International
Accounting
Standards is associated with
higher accounting
quality. The application of IAS
reflects the combined effects of features of the financial reporting system,
including standards, their
interpretation, enforcement, and litigation. We find that firms applying IAS
from 21 countries generally evidence less earnings management, more timely
loss recognition, and more value relevance of
accounting amounts than do a
matched sample of firms applying non-US domestic
standards. Differences in
accounting
quality between the two groups
of firms in the period before the IAS firms adopt IAS do not account for the
post-adoption differences. We also find that firms applying IAS generally
evidence an improvement in accounting
quality between the pre- and
post-adoption periods. Although we cannot be sure that our findings are
attributable to the change in the financial reporting system rather than to
changes in firms' incentives and the economic environment, we include
research design features to mitigate the effects of both.
Number of Pages in PDF File: 55
Keywords: IAS, IASB, International
Accounting
Standards,
International
Accounting
Standards Board,
International Financial
Reporting Standards
Jensen Comment
This article was written before changes were made in both IASB and FASB
standards. Some of these changes narrowed the differences between IASB and FASB
standards. Others widened these differences, particularly in the area of
accounting for derivative financial instruments and hedging.
"IFRS and US GAAP: Similarities and Differences"
according to PwC (2011 Edition)
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!
Note that warnings are given throughout the document that the similarities and
differences mentioned in the booklet are not comprehensive of all similarities
and differences. The document is, however, a valuable addition to students of
FASB versus IASB standard differences and similarities.
It's not easy keeping track of what's
changing and how, but this publication can help. Changes for 2011 include:
- Revised introduction reflecting the
current status, likely next steps, and what companies should be doing
now
(see page 2);
- Updated convergence timeline,
including current proposed timing of exposure drafts, deliberations,
comment periods, and final standards
(see page 7);
- More current analysis of the
differences between IFRS and US GAAP -- including an assessment of the
impact embodied within the differences
(starting on page 17); and
- Details incorporating authoritative
standards and interpretive guidance issued through July 31, 2011
(throughout).
This continues to be one of PwC's
most-read publications, and we are confident the 2011 edition will further
your understanding of these issues and potential next steps.
For further exploration of the
similarities and differences between IFRS and US GAAP, please also visit our
IFRS Video Learning Center.
To request a hard copy of this publication, please contact
your PwC engagement team or
contact us.
Jensen Comment
My favorite comparison topics (Derivatives and Hedging) begin on Page 158
The booklet does a good job listing differences but, in my opinion, overly
downplays the importance of these differences. It may well be that IFRS is more
restrictive in some areas and less restrictive in other areas to a fault. This
is one topical area where IFRS becomes much too subjective such that comparisons
of derivatives and hedging activities under IFRS can defeat the main purpose of
"standards." The main purpose of an "accounting standard" is to lead to greater
comparability of inter-company financial statements. Boo on IFRS in this topical
area, especially when it comes to testing hedge effectiveness!
One key quotation is on Page 165
IFRS does not specifically discuss the
methodology of applying a critical-terms match in the level of detail
included within U.S. GAAP.
Then it goes yatta, yatta, yatta.
Jensen Comment
This is so typical of when IFRS fails to present the "same level of detail" and
more importantly fails to provide "implementation guidance" comparable with the
FASB's DIG implementation topics and illustrations.
I
have a huge beef with the lack of illustrations in IFRS versus the many
illustrations in U.S. GAAP.
I
have a huge beef with the lack of illustrations in IFRS versus the many
illustrations in U.S. GAAP.
I have a huge beef with the lack of
illustrations in IFRS versus the many illustrations in U.S. GAAP.
Bob Jensen's threads on accounting standards setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
January 29, 2012 reply from Jagdish Gangolly
This business of using "most accessed" index to
measure anything, in my humble opinion, is meaningless. Given some time I
could write a simple program to fool the site (just as a hacker a long time
ago wrote a program to keep calling Jerry Falwell's donation hotline, and
Rev. Falwell was stuck with al the phone bills).
Besides, I am not sure downloads means much these
days. My own hard disk is cluttered with thousands of papers I downloaded
that I hoped to read before my time is up; cheap storage has made most of us
academics good packrats.
I think it is a Wiley gimmick to draw attention to
the journal, or a veiled attempt at advertising without appearing to have
done so.
There are other measures if one wants to study the
impact of publications, or measure the productivity of scholars. Here are a
few (by no means a comprehensive list):
1. Erdos number (or its cousin, the Kevin Bacon
number)
http://en.wikipedia.org/wiki/Erd%C5%91s_number
www.oakland.edu/enp
Measures structural relationships in the network.
In my view it is a very parochial measure.
(You can find your own Erdos number starting at
http://academic.research.microsoft.com/ . I tried
looking for mine, with some trepidation. My Erdos number is 4, which is not
bad at all for some one who was an accountant most of his career. ).
2. H-index (and its variants/relatives such as H-B
index, Durfee square, and Eddington number:)
http://en.wikipedia.org/wiki/Arthur_Stanley_Eddington#Eddington_number_.28cycling.29)
http://en.wikipedia.org/wiki/H-index
Measures impact as well as productivity
However, this index too can be misleading. For
example, the legendary French mathematician Evariste Galois had H-index of
2.
3. g-index
http://en.wikipedia.org/wiki/G-index
Measures productivity only based on publications
This too can easily be gamed.
4. Impact factor (
http://en.wikipedia.org/wiki/Impact_factor ) which
is based on the average number of citations per paper. This is a crummy
measure because the average cites per paper is known to be not normally
distributed (so arithmetic mean is a meaningless measure). Its distribution
is called Bradford distribution, which is an example of power law
distribution.
Most journals are measured by impact factors. So
there is a tendency to fiddle with things to make one look good (a la El
Naschie). In 2007, the journal "Folia Phoniatrica et Logopaedica" . fed up
with its low impact factor (0.66) published an editorial citing ALL papers
that it had published the previous 2 years. Their impact factor rose to 1.44
(See the Wikipedia article on impact factor). They were the Enron of
academic publishing, and paid dearly; they were excluded in the Journal
Citation Reports the following year.
Jagdish
Jagdish S. Gangolly
Department of Informatics
College of Computing & Information
State University of New York at Albany
Harriman Campus, Building 7A, Suite 220 Albany, NY 12222
Phone: 518-956-8251, Fax: 518-956-8247
Foreign Currency FX Converter --- http://www.xe.com/ucc/
Live Currency Converter ---
http://www.livecurrencyconverter.com/
Also see
http://www.oanda.com/currency/converter/
Affinity Fraud ---
http://en.wikipedia.org/wiki/Affinity_fraud
Ponzi Fraud ---
http://en.wikipedia.org/wiki/Ponzi_scheme
"Fleecing the flock The big business of swindling people who trust you,"
The Economist, January 28, 2012 ---
http://www.economist.com/node/21543526
WITH a nudge from their pastor, the 25,000 members
of the New Birth Missionary Baptist Church near Atlanta opened their hearts,
and their wallets, to Ephren Taylor. And why not, given his glittering
credentials? Mr Taylor billed himself as the youngest black chief executive
of a publicly traded company in American history. He had appeared on NPR and
CNN. He had given a talk on socially conscious investing at the Democratic
National Convention. Snoop Dogg, a rapper, had tapped him to manage a
charitable endowment.
So when Mr Taylor’s “Wealth Tour Live” seminars
came to town, faithful ears opened wide. Eddie Long, the mega-church’s
leader, introduced Mr Taylor at one event with the words: “[God] wants you
to be a mover and shaker…to finance you well to do His will.” Mr Taylor
offered “low-risk investment with high performances”, chosen with guidance
from God.
Divine inspiration, alas, has given way to legal
tribulation. For many investors, the 20% guaranteed returns proved illusory.
Mr Taylor (whereabouts unknown) stands accused of fraud in a number of
lawsuits. Bishop Long, a co-defendant, has urged Mr Taylor to “do the right
thing” and cover any losses. The charges are not the first blot on the
minister’s reputation: last year he settled for an estimated $15m-25m claims
that he had coerced young men into oral sex.
An essential element of Mr Taylor’s approach was to
make those he targeted want to invest in him personally, says Cathy Lerman,
a lawyer representing some of the victims. “He was a master of creating a
marketing presence. He would say: ‘If you want to check me out, just Google
me.’” He had no problem convincing them that he was an ordained minister,
even though he had no formal seminary training, according to court
documents.
It will take time to gauge the full extent of the
losses, not least because it will require untangling a web of companies,
some of them shells. Victims, many of whom entrusted their life savings to
Mr Taylor, are still coming forward. Some call him “the black Bernie
Madoff”.
Let us prey
Mr Madoff, whose victims lost perhaps $20 billion,
perpetrated the largest “affinity fraud” ever. The term refers to scams in
which the perpetrator uses personal contacts to swindle a specific group,
such as a church congregation, a rotary club, a professional circle or an
ethnic community. Once the scammer gains their trust, his scam spreads like
smallpox. Most affinity frauds are Ponzi schemes, in which money from new
investors is used to repay old ones, or is siphoned off by the promoters.
The Madoff fraud fed on multiple affinity circles:
wealthy Jews in Florida and Israel, country-club types and European old
money, lured with help from marketers running “feeder” funds. The
next-largest alleged investment fraud of recent years, the $7 billion
collapse of Allen Stanford’s empire, also concerned specific groups,
including the Latin American and Libyan diasporas and Southern Baptists. Mr
Stanford’s trial began on January 23rd. He denies wrongdoing.
Beneath the mega-scams swirls a mass of smaller
cons, spanning the world. Any close-knit community can be a target. Last
August a South Korean pastor was indicted for misappropriating 2.4 billion
Korean won ($2.3m) that the faithful had handed over to set up a Christian
bank. In Britain, Kevin Foster’s KF Concept targeted the former coal-mining
towns of South Wales, bilking more than 8,000 victims with the help of
glitzy roadshows.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Affinity fraud in some respects is related to audit firm fraud and
negligence. When the audit firms are the largest international accounting firms
we tend to trust their names and logos, sometimes at our own peril ---
http://www.trinity.edu/rjensen/Fraud001.htm
Question
Will the largest auditing firms ever really honor the spirit of their repeated
pledges of independence?
Why do they keep pushing toward the edge of the cliff known as audit firm
rotation?
"Someone Convinced KPMG and GE to End Their Little Loan Staff Arrangement,"
by Caleb Newquist, Going Concern, January 24, 2012 ---
http://goingconcern.com/post/someone-convinced-kpmg-and-ge-end-their-little-loan-staff-arrangement
Last fall, we reported that
KPMG had issued an internal preservation notice to
its employees in regards to "General Electric's Loan Staff Arrangements." As
you may remember, this arrangement consisted of KPMG employees being loaned
to GE to help supplement the work of the world's best tax law firm. Oh, and
KPMG is the auditor for GE. Last year, Francine
McKenna reported that this sketchy arrangement
included KPMG employees, "having GE email addresses, are supervised by GE
managers – there is no KPMG manager or partner on premises – and have access
to GE employee facilities." In short, she wrote, "KPMG should know better"
than try to pull this type of stunt on the PCAOB.
This morning,
McKenna reports on the latest development
on this little arrangement:
KPMG will no longer loan tax professionals to
GE during busy season, according to a source close to the situation.
KPMG was billing an extra $8-10 million, over and above the audit
each year, for the service. It looks like a regulator got to both
KPMG and GE, but quietly. I doubt we’ll ever see a public sanction
or fine from the PCAOB or the SEC for KPMG.
It's not immediately clear when the arrangement
ended but I can't imagine any of the staff being too broken up about
this. The partners, on the other hand...well, yeah, that's $10 million
in fees that will probably go away. If you ever worked under this
arrangement or have worked for another client under something similar,
email us your
story and any background you might have.
Continued in article
"KPMG Nixes GE Loaned Tax Staff Engagement," by Francine McKenna,
re:TheAuditors, January 26, 2012 ---
http://retheauditors.com/2012/01/26/kpmg-nixes-ge-loaned-tax-staff-engagement/
KPMG will no longer loan tax professionals to GE
during busy season, according to a source close to the situation. KPMG was
billing an extra $8-10 million, over and above the audit each year, for the
service.
Loaning, assigning, or “seconding” tax or any
“bookkeeping” staff to an audit client is prohibited by the Sarbanes-Oxley
Act of 2002 and by regulations that precede Sarbanes-Oxley. It looks like a
regulator got to both KPMG and GE, but quietly. I doubt we’ll ever see a
public sanction or fine from the PCAOB or the SEC for KPMG.
My story exposing this prohibited activity by an
auditor for an audit client was published in Forbes last March.
KPMG has been GE’s auditor for more than 100 years.
Former SEC Chief Accountant Lynn Turner was surprised and quite angered at
my revelation. In addition, Turner commented in his newsletter on an email I
received from the Carpenters Pension Fund after my column appeared at
Forbes.com. The pension fund sought to hold GE and KPMG accountable for
auditor independence and have a discussion at the annual meeting about
auditor rotation. They were blocked by GE and the SEC:
Continued in article
Jensen Comment
Recall that KPMG paid the largest fine ($456 million) in the history of
accounting firms for selling phony tax shelters and pledged to cut back on tax
consulting that tainted appearances of the firm's auditing independence.
Another KPMG defendant pleads guilty
of selling KPMG's bogus tax shelters
One of the five remaining defendants in the
government's high-profile tax-shelter case against former KPMG LLP employees is
expected to plead guilty ahead of a criminal trial set to begin in October,
according to a person familiar with the situation. The defendant, David Amir
Makov, is expected to enter his guilty plea in federal court in Manhattan this
week, this person said. It is unclear how Mr. Makov's guilty plea will affect
the trial for the remaining four defendants. Mr. Makov's plea deal with federal
prosecutors was reported yesterday by the New York Times. A spokeswoman for the
U.S. attorney in the Southern District of New York, which is overseeing the
case, declined to comment. An attorney for Mr. Makov couldn't be reached. Mr.
Makov would be the second person to plead guilty in the case. He is one of two
people who didn't work at KPMG, but his guilty plea should give the government's
case a boost. Federal prosecutors indicted 19 individuals on tax-fraud charges
in 2005 for their roles in the sale and marketing of bogus shelters . . . KPMG
admitted to criminal wrongdoing but avoided indictment that could have put the
tax giant out of business. Instead, the firm reached a deferred-prosecution
agreement that included a $456 million penalty. Last week, the federal court in
Manhattan received $150,000 from Mr. Makov as part of a bail modification
agreement that allows him to travel to Israel.
Paul Davies, "KPMG Defendant to Plead Guilty," The Wall Street Journal,
August 21, 2007; Page A11 ---
Click Here
Jensen Comment
The criminal case fell apart for complicated reasons, but that did not exonerate
KPMG as a firm nor return its $456 million settlement reached with the IRS.
After the 2005
$456 million settlement with the U.S. Treasury, the
Chairman and CEO of KPMG, Timothy Flynn, issued the
following Open Letter. Among other things, KPMG
announced it will almost entirely stop preparing tax
returns for "individuals."
August 29,
2005
AN
OPEN LETTER TO KPMG LLP'S CLIENTS
(from Timothy P. Flynn Chairman &
CEO KPMG LLP)
This is to
advise you that KPMG LLP (U.S.) has reached
an agreement with the U.S. Attorney's Office
for the Southern District of New York,
resolving the investigation by the
Department of Justice into tax shelters
developed and sold by the firm from 1996 to
2002. This settlement also resolves the
Internal Revenue Service's examination of
these activities.
As a result of
this settlement, KPMG LLP (U.S.) continues
as a multidisciplinary firm providing high
quality audit, tax, and advisory services to
large multinational and middle market
companies, as well as federal, state and
local governments.
The Public
Company Accounting Oversight Board (PCAOB)
has reaffirmed that the resolution of this
matter with the Department of Justice does
not affect the ability of KPMG to perform
quality audit services. Additionally, the
Department of Justice states in the
agreement that KPMG is currently a
responsible contractor and expressly
concludes that the suspension or debarment
of KPMG is not warranted. KPMG currently
audits the Department of Justice financial
statements.
Further details
on the resolution of this matter can be
found in the attached Media Statement
that the firm issued today; a Key
Provisions and Terms document
detailing the settlement; and a
Quality & Compliance Measures
document that provides an overview of the
quality initiatives the firm has undertaken
since 2002, including specific changes to
Tax operations.
KPMG accepts
the high level of responsibility inherent in
performing its role as a steward of the
capital markets. Let me be very clear: The
conduct by former tax partners detailed in
the KPMG statement of facts attached to the
agreement is inexcusable. I am embarrassed
by the fact that, as a firm, we did not
identify this behavior from the outset and
stop it. You have my personal assurance that
the actions of the past do not reflect the
KPMG of today.
I am proud to
be Chairman of this remarkable organization
and proud of the tremendous professionals of
KPMG. We are resolute in our commitment to
maintain the trust of the public, our
clients and our regulators. You have my
promise that, as our first priority, KPMG
will deliver on our commitment to the
highest levels of professionalism —
integrity, transparency, and accountability.
We truly
appreciate the strong support of our clients
throughout this investigation. Your Lead
Partner will be contacting you later to make
sure that you have the information you need
about this matter.
On behalf of
all of our partners and employees, thank you
for your continued support.
Timothy P. Flynn
Chairman & CEO
KPMG LLP
Attachments
following below:
Media
Statement
Key
Provisions and Terms
Quality & Compliance Measures
News |
For Immediate Release |
Contact: |
George Ledwith
KPMG LLP
Tel. (201) 505-3543 |
KPMG LLP STATEMENT REGARDING
SETTLEMENT
IN DEPARTMENT OF JUSTICE
INVESTIGATION
NEW YORK,
Aug 29 — KPMG LLP made the
following statement today in
regard to a resolution
reached by the U.S. firm
with the Department of
Justice in its investigation
into tax shelters developed
and sold from 1996 to 2002
and related conduct:
KPMG has reached an
agreement with the U.S.
Attorney's Office for the
Southern District of New
York and the Internal
Revenue Service, resolving
investigations regarding the
U.S. firm's previous tax
shelter activities.
"KPMG LLP is pleased to have
reached a resolution with
the Department of Justice.
We regret the past tax
practices that were the
subject of the
investigation. KPMG is a
better and stronger firm
today, having learned much
from this experience," said
KPMG LLP Chairman and CEO
Timothy P. Flynn. "The
resolution of this matter
allows KPMG to confidently
face the future as we
provide high quality audit,
tax and advisory services to
our large multinational,
middle market and government
clients."
As part of the agreement,
KPMG has agreed to make
three monetary payments,
over time, totaling $456
million to the U.S.
government. KPMG will also
implement elevated standards
for its tax business.
Under the terms of the
settlement, a deferred
prosecution agreement, the
charges will be dismissed on
December 31, 2006, when the
firm complies with the terms
of the agreement. Richard C.
Breeden has been selected to
independently monitor
compliance with the
agreement for a three-year
period.
All of the individuals
indicted today are no longer
with the firm. KPMG has put
in place a process to ensure
that individuals responsible
for the wrongdoing related
to past tax shelter
activities are separated
from the firm.
"As KPMG's new leaders, Tim
Flynn and I are extremely
proud of the 1,600 partners
and 18,000 employees of
today's KPMG," said John
Veihmeyer, KPMG Deputy
Chairman and COO. "Looking
toward the future, our
people, our clients and the
capital markets can be
confident that KPMG, as its
first priority, will deliver
on our commitment to the
highest levels of
professionalism."
With regard to claims by
individual taxpayers, KPMG
looks forward to resolving
the civil litigation
expeditiously and with full
and fair accountability.
The resolution of the
Department of Justice's
investigation into the U.S.
firm's past tax shelter
activities has no effect on
KPMG International member
firms outside the United
States. |
KPMG LLP SETTLEMENT WITH THE U.S.
DEPARTMENT OF JUSTICE
KEY PROVISIONS AND TERMS
SCOPE OF
SETTLEMENT
"Global
settlement" that resolves both the IRS
examination and the DOJ investigation into
the U.S. firm's past tax shelter activities
and related conduct.
STRUCTURE OF
AGREEMENT
KPMG
"Statement of Facts" accepting
responsibility for unlawful conduct of
certain KPMG tax leaders, partners and
employees relating to tax shelter
activities.
Deferred
Prosecution Agreement (DPA)
– Filing of
charges, directed to past tax shelter
activities.
– Dismissal
of the charges on December 31, 2006, when
KPMG has complied with the terms of the
agreement.
– The
agreement provides various remedies to the
government, including extension of the term,
should the firm fail to comply with the
agreement.
KPMG
currently audits the financial statements of
the Department of Justice. The Department of
Justice states in the agreement that KPMG is
currently a responsible contractor and
expressly concludes that the suspension or
debarment of KPMG is not warranted.
KEY CONDITIONS
TO BE MET BY KPMG LLP
Monetary
Payments
Fine of $128
million; restitution to the IRS of $228
million; and IRS penalty of $100 million.
Total of $456 million to the U.S.
government.
Timing: $256
million by September 1, 2005; $100 million
by June 1, 2006; $100 million by December
21, 2006.
Payments
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Out of the crooked timber of humanity, no straight
thing was ever made. -
Immanuel Kant
Apple Outsources Most of Its Manufacturing to Foreign Factories, Some of
Which Are Disgraces to Humanity
"The Cost of Doing Business: Foxconn, Apple and the Fate of the Modern Worker,"
by Dan Rowinski, ReadWriteWeb, January 27, 2012 ---
http://www.readwriteweb.com/archives/the_cost_of_doing_business.php
Ours is an imperfect
society. The nature of our reality, our desires and our need to possess,
while maintaining a façade of moral righteousness, puts us at odds with
the reality that exists within the systems we have created.
In recent days, the
character of our era of consumerism has been put in question. We want
what is new, shiny, fashionable. We want it now. With this desire we
turn our heads from the consequences it takes to produce our toys, our
symbols of status. When
The New York Times reports that our gadgets are made in Chinese
factories where working conditions can be horrendous,
we express outrage and tweet the article from our
iPads. The culture we have created comes with the cost of doing
business.
The Conditions at
Foxconn
The conditions at
Chinese factories that make our gadgets can be deplorable. Workers often
live in crowded dorms, work more than 60 hours a week, are punished with
physical labor and withholding of wages, according to The New York Times
report on conditions at Foxconn, which makes Apple's iPhones, iPad and
iPods. In a response to the article, Apple CEO Tim Cook sent
an email to Apple employees and the company
released a "Supplier
Responsibility Report." This is not a
discussion solely about Apple though. Apple is the most valuable company
in the world, so it naturally faces the most scrutiny. Other device
makers, such as Dell, Nokia, Motorola and Hewlett-Packard, are clients
of Foxconn as well.
Apple and Foxconn are
just two examples in a larger system. Companies have to weigh the cost
and benefits of the manufacturing process. This is not a new dilemma but
is a matter of fact within the economy created by the Industrial
Revolution. Nor is this quandary solely a matter of high tech devices.
Companies like Nike have been cited in the past for the conditions at
their manufacturing plants in Asia. How much do you really want to know
about the synthetic polymer that is the backbone of much of the world's
textile industry? What about the bread you eat, the TV you watch, the
socks you wear?
Framing the Utilitarian
vs. Deontological Conversation
"The mere knowledge
of a fact is pale; but when you come to realize your fact, it takes on
color. It is all the difference between hearing of a man being stabbed
in the heart, and seeing it done." - Mark Twain
Continued in article
Bob Jensen's threads on the dark side of technology are at
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Oh No! Firefox is (now was) my favorite browser on my old XP computer that is
still my favorite computer
Firefox Support Ending for Windows 2000, Windows XP Pre-SP2 ---
http://www.readwriteweb.com/hack/2012/01/firefox-support-ending-for-win.php
I have a new Windows 7 machine, but mostly I use it for radio!
Do you still have to be a techie who knows how to fool with the Windows
Registry to get a fixed menu bar with Internet Explorer 9?
"A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for
Leases," by the American Accounting Association's Financial Accounting
Standards Committee (AAA FASC): Yuri Biondi et al., Accounting Horizons,
December 2011, pp. 861-877
. . .
The committee members are in agreement about the
importance of lease accounting for users of financial statements. Overall,
we are pleased to see that this exposure draft introduces the “right-of-use”
model, rather than the ownership model, which has worked so poorly in
practice. Unfortunately, current lease accounting is plagued by loopholes,
transaction structuring, and other actions by management to circumvent the
intent of the standard. Preventing all transaction structuring is of course
a difficult endeavor. The ED makes a good effort at dealing with the current
problems of lease accounting, but some big loopholes (concerning especially
scope, SPE and intragroup operations, definition of lease term, discounting,
and executory contracts for services) remain that need to be closed off.
With regard to revaluation, we prefer the current FASB approach (impairment
testing), but are opposed to fair value assessments and reassessments that
create structuring opportunities.
The ED as currently specified is not ready for use
and needs significant modification. In response to comments from this
committee and others, the FASB/IASB have held a number of re-deliberation
meetings in 2011 and directed staff to re-examine several issues. Key focus
has been on the scope and definition of a lease, measurement of contingent
rentals, renewal options, revaluations, the discount rate to be used, lack
of consistency between the lessor and lessee accounting, and consistency
with current revenue recognition and financial statement presentation
projects.
As of March 27, 2011 (see
IASB 2011), the FASB/IASB have affirmed the scope
and definitions used in the lease ED, the need to distinguish a lease from a
service contract, the need to separate lease and non-lease components of a
contract, and to have two types of leases called finance leases (current
IASB terminology) and other than finance leases (like current operating
leases in U.S. GAAP). Additional clarification has been issued about the
discount rate to be used by the lessor and lessee (the rate charged by the
lessor to the lessee) though this is complicated because the lessor's rate
may not be known by the lessee. Additional guidance has also been issued to
count a renewal option in the lease term “when there is a significant
economic incentive for an entity to exercise an option to extend the lease.”
The need to align this standard with the revenue recognition, consolidation,
and financial statement presentation projects indicate that the board has
continued need for re-deliberation, and is struggling to construct a lease
standard that will achieve consistent and comparable financial reporting.
Yuri Biondi
(principle author), Robert J. Bloomfield,
Jonathan C. Glover, Karim Jamal, James A. Ohlson, Stephen H. Penman, Eiko
Tsujiyama, and T. Jeffrey Wilks
Bob Jensen's threads on lease accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases
The author of this particular case study is surprising at first blush.
But then the acronym ABC appears over and over.
ABC Costing ---
http://en.wikipedia.org/wiki/Activity-based_costing
"Case Study: When to Drop an Unprofitable Customer," Harvard
Business Review Blog, January 25, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/01/case_study_when_to_drop_an_unp.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
This fictionalized case study will appear in a forthcoming issue of
Harvard Business Review, along with commentary from experts and readers. If
you'd like your comment to be considered for publication, please be sure to
include your full name, company or university affiliation, and email
address.
As Tommy Bamford and Jane Oldenburg drove into the
visitor section of Westmid Builders' car park, Jane pointed out the man they
had come to see: Steve Houghton, Westmid's purchasing executive. He was in
front of the headquarters building, waving a greeting. Jane waved back to
her friend, whom she had known for decades, but Tommy scowled. He wasn't
looking forward to this visit. "Oh, come on," Jane said, nudging him. "Look
how friendly he is."
Tommy was a director and Jane was the Midlands
regional sales manager for Egan & Sons, a supplier of doors and staircases
to Westmid for 63 years. The two executives had to pause before crossing the
gravel road that ran through Westmid's grounds, because of the steady stream
of trucks traveling to and from construction sites around Birmingham and all
the way to London. Despite the heavy traffic that April morning, Tommy knew
that Westmid was hurting from the economic downturn in the UK. The company
was building only half as many housing units this year as it had during
recent boom times. With the steep falloff, Westmid was no longer Egan's
biggest customer, but it still retained considerable clout. Too much clout.
"I'm flattered by such an august delegation," Steve
said. "Shall we start with a tour?" Jane, a tiny and exuberant blonde with a
boy's haircut, happily agreed. She had been here many times, of course, but
Tommy was not a regular. Steve chatted away as he shuttled them in a little
electric vehicle past warehouses and outbuildings.
Jane had promised Tommy that a visit to Westmid
would change his view of the company. But he could not shake his newfound
awareness of the amount of money Egan was losing with Westmid — the
account's ratio of operating income to sales was a negative 28%. The two
companies had enjoyed a smooth relationship for decades, but Tommy strongly
believed the time had come to terminate it.
Steve kept glancing at Tommy during the tour. "You
look pale," Steve said at one point. "I hope my driving isn't making you
queasy."
"That's quite all right," Tommy said. "I've got a
strong stomach."
The Power of Customer Costing
Egan & Sons, founded in Birmingham in 1908, was hardly a sleepy company.
With three efficient plants staffed by 3,000 employees, it had reinvented
itself to become an innovative manufacturer of modular steel staircases and
fiberglass doors. Its accounting system, however, remained simple and
traditional. The weaknesses became apparent only in the mid-2000s, when
Chinese companies began to encroach on Egan's low end, severely undermining
profitability.
With careful study, Tommy had figured out that the
company's costing system had made it blind to its own operations: It
allocated factory overhead to products as a percentage markup over direct
labor costs, and corporate overhead as a percentage of sales. Thus, the
company could not accurately identify its costs for serving individual
customers or for designing and producing all the new products it had
recently brought to the marketplace. The lack of traceability and
transparency extended to the costs for specialized equipment that was used
only for particular products or customers.
Tommy, an avid reader of the business literature,
wanted Egan to adopt an
activity-based costing, or ABC, approach.
Enlisting several younger financial managers, he made the case to the
executive director, Wilfred Hammond, who approved the hiring of a consultant
with extensive experience in ABC. Tommy and the consultant assembled a team
that began by identifying the costs associated with each customer order —
starting from bidding, through raw-materials purchasing, production, and
delivery, and culminating with invoicing and collection.
With 6,000 SKUs and 2,500 customers, the team had
to crunch reams of data, but the basic ABC process was straightforward:
Calculate the hourly (capacity) cost of the resources that performed each
sales, production, administrative, storage, and distribution process and the
time that each order required at each stage. Before long, the team could
pinpoint the cost of every process performed for every customer and could
trace revenue deductions — discounts, allowances, promotions, and returns —
back to individual customers. These deductions, which totaled 12% of sales,
had previously been collapsed into a single line item in the P&L for each
customer.
At one point, Hammond had grilled Tommy about why
the project was taking so long and costing so much. Tommy responded that the
time and care were critical to producing valid, defensible numbers from
which he could initiate candid discussions with the least profitable
customers. Tommy also hoped to identify Egan's most profitable customers so
that sales managers might extend and deepen relationships with them.
The Art and Science of Rationalizing
It took four months for the ABC project's initial findings to emerge. And
they were shocking: Just 1% of Egan's SKUs accounted for 100% of its
operating profits. The most profitable 20% generated more than double that
amount, but the extra gains were canceled out by the company's unprofitable
products, which generated losses equivalent to 120% of profits. The customer
story was similar: The most profitable 1% of accounts generated 100% of
profits, and the top 10% accounted for nearly double that amount. The
remaining 90% of customers were either break-even or a drag on the bottom
line.
So Hammond formed a management team to take action
on the large number of unprofitable products and customers. At a "SKU
rationalization meeting," the team classified its money-losing SKUs into
four action categories: drop, reprice, redesign, or take no action (for
products that had been ordered by important customers or were unprofitable
only because of internal process inefficiencies). The company soon had a
plan to eliminate or modify nearly half of its 6,000 SKUs.
Tommy chaired a subsequent "customer
rationalization meeting," which he hoped would yield a similar consensus:
that Egan should sever ties with its loss-making customers — especially the
least profitable 1%, among them Westmid, whose accumulated losses cost Egan
40% of the company's profits.
Hammond was traveling and unable to attend the
meeting, so Jane had monopolized it. "Customers aren't SKUs — they're
relationships," she'd declared. "Some of these accounts are new ones with a
huge upside. Do we really want to cut them off? And Westmid — sure, it's
been tough going with them for the past few years, but things are starting
to improve. And look at our history together: 63 years! They've been hugely
profitable for us in good times, and they've stuck with us when lots of
other customers have turned to China. We can't just cut them off based on a
cost-accounting report."
Continued in article
Bob Jensen's threads on managerial and cost accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Frequent-flier miles clearly have
value — why else would people want them? But do they also represent taxable
income?
Citibank
seems to think so. It's sending tax forms to people who received thousands of
miles as a reward for opening a checking or savings account. Those forms value
each mile at about 2.5 cents and list the total dollar amount as miscellaneous
income.
This is news to tax pros.
"I've been practicing for 25 years and I've never had an instance where miles
have been treated as taxable," said Gregg Wind, a West Los Angeles certified
public accountant.
But he said that because Citi is reporting this as people's income to the
Internal Revenue Service,
customers may be on the hook for paying the taxes. "Otherwise," Wind said, "your
chances of being audited could go up."
As tax time rolls around, the question of whether airline miles are a form of
income is something that potentially affects millions of people. Miles are one
of the most common rewards doled out by credit card issuers.
Larry Fechter, 66, of Palm Springs was among numerous Citi customers who
received a Form 1099 in recent days. He opened a checking and a savings account
with the bank last summer after being promised 25,000
American Airlines
miles.
"The mileage was a very strong inducement," Fechter told me.
He said there was nothing in the original sales pitch that warned of the tax
consequences of accepting the miles. As such, Fechter said it was a big surprise
to get the form in the mail informing him that he has to pay taxes on $645 worth
of miles.
If he were in the 28% tax bracket, that would mean a payment of $180.60 owed to
Uncle Sam.
Adding insult to injury, Fechter said, his new Citi accounts paid less than $4
in interest on the cash he'd deposited.
"I'm shocked that they want me to pay taxes for mileage points," he said. "I've
never had to do that before with any company I've done business with."
And there's a good reason for that. In 2002, the IRS issued a policy brief
noting that because there are "numerous technical and administrative issues"
relating to miles, such as how they're valued and used, the agency "has not
pursued a tax enforcement program with respect to promotional benefits such as
frequent-flier miles."
"Consistent with prior practice," it said, "the IRS will not assert that any
taxpayer has understated his federal tax liability by reason of the receipt or
personal use of frequent-flier miles or other in-kind promotional benefits
attributable to the taxpayer's business or official travel."
In other words, the tax man won't come after you for undeclared miles.
Or will he?
Catherine Pulley, a Citi spokeswoman, cited the 2012 instructions for Form
1099-MISC, which state that income tax must be paid if at least $600 in "prizes
and awards" is received.
"The Internal Revenue Code recognizes rewards as taxable income," she said.
"This recognition by the Internal Revenue Code is disclosed to customers prior
to their election to participate in the promotion."
Not so much, actually. Buried in the fine print of Citi's letter offering the
frequent-flier miles, it says only that "customer is responsible for taxes, if
any." That's not quite the same as saying Citi will be ratting you out to the
IRS for receiving hundreds of dollars in miscellaneous income.
So where does the IRS stand on all this? I found the tax agency surprisingly
reticent on the matter of miles.
An IRS spokeswoman told me only that the 2002 policy brief "still stands." She
declined to comment on how this squares with the prizes-and-awards provision of
Form 1099, or what taxpayers should do in light of Citi's reporting their
airline miles as income.
Wind, the accountant, was stunned by Citi's defense of reporting miles as
taxable income. He said he couldn't think of any instance in which miles would
be given out except as a prize or award.
"This opens up the notion that all miles are taxable," Wind said.
It does. And it's insufficient for the IRS to avoid taking a stand and to say
only that it won't go after people for failing to declare their frequent-flier
miles.
At the very least, the tax agency needs to clarify what happens when, as in this
case, a business declares your miles as income paid to you. What happens if you
don't do likewise?
As I say, this potentially affects millions of people — virtually anyone with
airline miles. It'd be nice to know where we all stand.
Jensen Comment
I searched for “frequent flier miles” in the IRS Website and found no hits of
relevance on this issue.
There are some huge
issues to consider here. If frequent flier miles are to be taxable, are they to
be taxed when awarded or when they are used in lieu of cash for airline tickets?
It would seem that when the taxpayer is a cash basis taxpayer, it would only
make sense to tax them if and when they are redeemed. Otherwise it would be a
complete mess to have to apply for refunds for miles that expire unredeemed.
This opens Pandora’s
Box to other types of redemptions. For example, every time I pay a Holiday Inn
bill I get Priority Club redemption points. However, there are conditions on
these points. Firstly, I have to have enough points for a free night. Secondly,
some deals require that I pay for additional nights at a hotel in order to
redeem my points for one free night. How can such points be “valued” for tax
purposes?
How do airlines account for the
liability for frequent flier miles?
United Airlines May 9, 2007
http://www.wikinvest.com/stock/United_Airlines_%28UAUA%29/Frequent_Flyer_Accounting
Frequent Flyer Accounting.
In accordance with fresh-start reporting, the Company revalued its frequent
flyer obligation to estimated fair value at the Effective Date, which
resulted in a $2.4 billion increase to the frequent flyer obligation. The
Successor Company also has elected to change its accounting policy for its
Mileage Plus frequent flyer program to a deferred revenue model. The Company
believes that accounting for frequent flyer miles using a deferred revenue
model is preferable, as it establishes a consistent valuation methodology
for both miles earned by frequent flyers and miles sold to non-airline
business partners.
Before the Effective Date, the Predecessor Company had used the historical
industry practice of accounting for frequent flyer miles earned on United
flights on an incremental cost basis as an accrued liability and as
advertising expense, while miles sold to non-airline business partners were
accounted for on a deferred revenue basis. As of the Effective Date, the
deferred revenue value of all frequent flyer miles are measured using
equivalent ticket value as described below, and all associated adjustments
are made to passenger revenues.
The deferred revenue measurement method used to record fair value of the
frequent flyer obligation on and after the Effective Date was to allocate an
equivalent weighted-average ticket value to each outstanding mile, based
upon projected redemption patterns for available award choices when such
miles are consumed. Such value was estimated assuming redemptions on both
United and other participating carriers in the Mileage Plus program, and by
estimating the relative proportions of awards to be redeemed by class of
service within broad geographic regions of the Company’s operations,
including North America, Atlantic, Pacific and Latin America.
Under the new method of accounting adopted for this program at the Effective
Date, the Company reduced operating revenue by approximately $158 million
more in the eleven months ended December 31, 2006 to account for the effects
of the program as compared to the reduction in revenues that would have been
recognized using the Predecessor Company’s accounting method. The Company’s
new accounting policy does not continue the use of the former incremental
cost method, which impacted revenues and advertising expense under that
prior policy. Assuming the use of the Predecessor Company’s accounting for
this program, for the eleven months ended December 31, 2006, the Company
estimates that it would have recorded approximately $27 million of
additional advertising expense.
The estimation of the fair value of each award mile requires the use of
several significant assumptions, for which significant management judgment
is required. For example, management must estimate how many miles are
projected to be redeemed on United, versus on other airline partners. Since
the equivalent ticket value of miles redeemed on United and on other
carriers can vary greatly, this assumption can materially affect the
calculation of the weighted-average ticket value from period to period.
Management must also estimate the expected redemption patterns of Mileage
Plus customers, who have a number of different award choices when redeeming
their miles, each of which can have materially different estimated fair
values. Such choices include different classes of service (first, business
and several coach award levels), as well as different flight itineraries,
such as domestic and international routings, and different itineraries
within domestic and international regions of United’s and other
participating carriers’ flight networks. Customer redemption patterns may
also be influenced by program changes, which occur from time to time and
introduce new award choices, or make material changes to the terms of
existing award choices. Management must often estimate the probable impact
of such program changes on future customer behavior using limited data,
which requires the use of significant judgment. Management uses historical
customer redemption patterns as the best single indicator of future
redemption behavior in making its estimates, but changes in customer mileage
redemption behavior to patterns which are not consistent with historical
behavior can result in material changes to deferred revenue balances, and to
recognized revenue.
Management’s estimate of the expected breakage of miles as of the
fresh-start date, and for recognition of breakage post-emergence, also
requires significant management judgment. For customer accounts which are
inactive for a period of 36 consecutive months, it has been United’s policy
to cancel all miles contained in those accounts at the end of the 36 month
period of inactivity. In early 2007, the Company announced that it is
reducing the expiration period from 36 months to 18 months effective
December 31, 2007. Under its deferred revenue accounting policy effective in
2006, the Company recognized revenue from breakage of miles by amortizing
such estimated breakage over the 36 month expiration period. However,
current and future changes to program rules, such as the recent change in
the expiration period, and program redemption opportunities can
significantly alter customer behavior from historical patterns with respect
to inactive accounts. Such changes may result in material changes to the
deferred revenue balance, as well as recognized revenues from the program. A
hypothetical 1% change in the Company’s estimated breakage rate, estimated
at 14% annually as of December 31, 2006, has approximately an $18 million
effect on the liability.
At December 31, 2006, the Company’s outstanding number of miles was
approximately 508.8 billion. The Company estimates that approximately 438.3
billion of these miles will ultimately be redeemed based on assumptions as
of December 31, 2006 and, accordingly, has recorded deferred revenue of $3.7
billion. A hypothetical 1% change in the Company’s outstanding number of
miles or the weighted-average ticket value has approximately a $42 million
effect on the liability. These assumptions do not include the impact of
reducing the expiration period from 36 months to 18 months.
From The Wall Street Journal
Accounting Weekly Review on December 8, 2006
TITLE: Making Use of
Frequent-Flier Miles Gets Harder
REPORTER: Scott McCartney
DATE: Dec 05, 2006
PAGE: D5
LINK:
http://online.wsj.com/article/SB116528094651740654.html?mod=djem_jiewr_ac
TOPICS: Accounting, Auditing
SUMMARY: The Department of Transportation (DOT) has undertaken audit
procedures on airlines to review how they are "living up to their 1999
'Customer Service Commitment.'" This document was written when "airlines
were under pressure from Congress and consumers for lousy service and long
delays" in order to "stave off new legislation regulating their business."
The airlines also report little about the frequent flier mile plans they
offer, and particularly focus only on the financial aspects of these plans
in their annual reports and SEC filings, rather than, say, information about
ease of redeeming miles in which customers may be particularly interested.
QUESTIONS:
1.) What information do airlines provide about frequent flier mileage
offerings and redemptions in their annual reports and SEC filings?
2.) Why is this information important for financial statement users? In
your answer, describe your understanding of the business model and
accounting for frequent flier miles, based on the description in the
article.
3.) Why did the Department of Transportation (DOT) undertake a review of
airline practices? What type of audit would you say that the DOT performed?
4.) What audit procedures did the airlines abandon due to financial
exigencies? What was the result of abandoning these audit procedures? In
your answer, describe the incentives provided by the act of undertaking
audit procedures on operational efficiencies and effectiveness.
Reviewed By: Judy Beckman, University of Rhode Island
"Making Use of Frequent-Flier Miles
Gets Harder Falling Redemption Rate Is One of Many Service Issues, Government
Report Find," by Scott McCartney, The Wall Street Journal, December 5,
2006; Page D5 ---
http://online.wsj.com/article/SB116528094651740654.html?mod=djem_jiewr_ac
Which airline is the most accommodating when
it comes to letting consumers cash in frequent-flier mileage awards? It's
hard to know, a new government report says, because airlines disclose so
little information.
One thing is clear: Over the past four years,
the percentage of travelers cashing in frequent-flier award tickets has
declined at four of the five biggest airlines, even though miles accumulated
by consumers have increased.
The Department of Transportation's inspector
general went back and checked how airlines were living up to their 1999
"Customer Service Commitment." Back then, airlines were under pressure from
Congress and consumers for lousy service and long delays, and they promised
reform to stave off new legislation regulating their business.
Seven years later, Inspector General Calvin L.
Scovel III found that under financial pressure, many airlines quit auditing
or quality control checks on their own customer service, leading to service
deterioration. Airlines don't provide enough training for employees who
assist passengers with disabilities, the investigation found, and don't
always follow rules when handling passengers who get bumped from flights.
And as travelers have long complained,
government auditors studying 15 carriers at 17 airports found airline
employees often don't provide timely and accurate information on flight
delays and their causes, and don't give consumers straightforward
information about frequent-flier award redemptions.
"They can do better and must do better, and if
they don't do better, Congress has authority to wield a big stick," said
U.S. Rep John Mica, the outgoing chairman of the House Aviation Subcommittee
who requested the inspector general's customer-service investigation. He
said he's eager to hear the airline industry's response before making final
judgments, but the report card gives airlines only "average to poor grades
in a range of areas that need improvement."
Since airlines are returning to profitability
and aggressively raising fares, there's more attention being paid to
customer-service issues. Delays have increased; baggage handling worsened.
As traffic has rebounded, airlines still under financial pressure because of
high oil prices may not have adequate staff to live up to the promises they
made on customer service.
The report called on the DOT to "strengthen
its oversight and enforcement of air-traveler consumer-protection rules" and
urged airlines to get back on the stick for customer service. The inspector
general also reminded consumers that since airlines incorporated the
customer-service commitment into their "contract of carriage" -- the legal
rules governing tickets -- carriers can be sued for not living up to their
customer-service commitment.
The industry says it is paying attention. The
inspector general's Nov. 21 report "is a good report card for reminding us
where we need to improve," said David Castelveter, a spokesman for the Air
Transport Association, the industry's lobbying group, which coordinated the
"Customer Service Commitment." Airlines will "react accordingly," he said.
One of the stickiest areas is frequent-flier
redemptions because airlines are loath to release detailed information about
their programs, considering it crucial competitive information.
Frequent-flier programs have become big money-makers for airlines since they
sell so many miles in advance to credit-card companies, merchants, charities
and others. That allows them to pocket cash years in advance of a ticket,
then incur very little expense when consumers eventually redeem the miles,
if they ever do.
In 1999, airlines pledged to publish "annual
reports" on frequent-flier redemptions. But at most carriers, the disclosure
didn't change at all. Today, as then, carriers typically bury numbers deep
in filings with the Securities and Exchange Commission and report only the
number of awards issued, the estimated liability they have for the cost of
awards earned but not yet redeemed and the number of awards as a percentage
either of passengers or passenger miles traveled.
The inspector general said the hard-to-find
information has only "marginal value to the consumer for purposes of
determining which frequent-flier program best meets their need."
What you'd really want to know is which
airline makes it easiest to get an award, particularly the cheapest domestic
coach ticket, typically 25,000 miles, which is the most popular award. But
airlines don't disclose how many awards are at the lowest level, and how
many consumers have to pay double miles or so for a premium award of an
"unrestricted" coach ticket.
The award market follows ticket prices and
availability, so recent years have seen an increase in the price people have
to pay to get the awards they want, and less availability of award seats,
particularly at the cheapest level, because some airlines have cut capacity
and demand for travel has been strong. Add in the flood of miles airlines
are issuing, and the value of a frequent-flier mile has declined sharply.
The inspector general's report compares
award-redemption rates at big airlines over the past four years and found a
relatively steady drop at four carriers: UAL Corp.'s United Airlines,
Continental Airlines Inc., AMR Corp.'s American Airlines and Northwest
Airlines Corp. US Airways Group Inc. actually saw higher rates of redemption
in 2005 than in 2002, and Delta Air Lines Inc. was unchanged. Both Delta and
US Airways had higher redemption rates than competitors.
to claim short-trip tickets, adding more seats
to award inventory this fall and offering a new credit card with easier
redemption features. Northwest said its numbers have remained relatively
consistent -- roughly one in every 12 seats is a reward seat.
Other airlines said declining redemption rates
result from factors including an increase in paying customers, fuller planes
and shifts in airline capacity. American says the number of awards it has
issued has remained fairly constant, and while the number of passengers it
carries has climbed, its seat capacity hasn't. In addition, several airlines
said customer preferences like using miles for first-class upgrades or
hoarding miles longer to land big international trips can affect the
redemption rate. "Reward traffic does not spool up and absorb capacity
increases as fast as revenue traffic does," said a Continental spokesman.
Those numbers don't include awards that their
customers redeem on partner airlines, so some of the decline could be
attributable to an increase in consumers' opting to grab award seats on
foreign airlines or other partners, says frequent-flier expert Randy
Petersen. American, for example, does disclose more redemption data on its
Web site and showed that last year, it issued more than 955,000 awards for
travel on its partners, compared with the 2.6 million used on American and
American Eagle flights.
"The data can be misleading," said Mr.
Petersen, founder of InsideFlyer.com. He'd like to see more data, including
numbers on how many customers made requests but couldn't find seats.
But further disclosure is unlikely to happen
unless the government forces it. "Left to their own devices," said Tim
Winship, publisher of FrequentFlier.com, "I see no reason to expect airlines
to step up and disclose more."
PwC Settles for a hefty $41.9 million for "overbilling"
PricewaterhouseCoopers LLP agreed to pay $41.9
million to settle charges it overbilled government agencies for travel
expenses, the Justice Department said. The department alleged the
company failed to disclose rebates it received from credit-card
companies, airlines, hotels and rental-car agencies and didn't reduce
reimbursement claims accordingly. PricewaterhouseCoopers didn't admit to
any wrongdoing and said the policy that gave rise to the matter was
changed in 2001. In late 2003, PricewaterhouseCoopers settled its share
of a class-action lawsuit filed in state court in Arkansas that accused
the company of overbilling corporate clients for travel-related
expenses.
"Pricewaterhouse Settles Charges," The Wall Street Journal, July
12, 2005; Page C12 ---
http://online.wsj.com/article/0,,SB112111341898682519,00.html?mod=todays_us_money_and_investing
Jensen Comment: PwC is not the only large firm of keeping travel
rebates secret from clients. You can read more about this question
of ethics below.
While many filings in the Texarkana case are
under seal, one internal PricewaterhouseCoopers document from October 1999
estimated the firm's annual credits from travel rebates at $45 million,
mostly from postflight rebates on airline tickets. As an example, the
court record contains a December 1999 contract under which Budget Rent A
Car Corp. agreed to pay PricewaterhouseCoopers a rebate equal to 3% of all
rental revenue that Budget received from the firm, if annual sales to
PricewaterhouseCoopers topped $15 million. The plaintiff in the Texarkana
case has alleged that some of the firms' airline rebates topped 40% of the
plane tickets' purchase prices.
Jonathon Weil, The Wall Street Journal, September 23,
2003 ---
http://online.wsj.com/article/0,,SB106452493527358700,00.html?mod=todays%255Fus%255Fmoneyfront%255Fhs
Note from Bob Jensen: This is a
classic problem of ethics. The issue is not so much what the largest
accounting firms are/were doing before they got caught (I guess most have
stopped doing it now). It’s more of a matter of keeping it secret
from their clients, potential clients, and the public in general.
For example, many (most) of us get frequent flier miles when we bill our
airline tickets to universities and other organizations that pay our air
fares. However, it's no big secret that we get those frequent flier
miles. Some of us also get credit card rebates if we pay with credit
cards such as Discover Card. This is a bit more of a gray area, but
if the price is the same no matter how we pay the bill, I guess we can
hold our head high and declare that we are not ripping off anybody as long
a another form of payment would not reduce the bill. However, what
the large accounting firms have been doing around the world for travel
billings is a much more controversial matter of ethics.
The above article
notes how the Justice Department is investigating this rip off (my words)
in more than just one of the large accounting firms. What gets me
about the above revelation of the magnitude of this scheme is the
hypocritical aspect in which large accounting firms are now preaching
virtue but still show signs of practicing vice after all the scandals.
Sometimes it seems they are not really listening to Art Wyatt's advice
quoted above.
Question
When is the last time you ever heard of taxes being lower in Massachusetts, New
York, and California?
Thank you Paul Caron for the heads up.
"NFL Final Four: Boston, New York, and San Francisco Trump Baltimore in
Lower Taxes," by Steve H. Hanke and Stephen J.K. Walters, The Wall Street
Journal, January 21, 2012 ---
http://online.wsj.com/article/SB10001424052970204468004577167283166176946.html?KEYWORDS=nfl
This Sunday's NFL championship games have it all:
future Hall-of-Famers in abundance, jet-fueled offenses, bone-crushing
defenses, and even a pair of coaches vying to bring a sibling rivalry to
Super Bowl Sunday in two weeks.
And if you're a fan of cities more than their
sports teams, you know that these games feature genuine superstars: Boston,
New York and San Francisco are magnets to residents and employers, engines
of prosperity, and league leaders on any quality-of-life measure.
Then there's our hometown. Baltimore is in need of
a strategy for urban revival—the type of elixir that turned the other three
cities around.
Some historical perspective is in order. Three
decades ago, none of these cities worked very well and all were losing
residents. Between 1950 and 1980, New York's population declined 10%, San
Francisco's 12%, Baltimore's 17% and Boston's an astounding 30%.
These losses were accompanied by steady erosion of
each city's job base, rising crime, declining school quality, and a sense
that cities themselves might be passé. Many embraced the notion that the
post-World War II exodus from core cities was a result of racism (fueling
"white flight") or Americans' unfortunate taste for detached homes and
expansive lawns.
Then, around 1980, some cities that had been in
decline enjoyed dramatic reversals of fortune. Between 1980 and 2010,
Boston's population grew 10%, New York's 16%, and San Francisco's 19%. But
Baltimore continued its descent, losing another 21% of its residents.
Did those in turnaround cities magically discover
the virtues of racial diversity or high-density living? Or did their leaders
heed the lessons of previous decades and correct policy errors that had
contributed to urban decay?
Neither. There was no sudden change in the cultures
of the cities that would become superstars, and no real awareness among
their governing elites that they were doing anything wrong. But their most
damaging policy reflexes were, in fact, altered—against their will.
All these cities had long pursued progressive
political agendas with pride. But the problem with redistributive policies
at the local level is that the donor classes might move out as fast as
beneficiary classes move in—or, as the population figures cited earlier
show, even faster. Robin Hood may seem a heroic figure, but once his rich
victims flee Nottingham, even that city's poor might question his
effectiveness. Related Video
Steve Hanke on why New York, Boston, and San
Francisco are flourishing while Baltimore is languishing.
San Francisco and Boston were rescued from their
folly by statewide tax revolts. California's Prop 13, passed in 1978, capped
property taxes in that state at 1%—which slashed San Francisco's rate by
almost two-thirds. Massachusetts followed suit in 1980 with Prop 2½, which
mandated that municipalities could not increase their total property tax
receipts by more than 2.5% annually. New York City taxpayers did not revolt,
but state legislators rationalized the Big Apple's chaotic property tax
system in 1981; it now enjoys property tax rates that average about
one-third of those in its surrounding suburbs (though its other taxes are
certainly punishing).
While no single factor explains any city's destiny,
it is not a mere coincidence that Boston, New York and San Francisco
reversed their declines at the exact moment they became favorable
environments for private investment in residential and business capital.
Every time a city raises the tax rate on
residential and business property, its owners suffer a capital loss (which
economists refer to as "tax capitalization"). In effect, tax hikes are
incremental expropriations; owners flee not just because of short-term
wealth losses but in fear of future damage to their property rights. Tax
caps not only improve the immediate cash flow on investments in real
property but—perhaps more important—secure it against further
expropriations.
Baltimore has blithely ignored basic
property-rights theory. When high property taxes chased many residents and
business owners to the suburbs, the city raised rates further. When
grandiose slum-clearance and transit plans destabilized neighborhoods,
Baltimore's one-party establishment arranged eminent-domain seizures and
pushed even more "big footprint" renewal projects.
The results leave no doubt about which strategy is
more effective. Baltimore's real, median household income has been stagnant
for the last three decades. New York's has risen 22% while Boston's and San
Francisco's have soared by half. Baltimore's 2009 homicide rate was 4.7
times Boston's and 6.7 times New York's and San Francisco's.
Even Baltimore's sports facilities, which many
assume have contributed mightily to our mythical renaissance, carry a
lesson. Boston, New York and San Francisco have all declined to build their
football teams new, lavish, government-financed stadiums within city limits.
They've nevertheless thrived.
Maryland taxpayers, on the other hand, gifted
Baltimore wonderful football and baseball stadiums near our Inner Harbor, on
the theory that "stimulating" downtown development would be a game-changer
that inevitably spread prosperity throughout the city. They're still hoping
for that change.
In this, Baltimore is no different from other
cities wedded to policies that repel investment. All try to make up for this
deficiency via capital allocation by government—and all show disappointing
results. As this weekend's championship cities demonstrate, greater respect
for private capital and some protections for the property rights of its
owners can have miraculous effects. Someday, even Baltimore might call that
play.
Jensen Comment
But when you compare states rather than cities, people and businesses are
exiting Taxachusetts, New York, and California to states having lower taxes. For
example, many very wealthy people (like Mitt Romney) now reside in New Hampshire
and commute or telecommute to Boston. Similarly, some wealthy people live in
Delaware and commute and telecommute to New York and Baltimore. They have to pay
state taxes on earned income within a state, but for very wealthy people earned
income is generally less than investment income such as income from tax exempt
bonds. The retired Barnie Frank, who is now quite wealthy, admits that a major
portion of his investment portfolio is in Mass. municipal bonds that are tax
exempt in his federal and state returns.
My good friend Bob Anthony, now deceased, made a lot of money on textbook
royalties and investment income. It didn't take much imagination to figure out
one of the major reasons he made New Hampshire his home state even when he was
on the full-time faculty of Harvard University for most of his career. I'm
not a wealthy man, but with my more modest savings in retirement it also does
not take a lot of imagination to figure out why I chose to retire in New
Hampshire rather than other states I considered such as the coast of Maine, the
lakes of northern Minnesota and Wisconsin, or wonderful retirement places in
northern California. The runner up retirement choice for me was the Nevada
shores of Lake Tahoe, but real estate prices were too steep for me in that
vicinity.
"States Where People Pay the Most (and Least) in Taxes,"
by Charles B. Stockdale, Michael B. Sauter, Douglas A. McIntyre, Yahoo
Finance, July 21, 2011 ---
http://finance.yahoo.com/taxes/article/113173/states-pay-most-least-taxes-247wallst
Bob Jensen's threads on taxation are at
http://www.trinity.edu/rjensen/BookBob1.htm#010304Taxation
Marginal Tax Rates Around the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html
"How Much the Rich Pay Mitt Romney, the 1% and taxes," The Wall
Street Journal, January 20, 2012 ---
http://online.wsj.com/article/SB10001424052970204555904577168683705018156.html?mod=djemEditorialPage_t
Mitt Romney's disclosure this week that his
effective federal tax rate is "probably closer to the 15% rate than
anything" has created the predictable political uproar. The White House and
its media allies figure they've now got their stereotype of the Monopoly
man, albeit without his cane and top hat, who they can crush in their
planned class-warfare campaign.
We're not sure if facts will matter in this
cacophony, but someone should at least try to introduce a little reality
into the debate, especially since Mr. Romney seems so unprepared to make the
case.
Start with the fact that, like Warren Buffett, Mr.
Romney said he makes most of his money from investments, not wages or
salary. Thus his income is really taxed twice: once at the corporate tax
rate of 35%, then again at a 15% tax rate when it is passed through to him
as dividends or via capital gains from the sale of stock.
All income from businesses is eventually passed
through to the owners, so to ignore business taxes creates a statistical
illusion that makes it appear that the rich pay less than they really do. By
this logic, if the corporate tax rate were raised to, say, 60% from today's
35% and the dividend and capital gains tax were cut to zero, it would appear
that business owners were getting away with paying no federal tax at all.

This all-too-conveniently confuses the incidence of
a tax with the burden of a tax. The marginal tax rate on every additional
dollar of capital gains and dividend income from corporate profits can reach
as high as 44.75% at the federal level (assuming a company pays the 35% top
corporate rate), not 15%.
The Congressional Budget Office recently examined
the distribution of federal taxes on various income groups. The report was
ballyhooed by liberals as proof of rising income inequality, but that
argument is for another day. What everyone has ignored is what CBO found
about the relative taxes paid by different groups. And, lo, the rich pay
more, which is probably why the press didn't report it.
The nearby table from the CBO report shows that in
2007 the average income tax rate paid by the 1% was 18.8%, compared to 4.2%
for Americans in a broadly defined middle class from the 21st to 80th income
percentiles. The poorest 20% on average paid a net negative income-tax rate
of 5.6% because of the checks they receive for tax credits that are
"refundable." These are essentially transfer payments redistributing income
from the rich and middle class to the poor.
As for all federal taxes, CBO found that in 2007
the top 1% paid an average rate of a little under 30%, compared to 15.1% for
middle-income earners. In calculating this overall tax burden, CBO takes
account of payroll taxes, which moves the rate of the lowest 20% of earners
into positive territory at 4.7%. CBO also apportions to individuals who are
shareholders the tax that corporations pay on corporate profits.
Continued in article
"Why Americans think the tax rate is high when it is not," The
Economic Times ---
http://economictimes.indiatimes.com/news/international-business/why-americans-think-the-tax-rate-is-high-when-it-is-not/articleshow/11568197.cms
When people heard that Mitt Romney's federal income
tax rate was about 15 per cent, the immediate reaction of many was to assume
that their own tax rate was higher. The top marginal rate is 35 per cent,
after all, and the marginal rate on a couple with $70,000 in taxable income
is 25 per cent.
But the truth is that most households probably pay
a lower rate than Romney. It is impossible to know for sure, given that he
has yet to release his tax return. What is clear, though, is that a large
majority of US households - about two out of three - pays less than 15 per
cent of income to the federal government, through either income taxes or
payroll taxes.
This disconnect between what we pay and what we
think we pay is nothing less than one of the country's biggest economic
problems.
Many Americans see themselves as struggling under
the weight of a heavy tax burden (partly for the understandable reason that
wage growth has been so weak). Yet taxes in the United States are quite low
today, compared with past years or those in other countries. Most important,
US taxes are not sufficient to pay for the programs that many people want,
like Medicare, Social Security, road construction and education subsidies.
What does this combination create? An enormous
long-term budget deficit.
Together, all federal taxes equaled 14.4 per cent
of the nation's economic output last year, the lowest level since 1950. Add
state and local taxes, and the share nearly doubles, to about 27 per cent,
according to the Tax Policy Center in Washington - still lower than at
almost any other point in the past 40 years.
As the economy recovers and incomes rise, tax
payments will increase somewhat. But they will not keep pace with projected
spending, in the form of Medicare, Medicaid and Social Security. And total
taxes at current rates would still make up a smaller share of the economy
than in virtually any other rich country - not just European nations but
also Australia, Canada, Israel and New Zealand.
Obviously, tax increases are not the only way to
solve the deficit. Spending cuts can, too. But so far, at least, many voters
seem to prefer small, symbolic cuts, like those to foreign aid. Substantial
cuts - be they the changes to Medicare that President Barack Obama included
in his health care bill or the Medicare overhaul that Republicans prefer -
tend to be politically unpopular.
Since the late 1970s, just before the modern
tax-cutting push began, total federal tax rates have fallen for every income
group. The payroll tax has risen, but declines in the income tax have more
than made up for those increases. Nearly half the population now pays no
federal income tax.
Most households pay less than 15 per cent of their
income to the federal government because of tax breaks, like the exclusion
for health insurance, and because marginal rates apply to only a small part
of a taxpayer's income. On the first $70,000 of a couple's taxable income,
the total federal income tax rate is only 13.8 per cent.
That said, taxes have fallen the most for the very
affluent. Romney and his father - George W. Romney, the former automobile
executive, Michigan governor and presidential candidate - do a nice job of
illustrating the change.
Continued in article
Jensen Comment
Of course rich and poor alike pay other taxes such as taxes at the fuel pump and
payroll deduction taxes if those ever come back (which seems increasingly
unlikely in our political dogfight). And there are serious ways to be mislead by
media-alleged tax rates. For example, do you compute the tax rate that you're
paying now on your own tax return on the basis of full gross income versus
adjusted gross income after exclusions and deferrals for such thinks as interest
on municipal bonds, 401-K deferrals, and other tax breaks in the current tax
rules? Chances are if you divide your 2011 what you pay in 2011 federal income
taxes by the full "gross" income you will find that you're paying 10% or less.
Rich people take greater advantages of such tax law provisions such as
exemption of interest on municipal and school bonds. But in a sense they are
paying a virtual tax on those exemptions since municipal and school bonds have
lower interest returns and/or more default risk. Hence computing the marginal
rate that rich people pay in taxes becomes more complicated than you will ever
learn from watching MSNBC or reading the New York Times.
I think the rich should be taxed at higher rates through a tougher
alternative minimum tax rather than increases in the capital gains tax. The AMT
has a less direct impact on starving risk and venture capital relative to
increases in the capital gains tax. Increases in the capital gains tax simply
put make it less profitable to risk savings for investments in new startup
businesses and expansion of small businesses.
Low capital gains taxes give some relief to investors for holding on to
long-term investments over periods of inflation. If capital gains rates are
increased they should be offset with inflation index adjustments much like we
see in certain types of investments like U.S. Treasury Inflation Protected
Securities (TIPS) investments ---
http://www.investopedia.com/terms/t/tips.asp
Also see inflation index bond ---
http://en.wikipedia.org/wiki/Inflation-indexed_bond
Bob Jensen's helpers for taxpayers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Tax Decision Case
From The Wall Street Journal Accounting Weekly Review on January 20, 2012
Most ETFs Are Tax-Smart. But Others...
by:
Ari I. Weinberg
Jan 09, 2012
Click here to view the full article on WSJ.com
TOPICS: Capital Gains, Taxation
SUMMARY: The article describes an ETF's structure, how investor
transactions affect taxation of other invested individuals, and how ETF
managers can vary behaviors to be more or less tax efficient in their
operations. It is part of the WSJ's "Investing in Funds: A Quarterly
Analysis, January 2012."
CLASSROOM APPLICATION: The article is useful in classes covering
personal taxation or financial planning.
QUESTIONS:
1. (Introductory) What is the difference between a mutual fund and
an exchange traded fund (ETF)? In your answer, include a definition of each
of these types of funds then make the comparison between the two.
2. (Introductory) How do changes in funds' investment portfolios
result in taxable gains to investors?
3. (Advanced) How can investor requests for redemptions result in
taxable gains (or deductible losses) for all investors in that mutual fund?
How does the difference identified in answer to question 1 above mean that
ETFs can avoid generating these tax implications for investors?
4. (Advanced) In what ways are some ETFs less tax efficient than
other ETFs? How could you determine an ETF's history in this matter?
5. (Advanced) Overall, why does an investor care about taxable
distributions from an investment before selling that investment himself or
herself?
6. (Advanced) What is the purpose of Forms K-1 and 1099? What is
the difference between the two forms? Which of these forms does the
article's author believe a taxpayer/investor would prefer to receive from an
ETF?
Reviewed By: Judy Beckman, University of Rhode Island
"Most ETFs Are Tax-Smart. But Others... ," by: Ari I. Weinberg, The Wall
Street Journal, January 9, 2012 ---
http://online.wsj.com/article/SB10001424052970203893404577098661198194858.html?mod=djem_jiewr_AC_domainid
Exchange-traded funds are hardly the magic models
of tax efficiency that some advisers or fund sponsors would like investors
to believe. But generally, they are at least as good at minimizing tax pain
for stock investors as index funds, the most tax-efficient type of mutual
fund.
Here's a closer look at the tax advantages of ETFs
and the limits of those benefits, particularly when investing in assets
other than stocks. How does ETF structure affect taxes?
The vast majority of ETFs are regulated as
traditional mutual funds under the Investment Company Act of 1940, and most
are similar to conventional index funds in that they buy and hold the
components of a market benchmark. The difference is that unlike their
mutual-fund cousins, ETFs trade like stocks. As long as the indexes they are
tracking don't see big changes in their components, ETFs, like index funds,
rarely have to make portfolio changes.
Avoiding such changes helps limit realized capital
gains that might have to be distributed to investors.
But there is a significant difference in how ETFs
operate compared with mutual funds that also helps with tax efficiency. When
a traditional mutual fund receives cash from investors, it issues fund
shares and buys a representative set of its portfolio investments. When
investors redeem, the fund delivers cash and may have to sell underlying
investments, which can result in capital gains that are subject to tax. [NEEDillonline]
David Plunkert
With ETFs, ordinary investors buy and sell ETF
shares from other investors, not from the fund itself. Meanwhile, ETF shares
are created and redeemed in so-called in-kind transactions with big
institutional investors: To receive ETF shares, market makers, known as
authorized participants, deliver the underlying securities (or a
representative basket) to the fund manager. And when they redeem ETF shares,
they are handed securities rather than cash, which often eliminates the need
for the fund to take gains. What's the impact of ordinary investors' buying
shares from each other?
With this design, buying and selling by one
investor doesn't result in tax consequences for the rest of the fund because
the ETF doesn't have to sell securities to pay off departing investors. ETFs
allow investors to be "isolated from the actions of other investors," says
Ryan Issakainen, ETF strategist for ETF sponsor First Trust Advisors LP.
And, because the cost of trading is borne by the individual investor,
securities-transaction costs for the fund itself are low. How do in-kind
transactions affect a fund's tax efficiency?
They allow ETF managers to make tax-wise decisions
about which securities to distribute and whether to sell securities or
distribute them in-kind.
In industry parlance, ETFs can internalize losses
and externalize gains. That is, when an index change requires an ETF to get
rid of a stock that has fallen in price since purchase, the fund can make
the sale on the open market, collect the cash and take the capital loss on
its books. If the fund is looking at a winning trade, the bias is to pass
that stock out in an in-kind redemption—taking its low cost basis out with
it, as well as any potential capital-gains tax bill.
Continued in article
Bob Jensen's helpers for taxpayers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
"Marquet Embezzlement Report Reveals Continued High Rate Of Employee Theft
For 2011 - Vermont tops list of highest risk states," Market Watch,
January 17, 2012 ---
http://www.marketwatch.com/story/marquet-embezzlement-report-reveals-continued-high-rate-of-employee-theft-for-2011-2012-01-17
Thank you Caleb Newquist for the heads up.
Marquet International Ltd. announced today that it
has released The 2011 Marquet Report On Embezzlement -- its annual study of
major embezzlement cases in the United States. The study examined 473 major
embezzlement cases active in the US in 2011 -- those with more than $100,000
in reported losses. The 2011 Marquet Report On Embezzlement examined several
broad categories related to the white collar fraud phenomenon of employee
theft, including:
-- Characteristics of the Schemes
-- Characteristics of the Perpetrators
-- Characteristics of the Victim Organizations
-- Judicial Consequences
Some noteworthy findings from the 2011 study
include:
-- The number of major embezzlements dropped only a
slight 2% from 2010;
-- Vermont topped the list of states with highest
risk for loss due to embezzlement in 2011. Vermont was followed by
Connecticut, Pennsylvania, Montana, Virginia, Iowa and Idaho;
-- In 2011, non-profits, including religious
organizations, experienced the most embezzlement cases of all industry
categories, behind only financial institutions;
-- The average loss was about $750,000 for 2011;
-- The most common embezzlement scheme in 2011
involved the forgery or unauthorized issuance of company checks;
-- Nearly three-quarters of the incidents in 2011
were committed by employees who held finance & accounting positions;
-- The average scheme lasted nearly 5 years;
-- Gambling continues to appear to be a motivating
factor in some embezzlement cases; and,
-- Nearly two-thirds of all incidents involved
female perpetrators in 2011.
"Unfortunately, 2011 was another banner year for
employee theft in the United States, experiencing only a slight drop in
frequency from the frenetic pace set in 2010," said Christopher T. Marquet,
CEO of Marquet International. "Employee theft is not going away any time
soon." The study also reported some conclusions Marquet has derived by
combining the data from past four years:
-- Perpetrators typically begin their embezzlement
schemes in their early 40s;
-- By a significant margin, embezzlers are most
likely to be individuals who hold financial positions within organizations;
-- The Financial Services industry suffers the
greatest losses from major embezzlements;
-- Vermont, Virginia and Florida are among the
states with the highest risk for loss due to embezzlement;
-- Women are more likely to embezzle on a large
scale than men;
-- Men embezzle significantly more than women per
scheme;
-- Gambling is a clear motivating factor in driving
some major embezzlement cases; and,
-- Only about 5 percent of major embezzlers have a
prior criminal history.
Continued in article
Jensen Comment
Vermonters avoid the highest taxes among states by not reporting embezzlement
income.
New Hampshirers avoid taxes by voting for 300+ state legislators with only a
one-word vocabulary --- "No!"
Mainers avoid taxes by going on tax free welfare.
"Welfare recipients outnumber taxpayers: That's the situation
Maine faces, and perhaps other states as well," Charleston Daily Mail,
December 21, 2011 ---
http://www.dailymail.com/Opinion/Editorials/201112220151
Paul LePage, the Republican governor of Maine,
mentioned an uncomfortable truth in a radio address this month: Maine has
more welfare recipients than income tax payers.
Democrats challenged the accuracy of this
assertion.
The Bangor Daily News fact-checked LePage and
discovered that 445,074 Mainers paid state income tax, while 453,194
received some sort of state aid.
In Maine, Medicaid, welfare, food stamps and
subsidies for education have a combined enrollment of 660,000.
Adjusting for overlap reduces the number to 453,194
- or 8,120 more people on state assistance than there are state income
taxpayers in Maine.
What is situation in West Virginia?
Nationally, only 53 percent of the nation lives in
a household that pays federal income tax.
While just about every worker has taxes withheld,
many people have the entire amount refunded at tax time. With child tax
credits and earned income tax credits, some people get more money from
filing a return than they paid in.
But 30 percent of Americans live in households that
receive some sort of public assistance that is means tested, meaning a
person must have an income low enough to qualify for the aid.
Another depressing thought is that nearly half the "taxpayers" in the United
States pay no federal or state income taxes.
Ernst & Young
To the Point: PCAOB seeks
comment on expanded audit committee communication
The Public Company Accounting Oversight Board (PCAOB) is seeking comment on a
proposal that would require auditors to modify and expand their communications
with audit committees beyond what the PCAOB and the Securities and Exchange
Commission currently require.
Our To
the Point publication summarizes the proposal and provides some questions
for audit committees to consider in commenting to the PCAOB.
http://www.ey.com/Publication/vwLUAssets/TothePoint_EE0897_ACCommunication_19January2012/%24FILE/TothePoint_EE0897_ACCommunication_19January2012.pdf
"Are Independent Audit-Committee Members Objective?" The Harvard Law
School, July 6, 2009 ---
http://blogs.law.harvard.edu/corpgov/2009/07/06/are-independent-audit-committee-members-objective/
Based upon a forthcoming Accounting Review article by Matthew Magilke of
the University of Utah, Brian W. Mayhew of the University of Wisconsin-Madison,
and Joel Pike of the University of Illinois at Urbana-Champaign.)
The working paper can be downloaded from SSRN at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097714
Abstract:
We use experimental markets to examine stock-based compensation's impact on
the objectivity of participants serving as audit committee members. We
compare audit committee member reporting objectivity under three regimes: no
stock-based compensation, stock-based compensation linked to current
shareholders, and stock-based compensation linked to future shareholders.
Our experiments show that student participants serving as audit committee
members prefer biased reporting when compensated with stock-based
compensation. Audit committee members compensated with current stock-based
compensation prefer aggressive reporting, and audit committee members
compensated with future stock-based compensation prefer overly conservative
reporting. We find that audit committee members who do not receive
stock-based compensation are the most objective. Our study suggests that
stock-based compensation impacts audit committee member preferences for
biased reporting, suggesting the need for additional research in this area.
Keywords: Audit Committee, Stock Compensation,
Independence
Jensen Comment
I hate to keep repeating myself, but this will probably go down as one of those
student experiments that have dubious extrapolations to the real world. The
student compensation is nowhere near the possible compensations of real board
members of real corporations. My traditional example here is the banker that
gambles for relatively large stakes with his poker-playing friends, but never
gambles big time with his local small bank.
Even more discouraging is that following decades of publications of empirical
academic research, the findings will simply be accepted as truth without ever
replicating the outcomes as would be required in real science. In science, its
the replications that are more eagerly anticipated than the original studies.
But this is not the case in accounting research ---
http://www.trinity.edu/rjensen/theory01.htm#Replication
Probably the most fascinating study of an audit committee is the history of
the infamous Audit Committee of Enron. Evidence in retrospect seems to point to
the fact that the Audit Committee and the Board of Directors (Bob Jaedicke was
on both Boards) were truly deceived by clever and unscrupulous Enron executives.
Probably the most penetrating study of what happened was the after-the-fact
Powers' Study conducted by the Board itself ---
http://www.trinity.edu/rjensen/FraudEnron.htm
There are times when I'm more impressed by a sample of one than a sample of
students in an artificial experiment that is never replicated.
Also see Question 7 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm
July 8, 2009 reply from Dennis Beresford
[dberesfo@TERRY.UGA.EDU]
Bob,
I read the first 25 or so pages of the paper. As an
actual audit committee member, I feel comfortable in saying that the
assumptions going into the experiment design make no sense whatsoever. And
using students to "compete to be hired" as audit committee members is
preposterous.
I have served on five audit committees of large
public companies, all as chairman. My compensation has included cash, stock
options, restricted stock, and unrestricted stock. The value of those
options has gone from zero to seven figures and back to zero and there have
been similar fluctuations in the value of the stock. In no case did I ever
sell a share or exercise an option prior to leaving a board. And in every
case my *only *objective as an audit committee member was to do my best to
insure that the company followed GAAP to the best of its abilities and that
the auditors did the very best audit possible.
No system is perfect and not all audit committee
members are perfect (certainly not me!). But I believe that the vast
majority of directors want to do the right thing. Audit committee members
take their responsibilities extremely seriously as evidenced by the very
large number of seminars, newsletters, etc. to keep us up to date. It's too
bad that accounting researchers can't find ways to actually measure what is
going on in practice rather than revert to silly exercises like this paper.
To have it published in the leading accounting journal shows how out of
touch the academy truly is, I'm afraid.
Denny Beresford
July 8, 2009 reply from Bob Jensen
Hi Denny,
It's clear why TAR didn't send you this manuscript to referee. It would
be dangerous to have experienced audit committee members have an input to
this type of accountics research that takes place in the academy's sandbox.
Bob Jensen
Bob Jensen's threads on professionalism and independence are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism
New York's CPA Examination Performance
Once again those high SAT/ACT/GMAT scores tell a familiar tale ---
http://goingconcern.com/post/last-here-are-top-and-bottom-cpa-exam-performers-among-new-york-schools
"Five things accounting educators need to know," CPA Success,
January 6, 2012 ---
http://www.cpasuccess.com/2012/01/top-five-things-accounting-educators-need-to-know.html
Thank you Tom Hood for the heads up.
-
The top trends facing the CPA profession
(almost none are technical).
- The profession has a vision (and students
like it).
- There are more career opportunities than just
the Big Four (business and industry, not-for-profits,
government, and 40,000 firms).
- Students want to understand the expectations
and realities of the workplace.
-
Data (XBRL) is the new plastics --
career advice for students and young professionals.
This post is for our accounting educators who are
responsible for laying a strong foundation for the CPA profession's
future, and it is no easy job!
Today I am delivering a keynote on the latest
issues facing the CPA profession at our annual educator's conference
while attending the CPA-SEA (State CPA Society Executives) meeting
with the AICPA senior leadership at our annual mid-winter meeting.
Thanks to video and webcasting capabilities, I can actually be in
two places at one time!
My presentation is not the typical PIU
(professional issues update). This one is about the future -- the
future of the CPA profession and the top trends identified by the
CPA Horizons 2025 Project.
Here are some resources:
Here are three videos you may want to use in the
classroom for talking about the future of the CPA profession:
Downloadable documents you can use in class:
So for all you accounting educators, this post is
for you.
Accounting professors avoiding applied research for practitioners and
failure to attract practitioner interest in academic research journals
Many practitioners are now lurkers on the AECM, including some from each of
the Big Four who frequently send me private messages but do not want their
messages forwarded in their own names.
I think there are many ways for getting practitioners more involved in
academic research.
A consideration in this "debate" about top accountics science research
journal refereeing is the inbreeding that has taken in a very large stable of
referees that virtually excludes practitioners. Ostensibly this is because
practitioners more often than not cannot read the requisite equations in
submitted manuscripts. But I often suspect that this is also because of fear
about questions and objections that practitioner scholars might raise in the
refereeing process.
Sets of accountics science referees are very inbred largely because editors
do not invite practitioner "evaluators" into the gene pool. Think of how things
might've been different if practitioner scholars suggested more ideas to
accountics science authors and, horrors, demanded something that some
submissions be more relevant to the professions.
The argument that practitioners cannot read all the requisite equations in
some AAA journals like TAR is a hollow argument to me. Scholarly practitioners
can penetrate the professional value of most articles that contain equations.
The problem is that scholarly practitioners are usually very busy
professionals who hesitate to giving free time pro bono to AAA journal
refereeing. To get more practitioners into the refereeing process it will take
appeals (pressures?) from their supervisors.
One thing the largest accounting firm CEOs want is great relations with the
AAA, which is often the reason they help fund many AAA programs, meetings, and
publications. What it will take to get more practitioner scholars on AAA journal
editorial boards is an appeal from the Executive Committee of the AAA to the
CEOs of accounting firms and some leading corporations to encourage their
leading employee scholars to volunteer to be on editorial boards of AAA
journals.
This is what it will take to diversify the gene pool of AAA journal editorial
boards.
And I can hear accountics scientists groaning already at this idea. Many of
them shake in fear that practitioners will have a say in judging the relevance
of their research. The best accountics science researchers, however, have no
such fears and have confidence that their research is relevant to the profession
of accountancy.
Bob Jensen
January 22, 2012 reply from Jagdish Gangolly
Bob,
In the early days, there was a thriving
collaboration between the accountants in practice and academicians,
accounting or otherwise. A classic example is the cllaborative work of
Kenneth Stringer (Deloitte) and Professor Frederick F. Stephan of Princeton
University Institute for Advanced Study that led to the development of what
is today called dollar-unit sampling, which implements a procedure that does
not depend on assumptions of normal approximation of sampling distribution
and yet provides "a reasonable inference of population error when al items
in the sample are error free" (See http://www.nap.edu/openbook.php?record_id=1363&page=9;
the US National Academy Commission on Physical Sciences, Mathematics, and
Applications was alerted to the possibility of such applications not by
academic accountants but by an IRS employee!). This glorious tradition of
practitioners contributing to the academia was continued in: Leslie, Donald
A., Albert D. Teitlebaum, and Rodney J. Anderson, DOLLAR-UNIT SAMPLING: A
PRACTICAL GUIDE FOR AUDITORS (1979) (Teitelbaum is a statistician at McGill,
Leslie and Anderson are practitioners.
Somewhere along the way, we lost our way and
accounting academia became insular, almost xenophobic, introverted (except
for Economics and Finance), and regimented philosophically.
If the practitioners can not understand the
equations, then the fault lies in US academicians and not practice. If
Einstein could explain the complexities of relativity in terms that even a
high school student can understand, and JBS Haldane could explain the
marvelous complexities of genetics and evolution that even uneducated
working classes in England in the thirties could understand, there is no
reason that we academicians can not make simple equations used in most
accounting journals intelligible to educated intelligent practitioners of
accounting. Parsimony is a very good idea when it comes to the use of
mathematics in a field like accounting. Mathematics should not be used like
the lamppost that a drunk leans on for support.
Let alone the practitioners, it would not be a bad
idea to have some grandmas on the panel of reviewers for submissions.
Jagdish
Bob Jensen's threads on
Accounting professors avoiding applied research for practitioners and failure
to attract practitioner interest in academic research journals
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession
Tax Analysts society names as its 2011 Person of the Year
Grover Norquist, head of Americans for Tax Reform, and notes the other
individuals who were considered for the title ---
http://taxprof.typepad.com/files/tax-notes-1.pdf
Financial Instruments: Perhaps auditing courses could make use of some
of the IAASB resources in
International Auditing Practice Note (IAPN) 1000, Special Considerations in
Auditing Financial Instruments
|http://www.ifac.org/publications-resources/international-auditing-practice-note-iapn-1000-special-considerations-auditin
"IFAC Offers Alerts on Tough Audit Issues," by Tammy Whitehouse,
Compliance Week, December 29, 2011 ---
http://www.complianceweek.com/ifac-offers-alerts-on-tough-audit-issues/article/221235/
Guidance emerging from the International Federation
of Accountants might prove useful even in the United States in the coming
weeks as companies close the books on 2011 and plan for the year ahead.
IFAC's International Auditing and Assurance
Standards Board has issued a practice note on special considerations that
should be taken into account when auditing financial instruments. The alert,
titled
International Auditing Practice Note 1000, provide
some practical assistance to auditors when dealing with valuation and other
issues related to financial statement assertions, a touchy and complex area
in any entity's financial statements in light of economic pressures and an
increasing focus on fair value.
According to IAASB Chairman Arnold Schilder, the
practice note can help auditors understand the nature of and risks
associated with financial instruments as well as the different valuation
techniques and types of controls entities may use in relation to them. The
guidance also highlights audit considerations that should be taken into
account throughout the audit process. IAASB Technical Director James Gunn
said through a statement that the exercise of developing the guidance was
informative even to the board, which will further inform the board's work as
it develops future auditing standards.
In a separate release, IFAC's Professional
Accountants in Business Committee has
proposed some best practices guidance on evaluating and improving internal
controls to help organizations benchmark their
work in maintaining effective controls. The committee says the guidance is
intended to be useful to any organization, regardless of the internal
control framework it uses, to help deal with internal control issues that
are often problematic because of poor design or implementation.
Vincent Topoff, the committee's senior technical
manager, says the guidance would be meaningful even to U.S. companies where
internal controls are more closely scrutinized because it was developed in
part by U.S. experts who have spent many years working to improve internal
controls. “Together, they have identified in this guidance those areas where
the application of good practice guidance often goes wrong,” he says. “This
guidance considers the areas organizations need to continuously improve and
the issues they need to address.” The guidance is not meant to replace any
existing framework that is in use, he says.
Finally, the IAASB also refreshed its warnings to
auditors to keep economic conditions and pressures in mind as they consider
whether disclosures are adequate and whether there is reason to doubt an
entity can continue as a going concern. Companies continue to face
volatility in capital markets and exposure to debt in distressed countries,
leading to uncertainty that puts pressure on cash flow and access to credit,
the board advises. Those factors complicate the audit process, and therefore
must be considered closely, the board says.
Continued in artilce
Bob Jensen's threads on auditing professionalism are at
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's threads on Tools and Tricks of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
The sad part about going into business apart from writing books is that
having such a huge vested interest in that business creates moral hazard in
terms of independence as on of the leading personal finance commentators in the
world. The champion of the poor and troubled may be trying to increase her 1% at
the expense of the poor and troubled.
Suze Orman ---
http://en.wikipedia.org/wiki/Suze_Orman
"Suze Orman, Debit-Card Dealer: The money guru introduces her first
financial product—and vexes some fans," by Karen Weise, Bloomberg Business
Week, January 19, 2012 ---
http://www.businessweek.com/magazine/suze-orman-debitcard-dealer-01182012.html
“I love you!” a woman yells as personal finance
guru Suze Orman enters the drab conference room at a Barnes & Noble (BKS) in
suburban New Jersey. Fans cheer and clap while a man in the front row tears
up from excitement. Orman is here to preach the tough-love brand of
financial advice that she’s been peddling for more than a decade through
nine bestselling books, a highly rated CNBC show, and regular appearances on
the old Oprah Winfrey Show. “You have got to be the masters of your own
financial future,” she tells the 200-strong crowd. While the event coincides
with a new paperback edition of her 10th book, The Money Class, that’s not
the main focus of her talk. “You need more than books,” she says. “Now you
need the tools.”
Orman has a particular tool in mind. Just a few
days earlier she introduced her first financial product: a prepaid debit
card emblazoned with her name. She sees her Approved Card as an alternative
way for people who are fed up with—or don’t have—traditional checking
accounts and credit cards to manage their cash. And if the most ambitious
part of her plan succeeds, the card may eventually help users improve their
credit scores.
Orman’s Approved Card, issued by Wilmington
(Del.)-based Bancorp Bank (TBBK), is in part designed to play the role of
pestering mom. The basics are simple: People use electronic transfers or
cash to load money onto their cards, then use them like regular debit cards,
buying groceries or shopping online. The Orman touch comes in such features
as automatic text message alerts sent to mobile phones that note the balance
remaining on the card after each purchase. The card’s website has Orman
issuing such sharply worded reminders as, “Before you make a purchase, you’d
better be able to afford it—do you hear me?!”
Prepaid cards are the fastest-growing payment
method, Federal Reserve data show. In 2010 people used them for $65 billion
in transactions, compared with $48 billion in 2009, the industry newsletter
Nilson Report says. Part of the cards’ appeal is that you can’t get into
debt with them. “I think it’s a good idea to have a prepaid card rather than
going out willy-nilly with a credit card,” says Glinda Kidd at the book
signing.
Still, prepaid cards often come loaded with
fees—and Orman’s is no exception. It has a standard $3 monthly charge. While
there’s no cost to reload the card with direct deposits or automatic
transfers from a checking account, people must pay up to $4.95 to put cash
on the card at Western Union (WU) or MoneyGram (MGI) locations. And if they
load with cash rather than electronically, all ATM withdrawals cost $2. One
free call to a customer service rep is included each month; extra calls are
$2 each.
“What people don’t understand is the cost to do
business,” says Orman in an interview. “If I could have given this to you
for free, I would have.” Orman, who says she invested $1 million in the
venture, declines to discuss how much money she might make from it. And she
vows to train customers to keep their costs down. In videos on the card’s
website, she explains the fees, warning that people who load their cards
electronically can get cash from one of the 35,000 ATMs in the Allpoint
network for free but will incur a $2 charge for using other ATMs—plus
whatever fee the ATM operator imposes. “Why would you want to waste money
like that?” she says in the video. “Don’t be lazy, and go to an Allpoint
ATM.”
Orman says if she finds people are incurring fees
to put cash on the card, only to spend another $2 to get cash at an ATM, she
will ask them to turn in their plastic. If you’re going to squander money
that way, “just keep it in cash! You don’t need the damn card,” she tells
the audience at the book signing.
Michael Collins, an assistant professor at the
University of Wisconsin who studies the financial decision-making of
low-income families, says people will eventually figure out the costs of any
product. “The question is how long will it take” and how much in fees they
will have racked up by then, he says. Collins adds that if Orman’s messages
help people control their spending impulses, the card could be beneficial:
“Anything that gets people to think harder about their financial security
and take some responsibility is a good thing.”
Some personal finance bloggers have complained
about the fees and charged that Orman is using her influence to bilk her
fans. On Twitter, the Blog Finanza website said: “You are taking your
authority figure to make a $$ from your audience. #DENIED”—echoing a
catchphrase from Orman’s TV show. Others, such as MSNBC.com consumer finance
columnist Herb Weisbaum, said many people would be better served by building
their credit immediately with a secured credit card.
Orman dismisses the criticisms, saying the card
reflects her understanding of people’s financial habits and needs. “I am the
personal financial expert of the world,” she says. “I know what I am talking
about.” Publicly, Orman lashed out on Twitter against the naysayers, calling
them “small thinkers,” “idiots,” and “Suze haters.” After New York Times
personal finance columnist Ron Lieber and others protested the harsh words,
she issued a blanket apology: “For anyone I called an idiot, I too am
sorry.”
Continued in article
"Does Suze Orman's Prepaid Debit Card Make Sense for You?" by Sarah
Gilbert, Get Rich Slowly, January 17, 2012 ---
http://www.getrichslowly.org/blog/2012/01/17/does-suze-ormans-prepaid-debit-card-make-sense-for-you/?WT.qs_osrc=fxb-48064510
Suze Orman is famous for her personal,
easy-to-digest, and friendly personal finance advice. Many of us less famous
(far less famous, in the case of this writer) finance writers
admire her general approach, which boils down to “spend less than you earn.”
Who can argue with that? So imagine my amazement at the news this week that
Suze will be
offering a branded prepaid debit card.
Prepaid debit cards have a star-crossed
reputation
You know about branded prepaid debit cards, but they're usually not
connected with individuals known for their sensible finance advice. Think
Russell Simmons. Think
the Kardashians. See? Sample words and phrases
from our collective wisdom on those topics include “skeptical” and
“reprehensible” and “urge to scream” and “hit cash-strapped consumers over
the head with nickel-and-dime charges.”
Suze Orman is famous for her personal,
easy-to-digest, and friendly personal finance advice. Many of us less famous
(far less famous, in the case of this writer) finance writers admire her
general approach, which boils down to “spend less than you earn.” Who can
argue with that? So imagine my amazement at the news this week that Suze
will be offering a branded prepaid debit card.
Prepaid debit cards have a star-crossed reputation
You know about branded prepaid debit cards, but they're usually not
connected with individuals known for their sensible finance advice. Think
Russell Simmons. Think the Kardashians. See? Sample words and phrases from
our collective wisdom on those topics include “skeptical” and
“reprehensible” and “urge to scream” and “hit cash-strapped consumers over
the head with nickel-and-dime charges.”
The biggest problems with prepaid debit cards
are, really, threefold:
While they are cards that are available to
consumers with bad credit, they don't help consumers build credit, though
they are advertised as doing so (any help would be mild at best - the
reporting they do is only to smaller credit reporting agencies, not the “big
three” that man the velvet rope for most consumer debt in America). They're
punishingly expensive and seem more directed toward association with the
personality branding the card than any financial benefit. Russell's “Rush”
Card costs between $4 and $15 upfront, with $10 monthly fees and $1
per-transaction fees. They're accused of using celebrities to take advantage
of both the hopes and difficult situations of the “unbanked,”
mostly-lower-class, often minority consumers whose financial situation is so
bad that banks won't take the risk of giving them checking accounts.
Suze Orman wants to make a difference (but, is it a
fool's errand?) Orman has a different idea. She, too, wants to convince the
unbanked to use her prepaid debit card, but she wants to charge less. Her
“Approved Card” is far cheaper than Rush or the K thingy - only $3 to
purchase the card and a $3 monthly fee. ATM transactions from the Allpoint
network (found in 7-Eleven, Costco, Kroger, CVS, and Walgreens) are $2 per
withdrawal, and point of sale transactions, such as purchases at the grocery
store or coffee shop or online, are free. Balance inquiries and some
declined transactions are $1 , but it's free to be declined at the register
for a regular PIN/signature transaction. Many of these transactions,
especially ATM withdrawals, are free for 30 days with a direct deposit or
bank transfer into the Approved Card account, making them a great product
for customers with some sort of automatically-deposited income (even, for
instance, unemployment).
Notably, electronic debit bill paying is free. Many
competing products charge for this service, from $1 to $3 per transaction,
and it's the service that customers without a regular bank account need.
Often, discounts and special deals are available to customers who allow
vendors to debit their account each month.
The great credit score kerfuffle
The concept that sells many prepaid debit cards - the quasi-justification
for how expensive they are - is that they might help in the quest to raise a
credit score. If a credit score is low enough so that a mainstream bank
isn't part of your personal finance portfolio, can a prepaid debit card even
help? Probably not.
The problem that Suze Orman has mentioned in public
statements about the Approved Card is that credit bureaus, beyond even
knowing about the transactions made by the millions of unbanked consumers,
don't care about sensible use of money. They just care about sensible use of
credit. A New York Times piece quotes Orman as saying, “There is something
radically wrong here. We are rewarding people for having credit and
punishing people who pay in cash. I want to change that paradigm.”
Wanting to change credit score calculation is
easy. Changing is hard.
Orman has done the near-impossible and convinced TransUnion, one of the big
three credit bureaus, to collect the data about spending habits from her
customers. But what that will do to credit scores is another thing entirely.
The answer, probably, is nothing.
The problem that Suze Orman has mentioned in public
statements about the Approved Card is that credit bureaus, beyond even
knowing about the transactions made by the millions of unbanked consumers,
don't care about sensible use of money. They just care about sensible use of
credit. A
New York Times piece quotes Orman as
saying, “There is something radically wrong here. We are rewarding people
for having credit and punishing people who pay in cash. I want to change
that paradigm.”Wanting to change
credit score calculation is easy. Changing is hard.
Orman has done the near-impossible and convinced TransUnion, one of the big
three credit bureaus, to collect the data about spending habits from her
customers. But what that will do to
credit scores is another thing entirely. The
answer, probably, is nothing.
The problem is that TransUnion has only been
persuaded to evaluate the data Orman will collect with her Approved Card; it
has not promised to include that in credit reports nor in the calculation of
scores. If, after two years, it finds the data meaningful, it's still
unlikely to have much of an effect on the resultant calculations.
Responsible use of a prepaid debit card, after all, hasn't had much impact
on the financial institutions that sponsor the card - in this case, Orman's
own company - so the patterns of data don't have much meaning.
What kind of debit card use could demonstrate the
sort of behavior creditors want to see, such as:
- On-time delivery of minimum
payments
- A history of purchasing high-value assets and
then paying them off quickly
- Regular income and a comfortable ratio of
debt-to-income
These all can be shown far more reliably through
existing reporting. A consumer who pays rent on time each month in cash
won't differ, to the eyes of TransUnion, from a consumer who pays rent on
time each month by automatic debit from her Approved Card. Similarly,
failing to overdraw an Approved Card account (that is impossible to overdraw
from, except perhaps for a few $1/$2 ATM transaction declined fees) is very
different from failing to overdraw a bank account.
Why would you use a prepaid debit card?
There are two groups of people I can see benefiting from using a prepaid
debit card, as well as one group I would caution to avoid it. All of them
could achieve higher credit scores, but not in the way you think. Let me
explain.
Continued in article
Jensen Comment
The sad part about going into business apart from writing books is that having
such a huge vested interest in that business creates moral hazard in terms of
independence as on of the leading personal finance commentators in the world.
The champion of the poor and troubled may be trying to increase her 1% at the
expense of the poor and troubled.
Bob Jensen's personal finance helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
"Feed the Pig: Great Time to Save Money [INFOGRAPHIC]," AICPA, January
2012 ---
http://blog.aicpa.org/2012/01/feed-the-pig-great-time-to-save-money-infographic.html
Jensen Comment
I know that the AICPA's "pig" depicts a piggie bank, but I still think "Feed the
Pig" is a bad name for a personal finance helper site. A better name would be
"Feed Your Piggie Bank: Helpers for Saving and Investment"
"My Financial Mis-Education," by Lee Bessette, Inside Higher Ed,
January 16, 2012 ---
http://www.insidehighered.com/blogs/my-financial-mis-education
Jensen Comment
This reminds me of when I gave my daughter a credit card (the billings came to
me) when she left home as a first-year student at the University of Texas. As I
recall I did say this card was for "emergencies," but then she started
discovering all sorts of emergencies to the tune of nearly $1,000 per month even
though I was directly paying for her tuition, room and board, car insurance,
etc. One type of "emergency" was rather amusing until I put an end to such
amusement. At Christmas time she lavished me with rather expensive gifts that,
of course, she'd charged on her credit card.
The need for financial literacy and elementary tax accounting in the
common core of both high school and college ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#FinancialLiteracy
Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
"Five Deadly Business Sins: Two avoidable mistakes were enough to trip
up Eastman Kodak, once one of America's mightiest companies," by Rick
Wartzman, Bloomberg Business Week, January 13, 2012 ---
http://www.businessweek.com/management/five-deadly-business-sins-01132012.html
Just how lethal are Peter Drucker’s “five deadly
business sins”? You might ask Eastman Kodak (EK),
which has committed at least a couple of them and now finds itself on the
verge of bankruptcy.
Word emerged last week that Kodak, founded in 1892
and for many decades widely celebrated as one of the world’s greatest
companies,
may soon file for Chapter 11 protection if it
can’t raise enough cash by selling off pieces of its patent portfolio. The
news was a sharp reminder of how incredibly challenging it is to sustain any
organization, even the most iconic.
How did it come to this? In certain respects, Kodak
has been on the defensive since it began facing heightened competition from
its arch rival Fuji (8278:JP)
some 30 years ago. But fundamentally the company has
slipped because it fell prey to two of what Drucker identified in a 1993
essay as a quintet of “avoidable mistakes that will harm the mightiest
business.”
The first is a preoccupation with high profit
margins. The second: “slaughtering tomorrow’s opportunity on the altar of
yesterday.” (The three other deadly business sins, according to Drucker, are
“mispricing a new product by charging ‘what the market will bear’;
“cost-driven pricing” in which you merely add up your expenses and then
stick a profit margin on top—a subject I’ve
explored previously; and “feeding problems” while
“starving opportunities.”
Continued in article
Question
What is the difference between "replacement cost" and "factor replacement cost?"
Answer
It is much like a make versus buy decision. As an illustration, the "replacement
cost" of a computer is the price one would pay for a computer in the market to
replace an existing computer. That presumably includes the mark up profits of
vendors in the supply chain. The "factor replacement cost" excludes such mark up
profits to the extent possible by estimating what it would cost in the
"transformation process" to purchase the components for transformation of those
components into a computer. The "factor replacement cost" adds in labor and
manufacturing overhead. It excludes vendor profits in the computer supply chain
but not necessarily vendor profits in the purchase price of components. It
becomes very complicated in practice, however, because computer vendors do such
things as include warranty costs in the pricing of computers. Assembled
computers in house probably have no such warranties. A more detailed account of
factor replacement costing is provided in Chapters 3 and 4 of Edwards and Bell.
Edgar O. Edwards and Philip W. Bell, The Theory and Measurement of Business
Income (Berkeley: University of California Press, 1961).
Of course
this does not solve the fundamental problem of replacement cost accounting that
arises when there are no current assets or component parts of assets that map
directly into older assets still being used by the company. For example, old
computers and parts for those computers are probably no longer available. Newer
computers have many more enhancements that make them virtually impossible to
compare with older computers such using prices of current computers is a huge
stretch when estimating replacement costs of older computers that, for example,
may not even have had the ability to connect to local networks and the Internet.
Zeff
writes as follows on Page 623:
Edwards and Bell, in their provocative volume, propound a measure called
"business profit," which is predicated on what might be termed "factor
replacement cost." "Business profit" is the sum of (1) the excess of current
revenues over the factor replacement cost of that portion of assets that can be
said to have expired currently, and (2) the enhancement during the current
period of the factor replacement cost.
Advantages
and disadvantages of replacement cost (entry value, current cost) accounting are
discussed in greater detail are listed below.
Advantages
of Entry Value (Current Cost, Replacement Cost) Accounting
·
Conforms
to capital maintenance theory that argues in favor of matching current revenues
with what the current costs are of generating those revenues. For example, if
historical cost depreciation is $100 and current cost depreciation is $120,
current cost theory argues that an excess of $20 may be wrongly classified as
profit and distributed as a dividend. When it comes time to replace the asset,
the firm may have mistakenly eaten its seed corn.
·
If the
accurate replacement cost is known and can be matched with current selling
prices, the problems of finding indices for price level adjustments are avoided.
·
Avoids to
some extent booking the spread between selling price and the wholesale "cost" of
an item. Recording a securities “inventory” or any other inventory at exit
values rather than entry values tends to book unrealized sales profits before
they’re actually earned. There may also be considerably variability in exit
values vis-à-vis replacement costs.
Although I
am not in general a current cost (replacement cost, entry-value) advocate, I
think you and Tom are missing the main theory behind the passage of the now
defunct FAS 33 that leaned toward replacement cost valuation as opposed to exit
valuation.
The best
illustration in favor of replacement cost accounting is the infamous Blue Book
used by automobile and truck dealers that lists composite wholesale trading for
each make and model of vehicle in recent years. The Blue Book illustration is
relevant with respect to business equipment currently in use in a company since
virtually all that equipment is now in the “used” category, although most of it
will not have a complete Blue Book per se.
The theory
of Blue Book pricing in accounting is that each used vehicle is unique to a
point that exit valuation in particular instances is very difficult since no two
used vehicles have the same exit value in a particular instances. But the Blue
Book is a market-composite hundreds of dealer transactions of each make and
model in recent months and years on the wholesale market.
Hence I
don’t have any idea about what my 1999 Jeep Cherokee in particular is worth, and
any exit value estimate of my vehicle is pretty much a wild guess relative to
what it most likely would cost me to replace it with another 1999 Jeep Cherokee
from a random sample selection among 2,000 Jeep dealers across the United
States. I merely have to look up the Blue Book price and then estimate what the
dealer charges as a mark up if I want to replace my 1999 Jeep Cherokee.
Since Blue
Book pricing is based upon actual trades that take place, it’s far more reliable
than exit value sticker prices of vehicles in the sales lots.
Conclusion
It is sometimes the replacement market of actual transactions that makes a Blue
Book composite replacement cost more reliable than an exit value estimate of
what I will pay for a particular car from a particular dealer at retail. Of
course this argument is not as crucial to financial assets and liabilities that
are not as unique as a particular used vehicle. Replacement cost valuation for
accounting becomes more defensible for non-financial assets.
Hi Tom,
My recent stay in the Concord Holiday Inn and your replies prompted me to write
an online document called
"Holiday Inn Case Seeds and Questions About Tobin's Q"
Two Ideas for Hotel Replacement Cost Cases in Accounting"
http://www.cs.trinity.edu/~rjensen/temp/HolidayInnCaseSeeds.htm
If you are willing to counter my arguments, I would really like to see
why investors and creditors would be interested in the 2011 Replacement Cost
financial statements for the Concord, NH and Brookline, MA Holiday Inn hotels.
To me it seems that such statements would be more misleading than historical
cost financial statements given the fact that neither historical costs nor
replacement costs are valuation-based financial statements.
Thanks,
Bob
January 17, 2012 Update
Tom Selling has what I consider to be a much more reasonable posting on
replacement costing:
"What I Mean by "Replacement Cost" is not Literally Replacement Cost," by
Tom Selling, The Accounting Onion, January 17, 2012 ---
Click Here
http://accountingonion.typepad.com/theaccountingonion/2012/01/what-i-mean-by-replacement-cost-is-not-literally-replacement-cost.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29
Jensen Comment
His latest posting remains, however, disappointing to me in that he does not
delve into how traditional replacement (current) cost accounting of operating
assets like factories, stores, hotels, airliners, can be more misleading than
helpful if it is not accompanied by traditional historical cost financial
statements and possibly exit value statements (although exit value is not very
relevant for going concerns with lots of synergy covariances of asset values "in
use."
Some of his statements do not adequately stress that replacement cost
accounting is not value accounting since it has identical accrual issues of
depreciation, depletion, amortization, bad debt estimation, etc. that plagues
historical cost accounting. For example, he states:
"First, replacement cost measures are the only
possible way for accounting to reflect wealth invested by shareholders in an
enterprise; and consequently, changes in invested wealth."
Tom Selling as cited
above
Firstly, I almost always advise against sweeping generalization such as the
"only possible way to reflect wealth invested by shareholders ..."
Such sweeping generalizations should be avoided in the Academy, especially when
when our accounting history research literature is brimming articles from
scholars who do not share Tom's view about replacement cost accounting (even in
theory). Kenneth McNeal would not call replacement cost accounting "Truth in
Accounting" or even being the best of asset measurement alternatives ---
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting
Secondly, he still is speaking of "flowers in spring" to Julie Andrews
without giving her the "show me" she's demanding. He still has not made a
convincing case on how even his hybrid version of replacement cost accounting
would be relevant to my two Holiday Inn case seeds at
http://www.cs.trinity.edu/~rjensen/temp/HolidayInnCaseSeeds.htm
To his credit, in his latest posting Tom does not mention Tobin's Q. Perhaps
I convinced him that Tobin's Q is just not relevant to this analysis since the
value of a firm is affected by so many factors other than items accountants book
into the ledgers. I discuss this problem with Tobin's Q at
http://www.cs.trinity.edu/~rjensen/temp/HolidayInnCaseSeeds.htm
In any case I hope Tom will continue our debate on replacement costs. My
challenge to him remains to take my two Holiday Inn case seeds and show how
replacement cost measures are the only possible way for
accounting to reflect wealth invested by shareholders in an enterprise; and
consequently, changes in invested wealth" in these two hotels.
http://www.cs.trinity.edu/~rjensen/temp/HolidayInnCaseSeeds.htm
"FASB's impairment testing proposal deviates from IFRS," IAS Plus,
January 26, 2012 ---
http://www.iasplus.com/index.htm
The United States
Financial Accounting Standards Board (FASB) has published a proposal in
which an entity testing indefinite-lived intangible assets for impairment
would have the option of performing a qualitative assessment to determine
whether it is more likely than not that the asset is impaired.
Under current US GAAP, assets with
indefinite useful lives are similar to those under IAS 36 Impairment of
Assets; they are reviewed at least annually for impairment. Under the
proposal, certain assets such as trademarks, licenses and distribution
rights could be exempt from this requirement, if the asset is determined to
be more likely than not less than its fair value. In their proposal, the
FASB acknowledges that this new guidance does not converge US GAAP and IFRS.
Click for:
Bob Jensen's threads on intangible assets are at
Intangibles and Contingencies: Theory Disputes Focus Mainly on the Tip of the
Iceberg
Go to
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
"IFRS and US GAAP: Similarities and Differences"
according to PwC (2011 Edition)
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!
Note that warnings are given throughout the document that the similarities and
differences mentioned in the booklet are not comprehensive of all similarities
and differences. The document is, however, a valuable addition to students of
FASB versus IASB standard differences and similarities.
Ernst & Young
To the Point: FASB tries to simplify
impairment test for indefinite-lived intangibles
Based on concerns raised by financial
statement preparers about recurring costs and complexity of calculating the fair
value of indefinite-lived assets for impairment testing, the FASB today issued a
proposed ASU to simplify the impairment test. The proposal would give companies
the option to perform a qualitative assessment (similar to the one introduced by
ASU 2011-08 for goodwill) to determine whether it is more likely than not that
an indefinite-lived intangible asset is impaired. Comments are due by 24 April
2012.
The attached To the Point publication summarizes what you need to know
about the proposal. It is
also
available online.
http://lyris.ey.com/t/584039/1613618/4093/0/
Bob Jensen's threads on intangibles ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
From Paul Caron's TaxProf Blog on January 26, 2012 ---
http://taxprof.typepad.com/
The
Tax Foundation
yesterday
released the
2012 State Business Tax Climate Index (9th ed.)
which ranks the fifty states according to five indices: corporate tax,
individual income tax, sales tax, unemployment insurance tax, and property
tax. Here are the ten states with the best and worst business tax climates:
1 |
Wyoming
|
41 |
Iowa |
2 |
South Dakota |
42 |
Maryland |
3 |
Nevada |
43 |
Wisconsin |
4 |
Alaska |
44 |
North Carolina
|
5 |
Florida |
45 |
Minnesota |
6 |
New Hampshire |
46 |
Rhode Island |
7 |
Washington |
47 |
Vermont |
8 |
Montana |
48 |
California |
9 |
Texas |
49 |
New York |
10 |
Utah |
50 |
New Jersey |
Interestingly, all ten of the states with the worst
business tax climates voted for Barack Obama in the 2008 presidential
election, and five of the ten states with the best business tax climates
voted for John McCain (and eight of the ten voted for George Bush in 2004).

"States Where People Pay the Most (and Least) in Taxes," by Charles B.
Stockdale, Michael B. Sauter, Douglas A. McIntyre, Yahoo Finance, July
21, 2011 ---
http://finance.yahoo.com/taxes/article/113173/states-pay-most-least-taxes-247wallst
Jensen Comment
But we're only operating in the narrow range of 6.3% (Alaska) to 12.2% (New
Jersey) for state and local taxes, including property taxes. One would hope
that, by adding to a state's tax burden, the quality of education would be the
result of higher taxes. This, however, is not the case for most states. For
example, South Dakota comes in at Rank 3 with a very low 7.6% tax burden and
manages to have one of the very best K-12 rural and urban education systems
among the 50 states. Unfortunately, this does not extend to higher education in
South Dakota. New Jersey has the highest taxation rate of 12.2% but does not get
a whole lot of K-12 bang for the buck in terms of education compared with the
low taxation states of South Dakota, New Hampshire, and Tennessee.
The largest cities in the U.S. face the most daunting problems in K-12
education. Problems with rural versus urban may be greater than problems with
high state taxation versus low state taxation. For example, rural New York has
some very nice rural K-12 schools that exist apart from troubled NYC schools. On
the other hand, rural Texas has some of the worst rural K-12 schools in the
nation. Mississippi has some of the worst urban and rural schools in the nation,
but Mississippi is neither a high nor a low taxation state total state and local
taxation rankings. However, in terms of local property taxation, Mississippi has
low property tax burdens. Quality of schools in rural communities correlates
highly and negatively with degree of poverty in those communities. Quality of
urban schools is more complicated. New York City and Chicago are quite wealthy
and prosperous in ways that do not translate in to quality of K-12 inner city
public schools. Minneapolis is less prosperous and wealthy but probably has
somewhat better public schools. although in every large U.S. city the inner city
schools are lower in quality than schools in their suburbs.
Bob Jensen's threads on taxation are at
http://www.trinity.edu/rjensen/BookBob1.htm#010304Taxation
From Ernst & Young on January 20, 2012
Financial reporting alert: Highly
inflationary economies
The Center for Audit Quality (CAQ) SEC
Regulations Committee’s International Practices Task Force (the Task Force)
today posted highlights from its recently finalized 22 November 2011
discussions, which indicate that based on available economic data, the
Belarus three-year cumulative inflation rate exceeded 100
percent as of 30 September 2011.
An economy whose cumulative inflation rate is 100 percent or more over a
three-year period is highly inflationary for US GAAP reporting purposes.
Generally, highly inflationary accounting is applied as of the first day of
the reporting period immediately following the reporting period (including
interim reporting periods) in which an economy is assessed to be highly
inflationary. However, for reasons noted in the Task Force’s highlights, the
SEC staff would not object to registrants treating the economy of Belarus as
highly inflationary no later than the first reporting period beginning after
15 December 2011.
Separately, the SEC staff expects registrants to continue to treat the
economies of the Democratic Republic of Congo and
Venezuela as highly inflationary.
There may be other countries with cumulative inflation rates of 100 percent
or more or that should be monitored that are not mentioned above because the
sources used by the Task Force do not include inflation data for all
countries. Accordingly, companies should closely monitor the inflation rates
in economies in which they operate.
For further information, including SEC disclosure considerations related to
the events in Belarus, see the
Task
Force Highlights Excerpt.
http://thecaq.org/iptf/pdfs/highlights/2011_November22_IPTF_JointMeetingHLs.pdf
One of the most popular Excel spreadsheets that Bob Jensen ever provided
to his students ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
Bob Jensen's threads on price-level adjustments ---
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting
Bisk CPA Examination Review Sites
Bisk Education would like to provide you similar information with a link for our
2 accounting resources which are
www.cpaexam.com and
www.cpeasy.com
"Turning risk into advantage: A case study," by John Michael
Farrell, KPMG Institute, June 20, 2011 ---
http://www.kpmginstitutes.com/404-institute/insights/2011/pdf/turning-risk-into-advantage-case-study.pdf
Thank you Jerry Trites for the heads up.
Building a Search Engine at Udacity ---
http://www.udacity.com/
Thank you Joe Hoyle for the heads ups
Learn programming in seven weeks. We'll teach you
enough about computer science that you can build a web search engine like
Google or Yahoo!
"So you want to learn to program?" by Robert Talbert, Chronicle of
Higher Education, January 16, 2012 ---
http://chronicle.com/blognetwork/castingoutnines/2012/01/16/so-you-want-to-learn-to-program/?sid=wc&utm_source=wc&utm_medium=en
Jensen Comment
Having taught both Fortran and COBOL at one point in my career, I will pass on
this opportunity to upgrade my programming skills. However, these sound like
valuable free resources for the younger generation headed for college or that
generation of unemployable history majors seeking new skills.
Bob Jensen's threads on Tools and Tricks of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"Here Are the Colleges with the Best CPA Exam Performance," by
by Adrienne Gonzalz, Going Concern, January 9, 2012 ---
http://goingconcern.com/post/here-are-colleges-best-cpa-exam-performance
"And Now, We're Going to Judge Florida Colleges' Performance on the CPA
Exam," by Adrienne Gonzalz, Going Concern, January 6, 2012 ---
http://goingconcern.com/post/and-now-were-going-judge-florida-colleges-performance-cpa-exam
Jensen Comment
I think Adrienne is running a series of tidbits on CPA examination performance
by state --- starting with a previous article on California. This is can be a
very misleading thing to do unless we're careful about how to mislead with
statistics.
For example, Florida A&M is a predominantly African American university that
annually comes out at or near the bottom on the CPA examination passage rate.
Based upon my experience when I was across town at Florida State University,
however, Florida A&M across town had a program that was not very well geared to
CPA examination passage. At least in those days, Florida A&M was closely tied to
large corporations like IBM and had quite a few practicum (internship) courses
and managerial accounting courses in each student's curriculum. In other words,
the goal from get go for an accounting major was corporate accounting and not
CPA firm accounting. Hence an African American student bent on becoming a CPA
would be advised to strongly consider one of the other top state universities in
Florida. This may have changed over the years since I left Florida.
Also Florida A&M typically has a very small number of graduates sitting for
the CPA examination. After leaving FSU I joined the faculty of Trinity
University. Trinity is a small university (about 2,200 students) with a huge
endowment that enables it to attract high SAT/ACT performing students, and the
accounting program typically attracts some of the top students admitted to the
university. However, Trinity's performance on the CPA examination is somewhat of
a yo-yo. For example, last year Trinity scored 5th in the nation on the CPA
examination. But there are years in which Trinity will perform much lower
because the number of exam takers (sometimes less than ten) leads to all sorts
of variability common in small samples in general.
There is also bias on examination performance in terms of admission standards
vis-a-vis quality of teaching. We might assume that this year's top
performing schools in California (US Berkeley) and Florida (UF in Gainesville)
also had the best accounting teachers. This is ipso facto not necessarily
true when the students are the top SAT/ACT accounting students in those states.
The best teachers may actually be the ones who stretch the students
further that have lower incoming credentials.
Top-performing accounting programs like Notre Dame, BYU, UC Berkeley,
University of Texas, University of Michigan, University of Wisconsin, University
of Tennessee, Texas A&M etc. are greatly challenged by having large numbers of
accounting students. The challenge is how to keep upper division accounting
classes relatively small with tightened budgets. Those schools with high SAT/ACT
accounting majors might well consider the BYU approach of pushing more faculty
resources into the upper division courses by teaching basic accounting via video
courses that rarely meet in classrooms ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#BYUvideo
This BYU approach, however, probably will not work as well where accounting
majors need more push, inspiration, and live teaching.
Bob Jensen's threads on Tricks and Tools of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"Working In Word, Excel, PowerPoint on an iPad," by Walter S.
Mossberg, The Wall Street Journal, January 12, 2012 ---
http://online.wsj.com/article/SB10001424052970203436904577154840906816210.html?mod=WSJ_Tech_RightMostPopular
Although Apple's popular iPad tablet has been able
to replace laptops for many tasks, it isn't a big hit with folks who'd like
to use it to create or edit long Microsoft Office documents.
While Microsoft has released a number of apps for
the iPad, it hasn't yet released an iPad version of Office. There are a
number of valuable apps that can create or edit Office documents, such as
Quickoffice Pro, Documents To Go and the iPad version of Apple's own iWork
suite. But their fidelity with Office documents created on a Windows PC or a
Mac isn't perfect.
This week, Onlive Inc., in Palo Alto, Calif., is
releasing an app that brings the full, genuine Windows versions of the key
Office productivity apps—Word, Excel and PowerPoint—to the iPad. And it's
free. These are the real programs. They look and work just like they do on a
real Windows PC. They let you create or edit genuine Word documents, Excel
spreadsheets and PowerPoint presentations.
I've been testing a pre-release version of this new
app, called OnLive Desktop, which the company says will be available in the
next few days in Apple's app store. More information is at
desktop.onlive.com.
My verdict is that it works, but with some caveats,
limitations and rough edges. Some of these downsides are inherent in the
product, while others have to do with the mismatch between the iPad's touch
interface and the fact that Office for Windows was primarily designed for a
physical keyboard and mouse.
Creating or editing long documents on a tablet with
a virtual on-screen keyboard is a chore, no matter what Office-type app you
choose. So, although it isn't a requirement, I strongly recommend that users
of OnLive Desktop employ one of the many add-on wireless keyboards for the
iPad.
OnLive Desktop is a cloud-based app. That means it
doesn't actually install Office on your iPad. It acts as a gateway to a
remote server where Windows 7, and the three Office apps, are actually
running. You create an account, sign in, and Windows pops up on your iPad,
with icons allowing you to launch Word, Excel or PowerPoint. (There are also
a few other, minor Windows programs included, like Notepad, Calculator and
Paint.)
In my tests, the Office apps launched and worked
smoothly and quickly, without any noticeable lag, despite the fact that they
were operating remotely. Although this worked better for me on my fast home
Internet connection, it also worked pretty well on a much slower hotel
connection.
Like Office itself, the documents you create or
modify don't live on the iPad. Instead, they go to a cloud-based repository,
a sort of virtual hard disk. When you sign into OnLive Desktop, you see your
documents in the standard Windows documents folder, which is actually on the
remote server. The company says that this document storage won't be
available until a few days after the app becomes available.
To get files into and out of OnLive Desktop, you
log into a Web site on your PC or Mac, where you see all the documents
you've saved to your cloud repository. You can use this Web site to upload
and download files to your OnLive Desktop account. Any changes made will be
automatically synced, the company says, though I wasn't able to test that
capability in my pre-release version.
Because it's a cloud-based service, OnLive Desktop
won't work offline, such as in planes without Wi-Fi. And it can be finicky
about network speeds. It requires a wireless network with at least 1 megabit
per second of download speed, and works best with at least 1.5 to 2.0
megabits. Many hotels have trouble delivering those speeds, and, in my
tests, the app refused to start in a hotel twice, claiming insufficient
network speed when the hotel Wi-Fi was overloaded.
The free version of the app has some other
limitations. You get just 2 gigabytes of file storage, there's no Web
browser or email program like Outlook included, and you can't install
additional software. If many users are trying to log onto the OnLive Desktop
servers at once, you may have to wait your turn to use Office.
In the coming weeks, the company plans to launch a
Pro version, which will cost $10 a month. It will offer 50 GB of cloud
document storage, "priority" access to the servers, a Web browser, and the
ability to install some added programs. It will also allow you to
collaborate on documents with other users, or even to chat with, and present
material to, groups of other OnLive Desktop users.
The company also plans to offer OnLive Desktop on
Android tablets, PCs and Macs, and iPhones.
In my tests, I was able to create documents on an
iPad in each of the three cloud-based Office programs. I was able to
download them to a computer, and alter them on both the iPad and computer. I
was also able to upload files from the computer for use in OnLive Desktop.
OnLive Desktop can't use the iPad's built-in
virtual keyboard, but it can use the virtual keyboard built into Windows 7
and Windows' limited touch features and handwriting recognition. As noted
above, I recommend using a wireless physical keyboard. But even these aren't
a perfect solution, because the ones that work with the iPad can't send
common Windows keyboard commands to OnLive Desktop, so you wind up moving
between the keyboard and the touch screen, which can be frustrating. And you
can't use a mouse.
Another drawback is that OnLive Desktop is entirely
isolated from the rest of the iPad. Unlike Office-compatible apps that
install directly on the tablet, this cloud-based service can't, for
instance, be used to open Office documents you receive via email on the iPad.
And, at least at first, the only way you can get files into and out of
OnLive Desktop is through its Web-accessible cloud-storage service. The free
version has no email capability, and the app doesn't support common
file-transfer services like Dropbox or SugarSync. The company says it hopes
to add those.
OnLive Desktop competes not only with the iPad's
Office clones, but with iPad apps that let you remotely access and control
your own PCs and Macs, and thus use Office and other computer software on
those.
Continued in article
Bob Jensen's threads in Tricks and Tools of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"Flex or Break? Extensions in XBRL Disclosures to the SEC," Roger S.
Debreceny, Stephanie M. Farewell, Maciej Piechocki, Carsten Felden, Andre
Gräning, and Alessandro d'Eri, Accounting Horizons, December 2011,
pp.631-658
The Securities and Exchange Commission (SEC) has
adopted the eXtensible Business Reporting Language (XBRL) in a multi-year
program to enhance the functionality of the Commission's EDGAR database.
Filers tag their financial statements with elements from a taxonomy that
defines the reporting concepts so that the XBRL files can be understood by
information consumers. The U.S. GAAP taxonomy was designed to represent
common reporting practices and support the disclosure requirements of U.S.
GAAP. If taxonomy elements for each disclosure concept are not present, the
filer creates an extension element. Extensions, when used appropriately,
provide decision-relevant information. When used inappropriately,
particularly when a semantically equivalent element already exists in the
foundation taxonomy, extensions add no information content. This research
analyzes extensions made in a subset of XBRL filings made to the SEC between
April 2009 and June 2010. Forty percent of these extensions were
unnecessary, as semantically equivalent elements were already in the U.S.
GAAP taxonomy. Extensions that aggregated or disaggregated existing elements
comprised 21 percent of the extensions. New concepts accounted for 30
percent of the extensions, although many were variants of existing elements,
rather than significantly new concepts.
Continued in article
XBRL
"Exposure Draft of the IFRS Taxonomy 2012," IAS Plus, January
18, 2012 ---
http://www.ifrs.org/Alerts/XBRL/Exposure+Draft++IFRS+Taxonomy+2012.htm
The
IFRS Foundation has published for public comment an exposure draft of the
International Financial Reporting Standards (IFRS) Taxonomy 2012. The
proposed Taxonomy is a translation of IFRSs and interpretations as issued at
1 January 2012 into
XBRL (eXtensible Business Reporting Language).
The
2012 Taxonomy consolidates all
IFRS Taxonomy interim releases
that were published in 2011.
In
addition, the proposed IFRS Taxonomy 2012 will be the first IFRS Taxonomy to
include common practice extensions to the IFRS XBRL Taxonomy. These
extensions were derived from an analysis of approximately 200 IFRS financial
statements and will diminish the need for preparers to customize the
taxonomy to fit their individual business when filing IFRS compliant
financial statements online.
The
exposure draft IFRS Taxonomy 2012 is open for comment until 17 March 2012.
IFRSs issued by the International Accounting Standards Board (IASB) from 1
January 2012 onwards will be published as interim releases to the Taxonomy.
Bob Jensen's threads on XBRL ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
Question
Do you want to teach XBRL in some of your courses?
Hi Bill,
I think many financial statement analysis courses around the world now have XBRL
modules. These are not well documented and are probably more focused on how to
use available XBRL-tagged financial statements than on how to do the tagging.
Universities in Singapore and South Korea are probably ahead of the U.S. in
teaching XBRL. The South Korean stock exchange was certainly a wonderful leader
in XBRL adoption which I demo on video ---
http://www.cs.trinity.edu/~rjensen/video/Tutorials/
Note that my videos may not work with Windows 7 since Microsoft dropped an audio
codec that Camtasia used before Windows 7,.
Go to YouTube and search on XBRL ---
http://www.youtube.com/
Clinton (Skip) Whte at the University of Delaware has a book on XBRL and teaches
XBRL
http://www.lerner.udel.edu/faculty-staff/faculty/clinton-white
See The Guide & Workbook for Understanding
XBRL (4th edition), SkipWhite.com, 2010
You might check
Zane Swanson's XBRL Blog ---
http://blog.askaref.com/
I think Zane teaches some modules on XBRL.
Zane Swanson's Website ---
www.askaref.com
Also go to the XBRL International home page at
http://www.xbrl.org/
A helpful list of contacts is provided at
http://www.xbrl.org/StandardsBoard
Some of these people like Ray Lam may be able to suggest some college
instructors to contact.
Some teachers to contact suggested by the SEC are listed at
http://www.sec.gov/news/otherwebcasts/2010/xbrlseminar032310-transcript.pdf
Our XBRL actives on the AECM may provide other suggestions. These include
Neal Hannon, Saeed Roohani, Bill Richardson, Zane Swanson, and Glen Gray. I
would also suggest Roger Debreceny, although Roger has been inactive on the
AECM for a long time. Bill Richardson in Australia is a great foreign
contact and technical expert.
You might check with Rivet Software for a listing of academic users of their
product. My old contact in Rivet was Jaci
Schneider Rivet Software
jschneid@ischool.utexas.edu
I'm not certain that Jaci is still with Rivet.
Bob Jensen's threads on the history of XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
From Ernst & Young's Week in Review, March 3,
2011
For additional
information on the SEC's rule regarding the use of XBRL, we encourage
you to monitor the XBRL page on the
SEC's website (http://xbrl.sec.gov) and to consider our publications
and webcast, which are available on AccountingLink:
March 9, 2011 reply from Glen Gray
Another nice source of XBRL classroom
material is available from Kelly Williams, Rick Elam, and Mitch Wenger.
The contact person is Mitch at
mrwenger@olemiss.edu
They start with XML exercises and then
move on to XBRL. They use XML and XBRL software from Altova at
www.altova.com who
provides free licensing of their products to educators.
Glen L. Gray, PhD, CPA
Dept. of Accounting & Information Systems
College of Business & Economics
California State University, Northridge
18111 Nordhoff ST
Northridge, CA 91330-8372
818.677.3948
http://www.csun.edu/~vcact00f
Respectfully,
Bob Jensen
"U.S. Charges 3 Swiss Bankers in Tax Case," by Chad Bray, The Wall
Street Journal, January 3, 2011 ---
http://online.wsj.com/article/SB10001424052970204368104577139043222716600.html
Jensen Comment
These Swiss bankers were indicted for helping U.S. taxpayers hide $1.2 billion
from the IRS in offshore accounts
Purportedly their defense is full of holes (sorry about that).
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Grammar Girl traces the @ symbol back to the middle ages ---
http://grammar.quickanddirtytips.com/where-did-the-at-symbol-come-from.aspx?WT.mc_id=0
.. .
Scribes
used to use it to list prices on invoices and accounting sheets, as in 12
eggs AT one pence per egg.
Continued in article
American spelling --
traveled
* British spelling -- travelled
But we see "modelled" and modeled use somewhat interchangeably with "modeled"
being more popular.
Frequently Asked Questions in Corporate Finance
By Pascal Quiry, Yann Le Fur, Antonio Salvi,
Maurizio Dallochio
http://www.wiley.com/WileyCDA/WileyTitle/productCd-111997755X.html
Thanks to SmartPros for the heads up.
"CONGRESS THE CORRUPT," by Anthony H. Catanach Jr. and J. Edward Ketz,
Grumpy Old Accountants, January 9, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/474
The Christmas and New Year’s break allows
university faculty not only to enjoy family and friends, but also it
supplies a moment to do some nontechnical reading. After all, we don’t need
that much time to look over our teaching notes. Faculty need something
constructive to do during the three or four weeks we have off, and catching
up on our reading fits in marvelously.
We read two interesting books during this break.
The first is
Throw Them All Out by Peter Schweizer.
The subtitle tells it all: “How politicians and their friends get rich off
insider stock tips, land deals, and cronyism that would send the rest of us
to prison.” For example, the author discusses how Speaker Nancy Pelossi
(Democrat) and her husband garnered Visa IPO shares in 2008 after intimating
that she would introduce legislation which would prove very costly to Visa.
Of course, Pelosi backed off her threat once she and her husband received
those IPO shares. Schweizer also gives the example of Speaker Dennis
Hastert (Republican), who used his knowledge of a proposed interchange for
Interstate 88 to buy acreage on the cheap and sell it for its new market
value. Hastert realized millions in profits.
Worse, the ethics rules of the House and the Senate
allow these things to occur. In some twisted logic, Congress permits its
members to engage in insider trading and land deals and regulatory
intimidation. It has legalized what is criminal for the rest of us.
We also read
China in Ten Words by Yu Hua. The text
is part autobiographical, part historical, and part social commentary. Mr.
Hua describes China in ten chapters, each titled with a single word. The
words he chooses are people, leader, reading, writing, Lu Xun, revolution,
disparity, grassroots, copycat, and bamboozle. With these words, he
describes the incredible social and economic changes in China during his
life-time, starting with the Cultural Revolution from 1966 until late 1970s,
which was followed by the economic revolution to the present.
The description records incredible changes in
China, such as the nation’s becoming the second largest economic power in
the world. It also traces the failings of this transformation, such as
ranking about 100th in the world in per capita income. The
contradiction between these two measures foreshadows social conflict that
must be dealt with sooner or later.
What proved serendipitous, even ironic, in this
reading is to note the connection between the books. In certain ways the
two countries show similar contradictions and shortcomings. Yu Hua
discusses “today’s large-scale, multifarious corruption” in China; but the
U.S. Congress engages in similar dishonesty.
Continued in article
The Wonk (Professor) Who Slays Washington
Insider trading is an asymmetry of information between a buyer and a seller
where one party can exploit relevant information that is withheld from the other
party to the trade. It typically refers to a situation where only one party has
access to secret information while the other party has access to only
information released to the public. Financial markets and real estate markets
are usually very efficient in that public information is impounded pricing the
instant information is made public. Markets are highly inefficient if traders
are allowed to trade on private information, which is why the SEC and Justice
Department track corporate insider trades very closely in an attempt to punish
those that violate the law. For example, the former
wife of a partner in the auditing firm Deloitte & Touche was recently sentenced
to 11 months exploiting inside information extracted from him about her
husband's clients. He apparently did was not aware she was using this inside
information illegally.
In another recent case, hedge fund manager Raj Rajaratnam was sentenced to 11
years for insider trading.
Even more commonly traders who are damaged by insiders typically win enormous
lawsuits later on for themselves and their attorneys, including enormous
punitive damages. You can read more about insider trading at
http://en.wikipedia.org/wiki/Insider_trading
Corporate executives like Bill Gates often announce future buying and selling
of shares of their companies years in advance to avoid even a hint of scandal
about exploiting current insider information that arises in the meantime. More
resources of the SEC are spent in tracking possible insider information trades
than any other activity of the SEC. Efforts are made to track trades of
executive family and friends and whistle blowing is generously rewarded.
Question
Trading on insider information is against U.S. law for every segment of society
except for one privileged segment that legally exploits investors for personal
gains by trading on insider information. What is that privileged segment of
U.S. society legally trades on inside information for personal gains?
Hints:
Congress is our only native criminal class.
Mark Twain ---
http://en.wikipedia.org/wiki/Mark_Twain
We hang the petty thieves and appoint the great ones to public office.
Attributed to Aesop
Answer (Please share this with your students):
Over the years I've been a loyal viewer of the top news show on television ---
CBS Sixty Minutes
On November 13, 2011 the show entitled "Insider"
is the most depressing segment I've ever watched on television ---
http://www.cbsnews.com/video/watch/?id=7387951n&tag=contentMain;contentBody#ixzz1dfeq66Ok
Also see
http://financeprofessorblog.blogspot.com/2011/11/congress-trading-stock-on-inside.html
Jensen Comment
- It came as no surprise that many (most?) members of the U.S. House of
Representatives and the U.S. Senate that writes the laws of the land made it
illegal for to trade in financial and real estate market by profiting
personally on insider information not yet available, including pending
legislation that they will decide, wrote themselves out of the law making
it legal for them to personally profit from trading on insider information.
What came as a surprise is how leaders at the very top of Congress make
millions trading on inside information with impunity and well as immunity.
- The Congressional leader that comes off the worst in this Sixty
Minutes "Insider" segment is former House Speaker and current Minority
leader Nancy Pelosi.
When confronted with specific facts on how she and her husband made some of
their insider trading millions she fired back at reporter Steve Kroft with
an evil glint saying what is tantamount to: "How dare you question me about
insider trades that are perfectly legal for members of Congress. Who are you
to question my ethics about exploiting our insider trading privileges. Back
off Steve or else!" Her manner can be extremely scary. Other Democratic
Party members of Congress come off almost as bad in terms of insider trading
for personal gain.
- Current Speaker of the House,
John
Boehner, is more subtle. He denies making any of his personal portfolio
investment decisions and denies communicating with the person he hires to
make such decision. However, that trust investor mysteriously makes money
for Rep. Boehner using insider information obtained mysteriously. Other
Republican members of Congress some off even worse in terms of insider
trading.
- Members of Congress on powerful committees regularly make insider
profits on legislation currently being written into the law that is still
being held secret from the public. One of my heroes, former Senator
Judd Gregg,
is no longer my hero.
- Everybody knows that influence peddling in Congress by lobbyists, many
of them being former members of Congress, is a dirty business of showering
gifts on current members of Congress. What is made clear, however, is that
these lobbyists are personally getting something in return from friendly
members of Congress who pass along insider information to lobbyists. The
lobbyists, in turn, peddle this insider information back to the private
sector, such as hedge fund managers, for a commission. Moral of story:
Voters do not stop insider trading by a member of Congress by voting him or
her out of office if they become peddlers of insider information obtained,
as lobbyists, from their old friends still in the Congress.
- Five out of 435 members of the House of Representatives are seeking to
sponsor a bill to make it illegal for representatives and senators to profit
from trading on inside information. The Sixty Minutes show demonstrates how
Nancy Pelosi, John Boehner, and other House leaders have buried that effort
so deep in the bowels of the legislative process that there's no chance in
hell of stopping insider trading by members of Congress. Insider trading is
a privilege that attracts unethical people to run for Congress.
Watch the "Insider" Video Now While
It's Still Free ---
http://www.cbsnews.com/video/watch/?id=7387951n&tag=contentMain;contentBody

Bob Jensen's threads on the Sad State of Government Accounting and
Accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"What the Heck is Research Anyway?" by Brent Roberts, The Hardest
Science, December 20, 2011 ---
http://hardsci.wordpress.com/2011/12/20/what-the-heck-is-research-anyway-a-guest-post-by-brent-roberts/
Jensen Comment
This is pretty much what we teach students about research if we're both
practical and idealists. But it's a nice summary.
If I were to add something to this it would be examples of how some of the
greatest discoveries in the world came about by accident. It might also be nice
to compare the lazy Aristotle with the ambitious Galileo.
Followed by an upskirt fantasy video that got my attention.
"The Dumbest Idea In The World: Maximizing Shareholder Value," by
Steve Denning, Forbes, November 28, 2011 ---
http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/
“Imagine an NFL coach,” writes Roger Martin, Dean
of the Rotman School of Management at the University of Toronto, in his
important new book, Fixing the Game, “holding a press conference on
Wednesday to announce that he predicts a win by 9 points on Sunday, and that
bettors should recognize that the current spread of 6 points is too low. Or
picture the team’s quarterback standing up in the postgame press conference
and apologizing for having only won by 3 points when the final betting
spread was 9 points in his team’s favor. While it’s laughable to imagine
coaches or quarterbacks doing so, CEOs are expected to do both of these
things.”
Imagine also, to extrapolate Martin’s analogy, that
the coach and his top assistants were hugely compensated, not on whether
they won games, but rather by whether they covered the point spread. If they
beat the point spread, they would receive massive bonuses. But if they
missed covering the point spread a couple of times, the salary cap of the
team could be cut and key players would have to be released, regardless of
whether the team won or lost its games.
Suppose also that in order to manage the
expectations implicit in the point spread, the coach had to spend most of
his time talking with analysts and sports writers about the prospects of the
coming games and “managing” the point spread, instead of actually coaching
the team. It would hardly be a surprise that the most esteemed coach in this
world would be a coach who met or beat the point spread in forty-six of
forty-eight games—a 96 percent hit rate. Looking at these forty-eight games,
one would be tempted to conclude: “Surely those scores are being ‘managed’?”
Suppose moreover that the whole league was rife
with scandals of coaches “managing the score”, for instance, by deliberately
losing games (“tanking”), players deliberately sacrificing points in order
not to exceed the point spread (“point shaving”), “buying” key players on
the opposing team or gaining access to their game plan. If this were the
situation in the NFL, then everyone would realize that the “real game” of
football had become utterly corrupted by the “expectations game” of
gambling. Everyone would be calling on the NFL Commissioner to intervene and
ban the coaches and players from ever being involved directly or indirectly
in any form of gambling on the outcome of games, and get back to playing the
game.
Which is precisely what the NFL Commissioner did in
1962 when some players were found to be involved betting small sums of money
on the outcome of games. In that season, Paul Hornung, the
Green
Bay Packers halfback and the league’s most
valuable player (MVP), and Alex Karras, a star defensive tackle for the
Detroit
Lions, were accused of betting on NFL games, including
games in which they played. Pete Rozelle, just a few years into his
thirty-year tenure as league commissioner, responded swiftly. Hornung and
Karras were suspended for a season. As a result, the “real game” of football
in the NFL has remained quite separate from the “expectations game” of
gambling. The coaches and players spend all of their time trying to win
games, not gaming the games.
The real market vs the expectations market
In today’s paradoxical world of maximizing
shareholder value, which Jack Welch himself has called “the dumbest idea in
the world”, the situation is the reverse. CEOs and their top managers have
massive incentives to focus most of their attentions on the expectations
market, rather than the real job of running the company producing real
products and services.
The “real
market,” Martin explains, is the world in which factories are
built, products are designed and produced, real products and services are
bought and sold, revenues are earned, expenses are paid, and real dollars of
profit show up on the bottom line. That is the world that executives
control—at least to some extent.
The
expectations market is the world in which shares in companies are
traded between investors—in other words, the stock market. In this market,
investors assess the real market activities of a company today and, on the
basis of that assessment, form expectations as to how the company is likely
to perform in the future. The consensus view of all investors and potential
investors as to expectations of future performance shapes the stock price of
the company.
“What would lead [a CEO],” asks Martin, “to do the
hard, long-term work of substantially improving real-market performance when
she can choose to work on simply raising expectations instead? Even if she
has a performance bonus tied to real-market metrics, the size of that bonus
now typically pales in comparison with the size of her stock-based
incentives. Expectations are where the money is. And of course, improving
real-market performance is the hardest and slowest way to increase
expectations from the existing level.”
In fact, a CEO has little choice but to pay careful
attention to the expectations market, because if the stock price falls
markedly, the application of accounting rules (regulation FASB 142) classify
it as a “goodwill impairment”. Auditors may then force the write-down of
real assets based on the company’s share price in the expectations market.
As a result, executives must concern themselves with managing expectations
if they want to avoid write-downs of their capital.
In this world, the best managers are those who meet
expectations. “During the heart of the Jack Welch era,” writes Martin, “GE
met or beat analysts’ forecasts in forty-six of forty-eight quarters between
December 31, 1989, and September 30, 2001—a 96 percent hit rate. Even more
impressively, in forty-one of those forty-six quarters, GE hit the analyst
forecast to the exact penny—89 percent perfection. And in the remaining
seven imperfect quarters, the tolerance was startlingly narrow: four times
GE beat the projection by 2 cents, once it beat it by 1 cent, once it missed
by 1 cent, and once by 2 cents. Looking at these twelve years of unnatural
precision, Jensen asks rhetorically: ‘What is the chance that could happen
if earnings were not being “managed’?”’ Martin replies: infinitesimal.
In such a world, it is therefore hardly surprising,
says Martin, that the corporate world is plagued by continuing scandals,
such as the accounting scandals in 2001-2002 with Enron, WorldCom,
Tyco International, Global Crossing, and Adelphia,
the options backdating scandals of 2005-2006, and the subprime meltdown of
2007-2008. The recent demise of
MF
Global Holdings and the related ongoing criminal
investigation are further reminders that we have not put these matters
behind us.
“It isn’t just about the money for shareholders,”
writes Martin, “or even the dubious CEO behavior that our theories
encourage. It’s much bigger than that. Our theories of shareholder value
maximization and stock-based compensation have the ability to destroy our
economy and rot out the core of American capitalism. These theories underpin
regulatory fixes instituted after each market bubble and crash. Because the
fixes begin from the wrong premise, they will be ineffectual; until we
change the theories, future crashes are inevitable.”
“A pervasive emphasis on the expectations market,”
writes Martin, “has reduced shareholder value, created misplaced and
ill-advised incentives, generated inauthenticity in our executives, and
introduced parasitic market players. The moral authority of business
diminishes with each passing year, as customers, employees, and average
citizens grow increasingly appalled by the behavior of business and the
seeming greed of its leaders. At the same time, the period between market
meltdowns is shrinking, Capital markets—and the whole of the American
capitalist system—hang in the balance.”
How did capitalism get into this mess?
Martin says that the trouble began in 1976 when
finance professor Michael Jensen and Dean William Meckling of the Simon
School of Business at the University of Rochester published a seemingly
innocuous paper in the Journal of Financial Economics entitled “Theory of
the Firm: Managerial Behavior, Agency Costs and Ownership Structure.”
The article performed the old academic trick of
creating a problem and then proposing a solution to the supposed problem
that the article itself had created. The article identified the
principal-agent problem as being that the shareholders are the principals of
the firm—i.e., they own it and benefit from its prosperity, while the
executives are agents who are hired by the principals to work on their
behalf.
The principal-agent problem occurs, the article
argued, because agents have an inherent incentive to optimize activities and
resources for themselves rather than for their principals. Ignoring Peter
Drucker’s foundational insight of 1973 that the only valid purpose of a
firm is to create a customer, Jensen and Meckling argued that
the singular goal of a company should be to maximize the return to
shareholders.
To achieve that goal, they academics argued, the
company should give executives a compelling reason to place shareholder
value maximization ahead of their own nest-feathering. Unfortunately, as
often happens with bad ideas that make some people a lot of money, the idea
caught on and has even become the conventional wisdom.
Continued in a long article
Jensen Comment
It's a good thing my friend Al Rappaport made it big on book royalties and
consulting before this word leaked out ---
http://en.wikipedia.org/wiki/Shareholder_value
More pension funds adopt mark-to-market accounting in anticipation of IFRS
deadline
"More pension plans count down to year-end mark," by Nanette Byrnes,
Reuters, December 30, 2011 ---
http://www.reuters.com/article/2011/12/30/us-pension-accounting-mark-idUSTRE7BT0TL20111230
Note that IFRS 9 implementation was recently delayed by the IASB and will not
go into effect until the beginning of 2015.
"IAS 32 Financial Instruments: Presentation — Put options written over
non-controlling interests," IAS Plus, January 17, 2012 ---
http://www.iasplus.com/ifric/1201.htm#ias32
Throughout 2010 and 2011, the Committee considered
a request for guidance on how an entity should account for changes in the
carrying amount of a financial liability for a put option, written over
shares held by a non-controlling interest shareholder (NCI put), in the
consolidated financial statements of a parent entity. The request is the
result of perceived diversity in accounting for the subsequent measurement
of the financial liability that is recognised for those NCI puts. The issue
arises because of potential inconsistencies between the requirements for
measuring financial liabilities and the requirements for accounting for
transactions with owners in their capacity as owners, whereby some believe
that subsequent changes in the liability that is recognised for the NCI put
should be recognised in profit or loss while others believe the change in
the liability should be recognised in equity.
Given that the IASB rejected the Committee's
initial recommendation for a possible scope exclusion to IAS 32 Financial
Instruments: Presentation for put options written over the non-controlling
interest in the consolidated financial statements of a group, the Committee
considered possible paths forward on this project.
The Committee was directed by the IASB to
specifically consider whether changes in the measurement of the NCI put
should be recognised in profit or loss or equity and whether the scope of
the recognition decision should be applied only to NCI puts or extended to
include both NCI puts and NCI forwards. While the Committee was asked to
consider these two focused questions, they quickly expanded the scope of the
discussion by considering broader concerns surrounding the project including
the counterintuitive result of recognising a 'gross' liability when
reflecting subsequent changes in the liability in profit or loss (as opposed
to reflection on a 'net' basis), the treatment of the purchase of a NCI put
with variable consideration and the timing of transaction recognition;
acknowledging that these were the same concerns expressed when they made
their initial recommendation to the IASB to exclude from the scope of IAS 32
put options written over the non-controlling interest in the consolidated
financial statements of a group.
One Committee member expressed a preference that
application guidance be drafted which specifies that paragraph 30 of IAS 27
Consolidated and Separate Financial Statements does not apply to NCI puts
because the change in ownership interest has not yet occurred. Put another
way, only transactions with owners are recognised in equity, and remeasuring
an NCI put is not a transaction with an owner (thus should be reflected in
profit or loss). Paragraph 30 in IAS 27 is describing a circumstance in
which the controlling shareholder's and the non-controlling interest
shareholder's relative ownership of the subsidiary changes, and this is not
the case when the NCI put is remeasured. This was seen as a clarification of
the literature for subsequent measurement (to avoid diversity), albeit
without addressing some of the larger issues in the Committee's minds.
Many Committee members supported the view expressed
by this Committee member. However, other Committee members continued to
express concerns over the scope of this decision in resolving underlying
concerns previously discussed by the Committee.
When put to a vote, the Committee elected to move
forward with the application guidance proposal. However, the Committee asked
the staff to consider certain issues offline including any potential
knock-on implication to the consolidation analysis, specific principle
concerns raised by Committee members (including accounting for the premium
on warrants, accounting for the debit side of the transaction in IAS 32 and
when to derecognise the non-controlling interest) and whether the above
application guidance recommendation should be included in the body of IAS 27
as an amendment or interpretation or as application guidance.
Bob Jensen's threads on accounting for derivative financial instruments
---
http://www.trinity.edu/rjensen/caseans/000index.htm
United Kingdom Financial Reporting Council
"FRC issues an update responding to country and currency risk in financial
reporting," FRC, January 2012 ---
http://www.frc.org.uk/images/uploaded/documents/Update for Directors Jan 12
FINAL2.pdf
Executive Summary
This Update for Directors has been prompted by the current
economic uncertainties facing a number of countries around the world. This
Update aims to draw together a number of the more significant issues
directors may reflect when considering how best to provide a balanced and
understandable assessment of a company’s position and prospects in the
context of increased country and currency risk. The issues Directors could
consider include, where relevant:
The
company’s exposure to country risk, direct or to the extent practical
indirect1,
through financial instruments but also in terms of exposure to trading
counterparties (customers and suppliers);
The
impact of austerity measures being adopted in a number of countries on
the company’s forecasts, impairment testing, going concern
considerations, etc.;
Possible consequences of currency events that are not factored into
forecasts but may impact reported exposures and sensitivity testing of
impairment or going concern considerations; and
A
post balance sheet date event requiring enhanced disclosures to avoid
misleading investors.
The examples referred to in this
Update are not intended to be comprehensive but to provide a stimulus to
Directors and Audit Committees, who are better able to judge the relevance
of these and other related issues to the company’s particular circumstances.
Similar guidance has also been issued
by other regulators in recent months, including ESMA’s November 2011 public
statement “Sovereign Debt in IFRS Financial Statements”
2
which Directors may also want to consider.
Bob Jensen's threads on accounting for foreign exchange (FX) risk ---
http://www.trinity.edu/rjensen/caseans/000index.htm
"Have We Got a Convention Center to Sell You! From Boston to Austin,
politicians spend money on fancy white elephants," by Steven Malanga, The
Wall Street Journal, December 31, 2011 ---
http://online.wsj.com/article/SB10001424052970204720204577126603702369654.html#mod=djemEditorialPage_t
. . .
Then there's Boston, perhaps the quintessential
example of a city that interprets failure in the convention business as a
license to spend more on it. Massachusetts officials shelled out $230
million to renovate Hynes Convention Center in the late 1980s. When the
makeover produced virtually no economic bounce, officials decided that the
city needed a new, $800 million center financed by a hotel occupancy excise
tax, a rental-car surcharge, and the sale of taxi medallions. Opened in
2004, that new Boston Convention and Exhibition Center was projected (by
consultants hired by the state) to have Boston renting some 670,000
additional hotel rooms annually within five years. Instead, Beantown saw
just 310,000 additional hotel room rentals in 2009.
Now Massachusetts officials want to spend $2
billion to double the size of the Boston Convention Center and add a hotel.
Of course, they predict that the expanded facilities would bring an
additional $222 million into the local economy each year, including 140,000
hotel room rentals. Even with these bullish projections, officials claim
that the hotel would need $200 million in public subsidies.
"The whole thing is a racket," Boston Globe
columnist Jeff Jacoby recently observed. "Once again the politicos will
expand their empire. Once again crony capitalism will enrich a handful of
wired business operators. And once again Joe and Jane Taxpayer will pay
through the nose. How many times must we see this movie before we finally
shut it off?"
Many times, if officials in Baltimore have their
way. Several years ago they built a $300 million city-owned hotel, (the
Hilton Baltimore Convention Center Hotel) to boost the fortunes of the
city's struggling convention center. Having opened in 2008, the hotel lost
$11 million last year. Now the city is considering a public-private
expansion plan that would add a downtown arena, an additional convention
hotel, and 400,000 feet of new convention space at the cost of $400 million
in public money.
The list goes on—everywhere from Columbus, Ohio, to
Dallas, Austin, Phoenix and places in between. One problem is that
optimistic projections about new facilities fail to account for how other
cities are expanding, too. Why did Minneapolis struggle to hit projected
targets after it enlarged its convention center in 2002? "Other cities
expanded right along with us,'' Minneapolis's convention center director,
Jeff Johnson, said this year.
The surest sign that taxpayers should be leery of
such public investments is that officials have changed their sales pitch.
Convention and meeting centers shouldn't be judged, they now say, by how
many hotel rooms, restaurants, and local attractions they help fill. That's
"narrow-minded thinking," said James Rooney of the Massachusetts Convention
Center Authority this year. Instead, as Boston Mayor Thomas Menino has said,
expanding a convention center can "demonstrate to the world that we have
unlimited confidence in our city and what it can do, not only as a
convention destination but as the center of the most important trends in
hospitality, science, health and education."
Continued in article
Jensen Comment
When I still lived in San Antonio, taxpayers went on the hook for an Alamo Dome
Convention Center that cost nearly $300 million intended to also be the home of
the NBA San Antonio Spurs. Almost the instant the ribbon was cut on the the
Alamo Dome, the San Antonio Spurs asked taxpayers to fund their own new arena.
These things sell because the promoters say that the funding will come for taxes
on visitors to the city rather than local taxpayers. What they don't tell you is
that the new taxes event revenues do not pay millions of dollars in operating
and vacancy losses. Those losses are then quietly billed to local taxpayers.
Welcome to the world of urban crony business fraud
"Tracing the L.A. Coliseum's fiscal decay As the landmark stadium's
finances nose-dived, commissioners took little notice," by Paul Pringle and
Rong-Gong Lin II, Los Angeles Times, December
http://www.latimes.com/news/local/la-me-coliseum-commission-20111231,0,338108.story
Thank you Glen Gray for the heads up.
Month after month, the financial forecasts for the
Los Angeles Memorial Coliseum seemed as sunny as could be.
General Manager Patrick Lynch would tell his bosses
on the Coliseum Commission that the box office from rave concerts was brisk
and a lucrative deal for naming rights to the stadium could be just around
the corner, records show.
For the most part, the nine-member commission took
the affable Lynch at his word. And why not? As L.A. County Supervisor Don
Knabe, who si
Despite Lynch's assurances, there was a different
reality: The Coliseum had become mired in conflicts of interest, spending
irregularities and loose accounting that eroded its fiscal foundation and
had all but bankrupted its future as one of the nation's most-storied public
landmarks.
Lynch resigned in February after The Times began a
series of reports on the Coliseum's finances. He and his former events
manager, Todd DeStefano, who quit shortly before the first story appeared,
are the subjects of a criminal investigation by county prosecutors involving
alleged kickbacks and self-dealing. State regulators and the Los Angeles
city controller's office have also launched inquiries.
Three other Coliseum managers and employees have
gone on leave or left the stadium's employment after The Times'
investigation questioned the propriety of their financial dealings. All deny
wrongdoing.
How a multimillion-dollar scandal at such a
high-profile venue could go undetected for so long is not entirely clear.
But the groundwork for alleged abuse lay in a history of clumsy stewardship,
inattentiveness by commission members and a cozy relationship between Lynch
and his overseers.
The commission was empowered to safeguard the
interests of the state, county and city. But it became more of a sportsmen's
club than a watchdog.
"The place was on autopilot," said mall developer
Rick Caruso, who resigned as a commissioner earlier this year. He was often
a lone voice in challenging Lynch, with scant results. "There was no
accountability."
The Coliseum is now so broke that it is unable to
make upgrades promised in its lease with USC, whose football Trojans are the
stadium's main tenant. As a result, the panel is about to turn over
day-to-day control of the taxpayer-owned property to the private school.
Jessica Levinson, a Loyola Law School professor who
studies public corruption, described the commission's failure to spot
warning signs of the scandal as a "great tragedy."
"This was below the standards of how you would run
a neighborhood lemonade stand," she said.
The Coliseum, completed in 1923 when Warren G.
Harding was in the White House, was heralded as a symbol of a burgeoning
metropolis' ambitions to play on the global stage.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"How to Write a Lot for the Sciences," by Heather M. Whitney,
Chronicle of Higher Education, January 17, 2012 ---
http://chronicle.com/blogs/profhacker/how-to-write-a-lot-for-the-sciences/37966?sid=wc&utm_source=wc&utm_medium=en
I’ve often been frustrated by the
how-to-succeed-in-academia advice that’s out there. To be honest, a sizable
portion of it is not applicable to my work in science. Grad school was an
especially dim time. Most of the advice doled out online and in other venues
was along the lines of “just write! write! write!” and I would sigh and ask
myself, “but what about getting productive at planning and doing
experiments?”
But lately I’ve had a bit of a change of heart.
Maybe there is something I can glean from the advice on writing. I
read a fascinating post by Holly Tucker, a historian of science and
medicine, in which
she details the practice of her writing group.
Tucker describes how the book How
to Write a Lot: A Practical Guide to Productive Academic Writing
changed her point of view on writing and has led to a
greater productivity in this slice of her job.
I figured, if a historian of science can
get something out of this, maybe so can I. So I purposed with a faculty
friend of mine and we both read the book over the holiday break.
I won’t give all the details of the book here, but
in short, the author, Paul Silvia, advises that you write and meet with an
accountability group regularly. He claims that if you make appointments with
yourself to write, and give these appointments the level of importance that
you give other items in your schedule (such as teaching a class), you will
see productivity.
Continued in article
Jensen Comment
I plan to post this to the AAA Commons Writing Forum commenced by our AECM
friend Zane Swanson ---
http://commons.aaahq.org/posts/c5fdcaace5
Bob Jensen's helpers for writers ---
http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries
"When They Are Wrong, Analysts May Dig in Their Heels," by John L.
Beshears and Katherine L. Milkman, Stanford Graduate School of Business, August
2011 ---
http://www.gsb.stanford.edu/news/research/beshears_analysts_2011.html?cmpid=alumni
When they are wrong about quarterly earnings
forecasts, analysts may stubbornly stick to their erroneous views, a
tendency that might contribute to market bubbles and busts, according to
research coauthored by John Beshears of the Stanford Graduate School of
Business.
Continued in article
Bob Jensen's threads on behavioral and cultural economics and finance ---
http://www.trinity.edu/rjensen/Theory01.htm#Behavioral
What is a good formula for balancing creative license with historical
accuracy?
Case in Point: A woman with a tattoo on her chin
"She's a Character Who Could Have Stepped Out of Melville or Hawthorne" by
Michael Stratford, Chronicle of Higher Education, January 15, 2012 ---
http://chronicle.com/article/An-English-Professor-Explores/130344/
Jensen Comment
I added this link to Zane's AAA Commons Writing Forum ---
http://commons.aaahq.org/posts/c5fdcaace5#13893
There are some hurdles that have to be passed before
we’re going to be comfortable making the ultimate decision about whether to
incorporate IFRS into the U.S. reporting regime. Sticking points include the
independence of the International Accounting Standards Board and “the quality
and enforceability of standards.
Mary Shapiro, U.S. Securities and
Exchange Commission Chairman, January 5, 2012 ---
http://www.businessweek.com/news/2012-01-06/sec-s-schapiro-says-she-regrets-loss-in-investor-access-battle.html
Perspectives and priorities: On Motherhood and Apple Pie
An introduction from Michel Prada, the newly appointed Chairman of the IFRS
Foundation Trustees, January 4, 2012
http://www.ifrs.org/Features/perspectives+priorities.htm
"Best of 2011: Accounting: After predicting that a decision on
whether U.S. GAAP would converge with global standards would come sometime in
2011, SEC officials have punted until well into 2012," by David M. Katz,
CFO.com, January 3, 2012 ---
http://www3.cfo.com/article/2011/12/gaap-ifrs_gaapifrsaicpasecfasbiasb
Thank you Glen Gray for the heads up.
After much brooding about whether the United States
would fully meld its financial reporting with international financial
reporting standards (IFRS), the Securities and Exchange Commission ended
2011 without making its long-awaited, long-delayed decision on the issue.
In fact, after predicting that the decision would
likely come sometime in 2011, the SEC doesn't appear likely to opine on the
matter until far into 2012. In a December 5 speech before the American
Institute of Certified Public Accountants (AICPA), James Kroeker, the SEC's
chief accountant, said that the U.S. Financial Accounting Standards Board
and the International Accounting Standards Board were "many months away from
finalization of even the small group of key . . . projects" essential for
convergence.
While FASB and the IASB had made good progress on
converging leasing and revenue-recognition standards, "the prospect for a
converged solution" on accounting for financial instruments "has not been as
encouraging," said Kroeker, noting that it has been particularly tough for
the two boards to agree on a single standard for hedging transactions.
Further, the SEC's staff will need "a measure of a few additional months" to
complete its own final assessment of how it "could or should proceed with a
decision to incorporate IFRS for U.S. issuers," he said.
In the course of working on that assessment last
year, the commission's staff did, however, manage to spawn one of the
ugliest verbal coinages in recent memory: “condorsement.” Melding
“convergence” with “endorsement,” the SEC’s staff proposed that FASB could
continue to hold sway in this country over a convergence of U.S. GAAP and
IFRS during a transition period of five to seven years. But once convergence
has been achieved, FASB would merely endorse the standards the IASB
developed.
That proposal kindled a furious debate in 2011 on
the future role of FASB. Firing back against the condorsement plan, the
Financial Accounting Foundation, FASB's parent organization, proposed a
system that puts the standards board still squarely at the helm of U.S.
accounting standards.
Another hotly debated issue: the role of FASB in
setting private-company accounting standards. A group spearheaded by Barry
Melancon, president and CEO of the AICPA, called for "a separate
private-company standards board" that would be overseen by the FAF and would
"work closely" with FASB. But the board, not FASB, "would have final
authority" over changes and exceptions to U.S. GAAP targeted to private
companies. The FAF then returned the volley, proposing a system that would
make FASB the rule-maker for nonpublic companies. Below are the biggest
stories of last year.
Continued in article
Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
IFRS Convergence is not the only thing the SEC has been putting on hold
"SEC Delays Rulemaking on Executive Compensation Yet Again," by Reese
Darragh, Compliance Week, January 5, 2012 ---
http://www.complianceweek.com/sec-delays-rulemaking-on-executive-compensation-yet-again/article/221898/
Here's a gift from the
Securities and Exchange Commission to compliance officers and executive
compensation committees to usher in the new year:
The SEC recently
updated
its schedule for Dodd-Frank Act rulemaking for the year,
and it has pushed back the deadline to propose and
implement some of the rules on executive compensation,
including the disclosure of pay-for-performance,
pay ratios, the compensation clawback provision, and hedging activities
by employees and directors.
The original deadline set
by the SEC to propose these rules was between April and July 2011 while
the adoption of the final rules was targeted to occur in the second half
of the year. On July 29 last year, the Commission pushed back the
proposal date to the second half of last year and was expecting to adopt
the final rules in the first half of the year.
For some companies,
however, the postponement brings little cheer. They'd rather have the
certainty of the rules in place so they can begin planning for complying
with them, especially for the Dodd-Frank provisions that are still
fairly nebulous.
Compensation experts have cumulatively expressed their skepticism
over the Commission's ability to meet the tight
deadlines it had set for 2011. Of concern to them is the rule that will
require companies to disclose the pay ratios of executives and employees
as prescribed under Section 953 and 955. Many companies, compensation
consultants, and others say the requirement to disclose chief executive
officer pay as a ratio of total employee pay leaves much still to be
settled. In order to meet the requirement, companies will need to gather
wage information from all employees—a task that can be overwhelming for
those companies with a global presence.
Attached below are
excerpts of the new corporate governance and disclosure rulemaking
timeline published by the SEC for 2012.
January – June
2012 (planned)
§951: Adopt rules regarding disclosure by
institutional investment managers of votes on executive compensation
§952: Adopt exchange listing standards regarding
compensation committee independence and factors affecting compensation
adviser independence; adopt disclosure rules regarding compensation
consultant conflicts
§§953 & 955: Propose rules regarding disclosure of
pay-for-performance, pay ratios, and hedging by employees and directors
§954: Propose
rules regarding recovery of executive compensation
July – December 2012
(planned)
§§953 & 955: Adopt rules regarding disclosure of
pay-for-performance, pay ratios, and hedging by employees and directors
§954: Adopt rules regarding recovery of executive
compensation
§956: Adopt rules (jointly with others) regarding
disclosure of, and prohibitions of certain executive compensation
structures and arrangements for financial institutions
§952: Report to Congress on study and review of the use of compensation
consultants and the effects of such use
Jensen Comment
The timing won't matter much. Rule breakers only get slapped on the hand with
Mary's SEC feather.
Jim Martin is a retired accounting professor who maintains one of the largest
and most useful reference sites for academic accountants ---
http://maaw.info/
January 8, 2012 message from Jim Martin
I have been playing around with the Pearler for
several days. It allows you
to collect web pages, place them in Pearltrees and add Pearls or links to
the pages you like. You can use it on the Pearler site, or place your root
tree, or individual Pearltrees on different pages on your own site. You can
also work on your Pearltrees with team members. It's fun to play with, but
somewhat addictive. For what it's worth, I organized MAAW's hundred + topics
into 14 Pearltrees.
MAAW's Pearltrees on the Pearler site -
http://www.pearltrees.com/#/N-reveal=5&N-fa=4029796&N-u=1_484552&N-p=32411065&N-s=1_4074700&N-f=1_4074700
MAAW's Pearltrees on the MAAW site -
http://maaw.info/MAAWsPearltrees/MAAWsPearltreesMain.htm
A single Pearltree for MAAW's Journal bibliographies -
http://maaw.info/MAAWsPearltrees/JournalBibsPearltree.htm
January 8, 2012 reply from Bob Jensen
You are a tremendous open sharing accounting professor!
Respectfully ten times over,
Bob Jensen
How one of my favorite technology commentators discovered, as a kid, what
we in accounting call CPV, CVP, PCV or whatever analysis
"A Gadget Is More Than the Sum of Its Parts," by David Pogue, The New York
Times, January 5, 2012 ---
http://pogue.blogs.nytimes.com/2012/01/05/a-gadget-is-more-than-the-sum-of-its-parts/
As a teenager growing up in the Cleveland suburbs,
my first real job was at a Chick-fil-A restaurant in a local mall. I did
everything: manned the cash register, made sandwiches and cleaned up.
. . .
It’d be fun to report that that job taught me
important skills and precepts that followed me for the rest of my life, but
that’d be pushing it.
¶That job did teach me, however, one important
thing about the business world. My best friend, John, worked next door at a
watch shop. He told me he could get incredible discounts on the watches —
all I had to do was ask. I needed a watch, in fact, so I picked out a $200
model and asked what I’d have to pay. He said $60.
¶I was appalled. “You mean to tell me that your
shop pays $60 for that watch, and then jacks up the price to $200 for the
consumer? That’s outrageous! That’s practically robbery! You should be
ashamed to work there!”
¶John was amused, and he proceeded to teach me a
lesson. “Oh, really? That’s a big ripoff, huh? Well, let me ask you this:
How much do you think Chick-fil-A pays for each of the chicken breasts?”
¶I calculated that in the massive quantities this
chain purchased, it was maybe 40 cents.
¶“And the bun?” Maybe 4 cents. “The pickle?”
One-tenth of a cent. “O.K., and how much do you sell the sandwich for?”
$2.40.
¶Now, it’s been 30 years. All of the numbers in
this story are vague recollections — I don’t need e-mail from chicken-farm
vendors setting me straight. But I’m quite sure of the result: By the time
I’d done the math, John had made me realize that my sandwich shop was
marking up its product more than his watch shop. I was the one who should be
ashamed.
¶Right?
¶I think of this transaction every time somebody
does a “teardown analysis” of an iPhone, a Kindle Fire or some other hot new
product. These companies buy a unit, take it apart, photograph the
components and then calculate the price of each. Then they tally those
component costs and try to make you outraged that you’ve paid so much
markup.
Continued in article
Jensen Comment
I eat three or more (usually more) times per day. But I've not bought a new
Timex watch in the past ten years.
Bob Jensen's threads and cases on CVP analysis ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
CVP analysis becomes more interesting when we extend it to multiple
products, operating leverage, and pricing (with demand functions). David Pogue
adds complications when the sum is not equal to the summation of its parts.
An appeaser is one who feeds a crocodile—hoping it
will eat him last.
Winston Churchill
If you have ten thousand regulations, you destroy
all respect for the law.
Winston Churchill
You can always count on Americans to do the right
thing—after they’ve tried everything else.
Winston Churchill
On Regulation and Rules
"The Trojan Horse of cost benefit analysis," by John Kemp, Reuters,
January 3, 2012 ---
http://af.reuters.com/article/metalsNews/idAFL6E8C31UN20120103
Ernst & Young
To the Point:
Surprises lurk in the proposed revenue recognition model
In conjunction with its November 2011 re-exposure of the joint revenue
recognition proposal, the FASB issued a draft of the proposed consequential
amendments to the Accounting Standards Codification. The proposed amendments
include not only the proposed changes to Topic 605, Revenue Recognition,
but also the changes to the guidance that resides outside of Topic 605. Our
To the
Point publication highlights some proposed changes to current guidance that
companies may not have expected.
Technical Line: Respondents
to PCAOB overwhelmingly oppose mandatory audit firm rotation
http://www.ey.com/Publication/vwLUAssets/TothePoint_BB2245_RevRecAmendments_5January2012/%24FILE/TothePoint_BB2245_RevRecAmendments_5January2012.pdf
About 94% of the roughly 600 letters the PCAOB received on its concept release
on possible ways to enhance auditor independence oppose mandatory audit firm
rotation. It was the second-largest number of responses the Board has received
on a rule-making project since it was created by the Sarbanes-Oxley Act of 2002.
The PCAOB plans to hold a roundtable to gather more feedback in March 2012. Our
Technical
Line publication summarizes the responses.
http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2256_AuditFirmRotation_5January2012/%24FILE/TechnicalLine_BB2256_AuditFirmRotation_5January2012.pdf
In Letters to PCAOB, EU, Australian and Japanese Accounting Groups Oppose
Mandatory Audit Firm Rotation ---
January 9, 2011 ---
http://jimhamiltonblog.blogspot.com/2012/01/in-letters-to-pcaob-eu-australian-and.html
One of the better (albeit older) articles I've seen on the issue of whether
or not standard setters should require mandatory audit firm rotation is by the
following interesting set of authors (including the very respected long-time
research professor Kurt Pany).
Barbara Arel,
CPA, is a doctoral student at the W.P. Carey School of Business,
Arizona State University, Tempe, Ariz.
Richard G. Brody, PhD, CPA, is an associate professor at the
College of Business, University of South Florida, St. Petersburg.
Kurt Pany, PhD, CPA, is a professor at the W.P. Carey School of
Business.
"Audit Firm Rotation and Audit Quality," by Barbara Arel, Richard G.
Brody, and Kurt Pany, The CPA Journal, January 2005 ---
http://www.nysscpa.org/cpajournal/2005/105/essentials/p36.htm
. . .
Unanswered Questions
The
net effect of audit firm rotation is uncertain. On the one hand, it is
bothersome that auditors placed in a situation where no rotation is expected
are more likely to agree with a client on a difficult accounting issue.
Logically, an expected long-term stream of audit fees could also result in
different decisions, due to either conscious or subconscious reasons.
Despite these considerations, the research indicating high first-year audit
failure rates suggests that rotations might result in auditors with higher
perceived independence performing lower-quality audits. Many other potential
effects of mandatory audit firm rotation remain unmeasured. For example, how
will a much larger annual supply of possible new audit clients affect
auditors? Will marketing ability trump technical competence in winning new
engagements? Would CPAs staff their audits differently toward the end of the
rotation period? In addition, there is no information on likely changes in
the costs of audits due to rotation.
Even
the high audit failure rates in the early years of an engagement are
uncertain. Under mandatory rotation, would the increased number of first-
and second-year audits lead to a higher level of auditor skill in these
circumstances and to a lower level of audit failure? Or, could a closer
working relationship with the predecessor auditor limit early-year audit
failures?
Another issue relates to audit firms themselves. Given that the Big Four
handle the bulk of the large publicly held corporations, will rotation
involve only these four firms? Are non–Big Four firms able or willing to
handle large SEC audits? Will audit firm incentives to specialize in
specific industries be diminished because the possible future benefits do
not outweigh the current costs of training auditors? Anecdotal evidence
suggests that the Big Four will gain greater market share if rotation is
mandatory, which will lead to a less competitive environment without
addressing the related policy issues. Less competition will probably lead to
substantially higher audit fees—firms estimate that first-year fees would
increase by more than 20%—and significantly higher costs for companies.
(Estimates are that the additional costs associated with selecting and
assisting new auditors are at least 17% of a company’s current audit fee.)
The idea of enhancing auditor independence through
mandatory audit firm rotation appeals superficially to many, yet the net
effects of rotation are far from certain. The impact of SOA reforms is not
yet known. Safeguards are now in place to address many of the key concerns
relating to the independence and objectivity of the audit firms. In
addition, companies and their top management are taking a more active role
in oversight of the system in place to prepare accurate financial statements
and prevent abuse. Experience and further research related to both audit
firm rotation and these changes may lead to a more informed decision on
mandatory audit firm rotation than is now possible.
"Mandatory Auditor Rotation: Evidence from Restatements," December
2003
James N. Myers University of Illinois at Urbana-Champaign
Linda A. Myers University of Illinois at Urbana-Champaign
Zoe-Vonna Palmrose University of Southern California and
Susan Scholz University of Kansas
http://aaahq.org/audit/midyear/04midyear/papers/Myers.pdf
Jensen Comment
It would be interesting to know how these same authors feel about the current
raging debate over mandatory audit firm rotation following the bigger audit firm
scandals following the subprime loan disasters and failure of the large auditing
firms to provide going concern doubts to thousands of failed banks.
"Opinion: Market Transparency Demands Audit Rotation," by Lynn Turner,
The Wall Street Journal, December 12, 2011 ---
http://blogs.wsj.com/cfo/2011/12/12/opinion-market-transparency-demands-audit-rotation/
Jensen Comment
Normally I buy into Lynn Turner's opinions. But not this time.
Bob Jensen's threads on the scandals of large auditing firms ---
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on audit firm professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Please note that IFRSs in Russia do not replace
national financial reporting standards – preparing consolidated financial
statements under IFRSs does not lift the requirement to prepare standalone
financial statements under the Russian statutory rules.
Links from Deloitte's IAS Plus:
Click for more information:
I wonder the SEC might adopt the same strategy for the United States.
"The Russians are Coming; The Russians are Coming"
An Enormous Amount of Free Open Sharing Accounting Course Material
from Jim Peters
January 8, 2012 message from Jim Peters
A year of so ago, I make the texts that I write for
my classes and the in-class exercises I use available to the public and
notified this list. I have just completed revising those materials and
bringing them up to date. If you are interested, the URL is http://petersfamily.us/Courses.htm.
Feel free to use anything you want and to contact me
if you have questions or want more materials. For example, I am a heavy
user of cases and have developed a lot of cases for each class. I did not
post all those supporting materials to the website. Just not enough time in
the day to do everything. The four classes involved are Auditing,
Accounting Information Systems, Financial Statement Analysis, and Managerial
Accounting for MBAs.
I have my own approach to education, which is why I do stupid things like
maintaining my own texts for the these classes. But, I starting doing this
over 20 years ago when my students found my materials more accessible than
published texts. For example, as apposed to published texts, my texts are
informally worded (e.g., lots of first person pronouns), but I have found
students identify with the material more effectively if I write as if I am
have a conversation with the reader.
OK, enough defending my approach. The materials are there for anyone who
wants to review and/or use them.
Jim
January 8, 2012 reply from Bob Jensen
Thank you for both revising and open sharing Jim. This is a huge task for
some of your topics as important content changes so quickly in some of the
topics that you cover.
I especially commend you for sharing a free casebook for financial
statement analysis. This is a huge amount of material.
One suggestion for the future is to build in some modules on XBRL since
that will become an enormous part of financial statement analysis and
auditing in the future for our accounting students.
I added your message to my links to free textbooks and other materials
contained at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm
The problem is when the model created to represent
reality takes on a life of its own completely detached from the reality that it
is supposed to model that nonsense can easily ensue.
Was it Mark Twain who wrote: "The criterion of
understanding is a simple explanation."?
As quoted by Martin Weiss in a comment to the article below.
But a lie gets halfway around the world while the
truth is still tying its shoes
Mark Twain as quoted by PKB (in Mankato, MN) in a comment to the article below.
"US Net Investment Income," by Paul Krugman, The New York Times,
December 31, 2011 ---
http://krugman.blogs.nytimes.com/2011/12/31/us-net-investment-income/
Especially note the cute picture.
December 31, 2011 Comment by Wendell Murray
http://krugman.blogs.nytimes.com/2011/12/31/i-like-math/#postComment
Mathematics, like word-oriented languages, uses
symbols to represent concepts, so it is essentially the same as
word-oriented languages that everyone is comfortable with.
Because mathematics is much more precise and in most ways much simpler than
word-oriented languages, it is useful for modeling (abstraction from) of the
messiness of the real world.
The problem, as Prof. Krugman notes, is when the model created to represent
reality takes on a life of its own completely detached from the reality that
it is supposed to model that nonsense can easily ensue.
This is what has happened in the absurd conclusions often reached by those
who blindly believe in the infallibility of hypotheses such as the rational
expectations theory or even worse the completely peripheral concept of
so-called Ricardian equivalence. These abstractions from reality have value
only to the extent that they capture the key features of reality. Otherwise
they are worse than useless.
I think some academics and/or knowledgeless distorters of academic theories
in fact just like to use terms such as "Ricardian equivalence theorem"
because that term, for example, sounds so esoteric whereas the theorem
itself is not much of anything.
Ricardian Equivalence ---
http://en.wikipedia.org/wiki/Ricardian_equivalence
Jensen Comment
One of the saddest flaws of accountics science archival studies is the repeated
acceptance of the CAPM mathematics allowing the CAPM to "represent reality on a
life of its own" when in fact the CAPM is a seriously flawed representation of
investing reality ---
http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious
At the same time one of the things I dislike about the exceedingly left-wing
biased, albeit brilliant, Paul Krugman is his playing down of trillion dollar
deficit spending and his flippant lack of concern about $80 trillion in unfunded
entitlements. He just turns a blind eye toward risks of Zimbabwe-like inflation.
As noted below, he has a Nobel Prize in Economics but
"doesn't command respect in the profession".
Put another way, he's more of a liberal preacher than an economics teacher.
Paul Krugman ---
http://en.wikipedia.org/wiki/Paul_Krugman
Economics and policy recommendations
Economist and former
United States Secretary of the Treasury
Larry Summers has stated Krugman has a tendency to
favor more extreme policy recommendations because "it’s much more
interesting than agreement when you’re involved in commenting on rather than
making policy."
According to Harvard professor of economics
Robert Barro, Krugman "has never done any work in
Keynesian macroeconomics" and makes arguments that are politically
convenient for him.Nobel laureate
Edward Prescott has charged that Krugman "doesn't
command respect in the profession", as "no
respectable macroeconomist" believes that
economic stimulus works, though the number of
economists who support such stimulus is "probably a majority".
Bob Jensen's critique of analytical models in accountics science (Plato's
Cave) can be found at
http://www.trinity.edu/rjensen/TheoryTAR.htm#Analytics
Fabricated Data at Least 145 times
"UConn Investigation Finds That Health Researcher Fabricated Data." by Tom
Bartlett, Inside Higher Ed, January 11, 2012 ---
http://chronicle.com/blogs/percolator/uconn-investigation-finds-that-health-researcher-fabricated-data/28291
Jensen Comment
I knew of a few instances of plagiarism, but not once has it been discovered
that an accountics scientist fabricated data. This could, however, be due to
accountics scientists shielding each other from validity testing ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
However, we disagree with the proposal that a
non-investment entity parent of an investment entity should consolidate all
entities it controls through its consolidated investment entity subsidiary.
Deloitte comment letter on investment entities, January 5, 2012
---
http://www.iasplus.com/dttletr/1201investent.pdf
What's Right and What's Wrong With
(SPEs), SPVs, and VIEs ---
http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm
"Investment strategist: 'Big banks make their money from optimism',"
by Joris Luyenduc, The Guardian, January 3, 2012 ---
http://www.guardian.co.uk/commentisfree/joris-luyendijk-banking-blog/2012/jan/03/investment-strategist-emerging-markets
. . .
"If you take an honest look at the financial sector
today, you see banks can borrow money almost for free on what is called the
short-term market, then lend that money to governments for 2% or 3%. Now why
would they lend to small businesses if they can make money so easily? This
is what 'zero interest rates' are doing to our economy, as well as taxing
savers with inflation at over 5%. You take on new debt to pay off your old
debt. It's like drinking your hangover away with ever more drinks. You are
destroying your liver. That's what's currently happening."
Continued in article
Greatest Swindle in the History of the World ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
When browsing some of my 8,000+ comments on the AAA Commons, I ran across this
old tidbit that relates to our more current AECM messaging on journal
refereeing.
I even liked the "Dear Sir, Madame, or Other"
beginning.
I assume that "Other" is for the benefit of Senator Boxer from
California.
Letter From Frustrated Authors,
by R.L. Glass, Chronicle of Higher
Education, May 21, 2009 ---
http://chronicle.com/forums/index.php?topic=60573.0
This heads up was sent to me by Ed Scribner at New Mexico State
Dear Sir, Madame, or Other:
Enclosed is our latest version of Ms.
#1996-02-22-RRRRR, that is the re-re-re-revised revision of our paper. Choke
on it. We have again rewritten the entire manuscript from start to finish.
We even changed the g-d-running head! Hopefully, we have suffered enough now
to satisfy even you and the bloodthirsty reviewers.
I shall skip the usual point-by-point
description of every single change we made in response to the critiques.
After all, it is fairly clear that your anonymous reviewers are less
interested in the details of scientific procedure than in working out their
personality problems and sexual frustrations by seeking some kind of
demented glee in the sadistic and arbitrary exercise of tyrannical power
over hapless authors like ourselves who happen to fall into their clutches.
We do understand that, in view of the misanthropic psychopaths you have on
your editorial board, you need to keep sending them papers, for if they were
not reviewing manuscripts they would probably be out mugging little old
ladies or clubbing baby seals to death. Still, from this batch of reviewers,
C was clearly the most hostile, and we request that you not ask him to
review this revision. Indeed, we have mailed letter bombs to four or five
people we suspected of being reviewer C, so if you send the manuscript back
to them, the review process could be unduly delayed.
Some of the reviewers’ comments we could
not do anything about. For example, if (as C suggested) several of my recent
ancestors were indeed drawn from other species, it is too late to change
that. Other suggestions were implemented, however, and the paper has been
improved and benefited. Plus, you suggested that we shorten the manuscript
by five pages, and we were able to accomplish this very effectively by
altering the margins and printing the paper in a different font with a
smaller typeface. We agree with you that the paper is much better this way.
One perplexing problem was dealing with
suggestions 13–28 by reviewer B. As you may recall (that is, if you even
bother reading the reviews before sending your decision letter), that
reviewer listed 16 works that he/she felt we should cite in this paper.
These were on a variety of different topics, none of which had any relevance
to our work that we could see. Indeed, one was an essay on the
Spanish–American war from a high school literary magazine. The only common
thread was that all 16 were by the same author, presumably someone whom
reviewer B greatly admires and feels should be more widely cited. To handle
this, we have modified the Introduction and added, after the review of the
relevant literature, a subsection entitled “Review of Irrelevant Literature”
that discusses these articles and also duly addresses some of the more
asinine suggestions from other reviewers.
We hope you will be pleased with this
revision and will finally recognize how urgently deserving of publication
this work is. If not, then you are an unscrupulous, depraved monster with no
shred of human decency. You ought to be in a cage. May whatever heritage you
come from be the butt of the next round of ethnic jokes. If you do accept
it, however, we wish to thank you for your patience and wisdom throughout
this process, and to express our appreciation for your scholarly insights.
To repay you, we would be happy to review some manuscripts for you; please
send us the next manuscript that any of these reviewers submits to this
journal.
Assuming you accept this paper, we would
also like to add a footnote acknowledging your help with this manuscript and
to point out that we liked the paper much better the way we originally
submitted it, but you held the editorial shotgun to our heads and forced us
to chop, reshuffle, hedge, expand, shorten, and in general convert a meaty
paper into stir-fried vegetables. We could not – or would not – have done it
without your input.
-- R.L. Glass
Computing Trends,
1416 Sare Road Bloomington, IN 47401 USA
E-mail address:
rglass@acm.org
December 30, 2011 reply from Steve
Kachelmeir
This letter perpetuates the sense that "reviewers"
are malicious outsiders who stand in the way of good scholarship. It fails
to recognize that reviewers are simply peers who have experience and
expertise in the area of the submission. The Accounting Review asks about
600 such experts to review each year -- hardly a small set.
While I have seen plenty of bad reviews in my
editorial experience, I also sense that it is human nature to impose a
self-serving double standard about reviewing. Too many times when we receive
a negative review, the author concludes that this is because the reviewer
does not have the willingness or intelligence to appreciate good scholarship
or even read the paper carefully. But when the same author is asked to
evaluate a different manuscript and writes a negative review, it is because
the manuscript is obviously flawed. Psychologists have long studied
self-attributions, including the persistent sense that when one experiences
a good thing, it is because one is good, and when one experiences a bad
thing, it is because others are being malicious. My general sense is that
manucripts are not as good as we sense they are as authors and are not as
bad as we sense they are as reviewers. I vented on these thoughts in a 2004
JATA Supplement commentary. It was good therapy for me at the time.
The reviewers are us.
Steve
December 31, 2011 reply from Bob Jensen
Hi Steve,
Thank you for that sobering reply.
I will repeat a tidbit that I posted some years back --- it might've been in
reply to a message from you.
When I was a
relatively young PhD and still full of myself, the Senior Editor,
Charlie Griffin, of The Accounting Review sent me a rather
large number of accountics science papers to referee (there weren't
many accountics science referees available 1968-1970). I think it
was at a 1970 AAA Annual Meeting that I inadvertently overheard
Charlie tell somebody else that he was not sending any more TAR
submissions to Bob Jensen because "Jensen rejects every submission."
My point in telling you this is that having only one or two referees
can really be unfair if the referees are still full of themselves.
Bob Jensen
December 31, 2011 reply from Jim Peters
The attribution bias to which Steve refers also
creates an upward (I would say vicious) cycle for research standards. Here
is how it works. When an author gets a negative review, because of the
attribution problem, they also infer that the standards for publication have
gone up (because, they must have since their work is solid). Then, when that
same author is asked to review a paper, they tend to apply the new, higher
standards that they miss-attributed to the recent review they received. A
sort of "they did it to me, I am going to do it to them," but not
vindictively, just in an effort to apply current standards. Of course, the
author of the paper they are reviewing makes their own miss-attribution to
higher standards and, when that author is asked to review a paper, the cycle
repeats. The other psychological phenomena at work here is lack of
self-insight. Most humans have very poor self-insight as to why they do
things. They make emotional decisions and then rationalize them. Thus, the
reviewers involved are probably unaware of what they are doing. Although a
few may indeed be vindictive. The blind review process isn't very blind
given that most papers are shopped at seminars and other outlets before they
are submitted for publication and there tend to some self-serving patterns
in citations. Thus, a certain level of vindictiveness is possible.
When I was a PhD student, I asked Harry Evans to
define the attributes of a good paper in an effort to establish some form of
objective standard I could shoot for. His response was similar to the old
response about pornography. In essence, I know a good paper when I see it,
but I cannot define attributes of a good paper in advance. I may have missed
something in my 20+ years, but I have never seen any effort to establish
written, objective standards for publishability of academic research. So, we
all still are stuck with the cycle where authors try to infer what they
standards are from reviews.
Jim
January 1, 2012 reply from Dan Stone
I've given lots of thought to why peer review, as
now exists in many disciplines (including accounting), so frequently fails
to improve research, and generates so extensive a waste of authorial
resources. After almost thirty years of working within this system, as an
editor, author and reviewer, I offer 10 reasons why peer review, as is often
constructed, frequently fails to improve manuscripts, and often diminishes
their contribution:
1. authors devote thousands of hours to
thoroughly understanding an issue,
2. most reviewers devote a few hours to
understanding the authors' manuscript,
3. most reviewers are asked to review outside
of their primary areas of expertise. For example, today, I am reviewing
a paper that integrates two areas of theory. I know one and not the
other. Hence, reviewers, relative to authors, are almost universally
ignorant relative to the manuscript,
4. reviewers are anonymous, meaning
unaccountable for their frequently idiotic, moronic comments. Editors
generally know less about topical areas than do reviewers, hence idiotic
reviewers comments are generally allowed to stand as fact and truth.
5. reviewers are rewarded for publishing (as
AUTHORS) but receive only the most minimal of rewards for reviewing
(sometimes an acknowledgement from the editor),
6. editors are too busy to review papers, hence
they spend even fewer hours than authors on manuscripts,
7. most editors are deeply entrenched in the
status quo, that is one reason they are selected to be editors. Hence,
change to this deeply flaws systems is glacial if at all
8. reviewers are (often erroneously) told that
they are experts by editors,
9. humans naturally overestimate their own
competence, (called the overconfidence bias),
10 hence, reviewers generally overestimate
their own knowledge of the manuscript.
The result is the wasteful system that is now in
place at most (though certainly not all) journals. There are many easy
suggestions for improving this deeply flawed system -- most importantly to
demand reviewer accountability. I've given citations earlier to this list of
articles citing the deeply flaws state of peer review and suggesting
improvements. But see point #7.
In short, when I speak as a reviewer, where I am
comparatively ignorant, my words are granted the status of absolute truth
but when I speak as an author, where I am comparatively knowledgable, I must
often listen to babbling fools, whose words are granted the status of
absolute truth.
That's a very bad system -- which could be easily
reformed -- but for the entrenched interests of those who benefit from the
status quo. (see the research cited in "The Social Construction of Research
Advice: The American Accounting Association Plays Miss Lonelyhearts" for
more about those entrenched interests).
Best,
Dan S.
January 1, 2011 reply from Bob Jensen
Thanks Dan for such a nice summary. Personal
anecdote - my respect for Dan went way up years ago when he was the editor
and overrode my rejection of a paper. While I stand by my critique of the
paper, Dan had the courtesy to make his case to me and I respected his
judgment. What constitutes "publishable" is highly subjective and in some
cases, we need to lower the rigor bar a little to expose new approaches. As
I recall, I did work with the author of the paper after Dan accepted it to
help clean it up a bit.
Dan - you state that the fixes are relatively easy,
but don't provide details. In my little hyper-optimistic world, a fix would
create an air of cooperation between editors, authors, and reviewers to work
together to extract the best from research and expose it to the general
public. This is about 180 degrees from what I perceive is the current
gatekeeper emphasis on "what can I find to hang a rejection on?"
I saw a study years ago, the reference for I would
have a hell of a time finding again, that tracked the publications in major
journals per PhD in different disciplines in business and over time. For all
disciplines, the rate steady fell over time and accounting had by far the
lowest rate. It would be simple math to calculate the number of articles
published in top journals each year over time, which doesn't seem to
increase, and the number of PhDs in accounting, which does. Simple math may
indicate we have a problem of suppressing good work simply because of a lack
of space.
Jim
January 1, 2011 reply from Steve Kachelmeir
Dan has listed 10 reasons why peer review fails to
improve manuscripts. To the contrary, in my experience, at least for those
manuscripts that get published, I can honestly say that, on average, they
are discernably better after the review process than before. So, warts and
all, I am not nearly as critical of the process in general as are some
others. I will attempt to offer constructive, well-intended replies to each
of Dan's 10 criticisms.
Dan's point 1.: Authors devote thousands of hours
to thoroughly understanding an issue,
SK's counterpoint: I guess I don't understand why
this observation is a reason why reviews fail to improve manuscripts. Is the
implication that, because authors spend so much time understanding an issue,
the author's work cannot possibly be improved by mere reviewers?
2. Most reviewers devote a few hours to
understanding the authors' manuscript,
SK's counterpont: This seems a corollary to the
oft-heard "lazy reviewer" complaint. Let us concede that reviewers sometimes
(or even often) do not spend as much time on a manuscript as we would like
to see. Even if this is true, I would submit that the reviewer spends more
time on the paper than does the typical reader, post publication. So if the
reviewer "doesn't get it," chances are that the casual reader won't get it
either.
3. Most reviewers are asked to review outside of
their primary areas of expertise. For example, today, I am reviewing a paper
that integrates two areas of theory. I know one and not the other. Hence,
reviewers, relative to authors, are almost universally ignorant relative to
the manuscript,
SK's counterpoint: As I see it, the editor's
primary responsibility is to avoid this criticism. I can honestly say that
we did our best at The Accounting Review during my editorship to choose
qualified reviewers. It is easier said than done, but I employed a 20-hour
RA (and my understanding is that Harry Evans does the same) simply to
research submissions in a dispassionate manner and suggest names of
well-qualified potential reviewers with no obvious axes to grind. In a
literal sense, it is of course true that the author knows the most about the
author's research. But that, to me, does not justifiy the assertion that
"most reviewrs are asked to review outside of their primary areas of
expertise." That is, Dan's anecdote notwithstanding, I simply disagree with
the assertion. Also, a somewhat inconvenient truth I have uncovered as
editor is that too much reviewer expertise is not necessarily a good thing
for the author. As in most things, moderation is the key.
4. reviewers are anonymous, meaning unaccountable
for their frequently idiotic, moronic comments. Editors generally know less
about topical areas than do reviewers, hence idiotic reviewers comments are
generally allowed to stand as fact and truth.
SK's counterpoint: To say that reviewers are
"idiotic" and "moronic" is to say that professors in general are idiotic and
moronic. After all, who do you think does the reviews? To be sure, authors
often perceive a reviewer's comments as "idiotic and moronic." Similarly,
have you ever reviewed a manuscript that you perceived as "idiotic and
moronic"? This is self-serving bias on self-attributions, plain as simple.
As I've said before, my general sense is that the reviews we receive are not
as bad as we think, and the manuscripts we submit are not as good as we
think. As to the assertion that "editors generally know less about topical
areas than do reviewers," of course that is true (in general), which is why
we have a peer review system!
5. Reviewers are rewarded for publishing (as
AUTHORS) but receive only the most minimal of rewards for reviewing
(sometimes an acknowledgement from the editor),
SK's counterpoint: I'm reluctant to tag the word
"counterpoint" on this one, because I agree that the reward system is
somewhat warped when it comes to reviewing. Bad reviewers get off the hook
(because editors wise-up and stop asking them), so they can then sometimes
free-ride on the system. Conversely, good reviewers get rewarded with many
more review requests, proving that no good deed goes unpunished. At least I
tried to take baby steps to remedy this problem by publishing the names of
the nearly 500 ad hoc reviewers TAR asks each year, and in addition,
starting in November 2011, I started publishing an "honor roll" of our most
prolific and timely reviewers.
6. Editors are too busy to review papers, hence
they spend even fewer hours than authors on manuscripts,
SK's counterpoint: Why is this a criticisim of the
review process? It is precisely because editors have limited time that the
editor delegates much of the evalation process to experts in the area of the
submission. Consider the alternatives. An alternative that is not on the
table is for the editor to pour in many hours/days/weeks on each submission,
as there are only 24 hours in the day. So that leaves the alternative of a
dictatorial editor who accepts whatever fits the editor's taste and rejects
whatever is inconsistent with that taste, reviewers be damned. This is the
"benevolent dictator" model to those who like the editor's tastes, but as I
said in my November 2011 TAR editorial, the editorial dictator who is
benevolent to some will surely be malevolent to others. Surely there is a
critical role for editorial judgment, particularly when the reviewers are
split, but a wholesale substitution of the editor's tastes in lieu of
evaluations by experts would make things worse, in my opinion. More
precisely, some would clearly be better off under such a system, but many
others would be worse off.
7. Most editors are deeply entrenched in the status
quo, that is one reason they are selected to be editors. Hence, change to
this deeply flaws systems is glacial if at all
SK's counterpoint: Is the implication here that
editors are more entrenched in the "status quo" than are professors in
general? If that is true, then a peer review system that forces the editor's
hand by holding the editor accountable to the peer reviewers would serve as
a check and balance on the editor's "entrenchment," right? So I really don't
see why this point is a criticism of the review process. If we dispensed
with peer review and gave editors full power, then "entrenched" editors
could perpetuate their entrenched tastes forever.
8. Reviewers are (often erroneously) told that they
are experts by editors,
SK's counterpoint: Sometimes, as TAR editor, I
really wished I could reveal reviewer names to a disgruntled author, if only
to prove to the person that the two reviewers were chosen for their
expertise and sympathy to both the topic and the method of the submission.
But of course I could not do that. A system without reviewer anonymity could
solve that problem, but would undoutedly introduce deeper problems of
strategic behavior and tit-for-tat rewards and retaliations. So reviews are
anonymous, and authors can persist in their belief that the reviewer must be
incompetent, because otherwise how could the reviewer possibly not like my
submission. But let me back off here and add that many reviews are less
constructive and less helpful than an editor would like to see. Point taken.
That is why, in my opinon, a well-functioning peer review system must
solicit two expert opinions. When the reviewers disagree, that is when the
editor must step in and exercise reasoned judgment, often on the side of the
more positive reviewer. Let's just say that if I rejected every manuscript
with split reviews over the past three years, TAR would have had some very
thin issues.
9. Humans naturally overestimate their own
competence, (called the overconfidence bias),
SK's counterpoint: Yes, and this is why we tend to
be so impressed with our own research and so critical of review reports.
10 Hence, reviewers generally overestimate their
own knowledge of the manuscript.
SK's counterpoint: Let's grant this one. But, if I
may borrow from Winston Churchill, "Democracy is the worst form of
government except for all those other forms that have been tried from time
to time." Is a peer review system noisy? Absolutely! Are peer reviews always
of high quality? No way! Are reviews sometimes petty and overly harsh? You
bet! But is a peer review system better than other forms of journal
governance, such as editorial dictatorship or a "power" system that lets the
most powerful authors bully their way in? I think so. Editors have very
important responsibilities to choose reviewers wisely and to make tough
judgment calls at the margin, especially when two reviewers disagree. But
dispensing with the system would only make things worse, in my opinion. I
again return to the most fundamental truism of this process -- the reviewers
are us. If you are asking that we dispense with these "idiotic, moronic"
reports, than what you are really asking is that professors have less
control over the process to which professors submit. Now that I'm back to
being a regular professor again, I'm unwilling to cede that authority.
Just my two cents. Happy New Year to all,
Steve K.
January 1, 2012 reply from Bob Jensen
Hi Dan,
My biggest complaint with the refereeing process as we know it is that
anonymous referees are not accountable for their decisions. I always find it
odd that in modern times we deplore tenure black balling where senior
faculty can vote secretly and anonymously to deny tenure to a candidate
without having to justify their reasons. And yet when it comes to rejecting
a candidate's attempt to publish, we willingly accept a black ball system in
the refereeing processes.
Granted, we hope that referees will communicate reasons for rejection,
but there's no requirement to do so, and many of the reasons given are vague
statements such as "this does not meet the quality standards of the
journal."
More importantly, the referees are anonymous which allows them to be
superficial or just plain wrong without having to be accountable.
On the other side of the coin I can see reasons for anonymity. Otherwise
the best qualified reviewers may reject invitations to become referees
because they don't want to be personally judged for doing the journal a
favor by lending their expertise to the refereeing process. Referees should
not be forced into endless debates about the research of somebody else.
I've long advocated a compromise. I think that referee reports should be
anonymous. I also think referee reports along with author responses should
be made available in electronic form in an effort to make the entire
refereeing process more transparent (without necessarily naming the
referees). For example, each published Accounting Review paper could be
linked to the electronic file of referee, author, and editor comments
leading up to the publication of the article.
Rejected manuscripts are more problematic. Authors should have discretion
about publishing their working papers along with referee and editor
communications. However, I think the practice of electronic publishing of
rejected papers along with referee communications should become a more
common practice. One of the benefits might be to make referees be more
careful when reviewing manuscripts even if their rejection reports do not
mention names of the referees.
The AAA Executive Committee is usually looking for things that can be
done to improve scholarship and research among AAA members. One thing I
propose is that the AAA leadership take on the task of how to improve the
refereeing process of all refereed AAA journals. One of the objectives
concerns ways of making the refereeing process more transparent.
Lastly, I think the AAA leadership should work toward encouraging
commentaries on published working papers that indirectly allow scholars to
question the judgments of the referees and authors. As it stands today, AAA
publications are not challenged like they are in many journals of other
scholarly disciplines ---
http://www.trinity.edu/rjensen/TheoryTAR.htm#TARversusAMR
Respectfully,
Bob Jensen
Hi Dan, Jim, and Steve and others,
One added consideration in this "debate" about top accountics science
research journal refereeing is the inbreeding that has taken in a very large
stable of referees that virtually excludes practitioners. Ostensibly this is
because practitioners more often than not cannot read the requisite equations in
submitted manuscripts. But I often suspect that this is also because of fear
about questions and objections that practitioner scholars might raise in the
refereeing process.
Sets of accountics science referees are very inbred largely because editors
do not invite practitioner "evaluators" into the gene pool. Think of how things
might've been different if practitioner scholars suggested more ideas to
accountics science authors and, horrors, demanded something that some
submissions be more relevant to the professions.
Think of how Kaplan's criticism of accounting science research publications
might've changed if accountics science referees were not so inbred in having
accountics science "faculty is as evaluators
(referees) of, but not creators or originators of,
business practice. (Pfeffer 2007, 1335)."
"Accounting Scholarship that Advances Professional Knowledge and Practice,"
AAA Presidential Scholar Address by Robert S. Kaplan, The Accounting Review,
March 2011, pp. 372-373 (emphasis added)
I am less pessimistic than Schön about whether
rigorous research can inform professional practice (witness the important
practical significance of the Ohlson accounting-based valuation model and
the Black-Merton-Scholes options pricing model), but I concur with the
general point that academic scholars spend too much time at the top of
Roethlisberger’s knowledge tree and too little time performing systematic
observation, description, and classification, which are at the foundation of
knowledge creation. Henderson 1970, 67–68 echoes the benefits from a more
balanced approach based on the experience of medical professionals:
both theory and practice are necessary
conditions of understanding, and the method of Hippocrates is the only
method that has ever succeeded widely and generally. The first element
of that method is hard, persistent, intelligent, responsible,
unremitting labor in the sick room, not in the library … The second
element of that method is accurate observation of things and events,
selection, guided by judgment born of familiarity and experience, of the
salient and the recurrent phenomena, and their classification and
methodical exploitation. The third element of that method is the
judicious construction of a theory … and the use thereof … [T]he
physician must have, first, intimate, habitual, intuitive familiarity
with things, secondly, systematic knowledge of things, and thirdly an
effective way of thinking about things.
More recently, other observers of business
school research have expressed concerns about the gap that has opened up in
the past four decades between academic scholarship and professional
practice.
Examples include: Historical role of business
schools and their faculty is as
evaluators of, but not creators or originators of, business practice.
(Pfeffer 2007, 1335) Our journals are replete with an examination of
issues that no manager would or should ever care about, while concerns
that are important to practitioners are being ignored. (Miller et al.
2009, 273)
In summary, while much has been accomplished during
the past four decades through the application of rigorous social science
research methods to accounting issues, much has also been overlooked. As I
will illustrate later in these remarks, we have missed big opportunities to
both learn from innovative practice and to apply innovations from other
disciplines to important accounting issues. By focusing on these
opportunities, you will have the biggest potential for a highly successful
and rewarding career.
Integrating Practice and Theory: The Experience
of Other Professional Schools
Other professional schools, particularly medicine, do not disconnect
scholarly activity from practice. Many scholars in medical and public health
schools do perform large-scale statistical studies similar to those done by
accounting scholars. They estimate reduced-form statistical models on
cross-sectional and longitudinal data sets to discover correlations between
behavior, nutrition, and health or sickness. Consider, for example,
statistical research on the effects of smoking or obesity on health, and of
the correlations between automobile accidents and drivers who have consumed
significant quantities of alcoholic beverages. Such large-scale statistical
studies are at the heart of the discipline of epidemiology.
Some scholars in public health schools also
intervene in practice by conducting large-scale field experiments on real
people in their natural habitats to assess the efficacy of new health and
safety practices, such as the use of designated drivers to reduce
alcohol-influenced accidents. Few academic accounting scholars, in contrast,
conduct field experiments on real professionals working in their actual jobs
(Hunton and Gold [2010] is an exception). The large-scale statistical
studies and field experiments about health and sickness are invaluable, but,
unlike in accounting scholarship, they represent only one component in the
research repertoire of faculty employed in professional schools of medicine
and health sciences.
Many faculty in medical schools (and also in
schools of engineering and science) continually innovate. They develop new
treatments, new surgeries, new drugs, new instruments, and new radiological
procedures. Consider, for example, the angiogenesis innovation, now
commercially represented by Genentech’s Avastin drug, done by Professor
Judah Folkman at his laboratories in Boston Children’s Hospital (West et al.
2005). Consider also the dozens of commercial innovations and new companies
that flowed from the laboratories of Robert Langer at MIT (Bowen et al.
2005) and George Whiteside at Harvard University (Bowen and Gino 2006).
These academic scientists were intimately aware of gaps in practice that
they could address and solve by applying contemporary engineering and
science. They produced innovations that delivered better solutions in actual
clinical practices. Beyond contributing through innovation, medical school
faculty often become practice thought-leaders in their field of expertise.
If you suffer from a serious, complex illness or injury, you will likely be
referred to a physician with an appointment at a leading academic medical
school. How often, other than for expert testimony, do leading accounting
professors get asked for advice on difficult measurement and valuation
issues arising in practice?
One study (Zucker and Darby 1996) found that
life-science academics who partner with industry have higher academic
productivity than scientists who work only in their laboratories in medical
schools and universities. Those engaged in practice innovations work on more
important problems and get more rapid feedback on where their ideas work or
do not work.
These examples illustrate that some of the best
academic faculty in schools of medicine, engineering, and science, attempt
to improve practice, enabling their professionals to be more effective and
valuable to society. Implications for Accounting Scholarship To my letter
writer, just embarking on a career as an academic accounting professor, I
hope you can contribute by attempting to become the accounting equivalent of
an innovative, worldclass accounting surgeon, inventor, and thought-leader;
someone capable of advancing professional practice, not just evaluating it.
I do not want you to become a “JAE” Just Another Epidemiologist . My
vision for the potential in your 40 year academic career at a professional
school is to develop the knowledge, skills, and capabilities to be at the
leading edge of practice. You, as an academic, can be more innovative than a
consultant or a skilled practitioner. Unlike them, you can draw upon
fundamental advances in your own and related disciplines and can integrate
theory and generalizable conceptual frameworks with skilled practice. You
can become the accounting practice leader, the “go-to” person, to whom
others make referrals for answering a difficult accounting or measurement
question arising in practice.
But enough preaching! My teaching is most effective
when I illustrate ideas with actual cases, so let us explore several
opportunities for academic scholarship that have the potential to make
important and innovative contributions to professional practice.
Continued in article
Added Jensen Comment
Of course I'm not the first one to suggest that accountics science referees are
inbred. This has been the theme of other AAA presidential scholars (especially
Anthony Hopwood), Paul Williams, Steve Zeff, Joni Young, and many, many others
that accountics scientists have refused to listen to over past decades.
"The Absence of Dissent," by Joni J. Young,
Accounting and the Public Interest 9 (1), 2009 ---
Click Here
ABSTRACT:
The persistent malaise in accounting research continues to resist remedy.
Hopwood (2007) argues that revitalizing academic accounting cannot be
accomplished by simply working more diligently within current paradigms.
Based on an analysis of articles published in Auditing: A Journal of
Practice & Theory, I show that this paradigm block is not confined to
financial accounting research but extends beyond the work appearing in the
so-called premier U.S. journals. Based on this demonstration I argue that
accounting academics must tolerate (and even encourage) dissent for
accounting to enjoy a vital research academy. ©2009 American Accounting
Association
We could try to revitalize accountics scientists by expanding the gene pools
of inbred referees.
Happy New Year!
Bob Jensen's threads on higher education controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Question About Bucking the Trends
What is an example of where a company does not change hedged risk when we expect
them to do so?
Why not?
This happens to me all the time including those frequent times when I
anticipated stock prices to go up/down when in fact they went down/up.
"U.S. Companies See Euro Drag Persisting in 2012," by Vipal Monger,
The Wall Street Journal, January 20, 2012 ---
http://blogs.wsj.com/cfo/2012/01/20/u-s-companies-see-euro-drag-persisting-in-2012/?mod=wsjpro_hps_cforeport
Corporate executives expect the value of the euro
to continue falling in 2012, which would continue pressuring earnings of
companies exposed to currency risk in Europe. Still, many companies are
inclined to stand pat on their currency hedging strategies, according to a
new survey from J.P. Morgan.
Continued in article
Competitive Strategies: Options and Games by Benoit
Chevalier-Roignant and Lenos Trigeorgis (MIT Press; 488 pages; $55). Combines
the decision-making approaches of real options and game theory.
Amazon's reviews are strong but possibly biased
http://www.amazon.com/Competitive-Strategy-Options-Benoit-Chevalier-Roignant/dp/0262015994/ref=sr_1_1?s=books&ie=UTF8&qid=1327414652&sr=1-1
Real Options are mentioned in the FASB's "Special Report: Business
and Financial Reporting, Challenges from the New Economy," by Wayne Upton,
Financial Accounting Standards Board, Document 219-A, April 2000 --- http://accounting.rutgers.edu/raw/fasb/new_economy.html
Real Options are mentioned in the FASB's "Special Report: Business and
Financial Reporting, Challenges from the New Economy," by Wayne Upton, Financial
Accounting Standards Board, Document 219-A, April 2000 ---
http://accounting.rutgers.edu/raw/fasb/new_economy.html
Wayne Upton writes as follows on pp. 91-93:
Measurement and Real Options
Perhaps the most promising area for valuation of
intangible assets is the developing literature in valuation techniques based
on the concept of real options. Techniques using real options analysis are
especially useful in estimating the value of intangible assets that are under
development and may not prove to be commercially viable.
A real option is easier to describe than to define. A
financial option is a contract that grants to the holder the right but not the
obligation to buy or sell an asset at a fixed price within a fixed period (or
on a fixed date). The word option in this context is consistent with its
ordinary definition as “the power, right or liberty of choosing.” Real
option approaches attempt to extend the intellectual rigor of option-pricing
models to valuation of nonfinancial assets and liabilities. Instead of viewing
an asset or project as a single set of expected cash flows, the asset is
viewed as a series of compound options that, if exercised, generate another
option and a cash flow. That’s a lot to pack into one sentence. In the
opening pages of their recent book, consultant Martha Amram and Boston
University professor Nalin Kulatilaka offer five examples of business
situations that can be modeled as real options: 56
• Waiting to invest options, as in the case of a
tradeoff between immediate plant expansion (and possible losses from
decreased demand) and delayed expansion (and possible lost revenues)
• Growth options, as in the decision to invest in
entry into a new market
• Flexibility options, as in the choice between
building a single centrally located facility or building two facilities in
different locations
• Exit options, as in the decision to develop a
new product in an uncertain market
• Learning options, as in a staged investment in
advertising.
Real-options approaches have captured the
attention of both managers and consultants, but they remain unfamiliar to
many.
Proponents argue that the application of option
pricing to nonfinancial assets overcomes the shortfalls of traditional present
value analysis, especially the subjectivity in developing risk-adjusted
discount rates. They contend that a focus on the value of flexibility provides
a better measure of projects in process that would otherwise appear
uneconomical. A real-options approach is consistent with either fair value (as
described in Concepts Statement 7) or an entity-specific value. The
difference, as with more conventional present value, rests with the selection
of assumptions. If a real option is available to any marketplace participant,
then including it in the computation is consistent with fair value. If a real
option is entity-specific, then a measurement that includes that option is not
fair value, but may be a good estimate of entity-specific value.
Bob Jensen's threads on real options:
Real Options, Option Pricing Theory, and Arbitrage Pricing Theory ---
http://www.trinity.edu/rjensen/realopt.htm
Controversies in the anonymous blind review process of research journals
"Kill Peer Review or Reform It?" by Scott Jaschik, Inside Higher Ed,
January 6, 2011 ---
http://www.insidehighered.com/news/2012/01/06/humanities-scholars-consider-role-peer-review
Thank you Ron Huefner for the heads up.
"Blind peer review is dead. It just doesn’t know it
yet." That's the way Aaron J. Barlow, an associate professor of English at
the College of Technology of the City University of New York, summed up his
views here on the future of the traditional way of deciding whose work gets
published in the humanities.
Barlow didn't dispute that most of the top journals
in the humanities continue to select papers this way. But speaking at a
session of the annual meeting of the Modern Language Association, he argued
that technology has so changed the ability of scholars to share their
findings that it's only a matter of time before people rise up against the
conventions of traditional journal publishing.
While others on the panel and in the audience
argued for a reformed peer review as preferable to Barlow's vision of
smashing the enterprise, and some questioned the practicality of simply
walking away from peer review immediately, the idea that the system needs
radical change was not challenged. Barlow said that the system might have
been justified once when old-style publishing put a significant limit on the
quantity of scholarship that could be shared. But in a new era, he said, the
justifications were gone. (Reflecting the new technology era, Barlow and one
other panelist spoke via Skype, to an audience that included two tables and
wireless for bloggers and Twitter users -- and this journalist -- to write
about the proceedings as they were taking place.)
To many knowing nods in the room, Barlow argued
that the traditional system of blind peer review -- in which submissions are
sent off to reviewers, whose judgments then determine whether papers are
accepted, with no direct communication with authors -- had serious problems
with fairness. He said that the system rewards "conformity" and allows for
considerable bias.
He described a recent experience in which he was
recruited by "a prestigious venue" to review a paper that related in some
ways to research he had done. Barlow's work wasn't mentioned anywhere in the
piece. Barlow said he realized that the journal editor figured Barlow would
be annoyed by the omission. And although he was, Barlow said he didn't feel
assigning the piece to him was fair to the author. "It was a set-up. The
editor didn't want a positive review, so the burden of rejection was passed
on to someone the author would not know."
He refused to go along, and said he declined to
review the paper when he realized what was going on. This sort of
"corruption" is common, he said.
Barlow has a long publishing record, so his
frustrations with the system can't be chalked up to being unable to get his
ideas out there. But he said that when one of his papers was recently
rejected, he simply published it on his blog directly, where comments have
come in from fans and foes of his work.
"I love the editorial process" when comments result
in a piece becoming better, he said, and digital publishing allows this to
happen easily. But traditional peer review simply delays publication and
leaves decision-making "in the dark." Peer review -- in the sense that
people will comment on work and a consensus may emerge that a given paper is
important or not -- doesn't need to take place prior to publication, he
said.
"We don't need the bottleneck or the corruption,"
he said. The only reason blind peer review survives is that "we have made
appearance in peer reviewed journals the standard" for tenure and promotion
decisions. That will change over time, he predicted, and then the
traditional system will collapse.
Peer Review Plus
While Barlow noted the ability of digital
publishing to bypass peer review, the idea of an intense, collaborative
process for selecting pieces and improving them came at the session from the
editor of Kairos, an online journal on rhetoric and technology that
publishes work prepared for the web. Kairos has become an
influential journal, but Cheryl Ball, the editor and an associate professor
of English at Illinois State University, discussed how frustrating it is
that people assume that an online journal must not have peer review.
"Ignorance about digital scholarship" means that she must constantly explain
the journal, she said.
Kairos uses
a
three-stage review process. First, editors decide
if a submission makes sense for a review. Then, the entire editorial board
discusses the submission (online) for two weeks, and reaches a consensus
that is communicated to the author with detailed letters from the board.
(Board members' identities are public, so there is no secrecy about who
reviews pieces.) Then, if appropriate, someone is assigned to work with the
author to coach him or her on how to improve the piece prior to publication.
As Ball described the process, thousands of words
are written about submissions, and lengthy discussions take place -- all to
figure out the best content for the journal. But there are no secret
reviewers, and the coaching process allows for a collaborative effort to
prepare a final version, not someone guessing about how to handle a "revise
and resubmit" letter.
The process is quite detailed, but also allows for
individual consideration of editorial board members' concerns and of
authors' approaches, Ball said. "Peer reviewers don't need rubrics. They
need good ways to communicate," she said. Along those lines, Kairos
is currently updating its tools for editorial board consideration of pieces,
to allow for synchronous chat, the use of electronic "sticky notes" and
other ways to help authors not only with words, but with digital graphics
and illustrations.
Learning From Law Reviews
Allen Mendenhall, a Ph.D. student at Auburn
University who is also a blogger and a lawyer, suggested that humanities
journals could take some lessons from law reviews. Mendenhall is well aware
of (and agrees with) many criticisms of law reviews, and in particular of
the reliance for decisions on law students who may not know much about the
areas of scholarship they are evaluating.
Continued in article
"Hear the One About the Rejected Mathematician? Call it a scholarly
'Island of Misfit Toys,'," Chronicle of Higher Education, August 12,
2009 ---
Click Here
Rejecta
Mathematica is an open-access online journal that publishes mathematical
papers that have been rejected by others. Rejecta's motto is caveat emptor,
which is to say that the journal has no technical peer-review process.
As The Economist notes in its article on the
journal, there are plenty of examples of scholars who have suffered
rejection, only to go on to become giants in their field. (OK, two.)
Nonetheless, if you have lots of free time on your hands, by all means,
check out the inaugural issue.
And if deciphering mathematical formulae
isn't your thing, stand by: Rejecta says it may open the floodgates to other
disciplines. Prospective franchisees are invited to contact the journal.
Next up: Rejecta Rejecta, a journal for
articles too flawed for Rejects Mathematica, printed on single-ply toilet
paper.
"Leading Humanities Journal Debuts 'Open' Peer Review, and
Likes It," by Jennifer Howard, Chronicle of Higher
Education, July 26, 2010 ---
http://chronicle.com/article/Leading-Humanities-Journal/123696/?sid=at&utm_source=at&utm_medium=en
A ‘Radical’ Rethinking of Scholarly
Publishing
"Upgrading to Philosophy 2.0," by Andy
Guess, Inside Higher Ed, December 31, 2007 ---
http://www.insidehighered.com/news/2007/12/31/apa
There was no
theorizing about ghosts in the machine at an annual meeting of
philosophers last Friday. Instead, they embraced technology’s
implications for their field, both within the classroom and beyond.
. . .
Harriet E. Baber of
the University of San Diego thinks scholars should try to make their
work as accessible as possible, forget about the financial rewards
of publishing and find alternative ways to referee each other’s
work. In short, they should ditch the current system of paper-based
academic journals that persists, she said, by “creating scarcity,”
“screening” valuable work and providing scholars with entries in
their CVs.
“Now why would it be
a bad thing if people didn’t pay for the information that we
produce?” she asked, going over the traditional justifications for
the current order — an incentive-based rationale she dubbed a “right
wing, free marketeer, Republican argument.”
Instead, she argued,
scholars (and in particular, philosophers) should accept that much
of their work has little market value ("we’re lucky if we could give
away this stuff for free") and embrace the intrinsic rewards of the
work itself. After all, she said, they’re salaried, and “we don’t
need incentives external [to] what we do.”
That doesn’t include
only journal articles, she said; class notes fit into the paradigm
just as easily. “I want any prospective student to see this and I
want all the world to see” classroom materials, she added.
Responding to
questions from the audience, she noted that journals’ current
function of refereeing content wouldn’t get lost, since the
“middlemen” merely provide a venue for peer review, which would
still happen within her model.
“What’s going to
happen pragmatically is the paper journals will morph into online
journals,” she said.
Part of the purpose
of holding the session, she implied, was to nudge the APA into
playing a greater role in any such transition: “I’m hoping that the
APA will organize things a little better.”
‘Scholarship Reconsidered’ as Tenure Policy," by Scott Jaschik, Inside Higher Ed, October 2, 2007 ---
http://www.insidehighered.com/news/2007/10/02/wcu
"Time's Up for Tenure," Laurie
Fendrich, Chronicle of Higher Education's The Chronicle Review,
April 18, 2008 ---
http://chronicle.com/review/brainstorm/fendrich/times-up-for-tenure?utm_source=cr&utm_medium=en
"Survey Identifies Trends at U.S. Colleges That Appear to Undermine
Productivity of Scholars," by Peter Schmidt, Chronicle of Higher
Education, June 14, 2009 ---
Click Here
College campuses display a striking
uniformity of thought
Harvard professor Harvey Mansfield once
famously advised a conservative colleague to wait until he had tenure
and only then to "hoist the Jolly Roger." But few professors are getting
around to hoisting the Jolly Roger at all. Either they don't have a
viewpoint that is different from their colleagues, or they've decided
that if they are going to remain at one place for several decades,
they'd rather just get along. Is tenure to blame for the unanimity of
thinking in American universities? It's hard to tell. But shouldn't the
burden of proof be on the people who want jobs for life?
Naomi Schafer Riley, "Tenure and Academic Freedom: College
campuses display a striking uniformity of thought," The Wall Street
Journal, June 23, 2009 ---
http://online.wsj.com/article/SB124571593663539265.html#mod=djemEditorialPage
Gaming for Tenure as an Accounting Professor
---
http://www.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
Bob Jensen's threads on a rethinking of
tenure and scholarship ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#MLA
"OECD Targets Tax Relief on Mortgages," The Wall Street Journal,
January 23, 2012 ---
http://online.wsj.com/article/SB10001424052970203806504577179223659194122.html?mod=googlenews_wsj&mg=reno-wsj
Governments should eliminate tax relief on mortgage
interest payments and pension contributions, and tax capital gains from the
sale of residential property in order to boost growth and reduce inequality,
the Organization for Economic Cooperation and Development said Monday.
In a chapter from its annual "Going for Growth"
report, the OECD said that while economists don't agree on the link between
inequality and growth, there are some policies that are clearly "win-win"
options, which both boost growth and reduce income inequality.
"Income inequality has drifted up, and at the same
time the recovery is very patchy and the outlook uncertain," said Peter
Hoeller, head of the public economics division at the OECD. "But we can find
policies that are good for inequality and raise growth."
The Paris-based think tank said a broad range of
measures that it described as "tax expenditure," and are more popularly
known as "tax breaks," were obvious candidates.
They include tax relief on interest paid on
mortgage loans, relief on contributions to private pension funds, and
exemptions from capital gains tax on the sale of primary or secondary
residences.
The OECD argued that while reducing the gap between
rich and poor, the money saved by eliminating breaks that largely benefit
the wealthy could be used to cut income tax rates and thereby boost growth.
"Cutting back tax expenditures, which mainly
benefit high-income groups, is likely to be beneficial both for long-term
GDP per capita, allowing a reduction in marginal tax rates, and for a more
equitable distribution of income," the OECD said.
The OECD also questioned the use of some tax relief
measures that are justified as encouraging entrepreneurial activity, but
show little sign of doing so.
"In particular, there is little justification for
tax breaks for stock options and carried interest," it said. "Raising such
taxes would increase equity and allow a growth-enhancing cut in marginal
labor income tax rates."
The OECD's proposals come at a time of renewed
focus on the perceived fairness of developed economies following the
financial crisis and more than a decade-and-a-half of rising income
inequality.
In the U.K., the junior partner in the government
coalition campaigned on a promise to make the tax system fairer in the May
2010 election, and still hopes to introduce a so-called "Mansion Tax" on
residential properties with a value of £2 million or more.
Jensen Comment
There are really three issues that should not be bundled into one. Firstly
there is the issue of principal residence versus vacation homes. Secondly, there
is the issue of whether or not to cap the interest rate deduction. Thirdly,
there's the issue of minimum thresholds for deductions from adjusted gross
income as is currently built into the U.S. tax rules and is probably hurting
lower income tax payers more than its hurting higher income taxpayers when the
minimum threshold cannot be reached by lower income taxpayers.
There's also an issue of abruptly hammering down on a real estate market that
is already under water. The mortgage interest deduction most certainly impacts
demand for and prices paid for real estate. In my opinion the deductibility of
home mortgage interest and property taxes has greatly increased both the amount
of housing built in the United States and the quality/maintenance of such
housing.
There are externalities to consider. Home owners take more pride in
maintaining and adding to homes that they own. If there are fewer tax breaks of
home ownership more and more potential owners will instead opt for rentals. When
Erika and I visit Germany we're amazed by the proportion of the population that
appears to us to live in rental housing (although I've not researched this
question). It also seems that those big apartment houses are run down relatively
to what they would become as condos.
"Hatch to push pension legislation this year," by Bernie Becker,
The Hill, January 10, 2011 ---
http://thehill.com/blogs/on-the-money/budget/203403-hatch-to-push-pension-legislation-this-year
Sen. Orrin Hatch (R-Utah) said Tuesday that he
would push legislation this year to revamp pension systems for state and
local government workers.
Hatch, ranking member of the Senate Finance
Committee, noted in a statement and a newly released report that public
pension programs are more than $4 trillion in debt, and said he would work
to ensure that the federal government did not have to bail out state or
local entities.
And while the Utah Republican did not offer many
details on his planned legislation, or when it would be released, Hatch did
suggest that state and local governments need to scrap their current use of
defined-benefit plans.
Under that sort of plan, retirees are guaranteed a
certain monthly payment, which often takes into account the length of their
tenures and salaries before retirement.
“The public pension crisis plaguing our nation
demands a real solution,” Hatch said in the statement. “Over the coming
weeks, I will be putting forward ideas to reform public pension programs in
a meaningful way that doesn’t leave taxpayers on the hook.”
The announcement from Hatch comes after groups on
the left and right have spent months arguing over benefits for public
workers, following pushes by Republican governors in places including
Wisconsin to limit collective-bargaining rights.
In the report released Tuesday, Hatch declared that
the current issues with public pensions were caused by more than just the
2008 financial crisis, as some analysts have said.
To bolster that claim, the report notes that, even
before the 2008 crisis, roughly 40 percent of state and local pension plans
could not fund 80 percent of their liabilities, a level experts generally
consider healthy.
Hatch also used the example of his own state to
underscore his point that governments need to move away from defined-benefit
plans, saying that Utah had ably administered its program and still saw debt
on its plan balloon to $3.45 billion in 2010.
“When a prudently managed pension plan can create a
financial crisis for the taxpayers of a state or municipality, it is time to
question whether the risk to taxpayers associated with the defined benefit
pension structure is appropriate,” the report stated. “Defined benefit plans
pose unacceptable financial and service degradation risks for taxpayers and
retirees.”
But Dean Baker, co-director of the left-leaning
Center for Economic and Policy Research (CEPR), took issue with both the
argument from Hatch that states and localities need to move away from
defined-benefit plans, and that blaming the fiscal crisis for the current
pension issues understated the problems.
Baker told The Hill that, while states might in
some cases be billions in the hole when it comes to pension liabilities,
they will also likely be able to make that shortfall up over 20 or 30 years.
“It’s just cheap rhetoric,” Baker said about the
Hatch report. “There are state and local governments where, at least on
average, they’re not going to face a particularly big burden.”
Baker also noted that defined-benefit plans are
less volatile for workers than other retirement plans.
Continued in article
Humanities Versus Accountancy Doctoral Programs in North America
"Dissing the Dissertation." by Scott Jaschik, Inside Higher Ed,
January 9, 2011 ---
http://www.insidehighered.com/news/2012/01/09/mla-considers-radical-changes-dissertation
The average humanities doctoral student takes nine
years to earn a Ph.D. That fact was cited frequently here (and not with
pride) at the annual meeting of the Modern Language Association. Richard E.
Miller, an English professor at Rutgers University's main campus in New
Brunswick, said that the nine-year period means that those finishing
dissertations today started them before Facebook, Twitter, YouTube, Kindles,
iPads or streaming video had been invented.
So much has changed, he said, but dissertation
norms haven't, to the detriment of English and other language programs. "Are
we writing books for the 19th century or preparing people to work in the
21st?" he asked.
Leaders of the MLA -- in several sessions and
discussions here -- indicated that they are afraid that too many
dissertations are indeed governed by out-of-date conventions, leading to the
production of "proto-books" that may do little to promote scholarship and
may not even be advancing the careers of graduate students. During the
process, the graduate students accumulate debt and frustrations. Russell A.
Berman, a professor of comparative literature and German studies at Stanford
University, used his presidential address at the MLA to call for departments
to find ways to cut "time to degree" for doctorates in half.
And at a standing-room-only session, leaders of a
task force studying possible changes in dissertation requirements discussed
some of the ideas under consideration. There was a strong sense that the
traditional model of producing a several-hundred-page literary analysis
dominates English and other language doctoral programs -- even though many
people feel that the genre is overused and frequently ineffective. People
also talked about the value of digital projects, of a series of essays, or
public scholarship. Others talked about ways to change the student-committee
dynamic in ways that might expedite dissertation completion.
"We are at a defining moment in higher education,"
said Kathleen Woodward, director of the Simpson Center for the Humanities at
the University of Washington. "We absolutely have to think outside the box
that the dissertation is a book or a book-in-progress."
The MLA's discussion of the dissertation is in some
ways an outgrowth of
a much-discussed report issued by the association
in 2006 about tenure and promotion practices. That report questioned the
idea that producing monographs should be the determining factor in tenure
decisions. When the report was released, many MLA leaders said that the
ideas the association was endorsing also called for reconsideration of
graduate education, and especially of the dissertation.
As part of the process of encouraging change, the
MLA recently conducted a survey of its doctoral-granting departments. Among
the findings:
- 62 percent of departments reported that their
graduate schools have guidelines for dissertations, but most of those
guidelines are general, dealing with issues such as timelines,
composition of committees and so forth, and not dictating the form of a
dissertation.
- 33 percent of departments have written
descriptions of what kind of dissertation is expected of graduate
students.
- Minorities of departments have specific rules
authorizing nontraditional formats for dissertations, and even smaller
minorities of departments have approved a dissertation using one of
those formats.
- Of those with traditional dissertation length
requirements, the range of minimums was 150 to 400 pages. Most maximums
were 400 to 500 pages.
Jensen Comment
I'm suspicious that the nine-year average time to completion of a humanities PhD
program is not necessarily nine full-time years in residence. But I've really
not researched this issue. The time to completion of an accounting PhD program
averages five full-time years beyond the masters degree. However, these are
typically five full-time years in residence with some lightened course loads
giving time for earning money as research and teaching assistants. Accounting
doctoral students who also work off campus often take longer than five years.
Those students who take full-time jobs before finishing their theses also tend
to take longer than five years ---
http://www.jrhasselback.com/AtgDoctInfo.html
Whereas large R1 research universities typically have large and growing
numbers of doctoral students with poor employment prospects in higher education,
those same universities have shrinking accounting doctoral programs facing
wonderful employment and salary prospects in higher education. The reasons for
this "paradox" are complicated. One complication is that accounting doctoral
programs are often seeking older candidates who already have a masters degree
and several full-time professional experience in accountancy. It is more common
for humanities students to progress directly from undergraduate graduation
directly into masters and then PhD programs. Humanities doctoral programs
in top research universities frequently require masters degrees for admission
but not years of full-time prior employment in a profession.
Because supply of new doctorates in humanities greatly exceeds demand for
such graduates in the Academy, employment opportunities are much higher for
graduates of prestigious universities with billion+ dollar endowments such as
larger Ivy League universities. In accountancy, Cactus Gulch University PhD
graduates face much better employment and salary opportunities as long as CGU
has AACSB accreditation in North America. Most prestigious R1 research
universities tend to incestuously trade their own accountancy PhD graduates.
These graduates are later dispersed in part because some fail to earn tenure in
their first academic job. Then again many of them never wanted to live under R1
university research and publication pressures after the first five years or so
on their first high-pressured jobs.
FAQs about humanities doctoral programs ---
http://degreedirectory.org/articles/PhD_in_Humanities_Program_FAQs.html
Bob Jensen's threads on the sad state of accounting doctoral programs ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
"The Ph.D. Problem On the professionalization of faculty life, doctoral
training, and the academy’s self-renewal," by Louis Menand, Harvard
Magazine, November/December 2009 ---
http://harvardmagazine.com/2009/11/professionalization-in-academy
Reprinted from The Marketplace of Ideas by Louis Menand. Copyright
© 2009 by Louis Menand. With the permission of the publisher, W.W. Norton &
Company, Inc.
Bass professor of English Louis Menand is
a literary critic and intellectual and cultural historian—author of the
Pulitzer Prize-winning The Metaphysical Club and a regular contributor to
the New Yorker. He is also a scholar of his discipline (he co-edited the
modernism volume in the Cambridge History of Literary Criticism) and of the
very notion of the academy itself (Menand edited The Future of Academic
Freedom, 1997). His new book, The Marketplace of Ideas, to be published in
December by W.W. Norton, is informed in part by his recent service as
faculty co-leader in the development of Harvard College’s new General
Education curriculum, introduced this fall (the book is dedicated to his
colleagues in that protracted task).
In this work, Menand examines general
education, the state of the humanities, the tensions between disciplinary
and interdisciplinary work, and, in chapter four, “Why Do Professors All
Think Alike?” The following excerpts, from the third and fourth chapters and
his conclusion, probe the professionalization of a research-oriented
professoriate and the practice and consequences of contemporary doctoral
education, and the resulting implications for liberal-arts colleges,
universities, and the wider society. ~The Editors
It is easy to see how the modern academic
discipline reproduces all the salient features of the professionalized
occupation. It is a self-governing and largely closed community of
practitioners who have an almost absolute power to determine the standards
for entry, promotion, and dismissal in their fields. The discipline relies
on the principle of disinterestedness, according to which the production of
new knowledge is regulated by measuring it against existing scholarship
through a process of peer review, rather than by the extent to which it
meets the needs of interests external to the field. The history department
does not ask the mayor or the alumni or the physics department who is
qualified to be a history professor. The academic credential is
non-transferable (as every Ph.D. looking for work outside the academy
quickly learns). And disciplines encourage—in fact, they more or less
require—a high degree of specialization. The return to the disciplines for
this method of organizing themselves is social authority: the product is
guaranteed by the expertise the system is designed to create. Incompetent
practitioners are not admitted to practice, and incompetent scholarship is
not disseminated.
Since it is the system that ratifies the
product—ipso facto, no one outside the community of experts is qualified to
rate the value of the work produced within it—the most important function of
the system is not the production of knowledge. It is the reproduction of the
system. To put it another way, the most important function of the system,
both for purposes of its continued survival and for purposes of controlling
the market for its products, is the production of the producers. The
academic disciplines effectively monopolize (or attempt to monopolize) the
production of knowledge in their fields, and they monopolize the production
of knowledge producers as well. This is why, for example, you cannot take a
course in the law (apart from legal history) outside a law school. In fact,
law schools urge applicants to major in areas outside the law. They say that
this makes lawyers well-rounded, but it also helps to ensure that future
lawyers will be trained only by other lawyers. It helps lawyers retain a
monopoly on knowledge of the law.
Weirdly, the less social authority a
profession enjoys, the more restrictive the barriers to entry and the more
rigid the process of producing new producers tend to become. You can become
a lawyer in three years, an M.D. in four years, and an M.D.-Ph.D. in six
years, but the median time to a doctoral degree in the humanities
disciplines is nine years. And the more self-limiting the profession, the
harder it is to acquire the credential and enter into practice, and the
tighter the identification between the individual practitioner and the
discipline.
Disciplines are self-regulating in this
way for good academic freedom reasons. The system of credentialing and
specialization maintains quality and protects people within the field from
being interfered with by external forces. The system has enormous benefits,
but only for the professionals. The weakest professional, because he or she
is backed by the collective authority of the group, has an almost
unassailable advantage over the strongest non-professional (the so-called
independent scholar) operating alone, since the non-professional must build
a reputation by his or her own toil, while the professional’s credibility is
given by the institution. That is one of the reasons that people are willing
to pay the enormous price in time and income forgone it takes to get the
degree: the credential gives them access to the resources of scholarship and
to the networks of scholars that circulate their work around the world. The
non-academic writer or scholar is largely deprived of those things. This
double motive—ensuring quality by restricting access—is reflected in the
argument all professions offer as their justification: in order to serve the
needs of others properly, professions must be accountable only to
themselves.
A national conversation about the
condition and future of the Ph.D. has been going on for about 10 years. The
conversation has been greatly helped by two major studies: “Re-envisioning
the Ph.D.,” which was conducted by researchers at the University of
Washington, and “Ph.D.s—Ten Years Later,” which was carried out at Berkeley.
Both studies identified roughly the same areas where the investigators
thought that reform is desirable in doctoral education. These are:
interdisciplinarity, practical training, and time to degree.
The studies were necessary in part because
data on graduate education are notoriously difficult to come by. Until very
recently, departments tended not to track their graduate students very
assiduously. Departments knew how many students they admitted, and they knew
how many they graduated; but they did not have a handle on what happened in
between—that is, on where students were in their progress through the
program. This was partly because of the pattern of benign neglect that is
historically an aspect of the culture of graduate education in the United
States, and it was partly because when some students finish in four years
and other students in the same program finish in 12 years, there is really
no meaningful way to quantify what is going on. “Are you still here?” is a
thought that often pops into a professor’s head when she sees a vaguely
familiar face in the hall. “Yes, I am still here,” is the usual answer, “and
I’m working on that Incomplete for you.” There was also, traditionally, very
little hard information about where students went after they graduated.
Graduate programs today are increasingly asked to provide reports on job
placement—although, for understandable reasons, these reports tend to emit
an unnatural glow. An employed graduate, wherever he or she happens to be
working, is ipso facto a successfully placed graduate, and, at that moment,
departmental attention relaxes. What happens to people after their initial
placement is largely a matter of rumor and self-report.
English was one of the fields surveyed in
the two studies of the Ph.D. It is useful to look at, in part because it is
a large field where employment practices have a significance that goes
beyond courses for English majors. What the surveys suggest is that if
doctoral education in English were a cartoon character, then about 30 years
ago, it zoomed straight off a cliff, went into a terrifying fall, grabbed a
branch on the way down, and has been clinging to that branch ever since.
Things went south very quickly, not gradually, and then they stabilized.
Statistically, the state of the discipline has been fairly steady for about
25 years, and the result of this is a kind of normalization of what in any
other context would seem to be a plainly inefficient and intolerable
process. The profession has just gotten used to a serious imbalance between
supply and demand.
Up to half of all doctoral students in
English drop out before getting their degrees (something that appears to be
the case in doctoral education generally), and only about half of the rest
end up with the jobs they entered graduate school to get—that is, tenured
professorships. Over the three decades since the branch was grabbed, a kind
of protective shell has grown up around this process, a culture of
“realism,” in which exogenous constraints are internalized, and the very
conditions that make doctoral education problematic are turned into elements
of that education. Students are told from the very start, almost from the
minute they apply to graduate school, that they are effectively entering a
lottery. This has to have an effect on professional self-conception.
The hinge whereby things swung into their
present alignment, the ledge of the cliff, is located somewhere around 1970.
That is when a shift in the nature of the Ph.D. occurred. The shift was the
consequence of a bad synchronicity, one of those historical pincer effects
where one trend intersects with its opposite, when an upward curve meets a
downward curve. One arm of the pincer has to do with the increased
professionalization of academic work, the conversion of the professoriate
into a group of people who were more likely to identify with their
disciplines than with their campuses. This had two, contradictory effects on
the Ph.D.: it raised and lowered the value of the degree at the same time.
The value was raised because when institutions began prizing research above
teaching and service, the dissertation changed from a kind of final term
paper into the first draft of a scholarly monograph. The dissertation became
more difficult to write because more hung on its success, and the increased
pressure to produce an ultimately publishable work increased, in turn, the
time to achieving a degree. That was a change from the faculty point of
view. It enhanced the selectivity of the profession.
The change from the institutional point of
view, though, had the opposite effect. In order to raise the prominence of
research in their institutional profile, schools began adding doctoral
programs. Between 1945 and 1975, the number of American undergraduates
increased 500 percent, but the number of graduate students increased by
nearly 900 percent. On the one hand, a doctorate was harder to get; on the
other, it became less valuable because the market began to be flooded with
Ph.D.s.
This fact registered after 1970, when the
rapid expansion of American higher education abruptly slowed to a crawl,
depositing on generational shores a huge tenured faculty and too many
doctoral programs churning out Ph.D.s. The year 1970 is also the point from
which we can trace the decline in the proportion of students majoring in
liberal-arts fields, and, within that decline, a proportionally larger
decline in undergraduates majoring in the humanities. In 1970-71, English
departments awarded 64,342 bachelor’s degrees; that represented 7.6 percent
of all bachelor’s degrees, including those awarded in non-liberal-arts
fields, such as business. The only liberal-arts category that awarded more
degrees than English was history and social science, a category that
combines several disciplines. Thirty years later, in 2000-01, the number of
bachelor’s degrees awarded in all fields was 50 percent higher than in
1970-71, but the number of degrees in English was down both in absolute
numbers—from 64,342 to 51,419—and as a percentage of all bachelor’s degrees,
from 7.6 percent to around 4 percent.
Fewer students major in English. This
means that the demand for English literature specialists has declined. Even
if a department requires, say, a course in eighteenth-century literature of
its majors, the fact that there are fewer majors means that there is less
demand for eighteenth-century specialists. But although the average number
of credit hours devoted to courses in English literature has gone down over
the last 20 years, the number-one subject, measured by the credit hours that
students devote to it, has remained the same. That subject is English
composition. Who teaches that? Not, mainly, English Ph.D.s. Mainly,
ABDs—graduate students who have completed all but their dissertations. There
is a sense in which the system is now designed to produce ABDs.
The same trend can be observed in most of
the liberal-arts fields. In 1971, 24,801 students received bachelor’s
degrees in mathematics and statistics, about 3 percent of all bachelor’s
degrees. In 2001, there were 11,171 undergraduate degrees in those fields,
less than 1 percent of the total number. Again, it is not that students do
not take math; it is that fewer students need specialized courses in
mathematics, which are the courses that graduate students are trained to
teach. There was a similar fall-off in bachelor’s degrees awarded in the
social sciences and history. There was upward movement in only two major
liberal-arts areas: psychology and the life sciences. American higher
education has been expanding, but the liberal arts part of the system has
been shrinking.
The Berkeley study, “Ph.D.s—Ten Years
Later,” was based on lengthy questionnaires sent to just under 6,000 people,
in six fields, who received Ph.D.s between 1982 and 1985. One of those
fields was English. People who received their Ph.D.s in English between 1982
and 1985 had a median time to degree of 10 years. A third of them took more
than 11 years to finish, and the median age at the time of completion was
35. By 1995, 53 percent of those with Ph.D.s that had been awarded from 10
to 15 years earlier had tenure; another 5 percent were in tenure-track
positions. This means that about two-fifths of English Ph.D.s were
effectively out of the profession as it is usually understood. (Some of
these people were non-tenure-track faculty, and some were educational
administrators. Most of the rest worked in what is called BGN—business,
government, and NGOs.) Of those who had tenure, less than a fifth had
positions in the kind of research universities in which they had been
trained—that is, about 5 percent of all English Ph.D.s. Ph.D.s who began in
a tenure-track position took an average of 6.1 years to get tenure. Ph.D.s
who began in non-tenure track positions but who eventually received tenure,
which about half did, took an average of 8.1 years to get tenure.
The placement rate for Ph.D.s has
fluctuated. Between 1989 and 1996, the number of starting positions
advertised in history dropped 11 percent; in art and art history, 26
percent; in foreign languages, 35 percent; and in political science, 37
percent. Yet every year during that period, universities gave out more
Ph.D.s than they had the year before. It was plain that the supply curve had
completely lost touch with the demand curve in American academic life. That
meant if not quite a lost generation of scholars, a lost cohort. This was a
period that coincided with attacks on the university for “political
correctness,” and it is not a coincidence that many of the most prominent
critics of academia were themselves graduate-school dropouts: Dinesh D’Souza,
Roger Kimball, Richard Bernstein, David Lehman. Apart from their specific
criticisms and their politics, they articulated a mood of disenchantment
with the university as a congenial place to work.
There were efforts after 1996 to cut down
the size of doctoral programs, with apparently some positive effect on the
job market. But time-to-degree numbers did not improve. In the sixties, the
time-to-degree as a registered student was about 4.5 years in the natural
sciences and about six years in the humanities. The current median time to
degree in the humanities is nine years. That does not include what is called
stop-time, which is when students take a leave or drop out for a semester or
longer. And it obviously does not take into account students who never
finish. It is not nine years from the receipt of the bachelor’s degree,
either; it is nine years as a registered student in a graduate program. The
median total time it takes to achieve a degree in the humanities including
stop-time is 11.3 years. In the social sciences, it is 10 years, or 7.8 as a
registered student. In the natural sciences, time-to-degree as a registered
student is just under seven years. If we put all these numbers together, we
get the following composite: only about half of the people who enter
doctoral programs in English finish them, and only about half of those who
finish end up as tenured faculty, the majority of them at institutions that
are not research universities. An estimate of the total elapsed time from
college graduation to tenure would be somewhere between 15 and 20 years. It
is a lengthy apprenticeship.
That it takes longer to get a Ph.D. in the
humanities than it does in the social or natural sciences (although those
fields also have longer times-to-degree than they once did) seems anomalous,
since normally a dissertation in the humanities does not require extensive
archival, field, or laboratory work. William Bowen and Neil Rudenstine, in
their landmark study In Pursuit of the Ph.D., suggested that one reason for
this might be that the paradigms for scholarship in the humanities have
become less clear. People are uncertain just what research in the humanities
is supposed to constitute, and graduate students therefore spend an
inordinate amount of time trying to come up with a novel theoretical twist
on canonical texts or an unusual contextualization. Inquiry in the
humanities has become quite eclectic without becoming contentious. This
makes it a challenge for entering scholars to know where to make their mark.
The conclusion of the researchers who
compiled the statistics on English Ph.D.s for the Berkeley study was, See?
It’s not so bad! The reason they give for this is the reason that is often
heard when the issues of time-to-degree and job placement are raised, which
is that most people who get Ph.D.s, whether they end up teaching or not,
report high job satisfaction. (Job satisfaction is actually higher among
Ph.D.s with non-academic careers than it is among academics, partly because
spousal problems—commuting marriages—are not as great outside academia.) And
the majority say that they do not regret the time they spent in graduate
school (although they have a lot of complaints about the quality of the
mentorship they received). Students continue to check into the doctoral
motel, and they don’t seem terribly eager to check out. They like being in a
university, and, since there is usually plenty of demand for their quite
inexpensive teaching, universities like having them. Business is good. Where
is the problem?
The effort to reinvent the Ph.D. as a
degree qualifying people for non-academic as well as academic employment, to
make the degree more practical, was an initiative of the Woodrow Wilson
Foundation when it was headed by Robert Weisbuch. These efforts are a worthy
form of humanitarianism; but there is no obvious efficiency in requiring
people to devote 10 or more years to the mastery of a specialized area of
scholarship on the theory that they are developing skills in research, or
critical thinking, or communication. Professors are not themselves, for the
most part, terribly practical people, and practical skills are not what they
are trained to teach. They are trained to teach people to do what they do
and to know what they know. Those skills and that knowledge are not
self-evidently transferable. The ability to analyze Finnegans Wake does not
translate into an ability to analyze a stock offering. If a person wanted to
analyze stock offerings, he should not waste his time with Joyce. He should
go to business school. Or get a job analyzing stock offerings.
It may be that the increased
time-to-degree, combined with the weakening job market for liberal arts
Ph.D.s, is what is responsible for squeezing the profession into a single
ideological box. It takes three years to become a lawyer. It takes four
years to become a doctor. But it takes from six to nine years, and sometimes
longer, to be eligible to teach college students for a living. Tightening up
the oversight on student progress might reduce the time-to-degree by a
little, but as long as the requirements remain, as long as students in most
fields have general exams, field (or oral) exams, and monograph-length
dissertations, it is not easy to see how the reduction will be significant.
What is clear is that students who spend eight or nine years in graduate
school are being seriously over-trained for the jobs that are available. The
argument that they need the training to be qualified to teach undergraduates
is belied by the fact that they are already teaching undergraduates.
Undergraduate teaching is part of doctoral education; at many institutions,
graduate students begin teaching classes the year they arrive. And the idea
that the doctoral thesis is a rigorous requirement is belied by the quality
of most doctoral theses. If every graduate student were required to publish
a single peer-reviewed article instead of writing a thesis, the net result
would probably be a plus for scholarship.
One pressure on universities to reduce
radically the time-to-degree is simple humanitarianism. Lives are warped
because of the length and uncertainty of the doctoral education process.
Many people drop in and drop out and then drop in again; a large proportion
of students never finish; and some people have to retool at relatively
advanced ages. Put in less personal terms, there is a huge social
inefficiency in taking people of high intelligence and devoting resources to
training them in programs that half will never complete and for jobs that
most will not get. Unfortunately, there is an institutional efficiency,
which is that graduate students constitute a cheap labor force. There are
not even search costs involved in appointing a graduate student to teach.
The system works well from the institutional point of view not when it is
producing Ph.D.s, but when it is producing ABDs. It is mainly ABDs who run
sections for lecture courses and often offer courses of their own. The
longer students remain in graduate school, the more people are available to
staff undergraduate classes. Of course, overproduction of Ph.D.s also
creates a buyer’s advantage in the market for academic labor. These
circumstances explain the graduate-student union movement that has been
going on in higher education since the mid 1990s.
But the main reason for academics to be
concerned about the time it takes to get a degree has to do with the barrier
this represents to admission to the profession. The obstacles to entering
the academic profession are now so well known that the students who brave
them are already self-sorted before they apply to graduate school. A college
student who has some interest in further education, but who is unsure
whether she wants a career as a professor, is not going to risk investing
eight or more years finding out. The result is a narrowing of the
intellectual range and diversity of those entering the field, and a widening
of the philosophical and attitudinal gap that separates academic from
non-academic intellectuals. Students who go to graduate school already talk
the talk, and they learn to walk the walk as well. There is less ferment
from the bottom than is healthy in a field of intellectual inquiry.
Liberalism needs conservatism, and orthodoxy needs heterodoxy, if only in
order to keep on its toes.
And the obstacles at the other end of the
process, the anxieties over placement and tenure, do not encourage
iconoclasm either. The academic profession in some areas is not reproducing
itself so much as cloning itself. If it were easier and cheaper to get in
and out of the doctoral motel, the disciplines would have a chance to get
oxygenated by people who are much less invested in their paradigms. And the
gap between inside and outside academia, which is partly created by the
self-sorting, increases the hostility of the non-academic world toward what
goes on in university departments, especially in the humanities. The
hostility makes some disciplines less attractive to college students, and
the cycle continues.
The moral of the story that the numbers
tell once seemed straightforward: if there are fewer jobs for people with
Ph.D.s, then universities should stop giving so many Ph.D.s—by making it
harder to get into a Ph.D. program (reducing the number of entrants) or
harder to get through (reducing the number of graduates). But this has not
worked. Possibly the story has a different moral, which is that there should
be a lot more Ph.D.s, and they should be much easier to get. The
non-academic world would be enriched if more people in it had exposure to
academic modes of thought, and had thereby acquired a little understanding
of the issues that scare terms like “deconstruction” and “postmodernism” are
attempts to deal with. And the academic world would be livelier if it
conceived of its purpose as something larger and more various than
professional reproduction—and also if it had to deal with students who were
not so neurotically invested in the academic intellectual status quo. If
Ph.D. programs were determinate in length—if getting a Ph.D. were like
getting a law degree—then graduate education might acquire additional focus
and efficiency. It might also attract more of the many students who, after
completing college, yearn for deeper immersion in academic inquiry, but who
cannot envision spending six years or more struggling through a graduate
program and then finding themselves virtually disqualified for anything but
a teaching career that they cannot count on having.
It is unlikely that the opinions of the
professoriate will ever be a true reflection of the opinions of the public;
and, in any case, that would be in itself an unworthy goal. Fostering a
greater diversity of views within the professoriate is a worthy goal,
however. The evidence suggests that American higher education is going in
the opposite direction. Professors tend increasingly to think alike because
the profession is increasingly self-selected. The university may not
explicitly require conformity on more than scholarly matters, but the
existing system implicitly demands and constructs it.
My aim has been to throw some light from
history on a few problems in contemporary higher education. If there is a
conclusion to be drawn from this exercise, it might be that the academic
system is a deeply internalized one. The key to reform of almost any kind in
higher education lies not in the way that knowledge is produced. It lies in
the way that the producers of knowledge are produced. Despite
transformational changes in the scale, missions, and constituencies of
American higher education, professional reproduction remains almost exactly
as it was a hundred years ago. Doctoral education is the horse that the
university is riding to the mall. People are taught—more accurately, people
are socialized, since the process selects for other attributes in addition
to scholarly ability—to become expert in a field of specialized study; and
then, at the end of a long, expensive, and highly single-minded process of
credentialization, they are asked to perform tasks for which they have had
no training whatsoever: to teach their fields to non-specialists, to connect
what they teach to issues that students are likely to confront in the world
outside the university, to be interdisciplinary, to write for a general
audience, to justify their work to people outside their discipline and
outside the academy. If we want professors to be better at these things,
then we ought to train them differently.
Still, as is the case with every potential
reform in academic life, there are perils. The world of knowledge production
is a marketplace, but it is a very special marketplace, with its own
practices, its own values, and its own rules. A lot has changed in higher
education in the last 50 years. What has not changed is the delicate and
somewhat paradoxical relation in which the university stands to the general
culture. It is important for research and teaching to be relevant, for the
university to engage with the public culture and to design its investigative
paradigms with actual social and cultural life in view. That is, in fact,
what most professors try to do—even when they feel inhibited from saying so
by the taboo against instrumentalist and presentist talk. Professors teach
what they teach because they believe that it makes a difference. To continue
to do this, academic inquiry, at least in some fields, may need to become
less exclusionary and more holistic. That may be the road down which the
debates I have been describing are taking higher education.
But at the end of this road there is a
danger, which is that the culture of the university will become just an echo
of the public culture. That would be a catastrophe. It is the academic’s job
in a free society to serve the public culture by asking questions the public
doesn’t want to ask, investigating subjects it cannot or will not
investigate, and accommodating voices it fails or refuses to accommodate.
Academics need to look to the world to see what kind of teaching and
research needs to be done, and how they might better train and organize
themselves to do it. But they need to ignore the world’s demand that they
reproduce its self-image.
Reprinted from The Marketplace of Ideas by
Louis Menand. Copyright © 2009 by Louis Menand. With the permission of the
publisher, W.W. Norton & Company, Inc.
This material may not be reproduced,
rewritten, or redistributed without the prior written permission of the
publisher.
Fewer students major in English. This
means that the demand for English literature specialists has declined. Even
if a department requires, say, a course in eighteenth-century literature of
its majors, the fact that there are fewer majors means that there is less
demand for eighteenth-century specialists. But although the average number
of credit hours devoted to courses in English literature has gone down over
the last 20 years, the number-one subject, measured by the credit hours that
students devote to it, has remained the same. That subject is English
composition. Who teaches that? Not, mainly, English Ph.D.s. Mainly,
ABDs—graduate students who have completed all but their dissertations. There
is a sense in which the system is now designed to produce ABDs.
The same trend can be observed in most of
the liberal-arts fields. In 1971, 24,801 students received bachelor’s
degrees in mathematics and statistics, about 3 percent of all bachelor’s
degrees. In 2001, there were 11,171 undergraduate degrees in those fields,
less than 1 percent of the total number. Again, it is not that students do
not take math; it is that fewer students need specialized courses in
mathematics, which are the courses that graduate students are trained to
teach. There was a similar fall-off in bachelor’s degrees awarded in the
social sciences and history. There was upward movement in only two major
liberal-arts areas: psychology and the life sciences. American higher
education has been expanding, but the liberal arts part of the system has
been shrinking.
The Berkeley study, “Ph.D.s—Ten Years
Later,” was based on lengthy questionnaires sent to just under 6,000 people,
in six fields, who received Ph.D.s between 1982 and 1985. One of those
fields was English. People who received their Ph.D.s in English between 1982
and 1985 had a median time to degree of 10 years. A third of them took more
than 11 years to finish, and the median age at the time of completion was
35. By 1995, 53 percent of those with Ph.D.s that had been awarded from 10
to 15 years earlier had tenure; another 5 percent were in tenure-track
positions. This means that about two-fifths of English Ph.D.s were
effectively out of the profession as it is usually understood. (Some of
these people were non-tenure-track faculty, and some were educational
administrators. Most of the rest worked in what is called BGN—business,
government, and NGOs.) Of those who had tenure, less than a fifth had
positions in the kind of research universities in which they had been
trained—that is, about 5 percent of all English Ph.D.s. Ph.D.s who began in
a tenure-track position took an average of 6.1 years to get tenure. Ph.D.s
who began in non-tenure track positions but who eventually received tenure,
which about half did, took an average of 8.1 years to get tenure.
The placement rate for Ph.D.s has
fluctuated. Between 1989 and 1996, the number of starting positions
advertised in history dropped 11 percent; in art and art history, 26
percent; in foreign languages, 35 percent; and in political science, 37
percent. Yet every year during that period, universities gave out more
Ph.D.s than they had the year before. It was plain that the supply curve had
completely lost touch with the demand curve in American academic life. That
meant if not quite a lost generation of scholars, a lost cohort. This was a
period that coincided with attacks on the university for “political
correctness,” and it is not a coincidence that many of the most prominent
critics of academia were themselves graduate-school dropouts: Dinesh D’Souza,
Roger Kimball, Richard Bernstein, David Lehman. Apart from their specific
criticisms and their politics, they articulated a mood of disenchantment
with the university as a congenial place to work.
There were efforts after 1996 to cut down
the size of doctoral programs, with apparently some positive effect on the
job market. But time-to-degree numbers did not improve. In the sixties, the
time-to-degree as a registered student was about 4.5 years in the natural
sciences and about six years in the humanities. The current median time to
degree in the humanities is nine years. That does not include what is called
stop-time, which is when students take a leave or drop out for a semester or
longer. And it obviously does not take into account students who never
finish. It is not nine years from the receipt of the bachelor’s degree,
either; it is nine years as a registered student in a graduate program. The
median total time it takes to achieve a degree in the humanities including
stop-time is 11.3 years. In the social sciences, it is 10 years, or 7.8 as a
registered student. In the natural sciences, time-to-degree as a registered
student is just under seven years. If we put all these numbers together, we
get the following composite: only about half of the people who enter
doctoral programs in English finish them, and only about half of those who
finish end up as tenured faculty, the majority of them at institutions that
are not research universities. An estimate of the total elapsed time from
college graduation to tenure would be somewhere between 15 and 20 years. It
is a lengthy apprenticeship.
That it takes longer to get a Ph.D. in the
humanities than it does in the social or natural sciences (although those
fields also have longer times-to-degree than they once did) seems anomalous,
since normally a dissertation in the humanities does not require extensive
archival, field, or laboratory work. William Bowen and Neil Rudenstine, in
their landmark study In Pursuit of the Ph.D., suggested that one reason for
this might be that the paradigms for scholarship in the humanities have
become less clear. People are uncertain just what research in the humanities
is supposed to constitute, and graduate students therefore spend an
inordinate amount of time trying to come up with a novel theoretical twist
on canonical texts or an unusual contextualization. Inquiry in the
humanities has become quite eclectic without becoming contentious. This
makes it a challenge for entering scholars to know where to make their mark.
The conclusion of the researchers who
compiled the statistics on English Ph.D.s for the Berkeley study was, See?
It’s not so bad! The reason they give for this is the reason that is often
heard when the issues of time-to-degree and job placement are raised, which
is that most people who get Ph.D.s, whether they end up teaching or not,
report high job satisfaction. (Job satisfaction is actually higher among
Ph.D.s with non-academic careers than it is among academics, partly because
spousal problems—commuting marriages—are not as great outside academia.) And
the majority say that they do not regret the time they spent in graduate
school (although they have a lot of complaints about the quality of the
mentorship they received). Students continue to check into the doctoral
motel, and they don’t seem terribly eager to check out. They like being in a
university, and, since there is usually plenty of demand for their quite
inexpensive teaching, universities like having them. Business is good. Where
is the problem?
The effort to reinvent the Ph.D. as a
degree qualifying people for non-academic as well as academic employment, to
make the degree more practical, was an initiative of the Woodrow Wilson
Foundation when it was headed by Robert Weisbuch. These efforts are a worthy
form of humanitarianism; but there is no obvious efficiency in requiring
people to devote 10 or more years to the mastery of a specialized area of
scholarship on the theory that they are developing skills in research, or
critical thinking, or communication. Professors are not themselves, for the
most part, terribly practical people, and practical skills are not what they
are trained to teach. They are trained to teach people to do what they do
and to know what they know. Those skills and that knowledge are not
self-evidently transferable. The ability to analyze Finnegans Wake does not
translate into an ability to analyze a stock offering. If a person wanted to
analyze stock offerings, he should not waste his time with Joyce. He should
go to business school. Or get a job analyzing stock offerings.
It may be that the increased
time-to-degree, combined with the weakening job market for liberal arts
Ph.D.s, is what is responsible for squeezing the profession into a single
ideological box. It takes three years to become a lawyer. It takes four
years to become a doctor. But it takes from six to nine years, and sometimes
longer, to be eligible to teach college students for a living. Tightening up
the oversight on student progress might reduce the time-to-degree by a
little, but as long as the requirements remain, as long as students in most
fields have general exams, field (or oral) exams, and monograph-length
dissertations, it is not easy to see how the reduction will be significant.
What is clear is that students who spend eight or nine years in graduate
school are being seriously over-trained for the jobs that are available. The
argument that they need the training to be qualified to teach undergraduates
is belied by the fact that they are already teaching undergraduates.
Undergraduate teaching is part of doctoral education; at many institutions,
graduate students begin teaching classes the year they arrive. And the idea
that the doctoral thesis is a rigorous requirement is belied by the quality
of most doctoral theses. If every graduate student were required to publish
a single peer-reviewed article instead of writing a thesis, the net result
would probably be a plus for scholarship.
One pressure on universities to reduce
radically the time-to-degree is simple humanitarianism. Lives are warped
because of the length and uncertainty of the doctoral education process.
Many people drop in and drop out and then drop in again; a large proportion
of students never finish; and some people have to retool at relatively
advanced ages. Put in less personal terms, there is a huge social
inefficiency in taking people of high intelligence and devoting resources to
training them in programs that half will never complete and for jobs that
most will not get. Unfortunately, there is an institutional efficiency,
which is that graduate students constitute a cheap labor force. There are
not even search costs involved in appointing a graduate student to teach.
The system works well from the institutional point of view not when it is
producing Ph.D.s, but when it is producing ABDs. It is mainly ABDs who run
sections for lecture courses and often offer courses of their own. The
longer students remain in graduate school, the more people are available to
staff undergraduate classes. Of course, overproduction of Ph.D.s also
creates a buyer’s advantage in the market for academic labor. These
circumstances explain the graduate-student union movement that has been
going on in higher education since the mid 1990s.
But the main reason for academics to be
concerned about the time it takes to get a degree has to do with the barrier
this represents to admission to the profession. The obstacles to entering
the academic profession are now so well known that the students who brave
them are already self-sorted before they apply to graduate school. A college
student who has some interest in further education, but who is unsure
whether she wants a career as a professor, is not going to risk investing
eight or more years finding out. The result is a narrowing of the
intellectual range and diversity of those entering the field, and a widening
of the philosophical and attitudinal gap that separates academic from
non-academic intellectuals. Students who go to graduate school already talk
the talk, and they learn to walk the walk as well. There is less ferment
from the bottom than is healthy in a field of intellectual inquiry.
Liberalism needs conservatism, and orthodoxy needs heterodoxy, if only in
order to keep on its toes.
And the obstacles at the other end of the
process, the anxieties over placement and tenure, do not encourage
iconoclasm either. The academic profession in some areas is not reproducing
itself so much as cloning itself. If it were easier and cheaper to get in
and out of the doctoral motel, the disciplines would have a chance to get
oxygenated by people who are much less invested in their paradigms. And the
gap between inside and outside academia, which is partly created by the
self-sorting, increases the hostility of the non-academic world toward what
goes on in university departments, especially in the humanities. The
hostility makes some disciplines less attractive to college students, and
the cycle continues.
The moral of the story that the numbers
tell once seemed straightforward: if there are fewer jobs for people with
Ph.D.s, then universities should stop giving so many Ph.D.s—by making it
harder to get into a Ph.D. program (reducing the number of entrants) or
harder to get through (reducing the number of graduates). But this has not
worked. Possibly the story has a different moral, which is that there should
be a lot more Ph.D.s, and they should be much easier to get. The
non-academic world would be enriched if more people in it had exposure to
academic modes of thought, and had thereby acquired a little understanding
of the issues that scare terms like “deconstruction” and “postmodernism” are
attempts to deal with. And the academic world would be livelier if it
conceived of its purpose as something larger and more various than
professional reproduction—and also if it had to deal with students who were
not so neurotically invested in the academic intellectual status quo. If
Ph.D. programs were determinate in length—if getting a Ph.D. were like
getting a law degree—then graduate education might acquire additional focus
and efficiency. It might also attract more of the many students who, after
completing college, yearn for deeper immersion in academic inquiry, but who
cannot envision spending six years or more struggling through a graduate
program and then finding themselves virtually disqualified for anything but
a teaching career that they cannot count on having.
It is unlikely that the opinions of the
professoriate will ever be a true reflection of the opinions of the public;
and, in any case, that would be in itself an unworthy goal. Fostering a
greater diversity of views within the professoriate is a worthy goal,
however. The evidence suggests that American higher education is going in
the opposite direction. Professors tend increasingly to think alike because
the profession is increasingly self-selected. The university may not
explicitly require conformity on more than scholarly matters, but the
existing system implicitly demands and constructs it.
My aim has been to throw some light from
history on a few problems in contemporary higher education. If there is a
conclusion to be drawn from this exercise, it might be that the academic
system is a deeply internalized one. The key to reform of almost any kind in
higher education lies not in the way that knowledge is produced. It lies in
the way that the producers of knowledge are produced. Despite
transformational changes in the scale, missions, and constituencies of
American higher education, professional reproduction remains almost exactly
as it was a hundred years ago. Doctoral education is the horse that the
university is riding to the mall. People are taught—more accurately, people
are socialized, since the process selects for other attributes in addition
to scholarly ability—to become expert in a field of specialized study; and
then, at the end of a long, expensive, and highly single-minded process of
credentialization, they are asked to perform tasks for which they have had
no training whatsoever: to teach their fields to non-specialists, to connect
what they teach to issues that students are likely to confront in the world
outside the university, to be interdisciplinary, to write for a general
audience, to justify their work to people outside their discipline and
outside the academy. If we want professors to be better at these things,
then we ought to train them differently.
Still, as is the case with every potential
reform in academic life, there are perils. The world of knowledge production
is a marketplace, but it is a very special marketplace, with its own
practices, its own values, and its own rules. A lot has changed in higher
education in the last 50 years. What has not changed is the delicate and
somewhat paradoxical relation in which the university stands to the general
culture. It is important for research and teaching to be relevant, for the
university to engage with the public culture and to design its investigative
paradigms with actual social and cultural life in view. That is, in fact,
what most professors try to do—even when they feel inhibited from saying so
by the taboo against instrumentalist and presentist talk. Professors teach
what they teach because they believe that it makes a difference. To continue
to do this, academic inquiry, at least in some fields, may need to become
less exclusionary and more holistic. That may be the road down which the
debates I have been describing are taking higher education.
But at the end of this road there is a
danger, which is that the culture of the university will become just an echo
of the public culture. That would be a catastrophe. It is the academic’s job
in a free society to serve the public culture by asking questions the public
doesn’t want to ask, investigating subjects it cannot or will not
investigate, and accommodating voices it fails or refuses to accommodate.
Academics need to look to the world to see what kind of teaching and
research needs to be done, and how they might better train and organize
themselves to do it. But they need to ignore the world’s demand that they
reproduce its self-image.
Reprinted from The Marketplace of Ideas by
Louis Menand. Copyright © 2009 by Louis Menand. With the permission of the
publisher, W.W. Norton & Company, Inc.
This material may not be reproduced,
rewritten, or redistributed without the prior written permission of the
publisher.
. . .
Still, as is the case with every potential
reform in academic life, there are perils. The world of knowledge production
is a marketplace, but it is a very special marketplace, with its own
practices, its own values, and its own rules. A lot has changed in higher
education in the last 50 years. What has not changed is the delicate and
somewhat paradoxical relation in which the university stands to the general
culture. It is important for research and teaching to be relevant, for the
university to engage with the public culture and to design its investigative
paradigms with actual social and cultural life in view. That is, in fact,
what most professors try to do—even when they feel inhibited from saying so
by the taboo against instrumentalist and presentist talk. Professors teach
what they teach because they believe that it makes a difference. To continue
to do this, academic inquiry, at least in some fields, may need to become
less exclusionary and more holistic. That may be the road down which the
debates I have been describing are taking higher education.
But at the end of this road there is a
danger, which is that the culture of the university will become just an echo
of the public culture. That would be a catastrophe. It is the academic’s job
in a free society to serve the public culture by asking questions the public
doesn’t want to ask, investigating subjects it cannot or will not
investigate, and accommodating voices it fails or refuses to accommodate.
Academics need to look to the world to see what kind of teaching and
research needs to be done, and how they might better train and organize
themselves to do it. But they need to ignore the world’s demand that they
reproduce its self-image.
Continued in article
Bob Jensen's threads on the Need for Change in Doctoral Programs ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#DoctoralProgramChange
"Ernst & Young Told to Pay $16 Million in Superior Bank Case," by
Susannah Nesmith and Jef Feeley, Bloomberg News, January 13, 2012 ---
http://www.businessweek.com/news/2012-01-13/ernst-young-told-to-pay-16-million-in-superior-bank-case.html
Ernst
& Young already has put into effect
changes to the way it audits savings-and-loan associations that comply
with the OTS consent order, the firm said. "And we are voluntarily
taking the extra step of implementing these changes throughout our bank
audit practice," said Charles Perkins, a spokesman in New York.
"Ernst & Young
Settles Charges For $125 Million," The Wall Street Journal,
December 27, 2004, Page B3 --- http://online.wsj.com/article/0,,SB110411348322509799,00.html?mod=todays_us_marketplace
Ernst & Young LLP, one of
the four largest U.S. accounting firms, agreed to pay a total of $125
million to settle U.S. claims arising from its audits of a failed
Illinois savings bank.
Under a consent order agreed to
with the Office of Thrift Supervision, the New York-based partnership
will pay the Federal Deposit Insurance Corp. $85 million as receiver
for the failed Superior Bank FSB. In addition, Ernst & Young will
pay $40 million in restitution to the FDIC, which insures deposits at
the 9,025 U.S. banks and savings-and-loan associations, said an FDIC
spokesman.
Superior was declared insolvent
in July 2001 after running into trouble over its loans to borrowers
with spotty credit records. At the time of its failure, Superior had
assets of about $2 billion. The FDIC sued Ernst & Young in 2002,
contending that it delayed alerting regulators to improper accounting
practices at the thrift out of concern that negative publicity could
disrupt the sale of its consulting unit.
In April 2003, a federal judge
dismissed the suit, saying the FDIC wasn't able to sue in its capacity
as administrator for the government's Bank Insurance Fund and Savings
Association Fund. The FDIC appealed the decision.
Ernst has disputed allegations that it was to
blame for the bank's failure, citing testimony in 2002 before the
Senate by the FDIC's inspector general that Superior Bank's failure
was "directly attributable" to "the bank's board of
directors and executives ignoring sound risk-management
principles."
In settling, Ernst & Young didn't admit
or deny that its audits failed to comply with any professional
accounting standards. It said the decision to settle underscored a
commitment to work cooperatively with regulators and to make sure the
firm had "the strongest policies and procedures to serve our
clients and the public interest."
Ernst & Young already has put into effect
changes to the way it audits savings-and-loan associations that comply
with the OTS consent order, the firm said. "And we are
voluntarily taking the extra step of implementing these changes
throughout our bank audit practice," said Charles Perkins, a
spokesman in New York.
Bob Jensen's threads on Ernst & Young settlements ---
http://www.trinity.edu/rjensen/Fraud001.htm
"Lockdown: The coming war on general-purpose computing," by Cory
Doctorow,
http://boingboing.net/2012/01/10/lockdown.html
This article is based on
a
keynote speech to the Chaos Computer Congress in Berlin, Dec. 2011.
"FASB won’t require management to make going-concern assessments," by
Ken Tysiac, Journal of Accountancy, January 13, 2012 ---
http://journalofaccountancy.com/Web/20124999.htm
FASB will not require management to assess
whether there is substantial doubt about an entity’s ability to continue as
a going concern.
After its board meeting Thursday,
FASB
announced that a majority of board members
determined that such a requirement would be difficult to apply. Board
members decided that users of financial statements would benefit more from
ongoing disclosures about risks and uncertainties.
Disclosures made only after management
concludes there is substantial doubt about an entity’s ability to continue
as a going concern would be less beneficial to users of financial
statements, according to the board.
The next step in the project is developing
a principle for an entity to determine the adequacy of its disclosures about
risks and uncertainties, and to evaluate how the content of those
disclosures could be improved. The board directed the FASB staff to develop
such a principle.
FASB first issued a Proposed
Statement of Financial Accounting Standards,
Going
Concern, on Oct. 9, 2008, for a 60-day
comment period. The proposal would have required an entity to assess its
ability to continue as a going concern, preparing financial statements on a
going-concern basis unless liquidating or ceasing operations was the
entity’s intention or only realistic alternative.
Management would have been required to
take into account all available information about the future, which was
defined as at least, but not limited to, 12 months from the end of the
reporting period.
The proposal would have required
management to disclose uncertainties that cast substantial doubt upon the
entity’s ability to continue as a going concern.
FASB’s summary of the comment
letters indicated that a large majority of the 29 respondents generally
supported FASB’s initial decision to include guidance on going-concern
assessments in accounting literature. But respondents also had concerns.
According to FASB’s
Comment Letter Summary, a few respondents said the
wording “all available information about the future” was too broad and could
require management to consider an endless amount of information “regardless
of its quality or relevance.”
A few respondents questioned how much time
and money management should devote to considering all available information
about the future. A few observed that the purpose of a going-concern
assessment is to address the viability of an entity over the next 12 months,
not assess the viability of a business model in general.
Currently, AICPA Statement on Auditing
Standards (SAS) no. 59, The Auditor’s Consideration of an Entity’s
Ability to Continue as a Going Concern (AICPA, Professional
Standards, vol. 1, AU sec. 341), provides the U.S. guidance on this
topic. It states that the auditor is responsible for evaluating whether
there is substantial doubt about the entity’s ability to continue as a going
concern for a reasonable period not more than one year beyond the date of
the financial statements’ being audited. Information obtained during a
financial statement audit is the basis for this evaluation.
In October 2011, the board decided that
improving disclosures to serve as an early warning of an entity’s potential
inability to continue as a going concern would not be an objective of the
project, which was renamed Disclosures about Risks and Uncertainties and
the Liquidation Basis of Accounting. That decision was partly a result
of the board’s recent decision to add incremental disclosures about
liquidity risk in the separate project on accounting for financial
instruments, according to FASB’s report from the board meeting.
That left the board to decide whether
management or outside accountants of an entity should have the primary
responsibility for performing the going-concern assessment.
Continued in article
Jensen Comment
It seems to me that this leaves a tremendous gap between accounting and auditing
standards. Auditing standards require a fundamental shift in the basis of
accounting from accrual accounting to exit value accounting. It's not at all
clear if and when auditors will ever make that shift until clients have actually
declared intent to go out of business.
This FASB decision makes it even more likely that thousands of companies will
go out of business while getting clean going concern opinions from their
auditors who allow failing companies to continue accrual accounting rather than
exit value accounting. In the bailout crisis of 2008 thousands of that failed
had clean going concern audit opinions --- what a farce!
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
January 16, 2012 reply from Edith Orenstein
Bob,
Disclaimer first: This is entirely my opinion, not
that of my employer or any of its officers or employees.
Re: your comment “This FASB decision makes it even
more likely that thousands of companies will go out of business while
getting clean going concern opinions from their auditors who allow failing
companies to continue accrual accounting rather than exit value accounting,”
my take on what was expressly stated – and implied - during the FASB board’s
discussion on ‘going concern’ last week (detailed further in FEI Blog) is
that:
1. Stakeholder views on the actual meaning and
interpretation of ‘going concern’ is more dire than how that term is defined
in the auditing literature. (The aforementioned was essentially stated in
para. #5 of the FASB board handout summarizing results of FASB staff
outreach)
a. Therefore, stakeholder’s resulting actions could
cause an undue further downturn in a company’s financial condition than
was/would have been the case, even at the time of the going concern opinion.
(I thought this was strongly implied, if not directly stated in the board
members discussion, that the going concern opinion itself could be the
‘death knell’)
b. This ‘gap’ between the definition of going
concern in auditing literature and stakeholder interpretation thereof
creates even further tension over a significant auditing decision.
c. Thus, I believe the FASB board decided, along
the lines of what was stated by board member Tom Linsmeier, that if there is
a problem with what is stated in the auditing literature as to the
definition of going concern, or any related expectation gap related thereto,
that any such action should be taken by the auditing rule-writers
themselves. Board member Russ Golden asked if there would be coordination
between the auditing rule-makers and FASB as appropriate (he may have also
said SEC too, I am not sure), Board Chairman Leslie Seidman replied there
would be.
2. I don’t personally view FASB’s decision so much
as closing the door on further clarification of going concern in the
literature (for now, based on FASB’s decision, the auditing literature) or
as to dealing with any related ‘expectation gap,’ but moreso that with all
the potential complexities of that very exercise, in my view, FASB decided
it’s time would be better spent focusing on more early warning risk and
liquidity disclosures, without being boxed into the lightning
rod/potentially self-fulfilling prophecy around the term ‘going concern’.
Thank you,
Edith
Hi Edith,
I foresee a number of problems and inconsistencies in the decision not to
require a client's management to make a going concern assessment.
Firstly, management's going concern assessment above an beyond auditor risk
assessments is supposed to affect the scope of the audit --- at least in terms
of international auditing standards not affected (at least not yet) by FASB
actions.
See ISA 570, Going Concern ---
http://www.iasplus.com/ifac/0703edisa570.pdf
Secondly, a U.S. client that elects or is required to use international
accounting and auditing standards faces a different set of requirements
regarding management assessment of going concerns ---
http://www.iasplus.com/ifac/0703edisa570.pdf
PCAOB
AU Section 341 The Auditor's Consideration of an Entity's Ability to Continue
as a Going Concern
http://pcaobus.org/Standards/Auditing/Pages/AU341.aspx
Jensen Comment
It seems to me now that the auditing firms have to now evaluate going concern
with less input from management. This makes little sense to me, because the
weight of a going concern decision falls four square on the shoulders of the
audit firm.
Respectfully,
Bob Jensen
ALL TIME HITS (for all papers in SSRN eLibrary)
TOP 10 Papers for Tax Law & Policy eJournals
January 2, 1997 to January 15, 2012
http://papers.ssrn.com/sol3/topten/topTenResults.cfm?groupingId=305496&netorjrnl=ntwk
Rank Downloads
1 4577
Understanding the U.S. News Law School Rankings
Theodore P. Seto,
Loyola Law School Los Angeles,
Date posted to database: October 13, 2006
Last Revised: April 18, 2007
2 4316
Two and Twenty: Taxing Partnership Profits in Private Equity Funds
Victor Fleischer,
University of Colorado at Boulder - School of Law,
Date posted to database: March 23, 2006
Last Revised: September 26, 2007
3 3996
Taxes and Corporate Finance
John R. Graham,
Duke University - Fuqua School of Business,
Date posted to database: April 10, 2001
Last Revised: June 26, 2003
4 3770
Herman Cain's 9-9-9 Tax Plan
Edward D. Kleinbard,
University of Southern California - Law School,
Date posted to database: October 10, 2011
Last Revised: November 1, 2011
5 2481
Pursuing a Tax LLM Degree: Where?
Paul L. Caron, Jennifer M. Kowal, Katherine Pratt, Theodore P. Seto,
University of Cincinnati - College of Law, Loyola Marymount University - Loyola Law School Los Angeles, Loyola Marymount University - Loyola Law School Los Angeles, Loyola Law School Los Angeles,
Date posted to database: April 28, 2010
Last Revised: May 25, 2010
6 3941
Pursuing a Tax LLM Degree: Why and When?
Paul L. Caron, Jennifer M. Kowal, Katherine Pratt,
University of Cincinnati - College of Law, Loyola Marymount University - Loyola Law School Los Angeles, Loyola Marymount University - Loyola Law School Los Angeles,
Date posted to database: March 25, 2010
Last Revised: November 12, 2010 7 3282
7 3282
Firm Value and Marketability Discounts
Mukesh Bajaj, David J. Denis, Stephen P. Ferris, Atulya Sarin,
LECG, LLC, Purdue University - Department of Management, University of Missouri at Columbia - Department of Finance, Santa Clara University - Department of Finance,
Date posted to database: April 13, 2001
Last Revised: November 1, 2009 8 3027
8 3027
Taxing Undocumented Immigrants: Separate, Unequal and Without Representation
Francine J. Lipman,
University of Nevada, Las Vegas - William S. Boyd School of Law,
Date posted to database: February 15, 2006
Last Revised: May 30, 2008 9 2648
9 2648
Understanding Venture Capital Structure: A Tax Explanation for Convertible Preferred Stock
Ronald J. Gilson, David Schizer,
Stanford Law School, Columbia Law School,
Date posted to database: February 28, 2002
Last Revised: March 26, 2002 10 2588
10 2588
Tax Evasion and Tax Compliance
Luigi A. Franzoni,
University of Bologna - Faculty of Economics,
Date posted to database: November 11, 1998
Last Revised: February 3, 2010
Up for tenure, promotion, or accreditation?
"Nominating Your Evaluators," by Elizabeth H. Simmons, Inside Higher
Ed, January 6, 2012 ---
http://www.insidehighered.com/advice/2012/01/06/essay-simmons-nominating-evaluators-faculty-tenure-process
Jensen Comment
I don't think some (most?) of the R1 universities allow candidates to nominate
evaluators. Or they may allow candidates to nominate evaluators while insisting
that not all evaluators be nominated by the candidate.
I was active in varying degrees in obtaining accreditation for two
universities (University of Maine and Trinity University) while being on the
faculty of those universities. At UMO I was put in charge of the entire process
and, as a result, learned more about the AACSB than ever before.
One of the things that surprised me somewhat is that the AACSB allowed us to
nominate what deans would make a visit to our campus as part of the
accreditation review process. One of my long-time friends, a dean and former
accounting professor, who was very active in the AACSB for over two decades.
When I proposed to our local faculty that he be one of our AACSB nominees,
another faculty member objected saying that my friend was a known hard ass in
the accreditation review process. After a bit of research into this, even I
agreed that we sould never nominate my friend as an evaluator.
I must admit that the deans we eventually nominated were pretty easy on us,
although in each instance I thought we had a good case for accreditation.
And when asked to evaluate a faculty member for tenure or promotion by
another university, I recall how much I dreaded receiving those requests in big
brown envelopes that contained ten or more papers to read and evaluate. It
especially made me uncomfortable when having to be critical of a friend's
published research. However, I don't think I killed the quest for tenure or
promotion of any candidate even though I tried to be professional in every one
of my evaluations.
Now that I'm retired, I enjoy using retirement as an excuse turn down
evaluation requests since moving to the mountains.
"Guidance provided on electronic health record incentives," by Ken
Tysiac, Journal of Accountancy, January 6, 2012 ---
http://journalofaccountancy.com/Web/20124972.htm
"Where There's Smoke, There's Fraud: Sarbanes-Oxley has done little
to curb corporate malfeasance. Therefore, CFOs should implement a range of
fraud-prevention measures," by Laton McCartney, CFO.com, March 1, 2011 ---
http://www3.cfo.com/article/2011/3/regulation_where-theres-smoke-theres-fraud
As a convicted felon, Sam E. Antar, the former CFO
for the now-defunct consumer-electronics chain Crazy Eddie, no doubt has
regrets. Among them: he is no longer in the game at a time when corporate
fraud is experiencing a resurgence. "If I were out of retirement today, I'd
be bigger than Bernie Madoff," he boasts.
In conjunction with CEO Eddie Antar (his cousin),
Sam Antar helped mastermind one of the largest corporate frauds in the
1980s, bilking investors and creditors out of hundreds of millions of
dollars. Today, he makes a living lecturing about corporate fraud (and
shorting the stocks of companies he thinks may have inflated earnings).
Antar says that despite the antifraud provisions of
the Sarbanes-Oxley Act of 2002 and the recently enacted Dodd-Frank Wall
Street Reform and Consumer Protection Act, it remains as easy today for bad
guys, both internal and external, to loot corporate coffers as it was during
the Enron and WorldCom days. "Nothing's changed," he says. "Wall Street
analysts are just as gullible, internal controls remain weak, and the SEC is
underfunded and, at best, ineffective. Madoff only got caught because the
economy tanked."
Antar won't get much of an argument from
organizations that monitor corporate fraud. In fact, the consensus today is
that financial shenanigans are markedly on the increase. "There's a lot more
employee fraud and embezzlement today then there was 10 years ago, and this
past year there was much more than a year ago," says Steve Pedneault of
Forensic Accounting Services. "People blame the economy, but much of the
fraud and embezzlement that's coming to the surface now was in the works for
4 or 5 years before the recession hit."
Last year, the Committee of Sponsoring
Organizations of the Treadway Commission's report on corporate fraud
concluded that fraud continues to increase in depth and breadth despite
Sarbanes-Oxley; the methods of committing financial fraud have not
materially changed; and traditional measures of corporate governance have
limited impact on predicting fraud. Median loss due to fraud, based on
presence of antifraud controls, 2010No. of fraud cases, based on
perpetrator's dept. (2010)
In other words, same old same old, only worse: in
its 2010/2011 Global Fraud Report, risk consulting firm Kroll found that
business losses due to fraud increased 20% in the last 12 months, from $1.4
million to $1.7 million per billion dollars of sales. The report, based on a
survey of more than 800 senior executives from 760 companies around the
world, also found that 88% of the respondents reported being victims of
corporate fraud over the past 12 months. If fraud were the flu, this would
qualify as a pandemic.
The most likely targets by industry are financial
services, media, technology, manufacturing, and health care. Small and
midsize companies are also more vulnerable. "Many of these organizations
typically rely on a small accounting department, especially in today's
economy," says Pedneault. They simply don't have the resources to catch
fraudsters.
That challenge becomes all the more daunting when
one considers the many varieties of fraud that exist. Aside from various
forms of embezzlement and outright theft, and the growing risk of
information theft (think hackers), two other kinds of corporate malfeasance
have come to the fore in recent years: fraud in the business model and fraud
in the business process.
The former is defined by a company selling illegal
or worthless wares. "If the pharmaceutical industry sells alleged off-label
drugs that have not been approved by the FDA, or the financial-services
industry is offering worthless subprime mortgages, that can constitute
business-model fraud," says Toby J. F. Bishop, director of the Deloitte
Forensic Center for Deloitte Financial Advisory Services.
Fraud of the business-practice variety, Bishop
explains, can range from corporations ignoring or turning a blind eye to
environmental or safety laws to the ever-popular practice of engaging in
"window dressing" at the end of the quarter.
An Action Plan With fraud on the rise, and with all
parties that could possibly be tempted feeling more pressure to cross the
line, how should companies respond? First, the bad news: "Most fraud today
is uncovered by whistle-blowers, or by accident — a tip, a rogue piece of
mail, or by happenstance," says Tracy L. Coenen, a forensic accountant and
fraud investigator who heads up Sequence, a forensic accounting firm.
In a sense, companies (at least those that are
publicly traded) were supposed to self-insure against fraud by implementing,
at great expense, the controls framework included in Sarbanes-Oxley. But a
framework still requires an enforcer, and at many companies there is none.
"There's often no single entity for oversight," says Deloitte's Bishop.
"Many companies have no compliance or risk management at all."
Even when they do, there's the issue of how
effective it can be. It's not a job that wins friends and influences fellow
workers. "The compliance officer is the most hated person in the company,"
notes Thomas Quilty, CEO of BD Consulting and Investigations. "Companies
often retaliate against them," adds Antar.
"Compliance staff frequently end up pushing paper
[just] so it looks like the company has tried to do the right thing in case
there's an investigation," says Coenen. "They're not effective."
As for what to do, while no one has yet come up
with a silver bullet, experts point to seven useful steps that all companies
can take:
Continued in a long article
"ACCOUNTANTS BEHAVING BADLY," by Anthony H. Catanach, Jr. and J.
Edward Ketz, Grumpy Old Accountants, October 3, 2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/332
Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
Are current American Accounting Association journal articles free?
Can AAA Commons modules be accessed free by anyone in the world?
Hints
Go to Google
Advanced Search and write in "Clickers" in the top box and "American
Accounting Association" in the Exact Phrase box.
Leads to the full November 2011 Issues in Accounting Education
article by Premurosa et al.
Note that this free link may time out in a matter of days or even hours on
Google. I don't know about this!
Go to Google
Advanced Search and write in "Premurosa" in the top box and "American
Accounting Association" in the Exact Phrase box.
Does not lead to the November 2011 Issues in Accounting Education
article by Premurosa et al.
Go to Google
Advanced Search and write in "Close Encounters" in the top box and "American
Accounting Association" in the Exact Phrase box.
Does not lead to the full article but leads to the free abstract of a
Doyle Williams Issues in Accounting Education article in the
November 2011 TAR article
"A Half Century of Close Encounters with the First Course in Accounting," by
Doyle Z, Williams, Issues in Accounting Education, November 2011, pp.
759-776
Go to Google
Advanced Search and write in "Monitoring" in the top box and "American
Accounting Association" in the Exact Phrase box.
Does not lead to the full article but leads to the free abstract of the
Campbell, Epstein, and Jerez article in the November 2011 TAR article
Conclusion
Searching Google for full articles or abstracts of American Accounting
Association articles is a hit or miss proposition, but more likely than not
Google will miss both the full article (usually not free) and the abstract (free
if you know how to search the AAA publications site).
http://aaahq.org/pubs/electpubs.htm
Bonus Comment
For the recent AAA Commons searches, Google is now leading to some (random?) AAA
Commons modules.
The search success is very unpredictable.
Go to Google
Advanced Search and write in "Accountics" in the top box and "American
Accounting Association" in the Exact Phrase box.
This eads to some (random?) AAA Commons modules from the Commons but fails to
provide links to articles that use the word "accountics".
Only AAA members have full access (by signing in) to the AAA Commons, but
visitors increasingly can find links to some modules without signing in --- .
http://commons.aaahq.org/pages/home
The Commons search engine works well for members, but I would not yet rely on
Google to find AAA Commons modules.
Over 24 years ago, Barry Rice believed in the learning power of classroom
electronic response pads (clickers).
He was right if they are used correctly ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#ResponsePads
"Does Using Clickers in the Classroom Matter to Student Performance and
Satisfaction When Taking the Introductory Financial Accounting Course?" by
Ronald F. Premuroso, Lei Tong, and Teresa K. Beed, Issues in Accounting
Education, November 2011, pp. 701-724
http://aaajournals.org/doi/abs/10.2308/iace-50066
There is a fee for the full text version
Teaching and student success in the classroom
involve incorporating various sound pedagogy and technologies that improve
and enhance student learning and understanding. Before entering their major
field of study, business and accounting majors generally must take a
rigorous introductory course in financial accounting. Technological
innovations utilized in the classroom to teach this course include Audience
Response Systems (ARS), whereby the instructor poses questions related to
the course material to students who each respond by using a clicker and
receiving immediate feedback. In a highly controlled experimental situation,
we find significant improvements in the overall student examination
performance when teaching this course using clickers as compared to
traditional classroom teaching techniques. Finally, using a survey at the
end of the introductory financial accounting course taught with the use of
clickers, we add to the growing literature supporting student satisfaction
with use of this type of technology in the classroom. As universities look
for ways to restrain operating costs without compromising the pedagogy of
core requirement classes such as the introductory financial accounting
course, our results should be of interest to educators, administrators, and
student retention offices, as well as to the developers and manufacturers of
these classroom support technologies.
"Some interesting findings and unanswered questions about clicker
implementations," by Robert Talbert, Chronicle of Higher Education,
January 4, 2012 ---
Click Here
http://chronicle.com/blognetwork/castingoutnines/2012/01/04/some-interesting-findings-and-unanswered-questions-about-clicker-implementations/?sid=wc&utm_source=wc&utm_medium=en
I have been using clickers in my classes for three
years now, and for me, there’s no going back. The “agile teaching” model
that clickers enable suits my teaching style very well and helps my students
learn. But I have to say that until reading this Educause article on the
flight out to Boston on Sunday, I hadn’t given much thought to how the
clicker implementation model chosen by the institution might affect how my
students learn.
Different institutions implement clickers
differently, of course. The article studies three different implementation
models: the students-pay-without-incentive (SPWOI) approach, where students
buy the clickers for class but the class has no graded component for clicker
use; the the students-pay-with-incentive (SPWI) approach, where students
purchase clickers and there’s some grade incentive in class for using them
(usually participation credit, but this can vary too); and the
institution-pays-clicker-kit (IPCK) approach, where the institution
purchases a box of clickers (a “clicker kit”) for an instructor, and the
instructor brings them to class.
For me, the most interesting finding in the study
was that there appears to be a threshhold for the perceived usefulness of
clickers among students. The study found that in the SPWOI approach, 72% of
student respondents said they would buy a clicker if it was used in at least
three courses they were taking per semester. But drop that number to “at
least two courses” and the percentage drops to 24%! So once the saturation
level of clicker use reaches something like 50–75% of a student’s course
load, they start seeing the devices as worth the money, even with no grade
attached to its use. (Only a depressing 13% of students said they would pay
$50 for a clicker based solely on its value as a learning tool. We have some
P.R. to do, it seems.)
In the SPWI approach, 65% of respondents said they
would buy a clicker if the contribution of clicker use toward their course
grades was between 3% and 5%. (This is sort of mystifying. What do the other
35% do? Steal one? Just forfeit that portion of their grade?) The study
doesn’t say explicitly, but it implies that if the grade contribution is
less than 3%, the percentage would drop — how precipitously, we don’t know.
The study goes on to give a decision tree to help
institutions figure out which implementation model to choose. Interestingly,
if it gets down to choosing between the SPWI and SPWOI models, the deciding
factor is whether the institution can manage cheating with the clickers. If
so, then go with SPWI. Otherwise, go SPWOI — that is, if you can’t control
cheating, don’t offer incentives.
Here at GVSU, I use the SPWI approach. Students
have to pay for the clickers, but they get 5% of their course grade for
participation. I take attendance at each class using the Attendance app for
the iPhone. Then, once or twice a week, I’ll cross-check the attendance
records with the clicker records for the day. If a student is present but
doesn’t respond to all the clicker questions, they lose participation credit
for the day. This method also mitigates cheating; if a student is absent for
the day but has records of clicker response, then I hold the student guilty
of cheating, because someone else is entering data for them. (Putting the
burden on the absent student makes it less likely they’ll give their clicker
to someone else to cheat for them.).
Continued in article
January 10, 2012 reply from Steve Hornik
Late reply to this thread, but my memory is pretty
bad and I was trying to remember a "clicker" alternative. I finally did, its
Pollanywhere and works the same way as clickers. I've used for presentations
at AAA meetings a few years ago, here's a link if anyone is interested in
finding out more:
http://www.polleverywhere.com/
_________________________
Dr. Steven Hornik
University of Central Florida
Dixon School of Accounting
407-823-5739
http://about.me/shornik
Bob Jensen's threads on clickers are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#ResponsePads
Joe Hoyle writes a letter to students, January 15, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/01/note-to-my-students.html
"The Risky Business of Being A Bank Chief Risk Officer," by Francine
McKenna, re:TheAuditors, January 22, 2012 ---
http://retheauditors.com/2012/01/22/the-risky-business-of-being-a-bank-chief-risk-officer/
My column at
American Banker this past Friday,
“The Riskiest Careers in Financial Services, Finally Rewarded,”
included a couple of obvious examples of high risk,
high reward for this hot new job title. The largest four US banks have
examples of big winners. MF Global and UBS provide recent downside
arguments.
It’s difficult for me to imagine a new
generation of systemically important financial services company CEOs
without strong risk management experience. Independent board members
with risk management experience will also be in demand. The current
generation of CROs is gaining the experience to lead as CEOs and board
members in today’s challenging market and regulatory environment.
Stewart Goldman, a senior client partner at
executive search firm Korn/Ferry International, tells me there’s a
‘’scarcity” of candidates with the ”ideal skill set” to be chief risk
officers, so institutions are considering people with a broader range of
backgrounds to fill the post.
A Chief Risk Officer who does a good job
mitigating risk while optimizing opportunities can now have significant
stature and sway. But, conversely, that new prominence gives
shareholders, regulators, and the media an easy target for ridicule
after a corporate stumble or failure.
I’ve written quite a bit about some additional
cases of Chief Risk Officers getting the heave-ho when something goes wrong.
These additional examples – all outside of the US – didn’t make it to the
American Banker column. It was a case of space as well as an “American”
banker focus. But, I wonder out loud if there’s something different going on
in Europe – something that forces accountability – or if the executives
given the shove-off in Europe were just easy scapegoats.
Société Générale had its own “rogue trader” scandal
in January 2008. Société Générale lost $7 billion in spite of service from
dual auditors under French law, Ernst and Young
and Deloitte, and myriad policies, procedures, organizations and systems
they, theoretically, had
in place to manage risk.
However,
words alone do not insure sufficient risk management.
In 2009 Benoît Ottenwaelter replaced Group Chief Risk
Officer Didier Hauguel. Hauguel had served as Group CRO and a member of the
Executive Committee and Group Management Committee of Société Générale since
2000.
Paul Moore, HBOS’ former head of regulatory risk
and a former KPMG partner told the Treasury Committee of the UK’s Parliament
that
Sir James Crosby, HBOS former chief executive, fired him
after he warned the HBOS board in 2004 about its
potentially dangerous “sales culture”. KPMG, external auditors for HBOS,
ended up front and center in the 2004 controversy because the audit firm
“independently” investigated Moore’s firing at the request of the Board
after Moore blew the whistle. KPMG got the job in spite of its long and very
lucrative relationship with HBOS management including significant fees for
work done for the bank’s bid for Abbey National that same year.
Continued in article
Fair Value Accounting for Liabilities
"VISA’s LITIGATION ESCROW FUND," by Anthony H. Catanach, Jr. and J.
Edward Ketz, Grumpy Old Accountants, January 2, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/470
Bob Jensen's threads on risk measurement are at
http://www.trinity.edu/rjensen/roi.htm
Fair Value Accounting for Liabilities
"VISA’s LITIGATION ESCROW FUND," by Anthony H. Catanach, Jr. and J.
Edward Ketz, Grumpy Old Accountants, January 2, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/470
Visa recently set aside some cash to fund future
litigation payouts. This is an interesting announcement because it may
portend the booking of some litigation losses not already recognized by the
firm.
Specifically, Visa issued a
press release on December 23, 2011, in which it
stated that the firm:
announced it had decided to deposit $1.565
billion (the “Loss Funds”) into the litigation escrow account previously
established under the Company’s retrospective responsibility plan (the
“Plan”). Under the terms of the Plan, when the Company funds the
litigation escrow account, the value of the Company’s Class B shares –
which are held exclusively by U.S. financial institutions and their
affiliates and successors – is correspondingly adjusted via a reduction
in the Class B shareholders’ as-converted share count. This has the same
effect on earnings per share as repurchasing the Company’s class A
common stock, by reducing the as-converted class B common stock share
count. The Company will make this deposit by using funds previously
allocated to its current $2 billion class A repurchase program, which
was announced on July 27 and October 26, 2011, and which will exhaust
all funds available under that program.
We checked those two announcements.
On July 27, the business enterprise did announce
the authorization of a new $1 billion share repurchase program.
On October 26, Visa increased this authorization
by $1 billion.
We also took a look at the
10-K for fiscal year ended September 30, 2011. We
note that restricted cash, restricted for this litigation escrow account,
increased from $1,866 million to $2,857 million. For fiscal 2011, the
company injected cash of $1,200 million and disbursed $280 million in its
American Express settlement.
Next we trotted to footnote 21, dealing with legal
matters. Visa said the beginning of year 2011 balance in its litigation
reserves was $697 million. The provision for settled legal matters was $7
million, reclassification of settled matters $12, and interest accretion
$11. It made payments of $302, giving a balance on September 30, 2011 of
$425 million.
This footnote also sketches out the details of the
complaint by American Express in 2004 and the settlement reached between the
corporations on November 9, 2007. Under this agreement, American Express
would receive a maximum of $2.07 billion from Visa. Visa booked this loss
for $1.9 billion, the present value of the future cash payments, using a
rate of 4.72 percent.
. . .
ASC 450-20-05-6, however, adds some confusion. Visa
might take a fair value approach and estimate what an entity would require
it to pay to assume the obligation. This gets us into the mess of valuing
liabilities using a firm’s own credit risk to determine the appropriate
discount rate. Still, this credit risk would have to be very high to make up
the approximately $1.1 billion discrepancy between the September 30
liability balance and the additional funding.
We hope Visa explains this to us in some
straight-forward language in its next 10-Q. Better yet, we hope to see an
appropriate accrual that ties the accounts together.
Continued in article
Bob Jensen's threads on fair value accounting controversies are at
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
"Newt Gingrich Used 'John Edwards Sub S Tax Shelter' to Save $50k in
Medicare Taxes," by Janet Novack, Forbes, January 22, 2012 ---
http://www.forbes.com/sites/janetnovack/2012/01/22/gingrich-used-payroll-tax-ploy-often-attacked-by-irs/
Thank you Paul Caron for the heads up.
Jensen Comment
Rich People generally do not develop their own tax avoidance and deferral
strategies. This is why tax consultants, some of them former IRS agents, are in
demand in the upper parts of town. John Edwards and Newt had more fun things to
do than read the tax code and do their own Turbo Tax returns..
"Romney’s Other Tax Break," by Martin A. Sullivan, News and
Analysis ---
http://taxprof.typepad.com/files/romney-tax-notes.pdf
Was it creative destruction or vulture capitalism?
Whatever you call what Mitt Romney did at Bain Capital, it is now a
multi-pronged challenge to his presidential aspirations. Just the mention of
investment shops like Bain can stir up resentment with the voters still
looking for jobs and seething over the collapse of 2008.
Then there is the tax angle. When he left Bain in
1999, Romney negotiated a retirement package that gave him a share of the
company’s skyrocketing profits for at least a decade after his departure
(‘‘Buyout Profits Keep Flowing to Romney,’’ The New York Times, Dec. 18,
2011). The bulk of those profits were carried interest — consulting fees
paid to managing partners conditioned on upside gain for investors. The
payouts were likely taxed at 15 percent. For a man with an estimated net
worth of a quarter-billion dollars, a tax rate lower than middle-income
families’ does not sit well with voters who are daily reminded of increasing
inequality, especially when Romney is proposing a plan that cuts taxes on
the rich and raises taxes on the poor (Tax Policy Center, ‘‘The Romney Tax
Plan,’’ Jan. 5, 2012, Doc 2012-249, 2012 TNT 4-28).
Bain profited from a dangerous flaw in our
corporate tax that subsidizes destabilizing financial structures.
Just as many Wall Streeters feared, Romney’s rising
presidential fortunes are threatening their monetary fortunes. The
long-simmering debate about the tax treatment of carried interest is being
reignited. On January 18 House Ways and Means Committee ranking minority
member Sander M. Levin, D-Mich., announced his plans to reintroduce
legislation to treat carried interest as ordinary income rather than capital
gains. (For related coverage, see p. 405.) This is just the opening salvo.
If Romney wins the Republican nomination, the president’s populist
reelection campaign will ensure that the carried interest controversy goes
prime time.
Continued in article
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Pulling the New IFRS 13 Onto the Tarmac
"Are you ready for the new fair value accounting?" by Francisco Roque A.
Lumbres, Business World, January 23, 2012 ---
http://www.bworldonline.com/content.php?section=Economy&title=Are-you-ready-for-the-new-fair-value-accounting?&id=45461
Fair value
accounting, often referred to as mark-to-market accounting, has been the
subject of much discussion and controversy, and the fact that various
ways of measuring fair value were spread among different International
Financial Reporting Standards (IFRS) has contributed to many questions
regarding fair value accounting.
To create a
uniform framework for fair value measurements that consolidates into one
single standard the various ways of measuring fair value, the
International Accounting Standards Board (IASB) issued IFRS 13, Fair
Value Measurements to reduce complexity and improve consistency in the
application of fair value measurements. IFRS 13 also aims to enhance
fair value disclosures to help users assess the valuation techniques and
inputs used to measure fair value. IFRS 13 was published last May 12,
2011 and will become effective by January 1, 2013. It is applied
prospectively, and early adoption is allowed.
IFRS 13 clarifies how to measure fair value
when it is required or permitted in IFRS. It does not change when an
entity is required to use fair value. Furthermore, IFRS 13 covers both
financial and non-financial assets and liabilities.
Key principles of IFRS 13
IFRS 13 applies when another IFRS standard
requires or permits fair value measurements or disclosures. It does not,
however, apply to transactions within the scope of:
• International Accounting Standards (IAS) 17, Leases;
• IFRS 2 Share-Based Payments; and,
• Certain other measurements that are similar but are not fair value,
that are required by other standards, such as value in use in IAS 36,
Impairment of Assets and net realizable value in IAS 2, Inventories.
Fair value defined
IFRS 13 now defines “fair value” as the price
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date (i.e., an exit price). Therefore, the focus now is on exit price as
against entry price.
Market participant
assumptions
When measuring fair value, IFRS 13 requires an
entity to consider the characteristics of the asset or liability as
market participants would. Hence, fair value is not an entity-specific
measurement; it is market-based.
Principal or most
advantageous market
A fair value measurement assumes that the
transaction to sell the asset or transfer the liability takes place in
the “principal market” for the asset or liability or, in the absence of
a principal market, in the “most advantageous market” for the asset or
liability.
The principal market is the market with the
greatest volume and level of activity for the asset or liability to
which the entity has access to. On the other hand, the most advantageous
market is the market that maximizes the amount that would be received
for the sale of the asset or minimizes the cost to transfer the
liability, after considering transaction and transport costs.
Highest and best use
The concept of “highest and best use” applies
to non-financial assets only. Fair value considers a market
participant’s ability to generate economic benefits by using the asset
in its highest and best use. Highest and best use is always considered
when measuring fair value, even if the entity intends a different use of
the asset.
Fair value hierarchy
Fair value measurements are classified into
three levels which prioritize the observable inputs to the valuation
techniques used and minimize the use of unobservable data.
• Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity can access at the measurement
date.
• Level 2: Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
• Level 3: Unobservable inputs for the asset or liability.
Valuation techniques and
inputs
IFRS 13 describes the valuation approaches to
be used to measure fair value: the market approach, income approach and
cost approach. IFRS 13 does not specify a valuation technique in any
particular circumstance; it is up to the entity to determine the most
appropriate valuation technique.
• Market approach: Uses prices and other relevant information from
market transactions involving identical or similar assets or
liabilities. A commonly-used technique is the use of market multiples
derived from “comparables.”
• Income approach: Converts future amounts (e.g., cash flows or income
and expenses) to a single current (discounted) amount. Valuation
techniques may include a discounted cash flows approach, option-pricing
models, or other present-value techniques.
• Cost approach: Reflects the amount currently needed to replace the
service capacity of an asset (also known as the current replacement
cost)
Disclosure requirements
IFRS 13 expanded required disclosures to help
the users understand the valuation techniques and inputs used to measure
fair value and the impact of fair value measurements on profit and loss.
The required disclosures include:
• Information about the level of fair value hierarchy;
• Transfers between levels 1 and 2;
• Methods and inputs to the fair value measurements and changes in
valuation techniques; and
For level 3 disclosures, quantitative
information about the significant unobservable inputs and assumptions
used, and qualitative information about the sensitivity of recurring
level 3 measurements.
Business impact and next
steps
Practically all entities using fair value
measurements will be subject to IFRS 13, which will require certain fair
value principles and disclosures that will significantly impact
application and practice. Therefore, management should:
• Begin to assess the effect of IFRS 13 on valuation policies and
procedures;
• Have competent knowledge when making judgments in fair value
measurements;
• Consider whether it has appropriate expertise, processes, controls and
systems to meet the new requirements in determining fair value and
disclosures;
• Revisit loan covenants, compensation plans, shareholder communications
and analyst expectations;
• Have discussions with systems vendors, appraisers, investment advisors
and/or investment custodians; and,
• Be able to demonstrate to regulators and its external auditors that it
understands the requirements of IFRS 13. This will greatly assist both
regulators and external auditors in their annual examination and audit.
The mandatory implementation of this new
standard is less than a year away. The clock is ticking; the time to act
is now.
Fair Value Accounting for Liabilities
"VISA’s LITIGATION ESCROW FUND," by Anthony H. Catanach, Jr. and J.
Edward Ketz, Grumpy Old Accountants, January 2, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/470
The Controversy Over Fair Value (Mark-to-Market)
Financial Reporting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
Teaching Case on Fair Value Measurement and Financial Statement Analysis
Here's a pop quiz: Bank of America in the third quarter generated:
a) 56 cents a share in earnings,
b) 27 cents,
c) a loss of two cents, or
d) all of the above.
From The Wall Street Journal Accounting Weekly Review on November 4,
2011
Wall Street Reaps Profit Volatility It Sowed
by:
David Reilly
Oct 31, 2011
Click here to view the full article on WSJ.com
TOPICS: Banking, Fair Value Accounting, Fair-Value Accounting
Rules, Financial Accounting Standards Board, SEC, Securities and Exchange
Commission
SUMMARY: Author David Reilly uses Bank of America's recent
disclosures highlighting the impact of special items to say that analysts
and others cannot clearly identify what results banks are achieving. He
highlights the bank's use of the fair value option for structured notes-bank
debt that was issue with an embedded derivative so that "the ultimate payout
to the holder typically depends on changes in some other instrument such as
the S&P 500...." Mr. Reilly expresses concern with comparability across bank
financial statements because of differing disclosures about the effects of
using the fair value option to account for structured debt. He calls for the
SEC to "issue guidance so that all banks label these changes similarly and
present them in the same way."
CLASSROOM APPLICATION: The article is useful in advanced
undergraduate or graduate level financial reporting classes to cover the
qualitative characteristic of comparability and to discuss the fair value
option banks are using in accounting for their own debt.
QUESTIONS:
1. (Introductory) On what basis does the author of this article,
David Reilly, argue that Bank of America's fourth quarter results could be
measured in three ways?
2. (Advanced) Define the terms "mark-to-market accounting" and
"fair value option". What authoritative accounting guidance defines how to
use these accounting methods?
3. (Introductory) Why are banks opting to use fair value reporting
for their structured notes even when not being required to do so? In your
answer, define the term "structured notes" on the basis of the description
in the article.
4. (Advanced) What are the primary and supporting qualitative
characteristics of financial information? Where are they found in
authoritative accounting literature?
5. (Advanced) Which qualitative characteristic does Mr. Reilly
indicate is being violated in reporting by from big banks such as Citigroup,
J.P. Morgan Chase, Morgan Stanley, and Goldman Sachs Group?
6. (Introductory) What entity does Mr. Reilly indicate should solve
the reporting issues highlighted in the article? Is this the only entity
responsible for establishing financial reporting standards in this U.S.?
Reviewed By: Judy Beckman, University of Rhode Island
"Wall Street Reaps Profit Volatility It Sowed," by: David Reilly, The Wall
Street Journal, October 31, 2011 ---
http://online.wsj.com/article/SB10001424052970204505304577004223202476152.html?mod=djem_jiewr_AC_domainid
Here's a pop quiz: Bank of America in the third
quarter generated:
a) 56 cents a share in earnings,
b) 27 cents,
c) a loss of two cents, or
d) all of the above.
The answer is "d," thanks to a dozen special items
investors can include or exclude when trying to figure out how the bank
actually performed. Chief among them were $6.2 billion in gains due to falls
in the value of the bank's own debt.
And investors may have to brace for more of the
same in the current quarter. With the European crisis off the boil, debt
values for big banks have regained some ground. The cost of protecting
against default at Bank of America has fallen about 26% since Sept. 30,
following a 170% increase in the third quarter. If the decline continues,
last quarter's gains could reverse, resulting in fourth-quarter hits to
profit.
Confused? Plenty of investors are. Even analysts
and bankers have had a tough time figuring out how to compare results at big
banks like Bank of America, Citigroup, J.P. Morgan Chase, Morgan Stanley and
Goldman Sachs Group. That's due to the counterintuitive nature of these
gains. Since banks book them as their own debt loses value, a firm would
theoretically mint money while going bankrupt. Making matters worse,
individual banks often use different terms to describe these gains—and
disclose them in different ways.
This is spurring debate about whether
accounting-rule changes are needed. But there's a little-known irony: The
problem is largely of Wall Street's own making. And it highlights how big
banks repeatedly play for short-term advantages that often end up working
against them.
To understand why, consider that banks aren't
actually required to record most gains or losses due to changes in the value
of their debt. (Unlike with derivatives, which must be marked.) They choose
to do so. And when banks do mark debt, it tends to affect only small
portions of their total liabilities. In the second quarter, Bank of America
marked to market $60.7 billion out of $427 billion in long-term debt. That
was equal to only about 3% of the bank's total liabilities, which totaled
$2.04 trillion.
Plus, banks that mark portions of their debt often
do so because they issue so-called structured notes. These notes are bonds
with a twist—the ultimate payout to the holder typically depends on changes
in some other instrument such as the S&P 500 index or a basket of
commodities.
Big banks like these instruments because they
generally result in a cheaper cost of funding. By embedding a derivative in
the instrument, they can also generates fees and may lead to more trading
business. There was a catch, though. For accounting purposes, banks couldn't
hedge that embedded derivative.
So in the mid-2000s, Wall Street pushed for an
accounting-rule change that allowed them to use market prices for almost
anything on their balance sheet. This made it easier to avoid accounting
mismatches. But it also meant Wall Street could mark these structured notes
to market prices, allowing them to hedge the derivative for accounting
purposes.
At the time, banks weren't worried about big
changes in the value of their own debt coming into play. Bonds were pretty
stable, and the credit-default-swap market was nascent. The financial crisis
changed that. As banks teetered, their bonds and default swaps moved
sharply. This led to the kind of outsize gains and losses now whipsawing
bank results.
Continued in article
Jensen Comment
Frank Partnoy and Lynn Turner contend that Wall Street bank
accounting is an exercise in writing fiction:
Watch the video! (a bit slow loading)
Lynn Turner is Partnoy's co-author of the white paper."Make Markets Be Markets"
"Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy,
Roosevelt Institute, March 2010 ---
http://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-transparency-balance-sheet-accounting
Watch the video!
Bob Jensen's threads on fair value accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
Bob Jensen's threads on financial statement analysis ---
http://www.trinity.edu/rjensen/roi.htm
Judging the Relevance of Fair Values for Financial Statements
Since fair value accounting is arguably the hottest accounting
theory/practice topic among accounting standard setters and financial analysts
these days, I was naturally attracted to the following accountics science
research article:
"Judging the Relevance of Fair Values for Financial Statements," by Lisa
Koonce, Karen K. Nelson, and Catherine M. Shakespeare, The Accounting Review,
Volume 86, 2075-2098.November 2011, pp. 2075-2098
We conduct three experiments to test if investors'
views about fair value are contingent on whether the financial instrument in
question is an asset or liability, whether fair values produce gains or
losses, and whether the item will or will not be sold/settled soon. We draw
on counterfactual reasoning theory from psychology, which suggests that
these factors are likely to influence whether investors consider fair value
as providing information about forgone opportunities. The latter, in turn,
is predicted to influence investors' fair value relevance judgments. Results
are generally supportive of the notion that judgments about the relevance of
fair value are contingent. Attempts to influence investors' fair value
relevance judgments by providing them with information about forgone
opportunities are met with mixed success. In particular, our results are
sensitive to the type of information provided and indicate the difficulty of
overcoming investors' (apparent) strong beliefs about fair value.
. . .
Fair value proponents maintain that, no matter the
circumstance, fair value provides information about forgone opportunities
that affect the economics of the firm (Hague and Willis 1999). That is,
proponents of fair value would argue that such information is always
relevant to evaluating a firm.
To be concrete, consider the following example.
Company X issues bonds payable at par in the amount of $1,000,000. Two years
after issuing the bonds, interest rates fall and so the fair value of the
bonds is $1,200,000. From a discounted cash flow perspective, although the
cash outflows have not changed, the discount rate has decreased. This
denominator change leads to a greater negative present value associated with
Company X having debt with fixed cash outflows—that is, it leads to a fair
value loss. A fair value advocate would argue that the $200,000 loss is
always relevant to the evaluation of the firm as it represents a forgone
opportunity—that is, the present value of the additional interest cost
(i.e., above current market rates) that Company X will pay over the
remaining term of the bond, essentially because Company X did not refinance
before rates changed (Hague and Willis 1999). Accordingly, fair value
advocates would maintain that Company X's valuation should decrease as its
cash flows are higher than an otherwise identical company (say, Company Y)
that financed after the rate decrease. Stated differently, at the end of the
financing period, Company X's cash balance will be lower than Company Y's
(because X is paying a higher interest rate) and, thus, each firm's
valuation should reflect this real economic difference.4
If investors follow the logic of the fair value
advocate and consider fair value gains and losses as representing forgone
opportunities, they are essentially engaging in a process that psychologists
call counterfactual reasoning (Roese 1997). In this type of reasoning,
individuals “undo” outcomes by changing (or mutating) the cause that led to
them. For example, if only the driver had not taken an unusual route home
late at night, he would not have gotten into an accident. In the fair value
domain, the calculation of fair value is based on the same type of
simulation as counterfactual reasoning—“undoing” the actual contractual
interest rate and replacing it with the current market rate of interest that
the company would be paying if management had undertaken an alternative set
of actions (i.e., the forgone opportunity). As the above numerical example
illustrates, determining the amount of the fair value gain or loss is fairly
mechanical once an interest (or discount) rate change occurs. The more
subtle effect is whether the investor considers the fair value gain or loss
as a forgone opportunity and thus relevant to evaluating the firm. If
investors do (do not) follow a process similar to counterfactual reasoning,
they are more (are less) likely to judge fair value measurements as
relevant.
Thinking about fair value in terms of
counterfactual reasoning is helpful, as this theory suggests when investors'
fair value judgments are likely to depend on context. Prior research in
psychology indicates that counterfactual thinking is more likely when events
are seen as abnormal versus normal, when negative rather than positive
events occur, when the outcome or antecedent is mutable or changeable, or
when the outcome is close versus more distant in time (Roese and Olson
1995). Drawing on this research, we identify three fair value contexts for
financial instruments—namely, assets versus liabilities, gains versus
losses, and held to maturity versus sold/settled soon—that we posit will
cause investors to change their fair value relevance judgments.5 That is, we
predict that investors' views about the relevance of fair value will not be
unwavering, as proponents of fair value would maintain, but rather will be
contingent on context. Relevance of Fair Value Depending on Context
Fair value accounting is currently being used for
financial instruments that are either assets or liabilities (but not for
equity items). In addition, fair value accounting produces both gains and
losses. Accordingly, a natural question is whether investors reason
differently about the relevance of fair value for assets versus liabilities
and for gains versus losses. Counterfactual reasoning theory suggests that
investors treat these situations differently.
Turning first to gains and losses, prior literature
(e.g., Roese 1997) indicates that counterfactual reasoning is more likely
when undesirable outcomes occur. Here, individuals tend to evaluate the
undesirable outcome by determining how easy it is to mentally undo it. In
the fair value context, this would entail reasoning about how the fair value
loss could have been avoided. In contrast, counterfactual reasoning is less
likely with desirable outcomes like fair value gains. In the case of such
desirable outcomes, individuals have less need to understand the cause of
the gain and are unlikely to mentally undo the outcome (Roese 1997).
Accordingly, we hypothesize: H1:
Individuals will judge fair value losses as more
relevant than fair value gains.
In the context of assets versus liabilities,
counterfactual reasoning theory suggests that the more mutable an item is
(i.e., the easier an outcome can be undone), the more likely an individual
will engage in counterfactual reasoning (McGill and Tenbrunsel 2000). For
example, if a parachuter falls to his death, individuals are more likely to
consider mutable factors in considering how he could have avoided death.
That is, “if only he had rechecked the safety cord before jumping” is more
likely to be considered (i.e., it is more mutable) than “if only gravity
were not at work.”
We predict that, in the eyes of investors,
financial assets are perceived to be more mutable than financial
liabilities. In other words, it is easier to consider an alternative set of
actions for assets than for liabilities. This idea comes from the line of
reasoning that individuals generally think they can more easily sell, for
example, a bond investment than they can settle a home loan. That is, it is
easier for them to simulate an alternative set of actions for (i.e.,
counterfactually reason about) assets than liabilities.6 Accordingly, we
hypothesize: H2:
Individuals will judge the fair value of financial
assets as more relevant than the fair value of financial liabilities.
Finally, we posit that management's intent likely
influences investors' judgments about fair value relevance. Research shows
that perceived closeness to an outcome affects whether individuals engage in
counterfactual reasoning (Meyers-Levy and Maheswaran 1992). For example, a
traveler who misses his/her flight by five minutes is more likely to engage
in counterfactual reasoning (i.e., “if only I had run the yellow stop light,
I'd have made it to the gate on time”) than a traveler who misses the flight
by one hour. Drawing on this idea, we maintain that individuals will be more
inclined to think about “if only” when the financial instrument is to be
sold/settled soon as compared to when it is to be held to maturity.
Counterfactual reasoning seems particularly likely here, particularly in the
case of loss outcomes. Individuals will likely think, for example, “if only
the company had sold the investment before the fair value decreased, they
would not be in this position today.” Accordingly, we hypothesize: H3:
Individuals will judge the fair value of financial
instruments that are to be sold/settled soon as more relevant than those
that are to be held to maturity. Changing Investor Judgments about Fair
Value Relevance
Because we conjecture that investors' judgments
about fair value relevance will depend on the context, we believe it is
possible to desensitize their judgments to context (Arkes 1991). In
particular, we surmise that providing information about forgone
opportunities should influence investors' understanding of the fair value
change and, ultimately, will influence their fair value relevance judgments.
This approach of providing individuals with a summary of the information
that they may not normally consider is frequently employed as a “fix” in
various decision settings (Arkes 1991). We summarize our expectations in the
following hypothesis. H4:
Individuals will judge the relevance of fair value
for financial instruments as greater when they are given information about
forgone alternatives.
Continued in article
Jensen Comment
I like this paper in terms of it's originality and clever ideas in terms of
accounting theory, especially the concept of counterfactual reasoning.
But like nearly all accountics behavioral experiments reported over the past
four decades, I'm disappointed in how the hypotheses were actually tested. I'm
also disappointed in the virtual lack of validity testing and replication of
behavioral accounting studies, but it's too early to speculate on future
replication studies of this particular November 2011 article.
To their credit, Professors Koonce, Nelson, and Shakespeare conducted three
experiments rather than just one experiment, although from a picky point of view
these would not constitute independent replications in science ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Also to their credit the sample sizes are large enough to almost make
statistical inference testing superfluous.
But I just cannot get excited about extrapolating research findings form
students as surrogates for investors and analysts in the real world. This is a
typical example of where accountics researchers tried to do their research
without having to set foot off campus.
Even if these researchers had stepped off campus to conduct their experiments
on real-world investors and analysts, I have difficulty with assigning the
research subjects artificial/hypothetical tasks even though my own doctoral
thesis entailed submitting hypothetical proxy reports to real-world security
analysts. My favorite criticism is an anecdotal experience with one banker who
was an extremely close friend when I lived in Bangor, Maine while on the faculty
of the University of Maine. I played poker or bridge with this banker at least
once a week. With relatively small stakes in a card game he was a reckless fool
in his betting and nearly always came up a money loser at the end of the night.
But in real life he was a Yankee banker who was known in the area for his
tight-fisted conservatism.
And thus I have a dilemma. Even if there are ten replications of these
experiments using real world investors and analysts I cannot get excited about
the accountics science outcomes. I would place much more faith in a protocol
analysis of one randomly selected CFA, but protocol researchers are not allowed
to publish their small sample studies in TAR, JAR, or JAE. They can, however,
find publishing outlets in social science research journals.
http://en.wikipedia.org/wiki/Protocol_analysis
The best known protocol analysis in accounting and finance was the
award-winning doctoral thesis research of Geoffrey Clarkson at Carnegie-Mellon,
although the integrity of his research was later challenged.
Protocol Analysis
"Can thinking aloud make you smarter?" Barking Up the Wrong Tree,
August 12, 2010 ---
http://www.bakadesuyo.com/can-thinking-aloud-make-you-smarter
Few studies
have examined the impact of age on reactivity to
concurrent think-aloud (TA) verbal reports.
An initial study with
30 younger and 31 older adults revealed that thinking
aloud improves older adult performance on a short form
of the Raven's Matrices (Bors & Stokes, 1998,
Educational and Psychological Measurement, 58, p. 382)
but did not affect other tasks. In the
replication experiment, 30 older adults (mean age =
73.0) performed the Raven's Matrices and three other
tasks to replicate and extend the findings of the
initial study. Once again older adults performed
significantly better only on the Raven's Matrices while
thinking aloud.
Performance gains on this task were substantial (d =
0.73 and 0.92 in Experiments 1 and 2, respectively),
corresponding to a fluid intelligence increase of nearly
one standard deviation.
Source: "How to Gain
Eleven IQ Points in Ten Minutes: Thinking Aloud Improves
Raven's Matrices Performance in Older Adults" from
Aging, Neuropsychology, and Cognition, Volume 17, Issue
2 March 2010 , pages 191 - 204
Here's an explanation of what
Raven's Matrices are.
Speaking of smarts and genius,
if you haven't read it, Dave Eggers' book
A Heartbreaking Work of Staggering
Genius
is a lot of fun. I highly
recommend the introduction, oddly enough.
Jensen Comment
Protocol Analysis ---
http://en.wikipedia.org/wiki/Protocol_analysis
This takes me back to long ago to "Protocol Analysis" when having subjects
think aloud was documented in an effort to examine what information was used and
how it was used in decision making. One of the first Protocol Analysis studies
that I can recall was at Carnegie-Mellon when Geoffrey Clarkson wrote a doctoral
thesis on a bank's portfolio manager thinking aloud while making portfolio
investment decisions for clients. Although there were belated questions about
the integrity of Jeff's study, one thing that stuck out in my mind is how
accounting choices (LIFO vs. FIFO, straight-line vs. accelerated depreciation)
were ignored entirely when the decision maker analyzed financial statements.
This is one of those now rare books that I still have in some pile in my studio:
Geoffrey Clarkson, Portfolio
Selection-A Simulation of. Trust Investment (Englewood Cliffs, N.
J.: Prentice-Hall,. Inc., 1962)
Clarkson reached a controversial conclusion that his model could choose the
same portfolios as the live decision maker. That was the part that was later
questioned by researchers.
Another application of Protocol Analysis was the doctoral thesis of Stan
Biggs.
As cited in The Accounting Review in January, 1988 ---
http://www.jstor.org/pss/247685
By the way, this one one of those former years when TAR had a section for "Small
Sample Studies" (those fell by the board in later years)
Also see
http://onlinelibrary.wiley.com/doi/10.1002/bdm.3960060303/abstract
Bob Jensen's threads on fair value accounting and other bases of accounting
measurement are at
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Added Jensen Comment
An early precursor of the concept of "counterfactual reasoning" is "functional
fixation"
Accounting History Trivia
What accounting professors coined the phrase "functional fixation" in 1966 and
in what particular accounting context?
Hint 1
One of the professors was also one of my professors, a former Dean of the
Graduate School of Business at Stanford University, and the last Chairman of
Enron's Audit Committee.
Hint 2
Bob Ashton did some cognitive experimentation of functional fixation that was
published in the Journal of Accounting Research a decade later in 1976.
I stumbled upon the following tidbit posted by
Jim Martin to the AAA Commons ---
http://commons.aaahq.org/posts/bfcbd47776#13842
"Stock taking"
suggestion posted March 25, 2010 by
James R. Martin , tagged
suggestion
663 Views,
4 Comments
details:
I ran across the following article
while updating the JSTOR links for the ASQ and it occurred to me
that all those connected with the scholarly accounting journals
should do a "stock taking" from time to time. I suspect some
have and some have not, but this note is directed to all who are
involved in scholarly endeavors, or who aspire to get involved.
Palmer, D. 2006. Taking stock of
the criteria we use to evaluate one another's work: ASQ 50 years
out. Administrative Science Quarterly 51(4): 535-559. (http://www.jstor.org/stable/20109887).
(Palmer embraces Weick's definition of stock taking as "a
complex mixture of appreciation, wariness, anticipation, regret,
and pride, all fused into thoughts of renewal." Palmer reviews
the vision of organization studies established when the ASQ was
first published in 1956, identifies seven controversies related
to whether ASQ scholars have clung too closely to, or strayed to
far from, the founder's vision for the journal, and offers his
own thoughts on the concerns and challenges that ASQ scholars
might do well to contemplate. The seven controversies relate to
concerns about the field's: 1) object of inquiry, 2) devotion to
theory building, 3) paradigmatic heterogeneity, 4) mode of
building theory and conducting research, 5) disciplinary status
and foundation, 6) relevance to practitioners, and 7)
Anglocentrism). The issues facing accounting scholars and
scholarly journals are perhaps somewhat different, but the theme
of "stock taking" is certainly applicable. A link to MAAW's ASQ
bibliography is:
http://maaw.info/ManagementJournals/AdministrativeScienceQuarterly.htm
It seems to me that AAA Commons
would be the appropriate place for a "stock taking" discussion
since many of our scholarly journals are published by the AAA.
For MAAW's AAA journal bibliographies see:
http://maaw.info/AAAMain.htm
"JSTOR Tests Free, Read-Only Access to Some Articles," by Jennifer
Howard, Chronicle of Higher Education, January 13, 2012 ---
http://chronicle.com/blogs/wiredcampus/JSTOR-tests-free-read-only-access-to-some-articles/34908?sid=wc&utm_source=wc&utm_medium=en
It’s about to get a little easier—emphasis on “a
little”—for users without subscriptions to tap JSTOR’s enormous digital
archive of journal articles. In the coming weeks, JSTOR will make available
the beta version of a new program,
Register & Read,
which will give researchers read-only access to some
journal articles, no payment required. All users have to do is to sign up
for a free “MyJSTOR” account, which will create a virtual shelf on which to
store the desired articles.
But there are limits. Users won’t be able to
download the articles; they will be able to access only three at a time, and
there will be a minimum viewing time frame of 14 days per article, which
means that a user can’t consume lots of content in a short period. Depending
on the journal and the publisher, users may have an option to pay for and
download an article if they choose.
To start, the program will feature articles from 70
journals. Included in the beta phase are American Anthropologist,
the American Historical Review, Ecology, Modern
Language Review, PMLA, College English, the
Journal of Geology, the Journal of Political Economy, Film
Quarterly, Representations, and the American Journal of
Psychology .
The 7o journals chosen “represent approximately 18
percent of the annual turn-away traffic on JSTOR,” the organization said in
an announcement previewing Register & Read. “Once we evaluate how the beta
is going, including any impact on publishers’ sales of single articles, and
make any needed initial adjustments to the approach, we expect to release
hundreds more journals into the program.”
Every year, JSTOR said, it turns away almost 150
million individual attempts to gain access to articles. “We are committed to
expanding access to scholarly content to all those who need it,” the group
said. Register & Read is one attempt to do that.
In September 2011, JSTOR also opened up global
access to its
Early Journal Content. According to Heidi
McGregor, a spokeswoman for the Ithaka group, JSTOR’s parent organization,
there have been 2.35 million accesses of the Early Journal Content from
September 2011 through December 2011. “About 50% of this usage is coming
from users we know are at institutions that participate in JSTOR (e.g. we
recognize their IP address), and the other 50% is not,” she said in an
e-mail. ”We absolutely consider this to be a success. In the first four
months after launch, we are seeing over 1 million accesses to this content
by people who would not have had access previously. This is at the core of
our mission, and we’re thrilled with this result. The Register & Read beta
is an exciting next step that we are taking, working closely with our
publisher partners who own this content.”
Continued in article
Jensen Comment
Most colleges pay for library subscription access to JSTOR by students, faculty,
and staff. As an emeritus professor at Trinity University I've been able to
access JSTOR since I retired in 2006.
One search route I commonly take is to first find a reference to an article
in MAAW ---
http://maaw.info/
Thank you Jim Martin for this tremendous open sharing MAAW site.
Then most often I download the article from JSTOR unless the publisher provides
access either for free or because I subscribe to the journal in question. But
even if I have a current subscription to a journal such as The Accounting
Review, the publisher of TAR does not have online archives going back nearly
as far as JSTOR. So if I want a 1971 TAR article I will go to JSTOR. TAR only
has online archives going back to 1999. TAR commenced publishing journal
articles in 1925.
It's worthwhile to first check the publisher's site before going to JSTOR.
For example, the free archived files (since 1974) for the Accounting
Historians Journal are better at the AHJ site than at the JSTOR site ---
http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Bob Jensen's search helpers are at
http://www.trinity.edu/rjensen/Searchh.htm
"CPA Exam Prep Innovator Newton D. Becker Dies at 83," Journal of
Accountancy, January 5, 2012 ---
http://www.journalofaccountancy.com/Web/20124964.htm
Jensen Comment
Becker CPA Review Courses early on made more use of video learning than most
competitors. These days all the competitors use various types of multimedia.
Bob Jensen's helpers for CPA Examination candidates ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam
Question
Will shareholder new increased democratic powers be dysfunctional?
From The Wall Street Journal Accounting Weekly Review on January
13, 2012
Will New Tools Help Small Shareholders Topple Giants?
by:
Jason Zweig
Jan 07, 2012
Click here to view the full article on WSJ.com
TOPICS: Corporate Governance, SEC, Securities and Exchange
Commission
SUMMARY: The article describes the SEC's recent change to rules
"...under which investors can nominate candidates to serve on boards of
directors." This rule change allows individual investors to propose
amendments to corporations' bylaws and for certain groups of small investors
to propose members to boards of directors. The proposals must be included in
proxy statements sent in preparation for annual meetings. These potential
improvements to corporate governance should provide better access for
shareholders to exercise their rights to "throw the bums out" when they
think that "corporate managers and directors are overpaid and
underperforming...." For instructors: introductory information about the SEC
is available on the web at
http://www.sec.gov/about/whatwedo.shtml; requirements for a proxy
statement is available on the web at
http://www.sec.gov/answers/proxy.htm
CLASSROOM APPLICATION: This is the second of two articles this week
on the corporate form of organization that should be useful in introductory
level undergraduate or MBA financial accounting and reporting courses.
QUESTIONS:
1. (Advanced) Describe the corporate form of business organization
in comparison to two other forms, partnership and sole proprietorship.
2. (Advanced) Are all U.S. corporations publicly traded? Explain
your answer.
3. (Advanced) In general, what is the role of the Securities and
Exchange Commission (SEC)?
4. (Advanced) What is a proxy statement? State your source for this
answer.
5. (Introductory) What significant change has recently been
introduced by the SEC in rules related to nominating boards of directors? In
your answer, define how these changes are meant to improve corporate
governance, including a definition of that term.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Case Against Shareholder Rights
by Jason Zweig
Jan 12, 2012
Online Exclusive
"Will New Tools Help Small Shareholders Topple Giants?" by: Jason Zweig,
The Wall Street Journal, January 7, 2012 ---
http://online.wsj.com/article/SB10001424052970204331304577144920619220332.html?mod=djem_jiewr_AC_domainid
Goliath hasn't been hit hard yet, but David is
getting new slingshots.
The unending struggle between the managers who
control America's corporations and the investors who own them is about to
become more interesting. It might even become a fairer fight.
Last fall, the Securities and Exchange Commission
clarified the rules under which investors can nominate candidates to serve
on boards of directors.
In the waning weeks of 2011, just in time to meet
the 120-day advance notice typically required to get onto the proxy ballot
ahead of springtime annual meetings, investors in 16 major
companies—including Goldman Sachs, Hewlett-Packard and Wells Fargo—filed
petitions to amend corporate bylaws to open up the nominating process under
the revised SEC rule.
Meanwhile, networks are springing up online to
rally investors large and small. These websites could enable
investors—anyone from a dogcatcher in Dubuque with 100 shares to giant
pension funds holding tens of millions of shares—to mingle online and pool
their dispersed power as never before.
"Mechanisms like these," says James McRitchie, who
runs CorpGov.net, a shareholder-activism site, "will eventually lead to the
revolution in corporate governance that people have been talking about for
many years."
Make that "dreaming about." In theory, whenever
corporate managers and directors are overpaid and underperforming, investors
should exercise their rights and throw the bums out.
In practice, most investors have long responded to
bad management either by sitting on their hands or by voting with their
feet. Breaking decades of inertia won't be easy.
If change does come, it might be led by people like
Kenneth Steiner and Argus Cunningham.
Mr. Steiner, 45 years old, is a private investor
from New York's Long Island who filed petitions at five companies late last
year under the new SEC rule. Over the past decade or so, Mr. Steiner
estimates, he has formally made several hundred proposals to improve how
companies are run—including simplifying the election of directors, giving
more say over how top executives are paid and eliminating "poison pills"
that can entrench management.
"It's up to the small shareholders to get these
things on the agenda," Mr. Steiner says. "Institutional investors have been
horribly negligent in what I consider their fiduciary duty to the people who
invest with them and to the country in general. They don't want to ruffle
feathers, and they're cowards."
After all, professional investors want to manage—or
to keep managing—the pension and 401(k) plans at the very companies whose
stocks they invest in. These folks aren't going to throw bombs at board
members.
Using a form he downloaded from proxyexchange.org,
Mr. Steiner late last year requested that the boards at Bank of America,
Textron, Ferro, Sprint Nextel and MEMC Electronic Materials amend their
companies' bylaws to permit any group of 100 or more shareholders who have
held at least $2,000 in stock for at least one year—or any holder of 1% or
more for at least two years—to nominate directors.
In recent years, many of Mr. Steiner's proposals
have been approved by a majority of investors at companies' annual meetings.
"It's sort of a David and Goliath situation," he says, "but sometimes David
wins."
Mr. Cunningham, 36, is a former Navy pilot whose
portfolio crash-landed in 2008. "Losing a lot of money will cause you to
re-evaluate your role," he says. "You feel disempowered and disconnected
even though you are the owner of your companies, and I started thinking
about what I didn't like about the system."
Frustrated by how hard it is to find other
investors willing to shake up moribund companies, Mr. Cunningham founded
Sharegate. Likely to launch later this year, the website will join others
that seek to rally shareholders, including United States Proxy Exchange,
ProxyDemocracy.org and Moxy Vote.
If you think the directors at XYZ Corp. should be
fired, you will be able to circulate a throw-the-bums-out proposal on
Sharegate with the click of a mouse. Every other XYZ shareholder on the site
will see it immediately; you will promptly be able to tell whether they
agree with you.
Contrast that with the status quo, in which you
can't know what actions other investors are prepared to take until your
annual proxy statement arrives—assuming that any grievances haven't already
been quashed by the company.
Continued in the article
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/Fraud001.htm#Governance
"New lending (and hedging) practices and related accounting concerns,"
by Ira G. Kawaller, AFP Exchange, December 2011 ---
http://library.constantcontact.com/download/get/file/1101660130918-18/AFP+-+New+Lending+practices+%28embedded+Floors%29.pdf
I’ve been seeing a relatively new lending design
with increasing frequency: Many banks are making variable-rate loans with
embedding interest rate floors. In light of the low level of interest rates,
this practice is neither ill-logical nor unwarranted; but at the same time,
these bankers may also be creating an accounting land mine that could later
explode for the borrower.
The problem arises if the borrowing company chooses
to hedge the loan’s variable interest rate exposure. For most such
companies, qualifying for hedge accounting is of critical concern, in that
this accounting treatment allows effective unrealized gains or losses on the
derivative to be recorded in AOCI, rather than earnings. Unfortunately, if
the hedge isn’t structured correctly, much of these unrealized results could
end up being considered to be ineffective, and therefore the intended
deferred income recognition won’t happen.
Pitfall to avoid
The first pitfall to avoid is using a standard pay-fixed/receive-floating
interest rate swap in conjunction with this loan. This plain-vanilla swap
design fails on its face because the exposure is one-sided, while the swap’s
result is symmetric. That is, the swap’s value (and/or settlements) will be
sensitive to movements in interest rates at all interest rate levels, but
the exposure exists only for rate movements above the floor rate. Hedge
accounting is simply disallowed if the asymmetric interest rate sensitivity
of the loan isn’t matched by a similar asymmetry in the interest rate
sensitivity of the derivative.
Continued in article
Bob Jensen's free tutorials on accounting for derivative financial
instruments and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm
Are portable scanners all that they claim?
"Another Take on Doxie Go," by Konrad Lawson, Chronicle of Higher Education,
January 5, 2012 ---
http://chronicle.com/blogs/profhacker/another-take-on-doxie-go/37811?sid=wc&utm_source=wc&utm_medium=en
Moral Hazard: Hedge Fund ShortsHi Dean,
Thank you for the kind words.
Hedge fund shorts are often used in expectations to re-buy. You might take a
look at the following:
"Subprime crisis: the lay-out of a puzzle: An empirical investigation into the
worldwide financial consequences of the U.S. subprime crisis" ---
http://oaithesis.eur.nl/ir/repub/asset/5163/0509ma281597wm.pdf
. . .
Market neutral strategy: This strategy focusses on
profits made either by arbitrage in a market neutral investment or by
arbitrage over time, for instance investing in futures and shorting the
underlying. This strategy was obtained by the Long-Term Capital Management
fund of Nobel Prize laureates Myron Scholes and Robert C. Merton.
Short selling strategy: The hedge fund shorts
securities in expectation of a rebuy at a lower price at a future date. This
lower price is a result of overconfidence of the other party, who thought
they had bought an undervalued asset.
Special situations: A popular and probably the most
well-known strategy is the behaviour of hedge fund in special situations
like mergers, hostile takeovers, reorganisations or leveraged buy-outs.
Hedge funds often buy stocks from the distressed company, thereby trying to
profit from a difference in the initial offering price and the price that
ultimately has to be paid for the stock of the company.
Timing strategy: The manager of the hedge fund tries
to time his entrance to or exit from a market as good as possible. High
returns can be generated when investing at the start of a bull market or
exiting at the start of a bear market.
Continued in article
Money for Nothing How CEOs and Boards Enrich Themselves While Bankrupting
America
by John Gillespie and David Zweig
Simon and Schuster
http://books.simonandschuster.ca/Money-for-Nothing/John-Gillespie/9781416559931/excerpt_with_id/13802
All eyes are on the CEO, who has gone without sleep
for several days while desperately scrambling to pull a rabbit out of an
empty hat. Staffers, lawyers, advisors, accountants, and consultants scurry
around the company headquarters with news and rumors: the stock price fell
20 percent in the last hour, another of the private equity firms considering
a bid has pulled out, stock traders are passing on obscene jokes about the
company's impending death, the sovereign wealth fund that agreed to put in
$1 billion last fall is screaming at the CFO, hedge fund shorts are
whispering that the commercial paper dealers won't renew the debt tomorrow,
the Treasury and the Fed aren't returning the CEO's calls about bailout
money, six satellite trucks—no, seven now—are parked in front of the
building, and reporters with camera crews are ambushing any passing employee
for sound bites about the prospects of losing their jobs.
Chaos.
In the midst of this, the board of directors—the
supposedly well-informed, responsible, experienced, accountable group of
leaders elected by the shareholders, who are legally and ethically required
to protect the thousands of people who own the company—are . . . where? You
would expect to them to be at the center of the action, but they are merely
spectators with great seats. Some huddle together over a computer screen in
a corner of the boardroom, watching cable news feeds and stock market
reports that amplify the company's death rattles around the world; others
sit beside a speakerphone, giving updates to board colleagues who couldn't
make it in person. Meetings are scheduled, canceled, and rescheduled as the
directors wait, hoping for good news but anticipating the worst.
The atmosphere is a little like that of a family
waiting room outside an intensive care unit—a quiet, intense churning of
dread and resignation. There will be some reminiscing about how well things
seemed to be going not so long ago, some private recriminations about
questions never asked or risks poorly understood, a general feeling of
helplessness, a touch of anger at the senior executives for letting it come
to this, and anticipation of the embarrassment they'll feel when people
whisper about them at the club. Surprisingly, though, there's not a lot of
fear. Few of the directors are likely to have a significant part of their
wealth tied up in the company; legal precedents and insurance policies
insulate them from personal liability. Between 1980 and 2006, there were
only thirteen cases in which outside directors—almost all, other than Enron
and WorldCom, for tiny companies—had to settle shareholder lawsuits with
their own money. (Ten of the Enron outside directors who settled—without
admitting wrongdoing—paid only 10 percent of their prior net gains from
selling Enron stock; eight other directors paid nothing. A number of them
have remained on other boards.) More significant, the CEO who over shadowed
the board will hardly hurt at all, and will probably leave with the tens or
even hundreds of millions of dollars that the directors guaranteed in an
employment contract.
So they sit and wait—the board of directors of this
giant company, who were charged with steering it along the road to profit
and prosperity. In the middle of the biggest crisis in the life of the
company, they are essentially backseat passengers. The controls, which they
never truly used, are of no help as the company hurtles over a cliff, taking
with it the directors' reputations and the shareholders' money. What they
are waiting for is the dull thud signaling the end: a final meeting with the
lawyers and investment bankers, and at last, the formality of signing the
corporate death certificate—a bankruptcy filing, a forced sale for cents on
the dollar, or a government takeover that wipes out the shareholders. The
CEO and the lawyers, as usual, will tell the directors what they must do.
THIS IS NOT JUST A GLOOMY, hypothetical fable about
how an American business might possibly fail, with investors unprotected,
company value squandered, and the governance of enormous and important
companies breaking down. This is, unfortunately, a real scenario that has
been repeated time and again during the recent economic meltdown, as
companies have exploded like a string of one-inch firecrackers. When the
spark runs up the spine of the tangled, interconnected fuses, they blow up
one by one.
Something is wrong here. As Warren Buffett observed
in his 2008 letter to Berkshire Hathaway shareholders, "You only learn who
has been swimming naked when the tide goes out—and what we are witnessing at
some of our largest financial institutions is an ugly sight."
Just look at some of the uglier sights. Merrill
Lynch, General Motors, and Lehman Brothers, three stalwart American
companies, are only a few examples of corporate collapses in which
shareholders were burned. The sleepy complicity and carelessness of their
boards have been especially devastating. Yet almost all the public attention
has focused on the greed or recklessness or incompetence of the CEOs rather
than the negligence of the directors who were supposed to protect the
shareholders and who ought to be held equally, if not more, accountable
because the CEOs theoretically work for them.
Why have boards of directors escaped blame?
Probably because boards are opaque entities to most people, even to many
corporate executives and institutional investors. Individual shareholders,
who might have small positions in a number of companies, know very little
about who these board members are and what they are supposed to be doing.
Their names appear on the generic, straight-to-the-wastebasket proxy forms
that shareholders receive; beyond that, they're ciphers. Directors rarely
talk in public, maintaining a code of silence and confidentiality;
communications with shareholders and journalists are invariably delegated to
corporate PR or investor relations departments. They are protected by a vast
array of lawyers, auditors, investment bankers, and other professional
services gatekeepers who keep them out of trouble for a price. At most,
shareholders might catch a glimpse of the nonexecutive board members if they
bother to attend the annual meeting. Boards work behind closed doors, leave
few footprints, and maintain an aura of power and prestige symbolized by the
grand and imposing boardrooms found in most large companies. Much of this
lack of transparency is deliberate because it reduces accountability and
permits a kind of Wizard of Oz "pay no attention to the man behind the
curtain" effect. (It is very likely to be a man. Only 15.2 percent of the
directors of our five hundred largest companies are women.) The opacity also
serves to hide a key problem: despite many directors being intelligent,
experienced, well-qualified, and decent people who are tough in other
aspects of their professional lives, too many of them become meek, collegial
cheerleaders when they enter the boardroom. They fail to represent
shareholders' interests because they are beholden to the CEOs who brought
them aboard. It's a dangerous arrangement.
On behalf of the shareholders who actually own the
company and are risking their money in anticipation of a commensurate return
on their investments, boards are elected to monitor, advise, and direct the
managers hired to run the company. They have a fiduciary duty to protect the
interests of shareholders. Yet, too often, boards have become enabling
lapdogs rather than trust-worthy watchdogs and guides.
There are, unfortunately, dozens of cases to choose
from to illustrate the seriousness of the situation. Merrill, GM, and Lehman
are instructive because they were companies no one could imagine failing,
although, in truth, they fostered such dysfunctional and conflicted
corporate leadership that their collapses should have been foretold. As you
read their obituaries, viewer discretion is advised. You should think of the
money paid to the executives and directors, as well as the losses in stock
value, not as the company's money, as it is so often portrayed in news
accounts, but as your money—because it is, in fact, coming from your
mutual funds, your 401(k)s, your insurance premiums, your savings account
interest, your mortgage rates, your paychecks, and your costs for goods and
services. Also, think of the impact on ordinary people losing their
retirement savings, their jobs, their homes, or even just the bank or
factory or car dealership in their towns. Then add the trillions of
taxpayers' dollars spent to prop up some of the companies' remains and,
finally, consider the legacy of debt we're leaving for the next generation.
———
DURING MOST OF HIS nearly six years at the top of
Merrill Lynch, Stanley O'Neal simultaneously held the titles of chairman,
CEO, and president. He required such a high degree of loyalty that insiders
referred to his senior staff as the Taliban. O'Neal had hand-picked eight of
the firm's ten outside board members. One of them, John Finnegan, had been a
friend of O'Neal's for more than twenty years and had worked with him in the
General Motors treasury department; he headed Merrill's compensation
committee, which set O'Neal's pay. Another director on the committee was
Alberto Cribiore, a private equity executive who had once tried to hire
O'Neal.
Executives who worked closely with O'Neal say that
he was ruthless in silencing opposition within Merrill and singleminded in
seeking to beat Goldman Sachs in its profitability and Lehman Brothers in
the risky business of packaging and selling mortgage-backed securities. "The
board had absolutely no idea how much of this risky stuff was actually on
the books; it multiplied so fast," one O'Neal colleague said. The colleague
also noted that the directors, despite having impressive rÉsumÉs, were
chosen in part because they had little financial services experience and
were kept under tight control. O'Neal "clearly didn't want anybody asking
questions."
For a while, the arrangement seemed to work. In a
triumphal letter to shareholders in the annual report issued in February
2007, titled "The Real Measure of Success." O'Neal proclaimed 2006 "the most
successful year in [the company's] history—financially, operationally and
strategically," while pointing out that "a lot of this comes down to
leadership." The cocky message ended on a note of pure hubris: "[W]e can and
will continue to grow our business, lead this incredible force of global
capitalism and validate the tremendous confidence that you, our
shareholders, have placed in this organization and each of us."
The board paid O'Neal $48 million in salary and
bonuses for 2006—one of the highest compensation packages in corporate
America. But only ten months later, after suffering a third-quarter loss of
$2.3 billion and an $8.4 billion writedown on failed investments—the largest
loss in the company's ninety-three-year history, exceeding the net earnings
for all of 2006—the board began to understand the real measure of failure.
The directors discovered, seemingly for the first time, just how much risk
Merrill had undertaken in becoming the industry leader in subprime mortgage
bonds and how overleveraged it had become to achieve its targets. They also
caught O'Neal initiating merger talks without their knowledge with Wachovia
Bank, a deal that would have resulted in a personal payout of as much as
$274 million for O'Neal if he had left after its completion—part of his
board-approved employment agreement. During August and September 2007, as
Merrill was losing more than $100 million a day, O'Neal managed to play at
least twenty rounds of golf and lowered his handicap from 10.2 to 9.1.
Apparently due to sheer embarrassment as the
company's failures made headlines, the board finally ousted O'Neal in
October but allowed him to "retire" with an exit package worth $161.5
million on top of the $70 million he'd received during his time as CEO and
chairman. The board then began a frantic search for a new CEO, because, as
one insider confirmed to us, it "had done absolutely no succession planning"
and O'Neal had gotten rid of anyone among the 64,000 employees who might
have been a credible candidate. For the first time since the company's
founding, the board had to look outside for a CEO. In spite of having shown
a disregard for shareholders and a distaste for balanced governance, O'Neal
was back in a boardroom within three months, this time as a director of
Alcoa, serving on the audit committee and charged with overseeing the
aluminum company's risk management and financial disclosure.
At the Merrill Lynch annual meeting in April 2008,
Ann Reese, the head of the board's audit committee, fielded a question from
a shareholder about how the board could have missed the massive risks
Merrill was undertaking in the subprime mortgage-backed securities and
collateralized debt obligations (CDOs) that had ballooned from $1 billion to
$40 billion in exposure for the firm in just eighteen months. Amazingly,
since it is almost unheard of for a director of a company to answer
questions in public, Reese was willing to talk. This was refreshing and
might have provided some insight for shareholders, except that what she said
was curiously detached and unabashed. "The CDO position did not come to the
board's attention until late in the process," she said, adding that
initially the board hadn't been aware that the most troublesome securities
were, in fact, backed by mortgages.
Merrill's new CEO and chairman, John Thain, jumped
in after Reese, saying that the board shouldn't be criticized based on
"20/20 hindsight" even though he had earlier admitted in an interview with
the Wall Street Journal that "Merrill had a risk committee. It just
didn't function." As it happens, Reese, over a cup of English tea, had
helped recruit Thain, who lived near her in Rye, New York. Thain had
received a $15 million signing bonus upon joining Merrill and by the time of
the shareholders' meeting was just completing the $1.2 million refurnishing
of his office suite that was revealed after the company was sold.
Lynn Turner, who served as the SEC's chief
accountant from 1998 to 2001 and later as a board member for several large
public companies, recalled that he spoke about this period to a friend who
was a director at Merrill Lynch in August 2008. "This is a very well-known,
intelligent person," Turner said, "and they tell me, 'You know, Lynn, I've
gone back through all this stuff and I can't think of one thing I'd have
done differently.' My God, I can guarantee you that person wasn't qualified
to be a director! They don't press on the issues. They get into the
boardroom—and I've been in these boardrooms—and they're all too chummy and
no one likes to create confrontation. So they get together five times a year
or so, break bread, all have a good conversation for a day and a half, and
then go home. How in the hell could you be a director at Merrill Lynch and
not know that you had a gargantuan portfolio of toxic assets? If people on
the outside could see the problem, then why couldn't the directors?"
The board was so disconnected from the company that
when Merrill shareholders met in December 2008 to approve the company's sale
to Bank of America after five straight quarterly losses totaling $24 billion
and a near-brush with bankruptcy, not a single one of the nine nonexecutive
directors even attended the meeting. Finance committee chair and former IRS
commissioner Charles Rossotti, reached at home in Virginia by a reporter,
wouldn't say why he wasn't there: "I'm just a director, and I think any
questions you want to have, you should direct to the company." The board
missed an emotional statement by Winthrop Smith, Jr., a former Merrill
banker and the son of a company founder. In a speech that used the word
shame some fourteen times, he said, "Today is not the result of the
subprime mess or synthetic CDOs. They are the symptoms. This is the story of
failed leadership and the failure of a board of directors to understand what
was happening to this great company, and its failure to take action soon
enough . . . Shame on them for not resigning."
When Merrill Lynch first opened its doors in 1914,
Charles E. Merrill announced its credo: "I have no fear of failure, provided
I use my heart and head, hands and feet—and work like hell." The firm died
as an independent company five days short of its ninety-fifth birthday. The
Merrill Lynch shareholders, represented by the board, lost more than $60
billion.
AT A JUNE 6, 2000, stockholders annual meeting,
General Motors wheeled out its newly appointed CEO, Richard Wagoner, who
kicked off the proceedings with an upbeat speech. "I'm pleased to report
that the state of the business at General Motors Corporation is strong," he
proclaimed. "And as suggested by the baby on the cover of our 1999 annual
report, we believe our company's future opportunities are virtually
unlimited." Nine years later, the GM baby wasn't feeling so well, as the
disastrous labor and health care costs and SUV-heavy product strategy caught
up with the company in the midst of skyrocketing gasoline prices and a
recession. GM's stock price fell some 95 percent during Wagoner's tenure;
the company last earned a profit in 2004 and lost more than $85 billion
while he was CEO. Nevertheless, the GM board consistently praised and
rewarded Wagoner's performance. In 2003, it elected him to also chair the
board, and in 2007—a year the company had lost $38.7 billion—it increased
his compensation by 64 percent to $15.7 million.
GM's lead independent director was George M. C.
Fisher, who himself presided over major strategic miscues as CEO and
chairman at Motorola, where the Iridium satellite phone project he initiated
was subsequently written off with a $2.6 billion loss, and later at Kodak,
where he was blamed for botching the shift to digital photography. Fisher
clearly had little use for shareholders. He once told an interviewer
regarding criticism of his tenure at Kodak that "I wish I could get
investors to sit down and ask good questions, but some people are just too
stupid." More than half the GM board was composed of current or retired
CEOs, including Stan O'Neal, who left in 2006, citing time constraints and
concerns over potential conflicts with his role at Merrill that had somehow
not been an issue during the previous five years.
Upon GM's announcement in August 2008 of another
staggering quarterly loss—this time of $15.5 billion—Fisher told a reporter
that "Rick has the unified support of the entire board to a person. We are
absolutely convinced we have the right team under Rick Wagoner's leadership
to get us through these difficult times and to a brighter future." Earlier
that year, Fisher had repeatedly endorsed Wagoner's strategy and said that
GM's stock price was not a major concern of the board. Given that all
thirteen of GM's outside directors together owned less than six
one-hundredths of one percent of the company's stock, that perhaps shouldn't
have been much of a surprise.
Wagoner relished his carte blanche relationship
with GM's directors: "I get good support from the board," he told a
reporter. "We say, 'Here's what we're going to do and here's the time
frame,' and they say, 'Let us know how it comes out.' They're not making the
calls about what to do next. If they do that, they don't need me." What GM's
leaders were doing with the shareholders' dwindling money was doubling their
bet on gas-guzzling SUVs because they provided GM's highest profit margins
at the time. As GM vice chairman Robert Lutz told the New York Times
in 2005: "Everybody thinks high gas prices hurt sport utility sales. In fact
they don't . . . Rich people don't care."
But what seemed good for GM no longer was good for
the country—or for GM's shareholders.
Ironically, GM had been widely praised in the early
1990s for creating a model set of corporate governance reforms in the wake
of major strategic blunders and failed leadership that had resulted in
unprecedented earnings losses. In 1992, the board fired the CEO, appointed a
nonexecutive chairman, and issued twenty-eight structural guidelines for
insuring board independence from management and increasing oversight of
long-term strategy. BusinessWeek hailed the GM document as a "Magna
Carta for Directors" and the company's financial performance improved for a
time. The reform initiatives, however, lasted about as long as the tailfin
designs on a Cadillac. Within a few years, despite checking most of the good
governance structural boxes, the CEO was once again also the board chairman,
the directors had backslid fully to a subservient "let us know how it comes
out" role, and the executives were back behind the wheel.
In November 2005, when GM's stock price was still
in the mid-20s, Ric Marshall, the chief analyst of the Corporate Library, a
governance rating service that focuses on board culture and CEO-board
dynamics, wrote: "Despite its compliance with most of the best practices
believed to comprise 'good governance,' the current General Motors board
epitomizes the sad truth that compliance alone has very little to do with
actual board effectiveness. The GM board has failed repeatedly to address
the key strategic questions facing this onetime industrial giant, exposing
the firm not only to a number of legal and regulatory worries but the very
real threat of outright business failure. Is GM, like Chrysler some years
ago, simply too big to fail? We're not sure, but it seems increasingly
likely that GM shareholders will soon find out."
By the time Wagoner was fired in March 2009, at the
instigation of the federal officials overseeing the massive bailout of the
company, the stock had dropped to the $2 range and GM had already run
through $13.4 billion in taxpayers' money. In spite of this, some directors
still couldn't wean themselves from Wagoner, and were reportedly furious
that his dismissal occurred without their consent. Others were mortified by
what had happened to the company. One prominent director, who had diligently
tried to help the company change course before it was too late, had
eventually quit the board out of frustration with the "ridiculous
bureaucracy and a thumb-sucking board that led to GM making cars that no one
wanted to buy." Another director who left the board recalled asking Wagoner
and his executive team in 2006 for a five-year plan and projections. "They
said they didn't have that. And most of the guys in the room didn't seem to
care."
The GM shareholders, represented by the board, lost
more than $52 billion.
IN A COMPANY as large and complex as Lehman
Brothers, you would expect the board to be seasoned, astute, dynamic, and
up-to-date on risks it was undertaking with the shareholders' money. Yet the
only nonexecutive director, out of ten, with any recent banking experience
was Jerry Grundhofer, the retired head of U.S. Bancorp, who had joined the
board exactly five months before Lehman's spectacular collapse into
bankruptcy. Nine of the independent directors were retired, including five
who were in their seventies and eighties. Their backgrounds hardly seemed
suited to overseeing a sophisticated and complicated financial entity: the
members included a theatrical producer, the former CEO of a Spanish-language
television company, a retired art-auction company executive, a retired CEO
of Halliburton, a former rear admiral who had headed the Girl Scouts and
served on the board of Weight Watchers International, and, until two years
before Lehman's downfall, the eighty-three-year-old actress and socialite
Dina Merrill, who sat on the board for eighteen years and served on the
compensation committee, which approved CEO Richard Fuld's $484 million in
salary, stock, options, and bonuses from 2000 to 2007. Whatever their
qualifications, the directors were well compensated, too. In 2007, each was
paid between $325,038 and $397,538 for attending a total of eight full board
meetings.
The average age of the Lehman board's risk
committee was just under seventy. The committee was chaired by the
eighty-one-year-old economist Henry Kaufman, who had last worked at a Wall
Street investment bank some twenty years in the past and then started a
consulting firm. He is exactly the type of director found on many boards—a
person whose prestigious credentials are meant to reassure shareholders and
regulators that the company is being well monitored and advised. Then they
are ignored.
Kaufman had been on the Lehman board for thirteen
years. Even in 2006 and 2007, as Lehman's borrowing skyrocketed and the firm
was vastly increasing its holdings of very risky securities and commercial
real estate, the risk committee met only twice each year. Kaufman was known
as "Dr. Doom" back in the 1980s because of his consistently pessimistic
forecasts as Salomon Brothers' chief economist, but he seems not to have
been very persuasive with Lehman's executives in getting them to limit the
massive borrowing and risks they were taking on as the mortgage bubble
continued to over-inflate.
In an April 2008 interview, Kaufman offered an
insight that might have been more timely and helpful a few years earlier in
both the Lehman boardroom and Washington, D.C.: "If we don't improve the
supervision and oversight over financial institutions, in another seven,
eight, nine, or ten years, we may have a crisis that's bigger than the one
we have today. . . . Usually what's happened is that financial markets move
to the competitive edge of risk-taking unless there is some constraint."
With little to no internal supervision, oversight, or constraint having been
provided by its board, the bigger crisis for Lehman came sooner rather than
later, and it collapsed just four and a half months later.
After Lehman's demise, Kaufman has continued to
offer advice to others. Without a trace of irony or guilt, he said to
another interviewer in July 2009, "If you want to take risks, you've got to
have the capital to do it. But, you can't do it with other people's money
where the other people are not well informed about the risk taking of that
institution." In his recent book on financial system reform (which largely
blames the Federal Reserve for the financial meltdown and has an entire
section listing his own "prophetic" warnings about the economy), Kaufman
neglects to mention either his role at Lehman or his missing the warning
signs when he personally invested and lost millions in Bernie Madoff's Ponzi
scheme. He does, however, note that "The shabby events of the recent past
demonstrate that people in finance cannot and should not escape public
scrutiny."
Dr. Doom did heed his own economic advice, while
providing an instructive case of exquisite timing—as well as of having your
cake, eating it too, and then patting yourself on the back for warning
others of the caloric dangers of cake. Lehman securities filings show that
about ten months before Lehman stock went to zero, Kaufman cashed in more
than half of the remaining stock options that had been given to him for
protecting shareholders' interests. He made nearly $2 million in profits.
"The Lehman board was a joke and a disgrace," said
a former senior investment banker who now serves as a director for several
S&P 500 companies. "Asleep at the switch doesn't begin to describe it." The
autocratic Richard Fuld, whose nickname at the firm was "the Gorilla," had
joined Lehman in 1969 when his air force career ended after he had a
fistfight with a commanding officer. He served since 1994 as both CEO and
chairman of the board, an inherent conflict in roles that still occurs at 61
percent of the largest U.S. companies.
A lawsuit filed in early 2009 by the New Jersey
Department of Investment alleges that $118 million in losses to the state
pension fund resulted from fraud and misrepresentation by Lehman's
executives and the board. The role of the board is described in scathing
terms:
The supine Board that defendant Fuld handpicked provided no backstop to
Lehman's executives' zealous approach to the Company's risk profile, real
estate portfolio, and their own compensation. The Director Defendants were
considered inattentive, elderly, and woefully short on relevant structured
finance background. The composition of the Board according to a recent
filing in the Lehman bankruptcy allowed defendant "Fuld to marginalize the
Directors, who tolerated an absence of checks and balances at Lehman." Due
to his long tenure and ubiquity at Lehman, defendant Fuld has been able to
consolidate his power to a remarkable degree. Defendant Fuld was both the
Chairman of the Board and the CEO . . . The Director Defendants acted as a
rubber stamp for the actions of Lehman's senior management. There was little
turnover on the Board. By the date of Lehman's collapse, more than half of
the Director Defendants had served for twelve or more years."
John Helyar is one of the authors of Barbarians
at the Gate, which documents the fall of RJR Nabisco in the 1980s. He
also cowrote a five-part series for Bloomberg.com on Lehman Brothers'
collapse. Helyar was a keen observer of those companies' boards when they
folded. "The few people on the Lehman board who actually had relevant
experience were kind of like an all-star team from the 1980s back for an
old-timers' game in which they weren't even up on the new rules and
equipment," Helyar told us. "Fuld selected them because he didn't want to be
challenged by anyone. Most of the top executives didn't understand the risks
they were taking, so can you imagine a septuagenarian sitting in the
boardroom getting a PowerPoint presentation on synthetic CDOs and credit
default swaps?"
In a conference call announcing the firm's 2008
third-quarter loss of $3.9 billion, Fuld told analysts, "I must say the
board's been wonderfully supportive." Four days later the 159-year-old
company declared the largest bankruptcy in U.S. history. The Lehman
shareholders, represented by the board, lost more than $45 billion.
THE DISASTERS at Merrill Lynch, GM, and Lehman were
not isolated instances of hubris, incompetence, and negligence. Similar
stories of boards and CEOs failing to do their jobs on behalf of the
companies' owners can be told about Countrywide, Citigroup, AIG, Fannie Mae,
Bank of America, Washington Mutual, Wachovia, Sovereign Bank, Bear Stearns,
and most of the other companies directly involved in the recent financial
meltdown, as well as many nonfinancial businesses whose governance-related
troubles came to light in the resulting recession. In the short term, the
result has been the loss of hundreds of billions of dollars for
shareholders, and economic devastation for employees and others caught in
the wake. In the long term, a growing crisis of confidence among investors
could cripple our economy, as capital is diverted away from American
corporate debt and equity markets and companies suffocate from lack of
funding.
Investor mistrust takes hold fast and punishes
instantly in the modern economy. Enron, once America's seventh-largest
corporation, crashed in a mere three weeks once the scope of its failures
and corruption was exposed and its investors and creditors began to withdraw
their funds. Today's collapses can happen even faster. Because the companies
are larger, their operations more interconnected, and their financing so
complex and subject to hair-trigger reactions from institutional investors
with enormous trading positions, the impacts are greatly magnified and
reverberate globally. Bear Stearns went from its CEO claiming on CNBC that
"our liquidity position has not changed at all" to being insolvent two days
later.
Of the world's two hundred largest economies, more
than half are corporations. They have more influence on our lives than any
other institution—not just profound economic clout, but also enormous
political, environmental, and civic power. As they have grown in influence,
they have also become more concentrated: In 1950, the 100 largest industrial
companies owned approximately 40 percent of total U.S. industrial assets; by
the 1990s, they controlled 75 percent. Global corporations have assumed the
authority and impact that formerly belonged to governments and churches.
Boards of directors are supposed to be the most important element of
corporate leadership—the ultimate power in this economic universe—and while
some companies have made progress during the past decade in improving
corporate governance, the recurring waves of scandals and the blatant
victimization of shareholders that appear in the wake of economic crashes
prove that our approach to leading corporations is badly in need of
fundamental reform.
Ideally, a board of directors is informed, active,
and advisory, and maintains an open but challenging relationship with the
company's CEO. In reality, this rarely happens. In most cases, board members
are beholden to CEOs for their very presence on the board, for their
renominations, their compensation, their perquisites, their committee
assignments, their agendas, and virtually all their information. Even
well-intentioned directors find themselves hopelessly compromised, badly
conflicted, and essentially powerless. Not that all blame can be put on
bullying, manipulative CEOs; many boards simply fail to do their jobs. They
allow themselves to be fooled by fraudulent accounting; they look away
during the squandering of company resources; they miss obvious strategic
shifts in the marketplace; they are blind to massive risks their firms
assume; they approve excessive executive pay; they neglect to prepare for
crises; they ignore blatant conflicts of interest; they condone a lax
ethical tone. The head of one of the world's largest and most successful
private equity firms told us that he considers the current model of
corporate boards "fundamentally broken."
Continued in article
Hope this helps,
Bob Jensen
Fair Weather Friends
"Are Kodak's Outside Directors Wrong to Desert a Sinking Ship?" by Simon
C.Y. Wong, Harvard Business Review Blog, January 5, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/01/protecting_boards_from_disrupt.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
This reminds me of the scandal I followed in the San Antonio Express News
when a young mother loved the income she made from being in the U.S. Army
reserve. She was another type of fair weather "friend." When her unit was being
shipped off to the Middle East in time of war, she promptly resigned from the
U.S. Army reserves and argued that, as a single parent, she should not have to
go to war because she was the mother of young children.
From The Wall Street Journal Accounting Weekly Review on January 13,
2012
Avoiding Innovation's Terrible Toll
by:
Spencer E. Ante
Jan 07, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Managerial Accounting, Mergers and Acquisitions
SUMMARY: This is the first of two articles this week on corporate
structures, this one focusing on innovation in corporate America. The
article compares and contrasts IBM and Hewlett-Packard; it describes
innovation, or lack thereof, at Google, Apple, Eastman Kodak, and Johnson &
Johnson, as well as others. The video describes the recent demise of Eastman
Kodak as a driver for this article which also refers to academic management
research. The role of mergers and acquisitions in this process also is
discussed.
CLASSROOM APPLICATION: The articles should be useful to introduce
the corporate form of organization in undergraduate or MBA level financial
accounting and reporting classes or in managerial accounting classes
discussing managing change. Discussion of mergers and acquisitions also
makes the article a candidate for use prior to discussing accounting for
business combinations.
QUESTIONS:
1. (Advanced) What does it mean to say that "only a tiny fraction
[of corporations] reach the age of 40"? In your answer, describe the
inception, operation, and demise of a corporation.
2. (Introductory) Compare two of the corporations in the article,
one described as successful in innovation and one described as unsuccessful.
What factors differ between the two examples?
3. (Advanced) What does Todd Chaffee mean when he says "a good M&A
program can help a lot"? What did the companies in the article acquire
through M&A transactions?
Reviewed By: Judy Beckman, University of Rhode Island
"Avoiding Innovation's Terrible Toll," by Spencer E. Ante, The Wall Street
Journal, January 7, 2012 ---
http://online.wsj.com/article/SB10001424052970204331304577144980247499346.html?mod=djem_jiewr_AC_domainid
In fact, only a tiny fraction reach the age of 40,
according to a study of more than six million firms by management professors
Charles I. Stubbart and Michael B. Knight.
"Despite their size, their vast financial and human
resources, average large firms do not 'live' as long as ordinary Americans,"
the authors concluded. The History of Kodak
Given today's increased pace of technological
change, even 40 years is going to start to seem like a really long time.
The wave of creative destruction looming over
companies like Eastman Kodak Co., Blockbuster Inc., Barnes & Noble Inc. and
the record labels has been focusing the minds of American executives on two
questions: Are large companies able to innovate quickly enough in an age of
rapid disruption? And if they can, how do they do it? Related Video
Eastman Kodak is preparing for a Chapter 11
bankruptcy-protection filing in the coming weeks should efforts to sell a
trove of digital patents fall through. Dana Mattioli has details on The News
Hub. Photo: AP
Business leaders, academics and venture capitalists
say the large companies that do manage to survive are ruthless about change.
The most successful ones aren't afraid to cannibalize their big revenue
generators to build new businesses.
They often make frequent—but, crucially,
small—acquisitions that bring in new technologies and open new markets. And
there's always the unpredictable role of luck in business—both good and bad.
Johnson & Johnson, founded in 1886, and
International Business Machines Corp., which just celebrated its 100th
birthday, have defied the 40-year corporate life span.
More recently, 35-year-old Apple Inc. has
transformed itself from a small PC maker into a kingpin of mobile devices.
Google Corp., founded in 1998, is finding new ways to grow beyond its core
search engine advertising business.
Companies felled by creative destruction, on the
other hand, tend to be bureaucratic, play too much defense, and try to catch
up too late by lurching into huge acquisitions.
Top executives at successful big companies are a
lot like those at small companies, said James W. Breyer, a partner at
Facebook Inc. investor Accel Partners and a director at Wal-Mart Stores Inc.
and Dell Inc.
Mr. Breyer described these executives as very
smart, and able to diversify into new businesses while staying focused on a
company's core.
He said people ask him how Wal-Mart's board
meetings differ from Facebook's.
"I see far more similarities than differences
between the top visionary executives," he said. Related Video
A comparison of Hewlett-Packard Co. and IBM
illustrates the challenge. When Louis V. Gerstner took over IBM, he wanted
to know why the company consistently missed the emergence of new industries.
IBM developed the first commercial router, for instance, but Cisco Systems
Inc. ended up dominating that market.
An internal study found that IBM's success in
mature markets made it difficult to explore new ones, and that it lacked the
proper organizational structure to identify and build new ventures.
So in 2000, Mr. Gerstner launched a program called
the emerging business organization to find and nurture growth opportunities
under the direction of top executives. Over the next five years, EBO
businesses such as life sciences, Linux software and pervasive computing
added more than $15 billion to IBM's revenue, according to a 2010 study
published in the Harvard Business Review.
Under Chief Executive Samuel J. Palmisano, who
stepped down at the end of 2011, IBM supplemented its internal efforts with
an aggressive acquisition strategy, picking up dozens of small companies
that expanded IBM's high-margin software and consulting businesses.
At the same time, Mr. Palmisano wasn't afraid to
make hard choices, selling off the company's vaunted personal computer
business in 2004 before PCs had been largely commoditized.
"We've lasted 100 years, because we never limited
ourselves to a view of a particular product," Mr. Palmisano said in an
interview last year.
By contrast, H-P decided to get bigger in PCs,
spending $25 billion to buy rival Compaq Computer in 2002. With the threats
to that business now clear, the company last year clumsily said it might
spin it off or sell its PC unit, before investors forced it to retreat.
H-P also was slow to catch on to the growing
importance of business software and has spent dearly to try to catch up.
When H-P spent $11 billion last fall to acquire software maker Autonomy
Corp., many analysts said the deal's rich price would destroy shareholder
value.
"H-P has been trying to do everything IBM is doing
but five years late," said Harvard Business School professor Rosabeth Kanter.
In the last few years, Apple has provided a case
study in how to avoid being snared by the innovator's dilemma. After former
Chief Executive Steve Jobs returned to the company in the early 1990s, he
refreshed its PC line and carved out a dominating position in digital music
with the iPod.
But he readily put both of those businesses at risk
with new products several years later.
Mr. Jobs began cannibalizing Apple's iPod when he
introduced the iPhone. The tradeoff was worth it. In the quarter that ended
in September, iPhones and related products and services accounted for 39% of
Apple's revenue and have positioned it as a leader in the fast-growing
mobile space.
Apple later risked cannibalizing its PC and
notebook business by launching its new iPad tablet computer, a device that
now accounts for 24% of company revenue.
Google is only 13 years old, and Internet search
advertising remains the backbone of its business. But the company has used
modest acquisitions to dominate new markets that threatened its dominance.
Google's most prominent new businesses—YouTube and
its Android smartphone franchise—were both built on the back of
acquisitions. After buying the companies, Google let them operate with
considerable independence under their passionate founders, then beefed them
up later.
The company took a bigger plunge with its proposed
$12.5 billion acquisition of Motorola Mobility Holdings Inc., a deal still
being reviewed by regulators.
"A good M&A program can help a lot," said Todd
Chaffee, a general partner with Institutional Venture Partners. "If some
company is threatening [Google's] business, they buy it and augment it."
Continued in article
It may also interest some financial accounting professors to study the very
complex FAS 138 amendment to FAS 133 with respect to benchmark interest rate
hedging. Because of the technical complexity of benchmark interest fate hedging,
I think most accounting teachers and researchers avoid this topic.
I have a technical illustration of benchmark interest rate hedging (with
journal entries) at
http://www.cs.trinity.edu/~rjensen/138bench.htm
One place to begin is to look up "Benchmark Interest Rate" at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Some of the links below are broken because the FASB changed many of its links
and (sadly) took some illustrations off line.
Benchmark
= the designated risk being hedged. In FAS 133/138, the term
applies to interest rate risk.
In FAS 133, the FASB
did not take into account how interest rate risk is
generally hedged in practice. FAS 133 based the hedging
rules upon hedging of sector spreads for which there are no
hedging instruments in practice. The is one of the main
reasons why FAS 138 amendments to FAS 133 were soon issued.
Components of interest rate risk are shown below:
Risk-free rate u(0) =
LIBOR spread l(0)-u(0) =
LIBOR(0) rate l(0) =
Unhedged credit sector spread s(0)-l(0) =
Total systematic interest rate risk
s(0) =
Unhedged unsystematic risk v(0)-s(0) =
Full value effective rate v(0) =
Premium (discount) on the debt issue f(0)-v(0)=
Nominal (coupon) rate f(0) =
In FAS 138, the FASB moved away from sector spread
hedging and defined benchmarked interest rate hedging based
upon only two allowed interest rate spreads (i.e., the U.S.
Treasury risk-free rate with no spread or the LIBOR rate
with only the LIBOR spread. Sector spread hedging can no
longer receive hedge accounting.
For an extensive numerical example of benchmark
hedging, go to
http://www.cs.trinity.edu/~rjensen/000overview/138bench.htm
FAS
138 Introduces Benchmarking
Examples Illustrating Application of FASB Statement No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities-an amendment of FASB Statement No. 133
---
http://www.fasb.org/derivatives/examplespg.shtml
or try
clicking here.
FAS 138 Amendments
expand the eligibility of many derivative instrument hedges
to qualify FAS 133/138 hedge. Such qualifications in
accounting treatment that reduces earnings volatility when
the derivatives are adjusted for fair value.
It is very popular in
practice to have a hedging instrument and the hedged item be
based upon two different indices. In particular, the hedged
item may be impacted by credit factors. For example,
interest rates commonly viewed as having three components
noted below:
·
Risk-free risk
that the level of interest rates in risk-free financial
instruments such as U.S. treasury T-bill rates will vary
system-side over time.
·
Credit sector
spread risk that interest rates for particular economic
sectors will vary over and above the risk-free interest rate
movements. For example, when automobiles replaced horses as
the primary means of open road transportation, the horse
industry’s credit worthiness suffered independently of other
sectors of the economy. In more recent times, the dot.com
sector’s sector spread has suffered some setbacks.
·
Unsystematic
spread risk of a particular borrower that varies over and
above risk-free and credit sector spreads. The credit of a
particular firm may move independently of more system-wide
(systematic) risk-free rates and sector spreads.
Suppose that a hedge
only pays at the T-Bill rate for hedged item based on some
variable index having credit components. FAS 133 prohibited
“treasury locks” that hedged only the risk-free rates but
not credit-sector spreads or unsystematic risk. This was
upsetting many firms that commonly hedge with treasury
locks. There is a market for treasury lock derivatives that
is available, whereas hedges for entire interest rate risk
are more difficult to obtain in practice. It is also common
to hedge with London’s LIBOR that has a spread apart from a
risk-free component.
The DIG confused the
issue by allowing both risk-free and credit sector spread to
receive hedge accounting in its DIG Issue E1 ruling.
Paragraph 14 of FAS 138 states the following:
Comments received by
the Board on Implementation Issue E1 indicated (a) that the
concept of market interest rate risk as set forth in
Statement 133 differed from the common understanding of
interest rate risk by market participants, (b) that the
guidance in the Implementation Issue was inconsistent with
present hedging activities, and (c) that measuring the
change in fair value of the hedged item attributable to
changes in credit sector spreads would be difficult because
consistent sector spread data are not readily available in
the market.
In FAS 138, the board
sought to reduce confusion by reducing all components risk
into just two components called “interest rate risk” and
“credit risk.” Credit risk includes all risk other than the
“benchmarked” component in a hedged item’s index. A
benchmark index can include somewhat more than movements in
risk-free rates. FAS 138 allows the popular LIBOR hedging
rate that is not viewed as being entirely a risk-free rate.
Paragraph 16 introduces the concept of “benchmark interest
rate” as follows:
Because the Board
decided to permit a rate that is not fully risk-free to be
the designated risk in a hedge of interest rate risk, it
developed the general notion of benchmark interest rate
to encompass both risk-free rates and rates based on the
LIBOR swap curve in the United States.
FAS 133 thus allows
benchmarking on LIBOR. It is not possible to
benchmark on such rates as commercial paper rates, Fed Fund
rates, or FNMA par mortgage rates.
Readers might then ask
what the big deal is since some of the FAS 133 examples
(e.g., Example 5 beginning in Paragraph 133) hedged on the
basis of LIBOR. It is important to note that in those
original examples, the hedging instrument (e.g., a swap) and
the hedged item (e.g., a bond) both used LIBOR in defining a
variable rate? If the hedging instrument used LIBOR and the
hedged item interest rate was based upon an index poorly
correlated with LIBOR, the hedge would not qualify (prior to
FAS 138) for FAS 133 hedge accounting treatment even though
the derivative itself would have to be adjusted for fair
value each quarter. Recall that LIBOR is a short-term
European rate that may not correlate with various interest
indices in the U.S. FAS 133 now allows a properly
benchmarked hedge (e.g., a swap rate based on LIBOR or
T-bills) to hedge an item having non-benchmarked components.
The short-cut method
of relieving hedge ineffectiveness testing may no longer be
available. Paragraph 23 of FAS 138 states the following:
For cash flow hedges
of an existing variable-rate financial asset or liability,
the designated risk being hedged cannot be the risk of
changes in its cash flows attributable to changes in the
benchmark interest rate if the cash flows of the hedged item
are explicitly based on a different index. In those
situations, because the risk of changes in the benchmark
interest rate (that is, interest rate risk) cannot be the
designated risk being hedged, the shortcut method cannot be
applied. The Board’s decision to require that the index on
which the variable leg of the swap is based match the
benchmark interest rate designated as the interest rate risk
being hedged for the hedging relationship also ensures that
the shortcut method is applied only to interest rate risk
hedges. The Board’s decision precludes use of the shortcut
method in situations in which the cash flows of the hedged
item and the hedging instrument are based on the same index
but that index is not the designated benchmark interest
rate. The Board noted, however, that in some of those
situations, an entity easily could determine that the hedge
is perfectly effective. The shortcut method would be
permitted for cash flow hedges in situations in which the
cash flows of the hedged item and the hedging instrument are
based on the same index and that index is the designated
benchmark interest rate.
In other words, any
hedge item that is not based upon only a benchmarked
component will force hedge effectiveness testing at least
quarterly. Thus FAS 138 broadened the scope of qualifying
hedges, but it made the accounting more difficult by forcing
more frequent effectiveness testing.
FAS 138 also permits
the hedge derivative to have more risk than the hedged
item. For example, a LIBOR-based interest rate swap might
be used to hedge an AAA corporate bond or even a note rate
based upon T-Bills.
There are restrictions
noted in Paragraph 24 of FAS 138:
This Statement
provides limited guidance on how the change in a hedged
item’s fair value attributable to changes in the designated
benchmark interest rate should be determined. The Board
decided that in calculating the change in the hedged item’s
fair value attributable to changes in the designated
benchmark interest rate, the estimated cash flows used must
be based on all of the contractual cash flows of the entire
hedged item. That guidance does not mandate the use of any
one method, but it precludes the use of a method that
excludes some of the hedged item’s contractual cash flows
(such as the portion of interest payments attributable to
the obligor’s credit risk above the benchmark rate) from the
calculation. The Board concluded that excluding some of the
hedged item’s contractual cash flows would introduce a new
approach to bifurcation of a hedged item that does not
currently exist in the Statement 133 hedging model.
The FASB provides some
new examples illustrating the FAS 138 Amendments to FAS 133
at
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/examplespg.html
Example 1 on interest rate benchmarking begins as follows:
Example: Fair Value Hedge of the LIBOR Swap Rate in a $100
Million A1-Quality 5-Year Fixed-Rate Noncallable Debt On
April 3, 20X0, Global Tech issues at par a $100 million
A1-quality 5-year fixed-rate noncallable debt instrument
with an annual 8 percent interest coupon payable
semiannually. On that date, Global Tech enters into a 5-year
interest rate swap based on the LIBOR swap rate and
designates it as the hedging instrument in a fair value
hedge of the $100 million liability. Under the terms of the
swap, Global Tech will receive a fixed interest rate at 8
percent and pay variable interest at LIBOR plus 78.5 basis
points (current LIBOR 6.29%) on a notional amount of
$101,970,000 (semiannual settlement and interest reset
dates). A duration-weighted hedge ratio was used to
calculate the notional amount of the swap necessary to
offset the debt's fair value changes attributable to changes
in the LIBOR swap rate.
An extensive analysis
of the above illustration is provided at
http://www.cs.trinity.edu/~rjensen/000overview/138bench.htm
Some DIG Issues
Affecting Interest Rate Hedging
Issue E1—Hedging the Risk-Free Interest Rate
http://www.fasb.org/derivatives/
(Cleared 02/17/99)
Issue E1 heavily influenced FAS 138 as noted above.
*Issue G6—Impact of Implementation Issue E1 on Cash Flow
Hedges of Market Interest Rate Risk
(Cleared 5/17/00)
With regard to a cash
flow hedge of the variability in interest payments on an
existing floating-rate financial asset or liability, the
distinction in Issue E1 between the risk-free interest rate
and credit sector spreads over the base Treasury rate is not
necessarily directly relevant to assessing whether the cash
flow hedging relationship is effective in achieving
offsetting cash flows attributable to the hedged risk. The
effectiveness of a cash flow hedge of the variability in
interest payments on an existing floating-rate financial
asset or liability is affected by the interest rate index on
which that variability is based and the extent to which the
hedging instrument provides offsetting cash flows.
If the variability of the hedged cash flows of the existing
floating-rate financial asset or liability is based
solely on changes in a floating interest rate index
(for example, LIBOR, Fed Funds, Treasury Bill rates), any
changes in credit sector spreads over that interest rate
index for the issuer's particular credit sector should not
be considered in the assessment and measurement of hedge
effectiveness. In addition, any changes in credit sector
spreads inherent in the interest rate index itself do not
impact the assessment and measurement of hedge effectiveness
if the cash flows on both the hedging instrument and the
hedged cash flows of the existing floating-rate financial
asset or liability are based on the same index. However, if
the cash flows on the hedging instrument and the hedged cash
flows of the existing floating-rate financial asset or
liability are based on different indices, the basis
difference between those indices would impact the assessment
and measurement of hedge effectiveness.
*Issue E6—The
Shortcut Method and the Provisions That Permit the Debtor or
Creditor to Require Prepayment
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/issueg6.html
(Cleared 5/17/00)
An interest-bearing asset or liability should be considered
prepayable under the provisions of paragraph 68(d)
when one party to the contract has the right to cause the
payment of principal prior to the scheduled payment dates
unless (1) the debtor has the right to cause settlement of
the entire contract before its stated maturity at an amount
that is always greater than the then fair value of the
contract absent that right or (2) the creditor has the right
to cause settlement of the entire contract before its stated
maturity at an amount that is always less than the then fair
value of the contract absent that right. A right to cause a
contract to be prepaid at its then fair value would not
cause the interest-bearing asset or liability to be
considered prepayable under paragraph 68(d) since that right
would have a fair value of zero at all times and essentially
would provide only liquidity to the holder. Notwithstanding
the above, any term, clause, or other provision in a debt
instrument that gives the debtor or creditor the right to
cause prepayment of the debt contingent upon the occurrence
of a specific event related to the debtor's credit
deterioration or other change in the debtor's credit risk
(for example, the debtor's failure to make timely payment,
thus making it delinquent; its failure to meet specific
covenant ratios; its disposition of specific significant
assets (such as a factory); a declaration of cross-default;
or a restructuring by the debtor) should not be considered a
prepayment provision under the provisions of paragraph
68(d). Application of this guidance to specific debt
instruments is provided below.
Issue E10—Application of the Shortcut Method to Hedges of a
Portion of an Interest-Bearing Asset or Liability (or its
Related Interest) or a Portfolio of Similar Interest-Bearing
Assets or Liabilities
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/issuee10.html
(Released 4/00)
1.
May the shortcut method be applied to fair value
hedges of a proportion of the principal amount of the
interest-bearing asset or liability if the notional amount
of the interest rate swap designated as the hedging
instrument matches the portion of the asset or liability
being hedged, and all other criteria for applying the
shortcut method are satisfied? May the shortcut method
similarly be applied to cash flow hedges of the interest
payments on only a portion of the principal amount of the
interest-bearing asset or liability if the notional amount
of the interest rate swap designated as the hedging
instrument matches the principal amount of the portion of
the asset or liability on which the hedged interest payments
are based? [Generally yes was the DIG’s answer.}
2.
May the shortcut method be applied to fair value
hedges of portfolios (or proportions thereof) of similar
interest-bearing assets or liabilities if the notional
amount of the interest rate swap designated as the hedging
instrument matches the notional amount of the aggregate
portfolio? May the shortcut method be applied to a cash flow
hedge in which the hedged forecasted transaction is a group
of individual transactions if the notional amount of the
interest rate swap designated as the hedging instrument
matches the notional amount of the aggregate group that
comprises the hedged transaction? [Generally no was the
DIG’s answer.}
*Issue F2—Partial-Term Hedging
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/issuef2.html
(Cleared 07/28/99)
A company may not designate a 3-year interest rate swap with
a notional amount equal to the principal amount of its
nonamortizing debt as the hedging instrument in a hedge of
the exposure to changes in fair value, attributable to
changes in market interest rates, of the company’s
obligation to make interest payments during the first 3
years of its 10-year fixed-rate debt instrument. There would
be no basis for expecting that the change in that swap’s
fair value would be highly effective in offsetting the
change in fair value of the liability for only the interest
payments to be made during the first three years. Even
though under certain circumstances a partial-term fair value
hedge can qualify for hedge accounting under Statement 133,
the provisions of that Statement do not result in reporting
a fixed-rate 10-year borrowing as having been effectively
converted into a 3-year floating-rate and 7-year fixed-rate
borrowing as was previously accomplished under synthetic
instrument accounting prior to Statement 133. Synthetic
instrument accounting is no longer acceptable under
Statement 133, as discussed in paragraphs 349 and 350.
*Issue G7—Measuring the Ineffectiveness of a Cash Flow Hedge
under Paragraph 30(b) When the Shortcut Method is Not
Applied
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/issueg7.html
(Cleared 5/17/00)
Three methods for calculating the ineffectiveness of a cash
flow hedge that involves either (a) a receive-floating,
pay-fixed interest rate swap designated as a hedge of the
variable interest payments on an existing floating-rate
liability or (b) a receive-fixed, pay-floating interest rate
swap designated as a hedge of the variable interest receipts
on an existing floating-rate asset are discussed below. As
noted in the last section of the response, Method 1 (Change
in Variable Cash Flows Method) may not be used in certain
circumstances. Under all three methods, an entity must
consider the risk of default by counterparties that are
obligors with respect to the hedging instrument (the swap)
or hedged transaction, pursuant to the guidance in Statement
133 Implementation Issue No. G10, "Need to Consider
Possibility of Default by the Counterparty to the Hedging
Derivative." An underlying assumption in this Response is
that the likelihood of the obligor not defaulting is
assessed as being probable.
Other DIG issues can
be viewed at
http://www.rutgers.edu/Accounting/raw/fasb/derivatives/issuindex.html
Also see the
following summary of FAS 138
"Implementation of SFAS 138, Amendments to SFAS 133," The
CPA Journal, November 2001. (With Angela L.J. Huang and
John S. Putoubas), pp. 54-56 ---
http://www.nysscpa.org/cpajournal/2001/1100/dept/d115401.htm |
Added Jensen Comment
I have a technical illustration of benchmark interest rate hedging (with
journal entries) at
http://www.cs.trinity.edu/~rjensen/138bench.htm
"The Seven Habits of Spectacularly Unsuccessful Executives," by Eric
Jackson, Forbes, January 2, 2012 ---
http://www.forbes.com/sites/ericjackson/2012/01/02/the-seven-habits-of-spectacularly-unsuccessful-executives/
Sydney Finkelstein, the Steven Roth Professor of
Management at the Tuck School of Business at
Dartmouth College, published “Why
Smart Executives Fail”
8 years ago.
In it, he shared some of his research on what over
50 former high-flying companies – like Enron, Tyco, WorldCom, Rubbermaid,
and Schwinn – did to become complete failures. It turns out that the senior
executives at the companies all had 7 Habits in common. Finkelstein calls
them the Seven Habits of Spectacularly Unsuccessful Executives.
These traits can be found in the leaders of current
failures like
Research In Motion (RIMM),
but they should be early-warning signs (cautionary tales) to currently
unbeatable firms like
Apple
(AAPL),
Google
(GOOG), and Amazon.com (AMZN). Here
are the habits, as Finkelstein described in a 2004
article:
Continued in article
Summary from The Unknown Professor on January 4, 2012
:http://financialrounds.blogspot.com/
- They see themselves (and their organizations) dominating their
environment
- They identify so completely with the organization that there is
no clear boundary between their personal interests and their
corporation’s interests
- They think they have all the answers
- They ruthlessly eliminate anyone who isn’t completely behind
them
- They are consummate spokespersons, obsessed with the company
image
- They underestimate obstacles
- They stubbornly rely on what worked for them in the past
"I've known deans that embody 2,
3, 4, and 6. How about you?"
The Unknown Professor
The Seven Habits of Spectacularly Unsuccessful Executives," by Eric
Jackson, Forbes, January 2, 2012 ---
http://www.forbes.com/sites/ericjackson/2012/01/02/the-seven-habits-of-spectacularly-unsuccessful-executives/
Sydney Finkelstein, the Steven Roth Professor of
Management at the Tuck School of Business at
Dartmouth College, published “Why
Smart Executives Fail”
8 years ago.
In it, he shared some of his research on what over
50 former high-flying companies – like Enron, Tyco, WorldCom, Rubbermaid,
and Schwinn – did to become complete failures. It turns out that the senior
executives at the companies all had 7 Habits in common. Finkelstein calls
them the Seven Habits of Spectacularly Unsuccessful Executives.
These traits can be found in the leaders of current
failures like
Research In Motion (RIMM),
but they should be early-warning signs (cautionary tales) to currently
unbeatable firms like
Apple
(AAPL),
Google
(GOOG), and Amazon.com (AMZN). Here
are the habits, as Finkelstein described in a 2004
article:
Continued in article
Summary from The Unknown Professor on January 4, 2012
:http://financialrounds.blogspot.com/
- They see themselves (and their organizations) dominating their
environment
- They identify so completely with the organization that there is
no clear boundary between their personal interests and their
corporation’s interests
- They think they have all the answers
- They ruthlessly eliminate anyone who isn’t completely behind
them
- They are consummate spokespersons, obsessed with the company
image
- They underestimate obstacles
- They stubbornly rely on what worked for them in the past
"I've known deans that embody 2,
3, 4, and 6. How about you?"
The Unknown Professor
Jensen Comment
This may be extending Sydney Finkelstein's observations about corporate
executives a bridge too far (into the Academy) since there are so many
differences between being a CEO of a corporation versus being a middle manager
in a university. Firstly, the powers of deans has been greatly diminished over
the past 50 years. When I was at Michigan State University in the late 1960s,
our Dean met what he thought was a famous professor at a conference and hired
him on the spot. It turned out that this was another (pretty good) professor
with the same name. Such a mistake could not happen these days where since
faculty have increased powers (in committee) regarding faculty hiring and
firing.
Deans are only middle managers who must share authority with higher levels of
university governance. The days of deans "ruthlessly eliminated anyone who is
not completely behind them" certainly does not exist today and probably never
existed under tenure protections. When I was on the faculty of Florida State
University we had a real pain-in-the-ass in the Management Department who went
so far as to haul our dean into state court for a mole-hill issue. The dean won
the case in court but could not "ruthlessly fire" that tenured professor who
continued to be a pain in the tail for both our dean and most of our faculty
colleagues.
If a new dean was a previous corporate executive, she or he might
"underestimate obstacles" for a short while, but my hunch is that they soon
learn to respect obstacles that make the Academy different from Exxon. My
experience with deans from industry are quite the opposite. Sometimes they have
too much respect for obstacles that should be knocked down.
In industry, a corporate executive raises money from marketing, cost
efficiencies, relations with bankers, etc. In the Academy a dean raises money
from alumni, outside business fund raising, relations with the University's top
brass, and having students and faculty blogging nice things about the college,
their professors, and their deans. I don't think any dean who is a former
corporate executive "stubbornly relies on what worked for them in the past."
Deans just aren't that stupid.
I think Sydney Finkelstein made some great observations about corporate
executives. I don't think these observations can be successfully extrapolated to
any dean that I've had the pleasure to work for over the years.
There may be some causes of spectacularly unsuccessful deans, but these are
most likely due to not being enough like successful corporate executives.
Ernst & Young ---
http://en.wikipedia.org/wiki/Ernst_%26_Young
From The Wall Street Journal Accounting Weekly Review on January 27,
2012 ---
http://online.wsj.com/article/SB10001424052970204301404577171531838421366.html?mod=djemEditorialPage_t
Ernst Chief Seeks Balance as Industry's Woes Add Up
by:
Leslie Kwoh
Jan 24, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Accounting, Audit Firms, Audit Quality, Auditing, Auditing
Services, Fraudulent Financial Reporting, PCAOB, Sarbanes-Oxley Act
SUMMARY: The article covers an interview with Ernst & Young CEO
James Turley. He comments on the change in the accounting profession from
being self-regulated to highly regulated, E&Y's performance in regulatory
reviews, the performance of the accounting profession following the
financial crisis stemming from the burst housing bubble, and the situation
E&Y faces through its client Olympus which has admitted to presenting
fraudulent financial statements.
CLASSROOM APPLICATION: The article is useful in auditing classes or
other classes covering ethics and prevention of fraudulent financial
reporting.
QUESTIONS:
1. (Introductory) What are the accounting "industry's woes"
indicated in the title of this article? Base your answer on the article, the
related article, and other knowledge you have.
2. (Introductory) Who regulates the accounting profession? Describe
the process of regulatory review of the accounting and auditing profession
as you understand it. What have been the recent findings from those reviews
at E&Y?
3. (Advanced) The interviewer asks whether "...accounting firms are
scapegoats when clients get into trouble for irresponsible financial
practices." Why do you think accounting firms could be considered
"scapegoats" in these situations?
4. (Advanced) Consider Mr. Turley's response to the question above.
Why do auditors have a responsibility to "lift confidence in financial
reporting"?
5. (Advanced) In the related video, Mr. Turley states that few
companies had to restate financial statements following the financial crises
in contrast to the time period around the Enron collapse and resulting
crisis. When are companies required to restate financial statements? How
does this fact indicate that the accounting profession has functioned well
within the time frame of the financial crisis following the burst housing
bubble?
SMALL GROUP ASSIGNMENT:
E&Y CEO James Turley states that during the 35 years he has worked in
accounting, the profession has gone from being self-regulated to being
highly regulated. Prepare a timeline of that progress in the accounting
profession. Properly cite your sources for this information. (Hint: begin at
the web site of the Public Company Accounting Oversight Board (PCAOB) on the
web at
http://pcaobus.org/About/Pages/default.aspx)
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Olympus Casts Spotlight on Accounting
by Kana Inagaki
Nov 08, 2011
Online Exclusive
"Ernst Chief Seeks Balance as Industry's Woes Add Up," by: Leslie Kwoh,
The Wall Street Journal, January 24, 2012 ---
http://online.wsj.com/article/SB10001424052970203750404577173373289374952.html?mod=djem_jiewr_AC_domainid
Ernst & Young LLP and its fellow auditors have
spent some uncomfortable time in the spotlight.
The company has been under scrutiny since October
for its role in the $1.7 billion accounting scandal at Olympus Corp. A panel
appointed by Olympus cleared Ernst & Young and KPMG Azsa LLC of any
wrongdoing last week, but Japanese regulators continue to investigate the
matter.
Meanwhile, a U.S. watchdog said in December it
found deficiencies in one-fifth of the audits it inspected at Ernst & Young
as part of a broader inspection that found flaws at all the Big Four audit
firms. The privately held company is also still fighting a 2010 lawsuit
filed by the New York attorney general's office alleging it helped Lehman
Brothers Holdings Inc. hide its financial woes before the bank's 2008
collapse.
Chairman and Chief Executive James Turley remains
optimistic about Ernst & Young's global prospects. Last year, Mr. Turley
steered the firm toward growth across its tax, assurance and advisory
services, with strong results in Brazil, India, Africa and China. Global
revenues for the privately owned partnership rose to $22.9 billion for the
2011 fiscal year ending last June, from $21.3 billion a year earlier.
It is a bittersweet end to a decade-long run for
Mr. Turley, who plans to retire in June 2013 after joining the company 35
years ago as a fresh graduate of Rice University. He will be succeeded by
Mark Weinberger, who runs Ernst & Young's global tax practice.
The 56-year-old CEO recently talked to The Wall
Street Journal about the responsibility of accounting firms and what should
be done to regulate the profession. Edited excerpts:
WSJ: Has the nature of the accounting profession
changed in the last few years?
Mr. Turley: I've been in the profession some 35
years now, and it's changed a lot during those times, from capital market
requirements, to the responsibility we have to investors, to how we work
with independent audit committees. When I started, this was a self-regulated
profession. Today, we're highly regulated.
WSJ: In December, the government's
auditing-oversight board said it found 13 deficiencies in 63 audits at Ernst
& Young, and identified flaws at all Big Four firms. Was this a matter of
oversight?
Mr. Turley: This was a matter of execution. It's a
matter of us now analyzing the root causes of [flawed audits] and figuring
out how we continue to improve our performance in delivery of audits. It's a
matter we take extraordinarily seriously and work closely with our regulator
in this country, the PCAOB [Public Company Accounting Oversight Board], to
continue to improve.
WSJ: Ernst & Young's Japanese arm, Ernst & Young
ShinNihon LLC, is still being investigated over its role as an auditor in
the Olympus accounting scandal. What's the latest?
Mr. Turley: I can't say much about a matter that's
in the process of being analyzed. But you should understand that in this
two-decades-long issue at Olympus, we arrived on the scene about a year ago.
So we came in pretty late in the game.
WSJ: Ernst & Young has been caught up in a string
of litigation involving clients including HealthSouth and Lehman Brothers.
How do you maintain stability?
Mr. Turley: We're in a very litigious world, and
inevitably, when a company of any type fails or has any problems, one of the
Big Four accounting firms typically has been delivering that work. So we,
like all our competitors, have matters of litigation. Our people understand
that.
WSJ: Do you think accounting firms are scapegoats
when clients get into trouble for irresponsible financial practices?
Mr. Turley: We have a responsibility to do
everything we can to lift confidence in financial reporting. That doesn't
mean we get it right every time. But in any kind of a crisis, like the world
has gone through, they're trying to point fingers. We all wish—we in this
profession, we in society—we could have seen around the corner and seen that
housing prices were going to tumble, liquidity challenges were going to
come. Unfortunately, no one saw that, and we couldn't see around the corner
any better than anyone else.
WSJ: What else can be done to improve the quality
and transparency of accounting?
Mr. Turley: More trend information, more
qualitative information, more key performance indicators from companies.
Right now, we're essentially asked to give an on-off switch on how we feel
about a set of financial statements. Are there different ways to communicate
with investors that would be more informative?
WSJ: Ernst & Young is now in more than 140
countries. In which markets do you see the most promise and growth?
Mr. Turley: Last year or so, our fastest-growing
market was Brazil. We continue to see great growth in both China and
Southeast Asia. India and Eastern Europe, especially Russia, continue to
perform very well. We're seeing strong growth in actually all of our
businesses now, and in most of our geographies. Europe is the most
challenged, because of the aftermath of the ongoing crisis that you read
about every day.
WSJ: What do you plan to do after you retire?
Mr. Turley: I haven't any idea at this point. Most
people I talk with who are retired would say don't make any decisions too
fast.
Continued in article
Bob Jensen's threads on Ernst & Young ---
http://www.trinity.edu/rjensen/Fraud001.htm
Teaching Case on CPV Analysis
From The Wall Street Journal Accounting Weekly Review on January 6,
2012
Starbucks to Raise Prices
by:
Annie Gasparro
Jan 04, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Commitments, Cost Accounting, Cost Management, Managerial
Accounting, Product strategy
SUMMARY: Starbucks Corp. "said Tuesday it is raising prices an
average of about 1% in the Northeast and Sunbelt regions...." Price
increases will be posted for some but not all sizes of its brewed coffee
products; the company "...isn't raising prices for packaged coffee sold at
its cafes or at grocery stores." The article comments on pricing strategy,
cost control, and profit margins. The related video discusses the company's
purchase of a long term contract for coffee at high prices just before
coffee prices fell overall.
CLASSROOM APPLICATION: The article is useful to introduce
manufacturing cost components and cost behavior with a simple product with
which most students should be familiar.
QUESTIONS:
1. (Introductory) Why is Starbucks raising the price of some of its
locations for some of its products?
2. (Introductory) On which products will Starbucks raise prices? In
which locations? Why will the company's pricing vary by product and region?
3. (Advanced) According to one statement in the article about
Starbucks products, "...coffee represents a bigger portion of the cost of
its packaged goods than of brewed coffee." What are the other cost
components for a cup of brewed coffee that are not present in a package of
whole coffee beans for sale in a grocery store?
4. (Advanced) What was the impact of a contract for coffee
purchases on Starbucks's costs for its product?
5. (Advanced) Based on the discussion in the related online video,
how does Starbucks expect coffee purchase costs to even out over the long
term?
Reviewed By: Judy Beckman, University of Rhode Island
"Starbucks to Raise Prices," by: Annie Gasparro, The Wall Street Journal,
January 4, 2012 ---
http://online.wsj.com/article/SB10001424052970203550304577138922045363052.html?mod=djem_jiewr_AC_domainid
Starbucks Corp. is raising brewed-coffee prices in
some regions to offset its higher costs.
The Seattle chain said Tuesday it is raising prices
an average of about 1% in the Northeast and Sunbelt regions, including such
cities as Boston, New York, Washington, Atlanta, Dallas and Albuquerque,
N.M.
Starbucks didn't give details on all the areas
where prices will increase but said most southern states are included.
Prices won't rise in California and Florida.
Starbucks has raised prices in its cafes annually
since the recession began, though the company said its increases have been
"far less" than those of its rivals.
Starbucks will face higher commodity costs than
some of its competitors in the coming months. The chain made contracts to
buy coffee for the fiscal year that began in October because prices were
rising and Starbucks wanted to eliminate the volatility of buying on the
spot market. But the market for coffee soon fell, and Starbucks was stuck
paying more than it would have otherwise.
Over the past couple of years, Starbucks has topped
the industry in sales and been able to manage commodity inflation, "not with
pricing, but with a more efficient cost structure and strong traffic
growth," Chief Financial Officer Troy Alstead said in November when the
company reported earnings.
Because the chain's high-end consumer base is less
sensitive to prices than that of some rivals, Starbucks has said it didn't
think increases would affect customer purchases, even in a struggling
economy. Some chains, especially fast-food restaurants that focus on low
prices, risk losing customers when prices rise.
Starbucks shares rose 43% last year. The stock fell
73 cents, or 1.6%, to $45.29 in 4 p.m. composite trading Tuesday on the
Nasdaq Stock Market.
The latest change, which was reported earlier by
Reuters news service, raises the cost of a "tall," or 12-ounce, coffee in
some New York City stores by 10 cents to $1.85. Not all sizes will see price
increases.
Starbucks isn't raising prices for packaged coffee
sold at its cafes or at grocery stores. That's where Starbucks faces the
greater pressure on profit margins, largely because coffee represents a
bigger portion of the cost of its packaged goods than of brewed coffee.
Continued in article
Bob Jensen's threads on CPV analysis ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
"KPMG has stated that it plans to begin retuning $1.2 billion of frozen
funds to (MF Global) clients this month," by Michael Foster, Reuters, January 5, 2012
---
http://www.big4.com/kpmg/kpmg-promises-to-return-funds-to-mf-global-uk-clients
KPMG has stated that it plans to begin retuning
$1.2 billion of frozen funds to clients this month.
Joint Special Administrator of MF Global UK Richard
Heis said in an interview with Thomson Reuters on Thursday that the
administration had already recovered the majority of client funds and most
outstanding client assets. “At the end of December we had recovered some 82
per cent of client monies and substantially all of the client assets. We
hope to commence the return of client assets and an interim distribution of
monies as early as this month,” Heis said.
MF Global’s customers are planning to take a vote
of confidence on the administrator and appointing a committee to sign off
KPMG’s fee on Monday, after many clients expressed frustration at the slow
progress of the bankruptcy and KPMG’s failure to retrieve their money.
However, Heis insists that he has already begun discussing a return of
client funds.
To date, no European customers have received funds
since MF Global’s collapse.
The move comes after KPMG apologized to MF Global’s
clients after inconsistencies in the administrator’s handling of live trades
were discovered.
Continued in article
Jensen Question
Is that with or without interest?
Bob Jensen's threads on the two faces of KPMG ---
http://www.trinity.edu/rjensen/Fraud001.htm
Teaching Case on the MF Global Scandal
From The Wall Street Journal Weekly Accounting Review on January 6,
2012
The Unraveling of MF Global
by:
Aaron Lucchetti and Mike Spector
Dec 31, 2011
Click here to view the full article on WSJ.com
TOPICS: Accounting Information Systems, Auditing, Disclosure
SUMMARY: "The article is based on interviews with traders,
executives and other employees...as more details emerge about MF Global's
ruin..." from the bankruptcy process, Congressional hearings, and other
inquiries into the process behind the firm's demise. The article provides a
description of the background of MF Global and the significant change effort
led by John Corzine. MF Global had faced declining interest revenue it once
earned as interest rates in the U.S. have fallen to near zero. "As soon as
Mr. Corzine arrived in March 2010, Moody's Investors Service, Standard &
Poor's and Fitch ratings told Mr. Corzine he needed to rev up profits or
face downgrades on the securities firm's debt." Corzine increased revenues
by executing trades in European sovereign debt, but structured the
transactions as "repurchase to maturity." As a result, the investments in
European sovereign debt totaling $6.3 billion were removed from the
company's balance sheet; there was an obligation to repay under these
agreements that was excluded from the balance sheet as well. The demise of
the firm came after MF Global disclosed the huge $6.3 billion sum total of
these trades; regulators asked for additional collateral, squeezing cash
available and then a run on the bank began, securing the demise.
CLASSROOM APPLICATION: The article is useful to cover this case in
an auditing or systems controls class.
QUESTIONS:
1. (Introductory) What was the background of MF Global prior to the
arrival of Jon Corzine as the company's leader?
2. (Introductory) What operating changes occurred at MF Global
during the time of Mr. Corzine's tenure there?
3. (Advanced) What is the significance of the statements in the
article that Mr. Corzine roamed the company's trading floor encouraging
"...traders to make larger bets...but...spent little time on the firm's back
offices and record-keeping, several former employees say." Are these
statements necessarily accurate because they are reported in this newspaper?
4. (Advanced) Refer again to the question above. Regardless of
whether the statements are accurate in this case, would observing these
behaviors influence your plan to audit MF Global? Explain your answer.
5. (Introductory) Refer to the graphic at the beginning of the
article entitled "The Corzine Trade." Summarize in words the impact of the
"estimated revenue from trade" on total net revenue. Based on discussion in
the article, would these trades have increased costs at the firm? Explain
your answer.
6. (Advanced) How large was the company's trading activity in
European Sovereign debt? Was this an unprofitable series of transactions for
the firm?
7. (Advanced) What was the reaction by creditors and regulators
when MF Global disclosed its "sovereign-debt trades...on pages 77 and 78 of
the company's annual report..."? In your answer, define the term "run on the
bank."
8. (Advanced) Based on the activities described in this article,
what are possible ways you would consider as an auditor to trace or recover
the lost $1.2 billion in missing client funds? In your answer, comment on
the propriety of trading with funds from customer accounts and goal of
accounting controls you believe should be present in an operation such as MF
Global's.
Reviewed By: Judy Beckman, University of Rhode Island
"The Unraveling of MF Global," by: Aaron Lucchetti and Mike Spector,
The Wall Street Journal, December 31, 2011 ---
http://online.wsj.com/article/SB10001424052970203686204577117114075444418.html?mod=djem_jiewr_AC_domainid
In September, MF Global Holdings Ltd.'s management
sent a memo to the securities firm's 2,800 employees: Start printing on both
sides of paper.
The unusual request was a sign that executives at
the New York company then led by Jon S. Corzine, a former New Jersey
governor and Goldman Sachs Group Inc. chairman, saw tougher times ahead.
They were right.
Less than two months later, MF Global collapsed
into bankruptcy, undone by a huge bet by Mr. Corzine on European sovereign
bonds that was part of his ambition to transform a sleepy commodities broker
into a Goldman-like investment-banking powerhouse.
MF Global filed for Chapter 11 bankruptcy
protection on Oct. 31. An estimated $1.2 billion in customer funds remain
missing, according to the bankruptcy trustee of MF Global's brokerage unit,
and there are few solid clues about where the money went. The shortfall has
snarled the finances of thousands of traders, farmers and other commodities
customers at MF Global.
Mr. Corzine, who turns 65 years old on Jan. 1, has
testified before Congress that he never intended for anyone at MF Global to
misuse customer funds. He and other MF Global executives face intensifying
probes from regulators and law-enforcement officials into the firm's demise.
For employees who worked at MF Global after Mr.
Corzine's tenure began in March 2010, the past two months have been filled
with anger, sadness, confusion and reflection about how a Wall Street firm
that seemed to have so much promise could unwind so quickly.
Some say they saw red flags that worried them as
Mr. Corzine ramped up risk-taking and tried to return MF Global to
profitability. This article is based on interviews with traders, executives
and other employees, many of whom declined to be identified because they are
looking for new jobs and are leery about being dragged into the
investigations.
As more details emerge about MF Global's ruin, the
reasons for Mr. Corzine's decision to bet $6.3 billion on bonds from shaky
European countries are becoming clearer.
Some of those who saw Mr Corzine in action at the
time reject the oft-repeated narrative that the bet was simply a reckless
gamble by an overconfident trader. Instead, they say the unusual trade was
driven as much by desperation as self-assurance. Read More
Weekend Investor: Are Brokerage Accounts Safe?
One big reason for the bet: It instantly boosted
revenue at a time when Mr. Corzine wanted to appease anxious credit-rating
firms and shareholders, said two executives familiar with his thinking. Mr.
Corzine declined to comment for this article.
As soon as Mr. Corzine arrived in March 2010,
Moody's Investors Service, Standard & Poor's and Fitch Ratings told Mr.
Corzine he needed to rev up profits fast or face downgrades on the
securities firm's debt.
The European bet was "a way to answer the...demands
while buying time to transform the business," one MF Global executive
recalls Mr. Corzine telling him.
In the end, he ran out of time. 1,100 New Faces
Mr. Corzine, a Democrat, wouldn't have gone back to
work on Wall Street had he been re-elected as governor in 2009. But after
his narrow loss to Republican Chris Christie, private-equity investor J.
Christopher Flowers, an MF Global shareholder and close friend of Mr.
Corzine, persuaded him to run the company. Mr. Corzine was intrigued by the
opportunity to turn around the struggling firm, declining another job offer
to be a high-ranking executive at a hedge fund.
Mr. Corzine arrived at MF Global with a plan to
reinvigorate the firm by introducing the kind of risk-taking that made him a
bond-trading star at Goldman in the 1980s and 1990s. He moved quickly at MF
Global, cutting hundreds of employees and hiring 1,100 new traders and other
employees.
In all, 1,400 employees, or 40% of the firm's work
force, eventually left between his arrival and the company's bankruptcy
filing, according to a company presentation shortly before the bankruptcy.
The move to become a full-fledged banking firm was
an extraordinary change for MF Global, whose roots go back more than 225
years to a sugar broker in London. MF Global spent most of its history as a
middleman between farmers, traders and companies that liked to hedge or bet
on the direction of commodity prices. 'Take More Risk'
Roaming MF Global's trading floor, Mr. Corzine
encouraged traders to make larger bets, without fear of losing money. He
added new, riskier businesses that wagered the firm's own money, creating a
proprietary-trading desk and increasing the emphasis on higher-risk products
like mortgage-backed securities and stock-index derivatives.
Continued in article
"MF Global : 99 Problems And Auditor PwC
Warned About None," by Francine McKenna, re:The Auditors, October 28,
2011 ---
http://retheauditors.com/2011/10/28/mf-global-99-problems-and-pwc-warned-about-none-of-them/
Update October 31: I’m
putting updates over at Forbes.
My latest column is up at
American Banker, “Are Cozy Ties Muzzling S&P on MF Global Downgrade?”
You may recall the last time
I wrote about MF Global. That story was about the “rogue” trader that cost
them $141 million. In the meantime we’ve seen another “rogue” trader scandal
and PwC has given MF Global clean opinions on their financial statements and
internal controls over financial reporting since the firm went public in
mid-2007.
I’m sure PwC thought
everything was peachy as recently as this past May when the annual report
came out for their year end March 30. Instead we’re seeing another sudden,
unexpected, calamitous, black-swan event that no one could have predicted
let alone warn investors about.
Right….
Also see
http://www.forbes.com/sites/francinemckenna/2011/10/30/mf-global-99-problems-and-auditor-pwc-warned-about-none/
Jensen Comment
I prefer "Yeah right!" to just plain "Right!"
MF Global also has some ocean front property for sale in Arizona that's been
attested to by PwC.
"MF Global Shares Halted; News Pending,"
The Wall Street Journal, October 31, 2011 ---
http://blogs.wsj.com/deals/2011/10/31/mf-global-shares-halted-news-pending/
As stock markets open in New
York on Monday, MF Global shares remain halted. The only news the company
has released so far is a one-line press release confirming the suspension
from the Federal Reserve Bank of New York.
Pre-market trading in MF
Global Holdings has been halted since about 6 a.m. ET as news is expected to
be released about Jon Corzine’s ailing brokerage.
Meanwhile, the global
exchange and trading community is moving to lock-down mode on MF Global as
the U.S. broker continues efforts to forge a restructuring that could
include a sale and bankruptcy filing.
The U.S. clearing unit of
ICE said it is limiting MF Global to liquidation of transactions, while the
Singapore Exchange won’t enter into new trades. Floor traders said Nymex has
halted all MF Global-created trading. Some MF traders are restricted from
the entering the floor of the Chicago Board of Trade, and the Federal
Reserve Bank of New York said it had suspended doing business with MF
Global.
The New York Fed said in its
brief statement: “This suspension will continue until MF Global establishes,
to the satisfaction of the New York Fed, that MF Global is fully capable of
discharging the responsibilities set out in the New York Fed’s policy…or
until the New York Fed decides to terminate MF Global’s status as a primary
dealer.”
The Wall Street Journal
reported Sunday night that MF Global is working on a deal to push its
holding company into bankruptcy protection as soon as Monday, and to sell
its assets to Interactive Brokers Group in a court-supervised auction.
Continued in article
Jensen Comment
Francine may be singing
'99 bottles of negligence on the wall, 99 bottles of negligence, if one of the
bottles should happen to fall, 98 bottles of negligence on the wall, . . . "
"MF GLOBAL GOES BELLY UP, SO WHERE WAS THE
GOING CONCERN OPINION?" by Anthony H. Catanach Jr. and J. Edward Ketz,
Grumpy Old Accountants, November 1, 2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/368
"MF Global: Where Is The Missing Money?"
by Francine McKenna, re:TheAuditors, November 10, 2011 ---
http://retheauditors.com/2011/11/10/mf-global-where-is-the-missing-money/
"MF Global : 99 Problems And Auditor
PwC Warned About None," by Francine McKenna, re:The Auditors, October
28, 2011 ---
http://retheauditors.com/2011/10/28/mf-global-99-problems-and-pwc-warned-about-none-of-them/
"MF GLOBAL GOES BELLY UP, SO WHERE
WAS THE GOING CONCERN OPINION?" by Anthony H. Catanach Jr. and J. Edward
Ketz, Grumpy Old Accountants, November 1, 2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/368
"Deloitte: MF Global’s Former Clients
Overstating Claims," by Michael Foster, Big Four Blog, November 13,
2011 ---
http://www.big4.com/deloitte/deloitte-mf-globals-former-clients-overstating-claims
Question
Where did the missing MF Global funds end up?
Hint:
The the word "repo" sound familiar?
http://en.wikipedia.org/wiki/Repurchase_agreement
"MF Global and the great Wall St
re-hypothecation scandal," by Chrisopher Elias, Reuters, December 7,
2011 ---
http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/
.
"MF Global Mystery: The Beginning of the End or the End of The Beginning?"
by Francine McKenna, re:TheAuditors, January 10, 2011 ---
http://retheauditors.com/2012/01/10/mf-global-mystery-the-beginning-of-the-end-or-the-end-of-the-beginning/
Yesterday I wrote a
long and detailed column for Forbes about the
conscious dodging by regulators and the trustees in the MF Global case.
Continued in article
Bob Jensen's threads on the Bankruptcy
Examiner's Report in the Lehman Brothers Repo 105/108 scandals --- |
www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on MF Global ---
http://www.trinity.edu/rjensen/Fraud001.htm
Critical Thinking ---
http://en.wikipedia.org/wiki/Critical_thinking
Critical Thinking: Why It's So Hard to Teach ---
file:///F:/WebJen/HigherEdControversies.htm#CriticalThinking
"Stanford Remakes Curriculum, Following Trend to Focus on Critical
Thinking vs. Disciplinary Content," by Dan Berrett, Chronicle of Higher
Education, January 26, 2012 ---
http://chronicle.com/article/Curriculum-Proposals-at/130461/
Stanford University is unveiling on Thursday a set
of 55 recommendations to place a priority on teaching undergraduates a set
of skills in addition to requiring them to take courses in specific
disciplines.
The changes, which were drafted by a 17-member
committee (chiefly from the faculty), are in a
report that is being presented to the Faculty
Senate for review.
It is the first top-to-bottom revision to
Stanford's undergraduate curriculum since the 1993-94 academic year. The
focus on core skills in addition to disciplinary content reflects the idea
that Stanford should develop students' abilities to continue learning
throughout their lives and adapt to a changing world after their formal
education has ended.
The proposed changes, which the committee described
as emphasizing "ways of thinking, ways of doing," are in keeping with a
growing emphasis among colleges on core skills
instead of specific disciplinary content.
The committee made its recommendations based on
site visits to such peer institutions as Duke, Harvard, and Princeton
Universities, and the University of Chicago. They did so "not to find some
ready-made curriculum we might import to Stanford," the report's authors
wrote, "but simply to draw on the accumulated knowledge and experience of
our peers."
Stanford's committee identified seven skill areas
as important for students: aesthetic and interpretive inquiry; social
inquiry; scientific analysis; formal and quantitative reasoning (two courses
in each); as well as one course in engaging difference, one in moral and
ethical reasoning, and another in creative expression.
The recommendations also endorse the idea that
freshmen should be exposed to a variety of learning environments, including
lectures, discussion sessions, and intimate seminars. The recommendations
would require first-year students to take seminar courses with senior
faculty, which is now optional.
Perhaps a more significant change would add a
collection of course offerings called "Thinking Matters" to the freshman
curriculum. Some of these courses would be interdisciplinary and created by
faculty from different departments, such as the "Art of Living," which
bridges French and philosophy; "Freedom, Equality, Security," which combines
political science and law; and "The Science of MythBusters," which spans
biology and chemistry and would use the television program to teach aspects
of the scientific method.
Other courses, such as "Brain, Behavior, and
Evolution" and "Everyday Life: How History Happens," would be situated more
squarely in one discipline.
Rosemary Knight, a professor of environmental
geophysics and chair of the Faculty Senate, praised the report as "a call to
action to find new ways of meeting the needs of our students," and lauded
its focus on undergraduate education.
"It's really a chance to inspire and engage our
faculty to think about new ways of thinking and new courses to teach," said
Ms. Knight, who plans to teach a "Thinking Matters" course on fresh water.
Bob Jensen's threads on higher education controversies ---
file:///F:/WebJen/HigherEdControversies.htm
Udemy ---
http://en.wikipedia.org/wiki/Udemy
Udemy Home Page ---
http://www.udemy.com/
"Free Courses, Elite Colleges," by Steve Kolowich, Chronicle of
Higher Education, January 27, 2012 ---
http://www.insidehighered.com/news/2012/01/27/company-unveils-line-free-online-courses-elite-college-faculty
Robert Garland, a professor of classics at Colgate
University, is not accustomed to discussing Greek religion with the lifeless
lens of his MacBook’s built-in video camera. But that was how Garland spent
Wednesday afternoon: in his home study, recording lectures on his laptop in
20-minute chunks.
Garland, a novice to online teaching, says it is
difficult to think of these solitary sessions as lectures. “I think of them
more as chats,” he says. To keep things interesting, he delivers some of
them in the second person, as if instructing a time-traveling tourist in
ancient Greece how to pray, how to please the gods, how to upset the gods,
and so on. Garland’s gear is lo-fi: just the laptop, which he owns, and a
microphone mailed to him by Udemy, the company that roped him into this.
http://www.insidehighered.com/news/2012/01/24/stanford-open-course-instructors-spin-profit-company
, a company that allows anyone to create and sell courses through its online
platform, has announced a new area of its site, called The Faculty Project,
devoted to courses by professors at a number of top institutions, such as
Colgate, Duke University, Stanford University, Northwestern University,
Vanderbilt University, the University of Virginia, Dartmouth College and
Vassar College. While Udemy is a for-profit enterprise, the Faculty Project
courses will be free.
The goal is to “elevate the brand,” according to
Gagan Biyani, Udemy’s president and co-founder. The company says it has no
immediate plans to monetize the Faculty Project, and would never do so
without the input and permission of its faculty contributors.
The inaugural Faculty Project courses include many
humanities electives normally reserved for small classrooms of
undergraduates. Among them: “Elixir: A History of Water and Humans,” “Select
Classics in Russian Literature” and “The Cognitive Neuroscience of
Mindfulness.” Garland and the project’s other professorial recruits are
developing, pro bono, mini-lecture-based versions of courses they offer on
their home campuses. Udemy says it does not require the professors to
relinquish ownership of the courses.
There are no caps on course enrollment. “It could
be 10 people, it could be 100, it could be 1,000,” says Ben Ho, the Vassar
College economics professor who is teaching the course on water and humans.
But as far as interactivity, Udemy’s Faculty Project is more akin to Yale
Open Courses -- where users can watch lectures and consult syllabuses for
free -- than to Udacity, the venture
launched this week by a team of former Stanford
academics, which aspires to administer quizzes and grade its anticipated
droves of students, which may number in the tens or hundreds of thousands.
“It’s certainly not a ‘course’ in the sense that
people will send me essays — I hope,” says Garland. But he did say he is
open to corresponding with students who take his Greek religion course, so
long as it does not interfere with his on-campus duties. Ho says he might
try to set up and moderate discussion groups online for students of his
water course. “This is more just informational lectures,” he says, but “I
will be answering questions and will encourage people to ask questions.”
Continued in article
Also see Stanford's open sharing ---
http://www.insidehighered.com/news/2012/01/24/stanford-open-course-instructors-spin-profit-company
Jensen Comment
Udemy has a "Business and Professional" category ---
http://www.udemy.com/
I could not find any accounting courses posted as of yet.
However, MIT and some other prestigious universities offer free accounting
courses and/or course material in open sharing sites ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
US News Rankings ---
http://www.usnews.com/rankings
US News Top Online Education Programs ---
http://www.usnews.com/education/online-education
Do not confuse this with the US News project to evaluate for-profit universities
--- a project hampered by refusal of many for-profit universiteis to provide
data
Methodology: Online Bachelor's Degree Rankings ---
http://www.usnews.com/education/online-education/articles/2012/01/09/methodology-online-bachelors-degree-rankings
. . .
Data collection commenced on July 14, 2011, using a
password-protected online system. Drawing from its
Best Colleges universe of regionally
accredited bachelor's granting institutions, U.S.News & World Report
E-mailed surveys to the 1,765 regionally accredited institutions it
determined had offered bachelor's degree programs in 2010.
Continued in article
"'U.S. News' Sizes Up Online-Degree Programs, Without Specifying Which Is
No. 1," by Nick DeSantis, Chronicle of Higher Education, January 10,
2012 ---
http://chronicle.com/article/US-News-Sizes-Up/130274/?sid=wc&utm_source=wc&utm_medium=en
U.S. News & World Report has published its
first-ever guide to online degree programs—but distance-education leaders
looking to trumpet their high rankings may find it more difficult to brag
about how they placed than do their colleagues at residential institutions.
Unlike the magazine's annual rankings of
residential colleges, which cause consternation among many administrators
for reducing the value of each program into a single headline-friendly
number, the new guide does not provide lists based on overall program
quality; no university can claim it hosts the top online bachelor's or
online master's program. Instead, U.S. News produced "honor rolls"
highlighting colleges that consistently performed well across the ranking
criteria.
Eric Brooks, a U.S. News data research
analyst, said the breakdown of the rankings into several categories was
intentional; his team chose its categories based on areas with enough
responses to make fair comparisons.
"We're only ranking things that we felt the
response rates justified ranking this year," he said.
The rankings, which will be published today,
represent a new chapter in the 28-year history of the U.S. News
guide. The expansion was brought on by the rapid growth of online learning.
More than six million students are now taking at least one course online,
according to a recent survey of more than 2,500 academic leaders by the
Babson Survey Research Group and the College Board.
U.S. News ranked colleges with bachelor's
programs according to their performance in three categories: student
services, student engagement, and faculty credentials. For programs at the
master's level, U.S. News added a fourth category, admissions
selectivity, to produce rankings of five different disciplines: business,
nursing, education, engineering, and computer information technology.
To ensure that the inaugural rankings were
reliable, Mr. Brooks said, U.S. News developed its ranking
methodology after the survey data was collected. Doing so, he said, allowed
researchers to be fair to institutions that interpreted questions
differently.
Some distance-learning experts criticized that
technique, however, arguing that the methodology should have been
established before surveys were distributed.
Russell Poulin, deputy director of research and
analysis for the WICHE Cooperative for Educational Technologies, which
promotes online education as part of the Western Interstate Commission for
Higher Education, said that approach allowed U.S. News to ask the
wrong questions, resulting in an incomplete picture of distance-learning
programs.
"It sort of makes me feel like I don't know who won
the baseball game, but I'll give you the batting average and the number of
steals and I'll tell you who won," he said. Mr. Poulin and other critics
said any useful rankings of online programs should include information on
outcomes like retention rates, employment prospects, and debt
load—statistics, Mr. Brooks said, that few universities provided for this
first edition of the U.S. News rankings. He noted that the surveys
will evolve in future years as U.S. News learns to better tailor
its questions to the unique characteristics of online programs.
W. Andrew McCollough, associate provost for
information technology, e-learning, and distance education at the University
of Florida, said he was "delighted" to discover that his institution's
bachelor's program was among the four chosen for honor-roll inclusion. He
noted that U.S. News would have to customize its questions in the
future, since he found some of them didn't apply to online programs. He
attributed that mismatch to the wide age distribution and other diverse
demographic characteristics of the online student body.
The homogeneity that exists in many residential
programs "just doesn't exist in the distance-learning environment," he said.
Despite the survey's flaws, Mr. McCollough said, the effort to add to the
body of information about online programs is helpful for prospective
students.
Turnout for the surveys varied, from a 50 percent
response rate among nursing programs to a 75 percent response rate among
engineering programs. At for-profit institutions—which sometimes have a
reputation for guarding their data closely—cooperation was mixed, said Mr.
Brooks. Some, like the American Public University System, chose to
participate. But Kaplan University, one of the largest providers of online
education, decided to wait until the first rankings were published before
deciding whether to join in, a spokesperson for the institution said.
Though this year's rankings do not make definitive
statements about program quality, Mr. Brooks said the research team was
cautious for a reason and hopes the new guide can help students make
informed decisions about the quality of online degrees.
"We'd rather not produce something in its first
year that's headline-grabbing for the wrong reasons," he said.
'Honor Roll' From 'U.S. News' of Online Graduate Programs
in Business
Institution |
Teaching
Practices and Student Engagement |
Student
Services and Technology |
Faculty
Credentials and Training |
Admissions
Selectivity |
Arizona State U., W.P. Carey School of Business |
24 |
32 |
37 |
11 |
Arkansas State U. |
9 |
21 |
1 |
36 |
Brandman U. (Part of the Chapman U. system) |
40 |
24 |
29 |
n/a |
Central Michigan U. |
11 |
3 |
56 |
9 |
Clarkson U. |
4 |
24 |
2 |
23 |
Florida Institute of Technology |
43 |
16 |
23 |
n/a |
Gardner-Webb U. |
27 |
1 |
15 |
n/a |
George Washington U. |
20 |
9 |
7 |
n/a |
Indiana U. at Bloomington, Kelley School of Business |
29 |
19 |
40 |
3 |
Marist College |
67 |
23 |
6 |
5 |
Quinnipiac U. |
6 |
4 |
13 |
16 |
Temple U., Fox School of Business |
39 |
8 |
17 |
34 |
U.
of Houston-Clear Lake |
8 |
21 |
18 |
n/a |
U.
of Mississippi |
37 |
44 |
20 |
n/a |
Source: U.S. News & World
Report
Jensen Comment
I don't know why the largest for-profit universities that generally provide more
online degrees than the above universities combined are not included in the
final outcomes. For example, the University of Phoenix alone as has over 600,000
students, most of whom are taking some or all online courses.
My guess is that most for-profit universities are not forthcoming with the
data requested by US News analysts. Note that the US News
condition that the set of online programs to be considered be regionally
accredited does not exclude many for-profit universities. For example, enter in
such for-profit names as "University of Phoenix" or "Capella University" in the
"College Search" box at
http://colleges.usnews.rankingsandreviews.com/best-colleges/university-of-phoenix-20988
These universities are included in the set of eligible regionally accredited
online degree programs to be evaluated. They just did not do well in the above
"Honor Roll" of outcomes for online degree programs.
For-profit universities may have shot themselves in the foot by not providing
the evaluation data to US News for online degree program evaluation. But
there may b e reasons for this. For example, one of the big failings of most
for-profit online degree programs is in undergraduate "Admissions Selectivity."
Bob Jensen's threads on distance education training and education
alternatives are at
http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's threads on ranking controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings
"Tenured Professor Departs Stanford U., Hoping to Teach 500,000 Students
at Online Start-Up," by Nick DeSantis, Chronicle of Higher Education,
January 23, 2012 ---
http://chronicle.com/blogs/wiredcampus/tenured-professor-departs-stanford-u-hoping-to-teach-500000-students-at-online-start-up/35135?sid=wc&utm_source=wc&utm_medium=en
The Stanford University professor who
taught an online artificial intelligence course to
more than 160,000 students has abandoned his tenured position to aim for an
even bigger audience.
Sebastian Thrun, a professor of computer science at
Stanford, revealed today that he has departed the institution to found
Udacity,
a start-up offering low-cost online classes. He made the surprising
announcement during a
presentation at the Digital – Life – Design
conference in Munich, Germany. The development was first reported earlier
today by
Reuters.
During his talk, Mr. Thrun explored the origins of
his popular online course at Stanford, which initially featured videos
produced with nothing more than “a camera, a pen and a napkin.” Despite the
low production quality, many of the 200 Stanford students taking the course
in the classroom flocked to the videos because they could absorb the
lectures at their own pace. Eventually, the 200 students taking the course
in person dwindled to a group of 30. Meanwhile, the course’s popularity
exploded online, drawing students from around the world. The experience
taught the professor that he could craft a course with the interactive tools
of the Web that recreated the intimacy of one-on-one tutoring, he said.
Mr. Thrun told the crowd his move was motivated in
part by teaching practices that evolved too slowly to be effective. During
the era when universities were born, “the lecture was the most effective way
to convey information. We had the industrialization, we had the invention of
celluloid, of digitial media, and, miraculously, professors today teach
exactly the same way they taught a thousand years ago,” he said.
He concluded by telling the crowd that he couldn’t
continue teaching in a traditional setting. “Having done this, I can’t teach
at Stanford again,” he said.
One of Udacity’s first offerings will be a
seven-week course called “Building a Search Engine.” It will be taught by
David Evans, an associate professor of computer science at the University of
Virginia and a Udacity partner. Mr. Thrun said it is designed to teach
students with no prior programming experience how to build a search engine
like Google. He hopes 500,000 students will enroll.
Continued in article
Jensen Comment (true story)
This reminds me of a time when possibly the most popular accounting teacher,
Professor XXXXX, in the United States left the most prestigious accounting
program (at the time) in the nation to teach at an almost unheard of small
private college (that I don't think was even accredited) for an astronomical
salary at the time. This particular professor had a genuine gift for teaching a
capstone CPA examination review course to seniors just prior to taking the CPA
examination (before the 150-hour requirement).
What Professor XXXXX discovered is that there's a real difference when
teaching a CPA examination review course to low SAT scoring students having a
lousy set of prerequisite accounting courses before taking the capstone CPA
examination review course.
"Making Assessment Work," by Kaplan University, Chronicle of Higher
Education, November 4, 2011 ---
http://chronicle.com/article/Making-Assessment-Work/129266/
Accreditors are increasingly requiring assessment
of student learning to become a focus for post-secondary institutions. The
increased importance placed on assessment is not without good reason.
Student learning is an important outcome of higher education. With
increasing accreditation and public pressure, student learning should be
more important to colleges and universities than it ever has. What is
important should be measured and what is measured can be improved.
Case in point, Kaplan University (KU) is a
for-profit, career oriented university where learning is not just one of the
important outcomes it is the most important outcome. More specifically,
Kaplan University’s focus is student learning that will materialize into
positive career outcomes for its students. With this mission in mind, Kaplan
University spent four years planning, developing and implementing Course
Level Assessment (CLA), a system specifically designed to close the loop
between measurement and improved student outcomes.
CLA is multi-tiered assessment system mapping
course level learning goals to program level learning goals. Each of the
1,000 courses contains an average of four to six learning goals that map to
one or more of the program learning objectives. Assessment against these
outcomes is comprehensive; every outcome is assessed for every student,
every term in every course. The Learning outcomes and scoring rubrics that
appear in the online grade book all come from a common data repository. The
instructor scores the assessment directly in the online gradebook and the
data automatically feed back into the data repository. By linking those
objectives, rubrics, and assessment data, we can compare student achievement
on any specific objective for a course across any number of instructors,
sections, or terms with the confidence that the same assessment was used,
addressing the same learning objective, graded with the same rubric.
The data mapping enables rapid and sophisticated
analytics that supports a tight feedback loop. Another design element of CLA
that enhances a short feedback cycle is the proximity of the assessment to
the learning event. This is a key differentiator of Kaplan’s CLA. While
other strategies can produce reliable evidence of student learning, they are
far removed from the actual learning to pin-point any specific deficiency in
curriculum or instruction. By combining assessments linked directly to
specific learning and automated data analytics, CLA provides a platform to
rapidly test and improve curriculum whether on-ground or on-line.
With the technology foundation for CLA fully in
place, KU evaluated curricular changes in 221 courses with assessment data.
The results showed that 44% of the revisions produced statistically
significant improvements while only 23% led to decreases. The CLA system is
the cornerstone of all programs to analyze these interventions and make
evidence based decisions about course offerings that drive student outcomes.
Continued in article
Bob Jensen's threads on assessment (including competency-based assessment)
---
http://www.trinity.edu/rjensen/Assess.htm
"How Do You Hide A Multibillion Dollar Loss? Accounting For The Olympus
Fraud," by Francine McKenna, re:TheAuditors, January 5, 2012 ---
http://retheauditors.com/2012/01/02/how-do-you-hide-a-multibillion-dollar-loss-accounting-for-the-olympus-fraud/
Jensen Comment
Violent mobsters are so tied to the public and private sectors in Japan that
they can hide almost anything they choose.
"Olympus Probe Finds 5 Auditors Responsible," SmartPros,
January 17, 2012 ---
http://accounting.smartpros.com/x73270.xml
How can such a panel have this much legal power?
"Ernst & Young, KPMG Cleared of Wrongdoing in Olympus Scandal," by
Michael Foster, Big4.com, January 17, 2012 ---
http://www.big4.com/kpmg/breaking-ernst-young-kpmg-cleared-of-wrongdoing-in-olympus-scandal
An independent panel has determined that KPMG Azsa
LLC and Ernst & Young ShinNihon LLC did not break the law and did not
violate any legal obligations when auditing Olympus. The panel determined
that both Big4 firms were not responsible for the accounting fraud scandal
in which Olympus hid $1.7 billion in assets over a 13-year long period.
The panel’s decision clears KPMG and Ernst & Young
from culpability, meaning that no party has grounds to file a suit against
either accounting firm.
The panel also determined that five internal
auditors, some of which are still with Olympus, were responsible for hiding
the assets. The panel concluded that those auditors were responsible for 8.4
billion yen ($109 million) in damages.
Continued in article
Jensen Comment
I have no idea why this "panel" has the power "that no
party has grounds to file a suit against either accounting firm."
If this were a lower court decision, there are generally routes of appeal in
higher courts.
How does an appointed panel decide that shareholders and creditors have no
right to sue in lower or higher courts?
Of course in the case of Olympus the guilty executives were purportedly tied
to organized crime. Well now I'm beginning to understand. Organized crime
members have their own ways of determining that no lawsuits will ever be filed.
Bob Jensen's threads on the Olympus scandal ---
http://www.trinity.edu/rjensen/Fraud001.htm
"Government Accountability Auditor says Treasury keeping quiet on TARP
money losers," by Bernie Becker, The Hill,January 9, 2012 ---
http://thehill.com/blogs/on-the-money/banking-financial-institutions/203245-auditor-treasury-keeps-quiet-on-tarp-money-losers
Greatest Swindle in the History of the World Your Money at Work, Fixing
Others’ Mistakes (includes a great NPR public radio audio module) ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
The "road ahead" for changes in U.S. tax rules is fogged in, especially since
President Obama pissed on John Wayne's boots over the holiday break.
Bob Jensen: "In a figurative sense, President Obama just pissed on
the boots of John (The Duke) Wayne."
"Obama's Reckless Recess Ploy: No president has resorted to recess
appointments when Congress is in session. Expect serious legal challenges to new
financial regulations," by David Rivkin and Lee Casey, The Wall Street
Journal, January 6, 2011 ---
http://online.wsj.com/article/SB10001424052970203471004577142540864703780.html?mod=djemEditorialPage_t
"The Road Ahead for Taxes: With Washington unlikely to address major
tax questions soon, taxpayers are facing a lot of guesswork. Here's what to do
now." The Wall Street Journal, January 7, 2012 ---
http://online.wsj.com/article/SB10001424052970204331304577140873013235652.html?KEYWORDS=laura+saunders
A slew of major tax cuts is set to expire at year's
end—as was the case in 2010. Now, as then, Washington faces the choice of
letting income, capital-gains, estate and other tax rates rise as scheduled,
or coming up with an alternative.
Last time, lawmakers cobbled together a two-year
extension, but it took them until mid-December to agree on the deal.
This year could be even more confusing. In the mix
there is a presidential election, talk of major tax overhaul and lingering
partisan bitterness over last year's fight to extend the
two-percentage-point cut in Social Security taxes. That debate will be
revisited when the stopgap extension passed on Dec. 23 expires at the end of
February.
The upshot: Anyone trying to do tax planning in the
coming months will find it nearly impossible.
"The combination of expiring tax cuts, deficit
reduction needs, calls for tax reform and Congress's inability to find
common ground on tough issues is producing a nearly intolerable level of
uncertainty for taxpayers," says Clint Stretch, a principal with Deloitte
Tax in Washington.
While the big questions remain unanswered, a number
of smaller but definite tax changes are taking effect this year. There also
are new rules to heed for the 2011 tax-filing season, which begins in a few
weeks when companies start sending out W-2 tax forms. Here is a guide. New
for Tax Year 2012
Several changes for this tax year pose traps for
the unwary, notes Melissa Labant, a director at the American Institute of
CPAs.
Cost-basis reporting. 2012 is the second year of
the phase-in of a law requiring securities brokers to report to the IRS the
"cost basis" of investments sold by customers, if the asset is held in a
taxable account rather than an individual retirement account or 401(k).
Cost basis is the starting point for measuring
taxable gain or loss. If you bought Exxon Mobil at $59 a share in mid-2010
and sold it for $83 in late 2011, the basis would be $59 and the taxable
gain $24 a share.
Out of confusion or other motives, taxpayers often
report basis incorrectly, so Congress asked firms to track and disclose it
to the IRS.
This year, basis reporting kicks in for mutual-fund
and dividend-reinvestment-plan holdings acquired in 2012. That could pose
big problems for investors who reinvest dividends regularly but want to sell
some of a position to harvest tax losses, says Stevie Conlon, a basis expert
with WoltersKluwer Financial Services in Chicago.
The risk: triggering "wash-sale" provisions, Ms.
Conlon says. Under the wash-sale rules, if an investor buys shares 30 days
before or after selling shares in the same investment at a loss, he or she
can't deduct the losses in the same year.
No charitable IRA donation. This popular provision
expired at the end of 2011, but is likely to be reinstated in the future,
experts say. IRA owners 70½ or older were able to donate up to $100,000 of
assets per year to a tax-exempt charity.
Under this provision, there's no deduction, but the
payout doesn't increase adjusted gross income in a way that could trigger
higher taxes on Social Security payments or Medicare premiums. These gifts
also may count as part of the owner's required IRA payout, if he or she
hasn't taken one.
Would-be IRA donors, beware: A similar lapse in
2010 caused much grief. Congress reinstated the law retroactively in
mid-December of that year, but by then many IRA owners had given up and made
regular withdrawals. The law didn't allow them to put that money back into
the account and then make donations counting toward their minimum payout.
"If you want an IRA donation to be all or part of
your required withdrawal, wait for Congress to act," advises Ms. Labant.
No AMT patch. An inflation adjustment for the
alternative minimum tax has expired, meaning the tax would apply to about 31
million taxpayers in 2012 instead of 4.3 million last year. Congress fixed a
similar lapse in 2010 late in the year.
Lawmakers likely will do so again, but until that
happens taxpayers making quarterly estimated payments must choose between
paying higher amounts they may never owe and risking underpayment penalties
if there isn't a fix.
Continued in article
From IAS Plus on January 9, 2012 ---
http://www.iasplus.com/index.htm
9 January 2012: Outcomes from recent Capital Markets Advisory Committee
meeting
|
The IASB has released a summary
of the Capital Markets Advisory Committee (CMAC) meeting which was
held in London on 12 October 2011. The CMAC was previously known as
the Analyst Representative Group (ARG) and is a group of
professional financial analysts who regularly meet with members of
the IASB to provide the views of professional investors on financial
reporting issues.
The topics discussed at the
meeting included:
- XBRL. The CMAC considered the
IFRS taxonomy, custom tags and the Thomson Reuters taxonomy
model
- Risk free rate of return. There
was a general view among the participants that the determination
of the risk free rate was not the responsibility of the IASB,
discussion also included when 'synthesised' risk free rates may
be appropriate (e.g. entities operating in the Eurozone or
multi-nationals)
- Impairment of financial instruments.
The CMAC considered the IASB's current impairment model ('three
bucket approach') and considered matters such as 'day one
losses', information needs, and the use of expected values
- Transition disclosures. The
CMAC discussed disclosures made when an IFRS is issued but is
not yet mandatory, a preference for IFRS 1 type disclosures when
a new standard is applied for the first time, and related
matters
- Other. The CMAC discussed the
usefulness of project-specific case studies for accounting
proposals, and the IASB's agenda consultation.
Click for
more information (link to IASB website). |
Using Google, Yahoo, or Bing to Surf for AAA Journal ArticlesHi Julie and Tracey,
I wrote an AECM suggestion and with a copy to Steve Kachelmeir in which he was
all for my suggestion below. This really would entail an AAA administrative
routine where AAA journal table of contents for all online AAA journals can be
searched on the Web.
I'm not sure how this can be engineered by the AAA, but since Julie and Tracey
performed miracles with the AECM, maybe you two can engineer another miracle.
The AECM thread that led up to the following message was a reply by Steve that
informed us that the AAA hired a consultant for purposes of marketing more
readership of AAA journals.
Hi Steve,
One way to get more readership of AAA journals would make it easier to hit them
via Web crawlers such as Google, Yahoo, and Bing.
At the moment, if you search for an article you cannot find a link to the
article in the AAA journal archives since these are not searchable by the Web
crawlers. However, if the AAA had a constantly-updated Web document of Table of
Contents of all AAA journals each article could have the following Web link:
http://aaajournals.org/
The AAA Commons is now searchable by Web crawlers.
Better yet a search "hit" would take you directly to the article in steps
described below.
Step One
Suppose the AAA lists the Table of Contents for each and every online AAA
journal in a document entitled:
"Table of Contents of All Online American Accounting Association Journals" at
the AAA Commons
Step Two
Next suppose a Web surfer searches on the exact phrase "Discretionary
Revenues" using Google, Yahoo, or Bing. Among the hits would be the following
hit:
Discretionary Revenues as a Measure of Earnings Management
by Stephen R. Stubben
The Accounting Review
Volume 85, Issue 2 (March 2010
Abstract |
Enhanced Abstract |
PDF (265 KB)
The above links all take the Web surfer to the AAA journal archive for the above
Stubben article.
In particular the Abstact link would lead to
http://aaajournals.org/doi/abs/10.2308/accr.2010.85.2.695
Step Three
The surfer can then read "Abstract" of the paper. This might also help the AAA,
because if the surfer is really gung ho after reading the Abstract perhaps that
surfer will click on the PDF link and pay to download the article
Google Advanced Scholar ---
http://scholar.google.com/advanced_scholar_search
It is possible to find AAA journal articles in Google Advanced Scholar.
But this has several drawbacks:
- The major drawback of Google Advanced Scholar is that Web surfers don't
think to use it even though they often use Google, Yahoo, and Bing.
- Another drawback of Google Advanced Scholar is that I've not discovered
where it takes a Web surfer into the AAA's archive for journals published by
the AAA. More often than not it will instead take a surfer to JSTOR such
that JSTOR gets the download fee rather than the AAA. Another drawback from
the surfer's standpoint is that JSTOR does not keep up with the latest
editions of the AAA journals. JSTOR is really better for searching older
articles.
- An advantage and disadvantage of Google Advanced Scholar is that it will
often take a Web surfer to free downloads of the original working paper
available from SSRN or from the author's university. The good news is that
this download is generally free. The bad news is that this is often a
version written before the article was refereed. For the finalized version
of the paper after refereeing, the Web surfer must go to the fee-based JSTOR
or if he knows how to thread his way through the AAA home page links he can
download the article for a fee from the AAA archives.
Conclusion
As it stands at the moment, a Web surfer who is not familiar with the AAA's
Website will probably go to JSTOR and pay JSTOR to download the above article.
Why not pay the AAA?
Also as I mentioned above, JSTOR does not provide the most recent editions of
AAA journals.
I think the AAA should somehow make the Table of Contents available for all
archived AAA journals available in such a way that the articles can be found by
Web surfers using Google, Yahoo, and Bing.
Respectfully,
Bob Jensen
"Investigating a Compliance Failure: How to determine the right mix of
expertise for a fraud investigation," by Tracy L. Coenen, CFO.com,
January 5, 2012 ---
http://www.cfo.com/article/2012/1/fraud_internal-investigations-fraud-compliance-failure
It’s every CFO’s worst nightmare: despite your best
efforts, your company’s compliance program has failed. There are credible
reports of fraud and corruption inside the company, and an initial analysis
of the situation confirms a problem. An internal investigation is necessary
to determine the magnitude of the fraud, the parties involved, and the
company’s financial and reputational exposure under government regulations.
How should you proceed? These investigations are
often high stakes, so it is important to do things the right way from the
start. In-house counsel should be involved in any situation involving
allegations or evidence of fraud. Once executives have sufficient reason to
believe the allegations are credible, they should involve outside counsel as
well. Executives’ responsibilities don’t end there: they can help find the
proper consultants to investigate the fraud, influence the fee schedule of
the outside work, and keep the investigators informed. Most important,
executives can see to it that employees cooperate with the investigators and
provide access to all relevant data and documents.
One group they will need to converse with regularly
is outside counsel. These lawyers are more likely to have broad experience
with fraud issues and related government regulations than lawyers who have
worked for only one company at a time. A more important distinction is the
clear attorney-client privilege between the company and outside counsel.
This privilege will protect the investigation and its findings, at least to
some extent.
Even when a company has done nothing wrong, the
details of its internal investigation should be kept close to the vest.
Depending on the approach government officials take to their investigation,
the company may wish to hold back the results of its own investigation. The
attorney-client privilege can provide a perfectly legal and ethical way to
do so.
In-House or Independent? Companies are often
inclined to have employees handle their fraud investigations. The advantage
to using employees is the relatively low cost to investigate, the benefit of
the employees’ knowledge of the company and its operations, and the ability
to carefully control the investigation.
However, companies are often better off using
independent investigators. Although the investigation will cost the company
more in dollars, the independence that an outsider brings to the situation
may impart more credibility to the findings, especially in the eyes of
government investigators. In addition, outside investigators may have more
experience and specialized knowledge in the area of fraud, making the
investigation more effective.
Outside counsel should make this decision, although
input from the board of directors may be important. The lawyers know the
risks related to government actions and court activity, and will be in the
best position to determine if an independent investigation is necessary.
Some of the best internal investigations I’ve seen
have had the best of both worlds. An independent investigator with a fresh
set of eyes led the investigation, while employees of the company were
liberally available to provide documentation, answer questions, and analyze
the work for additional areas of risk.
Further outside help may be needed if the apparent
fraud involves specialized issues. For example, cases involving computer
forensics should be handled by outside firms with the requisite expertise.
Other specialized needs might include familiarity with a particular foreign
jurisdiction, regulatory expertise, or knowledge of complicated accounting
or tax rules.
Continued in article
Will Yancey's helpers for compliance testing (with a focus on stratified
sampling) ---
http://www.willyancey.com/
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Time to junk income taxes?" by David Cay Johnston, Reuters,
January 6, 2012 ---
http://blogs.reuters.com/david-cay-johnston/2012/01/06/time-to-junk-income-taxes/
There are a lot of comments following this article.
Amazon is beginning to cave in on sales taxes.
Will eBay follow suit? (I doubt it)
Will LL Bean follow suit? (I doubt it)
Ultimately the U.S. Supreme Court will make the final decision
"Amazon, Indiana strike state sales tax deal," Reuters via the
Chicago Tribune, January 9, 2012 ---
http://www.chicagotribune.com/business/breaking/chi-amazon-indiana-strike-state-sales-tax-deal-20120109,0,5788598.story
Humor Between January 1 and January 31, 2012
Interesting and often humorous links ---
http://twitter.com/millerbear77
NO FRILLS AIRLINES - Carol Burnett Show ---
http://www.youtube.com/v/QCz8he36hsk
Katharine Hepburn Rearranges the Furniture on The Dick Cavett Show --- Click
Here
http://www.openculture.com/2012/01/katharine_hepburn_rearranges_the_furniture_on_the_dick_cavett_show.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Ormie the Pig Video Cartoon ---
http://www.youtube.com/watch_popup?v=FrTbnczYAd4&feature=player_embedded
An actual add on Google
Meet 50+ Singles for Dating
Question: Does this refer to ages or numbers?
Forwarded by Auntie Bev
Three men, a Canadian farmer, an Arab terrorist and an American Biker are all
walking together one day. They come across a lantern and a Genie pops out of it.
'I will give each of you one wish, which is three wishes in total', says the
Genie..
The Canadian says, 'I am a farmer and my son will also farm. I want the land
to be forever fertile in Canada '
POOF! With the blink of the Genie's eye, the land in Canada was forever
fertile for farming.
The Arab terrorist was amazed, so he said, 'I want a wall around Afghanistan
, Iraq and Iran so that no infidels, Americans or Canadians can come into our
precious land.'
POOF! Again, with the blink of the Genie's eye, there was a huge wall around
those countries.
The Biker says, 'I am very curious. Please tell me more about this wall.'
The Genie explains, 'Well, it's about 5,000 feet high, 500 feet thick and
completely surrounds the country. Nothing can get in or out; it's virtually
impenetrable. '
The Biker sits down on his Harley, cracks a beer, lights a cigar, smiles and
says,
'Fill it with water.'
A Well Intended Blonde
The trucker lowers the window, and she says "Hi, my name is Heather and you
are losing some of your load."
The trucker ignores her and proceeds down the street.
When the truck stops for another red light, the girl catches up again. She
jumps out of her car, runs up and knocks on the door.
Again, the trucker lowers the window. As if they've never spoken, the blonde
says brightly, "Hi my name is Heather, and you are losing some of your load!"
Shaking his head, the trucker ignores her again and continues down the
street.
At the third red light, the same thing happens again.
All out of breath, the blonde gets out of her car, runs up, knocks on the
truck door. The trucker rolls down the window. Again she says "Hi, my name is
Heather, and you are losing some of your load!"
When the light turns green the trucker revs up and races to the next light.
When he stops this time, he hurriedly gets out of the truck, and runs back to
the blonde.
He knocks on her window, and after she lowers it, he says...
"Hi, my name is Mark, it's winter in Minnesota, and I'm driving the SALT
TRUCK!"
Forwarded by Auntie Bev
One buzz word in today's business world is MARKETING.
However, people often ask for a simple explanation of "Marketing."
Well, here it is:
1. You're a woman and you see a handsome guy at a party. You go up to him and
say, "I'm fantastic in bed." That's Direct Marketing.
2. You're at a party with a bunch of friends and see a handsome guy.One of
your friends goes up to him and, pointing at you, says, "She's fantastic in
bed." That's Advertising.
3. You see a handsome guy at a party. You go up to him and get his telephone
number. The next day you call and say, "Hi, I'm fantastic in bed." That's
Telemarketing.
4. You see a guy at a party; you straighten your dress. You walk up to him
and pour him a drink. You say, "May I?" and reach up to straighten his tie,
brushing your breast lightly against his arm, and then say, "By the way, I'm
fantastic in bed." That's Public Relations.
5. You're at a party and see a handsome guy. He walks up to you and says, "I
hear you're fantastic in bed." That's Brand Recognition.
6. You're at a party and see a handsome guy. He fancies you, but you talk him
into going home with your friend. That's a Sales Rep.
7. Your friend can't satisfy him so he calls you. That's Tech Support.
8. You're on your way to a party when you realize that there could be
handsome men in all these houses you're passing, so you climb onto the roof of
one situated towards the center and shout at the top of your lungs, "I'm
fantastic in bed!" That's Junk Mail.
9. You are at a party, this attractive older man walks up to you and grabs
your ass. That's former President Bill Clinton.
10. You like it, but twenty years later your attorney decides you were
offended and you are awarded a settlement. That's America!
January 18, 2012 message from Rick Newmark
What if Jeff Foxworthy Was an
Accountant? - a humorous video created by an accounting
educator using a computer and a multimedia application :-)
I created this
video--http://youtu.be/mBEVjTLIKgg--using
Xtranormal. It is
very easy to use.
You can either use
the on-line
browser-based
version or the
desktop version. The
desktop version has
more advanced
features than the
online version.
They even have an
education licensing
program. Special
tools allow you to
create assignments,
moderate, grade, and
give feedback. All
within the privacy
of your class. The
monthly fee is $10 +
[$0.50 per student].
http://www.xtranormal.com/edu/
Here
is another video
entitled, ”Hitler
works in public
accounting”
http://youtu.be/DkWH9AYsalI.
It is a
parody-subtitled
video based on a
pinnacle scene from
Der Untergang
(2004). Warning, may
cause excessive
laughter that can
lead to suffocation!
Rick
----------------------------------------
Silence is golden.
Duct tape is silver.
Richard Newmark
Professor, School of
Accounting and
Computer Information
Systems
Kenneth W. Monfort
College of Business
2004 Malcolm
Baldrige National
Quality Award Winner
University of
Northern Colorado
Campus Box 128,
Kepner Hall 2095D
Greeley, CO 80639
Forwarded by Gene and Joan,
When I bought my Blackberry, I thought about the 30-year business I ran with
1800 employees, all without a cell phone that plays music, takes videos,
pictures and communicates with Facebook and Twitter. I signed up under duress
for Twitter and Facebook, so my seven kids, their spouses, 13 grandkids and 2
great grand kids could communicate with me in the modern way. I figured I could
handle something as simple as Twitter with only 140 characters of space.
That was before one of my grandkids hooked me up for Tweeter, Tweetree,
Twhirl, Twitterfon, Tweetie and Twittererific Tweetdeck, Twitpix and something
that sends every message to my cell phone and every other program within the
texting world.
My phone was beeping every three minutes with the details of everything
except the bowel movements of the entire next generation. I am not ready to live
like this. I keep my cell phone in the garage in my golf bag.
The kids bought me a GPS for my last birthday because they say I get lost
every now and then going over to the grocery store or library. I keep that in a
box under my tool bench with the Blue tooth [it's red] phone I am supposed to
use when I drive. I wore it once and was standing in line at Barnes and Noble
talking to my wife and everyone in the nearest 50 yards was glaring at me. I had
to take my hearing aid out to use it, and I got a little loud.
I mean the GPS looked pretty smart on my dash board, but the lady inside that
gadget was the most annoying, rudest person I had run into in a long time. Every
10 minutes, she would sarcastically say, "Re-calc-u-lating." You would think
that she could be nicer. It was like she could barely tolerate me. She would let
go with a deep sigh and then tell me to make a U-turn at the next light. Then if
I made a right turn instead. Well, it was not a good relationship. When I get
really lost now, I call my wife and tell her the name of the cross streets and
while she is starting to develop the same tone as Gypsy, the GPS lady, at least
she loves me.
To be perfectly frank, I am still trying to learn how to use the cordless
phones in our house. We have had them for 4 years, but I still haven't figured
out how I can lose three phones all at once and have to run around digging under
chair cushions and checking bathrooms and the dirty laundry baskets when the
phone rings.
The world is just getting too complex for me. They even mess me up every time
I go to the grocery store. You would think they could settle on something
themselves but this sudden "Paper or Plastic?" every time I check out just
knocks me for a loop. I bought some of those cloth reusable bags to avoid
looking confused, but I never remember to take them in with me.
Now I toss it back to them. When they ask me, "Paper or Plastic?" I just say,
"Doesn't matter to me. I am bi-sacksual." Then it's their turn to stare at me
with a blank look. I was recently asked if I tweet. I answered, No, but I do
toot a lot."
P.S. I know some of you are not over 50. I sent it to you to allow you to
forward it to those who are.
Us senior citizens don't need anymore gadgets. The tv remote and the garage
door remote are about all we can handle.
Forwarded by Paula (who is retired in San Antonio, Texas)
You can retire to Phoenix , Arizona where...
1. You are willing to park 3 blocks away because you found shade.
2. You've experienced condensation on your hiney from the hot water
in the
toilet bowl.
3. You can drive for 4 hours in one direction and never leave town.
4. You have over 100 recipes for Mexican food.
5. You know that "dry heat" is comparable to what hits you in the
face when you
open your oven door.
6. The 4 seasons are: tolerable, hot, really hot, and ARE YOU
KIDDING ME??!!
OR
You can retire to California where...
1. You make over $250,000 and you still can't afford to buy a house.
2. The fastest part of your commute is going down your driveway.
3. You know how to eat an artichoke.
4. You drive your rented Mercedes to your neighborhood block party.
5. When someone asks you how far something is, you tell them how
long it will
take to get there rather than how many miles away it is.
6. The 4 seasons are: Fire, Flood, Mud, and Drought.
7. You can make over $250,000 per year and still be eligible for food stamps
after paying all of your state taxes
OR
You can retire to New York City where...
1. You say "the city" and expect everyone to know you mean Manhattan
.
2. You can get into a four-hour argument about how to get from
Columbus Circle
to Battery Park, but can't find Wisconsin on a map.
3. You think Central Park is "nature."
4. You believe that being able to swear at people in their own
language makes
you multi-lingual.
5. You've worn out a car horn. (Ed. Note: IF you have a car).
6. You think eye contact is an act of aggression.
OR
You can retire to Minnesota where...
1. You only have four spices: salt, pepper, ketchup, and Tabasco .
2. Halloween costumes fit over parkas.
3. You have more than one recipe for casserole.
4. Sexy lingerie is anything flannel with less than eight buttons.
5. The four seasons are: winter, still winter, almost winter, and
construction.
OR
You can retire to the Deep South where...
1. You can rent a movie and buy bait in the same store.
2. "Y'all" is singular and "all y'all" is plural.
3. "He needed killin" is a valid defense.
4. Everyone has 2 first names: Billy Bob, Jimmy Bob, Ellie May,
Betty Jean,
Cindy Lou, etc.
5. Everything is either "in yonder," "over yonder" or "out yonder."
It's
important to know the difference, too.
OR
You can retire to Colorado where...
1. You carry your $3,000 mountain bike atop your $500 car.
2. You tell your husband to pick up Granola on his way home and so he
stops at
the day care center.
3. A pass does not involve a football or dating.
4. The top of your head is bald, but you still have a pony tail.
OR
You can retire to the Midwest where...
1. You'll never meet any celebrities, but the mayor knows your name.
2. Your idea of a traffic jam is ten cars waiting to pass a tractor.
3. You have had to switch from "heat" to "A/C" on the same day.
4. You end sentences with a preposition: "Where's my coat at?"
5. When asked how your trip was to any exotic place, you say, "It was
different!"
OR
FINALLY You can retire to Florida where...
1. You eat dinner at 3:15 in the afternoon.
2.. All purchases include a coupon of some kind -- even houses and
cars.
3. Everyone can recommend an excellent dermatologist.
4. Road construction never ends anywhere in the state.
5. Cars in front of you often appear to be driven by headless people.
PS You can retire in the White Mountains
of New Hampshire
But I can't imagine why.
Forwarded by James Don
When Insults Had Class
These glorious insults are from an era when cleverness with words was still
valued.
The exchange between Churchill & Lady Astor: She said, "If you were my
husband I'd give you poison," and he said, "If you were my wife, I'd drink it."
A member of Parliament to Disraeli: "Sir, you will either die on the gallows
or of some unspeakable disease." "That depends, Sir," said Disraeli, "on
whether I embrace your policies or your mistress." - - -TOUCHE'
"He had delusions of adequacy." [GUILTY PERSON HERE]
- Walter Kerr
"He has all the virtues I dislike and none of the vices I admire."
- Winston Churchill
"A modest little person, with much to be modest about."
- Winston Churchill
"I have never killed a man, but I have read many obituaries with great
pleasure."
- Clarence Darrow
"He has never been known to use a word that might send a reader to the
dictionary."
William Faulkner... (about Ernest Hemingway).
"Poor Faulkner. Does he really think big emotions come from big words?"
- Ernest Hemingway... (about William Faulkner)
"Thank you for sending me a copy of your book; I'll waste no time reading it." -
Moses Hadas
"He can compress the most words into the smallest idea of any man I know."
- Abraham Lincoln
"I didn't attend the funeral, but I sent a nice letter saying I approved of it."
- Mark Twain
"He has no enemies, but is intensely disliked by his friends."
- Oscar Wilde
"I am enclosing two tickets to the first night of my new play;
bring a friend ... if you have one."
- George Bernard Shaw to Winston Churchill
"Cannot possibly attend first night, will attend second ... if there is one."
- Winston Churchill, in response.
"I feel so miserable without you; it's almost like having you here."
- Stephen Bishop
"He is a self-made man and worships his creator." HAVEN'T WE KNOWN A FEW OF
THESE!!! - John Bright
"I've just learned about his illness. Let's hope it's nothing trivial."
- Irvin S. Cobb
"He is not only dull himself, he is the cause of dullness in others."
- Samuel Johnson
"He is simply a shiver looking for a spine to run up."
- Paul Keating
"There's nothing wrong with you that reincarnation won't cure."
- Jack E. Leonard
"He has the attention span of a lightning bolt."
- Robert Redford
"They never open their mouths without subtracting from the sum of human
knowledge." - Thomas Brackett Reed
"In order to avoid being called a flirt, she always yielded easily."
- Charles, Count Talleyrand
"He loves nature in spite of what it did to him." GRIN!
- Forrest Tucker
"Why do you sit there looking like an envelope without any address on it?"
- Mark Twain
"His mother should have thrown him away and kept the stork."
- Mae West
"Some cause happiness wherever they go; others, whenever they go."
- Oscar Wilde
"He uses statistics as a drunken man uses lamp-posts... for support rather than
illumination."
- Andrew Lang (1844-1912)
"He has Van Gogh's ear for music."
- Billy Wilder
"I've had a perfectly wonderful evening. But this wasn't it."
- Groucho Marx .
Forwarded by Gene and Joan
A group of 15-year - old boys discussed where they should meet for dinner. It
was agreed they should meet at the Dairy Queen next to the Ocean View restaurant
because they only had $6.00 between them and Janice Johnson, that cute girl in
Social Studies, lives on that street and they might see her when they can ride
their bikes there.
Ten years later, the same group of 25-year-old guys discussed where they
should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the beer was cheap, they had free snacks, the band was good,
there was no cover and there were lots of cute girls.
Ten years later, at 35 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the booze was good, it was right near the gym and if they
went late enough, there wouldn't be too many whiny little kids.
Ten years later, at 45 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the martinis were big, and the waitresses had nice boobs and
wore tight pants.
Ten years later, at 55 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the prices were reasonable, the wine list was good and fish
is good for your cholesterol.
Ten years later, at 65 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the lighting was good and they have an early bird special.
Ten years later, at 75 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because the food was not too spicy, and the restaurant was
handicapped accessible.
Ten years later, at 85 years of age, the group once again discussed where
they should meet for dinner. It was agreed they should meet at the Ocean View
restaurant because they had never been there before.
Forwarded by Auntie Bev
HIGH SCHOOL CLASS REUNION OF A 60+ YEAR OLD LADY
I had prepared for it like any intelligent woman would.
I went on a starvation diet the day before, knowing that all the extra weight
would just melt off in 24 hours, leaving me with my sleek, trim,
high-school-girl body. The last forty years of careful cellulite collection
would just be gone with a snap of a finger.
I knew if I didn't eat a morsel on Friday, that I could probably fit into my
senior formal on Saturday. Trotting up to the attic, I pulled the gown out of
the garment bag, carried it lovingly downstairs, ran my hand over the fabric,
and hung it on the door.
I stripped naked, looked in the mirror, sighed, and thought, "Well, okay,
maybe if I shift it all to the back ..." Bodies never have pockets where you
need them.
Bravely I took the gown off the hanger, unzipped the shimmering dress and
stepped gingerly into it. I struggled, twisted, turned, and pulled and I got the
formal all the way up to my knees ... Before the zipper gave out. I was
disappointed. I wanted to wear that dress with those silver sandals again and
dance the night away.
Okay, one setback was not going to spoil my mood for this affair. No way!
Rolling the dress into a ball and tossing it into the corner, I turned to Plan
B: the black crepe caftan.
I gathered up all the goodies that I had purchased at Saks: the scented
shower gel; the body building and highlighting shampoo and conditioner; the
split-end killer and shine enhancer. Soon my hair would look like that girl's in
the Pantene ads.
Then the makeup -- the under eye "ain't no lines here" firming cream, the
all-day face-lifting gravity-fighting moisturizer with wrinkle filler spackle;
the 'all day kiss me till my lips bleed, and see if this gloss will come off'
lipstick, the bronzing face powder for that special glow
But first, the roll-on facial hair remover. I could feel the wrinkles
shuddering in fear.
Okay, time to get ready! I jumped into the steaming shower, soaped, lathered,
rinsed, shaved, tweezed, buffed, scrubbed and scoured my body to a tingling
pink.
I plastered my freshly scrubbed face with the anti-wrinkle, gravity fighting
"your face will look like a baby's posterior" face cream. I set my hair on hot
rollers.
I felt wonderful. Ready to take on the world. Or in this instance, my
underwear. With the towel firmly wrapped around my glistening body, I pulled out
the black lace, tummy-tucking, cellulite-pushing, ham hock-rounding girdle, and
the matching "lifting those bosoms like they're filled with helium" bra.
I greased my body with the scented body lotion and began the plunge. I
pulled, stretched, tugged, hiked, folded, tucked, twisted, shimmied, hopped,
pushed, wiggled, snapped, shook, caterpillar crawled and kicked. Sweat poured
off my forehead but I was done. And it didn't look bad.
So I rested. A well deserved rest, too.
The girdle was on my body. Bounce a quarter off my behind? It was tighter
than a trampoline. Can you say, "Rubber baby buggy bumper buns?" Okay, so I had
to take baby steps, and walk sideways, and I couldn't move from my buns to my
knees. But I was firm!
Oh no ... I had to go to the bathroom. And there wasn't a snap crotch. From
now on, undies gotta have a snap crotch. I was ready to rip it open and
re-stitch the crotch with Velcro, but the pain factor from past experiments was
still fresh in my mind. I quickly sidestepped to the bathroom.
An hour later, I had answered nature's call and repeated the struggle into
the girdle. I was ready for the bra. I remembered what the saleslady said to do.
I could see her glossed lips mouthing, "Do not fasten the bra in the front, and
twist it around. Put the bra on the way it should be worn -- straps over the
shoulders Then bend over and gently place both breasts inside the cups."
Easy if you have four hands. But, with confidence, I put my arms into the
holsters, bent over and pulled the bra down ... But the boobs weren't
cooperating. I'd no sooner tuck one in a cup, and while placing the other, the
first would slip out. I needed a strategy. I bounced up and down a few times,
tried to dribble them in with short bunny hops, but that didn't work. So, while
bent over, I began rocking gently back and forth on my heel and toes and I set 'em
to swinging. Finally, on the fourth swing, pause, and lift, I captured the
gliding glands. Quickly fastening the back of the bra, I stood up for
examination.
Back straight, slightly arched, I turned and faced the mirror, turning front,
and then sideways. I smiled, yes, Houston , we have lift up!
My breasts were high, firm and there was cleavage! I was happy until I tried
to look down. I had a chin rest And I couldn't see my feet.
I still had to put on my pantyhose, and shoes. Oh ... why did I buy heels
with buckles?
Then I had to pee again. ........So I put on my sweats, fixed myself a drink,
ordered pizza, and skipped the high school reunion.
Forwarded by Auntie Bev
If you've ever worked for a boss who reacts before getting the facts and
thinking things through, you will love this!
Arcelor-Mittal Steel, feeling it was time for a shakeup, hired a new CEO. The
new boss was determined to rid the company of all slackers.
On a tour of the facilities, the CEO noticed a guy leaning against a wall..
The room was full of workers and he wanted to let them know that he meant
business.
He asked the guy, "How much money do you make a week?"
A little surprised, the young man looked at him and said, "I make $400 a
week. Why?"
The CEO said, "Wait right here." He walked back to his office, came back in
two minutes, and handed the guy $1,600 in cash and said, "Here's four weeks'
pay.
Now GET OUT and don't come back.."
Feeling pretty good about himself, the CEO looked around the room and asked,
"Does anyone want to tell me what that goof-ball did here?"
From across the room a voice said, "Pizza delivery guy from Domino's."
Forwarded by Dick and Cec
Ole and his finkers
Ole vas vorking at da fish plant up nort in Dulut vhen he accidentally cut off
all ten of his finkers.
He vent to da emergency room in the Clinik and vhen he got dar da Norsky
doctor looked at Ole and said, "Okie dokie, let's have da finkers and I'll see
vhat I can do."
Ole said, "I haven't got da finkers."
Vhat do you mean, you hafen't got da finkers?" he said. "Mercy- it's 2011
and Ive's got microsurgery and all kinds of incredible surgery techniques. I
could hafe put dem back on and made you like new! Vhy didn't you brink da
finkers?"
Ole says........."How vas I suppose to pick dem up?"
Forwarded by Maureen
'Someone asked
the other day,
'What was your
favorite fast
food when you
were growing
up?'
'We didn't have fast
food when I was
growing up,'
'All the food was slow.'
'C'mon, seriously. Where did you
eat?'
'It was a place called 'at
'Mom cooked every day and when Dad got home from
work, we sat down together at the dining room
table, and if I didn't like what she put on my
plate I was allowed to sit there until I did
like it.'
By this time, the kid was laughing so hard I was
afraid he was going to suffer serious internal
damage, so I didn't tell him the part about how I
had to have permission to leave the table.
But here are some other things I would have told him about
my childhood if I figured his system could have handled it :
Some parents NEVER owned their own house, never wore Levis,
never set foot on a golf course, never traveled out of the country
or had a credit card.
In their later years they had something called a revolving charge card. The
card was good only at Sears
Roebuck. Or maybe it was Sears
& Roebuck.
Either way, there is no Roebuck anymore. Maybe he died.
My parents never drove me to soccer practice. This was mostly because we
never had heard of soccer.
I had a bicycle that weighed probably 50 pounds, and only had one speed,
(slow)
We didn't have a television in our house until I was 19.
It was, of course, black and white, and the station went off the air at
midnight, after playing the national anthem and a poem about God; it came
back on the air at about 6 a..m. and there was usually a locally produced
news and farm show on, featuring local people.
I was 21 before I tasted my first pizza, it was called 'pizza pie.' When I
bit into it, I burned the roof of my mouth and the cheese slid off, swung
down, plastered itself against my chin and burned that, too. It's still the
best pizza I ever had.
I never had a telephone in my room. The only phone in the house was in the
living room and it was on a party line. Before you could dial, you had to
listen and make sure some people you didn't know weren't already using the
line.
Pizzas were not delivered to our home But milk was.
All newspapers were delivered by boys and all boys delivered newspapers --my
brother delivered a newspaper, six days a week.. It cost 7 cents a paper, of
which he got to keep 2 cents. He had to get up at 6AM every
morning.
On Saturday,
he had to collect the 42 cents from his customers. His favorite customers
were the ones who gave him 50 cents and told him to keep the change. His
least favorite customers were the ones who seemed to never be home on
collection day.
Movie stars kissed with their mouths shut. At least, they did in the movies.
There were no movie ratings because all movies were responsibly produced for
everyone to enjoy viewing, without profanity or violence or most anything
offensive.
If you grew up in a generation before there was fast food, you may want to
share some of these memories with your children or grandchildren
Just don't blame me if they bust a gut laughing.
Growing up isn't
what it used to be, is it?
My Dad is cleaning out my grandmother's house (she died in December) and he
brought me an old Royal Crown Cola bottle. In the bottle top was a stopper
with a bunch of holes in it.. I knew immediately what it was, but my
daughter had no idea. She thought they had tried to make it a salt shaker or
something. I knew it as the bottle that sat on the end of the ironing board
to 'sprinkle' clothes with because we didn't have steam irons. Man, I am
old.
How many do you remember?
Head lights dimmer switches on the floor.
Ignition switches
on the dashboard.
Heaters mounted on the inside of the fire wall.
Pant leg clips for bicycles without chain guards.
Soldering irons you heat on a gas burner.
Using hand signals for cars without turn signals.
Humor Between January 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor013112
Humor Between
December 1-31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor123111
Humor Between November 1 and November 30, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor113011
Humor Between October 1 and October 31, 2011 ---
http://www.trinity.edu/rjensen/book11q4.htm#Humor103111
Humor Between September 1 and September 30, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor093011
Humor Between August 1 and August 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor083111
Humor Between July 1 and July 31, 2011
---
http://www.trinity.edu/rjensen/book11q3.htm#Humor073111
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 January 31, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
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AECM (Accounting Educators)
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started
out as an accounting education technology Listserv. It has mushroomed
into the largest global Listserv of accounting education topics of all
types, including accounting theory, learning, assessment, cheating, and
education topics in general. At the same time it provides a forum for
discussions of all hardware and software which can be useful in any way
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Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners) http://pacioli.loyola.edu/cpas-l/
(closed down)
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
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Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
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