New
Bookmarks
Year 2012 Quarter 1: January 1 - March 31 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have
key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/.
Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm
574 Shields
Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Choose a Date Below for Additions to the Bookmarks File
2012
Bob
Jensen's New Bookmarks March 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
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/
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.
Journal of Forensic Accounting - http://maaw.info/JournalOfForensicAccounting.htm
and
Journal of Forensic & Investigative Accounting - http://maaw.info/JournalOfForensicAndInvestigativeAccounting.htm
The JFIA is an electronic journal and all of the papers are available on the LSU web site.
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=3856I 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.htmThis 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.htThe 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
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
title:
Some Accounting History Sites
Bob
Jensen's Accounting History in a Nutshell and Links ---
http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory
Accounting History Libraries at the University of Mississippi (Ole Miss)
---
http://www.olemiss.edu/depts/accountancy/libraries.html
The above libraries include international accounting history.
The above libraries include film and video historical collections.
MAAW Knowledge Portal for Management and Accounting ---
http://maaw.info/
Academy of Accounting Historians and the Accounting Historians Journal
---
http://www.accounting.rutgers.edu/raw/aah/
Sage Accounting History ---
http://ach.sagepub.com/cgi/pdf_extract/11/3/269
A nice timeline on the development of U.S. standards and the evolution
of thinking about the income statement versus the balance sheet is
provided at:
"The Evolution of U.S. GAAP: The Political Forces Behind
Professional Standards (1930-1973)," by Stephen A. Zeff,
CPA Journal, January 2005 ---
http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
Part II covering years 1974-2003 published in February 2005 ---
http://www.nysscpa.org/cpajournal/2005/205/index.htm
A nice timeline of accounting history --- http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING
From
Texas A&M University
Accounting History Outline ---
http://acct.tamu.edu/giroux/history.html
Canadian Printer and Publisher (history of various trades and
industries) ---
http://link.library.utoronto.ca/cpp/
You can search for various industry terms such as accounting, cost,
bookkeeping, etc.
History of Fraud in America ---
http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm
Also see
http://www.trinity.edu/rjensen/Fraud.htm
Columbia Historical Corporate Reports Online Collection --- http://www.columbia.edu/cu/lweb/indiv/business/CorpReports.html
Bob Jensen's timeline of derivative financial instruments and hedge
accounting ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
"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
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
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_ . 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.page_new.cfm?article_id=35301 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...
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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...
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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
|
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.
They have tightened up the integration with publisher test banks.
Richard J. Campbell
mailto:campbell@rio.eduBob Jensen's threads for online assessment are at
http://www.trinity.edu/rjensen/Assess.htm#ExaminationsThere 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 coursesBob 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
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email 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
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.pdfThe 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.htmBut 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.htmIncidentally, 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
Mature Firms New Firms
Index Score Rank Index Score Rank
Alabama 86.0 13 86.4 19
Alaska 97.7. 23 81.1 17
Arizona 86.2 14 114.9 31
Arkansas 102.8 30 69.6 8
California 105.8 34 133.8 45
Colorado 105.4 33 135.1 47
Connecticut 93.9 21 109.3 30
Delaware 98.1 24 80.5 16
Florida 90.6 19 122.8 36
Georgia 71.8 3 66.7 6
Hawaii 142.6. 49. 151.4 50
Idaho 111.7 38 116.0 32
Illinois 126.4 45 94.2 24
Indiana 122.7 43 80.1 15
Iowa 116.5 40 126.8 41
Kansas 133.5 47 141.6 48
Kentucky 88.4 18 69.4 7
Louisiana 84.1 10 52.8 2
Maine 100.4 27 87.3 20
Maryland 82.4 8 134.7 46
Massachusetts 123.6 44 128.2 43
Michigan 98.8 25 96.6 25
Minnesota 112.7 39 119.6 35
Mississippi 109.2 37 89.3 21
Missouri 108.8 36 97.0 26
Montana 93.1 20 93.8 23
Nebraska 82.5 9 31.7 1
Nevada 77.7 4 124.8 38
New Hampshire 99.7 26 91.0 22
New Jersey 121.1 41 104.9 27
New Mexico 97.4 22 80.0 14
New York 121.1 42 124.4 37
North Carolina 80.8 7 79.9 13
North Dakota 87.0 15 83.5 18
Ohio 78.1 5 58.7 3
Oklahoma 87.1 16 65.3 5
Oregon 100.5 28 106.3 28
Pennsylvania 145.1 50 145.9 49
Rhode Island 129.1 46 128.4 44
South Carolina 103.8 32 119.4 34
South Dakota 56.0 2 77.7 11
Tennessee 101.3 29 108.7 29
Texas 85.9 12 127.7 42
Utah 80.2 6 76.7 10
Vermont 103.7 31 79.2 12
Virginia 84.4 11 125.9 39
Washington 87.2 17 126.3 40
West Virginia 140.2 48 118.5 33
Wisconsin 107.7 35 59.8 4
Wyoming 48.3 1 73.3 9
Continued in article
Jensen Comment
Of course there are many other factors to consider when running a business in a
given state. First there are markets to consider. For example Wisconsin and Ohio
look attractive from a tax standpoint but these states are unattractive to labor
intensive business firms because of union power within those states. Such firms
may prefer moving into Alabama, Arkansas, or Mississippi in spite of having to
pay higher taxes. Many firms have moved from New England to the south because of
higher wages and taxes in New England. Taxes and wages have been a disaster for
some states. For example, Hawaii was at one time a thriving grower of
pineapples. Now most of the pineapple growers have moved elsewhere because of
taxes and wages.
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.
Bob Jensen's threads on taxation are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Questions
Where is there currently the least amount of grade inflation?
States Graded by Accountability
The Center for Public Integrity, March 2012
http://www.iwatchnews.org/2012/03/19/8423/grading-nation-how-accountable-your-state
Fraud Beat
"Contest for Funniest New Jersey Joke Has a Winner," by Jonathan Weil,
Bloomberg, March 22, 2012 ---
http://www.bloomberg.com/news/2012-03-22/contest-for-funniest-new-jersey-joke-has-a-winner.html
Did you hear the latest joke about New Jersey? A group of investigative journalists this week released a report calling it the least corruptible state in the country. How did that happen?
Easy. We bribed them.
ll kidding aside, this is a state where in 2009 three mayors, two assemblymen and five rabbis were among 44 charged in a single money-laundering and bribery sting by the Federal Bureau of Investigation. One of those mayors, Peter Cammarano, was from Hoboken, where I live. He was sentenced to 24 months in prison. Five years before his arrest, another former Hoboken mayor, Anthony Russo, pleaded guilty to corruption charges. His son now sits on the city council.
In New Jersey, we expect corruption. It’s built into the system. We have 566 municipalities, the most per capita of any state. Local governments tax the citizenry dry, while preserving the opportunities for graft that flow from operating redundant public services. The state legislature likes it this way and always has. Whadayagonnado?
So it was quite a story this week when the Center for Public Integrity, a Washington-based nonprofit, ranked New Jersey as the state with the lowest corruption risk in the U.S. (Local corruption didn’t count, it said. Only “corruption risk” in state government did.) There’s a simple explanation for how the group reached its conclusion, too: Its methodology was awful. Answering Questions
Here’s how the center got the New Jersey data for its nationwide “State Integrity Investigation.” Last year, it hired Colleen O’Dea, a freelance journalist who worked for about 26 years at the Daily Record in Morris County, to answer a list of 330 questions about New Jersey state government. Each called for a numerical score. O’Dea, 49, said she interviewed 26 people for the assignment, five in person. The center paid her $5,000.
The center also hired a former local newspaper editor to review her work. From there, the center provided O’Dea’s responses to another Washington-based nonprofit called Global Integrity. That group fed the answers into an algorithm, said Randy Barrett, a Center for Public Integrity spokesman. The results from the algorithm were used to generate letter grades in 14 categories and an overall score for New Jersey of 87 percent, or a B+.
The center hired reporters for every other state, too, along with “peer reviewers” to read their responses. Each reporter got the same list of queries. The center called this investigative reporting. Really, though, it was just a bunch of people answering questionnaires.
For example, O’Dea gave New Jersey a top score of 100 percent when asked to evaluate this statement: “In practice, the state-run pension funds disclose information about their investment and financial activity in a transparent manner.”
How did she decide that? The questionnaire said to give a high score if such information was available online at little or no cost. Her notes, posted on the center’s website, say she asked someone at the New Jersey State League of Municipalities about this. “Very transparent,” her notes said. The center gave the state an “A” in the category of “state pension-fund management,” based partly on O’Dea’s answer to that question.
Now consider that, in August 2010, New Jersey became the only state ever sued for fraud by the Securities and Exchange Commission. The SEC said the state for years lied to municipal- bond investors about the underfunded condition of its two largest pension plans. New Jersey settled without admitting or denying the agency’s claims. Making a Difference
When I asked O’Dea in a telephone interview if she knew about the SEC lawsuit, she said she didn’t. Later, she e-mailed me to say that she had, in fact, been aware of it, and that “the state has since owned up to the issue.”
Either way, it’s hard to believe New Jersey deserves an A for how it manages its pension funds. Yet for all we know, this grade could have made the difference between finishing No. 1 in the rankings or not. The center ranked Connecticut No. 2 with an overall grade of B, or 86 percent, one point behind New Jersey.
Another example from the survey: “In practice, the state- run pension funds have sufficient staff and resources with which to fulfill their mandate.” O’Dea gave another top score. This time she listed a second source, in addition to the fellow from the league of municipalities: a spokesman at the New Jersey Department of the Treasury. He told her the answer was yes.
And so forth. The center gave New Jersey’s insurance department a B+. One of the inputs was the 100 percent score O’Dea awarded in response to this statement: “In practice, the state insurance commission has a professional, full-time staff.”
Her notes listed two sources: Someone from the Independent Insurance Agents and Brokers of New Jersey, and a spokesman for the New Jersey Department of Banking and Insurance. Both said the statement was true. (Imagine that.) O’Dea said the sources she chose “seemed to logically have knowledge of the question.”
Continued in article
Jensen Comment
All jokes aside, President Obama's home town is still the most corrupt city in
the United States
"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.
Jensen Comment
The best-run state is Wyoming. The worst-run state is California
Most of the Top Ten best-run states have relatively low populations.
Small seems to be better in terms of state government efficiency,
although social programs and cold weather in those states tend to
repel welfare and Medicaid recipients from around the nation. It's
difficult to draw liberal versus conservative explanations for
best-run states since liberal states of Vermont and Minnesota are
mixed in the Top Ten along with the conservative states of Wyoming,
Utah, and the two Dakota states.
Minnesota has the least debt per capita, but the union-run state of Massachusetts has the most debt per capita. This is somewhat interesting because both Minnesota and Massachusetts are viewed as liberal states (more so in the days of Hubert Humphrey and Walter Mondale). The relatively conservative southern states tend to be below the median on state debt per capita. The western states are more variable. I accuse Taxachusetts of being union-run in part because Boston refuses to allow Wal-Mart stores until Wal-Mart becomes unionized.
When it comes to debt per capita there is less denominator effect than I suspected beforehand, although small populations become a huge factor behind the high debt loads per capita in Alaska, Rhode Island, and Delaware. Alaska can also afford a higher debt load because of vast untapped natural resources.
I watched two very liberal commentators from Boston on television last night arguing that more debt load in Taxachusetts to support increased spending for social programs was a good investment of that state's economy. This seems to be questionable given where Taxachusetts already stands in relation to debt per capita.
Bob Jensen's threads on state taxation are
at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
You have to scroll down to find the state tax comparisons.
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
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.
"The Democrat Who Took on the Unions: Rhode Island's treasurer
Gina Raimondo talks about how she persuaded the voting public, labor
rank-and-file and a liberal legislature to pass the most far-reaching pension
reform in decades," by Allysia Finley, The Wall Street Journal, March 23,
2012 ---
http://online.wsj.com/article/SB10001424052970204136404577207433215374066.html?mod=djemEditorialPage_t
So this is Gina Raimondo? The state treasurer who single-handedly overhauled Rhode Island's pension system and has unions screaming bloody murder? I had imagined her a bit, well, bigger. If not larger than life like New Jersey Gov. Chris Christie, then at least life-size. Ms. Raimondo couldn't be much taller than five feet, which may have caused some to underestimate her. That isn't the only thing that may have surprised people.
The former venture capitalist is a Democrat, which means that she believes in government as a force for good. But "a government that doesn't work is in no one's interest," she says. "Budgets that don't balance, public programs that aren't funded, pension funds that are running out of money, schools that aren't funded—How does that help anyone? I don't really care if you're a Republican or Democrat or you want to fight about the size of government. How about a government that just works? Put your tax dollar in and get a return out the other end."
Yes, that would be nice. Unfortunately, public pensions all over the country are gobbling up more and more taxpayer money and producing nothing in return but huge deficits. It's not even certain whether employees in their 20s and 30s will retire with a pension, since many state and municipal pension systems are projected to run dry in the next two to three decades.
That included Rhode Island's system until last year, when Ms. Raimondo drove perhaps the boldest pension reform of the last decade through the state's Democratic-controlled General Assembly. The new law shifts all workers from defined-benefit pensions into hybrid plans, which include a modest annuity and a defined-contribution component. It also increases the retirement age to 67 from 62 for all workers and suspends cost-of-living adjustments for retirees until the pension system, which is only about 50% funded, reaches a more healthy state.
Several states have increased the retirement age or created a new tier of benefits for future workers, but reforms that only affect not-yet-hired employees don't save much money. A lot of "people say we've done pension reform when all they've done is tweaked something," Ms. Raimondo points out. "This problem will not go away, and I don't know what people are thinking. By the nature of the problem, it gets bigger and harder the longer you wait."
The problem was particularly acute in Rhode Island since there are more retirees collecting pensions than workers paying into the system. Plus, as Ms. Raimondo says, "it's a small state with not a lot of growth, an expensive cost structure in government, and it's not a good combination." Making the state even more expensive by raising taxes would have caused many Rhode Islanders to leave. When the now-bankrupt town of Central Falls raised property taxes to finance worker pensions, many residents fled, sending the city into a tailspin.
Because there has been little legislative or public support for raising taxes, the Ocean State has been cutting public services to pay its pension bills. A few years ago Ms. Raimondo read "an article in the paper about libraries closing and public bus service being cut nights, weekends and holidays, and I just thought it doesn't have to be this way." The story made her consider a bid for treasurer.
In the last 15 years, Ms. Raimondo, who is 40 and the mother of two children, has helped found two venture-capital firms, Village Ventures and Point Judith Capital. She was a Rhodes Scholar at Oxford and has a bachelor's in economics from Harvard and law degree from Yale. Still, serving as treasurer of the smallest state in the country probably wouldn't be the next career step for someone with such impressive credentials and ambition.
Continued in article
The public unions are still pushing their burdens on taxpayers
"Public Unions Send Medical Bills to Taxpayers," by Jason Polan,
Bloomberg, March 15, 2012 ---
http://www.bloomberg.com/news/2012-03-15/unions-send-doctor-bills-to-taxpayers-steven-greenhut.html
The U.S. public pension mess, with its $2 trillion to $3 trillion in unfunded liabilities, is such a volcano of gloom that it takes a potentially bigger problem to turn our eyes away from it.
Turn your attention instead to the size of the taxpayer- backed health-care obligations for public employees.
“Frankly, if you want to look at a truly scary set of unfunded liabilities, health care for retirees is a better choice than pensions,” said California Treasurer Bill Lockyer in an October speech meant to play down the pension crisis.
Not that Lockyer or his Democratic and union allies want to reduce any benefits that are at the heart of the problem. In their view, the real scourge is “pension envy” or perhaps “health-care envy” -- the failure of the private sector to keep up with government-benefit levels.
States and localities make their own decisions on how to finance these health-care policies. Far more government employees than private workers receive health and dental care -- and those plans cost more, require lower employee contributions and provide more comprehensive coverage.
Such generosity comes at a cost to taxpayers and municipal budgets, especially given the “promise now, pay later” approach of officials. As a recent Bloomberg News article noted, while most public pension plans are 75 percent funded, the figure for health-care plans is only 4 percent nationwide. So unlike pensions, governments are setting aside little money in advance to pay for their future obligations. Courts Back Unions
Public-sector unions and their allies have foiled even modest efforts to scale back pensions, and the courts have done the rest. Now the unions are gearing up to fight changes in health-care plans, as well -- an issue that has reared its head after Stockton, California, announced that it was possibly headed toward a Chapter 9 bankruptcy driven by $417 million in liabilities caused by an absurdly generous lifetime medical plan.
The unions’ job is considerably easier thanks to a California Supreme Court decision in November that will make it as hard to change health-care benefits as it is to deal with pensions.
It’s not that leaders in California, which is in the deepest public-employee-related fiscal hole, don’t understand the scope of the problem. Controller John Chiang released a report in February that acknowledges a $62.1 billion unfunded health-care liability.
“California should pay $4.7 billion in 2011-12 to pay for present and future retiree health benefits,” according to Chiang’s office. “In the 2011-12 budget act, the state provided $1.71 billion to only cover current retirees’ health and dental benefits.”
With pensions, government employers and employees contribute a percentage of income into retirement funds. The liabilities depend on how well the funds perform, with higher estimated rates of return leading to a lower predicted debt and vice versa. But as Bloomberg News reported, “States haven’t financed almost 96 percent of the $627.4 billion they were projected to owe for future retiree benefits in 2010.” They try to pay these health-care costs as they go.
Few governments have the excess cash available to prepay these already promised benefits. But often there are straightforward ways to solve the problem. In 2006, Orange County cut its $1.4 billion health-care liability, in a model effort touted not just by the Republican board of supervisors but by the union representing county workers. The union said the deal demonstrated its willingness to help fix the system. Reforms Overturned
Retirees had been placed in the same medical pool as current workers. Because retirees are older, their health-care costs are higher, so the county was subsidizing the rates for retirees. The county separated the pool, raised the monthly contributions paid by retirees and reduced the unfunded liability by $815 million. But the retirees’ group sued the county and took the case to the state Supreme Court, which ruled in a way that has made it far easier to challenge cutbacks of these benefits.
Continued in article
U.S. Government Still Pays Two Civil War Pensions (boy are these guys
old)---
http://blog.eogn.com/eastmans_online_genealogy/2012/02/us-government-still-pays-two-civil-war-pensions.html
Thank you Bruce Gunning for the heads up.
Bob Jensen's threads on the sad state of pension accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"Four Numbers Add Up to an American Debt Disaster," by Caroline Baum,
Bloomberg, March 28, 2012 ---
http://www.bloomberg.com/news/2012-03-28/four-numbers-add-up-to-an-american-debt-disaster.html
Consider the following numbers: 2.2, 62.8, 454, 5.9. Drawing a blank? Not to worry. They don’t mean much on their own.
Now consider them in context:
1) 2.2 percent is the average interest rate on the U.S. Treasury’s marketable and non-marketable debt (February data).
2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011).
3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30.
4) $5.9 trillion is the amount of debt coming due in the next five years.
For the moment, Nos. 1 and 2 are helping No. 3 and creating a big problem for No. 4. Unless Treasury does something about No. 2, Nos. 1 and 3 will become liabilities while No. 4 has the potential to provoke a crisis.
In plain English, the Treasury’s reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation’s structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the U.S. in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years -- probably at higher interest rates. First Among Equals
And that’s a problem. The U.S. is more dependent on short- term funding than many of Europe’s highly indebted countries, including Greece, Spain and Portugal, according to Lawrence Goodman, president of the Center for Financial Stability, a non- partisan New York think tank focusing on financial markets.
The U.S. may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favorable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade.
Based on the current structure, a one percentage-point increase in the average interest rate will add $88 billion to the Treasury’s interest payments this year alone, Goodman says. If market interest rates were to return to more normal levels, well, you do the math.
Some economists have cited the Treasury’s ability to borrow all it wants at 2 percent as an argument for more fiscal stimulus. Why not, as long as it’s cheap?
Goodman says the size of the deficit (8.2 percent of gross domestic product) or the debt (67.7 percent of GDP) is only part of the problem. The bigger threat is rollover risk: “the same thing that got countries from Portugal to Argentina to Greece into trouble,” he says. “It’s the repayment of principal that often provides the catalyst for a market event or a crisis.”
The U.S. is unlikely to go from all-you-want-at-2-percent to basket-case overnight. That said, policy makers would be wise to view recent market volatility as a taste of things to come.
Talking to Goodman, I was reminded of the Treasury’s standard sales pitch before quarterly refunding operations during periods of rising yields. Some undersecretary for domestic finance would be dispatched to tell us that Treasury expected to have no trouble selling its debt.
I had an equally standard response: At what price?
That seems particularly relevant today. The Federal Reserve purchased 61 percent of the net Treasury issuance last year, according to the bank’s quarterly flow-of-funds report. That’s masking the decline in demand from everyone else, including banks, mutual funds, corporations and individuals, Goodman says.
Of course, Fed Chairman Ben Bernanke might look at the same numbers and see them as a sign of success. His stated goal in buying bonds is to lower Treasury yields and push investors into riskier assets.
Free to Borrow
Then there’s the distortion in the relative value of stocks versus bonds to worry about. Using the 10-year cyclically adjusted price-earnings ratio and the inverse of the 10-year Treasury yield, Goodman says the relationship hasn’t been this out of whack since 1962.
Continued in article
Video on the History of Debt
"Debt: The First 5,000 Years," by Paul Kedrosky , Kedrosky.com,
September 10, 2011 ---
Click Here
http://paul.kedrosky.com/archives/2011/09/debt-the-first-5000-years.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29
Bob Jensen's threads on entitlements and debt ---
http://www.trinity.edu/rjensen/Entitlements.htm
Question
How does Sears price its onsite extended warranties and how it accounts for them
in the financial statements?
"Consumer Reports is Wrong about Extended Warranties," by Rafi
Mohammed, Harvard Business Review Blog, March 23, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/03/why_consumer_reports_is_wrong.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Jensen Comment
I think on some on-site warranties a lot depends upon where you live or work. I
live and work in the boondocks of the White Mountains. Virtually all our
appliances are Sears on-site warranties because we live over 100 miles from the
closest Sears warranty repair center and most other warranty service centers of
vendors that compete with Sears.
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.
I think it would make an interesting case study for accounting students to investigate how it Sears both prices its onsite extended warranties and how it accounts for them in the financial statements.
How do we account for “lifetime warranties” that are backed by the
Federal government?
Actually if we assume “going concern” accounting, the
accountants and auditors can probably ignore the government backing of
warranties as defined at
http://wheels.blogs.nytimes.com/2009/03/30/understanding-obamas-auto-warranty-plan/
But there’s still a question of how to estimate warranty reserves for “lifetime warranties?” Do auditors now have to factor in actuarial life expectancies of buyers of new Chrysler vehicles?
July 9, 2009 message from XXXXX
Bob,
One issue that was brought up earlier was the risk of not being able to collect on a warranty for a new car purchased from GM or Chrysler. I'm looking at new cars. Do you have any idea whether GM will deliver on warranty repairs for a car purchased now?
July 9, 2009 reply from Bob Jensen
Hi XXXXX,
The thing to do is read the fine print in the Federal government's so-called guarantee to make good on Chrysler and GM warranties if the companies default.
First take a look at
http://wheels.blogs.nytimes.com/2009/03/30/understanding-obamas-auto-warranty-plan/Then you should read the fine print of the warranty on any GM or Chrysler car you purchase.
One risk is that if GM or Chrysler should fail, parts will become harder and harder to find for cars, especially models that may only have been available for a short time so that there are very few used cars to cannibalize for parts. If both your Chrysler company and your Chrysler transmission (with that dubious "life-time" Chrysler power train warranty) should fail, what happens if there are no longer any needed transmission parts? Ask the dealer to explain this scenario before you buy a Chrysler or a GM car!
It's also not clear whether the Government's warranty backup plan will cover Fiats when Chrysler begins to sell Fiats. Wouldn't that be a kick in the butt when our Federal government backs up Italian car warranties but not Ford Motor Company warranties?
Bob Jensen
A15. Lifetime means
lifetime
This is put in writing by Chrysler at
http://www.chrysler.com/en/lifetime_powertrain_warranty/faq.html
Jensen Comment
I'm not certain President Obama really understands that he is now
backing up each new Chrylser's powertrain for a "lifetime" which
attorneys can claim provides coverage until the buyer dies. Do you want
to buy each of your newborns a new Chrysler? What a bummer if this also
includes Fiats.
How anxiously are you awaiting a FIAT with a
Chrysler boilerplate?
When FIAT entered the U.S. market and failed in the 1970s it was called
"Fix It Again, Tony"
Why does the Second Italian Navy use glass bottom boats? To look for the
first Italian Navy.
Who put the seven bullets into
Benito Mussolini? Three hundred Italian marksmen.
Among the 38 automobile models tested for
reliability in 2008 ---
http://www.which.co.uk/reviews/cars-and-motoring/index.jsp
Honda and Toyota at the top of the 2008
reliability list, followed closely by Daihatsu, Lexus, Mazda, and
Subaru. This largely mirrors the latest Consumer Reports predicted
reliability ranking, though there Scion was at the top and Mazda placed
12th with Consumer Reports due to a different model line-up.
Fiat ranked 35th (out of 38),
followed by Renault, Land Rover, and Chrysler/Dodge.
Jeep is the highest-rated brand from
Chrysler, with its 29th place just barely keeping it in the “Poor”
category. Fiat, Chrysler,
and Dodge are categorized as “Very poor.”
In total, Fiat, Chrysler, and Dodge provide
similar reliability, and it isn’t good.
Consumer Reports, May 5, 2009 ---
http://blogs.consumerreports.org/cars/2009/05/chrysler-and-fiat-reliability-merger-of-equals.html
Consumer Reports
online subscribers can see
how brands compare.---
Click Here
Jensen Comment
My 1989 Cadillac is ten times more reliable than my 1999 Jeep Cherokee.
I don't plan to shift gears into a FIAT. My next car up in these
mountains will probably be a Subaru station wagon (with all-wheel
drive).
Tips on Personal Finance --- http://twitter.com/EverydayFinance
Bob Jensen's threads on personal finance --- http://www.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers
The SEC is getting soft in its old age. We suggest
that it get grumpy instead.
"JCOM: WHEN WILL THE SEC CALL AN ERROR AN ERROR?," by Anthony H. Catanach Jr.
and J. Edward Ketz, Grumpy Old Accountants Blog, March 8, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/557
The business enterprise j2 Global Communications (JCOM) in its first quarter 2011 filing made an accounting change and called it a change in estimate. As several observers have noted, what the Company called a change in estimate is really an accounting error. What we would like to know is when will the SEC take JCOM’s managers to the woodshed and call an error an error.
Gradient Analytics may have been the first to report this anomaly. In its November 21, 2011 report, it gave JCOM an earnings quality grade of “F” (boy, were they grumpy or what?). In part, this failing grade was due to the Company’s mislabeling an error as a change in estimate. Basically, JCOM through transparency right out the window.
Sam Antar pointed out this discrepancy in his blog “White Collar Fraud.” Tracy Coenen likewise raised questions about this sleight of hand in her post “[JCOM] …Trying to Hide Accounting Errors.” Both of them referred to the research by Gradient Analytics, and both of them agreed that this change was an accounting error.
Here are the details. In footnote 1 of the 10-Q (Q1 2011), JCOM writes:
In the first quarter of 2011, the Company made a change in estimate regarding the remaining service obligations to its annual eFax® subscribers. As a result of system upgrades, the Company is now basing the estimate on the actual remaining service obligations to these customers. As a result of this change, the Company recorded a one-time, non-cash increase to deferred revenues of $10.3 million with an equal offset to revenues. This change in estimate reduced net income by approximately $7.6 million, net of tax, and reduced basic and diluted earnings per share for the three months ended March 31, 2011 by $0.17 and $0.16, respectively.
This description is baffling. Estimates are for unobservables, generally items that are future-oriented. For example, depreciation requires an estimate of the remaining life of the asset and an estimate of its salvage value at some unknown future date. As time goes by, managers may be in a better position to assess these unknowns, and any revisions will be changes in estimates. Similar statements can be made about depletion, amortization, bad debts, sales returns, and a variety of items. In every case, the estimates are for future items, be they the asset’s life, the amount of future cash collections from customers, the amount of future returns, etc.
It seems natural to base revenue estimates on the “actual remaining service obligations to these customers,” after all, the last time we checked, revenue has to be earned. So, what was JCOM basing it on beforehand?
Of course, it is possible that the previous accounting information system was inadequate for the job. In that case, the auditor SingerLewak LLP should not have blessed the internal control system in the 10-K. An accounting information system that cannot produce accurate data for such a basic process does not deserve an unqualified opinion. Such a system is pathetic.
The SEC sent a letter to JCOM on December 19, 2011. The SEC asked managers to explain why the actual remaining service obligations were not previously known. The firm responded on January 3, 2012 (intertwined with our thoughts):
Continued in article
"EBITDA: WARTS AND ALL," by Anthony H. Catanach Jr. and J. Edward Ketz,
Grumpy Old Accountants Blog, March 5, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/542
With the earnings season upon us, discussions in recent weeks sometimes have focused on pro forma numbers, especially with respect to several IPOs. Some pro forma numbers are better than others. Most, however, are inferior to GAAP (generally accepted accounting principles) numbers.
What these pro forma constructs have in common is that they are non-GAAP numbers, which means that their definition and measurement are not standardized by any agency, and more importantly that corporate disclosures about them are not audited. By itself, this does not disqualify them from use, but should alert the user to apply caution.
One particularly good pro forma number is free cash flow. The variable is supported by economic theory, and its components (cash generated by operating activities and capital expenditures) are found in GAAP financial statements, which means they are audited numbers.
Continued (with links) in article
Up Up and Away in My Beautiful Pro Forma
"Creative Accounting Leads to Fuzzy Earns," SmartPros, December 27,
2005 ---
http://accounting.smartpros.com/x51147.xml
Bob Jensen's threads on pro forma statements ---
http://www.trinity.edu/rjensen/Theory02.htm#ProForma
Bob Jensen's threads on earnings management ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
Question
How honest and forthcoming should you be when advising students regarding
opportunities in academe for a new PhD graduate?
"Enlightening Advisees," by Henry Adams, Chronicle of Higher Education,
March 1, 2012 ---
http://chronicle.com/article/Enlightening-Advisees/130948/?sid=at&utm_source=at&utm_medium=en
Some Things to Ponder When Choosing Between an Accounting Versus History
PhD ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#HistoryVsAccountancy
Jensen Comment
Law schools are now pondering the same ethics issues regarding advising
applicants about careers in law ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools
From The Wall Street Journal Accounting Weekly Review on March 9, 2012
Companies' Pension Plea
by: Kristina Peterson
Mar 06, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Advanced Financial Accounting, Interest Rates, Pension Accounting
SUMMARY: This is the first of three articles this week on pension plan issues. The one covers required funding of defined benefit pension plans according to U.S. law. "Business groups are urging Congress to let employers put less money into their pension funds....A provision attached to the Senate highway bill would change the formula many large companies...must use to calculate how much to add to their pension funds, potentially shrinking their combined contributions by billions of dollars a year."
CLASSROOM APPLICATION: The article is useful to discuss laws governing required funding of pension plans when introducing accounting for defined benefit pension plans. A graphic in the article clearly shows numbers of workers covered by defined benefit versus defined contribution plans in certain industries and in the U.S. as a whole.
QUESTIONS:
1. (Advanced) What is the difference between defined benefit and defined contribution pension plans?
2. (Introductory) According to the article, what portion of U.S. workers is covered by each of these types of plans?
3. (Advanced) Summarize the process to account for defined benefit pension plans.
4. (Advanced) Cite the authoritative accounting literature that establishes the accounting and reporting requirements for pension obligations by companies offering the plans.
5. (Introductory) Based on your reading of the article, how are the requirements for companies to fund their pension plans established in the U.S.? What factors are included in the formula for this requirement?
6. (Advanced) What interest and discount rates influence pension calculations? In your answer, consider both accounting requirements and funding requirements.
7. (Introductory) How are today's interest rates influencing the amount that companies are required to fund for their pension plans? How are companies trying to change that influence?
Reviewed By: Judy Beckman, University of Rhode Island
Bob Jensen's threads on pension and post-retirement accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
"Companies' Pension Plea," by: Kristina Peterson, March 6, 2012 ---
http://online.wsj.com/article/SB10001424052970204276304577261383973978306.html?mod=djem_jiewr_AC_domainid
Business groups are urging Congress to let employers put less money into their pension funds, saying that exceptionally low interest rates are forcing them to set aside too much cash.
A provision attached to the Senate highway bill would change the formula many large companies, including General Electric Co., Boeing Co. and Lockheed Martin Corp., must use to calculate how much to add to their pension funds, potentially shrinking their combined contributions by billions of dollars a year.
Though its chances of becoming law aren't clear, the measure holds appeal in Congress because it would increase the government's near-term revenues, offsetting some of the costs of the highway bill. Setting aside less for pensions would leave companies with smaller tax deductions, requiring them to pay about $7.1 billion more in taxes over 10 years than under current law, according to Congress's Joint Committee on Taxation. [PENSIONS]
The proposed change would apply to private-sector defined-benefit pension plans, which promise a specified amount of retirement pay. Though millions of Americans are covered by such plans, their prevalence has declined in past decades as companies have shifted to 401(k)s and other retirement plans that don't guarantee payouts.
Labor unions are open to changing the contribution formula, but say that Congress shouldn't allow companies to underfund their pension plans, as has happened already in some cases.
Companies with defined-benefit plans are required to use a "discount rate," based on a specific mix of corporate bond yields over the past two years, to help determine how much to contribute to their plans each year to meet their obligations. The rate varies by company.
Since companies use the discount rate to calculate the present value of benefits it owes retired workers in the future, the lower the rate, the more the company must contribute to its plans. GE said in its annual report that its 2011 pension expenses rose by about $7.4 billion because its discount rate dropped to 4.2% at the end of 2011 from 5.3% at the end of 2010.
GE didn't comment beyond the annual report.
Business groups argue that the two-year window used in the current discount-rate formula is too narrow, leaving companies vulnerable to short-term swings in interest rates.
The provision in the highway bill would extend the window, keeping the discount rate within 15% of an average of corporate bond rates over the preceding 10 years. A coalition including the U.S. Chamber of Commerce, National Association of Manufacturers, American Benefits Council and the ERISA Industry Committee is pushing to calculate the discount rate over a longer time period, keeping it within 10% of a 25-year average.
Continued in article
Bob Jensen's threads on pension and post-retirement accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pension
Question
What do American Airlines pensions have to do with funding of the Iraq war?
Answer
Plenty, but who knows why?
A pension measure tucked into last month’s Iraq war
spending bill is causing some leading members of Congress to complain that
American Airlines got a break worth almost $2 billion without proper scrutiny.
The measure will allow American to greatly reduce its payments into its pension
fund over the next 10 years. At the end of 2006, the fund had assets of $8.5
billion and needed an additional $2.5 billion to cover all its obligations. The
new provision will allow American to recalculate those numbers, so that the
shortfall disappears and the plan looks fully funded. Continental, along with a
small number of regional airlines and a caterer, will also be able to take
advantage of the provision. But American, the nation’s largest airline, is by
far the biggest beneficiary, according to government calculations. Some
lawmakers who would normally be involved in tax and pension measures say they
were shut out of the process.
Mary Williams Walsh, "Pension Relief for Airlines Faulted by Some Legislators,"
The New York Times, June 21, 2007 ---
http://www.nytimes.com/2007/06/21/business/21pension.html?ref=business
Jensen Comment
This was not enough to save AMR. American Airlines eventually declared
bankruptcy in 2011.
From The Wall Street Journal Accounting Weekly Review on March 9, 2012
AMR Retreats on Terminating Pension Plans
by: Susan Carey
Mar 07, 2012
Click here to view the full article on WSJ.com
TOPICS: Advanced Financial Accounting, Bankruptcy, Pension Accounting
SUMMARY: This is the third in a series of articles this week on pension plans. "AMR Corp., which told employees at its American Airlines unit five weeks ago that it intended to terminate their four underfunded pension plans, reversed course Wednesday and said it has found a solution that would allow it to pursue a freeze of three of the plans." The article describes the unfunded status of the plans and the Pension Benefit Guaranty Corp. reaction to the company's plans.
CLASSROOM APPLICATION: This article covers AMR Corp.'s unfunded pension plans and the company's planned action as it proceeds through bankruptcy court, again useful in covering pension accounting and reporting.
QUESTIONS:
1. (Advanced) What is AMR Corp.? What event is this company currently going through?
2. (Introductory) What is the funded status of AMR Corp.'s pension plans? Summarize this answer numerically, based on information in the article.
3. (Introductory) How many pension plans does AMR Corp. have? What difference among these plans is leading the company to treat them differently?
4. (Advanced) What is the Pension Benefit Guaranty Corp. (PBGC)?
Reviewed By: Judy Beckman, University of Rhode Island
"AMR Retreats on Terminating Pension Plans," by: Susan Carey, The Wall
Street Journal, March 7, 2012 ---
http://online.wsj.com/article/SB10001424052970204781804577267453176169244.html?mod=djem_jiewr_AC_domainid
AMR Corp., which last month told employees at its American Airlines unit that it intended to terminate their four underfunded pension plans, reversed course Wednesday, saying it had found a solution that would let workers covered by three of the plans keep the benefits they have accrued so far.
The company's decision to freeze, rather than terminate, the three plans could help the carrier win cost-saving concessions in negotiations with its unions, but it also will require AMR to seek an unspecified amount of new capital during its bankruptcy proceedings.
The fourth pension plan, which covers American's pilots, is more problematic, the company said in letters to employees Wednesday. But AMR said it is committed to working with the pilots union, the Pension Benefit Guaranty Corp. and other creditors to find alternatives to terminating it.
AMR filed for bankruptcy protection in late November and has identified $2 billion in annual cost-savings it says it must achieve as part of its reorganization. Of that sum, it is targeting $1.25 billion from employees. The new tack on pensions doesn't mean it will raise its employee cost-savings target, AMR said, but it adds to the urgency of winning those savings. without delay
Jeff Brundage, American's senior vice president of human resources, said freezing the three plans would require AMR to seek out new capital, as part of its plan of reorganization, to cover the cost of funding the frozen plans and help reduce the pension liabilities it will continue to have on its balance sheet. Freezing the plans means management and nonunion employees, flight attendants and mechanics and ramp workers would retain the full value of the benefits they accrued before the freeze date.
Enlarge Image AMR AMR Bloomberg News
American's Jeff Brundage says the company's plan calls for new capital.
Those defined-benefit plans, which promise a set level of payments, would then been succeeded by 401(k) plans, with employees managing their own investments and without guaranteed payouts.
The pilots pension plan poses a thornier problem for the company because it allows pilots to elect a lump-sum pension payment when they retire.
AMR is concerned that when it emerges from court restructuring, a potential mass exodus of pilots seeking to receive lump sums from a frozen plan would have "a severe, detrimental impact on our operations, and (that) is a risk the company simply cannot afford to take," Mr. Brundage said.
More than half the carrier's 10,000 pilots are currently eligible to retire. "Unless we are able to address the lump-sum issue, a freeze scenario cannot even be considered." But the company will continue to look for options that would allow it to freeze the pilot's plan as well, he said.
The PBGC, a government insurer of private-sector pension plans, has been urging AMR for the past three months to find a way to retain its pension plans and not dump them on the agency, leaving some workers and retirees to receive less than they would otherwise.
On Wednesday, Josh Gotbaum, the PBGC's director, called American's new approach "great progress and good news." Bankruptcy forces tough choices, he said, "but that doesn't mean pensions must be sacrificed for companies to succeed." More
Air France Faces Turbulent Turnaround
The Middle Seat: The Cost of Leaving Devices on
American's four plans cover 130,000 workers and retirees. The PBGC estimates the plans have assets of $8.3 billion to cover about $18.5 billion in benefits. If AMR terminated the plans with the assent of the bankruptcy judge, the PBGC would assume their assets and most of their liabilities and be responsible for paying benefits to American retirees. But the PBGC already has a record $26 billion deficit.
American is hoping to get concessions in new labor contracts with its unions to achieve the targeted cost savings. Among the givebacks the company is seeking are an end to retiree medical benefits, the elimination of 13,000 jobs, closure of a maintenance base and increased productivity from its workers through more hours flown per month and other measures. The negotiations haven't gone well, leading to finger pointing on both sides.
The Fort Worth, Texas, company has criticized its unions for dawdling, and the unions have complained that the company isn't negotiating in good faith. If they can't agree, American has said it will make a case in bankruptcy court that its current labor agreements be abrogated so the company can impose the new terms on its unionized workers.
Mr. Brundage said Wednesday that the change in the pension strategy "would remove a major obstacle to reaching consensual agreements and help to spark needed urgency at the bargaining table." He said the company and the Transport Workers Union, which faces the potential for 9,000 job cuts, already have reached tentative agreement on a pension freeze. The executive said AMR hopes for a similar outcome with flight attendants.
The TWU "drew a line in the sand" and said a pension termination was "totally unacceptable," said James C. Little, international president of the union. The TWU proposed a pension freeze instead, and AMR agreed to drop its demand for an additional $600 million to $800 million in concessions, he said, which the company claimed was the cost of a pension-plan freeze.
Continued in article
Bob Jensen's threads on pension and post-retirement accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pension
From The Wall Street Journal Accounting Weekly Review on March 9, 2012
Next Pension Clash: Law Firms
by: Jennifer Smith
Mar 05, 2012
Click here to view the full article on WSJ.com
TOPICS: Advanced Financial Accounting, Pension Accounting
SUMMARY: "At some of the country's top [law] firms, younger lawyers will foot the bill for deluxe pension plans that could drag down their own earnings for years to come....Partners at some elite firms are often entitled to between 20% to 30% of their peak pay after retirement-in many cases, for life, according to partners and law firm consultants." These defined benefit pension plans are usually unfunded, "instead, most law firms with such plans pay the benefits as they go, using a portion of their current profits." Yet "...the corporate legal industry is finding it harder than ever to boost earnings....[and] firms are under mounting pressure to lower their billing rates."
CLASSROOM APPLICATION: The article is useful to encourage students to think about pension plan obligations when those benefits are not funded, leading into a useful discussion about presentation of a plan with a funded status.
QUESTIONS:
1. (Advanced) As stated in the article, the issues facing prestigious law firms "mirror the similar problems across the U.S." What has happened to pension plans at many U.S. companies?
2. (Advanced) What does it mean to fund a pension plan and, in contrast, to "pay as you go"?
3. (Introductory) "According to one estimate by law firm consultant Peter Giuliani, the current pension liability at a typical large New York firm with an unfunded plan could amount to $200 million, if the firm had to make the total payout today." How is such an amount calculated?
4. (Advanced) Refer again to the estimate for law firms' obligation to pay future pension benefits. If you could view these law firms' financial statements, would this amount be included? If so, where? Explain your reasoning.
Reviewed By: Judy Beckman, University of Rhode Island
"Next Pension Clash: Law Firms," by: Jennifer Smith, The Wall Street
Journal, March 5, 2012 ---
http://online.wsj.com/article/SB10001424052970204571404577258082978298056.html?mod=djem_jiewr_AC_domainid
Retirement should be a happy time for a generation of baby boom-era lawyers near the end of their working lives. Less joy may await the partners they'll leave behind.
At some of the country's top firms, younger lawyers will foot the bill for deluxe pension plans that could drag down their own earnings for years to come.
These pensions are largely unfunded: there is no money saved to pay retirees. Instead, most law firms with such plans pay the benefits as they go, using a portion of their current profits.
Partners at some elite firms are often entitled to between 20% to 30% of their peak pay after retirement—in many cases, for life, according to partners and law firm consultants. For the most profitable firms, that could mean payments of $400,000 to $600,000 a year per retired lawyer.
Many law firms have moved to phase out unfunded pension plans. But those that haven't must pay them at a time when the corporate legal industry is finding it harder than ever to boost earnings. While law-firm profits are slowly improving after the recession, earnings have lagged behind previous years. Firms are under mounting pressure to lower their billing rates.
Given those conditions, "it creates a significant burden on the younger partners," says Dan DiPietro, chairman of Citi Private Bank's law-firm group.
The pension plans were devised decades earlier when life expectancy was lower and firms had fewer partners. That was before tax law changes in the 1980s made other retirement options more attractive for lawyers and law firms. But these pensions are still offered by a core slice of the most profitable law firms in the country, such as Gibson Dunn & Crutcher LLP and Davis Polk & Wardwell LLP.
Few attorneys will complain as long as profits keep up. The trouble starts if payments to retirees grow faster than profits.
"It's a real problem in this environment for a law firm to pay 10 or 15 cents out of every dollar of revenue to partners who have retired from the law firm," says a senior partner at one firm with a generous pension plan.
Some managing partners at elite firms that still offer generous pensions say that such plans help build loyalty and retain top talent. "Partners take comfort in the fact that it is there. I think it's an important part of our culture," said Kenneth Doran, managing partner at Gibson Dunn & Crutcher.
The pensions often come on top of other retirement programs, such as 401Ks, in which participants save for their retirement by putting away a portion of their earnings on a tax-deferred basis (often with a company match). Some firms also have profit-sharing plans.
In its own way, the future liabilities for some top law firms mirror similar problems across the U.S. Benefits promised in more stable economic times seem increasingly unsustainable today. From General Motors Co. and AT&T Inc. to cash-strapped local governments employing public workers, pension liability is becoming a growing concern as the retiree pool swells.
"It's the same thing you had with pensions in the private sector, where it was all defined benefits and companies were going bankrupt," says James Jones, a former managing partner at Arnold & Porter LLP who is now a senior fellow at Georgetown University's Center for the Study of the Legal Profession.
Among law firms, hefty pension obligations also can jettison potential mergers or compound financial woes. For instance, some blamed the 2009 collapse of the Philadelphia firm Wolf, Block, Schorr & Solis-Cohen LLP—which followed a failed merger attempt in 2008—in part on its leadership's refusal to scale back their unfunded pension plan.
At Gibson Dunn, partners who serve there for 20 years get a retirement benefit at age 60 that pays out 20% of their top compensation. At current profits, that could amount to $500,000 a year for eight years or life—whichever is longer. Surviving spouses would get the remaining benefit should a partner die before the eight years are up.
Gibson Dunn reported record earnings in 2011, with gross revenue of $1.7 billion and average profit per partner at $2.47 million. Mr. Doran says his firm guards against burdening active partners with "runaway obligations" by capping pension payments at 6% of the firm's net income.
Just how large such obligations loom is difficult to determine. U.S. law firms don't disclose financial details. Few lawyers feel comfortable discussing the subject of partner retirement benefits.
Top firms with unfunded pensions include Cleary Gottlieb Steen & Hamilton LLP; Cravath, Swaine & Moore LLP; Debevoise & Plimpton LLP; Fried, Frank, Harris, Shriver & Jacobson LLP; and Milbank, Tweed, Hadley & McCloy LLP, according to data compiled by the American Lawyer magazine. Those firms declined to comment.
According to one estimate by law firm consultant Peter Giuliani, the current pension liability at a typical large New York firm with an unfunded plan could amount to $200 million—if the firm had to make the total payout today.
His calculations are based on a firm of 175 partners with an equity stake and average annual earnings of $2 million per partner, with about 20% of the partners near retirement age. The pension would pay out over two decades. That liability could be much higher at the most profitable firms, according to several people with knowledge of finances at some top law firms.
Continued in article
Bob Jensen's threads on pension and post-retirement accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
"Tax planning for parents of college students: Help clients
form a strategy from the Code's array of options,"
by Joseph D. Beams andJohn W. Briggs," Journal of Accountancy, March 2012
---
http://www.journalofaccountancy.com/Issues/2012/Mar/20114558.htm
As parents plan for their children’s higher education, they may choose from an array of tax-favored savings vehicles and deductions and credits. Options include education savings plans, education credits, deduction of educational expenses, education savings bonds, education loans and other alternatives. No single option works best for everyone, but by reviewing the pros and cons of each alternative, families can choose a strategy that best meets their needs.
Since planning for college education should start when children are young, CPA tax practitioners should offer these services to new parents as well as those with children currently in college. Yearly tax organizers should include questions about tax planning for college. When conducting yearend tax planning for parents of college students, CPAs should discuss related issues, including the dependency exemption on parents’ returns during their children’s college years.
As the need for a college degree has increased, the cost of going to college has also increased. According to The College Board, for the 2011–2012 academic year, the average annual in-state tuition and fees at a public four-year college are $8,244, and the average total out-of-state tuition and fees are $20,770. The average annual tuition and fees at private nonprofit colleges are $28,500 (tinyurl.com/45joe2). These costs do not include room and board, books or supplies. According to The Project on Student Debt, the average college senior graduating in 2010 owed $25,250 in student loans (tinyurl.com/4yv5t7z). Families therefore have good reason to start saving toward these costs while their children are young. Savings vehicles include Sec. 529 plans, education savings bonds and Coverdell education savings accounts (Coverdell ESAs). All of these plans have their merits. (See the SEC’s overview of Sec. 529 plans at tinyurl.com/d8ojwwg.) Families without savings can still take advantage of the following tax incentives once their children are in college.
Continued in article
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Department of Labor (DOL) --- http://en.wikipedia.org/wiki/United_States_Department_of_Labor
"EBSA Cracks Down on Retirement Plan Advisors:
Advisors take heed: The DOL arm that rides herd over retirement plans is ramping
up its enforcement efforts," by Melanie Waddell, AdvisorOne, March 26, 2012 ---
http://www.advisorone.com/2012/03/26/ebsa-cracks-down-on-retirement-plan-advisors?t=legal-compliance
Prominent retirement planning officials are warning advisors to make sure that the retirement plans they advise are compliant with Department of Labor rules, as the DOL’s regulatory arm responsible for policing these plans is cracking down.
So far this year, the DOL’s Employee Benefits Security Administration (EBSA) has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, says should serve as a wake-up call to advisors who advise retirement plans and plan sponsors.
In 2011, EBSA said it had closed 3,472 civil cases and obtained monetary results of nearly $1.39 billion. EBSA also closed 302 criminal cases that resulted in 129 individuals being indicted and 75 cases being closed with guilty pleas or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.
Larson says those EBSA enforcement numbers are “astonishing” and warns that many advisors are surprisingly still unaware that the DOL has jurisdiction over them.
What’s the biggest area EBSA is zeroing in on? Fiduciary negligence. EBSA is “seeing very high levels of non-compliance with fiduciary” duties. When the EBSA releases its reproposed fiduciary rule in the first half of this year, the rule “will affect advisors and their fiduciary role,” not plan sponsors, Larson says.
In light of this, Larson said, advisors should ensure they have a “strong documentable fiduciary process.”
As Larson notes, since the Employee Retirement Income Security Act (ERISA) was put into place, DOL and the Internal Revenue Service’s Employee Plans Unit have had joint authority “to ride herd” over retirement plans. But service providers have gotten accustomed to the IRS taking the lead in enforcement actions, and have failed to notice over the last two years that the EBSA “is showing up through the unlocked back door and finding problems,” Larson says.
Because the IRS has been the primary enforcer of ERISA rules, “service providers have developed their models to include mechanisms with IRS requirements,” but may have failed to include “DOL-type protections in their service models,” Larson says.
Continued in article
Bob Jensen's helpers (not advice) for personal finance ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
A Teaching Case Featuring an Article by NYU Accounting Professor Baruch Lev
From The Wall Street Journal Accounting Weekly Review on March 2, 2012
The Case for Guidance
by: Baruch Lev
Feb 27, 2012
Click here to view the full article on WSJ.com
TOPICS: Earnings Forecasts, Earnings Management
SUMMARY: This is the first of three articles in the WSJ's Section on Leadership in Corporate Finance published on Monday, February 27, 2012. Baruch Lev, the Philip Bardes Professor of Accounting and Finance at NYU's Stern School of Business offers arguments in favor of publicly traded companies' managements issuing earnings guidance. He has recently published a book entitled "Winning Investors Over."
CLASSROOM APPLICATION: The article is useful for any financial reporting class to introduce the notions of management earnings guidance, analyst earnings forecasts, and the arguments for and against this information dissemination process. It is as well useful to highlight the usefulness of academic research in finance and accounting.
QUESTIONS:
1. (Introductory) What is management guidance? To whom is it directed?
2. (Introductory) What is the trend regarding the number of publicly traded U.S. firms providing management guidance?
3. (Advanced) What is the difference between annual guidance and quarterly guidance? What are the trends in regarding the numbers of companies providing each of these?
4. (Introductory) What are the arguments often presented against companies providing annual earnings guidance?
5. (Introductory) What are the author's counterarguments to those points?
6. (Introductory) What does Dr. Lev say about management's need for the information that is used to develop and present management earnings guidance?
7. (Advanced) Who is Dr. Baruch Lev?
8. (Introductory) What is the source for Dr. Lev's information in writing this article for The Wall Street Journal?
Reviewed By: Judy Beckman, University of Rhode Island
"The Case for Guidance,"
by Baruch Lev, The Wall Street Journal, February 7, 2012 ---
http://online.wsj.com/article/SB10001424052970203391104577124243623258110.html?mod=djem_jiewr_AC_domainid
Alot of prominent people don't like the idea of giving the market an early heads-up.
Critics, who include Warren Buffett, Al Gore and groups like the Chamber of Commerce, have blasted the practice of issuing "guidance"—advance notices about earnings and other matters. They argue that it wastes managers' time and encourages short-term thinking, and may even drive companies to seek capital overseas instead of in the U.S.
But a host of research—mine and others'—shows that those arguments don't hold up. Guidance benefits investors, companies and managers in a number of ways, such as cutting down shareholder lawsuits and giving the market better data to work with. Indeed, research recently published in the Journal of Accounting and Economics documents a significant stock-price drop for companies that announced they were stopping guidance. Far from a waste of time, guidance is a crucial part of an executive's job.
That said, companies should do it smartly. For one thing, they should issue guidance only when they can predict performance better than analysts—and they should make it part of a broader practice of disclosure that gives investors insight into the company's plans and progress. A Vital Component
Let's start with the most basic argument against guidance: It takes too much time. Critics say executives must set up elaborate and costly forecasting processes, and then answer endless rounds of questions about the numbers they issue. And that prevents them from undertaking other productive activities.
ut guidance requires a negligible investment of time. A CEO who doesn't readily have short- and medium-term performance forecasts shouldn't guide, and shouldn't manage. Guidance also increases the circle of analysts following the firm, since guidance data makes it much easier to do their job. And having lots of analysts on board comes in handy in stock issues and proxy contests.
More broadly, managers gain credibility when they have a track record of issuing accurate guidance. There's also evidence that guidance helps keep management honest. A study from University of Georgia researchers finds that companies that issue guidance are less likely to put out dishonest earnings reports than companies that don't guide.
Critics also say that guidance encourages a futile short-term earnings game. Companies, the argument goes, slash R&D or other long-term initiatives to meet earnings estimates—sacrificing future growth.
But the argument misses a crucial point: Most guidance isn't short-term. It forecasts several quarters ahead, giving companies a chance to fill in details that wouldn't show up in regular financial reports.
For instance, reported earnings don't reflect the progress of the product-development process of innovative companies, such as in biotech. They also ignore recent business initiatives and new contracts signed or canceled, as well as the impact of economic developments—like the European recession—on future performance.
In fact, I further argue that critics are wrong even when companies are providing short-term guidance. For one thing, the game of trying to beat expectations plays out with or without guidance. Doesn't Google, the famous nonguider, aim to beat the consensus? Reducing Uncertainty
More broadly, getting more information out helps everyone involved—shareholders, analysts and companies. By sharing information with the market, companies reduce investor uncertainty and prevent stock prices from swinging wildly upon unexpected bad news. My research shows that managers' quarterly earnings guidance is more accurate than the current analysts' consensus forecast in 70% of cases. Analysts know this and are quick to revise their forecasts upon the release of guidance.
But warning investors about potential disappointments doesn't just help protect them from losses—it helps protects companies, too. Guidance released prior to weak earnings is considered a mitigating factor in shareholder lawsuits, and was shown in a study published in 1997 to reduce settlement figures. (Most shareholder lawsuits are settled.)
There's one more argument the critics often make against guidance: It puts so much pressure on companies that they abandon the U.S. equities market and seek out private equity or foreign listings. But I haven't found a single example of a company taken private or listed abroad whose managers claimed that the "pressure to guide" was a major reason. Besides, isn't it easier just to abstain from guidance? Two-thirds of public companies do just that.
All that said, there are right and wrong ways to do guidance. Here's a look at some basic principles companies should follow.
• Guide when you are a better prognosticator than analysts. For the past three to five years, compare your internal quarterly earnings forecasts with analysts' public forecasts, relative to the subsequently released earnings. If you beat analysts, chalk one up for guidance. If not, how come outsiders know more about your company's future than you do?
• If most of your industry peers release guidance regularly, you don't want to stand out as a refusenik. Investors will suspect that you have something to hide or that you aren't on top of things.
Continued in article
Jensen Comment
Baruch has done a considerable amount of previous accountics research on how to
measure and report intangibles and contingency items. I'm sorry to say that over
the years I've been mostly critical of that research ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
"The Baloney Detection Kit: A 10-Point Checklist for Science
Literacy,"
by Maria Popova, Brain Pickings, March 16, 2012 ---
Click Here
http://www.brainpickings.org/index.php/2012/03/16/baloney-detection-kit/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+brainpickings%2Frss+%28Brain+Pickings%29&utm_content=Google+Reader
Video Not Included Here
The above sentiment in particular echoes this beautiful definition of science as “systematic wonder” driven by an osmosis of empirical rigor and imaginative whimsy.
The complete checklist:
- How reliable is the source of the claim?
- Does the source make similar claims?
- Have the claims been verified by somebody else?
- Does this fit with the way the world works?
- Has anyone tried to disprove the claim?
- Where does the preponderance of evidence point?
- Is the claimant playing by the rules of science?
- Is the claimant providing positive evidence?
- Does the new theory account for as many phenomena as the old theory?
- Are personal beliefs driving the claim?
The charming animation comes from UK studio Pew 36. The Richard Dawkins Foundation has a free iTunes podcast, covering topics as diverse as theory of mind, insurance policy, and Socrates’ “unconsidered life.”
In the field of accountics science, accounting researchers seldom ask
Questions 3, 5, 7, and 10 above ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Hi Tom,
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.
Former Accounting Review Editor Steve Kachelmeier at various times has argued that although there is an extreme shortage of scientific replications of exacting replications of accountics science research, opportunities arise for simultaneous studies to be taking place that lend some added validity to findings. This is particularly the case in capital markets research were certain events transpire that trigger studies by different teams of researchers.
"Editorial," by Steven J.Kachelmeier, The Accounting Review,
Vol. 86, July 2011 ---
http://aaajournals.org/doi/full/10.2308/accr-10046
One of the more surprising things I have learned from my experience as Senior Editor of The Accounting Review is just how often a “hot topic” generates multiple submissions that pursue similar research objectives. Though one might view such situations as enhancing the credibility of research findings through the independent efforts of multiple research teams, they often result in unfavorable reactions from reviewers who question the incremental contribution of a subsequent study that does not materially advance the findings already documented in a previous study, even if the two (or more) efforts were initiated independently and pursued more or less concurrently. I understand the reason for a high incremental contribution standard in a top-tier journal that faces capacity constraints and deals with about 500 new submissions per year. Nevertheless, I must admit that I sometimes feel bad writing a rejection letter on a good study, just because some other research team beat the authors to press with similar conclusions documented a few months earlier. Research, it seems, operates in a highly competitive arena.Fortunately, from time to time, we receive related but still distinct submissions that, in combination, capture synergies (and reviewer support) by viewing a broad research question from different perspectives. The two articles comprising this issue's forum are a classic case in point. Though both studies reach the same basic conclusion that material weaknesses in internal controls over financial reporting result in negative repercussions for the cost of debt financing, Dhaliwal et al. (2011) do so by examining the public market for corporate debt instruments, whereas Kim et al. (2011) examine private debt contracting with financial institutions. These different perspectives enable the two research teams to pursue different secondary analyses, such as Dhaliwal et al.'s examination of the sensitivity of the reported findings to bank monitoring and Kim et al.'s examination of debt covenants.
Both studies also overlap with yet a third recent effort in this arena, recently published in the Journal of Accounting Research by Costello and Wittenberg-Moerman (2011). Although the overall “punch line” is similar in all three studies (material internal control weaknesses result in a higher cost of debt), I am intrigued by a “mini-debate” of sorts on the different conclusions reached by Costello and Wittenberg-Moerman (2011) and by Kim et al. (2011) for the effect of material weaknesses on debt covenants. Specifically, Costello and Wittenberg-Moerman (2011, 116) find that “serious, fraud-related weaknesses result in a significant decrease in financial covenants,” presumably because banks substitute more direct protections in such instances, whereas Kim et al. (2011) assert from their cross-sectional design that company-level material weaknesses are associated with more financial covenants in debt contracting.
In reconciling these conflicting findings, Costello and Wittenberg-Moerman (2011, 116) attribute the Kim et al. (2011) result to underlying “differences in more fundamental firm characteristics, such as riskiness and information opacity,” given that, cross-sectionally, material weakness firms have a greater number of financial covenants than do non-material weakness firms even before the disclosure of the material weakness in internal controls. Kim et al. (2011) counter that they control for risk and opacity characteristics, and that advance leakage of internal control problems could still result in a debt covenant effect due to internal controls rather than underlying firm characteristics. Kim et al. (2011) also report from a supplemental change analysis that, comparing the pre- and post-SOX 404 periods, the number of debt covenants falls for companies both with and without material weaknesses in internal controls, raising the question of whether the Costello and Wittenberg-Moerman (2011) finding reflects a reaction to the disclosures or simply a more general trend of a declining number of debt covenants affecting all firms around that time period. I urge readers to take a look at both articles, along with Dhaliwal et al. (2011), and draw their own conclusions. Indeed, I believe that these sorts of debates are healthy for the discipline. A little tension and disagreement helps us to advance.
We do not often get a chance to publish concurrent related studies, but I agree with the reviewers of both Dhaliwal et al. (2011) and Kim et al. (2011) that these studies (and I would include Costello and Wittenberg-Moerman [2011] in the set as well) capture useful synergies that justify the publication of all three in top-tier journals. I trust that our readers will share the same reaction.
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.
See Bob Jensen's Replication Commentaries at
http://www.trinity.edu/rjensen/TheoryTAR.htm#Replication
Here is another example of accountics science styled contemporaneous research that Steve talked about.
"On Enhancing Shareholder Control: A (Dodd-) Frank Assessment of Proxy
Access," by Jonathan B. Cohny, Stuart L. Gillan, and Jay C. Hartzell,
University of Pennsylvania Law School, July 11, 2011 ---
http://www.law.upenn.edu/academics/institutes/ile/PNYUPapers/2012/Cohn etal_On
Enhancing Shareholder Control.pdf
Abstract
The SEC passed a proxy access" rule in 2010 that would permit shareholders to nominate representatives to corporate boards using the company's proxy materials, thereby lowering the cost of exercising shareholder control. We use a series of events in the development of the Dodd-Frank Wall Street Reform and Consumer Protection Act affecting the details of this rule as natural experiments to study the valuation effects of exogenous changes in the degree of shareholder control. We nd that announcement returns associated with events increasing (decreasing) the hurdles to gaining access to a rm's proxy statement are negatively (positively) related to the presence of institutional investors likely to use proxy access to nominate directors. We reach similar conclusions analyzing the consequences of a last-second change to the proxy access rule ultimately adopted by the SEC. Similar effects are not observed for firms that were likely to be unaffected by these events. We also find weak evidence that the increased access to the proxy has a negative effect on the value of firms with shareholders who might have interests other than shareholder value maximization.
"Does Shareholder Proxy Access Improve Firm Value? Evidence from the
Business Roundtable Challenge," by Bo Becker, Daniel Bergstresser, and Guhan
Subramanian, SSRN, January 19, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695666
Thank you Tom Selling for the heads up
Abstract:
We use the Business Roundtable’s challenge to the SEC’s 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership in particular, lost value on October 4, 2010, when the SEC unexpectedly announced that it would delay implementation of the Rule in response to the Business Roundtable challenge. We also examine intra-day returns and find that the value loss occurred just after the SEC’s announcement on October 4. We find similar results on July 22, 2011, when the D.C. Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC’s 2010 Rule.. . .
In a contemporaneous paper, Becker, Bergstresser, and Subramanian (2010) examine announcement returns on October 4, 2010, when the SEC announced that it was delaying implementation of proxy access. They nd that announcement returns surrounding this event date are negatively related to the fraction of a rm's shares held by institutional investors and to the presence of investors identi ed as \activist" using the measure of Greenwood and Schor (2009).10 Thus, their results for a single separate event are directionally consistent with ours.
Bob Jensen's threads on replication in accountics science ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
Teaching Case in Advanced Accounting and Financial Statement Analysis
From The Wall Street Journal Accounting Weekly Review on March 2, 2012
What Your Employees Don't Know Will Hurt You
by: Karen Berman and Joe Knight
Feb 27, 2012
Click here to view the full article on WSJ.com
TOPICS: Consolidated Financial Statements, Consulting, Financial Analysis, Financial Literacy, Financial Reporting, Financial Statement Analysis, Interim Financial Statements, Segment Analysis, Segment Margin
SUMMARY: This is the section of three articles in the WSJ's Section on Leadership in Corporate Finance published on Monday, February 27, 2012. The authors are "co-owners of the business Literacy Institute, a Los Angeles-based company that provides financial training, and co-authors..." of a book for managers on understanding financial information. They describe cases in which they have been brought in as consultants by companies to train line managers in financial fundamentals but were not allowed to use the companies' divisional data. The authors argue that employees should at least be given two types of financial information: (1) top line consolidated data, perhaps in meeting for discussion just after quarterly filings for publicly-traded companies; (2) ratio data for metrics pertinent to that portion of the business operation.
CLASSROOM APPLICATION: The article is useful to impart to accounting students just how sensitive and important is the accounting information that they are learning to prepare. It as well may be used in an MBA class to highlight to students the importance of accounting to their studies.
QUESTIONS:
1. (Introductory) What is the occupation of the authors of this article?
2. (Introductory) How commonly have they seen top executive corporate management concerned about sharing financial data? What are their concerns?
3. (Advanced) What are the authors' arguments for sharing financial information with non-executive employees?
4. (Advanced) In what forms do the authors think that financial information should be shared with non-executive employees?
SMALL GROUP ASSIGNMENT:
The authors state that, in their experience, executives' fears about sharing financial data with non-executive employees "are misplaced." Based on the description in the article, describe a possible research study that could assess whether the authors' experience are generalizable to other companies. That is, design a study to assess the outcomes for companies that do and do not share financial information with employees below the executive level.Reviewed By: Judy Beckman, University of Rhode Island
"What Your Employees Don't Know Will Hurt You,"
by Karen Berman and Joe Knight, The Wall Street Journal, February 27,
2012 ---
http://online.wsj.com/article/SB10001424052970204740904577193220446383072.html?mod=djem_jiewr_AC_domainid
How reluctant are companies to let their employees see corporate financial information? Consider this:
We were once teaching a financial-fundamentals class to managers of a division of a Fortune 100 company. Since we like to use real data, we asked the company to share with us the division's current revenue, costs and other figures for classroom use.
The company politely declined, saying it didn't want the managers to see the divisional statements—even though those very same numbers would soon appear publicly in the company's annual 10-K report.
Talk about shooting yourself in the foot. And yet this company is hardly alone in its myopia. Our experience is that many, if not most, companies refuse to share much financial data with any employee other than top executives. The unfortunate message this sends to anyone outside the loop: We'll tell you what you need to know. Period. Operating in the Dark
Yet when managers and employees don't see financial data, they don't know critical facts. Is the company's profit healthy or declining? How is our unit doing? Is cash abundant or tight? Are our gross margins bigger or smaller than those of our competitors?
Without such information, people can't make good decisions in their daily work. Sales reps may be tempted to offer hefty discounts just when the company needs to boost gross margin. Engineers may keep proposing additional bells and whistles for the company's latest products even though cash is tight. Plant managers, kept in the dark about warranty expense, may cut corners on quality in hopes of meeting production cost targets.
What's more, sharing the numbers tells employees you think they're an important part of the business. Studies indicate that commitment grows and turnover declines.
The whole idea of sharing financial data gives a lot of old-school managers the willies. And understand, we aren't advocating sharing such sensitive information as salaries. But there are two sets of data that companies can easily share.
The first relates to the big picture. Every public company files consolidated financial statements with the Securities and Exchange Commission once a quarter. Every three months, in other words, the company has a great opportunity to help every manager understand the financial threats and opportunities the business is facing right now.
A well-known videogame company, for example, holds a conference call for all employees after every quarterly earnings call. During the conference call, executives tell associates about the company's results for the quarter; how profit compares with that of last quarter and last year; and what the company's investment figures indicate about management's commitment to the future. Know Your Ratios
A second set of easily shareable numbers relates to business units and jobs. This kind of information isn't usually made public. But a unit's sales force needs to know not only its sales target but also its profit target. And each department needs to monitor its operating-expense ratios to be able to deliver good value.
Professionals in practice groups, too, can benefit. A nonprofit medical practice with nearly 30 facilities in eastern Massachusetts, for example, is sharing profit-and-loss data with staff at each location. The doctors especially are expected to follow the financial information and to help manage each branch's results.
Many top executives worry that managers who see sensitive financial data will somehow abuse it. A few are concerned, for example, that if people see in detail what a company's costs are, they will see that the company makes "big profits" and hence expect raises. Or worse, they might try to sell the data to a competitor.
But in our experience, these fears are misplaced. People who are trusted with sensitive data nearly always respect the trust that is put in them. And even if there are a few bad apples, they are likely to find that the information they see will generate little interest outside the company.
Once a company has decided to share information, the natural follow-up question is a basic one: Who gets to see it? Many companies share their financials only with the managerial or professional ranks. But if managers work better and smarter when they see the numbers, the same probably holds true for other employees, too.
Small companies and units have an advantage here, because the more direct the line of sight from an employee's job to financial results, the more likely it is that people will get interested and begin changing how they do their work. An engineering and manufacturing company in Utah, for example, holds weekly meetings for all staff in which managers discuss the financial performance of every continuing project and the company as a whole. Drive-Through Data
Similarly, we know of a fast-food outlet whose managers taught their young employees to understand a simplified income statement, and then posted each week's revenue, costs and gross profit in the break room. It wasn't long before the workers were doing all they could to boost the gross profit line—particularly since the managers paid modest bonuses based on profitability.
Of course, there are obstacles to financial transparency. Publicly traded corporations can't disseminate consolidated financial data before it is released to the public. Owners of closely held companies may be leery of allowing employees to see profit ratios and other usually confidential numbers.
But many companies find ways around these concerns. A public company can usually share key financial indicators for individual plants, products, or branches. Some closely held companies provide employees with indexed ratios of the company's performance without revealing the actual figures.
Continued in article
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
"Can we talk about lessee accounting...again?"
by PwC, March 2, 2012 ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=KOCL-8RZTS7&SecNavCode=MSRA-84YH44&ContentType=Content
Summary:
The February 28-29 joint FASB/IASB board meetings on leases focused on the continued objections from constituents to the 2010 exposure draft's proposed "front-loaded" lessee expense recognition pattern. The boards discussed two possible paths forward, but were unable to reach any tentative decisions and requested that the staff perform further outreach. Read our In brief article for an overview of the two approaches discussed at the meeting.
Bob Jensen's threads on lease accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases
Technical Line: Changes in
reporting comprehensive income
Many companies will have to change how they present comprehensive income under
Accounting Standards Updates 2011-05 and 2011-12. The new guidance is effective
for public companies for fiscal years, and interim periods within those years,
beginning after 15 December 2011. This means the first quarter of 2012 for
calendar year-end public companies. For nonpublic companies, the amendments are
effective for fiscal years ending after 15 December 2012 and interim and annual
periods thereafter. Retrospective application is required. Early adoption is
permitted. Our
Technical Line publication describes the new requirements. ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2310_ComprehensiveIncome_8March2012/$FILE/TechnicalLine_BB2310_ComprehensiveIncome_8March2012.pdf
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
A Teaching Case About Treasury Stock
From The Wall Street Journal Accounting Weekly Review on March 2, 2012
The Pros and Cons of Stock Buybacks
by: Maxwell Murphy
Feb 27, 2012
Click here to view the full article on WSJ.com
TOPICS: Earnings Management, Earnings Per Share, Financial Accounting, Stock Price Effects
SUMMARY: This is the third of three articles in the WSJ's Section on Leadership in Corporate Finance published on Monday, February 27, 2012. This article is useful to introduce the economic reasoning behind treasury stock purchases prior to presenting the accounting for these transactions.
CLASSROOM APPLICATION: The article may be used in any financial accounting class covering treasury stock purchases.
QUESTIONS:
1. (Advanced) What is a stock buyback? What term do we use in accounting for this transaction?
2. (Advanced) Summarize the accounting for stock buybacks.
3. (Introductory) What reason does Mr. Milano give for his opinion that "buybacks are...often a bad idea"?
4. (Introductory) What evidence does Mr. Milano give to support his view?
5. (Advanced) One of the reasons Mr. Tilson acknowledges that buybacks are often poorly considered by the managements who conduct them is that they focus on "propping up share price." Mr. Milano notes that stock buybacks increase earnings per share. How do stock buybacks have these effects? Do the share price effects stem from increasing earnings per share? Support your answer.
6. (Advanced) List the other two of Mr. Tilson three examples of "the wrong reasons" to conduct a stock buyback and explain how buybacks produce these two effects.
Reviewed By: Judy Beckman, University of Rhode Island
"The Pros and Cons of Stock Buybacks,"
by Maxwell Murphy, The Wall Street Journal, February 27, 2012 ---
http://online.wsj.com/article/SB10001424052970203824904577213891035614390.html?mod=djem_jiewr_AC_domainid
As share buybacks climb toward record, prerecession levels, the debate over the tactic is heating up.
Companies sitting on piles of cash are under increasing pressure to return that value to shareholders, but are buybacks the best way to do that? Or should companies raise dividends, use the money for acquisitions or invest it in their business instead?
We invited two Wall Street personalities with strong views on the issue to participate in an email discussion of the merits and drawbacks of stock buybacks.
Whitney R. Tilson is the founder and managing partner of T2 Partners LLC, a New York hedge fund, and an outspoken proponent of share repurchases.
Gregory V. Milano is the co-founder and chief executive of Fortuna Advisors LLC, a corporate-finance consulting firm based in New York, who rarely encounters a buyback he considers the best use of a company's cash.
Here are edited excerpts of their discussion. Crowding Out
WSJ: Mr. Milano, why you do think buybacks are so often a bad idea?
MR. MILANO: Though some are successful with share repurchases, the evidence overwhelmingly shows that heavy buyback companies usually create less value for shareholders over time.
Many managements have become so infatuated with how buybacks increase earnings per share that these distributions are crowding out sound business investments that create more value over time.
In one study, those that reinvested a higher percentage of their cash generation into capital expenditures, research and development, cash acquisitions and working capital delivered substantially higher total shareholder return than those that reinvested less.
The problem with buybacks is considerably compounded by poor timing: the propensity to buy when the price is high and not when it's low. A measure called buyback effectiveness compares the buyback return on investment to total shareholder return, and indicates whether the company buys low or high relative to the share price trend. From 2008 through mid 2011, nearly two out of three companies in the S&P 500 had negative buyback effectiveness.
Most academic research shows that share prices typically increase when buybacks are announced, which benefits short-term owners. For those interested in long-term value creation, which should be the focus of managements and boards, the evidence convincingly shows that buybacks usually do not help.
WSJ: Mr. Tilson, what makes buybacks work for investors, rather than against them?
MR. TILSON: I agree with Greg that most companies do not think or act sensibly regarding share repurchases and therefore end up destroying value.
It never ceases to amaze me—and, when a company we own does the wrong thing, infuriate me—how few companies think sensibly about this topic and thus buy back stock for all the wrong reasons: to prop up the price, signal "confidence," offset options dilution, etc.
But the same could be said of acquisitions, and does anyone believe that all acquisitions are bad? Share repurchases, like acquisitions, can create enormous long-term shareholder value if done properly.
Warren Buffett, in his 1999 letter to Berkshire Hathaway shareholders, perfectly captures the key elements of a smart share repurchase program:
"There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds—cash plus sensible borrowing capacity—beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively calculated."
In other words, once a business has a strong balance sheet, then it should first take its excess cash/cash flow and reinvest in its own business—if (and only if) it can generate high rates of return on such investment.
Then, if it still has cash/cash flow left over, it should return it to shareholders, who are, after all, the owners of the business—it's their cash. But this raises the question of whether cash should be returned via dividends or share repurchases.
That depends on the price of the stock versus its intrinsic value.
My rule of thumb is that if the stock is trading within 20% of fair value, then the company should use dividends; if it's trading at greater than a 20% discount, buybacks. If it's trading at a big premium to fair value, then the company should issue stock, via compensation to employees, a secondary offering and/or as an acquisition currency. Getting It Wrong
MR. MILANO: I agree with the Warren Buffett quote completely, and Whitney's view on how often managements get it wrong is really one of my main principles.
As an investment banker at Credit Suisse in 2007 I visited scores of companies to explain that their share prices were so high that the expectations they needed to achieve just to justify their price, let alone grow it, were unrealistic in a world where we experience the ups and downs of business cycles. I suggested they use convertible-debt financing to fund their growth.
Continued in article
Treasury Stock --- http://en.wikipedia.org/wiki/Treasury_stock
"PCAOB Faults BDO USA for Audit Failures."
by Michael Cohn, Accounting Today, March 5, 2012 ---
http://www.accountingtoday.com/news/PCAOB-Faults-BDO-USA-Audit-Failures-61932-1.html
The Public Company Accounting Oversight Board has issued its latest inspection report on BDO USA and found several audit failures and deficiencies.
The PCAOB reviewed 31 audits and found significant deficiencies with audits of eight companies in the board’s 2010 inspection of the firm.
“The inspection team identified matters that it considered to be deficiencies in the performance of the audit work it reviewed,” said the PCAOB report. “Those deficiencies included failures by the firm to identify, or to address appropriately, financial statement misstatements, including failures to comply with disclosure requirements, as well as failures by the firm to perform, or to perform sufficiently, certain necessary audit procedures. In some cases, the conclusion that the firm failed to perform a procedure was based on the absence of documentation and the absence of persuasive other evidence, even if the firm claimed to have performed the procedure.”
Continued in article
This is not the first time BDO has been in trouble with the PCAOB.
Bob Jensen's threads on BDO are at
http://www.trinity.edu/rjensen/Fraud001.htm
Phony Education and Training Search Sites
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!
Sometimes there's useful information on phony distance education promotion
sites for for-profit universities
The supposed 100 Best Blogs for Economics Students ---
http://www.onlineuniversities-weblog.com/50226711/100-best-blogs-for-econ-students.php
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.
I'm bombarded with messages like the following one from ---
http://www.paralegal.net/
Then go to the orange box at
http://www.paralegal.net/more/
If you feed in the data that you're interested in a bachelor's degree in
business with an accounting concentration, the only choices given are for-profit
universities. No mention is made of better programs at the Universities of
Wisconsin, Maryland, Connecticut, Massachusetts, etc.
I've stopped linking to the many for-profit university promotional sites because
they are so misleading.
My threads on distance education alternatives are at
http://www.trinity.edu/rjensen/Crossborder.htm
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.
"'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 for-profit universities operating in the gray zone
of fraud ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#ForProfitFraud
Question
Have traditional universities been lax about adopting some of the better
(needed) innovations of for-profit universities?
"For-Profit Lessons for All," by Ben Wildavsky, Inside Higher Ed,
March 1, 2012 ---
http://www.insidehighered.com/views/2012/03/01/essay-what-nonprofit-higher-ed-can-learn-profit-sector
Jensen Comment
Perhaps the above article overlooked some traditional universities that have
innovated along such lines.
Humor Between March 1-31, 2012
No.1 hit: Obama, The Musical (Gilbert & Sullivan Obama Spoof) --- http://www.247comedy.com/obama-musical
Monty Python’s Away From it All: A Twisted Travelogue with John Cleese ---
Click Here
http://www.openculture.com/2012/03/monty_pythons_iaway_from_it_alli_a_twisted_travelogue_with_john_cleese.html
Forwarded by Auntie Bev
APHORISM - A short, pointed sentence that expresses a wise or clever observation or a corny, but cute general truth.
1. The nicest thing about the future is . . . that it always starts tomorrow.
2. Money will buy a fine dog, but only kindness will make him wag his tail.
3. If you don't have a sense of humor, you probably don't have any sense at all.
4. Seat belts are not as confining as wheelchairs.
5. A good time to keep your mouth shut is when you're in deep water.
6. How come it takes so little time for a child who is afraid of the dark to become a teenager who wants to stay out all night?
7. Business conventions are important. . .because they demonstrate how many people a company can operate without.
8. Why is it that at class reunions you feel younger than everyone else looks?
9. Scratch a cat . . . and you will have a permanent job.
10. No one has more driving ambition than the teenage boy who wants to buy a car.
11. There are no new sins; the old ones just get more publicity.
12. There are worse things than getting a call for a wrong number at 4 a.m. - like, it could be the right number.
13. No one ever says "It's only a game" when their team is winning.
14. I've reached the age where 'happy hour' is a nap.
15. Be careful about reading the fine print. . . . there's no way you're going to like it.
16. The trouble with bucket seats is that not everybody has the same size bucket.
17. Do you realize that, in about 40 years, we'll have thousands of old ladies running around with tattoos?
(And rap music will be the Golden Oldies!)
18. Money can't buy happiness -- but somehow it's more comfortable to cry in a Cadillac than in a Yugo.
19. After 60, if you don't wake up aching in every joint, you're probably dead.
20. Always be yourself because the people that matter don't mind . . . and the ones that mind don't matter.
21. Life isn't tied with a bow . . . . . . . .. but it's still a gift.
and REMEMBER...."POLITICIANS AND DIAPERS SHOULD BE CHANGED OFTEN AND FOR THE SAME REASON".
Forwarded by Jim
'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.'
Forwarded by Jim
Dear Kean Elementary:This letter was sent to the Principals office after the school had sponsored a luncheon for the elderly. An elderly lady received a new radio at the lunch as a door prize and was writing to say thank you. This story is a credit to all humankind. Forward to anyone you know who might need a lift today..
Forwarded by Auntie Bev
Grins and Snickers
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?"
Wouldn't it be great if that happened more often?
------------------------------------------------------------
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.."
Al said, "I'd like them to say, 'Look, he's moving!'"
------------------------------------------------------------
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?"
The Lord replies, "A minute."
Smith asks, "And what does a million dollars mean to you?"
The Lord replies, "A penny."
Smith asks, "Can I have a penny?"
The Lord replies, "In a minute."
-------------------------------------------------
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.
"Six months after I die," he said, "I want you to marry Bob."
"But I thought you hated Bob," she said..
With his last breath John said, "I do!"
--------------------------------------
A man goes to see the Rabbi. '
"Rabbi, something terrible is happening and I have to talk to you about it."
The Rabbi asked, "What's wrong?"
The man replied, "My wife is poisoning me.
The Rabbi, very surprised by this, asks, "How can that be?"
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?
The man said, "Yes" and the Rabbi replied, "Take the poison."
Duck in a Truck --- http://biggeekdad.com/2010/03/duck-in-a-truck/
1943 Donald Duck video promoting paying our income taxes ---
http://www.youtube.com/watch?
Thank you Barry Rice for the heads up.
Forwarded by Paula
Howz'it goin'? What'cha doin'?
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 ?"
Forwarded by Paula
50th HS reunion
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.
Finally, he picked up courage to ask her, "Will you marry me?"
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.
Children Are Quick
____________________________________
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.
(I want to adopt this kid!!!)
___________________________________
TEACHER: Harold, what do you call a person who keeps on talking when people are
no longer interested? HAROLD: A teacher __________________________________
Due to current economic conditions the light at the end of the tunnel has been
turned off!
Fact Checking Bill Murray: A Short, Comic Film from Sundance 2008 ---
Click Here
http://www.openculture.com/2012/03/fact_checking_bill_murray_a_short_comic_film_from_sundance_2008.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Health Message from Maxine (forwarded by Maureen)
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.
It's the tortoise life for me!
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!
Forwarded by Gene and Joan
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.'
Family Member: 'Maybe you should turn it over to collections.'
Citibank: 'Since it is two months past due, it already has been.'
Family Member: ‘So, what will they do when they find out she is dead?'
Citibank: 'Either report her account to frauds division or report her to the credit bureau, maybe both!'
Family Member: 'Do you think God will be mad at her?'
Citibank: 'Excuse me?' Family Member : 'Did you just get what I was telling you - the part about her being dead?'
Citibank: 'Sir, you'll have to speak to my supervisor.'
Supervisor gets on the phone:
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.'
Family Member: 'You mean you want to collect from her estate?'
Citibank: (Stammer) 'Are you her lawyer?'
Family Member: 'No, I'm her great nephew.' (Lawyer info was given)
Citibank: 'Could you fax us a certificate of death?'
Family Member: 'Sure.' (Fax number was given)
After they get the fax :
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.'
Citibank: 'Well, the late fees and charges will still apply.'
(What is wrong with these people?!?)
Family Member: 'Would you like her new billing address?'
Citibank: 'That might help....'
Family Member: ' Odessa Memorial Cemetery , Highway 129, Plot Number 69.'
Citibank: 'Sir, that's a cemetery!'
Family Member: 'And what do you do with dead people on your planet???'
Forwarded by Auntie Bev
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.
The old man slowly looked at him and said,
'Well....last week I sat out here with no shirt on and I got a stiff neck. This is your grandma's idea.'
Senior Moments Video by Golf Brooks --- http://www.youtube.com/embed/9nndS22Qda0?rel=0
Humorous iPad Demo ---
http://biggeekdad.com/2012/02/ipad-magic-demonstration/
Amazing things you never thought of trying with your iPad.
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/
| AECM (Accounting Educators)
http://listserv.aaahq.org/cgi- 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 |
| 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) “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?
|
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/
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
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-VyLXLAipgVideo 2
SnapTax From TurboTax Will Let You File Your Taxes From Your iPhone ---
http://www.youtube.com/watch?v=4jQ2xLQvbioJensen 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=104Free File Fillable Forms FAQs ---
http://www.irs.gov/efile/article/0,,id=226829,00.htmlTax 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 reportingCorrection, 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
"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.
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 HereAbstract
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.htmI 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
Dropbox file synchronization and storage
---
http://en.wikipedia.org/wiki/Dropbox_(storage_provider)
"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
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/
In particular, note the module entitled:
Purpose of
Theory: Prediction Versus Explanation
http://www.trinity.edu/
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/
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,
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.
Jensen Comment
I'm with Posner on this!
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/
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
"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 ---The most useless 20 college degrees," The Daily Beast, April 27, 2011 ---
http://www.thedailybeast.com/blogs-and-stories/2011-04-27/ useless-college-majors-from- journalism-to-psychology-to- theater/ 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_ACTOPICS: 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
"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.comTOPICS: 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
