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
March 31
February
29
January 31

March 31, 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.
title:
MAAW's new Forensic Accounting Journal
Bibliographies
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
What do international standards (IFRS) and COSO’s New Internal-Control Guidance
sadly have in common?
Answer
Lack of real world examples and varied-circumstance implementation guides
"What’s Missing from COSO’s New Internal-Control
Guidance: The proposal lacks real-world examples. CFOs will
need to fill in the blanks," by Kristine Brands, CFO.com,
March 20, 2012 ---
Click Here
http://www3.cfo.com/article/2012/3/risk-management_coso-internal-control-guidance?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cfo%2Fdaily_briefing+%28Latest+Articles+from+CFO.com%29
Although a lot (OK most) people disagree with me, I've been a long-time
advocate of replacing the U.S. corporate income tax with a VAT tax
"US VAT Introduction versus the Proposed Changes of The ‘European Union’
VAT System," by Richard Cornelisse, Big Four Blog, March 24, 2012 ---
http://www.big4.com/ernst-young/us-vat-introduction-versus-the-proposed-changes-of-the-european-union-vat-system
Railroads: The Transformation of Capitalism ---
http://www.library.hbs.edu/hc/railroads/
Transcontinental Railroad Pictures and Exhibits ---
http://cprr.org/Museum/Exhibits.html
Union Pacific Railroad: History and Photos
http://www.uprr.com/aboutup/history/index.shtml
Steam and Electric Locomotives of the New Haven Railroad ---
http://railroads.uconn.edu/locomotives/index.html
The Erie Railroad Glass Plate Negative Collection
http://libwww.syr.edu/information/spcollections/digital/erierr/
Accounting History (Railroad)
"The Collapse of the Railway Mania & the Birth of Accounting," by Paul
Kedrosky, Paul Kedrosky,com, · July 18, 2011 ---
Click Here
http://paul.kedrosky.com/archives/2011/07/the-collapse-of-the-railway-mania-the-birth-of-accounting.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29
July 26, 2011 reply from Robert Bruce Walker
Another
excellent effort – thanks. It did not take me long before I discovered a
gem. This claim is of fundamental importance

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

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

House Republicans proposed in their new budget this
week to reduce or eliminate an unspecified array of tax breaks in order to
offset the costs of lowering top tax rates for both corporations and
individuals to 25% from the current 35%.
The new report, by the nonpartisan Congressional
Research Service, underscores how far-reaching many of the tax breaks are,
which makes changing them a politically daunting task.
They include the exclusion from taxable income for
employer-provided health insurance, the biggest break, at $164.2 billion a
year in 2014; the exclusion for employer-provided pensions, the
second-biggest, at $162.7 billion; and the exclusions for Medicare and
Social Security benefits.
Other big breaks include the mortgage-interest
deduction, third-largest; taxing capital-gains income at lower rates than
other income; the earned-income credit for the working poor; and deductions
for state and local taxes.
The report, citing political opposition, technical
challenges and other reasons, said that "it may prove difficult to gain more
than $100 billion to $150 billion in additional tax revenues" by eliminating
tax breaks. That likely would leave little for reducing tax rates, perhaps
only enough for one or two percentage points in the top individual rate,
while maintaining the same level of revenue, the report said.
Continued in article
Jensen Comment
I'm suspicious that this greatly underestimates the so-called "tax breaks" by
not mentioning exclusions from revenue. For example, hundreds of billions of
interest revenue from municipal bonds are excluded from taxable revenue
(federal). Many types of life insurance payments are tax exempt. Clerics get
some generous exemptions for housing allowances. And there are capital gains
exemptions in Roth IRAs and scores of other exclusions.
Case Studies in
Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates," by Rachel Johnson Joseph Rosenberg Roberton
Williams, Urban-Brookings Tax Policy Center, February 7, 2012 ---
http://www.taxpolicycenter.org/UploadedPDF/412497-ETR.pdf
The U.S. does not have a
significantly smaller welfare state than the European nations. We’re just better
at hiding it.
"America Is Europe,"
by David Brooks, The New York Times, February 23, 2012 ---
http://www.nytimes.com/2012/02/24/opinion/brooks-america-is-europe.html?_r=3&ref=opinion
We Americans cherish our myths. One myth is that
there is more social mobility in the United States than in Europe. That’s
false. Another myth is that the government is smaller here than in Europe.
That’s largely false, too.
The U.S. does not have a
significantly smaller welfare state than the European nations. We’re just
better at hiding it. The Europeans provide welfare provisions through direct
government payments. We do it through the back door via tax breaks.
For example, in Europe,
governments offer health care directly. In the U.S., we give employers a
gigantic tax exemption to do the same thing. European governments offer
public childcare. In the U.S., we have child tax credits. In Europe,
governments subsidize favored industries. We do the same thing by providing
special tax deductions and exemptions for everybody from ethanol producers
to Nascar track owners.
These tax expenditures are
hidden but huge. Budget experts Donald Marron and Eric Toder added up all
the spending-like tax preferences and found that, in 2007, they amounted to
$600 billion. If you had included those preferences as government spending,
then the federal government would have actually been one-fifth larger than
it appeared.
The Organization for
Economic Cooperation and Development recently calculated how much each
affluent country spends on social programs. When you include both direct
spending and tax expenditures, the U.S. has one of the biggest welfare
states in the world. We rank behind Sweden and ahead of Italy, Austria, the
Netherlands, Denmark, Finland and Canada. Social spending in the U.S. is far
above the organization’s average.
You might say that a tax
break isn’t the same as a spending program. You would be wrong.
The late David Bradford, a
Princeton economist, had the best illustration of how the system works.
Suppose the Pentagon wanted to buy a new fighter plane. But instead of
writing a $10 billion check to the manufacturer, the government just issued
a $10 billion “weapons supply tax credit.” The plane would still get made.
The company would get its money through the tax credit. And politicians
would get to brag that they had cut taxes and reduced the size of
government!
This is essentially what’s
been happening in sphere after sphere. Government controls more and more of
the economy. It just does it by getting people to do what it wants by
manipulating the tax code. Politicians get to take credit for addressing
problem after problem, but none of their efforts show up as unpopular
spending.
Many of these individual tax
expenditures are good for the country, like the charitable deduction and the
earned income tax credit. But, as the economist Bruce Bartlett demonstrates
in his impeccably fair-minded book, “The Benefit and the Burden,” the
cumulative effect of these tax breaks is terrible. Like overgrown weeds, the
tangle of tax breaks distorts behavior, clogs the economy and deprives the
government of revenue.
And because they are hidden,
many of the tax expenditures go to those who need them least, the well
connected and established over the vulnerable and the entrepreneurial.
The good news is that change
might finally be coming. The Obama administration has always theoretically
supported a simpler tax code even while operationally it has often muddied
it up. Nonetheless, this week, Treasury Secretary Timothy Geithner unveiled
a modest but sensible plan to simplify the corporate tax code. The plan is
not perfect. The Obama technocrats love tinkering and complexity. But
Geithner’s plan moves us a small step in the right direction and provides a
sensible foundation for the big tax negotiations to come.
Mitt Romney has a bigger
proposal, which reduces individual rates across the board and closes some
loopholes. It’s more comprehensive than the Geithner approach, but it
suffers from two weaknesses. First, it’s politics as usual. Romney is
specific about the candy — lower tax rates — but vague about the vegetables
— what loopholes would have to be closed to pay for them.
Moreover, it’s
unimaginative. Republicans are perpetually trying to do what Ronald Reagan
did. But top tax rates today aren’t as onerous as they were in 1980, so
lowering them won’t produce as many benefits. Imagine if Reagan ran for
office promising to recreate the glory days of Thomas Dewey and you get a
sense of how much G.O.P. thinking is stuck in the past.
Continued in article
Case Studies in
Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates,"
by Rachel Johnson Joseph Rosenberg Roberton
Williams, Urban-Brookings Tax Policy Center, February 7, 2012 ---
http://www.taxpolicycenter.org/UploadedPDF/412497-ETR.pdf
"Reimagining Capitalism." by Polly LaBarre, Harvard Business Review
Blog, February 27, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/02/reimagining_capitalism.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Summary of Major Accounting Scandals ---
http://en.wikipedia.org/wiki/Accounting_scandals
Bob Jensen's threads on such scandals:
Bob Jensen's threads on audit firm litigation and negligence ---
http://www.trinity.edu/rjensen/Fraud001.htm
Current and past editions of my
newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's fraud conclusions ---
http://www.trinity.edu/rjensen/FraudConclusion.htm
Bob Jensen's threads on auditor professionalism and
independence are at
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/Fraud001.htm#Governance
Free Textbooks: Advantages and Disadvantages
March 29, message from Ramesh Fernando
Prof. Jensen, I don't know if you have this link
but it's a great site
http://globaltext.terry.uga.edu/home
Accounting Principles both Financial Accounting and
Managerial Accounting
http://globaltext.terry.uga.edu/booklist?cat=Business
March 29, 2012 reply from Bob Jensen
Hi Ramesh,
Thank you Ramesh.
The Global Text Project seems to offer free alternatives for some textbooks
that are no longer totally free on Freeload Press ---
http://www.textbookmedia.com/Products/BookList.aspx
For example the following textbook is free from the Global Text Project:
8th Edition of Accounting Principles: A Business Perspective
(Managerial) by James Edwards, Roger Hermanson, Susan Ivancevich
[puff] ---
http://dl.dropbox.com/u/31779972/Accounting Principles Vol. 2.pdf
The above textbook is 1995 on Freeload Press is $16.95 ---
http://www.textbookmedia.com/Products/ViewProduct.aspx?id=3168
However, lecture and study guides are also available for a fee from Freeload
Press.
My worry about book and other free textbooks in general is how often they
are completely updated. The Global Text download of the 8th edition was last
revised in 2006, and this is 2012. In that period of time there have been
some changes in managerial accounting such as Lean Accounting ---
http://maaw.info/LeanAccountingMain.htm
The Edwards, Hermanson, and Ivancevich book does not mention Lean Accounting
to my knowledge.
Actually, I worry more about the updates for financial accounting
textbooks than updates of managerial accounting textbooks, because the FASB
and IASB are grinding out changes weekly with some things that need to be
put into revised editions of financial accounting textbooks as soon as
possible. Similar problems arise with auditing textbooks. It's virtually
impossible to have a long-term tax textbook that's not updated at least
annually is some way.
A huge problem with free or almost-free textbooks that pay no royalties
to authors is that the authors have fewer incentives to slave over revisions
vis-à-vis commercial textbooks that are paying tens of thousands of dollars
to successful authors year after year after year.
A second huge problem is some popular supplements available from
commercial publishers are not available from free or almost-free servers.
These supplements include test banks, videos, and software.
Teachers who use their own handouts in place of a textbook have some of
the same problems with updates. For example, think of all the financial
accounting handouts (including problems and cases) that must be revised when
the new joint standards ore issued on leases and revenue recognition.
Professors buried in teaching duties and research for new knowledge really
have to struggle to go back over 800 pages of student handouts to constantly
update these handouts. My advice is to find a very current revised textbook
and reduce the handouts to a more manageable 300 pages or less. Of course
the "handouts" can now be digital.
There are course certain courses for which there are no good textbooks
available for major modules of the course. I never found a good accounting
theory textbook that I though was suitable for my accounting theory course.
My students accordingly got 800 pages of my handouts ---
http://www.trinity.edu/rjensen/acct5341/acct5341.htm
But for my AIS course I had a great electronic textbook (Murthy and
Groomer) such that I only needed 300 pages of my handouts ---
http://www.trinity.edu/rjensen/acct5342/acct5342.htm
Incidentally, most free textbooks were once high-priced commercial
textbooks dropped by publishing companies that gave the copyrights back to
the authors. These textbooks were dropped in the past two decades largely
due to publishing company mergers and acquisitions. When Publisher A and
Publisher B have competing textbooks that are virtually identical when A and
B are merged a decision is usually made to drop one of the textbooks even
though it has been somewhat profitable before the merger. I have a number of
relatively close friends that experienced this type of copyright return
including Phil Cooley who had his successful basic finance textbook
copyright returned in one of these publishing house mergers
Respectfully,
Bob Jensen
Bob Jensen's threads on free textbooks are at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Bob Jensen's threads on free courses, lectures, videos, and course
materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Virtually every basic accounting course stresses the differences between
property (e.g., cash) dividends versus stock dividends versus stock splits.
From The Wall Street Journal Accounting Weekly Review on March 23,
2012
Apple Pads Investor Wallets
by:
Jessica E. Vascellaro
Mar 20, 2012
Click here to view the full article on WSJ.com
TOPICS: Dilution, Dividend, Tax Avoidance, Tax Laws, Taxation
SUMMARY: "Apple on Monday bowed to mounting pressure to return some
of its roughly $100 billion in cash reserves to shareholders by saying it
would issue a dividend and buy back stock....The last time Apple paid a
dividend was in December 1995, a year before [Steve] Jobs returned....But
following [Tim] Cook's appointment as CEO last August and the death of Mr.
Jobs in October, Apple's approach changed...." The company will pay a $2.65
a share quarterly dividend beginning in July; "Apple's board also authorized
a $10 billion share repurchase program to begin in the quarter starting
Sept. 30...."
CLASSROOM APPLICATION: The main article is useful to introduce
dividend policy and stock buyback decisions when introducing those topics in
financial accounting classes covering stockholders' equity. The related
article highlights tax issues in repatriating overseas cash faced by many
U.S. corporations.
QUESTIONS:
1. (Introductory) Why is it so newsworthy that Apple will begin to
pay dividends to its shareholders?
2. (Introductory) Based on the discussion in the article, what are
Mr. Cook's reasons for paying a dividend? What were the late Mr. Jobs's
reasons for not doing so?
3. (Advanced) How are stock repurchases similar to dividends?
4. (Advanced) According to the article, what is the specific
purpose of starting a stock repurchase plan? In your answer, define the term
"dilution."
5. (Advanced) Refer to the related article. Where is most of
Apple's significant cash balance held?
6. (Advanced) Again refer to the related article. Why is Apple, as
are many U.S. based international companies, facing "significant tax
consequences" if it decides to "repatriate" bring back overseas cash
balances? How is Apple balancing this concern with its need for cash to
continue to grow?
7. (Advanced) How is Apple balancing its tax concern with its need
for cash to continue to grow?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Apple's Move Puts Spotlight on Foreign Cash Holdings
by Maxwell Murphy
Mar 20, 2012
Page: A6
"Apple Pads Investor Wallets,"
by Jessica E. Vascellaro, The Wall Street Journal, March 20, 2012 ---
http://online.wsj.com/article/SB10001424052702304724404577291071289857802.html?mod=djem_jiewr_AC_domainid
Tim Cook is proving he's not simply the caretaker
of Apple Inc. AAPL -0.53% and the unyielding strategies set forth by his
predecessor, Steve Jobs.
Apple on Monday bowed to mounting pressure to
return some of its roughly $100 billion in cash reserves to shareholders by
saying it would issue a dividend and buy back stock, marking the technology
company's biggest break yet from Mr. Jobs's philosophy.
The last time Apple paid a dividend was in December
1995, a year before Mr. Jobs returned to Apple. Mr. Jobs largely resisted
returning cash to shareholders, whose clamoring for a cut of Apple's growing
cash stockpile increased in recent years, according to people familiar with
the matter.
Mr. Jobs had long argued that Apple's cash—which at
$97.6 billion as of Dec. 31 is the greatest of any nonfinancial U.S.
corporation—should be used to invest in areas such as Apple's supply chain,
retail stores, research and the rare acquisition. He spent little time with
shareholders and rarely discussed it at all.
Mr. Jobs was persuaded to do a buyback in the wake
of the Sept. 11, 2001, terrorist attacks as the stock market fell, according
to a person familiar with the matter. After that, several executives thought
the company should continue to do buybacks because the stock price seemed
very cheap, this person said. Journal Community
Apple hired bankers to study the impact of a
buyback, according to this person, who said Mr. Jobs rejected the idea
before it went anywhere. He felt the company could use the money to expand
the business by more than the bump to per-share earnings a buyback would
provide, this person said.
But following Mr. Cook's appointment as CEO last
August and the death of Mr. Jobs in October, Apple's approach changed. At a
company event honoring Mr. Jobs last Oct. 19, Mr. Cook recounted a
conversation in which the co-founder told him to run Apple as he saw fit.
"Just do what's right," Mr. Cook said he was told.
WSJ's Spencer Ante and Jennifer Valentino discuss
Apple CEO Tim Cook's emphasis on innovation and future products as part of
the company's announcement of a stock dividend and buyback.
Barron's associate editor Michael Santoli stops by
Mean Street to discuss the impact of Apple's dividend and buyback
announcement on the broader market. Photo: Reuters.
Mr. Cook grew more forthcoming publicly on the cash
topic. In a rare appearance at an investor conference in February, Mr. Cook
acknowledged that the Apple board was actively discussing what to do with
the cash, since the company had more than it needed to run its business.
That led to Monday's conference call, in which the
Cupertino, Calif., company announced it would pay a $2.65 a share quarterly
dividend in its quarter beginning in July. That represents a 1.8% yield
based on Apple's closing stock price before the news, roughly in line with
the yield on the Standard & Poor's 500 index and in the middle of the pack
of what some other dividend-issuing tech companies pay.
Apple's board also authorized a $10 billion share
repurchase program to begin in the quarter starting Sept. 30, largely to
offset dilution from issuing new restricted-stock units to employees. Apple
said the dividend and buyback programs would cost the company $45 billion in
the first three years and that it would continue to evaluate it.
"Even with these investments, we can maintain a war
chest for strategic opportunities and have plenty of cash to run our
business," Mr. Cook said Monday. "We have thought very deeply and very
carefully about our cash balance."
The package marked the most significant move to
date by Mr. Cook in putting his own imprint on Apple and reflects how he has
been more forthcoming with shareholders, investors say.
While Mr. Jobs flouted usual business practices and
outside influence, Mr. Cook's shift on cash removes Apple as one of the few
dividend holdouts among large technology companies. Over the past decade,
other tech behemoths such as Microsoft Corp., MSFT +0.27% Oracle Corp. ORCL
-2.65% and Cisco Systems Inc. CSCO -0.59% had also begun payouts to
shareholders as the companies matured.
But unlike those companies—which were experiencing
slower growth rates and whose initiation of a dividend was regarded as a
sign that some of their fastest growth was behind them—Apple is still
expanding rapidly. In its last reported quarter, Apple more than doubled its
profits and increased revenue 73%, largely on the strength of sales of its
hit iPad and iPhone devices.
Some investors and analysts have said in interviews
they wonder how long Apple's growth streak can last, particularly once the
company has saturated some of its current growth engines, like smartphones.
But Mr. Cook stressed Apple remains in a growth phase on Monday's call,
saying "we don't see ceilings to our opportunities."
Apple's cash shift is unlikely to have major ripple
effects on Wall Street, however. Trading volumes for Apple's stock could
increase as funds that have been shut out from holding the shares because it
didn't issue a dividend now can now buy it, potentially boosting its price.
Still, analysts noted the stock is already widely held and others said
expectations for a dividend have been factored into the current stock price.
Continued in article
Teaching Case on Preferred Stock Shares, Warrants, and Dividends
From The Wall Street Journal Accounting Weekly Review on April 28, 2011
Deal Journal: Warren Buffett's Profit on GE Investment: $1.2 Billion
by: Shira Ovide
Apr 22, 2011
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, Dividends, Financial Statement Analysis
SUMMARY: "In the
financial crisis, Warren Buffett loaned out his halo of respectability to
prop up sentiment about Goldman Sachs Group, Dow Chemical, General Electric
and other blue-chip companies." He invested nearly $3 billion in GE in
exchange for preferred stock and warrants issued together.
CLASSROOM APPLICATION: The
article is useful to cover a live example of issuing preferred stock and
warrants, typically covered in a second semester intermediate financial
accounting course. Questions also ask students to access the GE financial
statements (2010 Form 10-K on its investor relations web site) to examine
the presentation of the stock and warrants in stockholders' equity and the
preferred stock dividends deducted in calculating earnings available for
common shareholders in the statement of earnings.
QUESTIONS:
1. (Introductory) According the news article, Warren Buffet's
Berkshire Hathaway invested $3 billion in GE during the height of the
financial crisies. What types of securities did GE issue to Berkshire
Hathaway? What are the terms of that issuance?
2. (Advanced) Summarize the accounting for the combined issuance of
preferred stock and warrants.
3. (Advanced) Access the GE 2010 annual report available through
GE's investor relations web site at
http://www.ge.com/investors/financial_reporting/index.html Click on
Form 10-K 2010, locate the balance sheet and Note 15. Shareowners' Equity.
Describe how the preferred stock and warrants issued to Berkshire Hathaway
are presented in the GE financial statements.
4. (Introductory) Return to the Statement of Earnings (Income
Statement) in the 10-K filing. How are the preferred dividends that are
described in the article presented in this statement?
5. (Advanced) Based on the discussion in the article, do you think
these dividends have been paid? Comment on the deduction of dividends to
determine "Net earnings attributable to GE common shareowners" given your
answer to question 3 above.
Reviewed By: Judy Beckman, University of Rhode Island
"Deal Journal: Warren Buffett's Profit on GE Investment: $1.2 Billion," by:
Shira Ovide, The Wall Street Journal, April 22, 2011 ---
http://blogs.wsj.com/deals/2011/04/21/warren-buffetts-profit-on-ge-investment-1-2-billion/?mod=djem_jiewr_AC_domainid
In the financial crisis, Warren Buffett loaned out
his halo of respectability to prop up sentiment about Goldman Sachs Group,
Dow Chemical, General Electric and other blue-chip companies. Those bets
came with some heavy costs for the companies, and produced handsome profits
for the Oracle of Omaha.
GE reiterated today it plans to repay Buffett by
October for his $3 billion investment in the conglomerate, an agreement
struck in October 2008 when the financial world was coming apart at the
seams.
As in other reputation-bolstering investments
Buffett made during that stretch, GE agreed to pay the Oracle a 10% annual
dividend, or $300 million a year in GE’s case.
The numbers-loving Buffett carried around a coin
changer in his schoolboy days, and probably could tell you that his GE
dividend amounts to $9.51 a second. (That buys about 41% of a sirloin dinner
at Buffett hangout, Gorat’s Steak House.)
When GE pays Buffett back, they will owe him 10%
more than he paid, or $300 million on top of his $3 billion payback. Plus,
Buffett will have accumulated $900 million in cumulative dividends, assuming
GE repays the preferred-stock investment in October. All told, Buffett’s $3
billion investment will generate a total profit of $1.2 billion. Not too
shabby.
Now the bad news: Buffett’s investment also
entitled him to buy 134.8 million shares of GE common stock at an exercise
price of $22.25. With GE stock languishing below $20 a pop, those stock
warrants are worthless — for now. But fear not. The warrants were good for
five years, and GE shares can always move up and give Buffett an additional
windfall (or move down and permanently deny Buffett the cherry atop his
sundae of GE profit).
Buffett already has been repaid for other
investments he made during the financial crisis, including his purchase of
Swiss Reinsurance debt, and his $5 billion preferred investment in Goldman
Sachs. And Buffett, with a net worth of
$50
billion, has sounded downright downbeat about it.
“Goldman Sachs has the right to call our preferred
on 30 days notice, but has been held back by the Federal Reserve (bless
it!), which unfortunately will likely give Goldman the green light before
long,” Buffett wrote in February, in
his annual letter to Berkshire Hathaway investors.
Since then, Goldman has indeed repaid Buffett, who
can count roughly
$3.7 billion in profits on his investment,
including the value of his in-the-money warrants on Goldman stock. His Swiss
Re investment padded Buffett’s wallet by roughly
$1 billion.
Continued in article
Bob Jensen's threads on Accounting Theory are at
http://www.trinity.edu/rjensen/Theory01.htm
Problems With Absorption Costing
"Lots of Trouble: U.S. automakers used a common accounting practice
to justify huge run-ups in inventories, but the downside risks offer lessons
for all manufacturers," by Marielle Segarra, CFO Magazine, March
2012, pp. 29-31 ---
http://www.cfo.com/article.cfm/14620031?f=search
It's no secret that in the years leading up to the
Great Recession, the Big Three automakers were producing vehicles in excess
of market demand, leading to large inventories on dealers' lots across the
country. Now, some researchers say they know why the automakers acted as
they did, and they are warning other manufacturers to avoid the same
temptation.
By coupling excess production with absorption
costing, managers at GM, Ford, and Chrysler were able to boost profits and
meet short-term incentives, according to professors at Michigan State
University and Maastricht University in the Netherlands. (Their study on the
topic was recognized in January for its contribution to management
accounting by the American Institute of Certified Public Accountants and
other groups.) Ultimately, however, the practice hurt the automakers, in
part by driving up advertising and inventory holding costs and possibly
causing a decline in brand image, the researchers say.
From 2005 to 2006, long before GM and Chrysler
filed for bankruptcy and appealed for federal aid, the automakers had
abundant excess capacity. Then as now, they had enormous fixed costs, from
factories and machinery to workers whose contracts protected them from
layoffs when demand was low, says Karen Sedatole, associate professor of
accounting at Michigan State and a co-author of the study.
To "absorb" those massive costs, the automakers
churned out more cars while using absorption costing, a widely used system
that calculates the cost of making a product by dividing total manufacturing
costs, fixed and variable, by the number of products produced. The more
vehicles they made, the lower the cost per vehicle, and the higher the
profits on the income statement. In effect, the automakers shifted costs
from the income statement to the balance sheet, in the form of inventory.
Under Statement of Financial Accounting Standards
No. 151, companies can use absorption costing for "normal capacity" but must
treat "abnormal" excess capacity as a period cost, according to Sedatole.
But the standard doesn't clearly define what's normal, leaving room for
companies to overproduce in order to lower unit cost. Companies that do so
"are, in a way, managing earnings upward by trapping costs on the balance
sheet as inventory, so they won't hit the income statement," she says.
Eroding Brand Image But business leaders should
think twice before adopting this tactic, cautions Sedatole. Even though they
can make their companies appear more profitable in the short term by
concealing excess capacity costs on the balance sheet, holding so much
excess inventory can exact a price.
"When [the dealers] couldn't sell the cars, they
would sit on the lot," says Sedatole. "They'd have to go in and replace the
tires, and there were costs associated with that." The companies also had to
pay to advertise their cars, often at discounted prices. And by making their
cars cheaper and more readily available, they may have turned off potential
customers, she adds.
"If you see a $12,000 car in a TV ad is being
auctioned off for $6,000 at your local dealer, that affects your image of
that vehicle," says Sedatole. This effect on brand image is difficult to
quantify, but the researchers correlated 1% of rebate with a 2% decline in
appeal in the J.D. Power and Associates Automotive Performance Execution and
Layout Index.
Some might argue that it's good strategy for a
company already obligated to pay salaries to make products up to its
capacity. "An economist would say as long as I could sell the car for more
than its variable cost, I'm better off selling it," Sedatole says. But, she
adds, "that's a very, very short-term way of thinking" because it neglects
the costs that come with having a lot of excess inventory.
Lessons Learned Using absorption costing to monitor
efficiency can lead companies to make poor production decisions, says
Ranjani Krishnan, professor of accounting at Michigan State and a co-author
of the study (along with Alexander Brüggen, an associate professor at
Maastricht University). A company that does this could seem to be growing
less efficient when demand decreases. If a factory makes fewer cars this
year than last year, for instance, its cost per car will look higher, and it
may then overproduce in order to present itself more favorably to
shareholders, consumers, and analysts.
Instead, Krishnan suggests, companies should record
the cost of excess capacity as an expense on their internal income
statements, a practice that may help give them perspective.
Another way to avoid overproduction is to change
the way executives are paid. Like many companies, the automakers put their
managers under pressure to deliver in the short term by structuring
compensation incentives around metrics like labor hours per vehicle, which
the industry's Harbour Report uses to compare automaker productivity. With
fixed labor hours, the only way to look more efficient under this measure is
to produce more cars.
"A lot of this behavior was frankly driven by
greed," says Krishnan. "If you look at the type of managerial incentives
[the automakers] had during the time of our study, the executive-committee
deliberations, it was all about meeting short-term quarterly traffic numbers
or meeting analysts' forecasts so that they could get their bonuses."
Continued in article
Bob Jensen's threads on cost and managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
How to Buy a Car Using Game Theory ---
Click Here
http://mindyourdecisions.com/blog/2012/02/29/video-how-to-buy-a-car-using-game-theory/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+mindyourdecisions+%28Mind+Your+Decisions%29&utm_content=Google+Reader
Video ---
http://www.youtube.com/watch?v=LNrLfylgHE0
"When Agencies Go Nuclear: A Game Theoretic Approach to the Biggest Sticks
in an Agency’s Arsenal," by Brigham Daniels, George Washington University,
February 2012 ---
http://groups.law.gwu.edu/lr/ArticlePDF/80-2-Daniels.pdf
Over 45,000 lawyer jobs in the United States were lost since the 2008
economic meltdown
Should we break out the Champagne? (just kidding)
"Law Firm Recruiting Volumes Inch Up, Making Modest Gains After
Recession-Era Declines," NALP, 2012 ---
http://www.nalp.org/uploads/PerspectivesonFall2011.pdf
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
The Zimbabwe School of Economics: In effect
printing $2 trillion
"The High Cost of the Fed's Cheap Money Encouraging consumption at the
expense of saving inhibits long-term economic growth,"
by Andy Laperriere, The Wall Street Journal, March 5, 2012 ---
http://online.wsj.com/article/SB10001424052970203753704577255641618477730.html#mod=djemEditorialPage_t
During the past three years, the Federal Reserve
has tripled the size of its balance sheet—in
effect printing $2 trillion—something it
had never done in its nearly 100-year history. The Fed has lowered
short-term interest rates to zero and signaled that it will keep them at
that level for years. Inflation-adjusted short-term rates, or real rates,
have been in the minus 2% range during the past couple of years for the
first time since the 1970s.
The unfortunate fact is, as Milton Friedman
famously observed, there is no free lunch. After the Fed's loose monetary
policy helped spur the boom-bust in
Artificially reducing Treasury yields provides a
near-term benefit as federal borrowing costs are lower, but this unusually
low cost of borrowing is enabling Congress and the president to run an
unsustainable fiscal policy that could eventually lead to an economic
calamity. Governments like Greece and Italy benefited from artificially low
rates for years, and those low rates undoubtedly played a key role in those
governments not confronting their serious fiscal imbalances.
Low rates have helped those who have been able to
borrow or refinance their debts at lower rates, especially homeowners. But
this has come at a high cost to savers. Zero rates are a major problem for
any saver, but it is especially difficult for those in or near retirement.
Government bonds are investments that now offer return-free risk.
The Fed is hoping the lack of return in
certificates of deposit and bonds (or more accurately, negative returns,
adjusted for inflation) will prompt investors to take on more risk by
investing in stocks, high-yield corporate bonds and other investments. This
is pushing people who have a low risk tolerance to take on more risk than
may be advisable.
Moreover, QE and ZIRP are specifically designed to
discourage saving and encourage people to consume more now to boost
near-term gross domestic product. But saving is deferred consumption—people
save to earn a return so that they may consume more in the future (say, for
retirement or a major purchase). Scores of economists have testified before
Congress for decades that Americans don't save enough and that this inhibits
long-term economic growth. Prosperity does not come from spending; it comes
from work, saving and investment.
Defenders of QE and ZIRP would say that rather than
borrowing economic growth from the future, these policies merely smooth the
economic cycle and reduce the economic dislocation associated with deep
recessions or weak recoveries. Of course, that was the rationale for the
exceptionally low rates during the 2002-2004 period, which, like today, were
specifically aimed at depressing saving and encouraging consumption. Rather
than smooth the economic cycle, that strategy helped create an historic
boom-bust.
Some say we must encourage higher consumption
because it accounts for more than 70% of GDP, and the recovery is too
fragile to risk allowing a rise in the savings rate. But the recession was
officially over two years ago. For at least the past decade, monetary policy
has consistently punished prudent savers.
Worse, the Fed is promising to keep these policies
in place for years to come. When do we ever get to the point where we allow
interest rates to return to some kind of natural equilibrium and allow the
economy to gradually rebalance in a way that would boost long-term economic
growth?
There is no doubt the Fed is doing what it believes
is best. But in addition to the risk of inflation inherent in QE and ZIRP,
which Chairman Ben Bernanke has said he is 100% confident he can prevent,
Fed officials are dismissive of the notion that there are significant costs
or trade-offs associated with the policy they are pursuing.
This is disconcerting. Is there really no chance,
zero chance, the Fed will be late to pick up signs of inflation? What
accounts for such confidence—given that the Fed dismissed criticisms from
2002-2004 that its policies would distort economic decisions and cause
hard-to-predict imbalances, that it was oblivious to the housing collapse
well into 2007, and that to this day many Fed officials refuse to accept
that monetary policy played any role in creating the housing bubble?
During the bubble, Fed officials argued they
couldn't spot bubbles in advance, but that an aggressive monetary policy
response could limit the downside impact if a bubble were to burst. As it
turns out, the dislocation from the housing bust and the financial crisis
have been far more costly than almost anyone imagined. Shouldn't that cause
policy makers inside and outside of the Fed to ask hard questions as it
pursues its unprecedented campaign of quantitative easing and zero
rates?housing, it's remarkable how little attention has been devoted to
exploring the costs of Fed policy.
A few critics of quantitative easing (QE) and the
zero interest rate (ZIRP) have correctly pointed out that these policies
weaken the dollar and thereby reduce the purchasing power of American
paychecks. They increase the risk of future inflation, obscure the true cost
of the unsustainable fiscal policy the federal government is running, and
transfer wealth from savers to debtors.
But QE and ZIRP also reduce long-term economic
growth by punishing savers, reducing saving and investment over the long
run. They encourage the misallocation of resources that at a minimum is
preventing the natural rebalancing of our economy and could sow the seeds of
another painful boom-bust.
One intended effect of a loose monetary policy is a
weaker dollar, which can help gross domestic product by boosting exports.
But a weaker dollar also raises import prices (such as oil prices) for
American consumers. For the average American family, this adverse impact has
likely outweighed any positive impact from QE and ZIRP.
The cost of a weaker dollar for most people is not
offset by temporarily higher stock prices for two reasons. First, most
Americans don't own much stock. Second, stock prices are not going to be
higher 10 years from now because of the Fed's policies, so the effect is to
bring forward equity returns, not increase long-term returns.
Bob Jensen's threads on the pros and cons of the bailout as it evolved ---
http://www.trinity.edu/rjensen/2008Bailout.htm
IVSC = International Valuation Standards Council ---
http://www.ivsc.org/
The IVSC is now addressing the very, very difficult problem of valuing
certain types of derivative financial instruments ---
http://www.ivsc.org/news/nr/2012/nr120227.html
One of the major problems is that many derivatives
instruments contracts are customized unique contracts that are not exchange
traded, including forward contracts and most swaps contracts (portfolios of
forward contracts).
Bob Jensen's threads on how to value interest rate swaps ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
Note the book entitled PRICING DERIVATIVE SECURITIES, by
T W Epps (University of Virginia, USA) The book is published by World
Scientific ---
http://www.worldscibooks.com/economics/4415.html
Contents:
- Preliminaries:
- Introduction and Overview
- Mathematical Preparation
- Tools for Continuous-Time Models
- Pricing Theory:
- Dynamics-Free Pricing
- Pricing Under Bernoulli Dynamics
- Black-Scholes Dynamics
- American Options and 'Exotics'
- Models with Uncertain Volatility
- Discontinuous Processes
- Interest-Rate Dynamics
- Computational Methods:
- Simulation
- Solving PDEs Numerically
- Programs
- Computer
Programs
- Errata
Bob Jensen's threads on fair value accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue
AICPA SURVEY FINDS OPPORTUNITY EXISTS FOR CPAS TO BETTER LEVERAGE TECHNOLOGY
Source: AICPA
Country:
US Date: 15/03/2012
Contributor: Bob Schneider Web:
http://www.aicpa.org/Pages/Default.aspx
Summary from Accounting Education ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151926
The American Institute of CPAs (AICPA) has released
its 2012 Top Technology Initiatives Survey. The Survey indicates
that, like other business professionals, CPAs continue to wrestle with the
best strategy to maximize the benefits of emerging technologies, such as
mobile devices and cloud computing.
Survey takers said they are successfully meeting most of their technology
priorities, from information protection and privacy to data management. A
majority said their organization has appropriate policies in place to deal
with data security concerns, and necessary steps have been taken to insulate
IT networks and servers from cyberattack. At the same time, CPAs were less
certain about avoiding a data breach due to the loss of a laptop, tablet or
other mobile device.
“The ability to tap critical information on the go, virtually whenever you
want, is changing the way CPAs do business,” said Anthony Pugliese, CPA,
CGMA, CITP, the AICPA’s senior vice president of finance, operations and
member value. “But it imposes new burdens, too. CPAs and the clients and
companies they work for need to stay on top of technological shifts, make
the right decisions on access, security and privacy, and map out new areas
of growth. It’s clear we’re still working our way through these challenges.”
Most survey takers said their firms had the knowledge, financial
wherewithal, and access to sufficient staff and training resources to adopt
new technologies. Yet they were significantly less confident about
developing new revenue streams from those innovations.
“CPAs by our DNA tend to be a pretty skeptical group,” said David Cieslak, a
principal in the computer consulting firm Arxis Technology and a CPA who
holds the Certified Information Technology Professional (CITP) credential.
“We tend to be very cautious. We see the potential of new technologies, but
we also want to be certain about their long-term viability and security.”
As in past years, the survey measures the anticipated impact of certain
issues over the next 12 to 18 months for CPAs and their clients. Topping the
2012 list are (1) information security, (2) remote access and (3) control
and use of mobile devices. All three have a bearing on the challenges that
stem from the growing ubiquity and mobility of data, and represent a slight
shift from last year.
The top three in 2011 were (1) control and use of mobile devices, (2)
information security and (3) data retention policies/structure.
This year’s survey asked respondents to rate their organizational goals for
technology in the coming year. The leading technology priorities for 2012,
and survey takers’ assessment of how well their organizations are meeting
them, are:
(1) Securing the IT environment (62 percent)*
(2) Managing and retaining data (61 percent)
(3) Managing risk and compliance (65 percent)
(4) Ensuring privacy (62 percent)
(5) Leveraging emerging technologies (34 percent)
(6) Managing system implementation (52 percent)
(7) Enabling decision support and managing performance (46 percent)
(8) Governing and managing IT investment/spending (56 percent)
(9) Preventing and responding to fraud (60 percent)
(10) Managing vendors and service providers (56 percent)
Continued in article
Exchange Traded Funds (ETF) ---
http://en.wikipedia.org/wiki/Exchange-traded_fund
Tutorial Video on ETF Creation and Redemption---
http://www.youtube.com/watch?feature=player_embedded&v=2SCiO0Aivi0
R. Allen Stanford ---
http://en.wikipedia.org/wiki/Allen_Stanford
"R. Allen Stanford Guilty in Ponzi Scheme,"
by Daniel Gilbert and Tom Fowler, The Wall Stre3et Journal, March 6, 2012
---
Click Here
http://online.wsj.com/article/SB10001424052970203458604577265490160937460.html?mod=WSJ_hp_LEFTWhatsNewsCollection
After a criminal case that dragged on for nearly
three years, a jury of eight men and four women on Tuesday convicted Mr.
Stanford on 13 of the 14 charges brought by prosecutors, including fraud,
obstructing investigators and conspiracy to commit money laundering. The
verdict is a victory for the U.S. government, which targeted the chairman of
Stanford Financial Group as part of a crackdown on white-collar crime
following the financial crisis.
He faces a maximum of 230 years in prison. Mr.
Stanford's attorneys, while still under a court order to not discuss the
case, told reporters they would appeal but didn't specify on what grounds.
Prosecutors declined to comment.
Robert Khuzami, enforcement director of the
Securities and Exchange Commission, said in a statement, "Today's guilty
verdicts send a resounding message that those who violate the law and
obstruct SEC investigations will be held accountable. We applaud the skill
and tenacity of the prosecutors handling the case."
The verdict, coming on the fourth full day of
deliberations after a monthlong trial, marks a remarkable downfall for Mr.
Stanford, 61 years old, who rose from owning a gym in Texas to becoming a
billionaire knighted in Antigua. As the verdict was read, Mr. Stanford,
wearing a dark suit and open-necked shirt, turned to family members sitting
in the courtroom and appeared to mouth the words, "It's OK." [stanford1]
Reuters
2012: Stanford enters a Houston court Tuesday.
On Monday, the judge ordered jurors to continue
deliberating after they said they couldn't reach a unanimous verdict on all
14 criminal counts.
Prosecutors estimated Mr. Stanford's $7.1 billion
fraud was among the largest in history, but it was overshadowed by an even
greater financial crime: the $17.3 billion Ponzi scheme orchestrated by
financier Bernard Madoff, who pleaded guilty in 2009.
The end of Mr. Stanford's criminal case could allow
investors to attempt to recover hundreds of millions of dollars from his
accounts and the assets of Stanford Financial Group. A judge has placed on
hold the civil suit brought against him by the SEC while the criminal case
is pending. An appeal of the verdict, however, may delay investors' recovery
efforts.
Cassie Wilkinson, a Stanford Financial investor,
said she was "relieved, happy and sad," about the verdict. "I feel sorry for
his family, for his mother," she said, referring to Sammie Stanford, the
81-year-old who has been in the courtroom every day since deliberations
began. "It's a tragic loss for so many families, for tens of thousands of
investors."
After the verdict, jurors began to hear the case on
the Justice Department's efforts to seize funds in bank accounts controlled
by Mr. Stanford, estimated to hold more than $300 million. The SEC, in a
separate civil action, could ask a judge for permission to move forward with
its case if it believes there are additional assets to recover.
Continued in article
Bob Jensen's threads on Ponzi fraud ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi
"Online Calculator for SEC Filings: A Killer App for
CFOs? Tool grabs grand prize as "most inventive and useful" application in
national XBRL contest," by David Rosenbaum, CFO.com, March 1, 2012 ---
http://www.cfo.com/article.cfm/14621303?f=search
Thank you Glen Gray for the heads up.
Today at Baruch College of the City University in
New York City, XBRL US, a nonprofit consortium for extensible business
reporting language standards, awarded Calcbench, a Cambridge,
Massachusetts-based, two-person start-up, its $20,000 grand prize for the
"most inventive and useful application" using XBRL-formatted data from the
Securities and Exchange Commission's EDGAR database. The app in question? A
handy-dandy calculator.
The Calcbench application, which went live in
December 2011 and has gone through several iterations since then, achieving
its current level of functionality in late January, was designed and
programmed by company founders Pranav Ghai and Alex Rapp. It is a
browser-based, configurable calculator that enables users to click on any
number in an XBRL-tagged SEC filing and automatically calculate changes in
any category - cash and cash equivalents, inventory, accounts payable,
whatever - over quarters or years, and also to compare those results between
companies.
Today at Baruch College of the City University in
New York City, XBRL US, a nonprofit consortium for extensible business
reporting language standards, awarded Calcbench, a Cambridge,
Massachusetts-based, two-person start-up, its $20,000 grand prize for the
"most inventive and useful application" using XBRL-formatted data from the
Securities and Exchange Commission's EDGAR database. The app in question? A
handy-dandy calculator.
The Calcbench application, which went live in
December 2011 and has gone through several iterations since then, achieving
its current level of functionality in late January, was designed and
programmed by company founders Pranav Ghai and Alex Rapp. It is a
browser-based, configurable calculator that enables users to click on any
number in an XBRL-tagged SEC filing and automatically calculate changes in
any category - cash and cash equivalents, inventory, accounts payable,
whatever - over quarters or years, and also to compare those results between
companies.
Continued in article
CalcBench Home Page ---
http://www.calcbench.com/
Bob Jensen's XBRL threads ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
A Comparative Analysis of State Tax on Business, Tax Foundation, 2012
---
http://www.taxfoundation.org/files/lm_2012_proof_08.pdf
. . .
Table 7 on Page 14
Overall Results
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.
title:
Best and Worst Run States in America — An
Analysis Of All 50 (Debt, Government,
Governmental, Entitlements, States, California, Massachusetts,
Wyoming, Minnesota)
citation:
From the AICPA CPA Letter Daily on
December 7, 2011
For the
second year, 24/7 Wall St. ranked the 50 states according to how
well they are run. Factors included the state's financial health,
standard of living, education system, employment rate, crime rate
and how efficiently the state uses its resources to provide
government services. 24/7 Wall St. determined that Wyoming is the
best-run state and California is the worst run.
24/7 Wall St.
http://247wallst.com/2011/11/28/best-and-worst-run-states-in-america-an-analysis-of-all-50/
brief description:
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.
title:
How do we account for "lifetime" warranties?
description:
How do we account for “lifetime warranties” that
are not backed by the Federal government?
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 ![WSJ Video]()
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
Ernst & Young
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
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..
Dear Kean Elementary:
God bless you for the beautiful radio I won at your recent senior citizens
luncheon. I am 84 years old and live at the Sprenger Home for the Aged. All
of my family has passed away. I am all alone now and it's nice to know that
someone is thinking of me. God bless you for your kindness to an old
forgotten lady. My roommate is 95 and has always had her own radio, she
would never let me listen to hers, even when she was napping.
The other day her radio fell off the night stand and broke into a lot of
pieces. It was awful and she was in tears. Her distress over the broken
radio touched me and I knew winning this radio was God's way of answering my
prayers. She asked if she could listen to mine, and I told her to kiss my
ass.
Thank you for that opportunity.
Sincerely,
Agnes Baker
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?v=gJ69X1qt4sQ
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/
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Accounting Educators)
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started
out as an accounting education technology Listserv. It has mushroomed
into the largest global Listserv of accounting education topics of all
types, including accounting theory, learning, assessment, cheating, and
education topics in general. At the same time it provides a forum for
discussions of all hardware and software which can be useful in any way
for accounting education at the college/university level. Hardware
includes all platforms and peripherals. Software includes spreadsheets,
practice sets, multimedia authoring and presentation packages, data base
programs, tax packages, World Wide Web applications, etc
Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners) http://pacioli.loyola.edu/cpas-l/
(closed down)
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Free
(updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
CPA
Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle ---
http://cpareviewforfree.com/
Bob Jensen's Pictures and
Stories
http://www.trinity.edu/rjensen/Pictures.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/

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

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



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

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

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

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

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

PBS Video: What Do Tax Rates' Ups and Downs Mean for
Economic Growth?
http://video.pbs.org/video/2176062522
Thank you Paul Caron for the heads up.
Marginal Tax Rates Around the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html
Tax Foundation ---
http://en.wikipedia.org/wiki/Tax_Foundation
Video from the Tax Foundation --- How Much Do U.S. Corporations Really Pay
in Taxes? New Video Documents High Effective Rates
http://taxfoundation.org/news/show/27953.html
Thank you Paul Caron for the heads up at the Tax Prof blog
U.S. companies pay among the highest corporate tax
rates in the world, even after accounting for all deductions and loopholes,
according to a new video produced by the Tax Foundation. This explanation of
“effective” tax rates for corporations, based on recent academic studies of
tax systems around the globe, is the third in a 5-part series on corporate
taxes. “The impression that a large number of U.S. companies are using
loopholes and creative accounting to get out of paying taxes could not be
more wrong,” said Tax Foundation president Scott Hodge. “American
corporations are consistently paying at the highest levels in the world, and
that burden impacts their ability to compete both at home and abroad.”
Jensen Comment
The Tax Foundation has been around since 1937, but it has been recently heavily
criticized by liberals like Paul Krugman for misleading research.
Note that just because a corporation elects to not transmit profits earned
abroad back to the United States, thereby deferring U.S. corporate taxes, does
not mean it is not paying taxes on these profits that are often subject to
foreign corporate taxes that are usually lower than U.S. corporate taxes on
those profits.
Bob Jensen's threads on taxation ---
http://www.trinity.edu/rjensen/Bookbob1.htm#Taxation
Center for Audit Quality (CAW) ---
http://en.wikipedia.org/wiki/Center_for_Audit_Quality
New CAQ Video Explains the Financial Statement Audit ---
http://www.thecaq.org/newsroom/release_02062012.htm
Where do the audit firms go wrong in financial statement audits? ---
http://www.trinity.edu/rjensen/Fraud001.htm
From Rice University (as far as I can tell nothing is yet available for
accountancy)
"Why Pay for Intro Textbooks?" by Mitch Smith, Inside Higher Ed,
February 7, 2012 ---
http://www.insidehighered.com/news/2012/02/07/rice-university-announces-open-source-textbooks
If ramen noodle sales spike at the start of every
semester, here’s one possible reason: textbooks can cost as much as a class
itself; materials for an introductory physics course can easily top $300.
Cost-conscious students can of course save money
with used or online books and recoup some of their cash come buyback time.
Still, it’s a steep price for most 18-year-olds.
But soon, introductory physics texts will have a
new competitor, developed at Rice University. A free online physics book,
peer-reviewed and designed to compete with major publishers’ offerings, will
debut next month through the non-profit publisher
OpenStax College.
Using Rice’s
Connexions
platform, OpenStax will offer free course
materials for five common introductory classes. The textbooks are open to
classes anywhere and organizers believe the programs could save students $90
million in the next five years if the books capture 10 percent of the
national market. OpenStax is funded by grants from the William and Flora
Hewlett Foundation, the Bill & Melinda Gates Foundation, the 20 Million
Minds Foundation and the Maxfield Foundation.
Traditional publishers are quick to note that the
new offerings will face competition. J. Bruce Hildebrand, executive
director for higher education of the Association of American Publishers,
said any textbook’s use is ultimately determined by its academic value.
“Free would appear to be difficult to compete with,” Hildebrand said. “The
issue always, however, is the quality of the materials and whether they
enable students to learn, pass their course and get their degree. Nothing
else really counts.”
In the past, open-source materials have failed to
gain traction among some professors; their accuracy could be difficult to
confirm because they hadn't been peer-reviewed, and supplementary materials
were often nonexistent or lacking because they weren't organized for
large-scale use.
OpenStax believes it addressed those concerns with
its new books, subjecting the texts to peer review and partnering with
for-profit companies to offer supplementary materials for a cost.
Whether the books are used at Rice is up to each
professor, but several colleges and universities – “in the low 10s” said
Connexions founder and director Richard Baraniuk – have already signed on
for the first batch of texts. Baraniuk sees a quality product with the
potential to defray a student’s total cost and increase access to higher
education and expects more colleges to integrate the books as word spreads.
While open-source materials are nothing new, a
series of free self-contained textbooks designed to compete head-to-head
with major publishers is. Instructors building a class with open-source
materials now must assemble modules from several different places and verify
each lesson’s usefulness and accuracy.
The new textbooks eliminate much of that work,
which Baraniuk thinks will be make the free materials more palatable to
professors who have been reluctant to adopt open-source lessons. In the next
five years, OpenStax hopes to have free books for 20 of the most common
college courses.
OpenStax used its grant money to hire experts to
develop each textbook and then had their work peer reviewed. The process has
taken more than 18 months and will go live next month with sociology and
physics books. The only cost to users comes if an instructor decides to use
supplementary material from a for-profit company OpenStax partners with,
such as Sapling Learning.
Two introductory biology texts, one for majors and
another for nonmajors, are slated to go online in the fall along with an
anatomy and physiology book. Students and professors will be able to
download PDF versions on their computers or access the information on a
mobile device. Paper editions will be sold for the cost of printing. The
600-page, full-color sociology book is expected to sell for $30 for those
who want a print version -- those content with digital will pay nothing.
Leading introductory sociology texts routinely cost between $60 and $120
new.
Continued in article
Jensen Comment
These open source textbooks work best in disciplines that are not being
constantly updated with updates --- like mathematics. However, the textbooks
available to date for OpenStax include such introductory textbooks as biology
which changes more quickly than introductory mathematics.
In accounting, intermediate accounting is particularly problematic even with
for-profit publishing houses as new domestic and international accounting
standards and implementation guides keep coming forth on a weekly basis.
I have a directory for free textbooks in various academic disciplines,
including accountancy and finance. Many of these were previous hot selling books
that were dropped when publishers merged and thinned out their product lines
after the mergers (giving copyrights to authors whose books were dropped)
---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
But I find it increasingly difficult for me to recommend some of those free
books because there is no economic incentives for authors to keep updating free
textbooks and supplements (like answer books and text banks) when the textbooks
are free.
Ambitious instructors may be better off scouring for course materials from
prestigious universities. These course materials are more likely to be updated
relative to older free textbooks ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Creative Accounting Inflation of Reported Cash from Operations
I have long argued that if cash flow statements were not accompanied by
accrual accounting financial statements, managers would manipulate the timings
of cash flows in cash collections and terms of contracts. Here's some empirical
evidence that this happens in spite of being accompanied by accrual accounting
financial statements.
"Incentives to Inflate Reported Cash from Operations Using Classification
and Timing," by Lian Fen Lee, The Accounting Review, January
2012, pp. 1-34
ABSTRACT:
This study examines when firms inflate reported
cash from operations in the statement of cash flows (CFO) and the mechanisms
through which firms manage CFO. CFO management is distinct from earnings
management. Unlike the manipulation of accruals, firms cannot manage CFO
with biased estimates, but must resort to classification and timing. I
identify four firm characteristics associated with incentives to inflate
reported CFO: (1) financial distress, (2) a long-term credit rating near the
investment/non-investment grade cutoff, (3) the existence of analyst cash
flow forecasts, and (4) higher associations between stock returns and CFO.
Results indicate that, even after controlling for the level of earnings,
firms upward manage reported CFO when the incentives to do so are
particularly high. Specifically, firms manage CFO by shifting items between
th estatement of cash flows categories both within and outside the
boundaries of generally accepted accounting principles (GAAP), and by timing
certain transactions such as delaying payments to suppliers or accelerating
collections from customers.
Data Availability: Data are available from public sources identified in
the study.
Keywords: classification shifting, real activities manipulation, cash
flow reporting
Bob Jensen's threads on creative accounting and earnings management ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
New (2012) Evidence That
Blaming Bank Failure on Fair Value Accounting Standards Was Pure
BS
(Except in Terms of Executive Bonus Payments)
Former FDIC Director William Isaac ---
http://en.wikipedia.org/wiki/William_Isaac
Bankers were quick to blame fair value accounting standards for the banking
failures following the bursting of the real estate bubble in 2007
Must of us accounting professors suspected that this was
pure scapegoating bullshit
This type of naive and dangerous reasoning was started on September 19, 2008 by
former FDIC director Bill Isaac
In my opinion, Bill Isaac is an ignorant advocate of horrible and
dangerous bank accounting
First of all he blamed the subprime collapse of thousands of banks on the FASB
requirements for fair value accounting (totally dumb) ---
http://www.trinity.edu/rjensen/2008bailout.htm#FairValue
Now he wants the FASB to continued to grossly under estimate loan loss
reserves (now that the FASB is finally trying to fix the problem)
“AccountingWEB Exclusive: Former FDIC Chief says FASB proposal is
'irresponsible'," AccountingWeb, June 3, 2010 ---
http://www.accountingweb.com/topic/accounting-auditing/aw-exclusive-former-fdic-chief-says-fasb-proposal-irresponsible
Bull Crap Teaching Case 1
From The Wall Street Journal Accounting Weekly Review on
Bank Capital Gets Stress Test
by Deborah
Solomon and Jon Hilsenrath
Feb 26, 2009
Click here to view the full article on WSJ.com
http://online.wsj.com/article/SB123557705225772665.html?mod=djem_jiewr_AC
TOPICS: Bad
Debts, Banking, Financial Analysis, Financial Statement Analysis
SUMMARY: The
Obama administration is proposing new bank capital requirement tests that
will be designed to assess whether "...banks can survive even if the
unemployment rate rises above 10% and home prices fall by another
25%....worse than most economists and the Federal Reserve currently expect."
If banks fail to demonstrate sufficient capital to weather those
circumstances, they may either raise additional funds privately or accept
further investment from the U.S. government. "The government's investment
would come in the form of convertible preferred shares, which institutions
could choose to convert into common equity at any time....Officials said
they expect banks would convert the shares to common equity as needed to
help protect against losses."
CLASSROOM APPLICATION: Questions
help students to understand the meaning of capital beyond the balance sheet
definition of assets - liabilities = equity and to understand the
relationship between economic forecasting and bank capital requirements. The
article also discusses the use of preferred shares versus common stock and
the use of convertible preferred shares.
QUESTIONS:
1. (Introductory)
Define bank capital in terms of the balance sheet equation.
2. (Advanced)
What tests are used to assess a bank's health based on the level of its
capital or equity? (Hint: for background information and an international
perspective, you may investigate the Basel and Basel II Accords of the Basel
Committee on Banking Supervision of the Group of Ten nations. See the
related articles.)
3. (Introductory)
How can economic and financial advisors relate the potential unemployment
rate and mortgage default rate in the U.S. economy to banks' capital needs?
4. (Advanced)
If financial institutions fail capital requirement tests based on new
thresholds as outlined by the Obama administration, the U.S. government may
invest in "...convertible preferred shares, which institutions could choose
to convert into common equity at any time." Define and describe the
differences between preferred and common shares. Also define convertibility
features.
5. (Introductory)
Why might financial institutions not want to issue common shares of stock
but be allowed to do so by converting preferred shares whenever they so
choose?
6. (Introductory)
What is the difference between financial institutions issuing stock to the
U.S. government in the ways described in this article and nationalizing our
financial institutions?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Rules on Capital Roil U.S. Bankers
by Damian Paletta
Nov 01, 2006
Page: C3
http://online.wsj.com/article/SB116234873761209749.html
by Damian Paletta and Alistair MacDonald
Mar 04, 2008
Page: 03/04
"Bank Capital Gets Stress Test," by Deborah Solomon
and Jon Hilsenrath, The Wall Street Journal, Feb 26, 2009
http://online.wsj.com/article/SB123557705225772665.html?mod=djem_jiewr_AC
The Obama administration, in unveiling details of
its financial-rescue plan, laid out a dark economic scenario it expects
banks to be able to withstand, the starting point for what could become a
significant new infusion of government cash into the banking system.
To ensure banks can survive even if the
unemployment rate rises above 10% and home prices fall by another 25%, the
administration will require some institutions to either raise private money
or accept a bigger investment from the U.S. government. U.S. officials don't
expect the economy to deteriorate that sharply, but they want to be sure
banks are prepared nonetheless.
The first step in the latest effort to shore up the
banking sector will be a series of "stress tests" to assess whether the
largest U.S. banks can survive a protracted slump. The tests aren't expected
to be finished until April. Banks will then have up to six months to address
any shortfall.
Unlike the Bush administration's effort to pump
$250 billion into banks, the Obama team didn't commit a set amount of money
to the effort and President Barack Obama said Tuesday it is likely that
banks will need additional funds beyond the $700 billion rescue package
approved by Congress last fall.
The government's investment would come in the form
of convertible preferred shares, which institutions could choose to convert
into common equity at any time. Regulators and investors have become more
concerned about the amount of common stock banks hold, since that is a
bank's first line of defense against losses.
To ensure their balance sheets are strong, the
biggest banks will be required to undergo a tough assessment, including
whether they have the right type of capital. Officials said they expect
banks would convert the shares to common equity as needed to help protect
against losses.
A bank's capital is its cushion against losses, a
buffer that ensures its depositors and other lenders will get paid even if
the bank runs into trouble.
Economists said most of the nation's largest banks
will likely have to raise capital under the economic assumptions that
regulators plan to use. The stress test assumes an unemployment rate
averaging 8.9% in 2009 and 10.3% in 2010. Because that is an average for a
whole year, the test envisions the jobless rate reaching higher than those
levels on a monthly basis during these stretches. It was 7.6% in January
Under some circumstances, the government might end
up owning majority stakes in banks.
"I think you'll find most firms need more capital
and that Bank of America and Citigroup are going to need a boatful of new
capital," said Douglas Elliott, a fellow at the Brookings Institution.
Discuss Would nationalizing banks improve or worsen
the crisis? Share your thoughts at Journal Community.Banks that get a
government investment will have to comply with strict executive-compensation
restrictions, including curtailed bonuses for top executives and earners.
The securities will pay a 9% dividend -- higher than the 5% banks are
required to pay under the Bush-era program -- and banks would be restricted
in paying dividends and from buying back their own stock. The securities
would automatically convert to common stock after seven years.
Banks that have already sold preferred shares to
the government as part of the $250 billion program would also be able to
swap the preferred shares for convertible securities that can convert to
common shares.
Administration officials said the effort is an
attempt to avoid nationalizing banks and to make sure institutions can lend
money. While officials said most banks are considered well capitalized,
uncertainty about economic conditions is hindering their ability to lend
money or attract private capital.
Treasury Secretary Timothy Geithner sought to knock
down speculation that the government may nationalize banks, saying such a
move is "the wrong strategy for the country and I don't think it's the
necessary strategy." Mr. Geithner, speaking on The NewsHour with Jim Lehrer,
said there may be situations where the government provides "exceptional
support" but that the best outcome is if the banks "are managed and remain
in private hands."
U.S. officials will demand that financial
institutions test the resilience of their portfolios and capital against a
grim, though not catastrophic, economic landscape. The test assumes a 3.3%
contraction in gross domestic product in 2009, which would be the worst
performance since 1946. And it assumes home-price declines of another 22% in
2009 and 7% in 2010.
That would be worse than most economists and the
Federal Reserve currently expect. Private economists on average forecast a
2% contraction in economic output this year and a 2% rebound next year, with
the jobless rate remaining below 10%.
Some private forecasters said they can imagine
worse.
"I don't have any problem believing the
unemployment rate is going to move to 12% or that vicinity," said Laurence
Meyer, vice chairman of Macroeconomic Advisers LLC, a forecasting firm whose
models are widely used in Washington and New York.
Mr. Meyer said regulators had to strike a delicate
balance in designing their test. If they painted a truly grim scenario --
the economy contracted by 9% in 1930, 6% in 1931 and 13% in 1932 -- it could
force banks to raise more capital than they are capable of raising, driving
them further into the government's arms.
"You don't want to know the answer to some of the
questions you might ask," Mr. Meyer said.
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory01.htm
Bob Jensen's threads on the bailout mess ---
http://www.trinity.edu/rjensen/2008Bailout.htm
Bull Crap Teaching Case 2
Forbes serves up barf --- No it's worse than barf!
It's clear that Forbes never read the excellent December 2008 SEC research
report on this topic.
"Obama Repeats Bush's Worst Market Mistakes: Bad accounting rules are the cause
of the banking crisis," by Steve Forbes, The Wall Street Journal, March 6, 2009
---
http://online.wsj.com/article/SB123630304198047321.html?mod=djemEditorialPage
What is most astounding about President Barack
Obama's radical economic recovery program isn't its breadth, but its
continuation of the most destructive policies of the Bush administration.
These Bush policies were in themselves repudiations of Franklin Delano
Roosevelt, Mr. Obama's hero.
The most disastrous Bush policy that Mr. Obama is
perpetuating is mark-to-market or "fair value" accounting for banks,
insurance companies and other financial institutions. The idea seems
harmless: Financial institutions should adjust their balance sheets and
their capital accounts when the market value of the financial assets they
hold goes up or down.
That works when you have very liquid securities,
such as Treasurys, or the common stock of IBM or GE. But when the credit
crisis hit in 2007, there was no market for subprime securities and other
suspect assets. Yet regulators and auditors kept pressing banks and other
financial firms to knock down the book value of this paper, even in cases
where these obligations were being fully serviced in the payment of
principal and interest. Thus, under mark-to-market, even non-suspect assets
are being artificially knocked down in value for regulatory capital (the
amount of capital required by regulators for industries like banks and life
insurance).
Banks and life insurance companies that have
positive cash flows now find themselves in a death spiral. Of the more than
$700 billion that financial institutions have written off, almost all of it
has been book write-downs, not actual cash losses. When banks or insurers
write down the value of their assets they have to get new capital. And the
need for new capital is a signal to ratings agencies that these outfits
might deserve a credit-rating reduction.
So although banks have twice the amount of cash on
hand that they did a year ago, they lend only under duress, or apply onerous
conditions that would warm Tony Soprano's heart. This is because they know
that every time they make a loan or an investment there is a risk of a book
write-down, even if the loan is unimpaired.
If this rigid mark-to-market accounting had been in
effect during the banking trouble in the early 1990s, almost every major
commercial bank in the U.S. would have collapsed because of shaky Latin
American and commercial real estate loans. We would have had a second Great
Depression.
But put aside for a moment the absurdity of trying
to price assets in a disrupted or non-existent market, of not distinguishing
between distress prices and "normal" prices. Regulatory capital by its
definition should take the long view when it comes to valuation; day-to-day
fluctuations shouldn't matter. Assets should be kept on the books at the
price they were obtained, as long as the assets haven't actually been
impaired.
Continued in article
Jensen Comment
By now investors know which large banks are stuck with trillions of dollars in
non-performing loans. Wrapping them gold ribbons by reporting them way above
market value is hardly going to induce investors to go out an buy enormous
amounts of common shares of CitiBank, Bank of America, Wells Fargo, and JP
Morgan. This artificial gilding of capital ratios does nothing to solve the
problem of detoxifying the poison of non-performing loans and poisonous
collateralized bonds.
This type of naive and dangerous reasoning was started on September 19, 2008
by former FDIC director Bill Isaac ---
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValueAccounting
It's certain that FAS 157 needs some amending for broken markets, but what
Isaac and Forbes are proposing serve as no basis for improvements on FAS 157.
After Isaac proposed elimination of fair value accounting for troubled banks,
Congress ordered, in no uncertain terms, the SEC to do a research study on what
was causing so many bank failures like the huge failures of WaMu and Indy Mac.
Although the SEC has been disgraced for a lot of reasons as of late, the
particular study that emerged in a very short period of time (December 2008) is
an excellent study of why banks were failing.
But political
pressures mounted in spite of the SEC research findings. On April 2, 2009 in a
3-2 vote the FASB reached a highly controversial decision to ease fair value
accounting in such a way that banks will be able to report higher earnings due
to changes in accounting rules.
New Empirical Evidence Highlights the Bullshit of Bill Isaac
and His Banking Cronies
"A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during
the Financial Crisis," by Brad A. Badertscher, Jeffrey J. Burks, and Peter
D. Easton, The Accounting Review, January 2012, pp. 59-90 ---
ABSTRACT:
Critics argue that fair value provisions in U.S.
accounting rules exacerbated the recent financial crisis by depleting banks'
regulatory capital, which curtailed lending and triggered asset sales,
leading to further economic turmoil. Defenders counter-argue that the fair
value provisions were insufficient to lead to the pro-cyclical effects
alleged by the critics. Our evidence indicates that these provisions did not
affect the commercial banking industry in the ways commonly alleged by
critics. First, we show that fair value accounting losses had minimal effect
on regulatory capital. Then, we examine sales of securities during the
crisis, finding mixed evidence that banks sold securities in response to
capital-depleting charges. However, the sales that potentially resulted from
the charges appear to be economically insignificant, as there was no
industry- or firm-level increase in sales of securities during the crisis.
. . .
ABSTRACT:
Critics argue that fair value provisions in U.S.
accounting rules exacerbated the recent financial crisis by depleting banks'
regulatory capital, which curtailed lending and triggered asset sales,
leading to further economic turmoil. Defenders counter-argue that the fair
value provisions were insufficient to lead to the pro-cyclical effects
alleged by the critics. Our evidence indicates that these provisions did not
affect the commercial banking industry in the ways commonly alleged by
critics. First, we show that fair value accounting losses had minimal effect
on regulatory capital. Then, we examine sales of securities during the
crisis, finding mixed evidence that banks sold securities in response to
capital-depleting charges. However, the sales that potentially resulted from
the charges appear to be economically insignificant, as there was no
industry- or firm-level increase in sales of securities during the crisis.
JEL Classifications: M41; M42; M44.
Data Availability: Data are available from sources identified in the
article.
Keywords: regulatory capital, standard setting, other-than-temporary
impairments, fair value accounting, mark-to-market, pro-cyclical, contagion,
credit crisis, asset sales
Bob Jensen's threads on the banker bullshit criticisms of fair value
accounting ---
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValue
Deloitte's Diamond in the Rough
On Wednesday, Diamond said its audit committee found
that a "continuity" payment made to growers in August 2010 of approximately $20
million and a momentum payment made to growers in September 2011 of
approximately $60 million weren't accounted for in the correct periods. The
audit committee also identified what it called material weaknesses in the
company's internal controls. Diamond said it will restate its results for both
years.
From The Wall Street Journal Accounting Weekly Review on February 10,
2012
Snack CEO Ousted in Accounting Inquiry
by:
Emily Glazer, Joann S. Lublin, and John Jannarone
Feb 09, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting Fraud, Debt Covenants, FASB, Financial Statement
Analysis, Financial Statement Fraud, Restatement
SUMMARY: The Diamond Foods Inc. Board of Trustees launched an
investigation into accounting for payments made to walnut growers in August
2010 and September 2011 after a WSJ investigative report questioned the
transactions. That WSJ article was covered in this review and is listed as a
related article. "Diamond originally maintained that the [2010] payments
were an advance on the 2011 walnut crop. But three growers contacted by The
Wall Street Journal said they were told by the company's representatives to
go ahead and cash the checks even though they didn't intend to deliver
walnuts [in 2011]." The investigation has found a material weakness in
internal controls and that payments to walnut growers were not properly
accounted for. "The company will restate its results for both years."
CLASSROOM APPLICATION: Note to instructors: you likely will want to
remove the above summary before distributing to students and use it as a
solution to question #1. The article is useful in accounting systems or
auditing classes to discuss internal control weaknesses; in financial
reporting classes to discuss restatements, debt covenants, and/or business
acquisitions; and in any class to discuss corporate management ethics.
QUESTIONS:
1. (Introductory) Summarize the events at Diamond Foods reported in
this article and the first related article.
2. (Introductory) What has happened to the CEO and CFO as a result
of their alleged actions? What do you think was their motive for these
alleged actions?
3. (Advanced) What financial statement results will be restated by
Diamond Foods? Describe the specific changes you expect to see in the
balance sheet, the income statement, and the statement of stockholders'
equity.
4. (Advanced) What are debt covenants? How might problems with debt
covenants because of these recent events affect Diamond Foods Inc.'s
operations?
5. (Advanced) Refer to the second related article. Identify all
financial statement ratios listed in that article, explaining their meaning
and how they might be affected by the items you listed in answer to question
2 above.
6. (Introductory) What is a material weakness in internal control?
What must be done when such a weakness is found at any company? What further
must be done when the company is public?
7. (Advanced) Why is Procter & Gamble now concerned about selling
its Pringles operations line to Diamond Foods?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Diamond Payments Questioned By Growers
by Hannah Karp
Dec 12, 2011
Page: B1
Walnuts Leave Diamond in the Rough
by John Jannarone
Feb 09, 2012
Online Exclusive
"Snack CEO Ousted in Accounting Inquiry," by Emily Glazer, Joann S. Lublin,
and John Jannarone, The Wall Street Journal, February 9, 2012 ---
http://online.wsj.com/article/SB10001424052970204369404577211490040427400.html?mod=djem_jiewr_AC_domainid
Diamond Foods Inc. fired its chief executive and
chief financial officer, and said it would restate financial results for two
years, after an internal probe found it had wrongly accounted for payments
to walnut growers.
The findings mark a stunning comedown for the
once-obscure walnut growers' cooperative, which under Chief Executive
Michael J. Mendes tried to become a force in the snacks business through a
series of acquisitions since 2005. Those efforts peaked last April, when
Diamond agreed to pay $2.35 billion to buy the Pringles canned-chips
business from Procter & Gamble Co.
P&G is now highly unlikely to complete the sale, a
person familiar with the matter said Wednesday. Diamond's shares, already
down by about 60% since late September, fell more than 40% on Wednesday
after the company's board audit committee released the findings of its
investigation.
Results of the internal probe—which was launched
after The Wall Street Journal raised accounting questions in September—will
now be turned over to the U.S. Securities and Exchange Commission and the
San Francisco U.S. attorney's office, which have been investigating Diamond
and how it handled the payments, a person familiar with the matter said.
Federal investigators have progressed slowly in recent weeks, because they
were waiting for the audit committee to produce its report, two people
familiar with the matter said.
The board notified Mr. Mendes and his chief
financial officer, Steven M. Neil, late Tuesday that they had been removed
from their jobs and placed on administrative leave. Mr. Mendes cleaned out
his office early Wednesday morning, a person familiar with the matter said.
Mr. Neil's attorney, Mike Shepard, said: "I think
it's very disappointing news what we saw from the company in light of the
fact that experts in the area say the company's accounting was strongly
supported."
Mr. Mendes couldn't immediately be reached for
comment.
The executives will remain on leave while the
company negotiates their severance, their exit from their board seats and
possibly clawbacks of previously awarded pay, a person familiar with the
matter said Wednesday.
Diamond board member Rick Wolford will serve as
acting CEO. Michael Murphy, managing director at Alix Partners LLP, will
serve as acting CFO. The board also appointed Robert J. Zollars as chairman.
The company said it will begin searching for permanent replacements.
The accounting controversy sprung out of
California's walnut groves, which once sold
the bulk of their output to Diamond. But the interests of growers and the
company began to separate after the company began to answer to public
shareholders. Growers have complained that Diamond, which sets walnut prices
in secret and pays for crops in a series of payments months after they are
delivered, began paying less than other buyers in recent years, according to
growers and investors who have conducted their own surveys.
At issue in the audit committee's investigation
were payments made in August 2010 and September 2011, according to the
company. The September payments, which the company called "momentum
payments," confused growers who couldn't tell whether they were for the
current or prior fiscal year.
Diamond originally maintained that the payments
were an advance on the 2011 walnut crop. But three growers contacted by The
Wall Street Journal said they were told by the company's representatives to
go ahead and cash the checks even though they didn't intend to deliver
walnuts last year. At the time, Diamond said its agreements with growers are
confidential.
That question mattered a lot for Diamond's
financial reports. Shareholders suing the company allege the payments may
have been used to shift costs from the last fiscal year into the current
one, burnishing Diamond's earnings and improperly boosting its stock price.
The company declined to comment on shareholders'
claims that the payments had been used to inflate its earnings. Those suits
have been consolidated.
On Wednesday, Diamond said its audit committee
found that a "continuity" payment made to growers in August 2010 of
approximately $20 million and a momentum payment made to growers in
September 2011 of approximately $60 million weren't accounted for in the
correct periods.
The audit committee also identified what it called
material weaknesses in the company's internal controls. Diamond said it will
restate its results for both years.
Around the time of the September payments, Diamond
reported that its earnings for the year ended July 31 had nearly doubled, to
$50 million, sending its shares soaring above $90. The shares began a steep
decline soon afterward, after The Wall Street Journal raised questions about
the company's accounting for the payments.
The probe has caused Diamond Foods to delay its
planned acquisition of the Pringles snack brand from P&G.
P&G in April agreed to sell the potato-crisp maker
to Diamond Foods, a deal that would allow it to triple the size of its snack
business.
That deal is now in question, as Diamond is
covering most of the purchase price by issuing stock to P&G's shareholders.
The deal was initially valued at $2.35 billion. Since the deal was
announced, Diamond's stock has lost nearly two-thirds of its value.
P&G had said completing the deal depends on a
favorable resolution of the accounting probe.
"We're obviously disappointed by the information
released by Diamond Foods," says Paul Fox, a P&G spokesman. "We need to
evaluate our next steps…either retain the business or we sell it. It's
already attracted considerable interest from outside parties."
Diamond Foods had annual sales just shy of $1
billion in the latest fiscal year. Pringles has annual sales of nearly $1.4
billion.
Diamond said in November it had opened an
investigation into the payments. The audit committee, advised by law firm
Gibson, Dunn & Crutcher LLP and accounting firm KPMG LLP, looked at hundreds
of thousands of documents, a person familiar with the matter said.
The committee reached its conclusion that the
company's accounting was flawed on Tuesday, Diamond said in a securities
filing. Once it had, the board moved quickly to make changes. It decided
that day to remove Messrs. Mendes and Neil because of "a loss of confidence
by the board more than anything else,'' a person familiar with the matter
said.
The restatements could put Diamond in violation of
its lending agreements. That means it may have to negotiate with creditors,
which in theory could impose increases in Diamond's debt costs.
The company had just over $500 million in debt as
of its last official filing.
The new executives were appointed Tuesday with the
exception of Mr. Murphy, the new CFO, who took his job Wednesday, according
to the filing. Diamond informed P&G about the probe's results less than an
hour before issuing a news release, people familiar with the matter said.
The audit committee didn't uncover any evidence of
intent to deceive shareholders, according to a person familiar with the
matter. "There was a breakdown of controls,'' the person said.
Continued in article
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Diamond Foods, Inc.
San Francisco, California
We have audited the accompanying
consolidated balance sheets of Diamond Foods, Inc. and subsidiaries (the
“Company”) as of July 31, 2010 and 2009, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the three years
in the period ended July 31, 2010. We also have audited the Company’s internal
control over financial reporting as of July 31, 2010, based on criteria
established in
Internal
Control — Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described
in “Management’s Report on Internal Control over Financial Reporting”,
management excluded from its assessment the internal control over financial
reporting at Kettle Foods, which was acquired on March 31, 2010 and whose
financial statements constitute less than 10% of consolidated assets, and less
than 15% of consolidated net sales of the consolidated financial statement
amounts as of and for the year ended July 31, 2010. Accordingly, our audit did
not include the internal control over financial reporting at Kettle Foods. The
Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Report on Internal Control over
Financial Reporting.” Our responsibility is to express an opinion on these
financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A company’s internal control over
financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of the inherent limitations of
internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2010
and 2009, and the results of their operations and their cash flows for each of
the three years in the period ended July 31, 2010, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of July 31, 2010, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Deloitte & Touche LLP
San Francisco, California
October 5, 2010
A December 21, 2011 WSJ Article on Those Startling Deloitte Audits That Are
Beginning to Remind Us of Those Sorry Andersen Audits
"Accounting Board Finds Faults in Deloitte Audits," by Michael Rapaport,
The Wall Street Journal, December 21, 2011 ---
http://online.wsj.com/article/SB10001424052970204879004577110922981822832.html
Inspectors for the government's audit-oversight
board found deficiencies in 26 audits conducted by Deloitte & Touche LLP in
its annual inspection of the Big Four accounting firm.
The report from the Public Company Accounting
Oversight Board, released Tuesday, said some of the deficiencies it found in
its 2010 inspection of Deloitte's audits were significant enough that it
appeared the firm didn't obtain enough evidence to support its audit
opinions.
The 26 deficient audits found were out of 58
Deloitte audits and partial audits reviewed by PCAOB inspectors. The
inspectors found that, in various audits, Deloitte didn't do enough testing
on issues like inventory, revenue recognition, goodwill impairment and fair
value, among other areas. In one case, follow-up between Deloitte and the
audit client led to a change in the client's accounting, according to the
report.
The board didn't identify the companies involved,
in accordance with its typical practice.
The report is the first PCAOB assessment of
Deloitte's performance issued since the board rebuked Deloitte in October by
unsealing previously confidential criticisms of the firm's quality control.
Deloitte said in a statement that it is "committed
to the highest standards of audit quality" and has taken steps to address
both the PCAOB's findings on the firm's individual audits and the board's
broader observations on Deloitte's quality control and audit quality. The
firm said it has been making a series of investments "focused on
strengthening and improving our practice."
Last month, the board released its annual reports
on PricewaterhouseCoopers LLP, in which it found 28 deficient audits out of
75 reviewed, and KPMG LLP, in which it found 12 deficient audits out of 54
reviewed. The yearly report on the fourth Big Four firm, Ernst & Young LLP,
hasn't yet been issued.
The PCAOB conducts annual inspections of the
biggest accounting firms in which it scrutinizes a sample of each firm's
audits to evaluate their performance and compliance with auditing standards.
The first part of the report is released publicly, but a second part, in
which the board evaluates the firm's quality controls, remains confidential
as long as the firm resolves any criticisms to the board's satisfaction
within a year.
Only if that doesn't happen does the PCAOB release
that section of the report, as it did with Deloitte in October, the first
time it had done so with one of the Big Four. In that case, the board made
public a section of a 2008 inspection report in which it said Deloitte
auditors were too willing to accept the word of clients' management and that
"important issues may exist" regarding the firm's procedures to ensure
thorough and skeptical audits.
Bob Jensen's threads on Deloitte and the Other Large Auditing Firms ---
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on professionalism and independence in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
From The Wall Street Journal Accounting Weekly Review on February 10,
2012
On 'Bleak' Street, Bosses in Cross Hairs
by:
Liz Moyer
Feb 08, 2012
Click here to view the full article on WSJ.com
TOPICS: Compensation, Restatement, Stock Options
SUMMARY: Goldman Sachs and Morgan Stanley have announced clawback
provisions that affect managers as well as their traders if those traders
put the firms at risk "of substantial financial or legal repercussions. The
firms said the policy disclosure...shows [that] the companies won't just go
after the excessive risk-takers if bad trades hurt the firms' profits." The
policies resulted from proxy fights initiated by the New York City
Comptroller John Liu who is responsible for the city's pension funds. The
provisions apply to both stock and cash bonus compensation plans. "In its
proxy last year, Goldman said its clawback policy allowed for forfeiture of
stock awards "in the event that conduct or judgment results in a restatement
of the firm's financial statements or other significant harm to the firm's
business." The firm also can claw back pay for misconduct that results in
legal or reputational harm."
CLASSROOM APPLICATION: The article is useful when introducing the
incentives associated with compensation plans-either cash or stock--in
financial accounting classes for intermediate level undergraduates or MBA
students. It also can be used to discuss general corporate governance
issues, particularly as they are being raised by institutional investors.
QUESTIONS:
1. (Introductory) What are compensation "clawback" provisions?
2. (Advanced) What improvement in incentives do clawback provisions
help to implement?
3. (Introductory) Who will be affected by the clawback provisions
announced by Goldman Sachs and Morgan Stanley?
4. (Advanced) What is the notion of corporate governance? How have
corporate governance activists influenced the decisions and disclosures by
Goldman Sachs and Morgan Stanley management?
Reviewed By: Judy Beckman, University of Rhode Island
"On 'Bleak' Street, Bosses in Cross Hairs," by: Liz Moyer. The Wall
Street Journal, February 8, 2012 ---
http://online.wsj.com/article/SB10001424052970204136404577209383447837986.html?mod=djem_jiewr_AC_domainid
Wall Street's bleak bonus season just got bleaker
at Goldman Sachs Group Inc. and Morgan Stanley, where it is becoming clear
that traders aren't the only ones at risk of having their pay taken back.
Their bosses are on the hook, too.
The Wall Street securities firms said they would
seek to recover pay from any employee whose actions expose the firms to
substantial financial or legal repercussions. The firms said the policy
isn't new, but the disclosure shows the companies won't just go after the
excessive risk-takers if bad trades hurt the firms' profits. The latest
disclosures clarify for the first time that managers are on the line.
The companies disclosed the clawback policies
separately in Securities and Exchange Commission filings in late January and
early February, in connection with agreements they reached to end proxy
fights being waged by the office that runs New York City's pension funds.
New York City Comptroller John Liu filed papers
last year seeking to force the firms to strengthen their clawback policies.
The move comes at a touchy time on Wall Street,
where pay is in decline after a year of mixed financial performance and
stock-price declines. At Goldman Sachs, compensation and benefits dropped
21% from a year ago to $12.22 billion, taking per capita pay and perks down
to $367,000, a level last seen in the financial crisis. The firm cut 2,400
jobs last year, joining roughly two dozen firms around the globe that plan
to shed more than 100,000 positions.
"These two firms have set the standard for clawback
policies in the banking industry," said Mr. Liu in a statement Tuesday. "We
appreciate the dialogue we've had on this issue and will continue to call
for them to disclose the amount of clawbacks if forthcoming regulation does
not require it."
Goldman Sachs and Morgan Stanley declined to
comment.
Though soft economic growth, volatile markets and
tighter rules rank as bigger worries for most on Wall Street than clawbacks
triggered by the actions of traders, it is hard to ignore the risk
completely. UBS AG, Switzerland's largest bank by assets, said Tuesday that
it will cut investment-bank bonuses 60% following a retrenchment that
started after a London-based employee made unauthorized trades that cost the
bank $2.3 billion.
Regulators have pressured banks to detail clawbacks
in compensation agreements since the financial crisis, when, they contend,
incentives encouraged Wall Street workers to overlook risk in pursuit of
profit.
The banks said they adopted clawback policies but
said little beyond that.
It is unclear how effective clawback policies have
been in reining in risky behavior. Michael Deutsch, an employment lawyer who
specializes in Wall Street pay, said that despite their prevalence, "the
actual implementation of a clawback has been pretty rare."
Now, under pressure from shareholders such as the
New York comptroller's office, Goldman Sachs and Morgan Stanley are
clarifying their stance. The shareholder group also made these demands on
J.P. Morgan Chase & Co. The firm hasn't addressed the proposal.
Goldman Sachs and Morgan Stanley separately said
they anticipate a new global regulation from the Basel Committee on Banking
Supervision that requires they disclose aggregate dollar amounts clawed back
in a given year.
"We believe clawbacks are a focus for our
regulators," Goldman Sachs said in correspondence with the comptroller's
office disclosed in an SEC filing.
In exchange for the clarifications, the shareholder
group withdrew proxy proposals that called on the banks to broaden the scope
of their policies, hold managers and supervisors accountable to clawbacks,
and publicly disclose clawbacks.
Continued in article
"Clawbacks Without Claws," by Gretchen Morgenson, The New York
Times, September 10, 2011 ---
http://www.nytimes.com/2011/09/11/business/clawbacks-without-claws-in-a-sarbanes-oxley-tool.html?_r=2&emc=tnt&tntemail1=y
AFTER the grand frauds at Enron, WorldCom and
Adelphia, Congress set out to hold executives accountable if their companies
cook the books.
Fair Game Clawbacks Without Claws By GRETCHEN
MORGENSON Published: September 10, 2011
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AFTER the grand frauds at Enron, WorldCom and
Adelphia, Congress set out to hold executives accountable if their companies
cook the books. Add to Portfolio
Diebold Inc New Century Financial Corp NutraCea
Go to your Portfolio »
Under the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission was encouraged to hit executives where it
hurts — in the wallet — if they certified financial results that turned out
to be, in a word, bogus.
SarbOx was supposed to keep managers honest. They
would have to hand back incentive pay like bonuses, even if they didn’t
fudge the accounts themselves.
That, anyway, was the idea. The record suggests a
bark decidedly worse than its bite. The S.E.C. brought its first case under
Section 304 of SarbOx in 2007. Since then, it has filed cases demanding that
only 31 executives at only 20 companies return some pay.
In 2007 and 2008, most of the cases involved
shenanigans with stock options and produced some big recoveries. In the wake
of the financial crisis, the dollars recouped have amounted to an asterisk.
Since the beginning of 2009, the S.E.C. has pursued 18 executives at 10
companies. So far, it has recovered a total of $12.2 million from nine
former executives at five. The other cases are pending.
“It seems like a dormant enforcement tool,” Jack T.
Ciesielski, president of R. G. Associates and editor of The Analyst’s
Accounting Observer, says of the SarbOx provision. “It was supposed to be a
deterrent, but it’s only really a deterrent if they use it.”
How assiduously the S.E.C. enforces this aspect of
Sarbanes-Oxley is important. Only the S.E.C. can bring cases under Section
304. Companies can’t. Nor, it appears, can shareholders. In 2009, the Court
of Appeals for the Ninth Circuit ruled that there was no private cause of
action for violations of Section 304.
Half the companies pursued by the S.E.C. during the
past three years have been small and relatively obscure.
For example, the commission sued executives at
SpongeTech Delivery Systems (2008 revenue: $5.6 million), contending that
the company had booked $4.6 million in phony sales that year. NutraCea, a
maker of dietary supplements with 2008 sales of $35 million, was sued along
with Bradley D. Edson, its former chief executive, over what the S.E.C.
called its recording of $2.6 million in false revenue. An executive at
Isilon Systems, a data storage company, was pursued because, the S.E.C.
maintained, the company had inflated sales by $4.8 million during 2007.
No money has been recovered in the SpongeTech or
Isilon matters, which are still pending. Mr. Edson, who could not be reached
for comment, returned his 2008 bonus of $350,000.
In all cases when executives have returned money,
they have neither admitted nor denied allegations.
The S.E.C. typically recovers more money from
executives at bigger companies. But top executives are rarely compelled to
return all their incentive pay.
In a case brought last year against Navistar, for
example, the S.E.C. contended that the company had overstated its income by
$137 million from 2001 through 2005. Daniel C. Ustian, who is Navistar’s
chief executive and who was not charged with wrongdoing, returned common
stock worth $1.32 million. He had received $2.2 million in incentive pay and
restricted stock during the time that the S.E.C. says Navistar inflated its
accounting. A company spokeswoman said Mr. Ustian would not comment.
Robert C. Lannert, Navistar’s former chief
financial officer, who also was not charged, gave back stock worth $1.05
million. His incentive pay consisted of only $828,555 during the years that
the S.E.C. said the company misstated its results. He didn’t return a phone
call seeking comment.
ANOTHER case brought by the S.E.C. last year
involved Diebold, a maker of automated teller machines. Contending that
Diebold had overstated its results by $127 million between 2002 and 2007,
the commission sued to recover money from three former executives. Walden W.
O’Dell, who is a former C.E.O. and who was not charged, repaid $470,000 in
cash, and 30,000 Diebold shares and 85,000 stock options. During the years
that the S.E.C. alleged that results were overstated, he received bonuses
totaling $1.9 million, in addition to restricted stock worth $261,000 and
295,000 stock options. Mr. O’Dell didn’t return a message seeking comment.
The cases against the other Diebold executives are pending. A company
spokesman said it had settled with regulators and declined to comment
further.
Continued in article
"Commissioner slams SEC settlement," SmartPros, July 13, 2011
---
http://accounting.smartpros.com/x72323.xml
One of the SEC's five
commissioners has taken the extraordinary step of publicly dissenting from
an enforcement action on the grounds that it was too weak.
Commissioner Luis
A. Aguilar said the Securities and Exchange Commission should have
charged a former Morgan Stanley trader with fraud in view of what he
called "the intentional nature of her conduct."
The dissent
comes weeks after the SEC took flak for negotiating a $153.6 million
fine from J.P. Morgan Chase in another enforcement case but taking no
action against any of the firm's employees or executives.
Under a
settlement announced Tuesday, the SEC alleged that former Morgan Stanley
trader Jennifer Kim and a colleague who previously settled with the
agency had executed at least 32 sham trades to mask the amount of risk
they had been incurring and to get around an internal restriction.
Their trading
contributed to millions of dollars of losses at the investment firm, the
SEC said.
Without
admitting or denying the SEC's findings, Kim agreed to pay a fine of
$25,000.
Aguilar said
the settlement was "inadequate" and "fails to address what is in my view
the intentional nature of her conduct."
"The settlement
should have included charging Kim with violations of the antifraud
provisions," Aguilar wrote.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Clawback Teaching Case: Earnings Management and
Creative Accounting"Clawbacks: Prospective
Contract Measures in an Era of Excessive Executive Compensation and Ponzi
Schemes," by Miriam A. Cherry and Jarrod Wong, SSRN, August 23, 2009 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1460104
Abstract:
In the spring of 2009, public outcry erupted over the multi-million
dollar bonuses paid to AIG executives even as the company was receiving
TARP funds. Various measures were proposed in response, including a 90%
retroactive tax on the bonuses, which the media described as a "clawback."
Separately, the term "clawback" was also used to refer to remedies
potentially available to investors defrauded in the multi-billion dollar
Ponzi scheme run by Bernard Madoff. While the media and legal
commentators have used the term "clawback" reflexively, the concept has
yet to be fully analyzed. In this article, we propose a doctrine of
clawbacks that accounts for these seemingly variant usages. In the
process, we distinguish between retroactive and prospective clawback
provisions, and explore the implications of such provisions for contract
law in general. Ultimately, we advocate writing prospective clawback
terms into contracts directly, or implying them through default rules
where possible, including via potential amendments to the law of
securities regulation. We believe that such prospective clawbacks will
result in more accountability for executive compensation, reduce
inequities among investors in certain frauds, and overall have a
salutary effect upon corporate governance.
Clawback in the Context of TARP ---
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
On October 14, 2008,
Secretary of the Treasury Paulson and President Bush separately
announced revisions in the TARP program. The Treasury announced their
intention to buy senior preferred stock and warrants in the nine largest
American banks. The shares would qualify as Tier 1 capital and were
non-voting shares. To qualify for this program, the Treasury required
participating institutions to meet certain criteria, including: "(1)
ensuring that incentive compensation for senior executives does not
encourage unnecessary and excessive risks that threaten the value of the
financial institution; (2) required clawback of any bonus or incentive
compensation paid to a senior executive based on statements of earnings,
gains or other criteria that are later proven to be materially
inaccurate; (3) prohibition on the financial institution from making any
golden parachute payment to a senior executive based on the Internal
Revenue Code provision; and (4) agreement not to deduct for tax purposes
executive compensation in excess of $500,000 for each senior executive."
The Treasury also bought preferred stock and warrants from hundreds of
smaller banks, using the first $250 billion allotted to the program.
The first allocation of
the TARP money was primarily used to buy preferred stock, which is
similar to debt in that it gets paid before common equity shareholders.
This has led some economists to argue that the plan may be ineffective
in inducing banks to lend efficiently.[15][16]
In the original plan
presented by Secretary Paulson, the government would buy troubled
(toxic) assets in insolvent banks and then sell them at auction to
private investor and/or companies. This plan was scratched when Paulson
met with United Kingdom's Prime Minister Gordon Brown who came to the
White House for an international summit on the global credit
crisis.[citation needed] Prime Minister Brown, in an attempt to mitigate
the credit squeeze in England, merely infused capital into banks via
preferred stock in order to clean up their balance sheets and, in some
economists' view, effectively nationalizing many banks. This plan seemed
attractive to Secretary Paulson in that it was relatively easier and
seemingly boosted lending more quickly. The first half of the asset
purchases may not be effective in getting banks to lend again because
they were reluctant to risk lending as before with low lending
standards. To make matters worse, overnight lending to other banks came
to a relative halt because banks did not trust each other to be prudent
with their money.[citation needed]
On November 12, 2008,
Secretary of the Treasury Henry Paulson indicated that reviving the
securitization market for consumer credit would be a new priority in the
second allotment
From The Wall Street Journal Accounting Weekly Review
on August 13, 2010
Clawbacks Divide SEC
by: Kara Scannell
Aug 07, 2010
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Auditing, Executive Compensation, Restatement, Sarbanes-Oxley Act, SEC,
Securities and Exchange Commission, Stock Options
SUMMARY: During
the settlement with Dell, Inc. in which founder Michael Dell agreed to
pay a $4 million penalty without admitting or denying wrongdoing,
Commissioner Luis Aguilar raised the issue of "clawing back"
compensation to executives based on inflated earnings. "The SEC alleged
Mr. Dell hid payments from Intel Corp. that allowed the company to
inflate earnings....Under [Section 304 of the 2002 Sarbanes-Oxley law],
the SEC can seek the repayment of bonuses, stock options or profits from
stock sales during a 12-month period following the first time the
company issues information that has to be restated." The SEC has been
working on a formal policy to guide them in cases in which an executive
has not been accused of personal wrongdoing, "but hammering out a policy
acceptable to the five-member Commission...may be difficult." The
related article announced the clawback provision when it was enacted
into law in July and compares it to the previous requirements related to
executive compensation under Sarbanes-Oxley.
CLASSROOM APPLICATION: The
article covers topics in financial reporting related to restatement,
executive compensation topics, the Sarbanes-Oxley law, and the SEC's
recent enforcement efforts in general.
QUESTIONS:
1. (Introductory) Based on the main and related article, define
and describe a "clawback" policy.
2. (Introductory) Why will most publicly traded companies
implement change as a result of the new law and resultant SEC
requirements?
3. (Advanced) When must a company restate previously reported
financial results? Cite the authoritative accounting literature
requiring this treatment.
4. (Advanced) Describe one executive compensation plan impacted
by reported financial results. How would such a plan be impacted by a
restatement?
5. (Introductory) What is the difficulty with applying the new
clawback provisions to executive stock option plans? Based on the
related article, how are companies solving this issue?
6. (Advanced) Is it possible that executives who are innocent
of any wrongdoing could be affected financially by these new clawback
provisions? Do you think that such executives should have to repay to
their companies compensation amounts received in previous years? Support
your answer.
7. (Advanced) Refer to the main article. Consider the specific
case of Dell Inc. founder Michael Dell. Do you believe Mr. Dell should
have to return compensation to the company? Support your answer.
8. (Introductory) How do the new requirements under the
financial reform law enacted in July exceed the requirements of
Sarbanes-Oxley? In your answer, include one or two statements to define
the Sarbanes-Oxley law.
Reviewed By: Judy Beckman, University of Rhode
Island
RELATED ARTICLES:
Law Sharpens 'Clawback' Rules for Improper Pay
by JoAnn S. Lublin
Jul 25, 2010
Online Exclusive
"Clawbacks Divide SEC," by: Kara Scannell, The Wall
Street Journal, August 7, 2010 ---
http://online.wsj.com/article/SB10001424052748703988304575413671786664134.html?mod=djem_jiewr_AC_domainid
A dispute over how to
claw back pay from executives at companies accused of cooking the books
is roiling the Securities and Exchange Commission.
Commissioner Luis
Aguilar, a Democrat, has threatened not to vote on cases where he thinks
the agency is too lax, people familiar with the matter said. That
prompted the SEC to review its policies for the intermittently used
enforcement tool.
"The SEC ought to use all
the tools at its disposal to try to seek funds for deterrence," Mr.
Aguilar said in an interview on Tuesday. "It's important for us to the
extent possible to try to deter, and part of that means using tools
Congress has given us."
The issue of clawbacks
came up during the SEC's recent settlement with Dell Inc. and founder
Michael Dell, people familiar with the matter said.
The SEC alleged Mr. Dell
hid payments from Intel Corp. that allowed the company to inflate
earnings. He agreed to pay a $4 million penalty to settle the case
without admitting or denying wrongdoing, but didn't return any pay.
Mr. Aguilar initially
objected to the Dell settlement, according to people familiar with the
matter. It is unclear whether the penalty—considered high by historical
standards for an individual—swayed Mr. Aguilar's vote or whether he
removed himself from the case.
In the interview, Mr.
Aguilar spoke generally about clawbacks and declined to discuss Dell or
other specific cases.
A spokesman for the SEC
declined to comment.
Section 304 of the 2002
Sarbanes-Oxley law gave the SEC the ability to seek reimbursement of
compensation from the chief executive and chief financial officer of a
company when it restates its financial statements because of misconduct.
Under the law, the SEC
can seek the repayment of bonuses, stock options or profits from stock
sales during a 12-month period following the first time the company
issues information that has to be restated.
Last year, the SEC used
the tool for the first time against an executive who wasn't accused of
personal wrongdoing.
In that case the SEC sued
Maynard Jenkins, the former chief executive of CSK Auto Corp., for $4
million in bonuses and stock sales. Mr. Jenkins is fighting the
allegations.
SEC attorneys have been
working on a more formal policy to guide them in such cases, people
familiar with the matter said. They were seeking to tie the amount of
the clawback to the period of wrongdoing, these people said.
Mr. Aguilar felt the
emerging new policy wasn't stringent enough and told the SEC staff he
would recuse himself from cases when he didn't agree with the
enforcement staff's recommendations, the people said.
Amid the standoff, SEC
enforcement chief Robert Khuzami has halted the initial policy and set
up a committee to take another look at the matter, the people said.
Hammering out a policy
acceptable to the five-member commission, which has split on recent
high-profile cases, may be difficult.
The divisions worry some
within the SEC because the absence of an agreement could affect cases in
the pipeline, especially on close calls where Mr. Aguilar's vote might
be necessary to go forward.
Mr. Aguilar's hard line
on clawbacks was bolstered by the Dodd-Frank law, signed by President
Obama on July 21. It says stock exchanges need to change listing
standards to require companies to have clawback policies in place that
go further than the Sarbanes-Oxley policy.
Section 954 of the law
says that pay clawbacks should apply to any current or former employee
and instructs companies to seek pay earned during the three-year period
before a restatement "in excess of what would have been paid to the
executive under the accounting restatement."
Since becoming a
commissioner in late 2008, Mr. Aguilar has called for a tougher
enforcement approach, including a rework of the agency's policy of
seeking penalties against companies.
In a speech in May, Mr.
Aguilar took up the issue of executive pay in the context of the SEC's
lawsuit against Bank of America Corp. for failing to disclose to
shareholders the size of bonuses paid to Merrill Lynch executives. The
bank agreed to pay $150 million to settle the matter.
Mr. Aguilar said that
penalty "pales" in comparison to the $5.8 billion in bonuses paid during
the merger.
"Perhaps what should
happen is that, when a corporation pays a penalty, the money should be
required to come out of the budget and bonuses for the people or group
who were the most responsible," he said.
Bob Jensen's threads on outrageous executive
compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Hi Dennis,
I do not have direct answers to your specific questions. However, I did combine
two tidbits that may be of interest to you and to other subscribers to the AECM.
These specialty certifications are commonly held by persons seeking to be paid
for expert witnessing. In my opinion, there's a lack of accountability of most
of these so-called "certificates" and the organizations that grant such
certificates.
On the other hand, there's also merit in some of the complaints by these
associations directed at our most respected colleges and universities. For
example, most college accounting programs teach about valuation accountics
science models (such as residual income and free cash flow models) that are
typically more misleading than helpful when it comes to real world valuation of
business firms. It's not common to find college professors who have a history of
outstanding professional experience in valuation or forensics. The problem with
professors of accounting is that they have no comparative advantages when it
comes to valuation of items of value that are not booked such as value of human
resources and other intangibles and interactions thereof.
College curricula in accounting and finance are terribly lacking in courses and
research professors knowledgeable about the professions of valuation or
forensics. For example, most of our auditing courses spend more time stressing
how financial audits are not designed to detect fraud rather than becoming
professionally focused on ways to detect fraud. We do have course modules on
internal controls, but these typically are very superficial relative to what
graduates will encounter in the real world of fraud and systems weaknesses.
The bottom line is that both valuation and forensics are topics that are poorly
covered at the university level. And coverage by mysterious associations
offering certificates do not always pass the smell tests of credibility.
Bob Jensen's threads on valuation are at
http://www.trinity.edu/rjensen/roi.htm
The National Association of Certified Valuators and Analysts (NACVA)
---
http://www.nacva.com/
Business Valuation Standard ---
http://en.wikipedia.org/wiki/Business_valuation_standard
Business Valuation Standards (BVS) are codes of practice
that are used in
business valuation. Each of the three major United States valuation
societies — the
American Society of Appraisers (ASA),
American
Institute of Certified Public Accountants (CPA/ABV), and the
National Association of Certified Valuation Analysts (NACVA) — has its
own set of Business Valuation Standards, which it requires all of its
accredited members to adhere to.[1]
The AICPA's standards are published as
Statement on Standards for Valuation Services No.1 and the ASA's
standards are published as the ASA Business Valuation Standards. All
AICPA members are required to follow SSVS1. Additionally, the majority of
the State Accountancy Boards have adopted SSVS1 for CPAs licensed in their
state.
Criticism of the abovementioned organizations
are as follows:
1) These are neither the major valuation
societies, nor are they the only valuation societies. They are however,
organizations which engage in considerable self-promotion among their
members to foster the delusion among their members, that by the mere fact of
membership, their members are more qualified to perform business appraisal
than non-members.
2) These are all privately held organizations, in which membership is
voluntary.
3) There are no regulations mandating that one must belong to any of these
organizations in order to practice as a business appraiser.
4) In that these are voluntary membership organizations, their standards
have little or no weight with either the business valuation community at
large or with the legal and judicial community who appraisers often serve.
5) The standards and ethics of these organizations are constructed to be
vague and self-serving, with numerous exceptions, designed more to excuse
conflicts of interest, membership poor performance and unsupported opinion,
than to encourage, independence, scientific analysis and high quality work.
Conflicts of interest are a problem, particularly among CPA/Appraisers, who
regularly join these organizations so that they can offer valuation services
to their existing accounting clients, in violation of independence rules and
ethics.
6) The education which these organizations offer is unaccredited and of low
quality, in that it does not reach the threshold level of education in
finance of an accredited university.
7) Educational standards have to be kept low to attract new members and
membership dues.
8) The credentials which these organizations issue are often issued for
reasons of favoritism and cronyism over merit.
9) The purpose of these organizations is often tarnished by the politics of
a few active, insider members who consider themselves more entitled then
other members, and consequently use the organization resources to further
their own self-interests over the interests of the membership at large.
10) There is no accounting of the membership dues paid into these membership
organizations. Consequently, members do not know where, to whom, or on what
their dues money is spent.
Forensic Accounting ---
http://en.wikipedia.org/wiki/Forensic_accounting
American College of Forensic Examiners International (ACFEI) ---
http://www.acfei.com/
The ACFEI is mulit-disciplinary, only one discipline of which is accounting
Association of Certified Fraud Examiners (ACFE) ---
http://www.acfe.com/
The ACFE is more focused in on accounting and business fraud than the ACFEI
Other Forensic Associations ---
http://www.hgexperts.com/forensic-science.asp
To my knowledge, the only AACSB-accredited university to offer a forensic
accounting certificate is the University of West Virginia ---
http://www.be.wvu.edu/fafi/index.htm
There are also tracks for forensic accounting in the Masters of Public
Accounting Degree curriculum.
"Forensic Accounting And Auditing: Compared And Contrasted To Traditional
Accounting And Auditing," by Dahli Gray, American Journal of Business Education,
Volume 1, Number 2, 2008 ---
http://scholar.googleusercontent.com/scholar?q=cache:lnY92RzjASgJ:scholar.google.com/+ACFE+ACFEI+"lawsuit"&hl=en&as_sdt=0,20
Forensic versus traditional accounting and auditing
are compared and contrasted. Evidence gathering is detailed. Forensic
science and