New Bookmarks
Year 2012 Quarter 2:  April 1 - June 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

For earlier editions of New Bookmarks go to http://www.trinity.edu/rjensen/bookurl.htm 
Tidbits Directory --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm 

Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/.

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
June 30, 2012 

May 31, 2012

April 30. 2012

 

June 30, 2012

Bob Jensen's New Bookmarks June 30, 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 
 

Links to IFRS Resources (including IFRS Cases) for Educators ---
http://www.iasplus.com/en/binary/resource/0808aaaifrsresources.pdf
Prepared by Paul Pacter: ppacter@iasb.org





Bill Cooper Passes on at Age 97 ---
http://www.mccombstoday.org/2012/06/professor-william-w-cooper-pioneer-in-operations-research-dies-at-97 


I've known Bill for years and loved to hear him talk about his student days as a boxer before becoming one of the all time great researchers and scholars in Operations Research, Management Science, and Accounting (where it all began and ended).


Among other things Bill played a major research role in the study of the breakup of AT&T. He also served in various leadership positions in the AAA


I'm reminded of something my sister-in-law once said about people in general --- not just me. She said:
"We can move from town to town, but we always take ourselves with us."

"Endings That Set Us Free," By Sara Lawrence-Lightfoot, Chronicle of Higher Education, June 25, 2012 ---
http://chronicle.com/article/Endings-That-Set-Us-Free/132383/?cid=cr&utm_source=cr&utm_medium=en

Jensen's Comments
I've often reflected on "Endings" in my professional life, but these were not often endings that "set me free." They were instead "beginnings" that afforded me new challenges and serendipitously changed the course of my professional career. Although I've held named professorships in three different universities, it was the Jesse Jones Chair at Trinity University what really ended my obsession with adding journal articles to my resume. By 1990, the marginal benefit of another journal article, even in a top academic research journal, was minimal to my internal and external reputation. I was at last set free to become more relevant to my students, my peers, and the "world." This was indeed an "ending" that became an open sharing "beginning."

Other endings along the way included my decision to end my budding career (after 18 months) with Ernst & Ernst to enter Stanford's budding accountancy doctoral program. My original intent was to become a professor to financially support my intent to be a ski bum without having to live like a bum and chase wild women. Yeah right! Instead I became a husband, a parent, and boring accounting professor with a 60-70 hour work week.

Other endings came after leaving faculty positions at four universities. It was not that I was ever professionally unhappy in any faculty position at any university. Rather it was to seek out new "beginnings" ---
http://www.trinity.edu/rjensen/Resume.htm

Other endings came when I shifted the goals of my research and teaching. One huge shift was the ending of my goal to publish in TAR, JAR, Operations Research, Mathematical Modelling, and other quant journals to focus on technology of education and to commence touring hundreds of universities around the world by literally lugging my PC on airplanes and showing off my HyperGraphics, ToolBooks, and HTML Web pages ---
http://www.trinity.edu/rjensen/Resume.htm#Presentations

Other endings really became beginnings. My early "beginnings" on the AECM Listserv in the 1990s showed me the genuine thrill it was to open share and open debate among professors, students, and practitioners. Barry Rice put an open sharing carrot in front of my nose, and I've been chasing that carrot ever since ---
http://www.trinity.edu/rjensen/ListservRoles.htm#Blogs

Other endings came with the waning of opportunities to make presentations of obscure accountics research and the rising opportunities to consult on FAS 133 and to conduct CPE workshops on accounting for derivative financial instruments and hedging activities. This new beginning also paid much, much better ---
http://www.trinity.edu/rjensen/Resume.htm#Presentations

So now I'm typing this in retirement while looking out at beautiful cloud formations over three mountain ranges. Retirement? I think I've still a dull accountant working 60-70 hour weeks. Endings do not always bring more sleep and truly new beginnings. They just make us think we have new beginnings.

I'm reminded of something my sister-in-law once said about people in general --- not just me. She said:
"We can move from town to town, but we always take ourselves with us."

 

 


The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

Mean and Median Applet --- http://mathdl.maa.org/mathDL/47/?pa=content&sa=viewDocument&nodeId=3204
Thank you for sharing  Professor Kady Schneiter of Utah State University

This applet consists of two windows, in the first (the investigate window), the user fills in a grid to create a distribution of numbers and to investigate the mean and median of the distribution. The second window (the identify window) enables users to test their knowledge about the mean and the median. In this window, the applet displays a hypothetical distribution and an unspecified marker. The user determines whether the marker indicates the postion of the mean of the distribution, the median, both, or neither. Two activities intended to facilitate using the applet to learn about the mean and median are provided.

Bob Jensen's threads on free online mathematics and statistics tutorials are at http://www.trinity.edu/rjensen/Bookbob2.htm#050421Mathematics


 

"Exploring Accounting Doctoral Program Decline:  Variation and the Search for Antecedents," by Timothy J. Fogarty and Anthony D. Holder, Issues in Accounting Education, May 2012 ---
Not yet posted on June 18, 2012

ABSTRACT
The inadequate supply of new terminally qualified accounting faculty poses a great concern for many accounting faculty and administrators. Although the general downward trajectory has been well observed, more specific information would offer potential insights about causes and continuation. This paper examines change in accounting doctoral student production in the U.S. since 1989 through the use of five-year moving verges. Aggregated on this basis, the downward movement predominates, notwithstanding the schools that began new programs or increased doctoral student production during this time. The results show that larger declines occurred for middle prestige schools, for larger universities, and for public schools. Schools that periodically successfully compete in M.B.A.. program rankings also more likely have diminished in size. of their accounting Ph.D. programs. Despite a recent increase in graduations, data on the population of current doctoral students suggest the continuation of the problems associated with the supply and demand imbalance that exists in this sector of the U.S. academy.

Jensen Comment
This is a useful update on the doctoral program shortages relative to demand for new tenure-track faculty in North American universities. However, it does not suggest any reasons or remedies for this phenomenon.  The accounting doctoral program in many ways defies laws of supply and demand. Accounting faculty are the among the highest paid faculty in rank (except possibly in unionized colleges and universities that are not wage competitive). For suggested causes and remedies of this problem see ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

Accountancy Doctoral Program Information from Jim Hasselback ---
http://www.jrhasselback.com/AtgDoctInfo.html 

Especially note the table of the entire history of accounting doctoral graduates for all AACSB universities in the U.S. ---
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf
In that table you can note the rise or decline (almost all declines) for each university.

Links to 91 AACSB University Doctoral Programs ---
http://www.jrhasselback.com/AtgDoct/AtgDoctProg.html

October 8, 2008 message from Amelia Balwin

These are the slides from today's presentations. This is a work on progress. Your comments are welcome, particularly on the design of the surveys.

I am very grateful for the support of this research provided by an Ernst & Young Diversity Grant Award!

 

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

 

"The Accounting Doctoral Shortage: Time for a New Model," by Jerry E. Trapnell, Neal Mero, Jan R. Williams and George W. Krull, Issues in Accounting Education, November 2009 ---
http://aaajournals.org/doi/abs/10.2308/iace.2009.24.4.427

ABSTRACT:
The crisis in supply versus demand for doctorally qualified faculty members in accounting is well documented (Association to Advance Collegiate Schools of Business [AACSB] 2003a, 2003b; Plumlee et al. 2005; Leslie 2008). Little progress has been made in addressing this serious challenge facing the accounting academic community and the accounting profession. Faculty time, institutional incentives, the doctoral model itself, and research diversity are noted as major challenges to making progress on this issue. The authors propose six recommendations, including a new, extramurally funded research program aimed at supporting doctoral students that functions similar to research programs supported by such organizations as the National Science Foundation and other science‐based funding sources. The goal is to create capacity, improve structures for doctoral programs, and provide incentives to enhance doctoral enrollments. This should lead to an increased supply of graduates while also enhancing and supporting broad‐based research outcomes across the accounting landscape, including auditing and tax.

 

Accounting Doctoral Programs

PQ = Professionally Qualified under AACSB standards (seldom in tenure tracks)
AQ = Academically Qualified under AACSB standards

May 3, 2011 message to Barry Rice from Bob Jensen

Hi Barry,

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

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

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

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

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

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

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

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

Hope this helps.

Bob Jensen

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

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

The Sad State of North American Accountancy Doctoral Programs ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms


June 30, 2012
Hi again Steve and David,


I think most of the problem of relevance of academic accounting research to the accounting profession commenced with the development of the giant commercial databases like CRSP, Compustat, and AuditAnalytics. To a certain extent it hurt sociology research to have giant government databases like the giant census databases. This gave rise to accountics researchers and sociometrics researchers who commenced to treat their campuses like historic castles with moats. The researchers no longer mingled with the outside world due, to a great extent, to a reduced need to collect their own data from the riff raff.



The focus of our best researchers turned toward increasing creativity of mathematical and statistical models and reduced creativity in collecting data. If data for certain variables cannot be found in a commercial database then our accounting professors and doctoral students merely assume away the importance of those variables --- retreating more and more into Plato's Cave.


I think the difference between accountics versus sociometrics researchers, however, is that sociometrics researchers often did not get as far removed from database building as accountics researchers.  They are more inclined to field research. One of my close sociometric scientist friends is Mike Kearl. The reason his Website is one of the most popular Websites in Sociology is Mike's dogged effort to make privately collected databases available to other researchers ---

Mike Kearl's great social theory site
Go to http://www.trinity.edu/rjensen/theory02.htm#Kearl


I cannot find a single accountics researcher counterpart to Mike Kearl.


Meanwhile in accounting research, the gap between accountics researchers in their campus castles and the practicing profession became separated by widening moats.


 

In the first 50 years of the American Accounting Association over half the membership was made up of practitioners, and practitioners took part in committee projects, submitted articles to TAR, and in various instances were genuine scholarly leaders in the AAA. All this changed when accountics researchers evolved who had less and less interest in close interactions with the practitioner world.


 

“An Analysis of the Evolution of Research Contributions by The Accounting Review: 1926-2005,” (with Jean Heck), Accounting Historians Journal, Volume 34, No. 2, December 2007, pp. 109-142.

. . .

Practitioner membership in the AAA faded along with their interest in journals published by the AAA [Bricker and Previts, 1990]. The exodus of practitioners became even more pronounced in the 1990s when leadership in the large accounting firms was changing toward professional managers overseeing global operations. Rayburn [2006, p. 4] notes that practitioner membership is now less than 10 percent of AAA members, and many practitioner members join more for public relations and student recruitment reasons rather than interest in AAA research. Practitioner authorship in TAR plunged to nearly zero over recent decades, as reflected in Figure 2.

 

I think that much good could come from providing serious incentives to accountics researchers to row across the mile-wide moats. Accountics leaders could do much to help. For example, they could commence to communicate in English on the AAA Commons ---
How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

 

Secondly, I think TAR editors and associate editors could do a great deal by giving priority to publishing more applied research in TAR so that accountics researchers might think more about the practicing profession. For example, incentives might be given to accountics researchers to actually collect their own data on the other side of the moat --- much like sociologists and medical researchers get academic achievement rewards for collecting their own data.


 

Put in another way, it would be terrific if accountics researchers got off their butts and ventured out into the professional world on the other side of their moats.


 

Harvard still has some (older) case researchers like Bob Kaplan who  interact extensively on the other side of the Charles River. But Bob complains that journals like TAR discourage rather than encourage such interactions.

Accounting Scholarship that Advances Professional Knowledge and Practice
Robert S. Kaplan
The Accounting Review, March 2011, Volume 86, Issue 2, 


 

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

 

It's high time that the leaders of accountics scientists make monumental efforts to communicate with the teachers of accounting and the practicing professions. I have enormous optimism regarding our forthcoming fabulous accountics scientist Mary Barth when she becomes President of the AAA.
 

I'm really, really hoping that Mary will commence the bridge building across moats ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

 

 

The American Sociological Association has a journal called the American Sociological Review (ASR) that is to the ASA much of what TAR is to the AAA.


The ASR like TAR publishes mostly statistical studies. But there are some differences that I might note. Firstly, ASR authors are more prone to gathering their own data off campus rather than only dealing with data they can purchase or behavioral experimental data derived from students on campus.


Another thing I've noticed is that the ASR papers are more readable and many have no complicated equations. For example, pick any recent TAR paper at random and then compare it with the write up at
http://www.asanet.org/images/journals/docs/pdf/asr/Aug11ASRFeature.pdf 


Then compare the randomly chosen TAR paper with a randomly chosen ASR paper at
http://www.asanet.org/journals/asr/index.cfm#articles 


Rosy Scenario:  Forecasted Returns on Pension Assets
From The Wall Street Journal Weekly Accounting Review on June 29, 2012

Illinois Pension Fund May Cut Return Target
by: Michael Corkery
Jun 28, 2012
Click here to view the full article on WSJ.com
 

TOPICS: Pension Accounting

SUMMARY: The article describes the Teachers' Retirement System of the State of Illinois as "bullish" given its continuing use of 8.5% for its estimated return on plan assets. The plan's Executive Director, Dick Ingram, "sent a confidential memo to the pension fund's board that later became public, warning that the state's unfunded pension liability was 'practically unmanageable'."

CLASSROOM APPLICATION: The article brings to light the judgment involved in establishing expected rates of return; further, it emphasizes the human resource implications of those issues in pension accounting and funded status.

QUESTIONS: 
1. (Introductory) In the opening line of the article, how does the author describe the Teachers' Retirement System of the State of Illinois?

2. (Introductory) Based on the description in the article, how much judgment is involved in determining the expected rate of return on pension plan assets?

3. (Introductory) Review the graphic entitled "Off Target?" and summarize in one or two sentences what is shown.

4. (Advanced) In general, what is the impact of the expected rate of return on pension plan calculations and accounting?

5. (Advanced) What will be the impact on the estimated financial status of the Illinois Teachers' Retirement System from this change in expected rate of return?

6. (Advanced) What are the human resource issues that come from the concerns expressed about the Illinois Teachers' Retirement System?
 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Illinois Pension Fund May Cut Return Targe," by Michael Corkery," The Wall Street Journal, June 28, 2012 ---
http://professional.wsj.com/article/SB10001424052702303561504577492920356668852.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

One of the most bullish state pension funds is finally acknowledging that its expectations of earning consistently high returns on its investments may be unrealistic.

In another sign of the grim realities gripping pension funds around the U.S., the Teachers' Retirement System of the State of Illinois may lower the rate of return it expects to earn every year on its $37 billion portfolio, according to its chief.

The rate, which has been 8.5% for the past 25 years, is one of the highest among U.S. state pension funds.

However, Dick Ingram, executive director of the fund, said in an interview that may soon change.

"My guess is that [the rate of return] comes down," he said. "We are not immune from financial reality. We are looking at the same numbers as everyone else."

Lowering the assumed return rate could increase liabilities at the fund serving 101,000 retired public-school employees by billions of dollars. The Illinois Teachers' Retirement System was 46% funded as of June 30, 2011.

That means its assets as of that date covered just 46% of its long-term liabilities.

State pension funds in Illinois are among the lowest funded in the U.S.

Mr. Ingram said the challenging near-term outlook for returns on the pension fund's investments, which include stocks, bonds, hedge funds and private-equity funds, makes it possible that actuaries will recommend a cut in the annual-return target.

The fund has returned on average 9.3% annually over the past 30 years.

But over the past decade, it has failed to hit its annual return assumptions on average.

"The question is whether that is a good number for the next 30 years," he said. "That is what we are wrestling with right now.''

The change could come as early as August when the pension fund's board meets.

Many large public-pension funds have bowed to the pressures of slow economic growth and volatile markets.

Some of Illinois's other pension funds have lowered their return assumptions in recent years.

Earlier this month, New Jersey officials approved lowering the assumed rates of return at the state's pension funds to 7.95% from 8.25%.

Mr. Ingram, who took over the helm of the Illinois teachers fund in January 2011, has been sounding the alarm about the fund's long-term health in the past six months.

He has been talking to teachers across Illinois about the possibility that under one scenario, the pension fund could run out of money by 2030.

"My son is a 27-year-old teacher in New Hampshire,'' said Mr. Ingram, who used to run the Granite State's retirement system. "If he was a teacher in Illinois I couldn't tell him that he would be guaranteed to receive the pension he's been promised," he said.

This "new reality,'' as Mr. Ingram called it, represents a change in tune for the pension director.

During his first year on the job, Mr. Ingram and other officials at the fund blasted critics in letters to Illinois and national newspaper editors.

One letter accused a critic of scaring teachers into thinking their pensions could be cut.

But last fall, Mr. Ingram said he had a change of heart when he began studying the state's budget problems.

He became persuaded that it was highly likely that the state at some point wouldn't be able to make its required payments to the pension plan.

In February of this year, he sent a confidential memo to the pension fund's board that later became public, warning that the state's unfunded pension liability was "practically unmanageable."

"I know teachers who think Dick Ingram should be fired,'' said Dan Montgomery, president of the Illinois Federation of Teachers, one of state's two large teacher unions.

"There was a sense that he was singing a new tune that was leading down the path toward benefit cuts."

Continued in article

 


Government Accountability Office (GAO) Podcast [iTunes] ---  http://www.gao.gov/podcast/watchdog.xml

Video: Fora.Tv on Institutional Corruption & The Economy Of Influence ---
http://www.simoleonsense.com/video-foratv-on-institutional-corruption-the-economy-of-influence/

Video from the AICPA
What's at Stake? A CPA's Insights into the Federal Government's Finances ---
http://www.aicpa.org/Advocacy/Pages/CPAsInsight.aspx

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


Liquidity Risk Disclosure Rules
The Lehman Bros. Bankruptcy Examiner chastised Ernst & Young for its role in helping Lehman Bros. hide its liquidity risk crisis (that eventually ended Lehman Bros.)
Volumes 1-9 of the Examiner's Report ---
 http://dealbook.blogs.nytimes.com/2010/03/11/lehman-directors-did-not-breach-duties-examiner-finds/#reports

Now Ernst & Young is helping us to understand how there will never be another Lehman Bros-like annual report that hides liquidity risk ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2370_FinancialInstruments_29June2012/$FILE/TechnicalLine_BB2370_FinancialInstruments_29June2012.pdf


Proposed New Repo Accounting Rules

The FASB tentatively decided this week to propose specifying the types of repurchase agreements (also known as “repos”) that should be accounted for as secured borrowings based on six criteria. These types of transactions would be an exception to the general guidance for derecognition of financial assets. The existing criteria for assessing effective control of repurchase
PwC In Brief
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=GBAD-8VQQLA&SecNavCode=MSRA-84YH44&ContentType=Content
 

Bob Jensen's threads on Repo Frauds ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo

 


"Avoiding MBA Internship Blunders," Business Week, June 21, 2012 ---
http://www.businessweek.com/articles/2012-06-21/avoiding-mba-internship-blunders

Seven internship goofs listed by Aida in Adelaide (not goofs in CPA firms) ---
http://www.community.ichm.edu.au/s/226/images/editor_documents/Internship News 22-02-08.pdf

1. BEING A WALLFLOWER

Shy and quiet interns are at a definite disadvantage, says Roger Conner, Vice- President of Communications at Marriott International. "They may be quite intelligent, but it does not reflect well on them." Good interpersonal skills, such as making good eye contact, are extremely important, he says. Put those skills to use, and take advantage of company-wide events to get some face time with higher management. Those in higher positions are often more than willing to share their advice with interns, when asked. "Maybe they can spare the 30 minutes on their calendars, and maybe they can't -- but it doesn't hurt to try."

2. DUCKING THE EXTRACURRICULARS

Most companies make an effort to arrange informal events and outings such as football games or community service days -- sometimes for a whole department, sometimes just for interns. By not participating you might actually be sending the message that you don't understand the company's values. You'll also lose out on what may be the best opportunities to get to know your co-workers on a more personal level.

3. GRUNTING ABOUT GRUNT WORK

Whether it's making photocopies or polishing cutlery, menial duties are a fact of life in every job role. Getting on with those small tasks will make any department run smoother and will stand you in good stead with your manager, who’ll be impressed by your willingness to help out.

4. MISSING THE BIG PICTURE

Spending as much time as you can with as many people as you can is the best way to learn about the company you're working for. Don't be afraid to venture outside your immediate team or department to learn how your responsibilities fit into the big picture.

5. FAILING TO ASK QUESTIONS

Asking questions can be crucial to avoid wasting time and energy by approaching problems in the wrong way. They can also speak volumes about your desire to learn. There's perhaps no better way to show off your intellectual curiosity than by asking intelligent questions. It's the rare person in any organisation who knows everything.

6. REJECTING CRITICISM

Critical feedback is the most challenging to give and receive -- but it's also the most useful. That means it's smart for interns to seek out constructive criticism, rather than waiting for a formal review.

Some students, particularly confident ones in the classroom, may not be as open to criticism as they should be. Instead of really listening to feedback, a number of interns simply shut it out. Overly cocky interns aren't just making a bad impression; they're also missing out on valuable opportunities to improve their skills.

7. WASTING TIME

Recruiters consistently cite being proactive as one of the most important qualities in a successful intern. If you're waiting to be told what to do you're not doing enough. 6 months is short, and there's a lot you can learn by asking for new tasks.

 

Jensen Comment
Probably the best advice to consider is that given by the firm's employee who interviewed you for the internship. And pay particular attention to your accounting professors --- they're always right.

Seriously, the professor who has previously monitored a lot of interns probably has heard it all. That professor can probably highlight the big plus things to do on and internship as well as the minus things.

One of the toughest internship settings requires tolerance with dignity. One time I ended up with a house guest at a Comedy Club on the San Antonio River Walk. The show turned especially gross, and my friend and I soon walked out. I felt sorry for the 23 Ernst & Young employees and interns who were sitting alongside of us at the same show. Should you, as an intern, have walked out of the show leaving your 22 colleagues behind? I really don't know what to advise in these circumstances. I honestly think the E&Y local office employees, like us, did not really expect that Comedy Club show to become so gross. On the other hand, perhaps street smart people should always expect the worst from a Comedy Club.

And if the internship goes badly, the blame may not all fall on the intern. Sometimes employees dealing with interns are under stress and not at their best during a particular internship period. Do report any really bad stuff like sexual harassment and failure to deliver on what was promised to you in this internship. And do own up to your own mistakes. To err is human on the job. To cover it up or blame somebody else is generally stupid.

And remember things that seem cool among other students are not always cool on the job --- including those brass boogers sticking out the side of your nose, lip, or tongue and those edges of tattoos that peek out from your clothing.

Don't pretend to be a great intellectual by tossing out quotes from renowned scholars. Instead be able to discuss possible batting averages, injury, and e.r.a. reasons that the Red Sox are at the bottom of their division. Know the names of the top money winners in recent P.G.A. and L.P.G.A. tournaments.

Be polite everybody equally and don't be overly patronizing to women and minorities. If a particular woman makes a feminist joke or a black makes a watermelon joke this does not mean you are entitled to make the same types of jokes --- but jokes about Ole, Lena, Sven, and Swedes in general are commendable in any setting.

And remember that interns sometimes are treated differently than full-time employees. Be prepared for questions such as those shown below:

Sometimes such questions are just ways of making conversation with strangers. At other times they are trick questions to see if you tend to pretend to be somebody that you're really not or somebody who is slow to think and speak extemporaneously. Of course if you prepare for the above questions it's not exactly extemporaneous.


"Students and Families Miss Out on Millions in Tax Breaks, Report Says," by Michael Stratford, Chronicle of Higher Education, June 18, 2012 ---
http://chronicle.com/article/StudentsFamilies-Miss-Out/132371/

About 1.5 million tax filers in 2009 did not take advantage of the higher-education tax benefits for which they appeared to be eligible, according to a government report released on Monday.

The report, by the Government Accountability Office, says students and their families missed out on average tax benefit of $466. The missed savings totaled $726-million.

Tax benefits for higher education—which include the American Opportunity Credit, the Lifetime Learning Credit, and deductions for tuition payments and interest paid on student loans—each year total about $30-billion. But about 14 percent of the people who were eligible for the benefits in the 2009 tax year did not use them, the GAO found.

And even among those who did take advantage of some higher-education tax benefit, the report says many did not use them effectively. For example, nearly 40 percent of the students and families who took the tuition deduction could have saved more money by claiming the Lifetime Learning Credit instead. Filers who didn't maximize their tax savings paid an average of $284 more than they had to, for a total of approximately $67.2-million.

The Government Accountability Office says that, since 2005, it has repeatedly found that millions of filers eligible for higher-education tax breaks have failed to claim them. In the report the GAO recommends that the Internal Revenue Service and Department of Education work together to develop a "coordinated, comprehensive strategy" aimed at better informing students about the benefits for which they are eligible.

Bob Jensen's tax helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


Khan Academy for Free Tutorials (now including accounting tutorials) Available to the Masses ---
http://en.wikipedia.org/wiki/Khan_Academy

A Really Misleading Video
Do Khan Academy Videos Promote “Meaningful Learning”?   Click Here
http://www.openculture.com/2012/06/expert_gently_asks_whether_khan_academy_videos_promote_meaningful_learning.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

If you ever wondered whether professional scientists are skeptical about some of the incredibly fun, attractive and brief online videos that purport to explain scientific principles in a few minutes, you’d be right.

Derek Muller completed his doctoral dissertation by researching the question of what makes for effective multimedia to teach physics. Muller curates the science blog Veritasium and received his Ph.D. from the University of Sydney in 2008.

It’s no small irony that Muller’s argument, that online instructional videos don’t work, has reached its biggest audience in the form of an online video. He launches right in, lecture style, with a gentle attack on the Khan Academy, which has famously flooded the Internet with free instructional videos on every subject from arithmetic to finance.

While praising the academy’s founder, Salman Khan, for his teaching and speaking talent, Muller contends that students actually don’t learn anything from science videos in general.

In experiments, he asked subjects to describe the force acting upon a ball when a juggler tosses it into the air. Then he showed them a short video that explained gravitational force.

In tests taken after watching the video, subjects provided essentially the same description as before. Subjects said they didn’t pay attention to the video because they thought they already knew the answer. If anything, the video only made them more confident about their own ideas.

Science instructional videos, Muller argues, shouldn’t just explain correct information, but should tackle misconceptions as well. He practices this approach in his own work, like this film about weightlessness in the space station. Having to work harder to think through why an idea is wrong, he says, is just as important as being told what’s right.

 

Jensen Comment
In my viewpoint learning efficiency and effectiveness is so complicated in a multivariate sense that no studies, including Muller's experiments, can be extrapolated to the something as vast as the Khan Academy.

For example, the learning from a given tutorial depends immensely on the aptitude of the learner and the intensity of concentration and replay of the tutorial.

For example, learning varies over time such as when a student is really bad at math until a point is reached where that student suddenly blossoms in math.

For example, the learning from a given tutorial depends upon the ultimate testing expected.
What they learn depends upon how we test:

"How You Test Is How They Will Learn," by Joe Hoyle, Teaching Financial Accounting Blog, January 31, 2010 ---
 http://joehoyle-teaching.blogspot.com/2010/01/how-you-test-is-how-they-will-learn.html 

I consider Muller's video misleading and superficial.

Here are some documents on the multivariate complications of the learning process:

 

Salman Khan Returns to MIT, Gives Commencement Speech, Likens School to Hogwarts --- Click Here
http://www.openculture.com/2012/06/sal_khan_returns_to_mit_gives_commencement_speech_likens_school_to_hogwarts.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29


"193 Vocational Programs Fail 'Gainful Employment' Test," by Michael Stratford, Chronicle of Higher Education, June 26, 2012 ---
http://chronicle.com/article/193-Vocational-Programs-Fail/132593/?cid=at&utm_source=at&utm_medium=en

Jensen Comment
Some vocational/technical training programs in the U.S. are frauds in terms of admission standards and training standards. Out of the others that really do try to provide quality vocational and technical training there are huge problems in doing so.

Firstly, unlike in Germany the aptitudes of people in the applicant pools in the U.S. are usually very low in intelligence and talent coupled with questionable on-the-job motivation and reliability.

Secondly, in the U.S. the time between the start of training and "graduation" is too short relative to Germany where the training time is very long in most cases with intense periods of on-the-job apprenticeships. By the time German apprentices reach the "graduation" point they have proven themselves in terms of skills and work ethics.

High school students in the U.S. are obsessed with going to college with a tradition that only the dregs go to vocational school. This system has become dysfunctional for purposes of having talented and motivated people in the skilled trades. While at the same time we have thousands upon thousands of college graduates who are not trained for anything except McJobs at minimum wage.

There should not be such a high proportion of our high school graduates aspiring for college admission rather than skilled trade licenses. Technology has made it possible to become dashboard mechanics and jet engine mechanics and still become scholars of Shakespeare or Thomas Hobbes using free online courses and course materials from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

The Case Against College Education ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#CaseAgainst

 


"Customization Is the Future of Teaching, Harvard Researcher Says," by Jeffrey R. Young, Chronicle of Higher Education, June 25, 2012 ---
http://chronicle.com/article/The-Future-of-Teaching-/132493/

Jensen Comment
I'm reminded of Steve Hornik at Central Florida who stands in front of a classroom of over 1,000 students. The above article presents Chris Dede's ideas on how to customize large lecture and case courses to the varying needs of individual students.

By the way Steve was an early adopter of Second Live 3-D learning technology ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife

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

 


From the AICPA on June 28, 2012

Three ethics resources for CPA, CGMAs
With the importance of ethics and non-financial reporting rising on the global agenda, CGMAs are in a unique position to make an important contribution to creating a sustainable ethical operating environment. The AICPA and CIMA have developed a number of resources to assist CPA, CGMAs in guiding their organizations to long-term sustainability and success. The Ethical reflection checklist is designed to provide organizations and individuals with an overview of how well ethical practices are embedded in the business. The CGMA case study: Navigating ethical issues highlights issues related to non-disclosure at the corporate level that come to the attention of non-executive financial managers and controllers. Responding to ethical dilemmas: CGMA ethics resources provides links to resources to help CGMAs navigate ethical dilemmas and respond in a manner that upholds their professional

Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm

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


"Why Inefficiency Is a Balance Sheet Asset," by Andrew Sawers, CFO.com, June 27, 2012 ---
http://www3.cfo.com/article/2012/6/management-accounting_assets-balance-sheet-working-capital-oxford-university-london-ian-goldin

Jensen Comment
Time and time again aging superstar professional athletes who have not had a productive year suddenly become the heroes in the playoffs.

In terms of business firms, the term "inefficiency" must be viewed in context. Many firms that were bailed out, like GM and Chrysler, would never have survived because their inefficiency and ineffectiveness (in terms of quality control) were most certainly liabilities rather than assets. Ford, on the other hand, neither asked for nor received a bailout anything like the billions of dollars our government handed GM and Chrysler. In Ford's case inefficiencies and effectiveness (in terms of quality control) were assets rather than liabilities.

 


The Scout Report has a link to the following site:
University of Connecticut Student Yearbook, 1915-1990 --- 
http://doddcenter.uconn.edu/asc/collections/nutmeg/index.htm 

I searched under "Dunbar" and found some links and photos.


Finance Professor and Blogger Jim Mahar on Facebook Says $200 Textbooks are Too Much ---
https://www.facebook.com/FinanceProfessorBlog/posts/386988958017435

I THINK I made my decision on Fall text books. Sorry to the major publishers, but $200+ books is just too much. Going with Ivo Welch' s Corporate Finance for MBA 610 (free online or $60 for hard copy) and Tim Gallagher's Financial Management (Cost from $17.95 to about $50) for Fin 401. Still looking for Behavioral Finance, any ideas?
Read the comments from readers.

Jim's excellent Finance Professor Blog --- http://financeprofessorblog.blogspot.com/
Jim is a very giving person and often goes off weeks at a time to volunteer in places like Haiti and poor parts of the U.S.

Jensen Comment

With respect to textbooks, instructors are between rocks and high prices since the big publishing firms merged into oligopoly status and take advantage in the pricing of new textbooks. The e-book alternatives sound great on paper, but often their prices are not as competitive as we would like. And I think some people, like me,  learn better from hard copy.

There are many free older textbooks available for courses, but these are seldom kept up to date by authors who are no longer compensated for their time and effort ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
In financial accounting this is especially troublesome because the end-of-chapter material may actually be misleading in terms of new FASB/IASB standards and interpretations. One possible class assignment is to have students update the end-of-chapter material and write new problems and cases for older free textbooks.

Instructors may adopt newer and cheaper textbooks but the cheap part generally applies to the sparse and superficial end-of-chapter material. This same type of dilemma applies to instructor-authored hundreds of pages of handouts. It's almost impossible for instructors to both keep the handouts up-to-date and to revise illustrations, problems, and cases for new standards and interpretations.

The one saving grace is the used textbook market. Sometimes the updates to new editions are so superficial, that for a semester or two, instructors can get by with recommending used textbook purchases of a slightly older edition. Amazon is a great place for purchasing used copies By then, there are usually a lot of used copies of the newer edition of the textbook. Instructors should save old test banks and both modify and update older test banks.

Always remember that most likely students have obtained legitimate or not-so-legitimate tests and assignment answers used in prior semesters. Lazy instructors ignore this way students, especially fraternity and sorority students, create an uneven playing field.

 


Wanda Wallace, Emeritus Accounting Professor, Romantic Novel Author, and Poet

Thanks Denny,

Wanda and I served on the same AAA Executive Committee during what was perhaps the first AAA Annual Meeting in Hawaii (at the Hilton Hawaiian Village). That was the same year the AAA Executive Committee (with spouses) met in Amsterdam (courtesy of funding raised by Jerry Searfoss).

A book editor once told me that Wanda Wallace was the best textbook author he'd ever worked with in the sense that her books were virtually perfect before they were sent out for editorial review.

Wanda was also a former Editor of Issues in Accounting Education (IAE).

Her message to the 2002/2003 AAA Executive Committee (under Pete Wilson)  that tried to terminate both Accounting Horizons and IAE played a key role in saving these journals ---
http://www.trinity.edu/rjensen/AAAJournals.htm

Many AECM subscribers perhaps have forgotten the role the AECM played in the above struggle to save these journals for extinction ---
http://www.trinity.edu/rjensen/AAAJournals.htm

I wish Wanda and Jim the very best in retirement.

Respectfully,
Bob Jensen


 

---------- Forwarded message ----------
From: Dennis R Beresford <dberesfo@uga.edu>
Date: Tue, Jun 12, 2012 at 4:22 PM
Subject: Fwd:
To: Bob Jensen <rjensen@trinity.edu>


 
Bob, Now here's a forthcoming publication from an accounting academic that some people may actually read!  The title of Wanda's novel is "The Soothsayers." Denny

Sent from my iPad

Begin forwarded message:

 
From: "Wallace, Wanda" <Wanda.Wallace@mason.wm.edu>
Date: June 12, 2012 3:15:54 PM EDT
To: "dberesford@terry.uga.edu" <dberesford@terry.uga.edu>

 
Dennis R. Beresford
Ernst & Young Executive Professor of Accounting
J.M. Tull School of Accounting
Terry College of Business
Athens, GA 30602
dberesford@terry.uga.edu

 

Dear Denny,
It's been a long time since we've been in correspondence, but thought I'd drop a line to say hello and share some news.

 

Since retirement from academe I've been enjoying writing poetry and fiction. My first novel is to be launched in September 2012, and I am thrilled. The cover is already posted as "Coming Soon" on the home page of champagnebooks.com.

 

Hope things are going well,
Regards!
Wanda

 

P.S. One of my published fiction short stories is in the literary journal The MacGuffin (Fall 2011) called "Intrusions" and was great fun to craft. FYI


Wanda A. Wallace (The John N. Dalton Professor of Business Emerita)
College of William and Mary, School of Business Administration
Williamsburg, Virginia 23185
Email address: wawall@wm.edu

 


DNS Changer Malware

Forwarded by Jim Martin

These links are in the July 2012 issue of PC World

For a DNS Changer Check-Up see: www.dns-ok.us

That site provides a link to the FBI's site at
http://www.fbi.gov/news/stories/2011/november/malware_110911

For infected systems see http://www.dcwg.org/fix/

or Avir's repair tool at
http://www.avira.com/en/support-for-home-knowledgebase-detail/kbid/1199

Google warns hundreds of thousands may lose Internet in July (July 9 to be exact) ---
http://www.foxnews.com/scitech/2012/05/25/google-warns-hundreds-thousands-may-lose-internet-in-july/

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


"SEC’s New Credit Rating Office Opens as Pressure Mounts on Firms," by Emily Chason, CFO Journal, June 15, 2012 ---
http://blogs.wsj.com/cfo/2012/06/15/sec%E2%80%99s-new-credit-rating-office-opens-as-pressure-mounts-on-firms/?mod=wsjcfo_hp_cforeport#


Writing Across the Curriculum: George Mason University --- http://wac.gmu.edu/

At our large state institution, we are proud of the culture of writing that has been created and fostered over the years by faculty, academic departments, and higher administration, all of whom share a commitment to student writers and writing in disciplines. Central to our WAC mission is the belief that when students are given frequent opportunities for writing across the university curriculum, they think more critically and creatively, engage more deeply in their learning, and are better able to transfer what they have learned from

Bob Jensen's helpers for writers are at http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries


Digital Forensics and Cyber Security Center at the University of Rhode Island ---
http://www.dfcsc.uri.edu/


"3 Colleges' Different Approaches Shape Learning in Econ 101," by Dan Berrett, Chronicle of Higher Education, June 18, 2012 ---
http://chronicle.com/article/Econ-101-From-College-to/132299/?cid=wb&utm_source=wb&utm_medium=en

"A Descriptive Study of Institutional Characteristics of the Introductory Accounting Course," by Jonathan E. Duchac and Anthony J. Amoruso, Issues in Accounting Education, February 2012 ---
http://aaajournals.org/doi/pdf/10.2308/iace-50089 

ABSTRACT:
Introductory accounting has historically been a foundational course in most undergraduate business curriculums. In many cases, the course serves as a prerequisite for all upper-level business and accounting courses. However, no current public data exist on the structure and characteristics of introductory accounting across a large sample of institutions. This study begins to fill this void by providing descriptive data on institutional characteristics of the introductory accounting course. Data are collected on seven different dimensions of the course suggested by the recommendations of the Accounting Education Change Commission (AECC) and recent trends in higher education: course size and staffing, pedagogical orientation/teaching approach, standardization of course elements across instructors, the textbook selection process, use of technology-based course management tools, off-site course delivery, and transfer credit acceptance. In some cases, the current data can be compared to previous research that examined similar characteristics. The resulting data can provide instructors, administrators, and researchers with a useful benchmark for developing teaching plans, curriculum, and future academic research.

"Improving Student Satisfaction in a First-Year Undergraduate Accounting Course by Team Learning," by Evelien Opdecam and Patricia Everaert, Issues in Accounting Education, February 2012 ---
http://aaajournals.org/doi/pdf/10.2308/iace-10217

ABSTRACT:
This paper discusses student satisfaction and course experiences of firstyear undergraduate students in an introductory financial accounting course where team learning was implemented during tutorials. Course experiences and satisfaction, as perceived by students in the team learning condition, were compared to those in a traditional lecture-based control condition. A post-experimental questionnaire, with open and closed-ended questions, was administered. Students reported significantly higher levels of satisfaction in the team learning condition and a more positive course experience compared to students in the lecture-based condition. The increased time spent on accounting in the team learning condition resulted in increased learning, as evidenced by higher grades on the final exam in the team learning condition. An analysis of open-ended questions revealed that both learning conditions fit for particular students. High pre-class preparation was considered a strength of the team learning condition, while the comprehensive explanation by the teacher was the most frequently mentioned advantage of the lecture-based condition. This paper further contributes to the practice of accounting education by illustrating a way to implement team learning in a large undergraduate accounting course.

"A Half Century of Close Encounters with the First Course in Accounting," by Doyle Z. Williams, Issues in Accounting Education, November 2011 ---
http://aaajournals.org/doi/pdf/10.2308/iace-50070 :

ABSTRACT:
This paper describes the author’s encounters with the first course in accounting in his half century of study, teaching, and service on five campuses, as a student, doctoral teaching assistant, lecturer, professor, accounting department administrator, business dean, and senior scholar. Also described are his encounters with issues surrounding the first course in accounting in a variety of leadership roles with the American Accounting Association, American Institute of Certified Public Accountants, Accounting Education Change Commission, Association for Advancement of Collegiate Schools of Business, the Accounting Programs Leadership Group, and the Federation of Schools of Accountancy. Changes in the nature, content, and teaching of the first course in accounting are discussed. Observations for the future of the first course in accounting are offered.

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


"Offering a Helping Hand on Retirement Savings:  New Website Provides Investment Novices Free Portfolio Recommendations; Asking Questions of the CEO," by Katherine Boehret, The Wall Street Journal, June 5, 2012 ---
http://professional.wsj.com/article/SB10001424052702303506404577448503218010424.html

How often do you tinker with your retirement savings? Many people think about this when starting a job or opening a 401(k), but sometimes not again until they are ready to retire. According to financial advisers, that's too late.

This week, I forced myself to look at accounts I rarely monitor as I tested FutureAdvisor.com, a website founded by two former Microsoft engineers who are also a registered investment adviser and chartered financial analyst, respectively. They wanted to create an easy way for people to manage their retirement savings, primarily using index funds, and they based the site's suggestions on what they consider to be the best practices in the industry and in academia.

FutureAdvisor, which has no ads, bills itself as a free alternative to paying a lot for financial advice from professionals, who often charge a 1% annual fee or work on commission. Many big investment firms offer retirement-savings services, but these generally don't offer step-by-step advice for an investor's complete portfolio. FutureAdvisor expects to make money when it introduces later this year an optional premium service, which will charge an annual fee of less than 0.25% of your assets to rebalance and maintain your portfolio, automatically. It says suggestions offered on the site are made solely on merit, with no kickbacks or commissions to FutureAdvisor.

The site differs from budgeting sites like Mint.com that don't specialize in retirement savings. Instead, Mint makes money through recommendations for users, like which credit cards carry lower fees.

I'm not a financial expert; rather, I looked at FutureAdvisor through the lens of an average person who might want to use the site. Its investment philosophy may not be right for everybody.

FutureAdvisor is easy to use and walks users through a set of simple steps. There's no asset minimum to use the site, though people who are already in retirement can't use it. Pop-up explanations and options to submit questions to the site's CEO and co-founder, a registered investment adviser, are available as you go.

For security purposes, FutureAdvisor uses bank-level, 128-bit SSL (Secure Socket Layer) encryption for all communications. It can't move money or make transactions; instead, people do this by clicking on links that send them to their financial institutions where they may pay a fee for certain transactions. Login information is never stored on the website; rather, it's handled by partner company Yodlee.

To get started with FutureAdvisor, I entered my email and a password to create an account and then answered questions about myself. These included birthday, current annual income, desired retirement age, desired retirement income, age when I started consistently saving for retirement, approximate value of my retirement investments and marital status. Thankfully, messages that say, "What is this?" appear beside each question, explaining why it's asked.

Next, you enter the names of brokerage firms that handle your accounts, like Fidelity for a 401(k) or T. Rowe Price for a Roth IRA. If you don't already have online accounts with each of these firms, you must set up accounts on their websites so you can return to FutureAdvisor, enter your username and password and access your data.

FutureAdvisor recognized a lot of different brokerage firms that I searched for, and this week it added Thrift Savings Plans, or TSPs, which are used by government employees, including military personnel. If a brokerage firm isn't on the site, you can suggest it in a feedback box. I did this, and my requested firm was added within hours.

When personal questions are answered and brokerage-firm information is retrieved, FutureAdvisor asks you to choose a conservative, moderate or aggressive approach with explanations of each. I chose an aggressive option because of my relatively young age. Various charts filled the screen showing recommendations for my stock/bond split, equity style, diversification split and glide style. Terms like this may lose average users, but brief explanations beside them helped, and I read a References and Citations pop-up menu filled with sources from which the advice was generated.

The most helpful section of the site showed recommendations for my portfolio.

Continued in article

FutureAdvisor --- https://www.futureadvisor.com/

Bob Jensen's investment helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


One of My Heroes in Michael Lewis --- http://en.wikipedia.org/wiki/Michael_Lewis

Michael Lewis Tells Princeton Graduates How Moneyball Rules Apply to Real Life --- Click Here
http://www.openculture.com/2012/06/michael_lewis_princeton_graduation_speech.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
 

Jensen Comment
You can read more about the books and videos of Michael Lewis by scrolling down at
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds 
 

Breaking the Bank Frontline Video
In Breaking the Bank, FRONTLINE producer Michael Kirk (Inside the Meltdown, Bush’s War) draws on a rare combination of high-profile interviews with key players Ken Lewis and former Merrill Lynch CEO John Thain to reveal the story of two banks at the heart of the financial crisis, the rocky merger, and the government’s new role in taking over — some call it “nationalizing” — the American banking system.
Simoleon Sense, September 18, 2009 --- http://www.simoleonsense.com/video-frontline-breaking-the-bank/
Bob Jensen's threads on the banking bailout --- http://www.trinity.edu/rjensen/2008Bailout.htm

I'm suspicious that Andreas Hippin, in the above tidbit, was inspired by "The End" by Michael Lewis
"The End," by Michael Lewis December 2008 Issue The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true
Also see http://www.trinity.edu/rjensen/2008Bailout.htm#TheEnd 

Inside the Wall Street Collapse (Parts 1 and 2) first shown on March 14, 2010

Video 2 (Greatest Swindle in the History of the World) --- http://www.cbsnews.com/video/watch/?id=6298154n&tag=contentMain;contentAux

Video 3 (Swindler's Compensation Scandals) --- http://www.cbsnews.com/video/watch/?id=6298084n&tag=contentMain;contentAux

 

"Michael Lewis: The Economic Crisis -When Irish Eyes Are Crying," Vanity Fair via Simoleon Sense, February 2, 2011 ---
http://www.simoleonsense.com/michael-lewis-the-economic-crisis-when-irish-eyes-are-crying/

  • This is a must read to understand what went wrong on Wall Street --- especially the punch line!
    "The End," by Michael Lewis December 2008 Issue The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
    http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true

    To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

    I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

    When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

    Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

    I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”

    I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

    Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

    In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

    At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

    The New Order The crash did more than wipe out money. It also reordered the power on Wall Street. What a Swell Party A pictorial timeline of some Wall Street highs and lows from 1985 to 2007. Worst of Times Most economists predict a recovery late next year. Don’t bet on it. Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

    From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.

    Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it’s true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.’s themselves didn’t know.

    Now, obviously, Meredith Whitney didn’t sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer’s campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they’d have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn’t even know how to manage their own.

    At some point, I could no longer contain myself: I called Whitney. This was back in March, when Wall Street’s fate still hung in the balance. I thought, If she’s right, then this really could be the end of Wall Street as we’ve known it. I was curious to see if she made sense but also to know where this young woman who was crashing the stock market with her every utterance had come from.

    It turned out that she made a great deal of sense and that she’d arrived on Wall Street in 1993, from the Brown University history department. “I got to New York, and I didn’t even know research existed,” she says. She’d wound up at Oppenheimer and had the most incredible piece of luck: to be trained by a man who helped her establish not merely a career but a worldview. His name, she says, was Steve Eisman.

    Eisman had moved on, but they kept in touch. “After I made the Citi call,” she says, “one of the best things that happened was when Steve called and told me how proud he was of me.”

    Having never heard of Eisman, I didn’t think anything of this. But a few months later, I called Whitney again and asked her, as I was asking others, whom she knew who had anticipated the cataclysm and set themselves up to make a fortune from it. There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. Whitney rattled off a list with a half-dozen names on it. At the top was Steve Eisman.

    Steve Eisman entered finance about the time I exited it. He’d grown up in New York City and gone to a Jewish day school, the University of Pennsylvania, and Harvard Law School. In 1991, he was a 30-year-old corporate lawyer. “I hated it,” he says. “I hated being a lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle me a job. It’s not pretty, but that’s what happened.”

    He was hired as a junior equity analyst, a helpmate who didn’t actually offer his opinions. That changed in December 1991, less than a year into his new job, when a subprime mortgage lender called Ames Financial went public and no one at Oppenheimer particularly cared to express an opinion about it. One of Oppenheimer’s investment bankers stomped around the research department looking for anyone who knew anything about the mortgage business. Recalls Eisman: “I’m a junior analyst and just trying to figure out which end is up, but I told him that as a lawyer I’d worked on a deal for the Money Store.” He was promptly appointed the lead analyst for Ames Financial. “What I didn’t tell him was that my job had been to proofread the ­documents and that I hadn’t understood a word of the fucking things.”

    Ames Financial belonged to a category of firms known as nonbank financial institutions. The category didn’t include J.P. Morgan, but it did encompass many little-known companies that one way or another were involved in the early-1990s boom in subprime mortgage lending—the lower class of American finance.

    The second company for which Eisman was given sole responsibility was Lomas Financial, which had just emerged from bankruptcy. “I put a sell rating on the thing because it was a piece of shit,” Eisman says. “I didn’t know that you weren’t supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you could pick the one you thought you should.” He was pressured generally to be a bit more upbeat, but upbeat wasn’t Steve Eisman’s style. Upbeat and Eisman didn’t occupy the same planet. A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it. After describing how Eisman exposed various important people as either liars or idiots, the hedge fund manager started to laugh. “He’s sort of a prick in a way, but he’s smart and honest and fearless.”

    “A lot of people don’t get Steve,” Whitney says. “But the people who get him love him.” Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn’t worry about its financial condition, as it had hedged its market risk. “The single greatest line I ever wrote as an analyst,” says Eisman, “was after Lomas said they were hedged.” He recited the line from memory: “ ‘The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.’ I enjoyed writing that sentence more than any sentence I ever wrote.” A few months after he’d delivered that line in his report, Lomas Financial returned to bankruptcy.

    Continued in article

    Michael Lewis, Liar's Poker: Playing the Money Markets (Coronet, 1999, ISBN 0340767006)

    Lewis writes in Partnoy’s earlier whistleblower style with somewhat more intense and comic portrayals of the major players in describing the double dealing and break down of integrity on the trading floor of Salomon Brothers.

    Continued at http://www.trinity.edu/rjensen/FraudRotten.htm

    Bob Jensen's threads on the Lehman Examiner's Report ---
    http://www.trinity.edu/rjensen/fraud001.htm#Ernst

  • You can read more about the books and videos of Michael Lewis by scrolling down at
    http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds 


    "Ernst & Young dismissed from IndyMac shareholder case," by Amanda Bronstad, Law.com, June 8, 2012 ---
    http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202558691320&Ernst__Young_dismissed_from_IndyMac_shareholder_case&slreturn=1

    Jensen Comments
    The courts have been very kind to large auditing firms that allowed clients to grossly underestimate bad debt reserves and failed to detect (or at least report) insider frauds and going concern questions for nearly 2,000 clients that went bankrupt after 2007. This particular IndyMac case judge was also not a bit sympathetic with the SEC's case in general.

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


    "Seeking True Financial Reform: Ending the Debt- Equity Distinction," by  Joseph B. Allen, William and Mary Business Law Review , Volume 3, Issue 1 ---
    Click Here
    http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1035&context=wmblr&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dseeking%2520true%2520financial%2520reform%253A%2520ending%2520the%2520debt-equity%2520distinction%26source%3Dweb%26cd%3D1%26sqi%3D2%26ved%3D0CE0QFjAA%26url%3Dhttp%253A%252F%252Fscholarship.law.wm.edu%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1035%2526context%253Dwmblr%26ei%3DV5PCT77kEuj3sQKM1ozhCQ%26usg%3DAFQjCNHrT51ZK1nKCvnFFcyJE8mHFtE1Cw#search=%22seeking%20true%20financial%20reform%3A%20ending%20debt-equity%20distinction%22

    This Note identifies the failure of Congress to address tax incentives for leverage as a principal cause of the recent financial crisis and a fundamental flaw of recent financial reform legislation. Specifically, the Internal Revenue Code provides substantially disparate tax treatment for debt and equity financing by allowing firms to deduct interest payments on indebtedness, but not providing an equivalent deduction for equity funding. This “debt-equity distinction” artificially reduces the cost of capital for debt financing relative to equity financing and encourages firms to over-employ leverage in their capital structure. This in turn increases financial distress costs and externalities to the economy and increases the volatility of capital markets. Though some scholars have proposed to allow firms a deduction for dividends paid, such a scheme would create additional distortions and introduce the potential for corporate managers to substantially manipulate their taxable income. This Note offers an alternative solution by proposing: (1) that the deduction for interest on business indebtedness be eliminated, and (2) that policymakers return to the idea of the Cost-of-Capital-Allowance (COCA). A COCA deduction better aligns the incentives of firms with those of capital markets and economies writ large, and encourages managers to seek out the absolute cheapest sources of capital while removing tax shelter considerations from the decision-making process.

    . . .

    Encouraging debt over equity has consequences other than increased volatility. The distinction also shifts investment capital away from innovative, high-risk startup companies and towards relatively safer and more stable firms in established industries.92 Michael Knoll, Co-Director of the Center for Tax Law and Policy at the University of Pennsylvania Law School,93 points out that high-risk startup firms have less capacity for leverage in their capital structure because they do not have a consistent earnings history or steady cash flow.94 More established companies are in better positions to employ the interest deduction in devising their capital structure, substantially lowering their cost of capital.95 The overall cost of capital of a firm can act as a “hurdle rate” for judging new ventures and projects; managers and investors will pursue only those projects with an expected rate of return above the cost of capital.96 The interest deduction thus encourages greater investment in stable firms past their rapid growth period, increasing competition for startups in acquiring capital.

    Jensen Comment
    This is more of an essay advocating elimination of interest deductions on corporate tax returns than it is a realistic paper on elimination of debt financial instruments. The author, for example, does not give adequate attention to the important role played by collateral (e.g., real estate mortgages and mortgages on jumbo jets) in debt financing. One of the reasons for lower cost of debt is that quality of the collateral contracted in that debt.

    Bondholders generally do better than shareholders in bankruptcy court. The debt may be restructured by the courts, but the shareholders stand a much better chance of getting nothing. This is one of the main reasons investors opt for bonds rather than equity shares.

    The author assumes that elimination of debt alternatives will ipso facto lower the cost of capital for high risk startup ventures. I just do not buy into his reasoning. Risk averse investors will avoid investing in the equity of risky ventures whether or not they have bond markets to turn to in making their portfolio selections.

    The author also avoids the issue of how towns, counties, states, and the federal government finance capital projects and developments with bonds. These "debt" alternatives for investors will most likely still exist even if we ban bond investing for business firms.

    The author also avoids the issue of global markets. The U.S. Congress cannot eliminate global bond markets. Eliminating bond markets in the U.S. will most likely mean that risk averse investors will increasingly seek more and more foreign bonds rather than plunge more money in risky equity investments.

    My general conclusion is that this is a very superficial article that does not tackle the toughest issues of debt versus equity.

    I would be more impressed if the author tied this article to the Modigliani-Miller Theorem ---
    http://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem
    He shows no evidence of even being aware of M&M theory.

    Bob Jensen's threads on accounting and finance theory are at
    http://www.trinity.edu/rjensen/Theory.htm


    Interactive: Locating American Manufacturing ---
    http://www.brookings.edu/research/interactives/manufacturing-interactive


    "Taxing Gender: The Deductibility of Gender-Specific Medical Expenses and Proposals for Reform," by Anne K. Leung (J.D. 2011, Rutgers-Newark), Note, Westlaw, 32 Women's Rts. L. Rep. 224 (2011)
    http://www.westlaw.com/find/default.asp?cite=32+Women%27s+Rts.+L.+Rep.+224&RS=WLW2.05&VR=1.0
    Thank you Paul Caron for the heads up.

    In this note, I will examine several types of medical expenses that are distinctly incurred by individuals of different genders, and their respective treatment under the federal system of taxation. I will study a recent Treasury determination declaring the non-deductibility of infant formula for mastectomy patient-taxpayers, as well as the implications of current social policy on the Code and past Tax Court rulings. Further, I will discuss the tax treatment of assisted reproductive technologies, including in vitro fertilization, egg and sperm donors, and surrogacy, and the effect of such treatment on taxpayers who do not fit the traditional nuclear family structure. Despite a recent Tax Court decision that denied a deduction for the cost of such procedures by an unmarried individual, various theories suggest that adherence to the Code may still be possible for non-traditional families. Such theories include a return to longstanding constructions of the Code, as well as a redefinition of fertility. Ultimately, arguments in favor of expanding deductibility for those outside of the traditional nuclear family structure will also, in turn, support and inform the struggle to allow deductions for those physically unable to breastfeed.

    In light of ongoing change in social norms and behaviors, it has become clear that the Code alone no longer provides adequate guidance in several important areas. Treasury determinations, which include Revenue Rulings and Private Letter Rulings, as well as Tax Court and Board of Tax Appeals decisions, give supplementary but limited directive. Ultimately, the IRS must introduce change on a larger scale to address the needs of diverse taxpayers.

    IRS Publication 502 ---
    http://www.irs.gov/publications/p502/index.html

    Bob Jensen's taxation helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    125 technology quick tips from the AICPA, by J. Carlton Collins, June 2012 ---
    http://www.journalofaccountancy.com/Issues/2012/Jun/20114845.htm

    Bob Jensen's helpers with new tools ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm


    "GROUPON’S FEEBLE TAX ASSETS: WE TOLD YOU SO…AGAIN!" by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accoutants Bllog, June 11, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/685

    Bob Jensen's threads on Groupon
    Search for "Groupon" at
    http://www.trinity.edu/rjensen/Fraud001.htm


    Tax Reform:  France Versus the United States Versus Greece

    France
    "Tax Expenditure Theory and the Reform of French Loopholes," by Eric Pichet, SSRN, April 18, 2012 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2041897
    Thank you Paul Caron for the heads up.

    Abstract:
    This study has a dual ambition. One is to develop, for the first time ever, a complete Theory of tax expenditures and, therefore, a proposal for reforming the French tax loophole system. Having noted the proliferation of such loopholes in France and elsewhere over the past 20 years or so, we provide a succinct analysis of their political origins and highlight the absolute necessity of stopping a deviation that risks undermining the very foundations of efficient and fair taxation, the only possible basis for a social consensus and citizens’ ongoing willingness to pay tax. The first section, from a theoretical point of view, offers our Theory of tax expenditures as well as a new and more complete definition of this construct, thereby tracing an idealized border between tax determination modalities, the elements that are inherent to any benchmark tax system and actual tax expenditures. The second section, from a pragmatical point of view, recalls three possible methodologies for assessing tax expenditures, evaluating the many different analysts that work in France (all deeply rooted in an initial spending paradigm) before offering our own methodology, one based on the double criteria of effectiveness and fairness. On this basis, we analyze France’s 17 main tax expenditures today in 2012 and invite the next Parliament to keep any legitimate tax expenditures (after modifying them, if need be) while eliminating many costly, ineffective and inadapted loopholes, along with any that generate windfall effects (what we might call illegitimate tax expenditures). Lastly, we suggest a new global architecture for tax expenditures, one relying on clear and coherent foundations.

    United States
    "Tax Reform Holds Promise, But if Not Done Carefully, Could Increase the Deficit and Inequality and Harm the Economy Policymakers Must Not Let Tax Reform Become 'Trap' That Produces Harmful Policies," by Chuck Marr and Chye-Ching Huang, Center for Budget and Policy Priorities, June 8, 2012 ---
    http://www.cbpp.org/cms/index.cfm?fa=view&id=3792

    Policymakers are increasingly discussing the need for tax reform, with a number of them calling for large cuts in tax rates — to levels well below the Bush tax rates — as a core element of reform. They contend that sweeping but unspecified cuts in tax expenditures (credits, deductions, and other tax preferences) will offset the cost of deep cuts in tax rates and, depending on the proposal, possibly generate some revenue to reduce deficits. Many who favor this approach go a step further and call for policymakers to commit to specific cuts in tax rates before they agree on any specific tax expenditures to reduce.

    Such approaches pose big risks. They could produce tax “reform” that increases both deficits and inequality because while cutting “tax expenditures” sounds appealing in the abstract, cutting specific tax expenditures enough to offset the costs of substantial new rate cuts and contribute meaningfully to deficit reduction would likely prove difficult, if not impossible, to achieve. Indeed, the difficulty of cutting popular tax expenditures — from the mortgage interest deduction to 401(k) tax preferences to the deduction for charitable contributions to the exclusion for employer-sponsored health insurance — is why those who urge policymakers to commit upfront to specific, large rate cuts rarely specify any tax expenditures to cut. In fact, they often highlight tax expenditures that they would refuse to touch, such as the preferential tax rate for capital gains.

    Continued in article

    Greece
    Tax Reform in Greece is Probably a Hopeless Cause ---
    http://taxjustice.blogspot.com/2010/03/tax-evaders-freedom-fighters.html


    "As Income Inequality Grows, Some Movement at the Top and Bottom," by Bruce Bartlett, The New York Times, June 19, 2012 ---
    http://economix.blogs.nytimes.com/2012/06/19/as-income-inequality-grows-some-movement-at-the-top-and-bottom/?ref=economy

    On June 11, the Federal Reserve published the latest results of its triennial survey of consumer finances. News reports focused on the decline in the median net worth of all families to $77,300 in 2010 from $126,400 in 2007, reflecting the devastating impact of the financial crisis. The data also demonstrates that there is some fluidity in income mobility at both the top and the bottom of the income tables.

    The table below is from the Fed report. It examines the income of families in 2007 and the same families in 2009, distributed in 20 percent brackets. The numbers in bold show the percentage of each group in the same bracket in both 2007 and 2009. Thus, 69.4 percent of those in the lowest income bracket in 2007 were also in the lowest bracket two years later; 19.1 percent rose to the second quintile, 6.7 to the middle, 3 percent to the fourth and 1.9 percent went from the bottom bracket all the way to the top bracket.

    Conversely, 75.1 percent of those in the top quintile remained in the top quintile, but 17.8 percent fell one bracket, 4 percent fell two brackets, 2 percent fell three brackets and 1.1 percent went from the top quintile to the bottom quintile in just two years.

    ¶ In a footnote, the Fed study breaks out the top 10 percent of families in 2007 and 2009. It says that 71.4 percent were in that bracket in both years; 17.2 percent fell to the 80th to 90th percentile from the 90th to 100th percentile – that is, from the top half of the top quintile to the bottom half. Only 11.4 percent of those in the top 10 percent fell into the bottom 80 percent of families. This suggests that income mobility at the top end may not be quite as high as the table implies.

    ¶On June 15, the conservative Tax Foundation published data on the mobility of millionaires, that is, those reporting at least $1 million of adjusted gross income. Note that using adjusted gross income understates the true number of millionaires because things like tax-exempt interest on municipal bonds and unrealized capital gains are excluded.

    ¶The table below from the Tax Foundation study shows that half of those who reported $1 million or more of income did so only once between 1999 and 2007, 15 percent did so twice and only 6 percent did so every year.

    Continued in article


    A Heads  Up on "Tenacious" Barter Accounting and Bookkeeping

    "Al Qaeda Offshoot Offers Camels for Obama's Head, Hens for Hillary Clinton's," Yahoo News, June 8, 2012 ---
    http://news.yahoo.com/al-qaeda-offshoot-offers-camels-obamas-head-hens-165924543--abc-news-topstories.html

    Jensen Comment
    I think the promise of 78 virgins in the hereafter is more effective when recruiting tactic to attract suicide bombers. What good are camels and hens if you blow yourself up?

    From an accounting standpoint these are barter transactions. It might be interesting in accounting courses to envision these three types of barter journal entries, but that probably would not be viewed as a politically correct assignment in most universities. Do we capitalize or expense human heads under Al Qaeda accounting standards? In theory, preserved heads have long-term earnings potential as tourist attractions, but what if some of the tourists are Navy Seals? That is one big contingent liability that's hard to book in the ledger ---
    http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes

    "Barter bookkeeping: A tenacious system," by Dale L. Flesher, Accounting Historians Journal, 1979, Vol. 6, no. 1, pp. 83-86 ---
    http://umiss.lib.olemiss.edu:82/articles/1000211.225/1.PDF

    "Barter: Development of accounting practice and theory," Silliard E.: Stone, Accounting Historians Journal, 1985, Volume 12, no. 2, pp. 95-108 ---
    http://umiss.lib.olemiss.edu:82/articles/1000438.694/1.PDF

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


    2011 IASB Annual Report ---
    http://www.ifrs.org/NR/rdonlyres/72C50BCF-0C58-4BFA-A6FD-5DF4588B27C8/0/AR_2011.pdf
    Its cash and income position improved substantially relative to 2010.


    "IT Risk: Your Audit Checklist," by Rob Livingstone, CFO.com, June 19, 2012 ---
    http://www3.cfo.com/article/2012/6/the-cloud_audit-checklist-for-public-cloud

    Blog Entry from Jerry Trites on October 7, 2011 --- http://uwcisa-assurance.blogspot.com/

    Web Application Security: Business and Risk Considerations

    ISACA has a White Paper on its website with the above title. The paper is an excellent resource for those interested in cloud risks and how to address them. That includes a lot of people!

    One of the interesting parts of the paper is the table listing the various types of vulnerabilities encountered in the cloud. These include SQL Injection, Cross-site scripting and Insecure Direct Object Reference, among others. The paper goes on to list some areas of security to focus on, including some specific guidance on the old stand-by's of executive support, training and support.

    The paper concludes with assurance considerations, including the use of Cobit to strengthen controls.

    An excellent paper.
    You can download it through this link.

    "KMPG: 'Cloud is Now'; Technology Spend to Leap Next Year," SmartPros, October 6, 2011 ---
    http://accounting.smartpros.com/x72834.xml

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


    IASB's Updated Work Plan, June 2012

    The International Accounting Standards Board (IASB) has publicly released a revised work plan updated the expecting timing of various due process steps in its projects. A number of expected timing of some projects have been deferred or clarified, and the IASB has formally added a project on IAS 8 effective date and transition methods.
    Deloitte's IAS Plus, June 8, 2012 ---
    http://www.iasplus.com/en/news/2012/june/iasb-issues-updated-work-plan

    Bob Jensen Makes a Mistake and Now Has a New Worry About Forecasted Transactions of Lease Renewals
    But he was not entirely wrong.
    A Dual Model for Lease Accounting: 
    Redrawing the Lines Into a Brick Wall of Forecasted Lease Renewal Controversy
    http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm


    No increase in taxes for the middle class! Yeah Right!
    For example, greatly reducing exemptions for school, town, county, and state bond interest could massively increase property taxes for the middle class.
    Reducing tax breaks for health insurance and care will massively impact the poor and the middle class.
    It's a good thing President Obama that most voters won't understand his budget before the 2012 election and that the liberal media will try to keep this a secret


    "The President’s 2013 Budget: More Troubling Tax Increases in the Fine Print," by Curtis Dubay, The Heritage Foundation, June 25, 2012 ---
    http://www.heritage.org/research/reports/2012/06/the-presidents-2013-budget-more-troubling-tax-increases-in-the-fine-print

    Abstract: Buried in the fine print of President Obama’s FY 2013 budget proposal is an expansion of his cap on itemized tax deductions—to now include exemptions and exclusions. Applying the cap to exemptions and exclusions is yet another way the President has devised to increase the already sizeable tax burden shouldered by families and small businesses who earn $200,000 or more a year. This policy change so badly violates the basic tenets of sound taxation that it is little more than a move to further punish the most successful Americans with yet another confiscatory tax increase. Congress should reject the President’s cap, like it has in the past, and focus on revenue-neutral fundamental tax reform that would lower tax rates and improve neutrality to encourage economic growth.

    It is generally known that President Barack Obama’s fiscal year (FY) 2013 budget calls for a massive $2 trillion tax increase. This amount is not explicitly in the budget because it hides several tax increases in the fine print. Also buried deep in the fine print is the President’s expansion of his cap on itemized deductions, which, unlike in previous years, now applies to tax exemptions and exclusions.

    The devil really is in the details in this case. Applying the cap to exemptions and exclusions is yet another way the President has devised to increase the already sizeable tax burden shouldered by individuals and small businesses earning $200,000 a year or more ($250,000 for married couples). This makes it yet another growth-slowing tax increase in the long list of tax increases already proposed by the President.

    President Obama’s cap would slow growth even further because it would also move taxes further from neutrality. A proper tax code does not influence economic decisions of families, businesses, investors, and entrepreneurs. Neutrality is the standard against which tax policies are compared in order to determine if they influence decisions. A neutral policy is one that does not influence, neither in a positive nor negative way, economic choices. Policies that move in the opposite direction of neutrality, like President Obama’s application of his cap to exemptions and exclusions, slow growth.

    Congress has rightly rejected the President’s cap in previous years. The inclusion of exemptions and exclusions should give it even more reason to do so again.

    Capping Exemptions and Exclusions

    In each of his three previous budgets, President Obama proposed a cap on the itemized tax deductions of individuals and businesses earning $200,000 or more a year. The cap served different purposes in previous budgets. In 2009, it was a way to raise revenue for the impending health care bill. In 2010, it was a way to raise more revenue for general spending. In 2011, the President wanted a cap as a misguided way to “pay for” patching the alternative minimum tax (AMT) for middle-income taxpayers. This year, the cap is back as an intended revenue raiser.

    In its first three iterations, the cap restricted taxpayers’ itemized deductions to the amount that those deductions would have reduced their tax bill had they paid the 28 percent marginal rate instead of the higher marginal rate they actually paid. This year, the cap still limits deductions to their value at the 28 percent marginal tax rate, but now also applies to tax exemptions and exclusions as well.

    President Obama provided no details in his budget about how the expansion of the cap would work, but the Treasury Department reports that, at a minimum, President Obama’s cap would include the following exemptions or exclusions:

    Job-Destroying Revenue Grab

    Expanding the cap to exemptions and exclusions greatly expands the policy’s tax-hiking capacity. In President Obama’s FY 2012 budget, when the cap only applied to itemized deductions, the Treasury Department estimated that it would raise $321 billion over 10 years.[4] Now that the cap includes exemptions and exclusions, the Treasury Department estimates that it would raise $584 billion over 10 years.[5] That is an increase of more than 80 percent.

    The extension of the cap to exemptions and exclusions is another way to raise the taxes of job creators, such as businesses that pay their taxes through the individual income tax, as well as investors and entrepreneurs. The President already wanted to raise their marginal tax rates, their tax rates on capital gains and dividends rates, and revive old provisions that phased out their personal exemptions and deductions (PEP and Pease).

    By taking even more of these job creators’ earnings, President Obama would further erode their already diminished ability to make the investments that are necessary to create the jobs the economy so desperately needs.

    Step in Wrong Direction. Expanding the cap to exemptions and exclusions would slow economic growth not merely by taking resources from job creators, but also by moving taxes further from neutrality. It would also make repairing the broken health insurance market more difficult. The new cap would do these things by levying tax on the following exemptions or exclusions:

    Continued in article

    Jensen Comment
    What most voters least understand is that governments at all levels, especially school districts, towns, counties, and states, will increase the Federal tax revenues that result in less revenue for them in President Obama's proposed budget. And the poor pay rent such they there will be rent increases to cover the increases in property taxes to say nothing about the added sales taxes and fees.

    If you like watching the drama of gridlock in Washington DC, you're going to love watching the forthcoming budget legislation wars in Congress. And in the meantime you can watch the trillion-dollar deficits grow into ten-of-trillions of dollars in deficits.

     


    Hi Pat,

    I was able to download this paper for free from the Trinity University Library Database Service
    Other faculty members can probably do the same using their employer's library database service.

    "Does IFRS Stand for InFormation RiSk?" by Ginny W. Frings, Michael C. Frings, CFA, and M. Christian Mastilak," Financial Analysts Journal, Vol. 68, June 2012, pp 17-21

     

    In the wake of the recent financial crises, corporations, accounting firms, and regulatory bodies are debating the design of new regulations to improve the integrity of publicly available financial information. Contrary to the positions of the FASB and IASB, the convergence of current U.S. GAAP rules–based standards with proposed IFRS principles–based regulations would increase financial information risk. The veneer of similarity is not enough to ensure comparability of reported financial information across the globe.

    . . .

    Page 17
    Although the quality of accounting information has many definitions, we will focus on the issue of information risk. We define information risk as the risk that investors rely on materially misstated information, or misinterpret vague information, in an entity’s financial statements when making investment decisions. According to Statement of Financial Accounting Concepts No. 2 of the Financial Accounting Standards Board (FASB), decision-useful financial information is relevant, representationally faithful, verifiable, timely, understandable, and comparable. To the extent that the profession does not meet its charge to provide such information, investors bear information risk. Generally, as information risk increases, so too does the cost of capital, because capital markets price information risk just as they do other risks.

    . . .

    Veneer of Similarity
    Page 18
    Although global adoption of IFRS could result in comparability of financial reporting standards, there is no guarantee that comparability of standards would result in comparability of actual financial reporting practice, owing to local differences in economic factors as well as differences in local interpretation and application of IFRS. Research has demonstrated that important differences among countries and cultures can affect reporting even within common standards.2 These differences include the importance of capital markets, stringency of and corruption within enforcement regimes, code versus common law legal structures, and the political environment. An analogy can be made to the difficulty of uniting Europe’s different cultures, economies, and politics under a single currency.

    Jensen Comment
    We are already seeing an example of this in the EU where thousands of European banks are limiting portfolio fair value downward adjustments to only "permanent" adjustments and then not viewing most lowered prices, including prices of Greek bond investments, as "permanent." What is defined as "permanent" may vary globally around the world, which is not what the IASB intended for fair value adjustments of financial instruments.

    IFRS will not eliminate these real economic and cultural differences. Rather, we fear that common standards will hide significant underlying differences among companies domiciled and operating in different countries, papering over useful, decision-relevant information about country-level differences with a veneer of similarity. We fear that investors will lose information about real, economically significant differences among companies. Anecdotally, we have heard that auditors often “fall back on” either local or U.S. GAAP when interpreting IFRS principles–based standards. For example, U.S. subsidiaries of foreign parents sometimes determine their accounting under U.S. GAAP to comply with reporting requirements in the United States and then roll that accounting into the foreign parents’ IFRS financial statements. To the extent that this happens differently in different countries, the comparability and understandability of IFRSbased financial statements are undermined.

    Another effect of this veneer of similarity occurs in the area of fair value accounting. In determining the figures for assets and liabilities, IFRS relies on fair value. For any fair value model, fair value is based on a transaction between market participants. Note that when defining market participants in valuation models, we must recognize that the United States operates within a different economic environment than countries that have already adopted the proposed IFRS; therefore, our sets of market participants will differ. And different market participants may value an asset or liability using different methods, thus arriving at different values.

    Moreover, we recognize that financial statements that serve as an information source are interpreted differently by different decision makers (e.g., from an analyst’s perspective or an accountant’s perspective). By increasing the number of assets and liabilities for which companies must

    . . .

    Increased Use of Managerial Discretion
    Page 18
    IFRS offers managers increased discretion, owing to fewer specific “bright-line” standards and a relative lack of industry-specific guidance compared with U.S. GAAP. This increased discretion allows managers more leeway to report on the true, underlying economic activity of the entity, thus increasing representational faithfulness. However, it also allows managers more freedom to respond to their own personal reporting incentives, hindering the representational faithfulness of IFRS-based financial statements. Further, the increased discretion means that managers have less future accountability for their reporting choices. If more reporting discretion is allowed, then more reporting choices are allowable, and management’s reporting is less constrained by the threat of future litigation or other actions.

    Jensen Comment
    These criticisms of principles-based standards have been raised over the years repeatedly on the AECM ---
    http://www.trinity.edu/rjensen/Theory01.htm#BrightLines

    . . .

    Increased Use of Footnote Disclosure
    Page 19
    Recognition is the technical term for including information in the numbers in the financial statements. Thus, recognition means that the information affects earnings, ratios, and other numerical summaries of the company’s performance. IFRS recognition standards are less precise than those of U.S. GAAP, and balancing out the decreased precision with increased levels of disclosure in the footnotes to the financial statements gives rise to several potential sources of information risk. First, research has shown that information disclosed in footnotes but not recognized on the face of the financial statements is often not captured and used by capital market participants (see Healy and Palepu 2001; KPMG 2011). Earnings releases receive the lion’s share of publicity, and disclosure of information in increasingly arcane footnotes is often tantamount to no disclosure at all.

    Second, the increase in disclosure can lead to information overload. IFRS-based financial statements have continually increased in length over time, forcing investors and analysts to wade through ever-increasing word counts to learn what they can about the company.

    Jensen Comment
    I this changing era of technology advances in dealing with information overload, I'm really not overly concerned about added footnote disclosures.

     

    Market Responses to Increased Information Risk
    Pages 19-20

     

    . . .

    Conclusion
    Pages 20-21

    . . .

    We believe that U.S. GAAP is superior to IFRS, at least for U.S. investors and U.S. companies. Therefore, we predict an increase in information risk and, thus, cost of capital for U.S. companies following the implementation of the proposed IFRS. And so, contrary to the argument made by proponents, we predict that IFRS will hurt, rather than help, the competitiveness of U.S. companies.

    As noted earlier, we are skeptical of the benefits of IFRS for U.S. companies, and we recommend that standard-setters and other debate participants consider the costs of increased financial statement information risk to U.S. companies when assessing the net benefits of the adoption of IFRS. We believe that the adoption of IFRS would impose substantial costs on investors and that those costs would be priced into U.S. companies’ securities. Thus, we believe that the net benefits of the adoption of IFRS in the United States, for both U.S. investors and U.S. companies, would be somewhat less than its proponents estimate. Finally, we realize that many of these predictions are speculative, and we invite comments from readers.

    Jensen Comment
    I don't think the authors made a convincing case of the superiority of US GAAP relative to IFRS.

    Furthermore I don't think the key issue is a comparison of IFRS versus FASB/SEC standards at any point in time. This key issue in my mind is the difference in the political process of introducing and revising standards and interpretations.

    I am totally frightened by Shyam Sunder's warnings of FASB abuse of monopoly power ---
    http://faculty.som.yale.edu/shyamsunder/Jamal Sunder Stds Dec 14.pdf

    The U.S, is having a great deal of trouble with political lobbying as witnessed by the past overrides of standards (e.g., cost amortizing of dry holes in oil and gas) and threatened overrides (e.g., a bill in Congress to override the emerging standard on lease accounting).

    Think of the problems we will have after the honeymoon of convergence of IFRS and U.S. GAAP with the political lobbying of over 100 nations. Some nations, especially enemies of the U.S., may view lobbying the IASB as a means of disrupting the power of the United State in global finance in general and a means of pushing for socialism in the world. For example we may see a much more concerted effort to impose Sharia laws of finance ---
    http://en.wikipedia.org/wiki/Sharia

     


    June 27, 2012
    Hi again Tom,

    This exchange is interesting in that it begs the question of what is a "derivative" financial instrument.

    In the context of FAS 133, a "derivative" is mapped to a price/rate/credit index such as a standardized grade corn price, LIBOR, or credit rating of an investor's collateralized bond. FAS 133 scopes in derivative contracts in commodity prices, interest rates, and credit ratings.

    FAS 133 scopes out weather indexes such as average daily rainfall in Kossuth County during July. We can certainly have a derivative financial instrument such as a call option based upon a weather index, but these contracts are not scoped into FAS 133.

    The contracted index constitutes the "underlying" of a derivative financial instruments contract. In virtually all derivative financial instruments contracts the index measurement is verifiable and becomes the basis for ultimate contract settlement. For example, when settling a call option on corn price, the CBOE contracted strike price of corn is net settled against the CBOE ( http://www.cboe.com/default.aspx  ) spot price (which is the underlying). The CBOE defines "standard" contracts for this index in terms of detailed chemical grading of corn (not any old puny corn qualifies for the CBOE grading standard). Interestingly, the hedged item might be puny corn but the farmer may net settle hedging CBOE corn derivative financial instruments contracts on CBOE-quality corn he's unable to grow. From a FAS 133 standpoint, this can lead to ineffectiveness of a hedge contract that is actually hedging the farm yield of puny corn.

    I think the definitional implication is that contracting parties are "takers" and not "makers" as far as the underlying is concerned. Derivative financial instruments are then "derived" from fluctuations in that underlying index outside the control of the contracting parties in a derivative financial instrument.

    My main point is that a given farmer cannot control the CBOE spot price of corn or the rainfall in Kossuth County in July that are used as an underlying in a derivative financial instrument. He can control to some extent the price of the corn he actually grows or what he's willing to pay to lease his crop land.

    In my opinion, the contract is no longer a derivative financial instrument if both the party and the counterparty totally or partially "make" the index. Hence I assume that an option contract renew a lease is not a derivative financial instrument contract if the contracting parties negotiate the rent rather than use some rent index outside their control. I don't think a rent index exists for most operating leases in the same sense that commodity price and interest rate indexes exist in such places as the CBOE, CBOT, and CME markets.

    The bottom line is that what we call lease renewal options and some other types of options are not derivative financial instruments contracts that are defined in FAS 133 or IAS 39 (soon to be IFRS 9). Hence, when we write that a business firm has an "option" contract that contract is not necessarily a derivative financial instrument. To be a derivative financial instrument it must have an underlying that contracting parties take rather than make in the market. Additionally, FAS 133 requires that to be eligible for hedge accounting there must also be a net (cash) settlement provision based upon that index rather than a requirement for physical delivery of the commodity in question.

    Lease renewal contracts are more apt to be financial instruments rather than derivative financial instruments.
    As such, they are accounted for as other financial instruments. However, there can be huge complications when attempting to carry lease renewal contracts at fair value. The leased property is almost always highly unique and not a fungible item.. The leased Gate 12 at the Manchester, NH airport is very different from the leased Gate 57 in Baltimore. The CBOE has no standardized contracts for airport gate rentals, building rentals, and equipment rentals like it has for a chemical grade of corn in CBOE options contracts.

    The main problem with lease renewals is that for operating leases these are typically forecasted transactions that are not contracts. This is outside the paradigm of an accounting Conceptual Framework built upon the paradigm of contracts. I discuss this in greater detail at
     

    A Dual Model for Lease Accounting: 
    Redrawing the Lines Into a Brick Wall of Forecasted Lease Renewal Controversy
    http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm

    Respectfully,
    Bob Jensen


    June 29, 2012
    Hi Tom,

    Perhaps I can get to you on a different tack. A "spot price" in finance is the current price of an item at a current point in time say the end of the trading day on June 30, 2012 where we can look up the current spot price of of hundreds of commodities  in the newspaper or at the CBOE Web site --- http://www.cboe.com/default.aspx

     

    On June 30, 2012 there is is a vector of pre-determined future prices to accompany any spot price for each of those hundreds of commodities.

    For Example, on June 30, 2012 we might have the following for Commodity C at the close of the day on the CBOE:
     


    I assume if you are going to use the term "forward contract" that you have a distinction between "forward" and "spot" prices that are determined at the start of the contract period (June 30, 2012). Spot prices on the CBOE go up and down every hour of every day into the future whereas June 30, 2012 forward prices are history written into June 3, 2012 contracts for purposes of computing cash settlements based on those historic prices and current spot prices.

     

    Now my questions to you, Tom, focus on your $900, $1,089 and $1,198  presumably forward prices negotiated on June 30, 2012:
     

    1. Have you made any distinction between a vector of three forward prices set on June 30, 2012 and a single spot price on June 30, 2012?

       
    2. Have you made any distinction between a vector of three forward prices set on June 30, 2012 and ultimate June 30 spot prices in 2013, 2014, and 2015?

       
    3. Are your forward contract spot prices and forward prices synonymous in your forward contracts that have no future uncertain cash flow?
      If this is the case then you truly are not dealing in forward contracts since there is no vector of forward prices that can differ from eventual spot prices.
       

     

    Please explain the difference between spot and forward prices in your conception of a forward contract that has no future cash flow uncertainty.

    You still have not explained to me why a plain vanilla annuity of $900, $1,089 and $1,198 is different from a rent annuity of the same cash flow stream.

    What makes a rent annuity a series of forward contracts vis-a-vis annual cash flows of a plain vanilla annuity that supposedly are not forward contracts?
     

    Your definition is not at all clear to me and certainly is not teachable to my theory students (if I have any left on the AECM).

    Not using consistent terminology with finance will make FASB and IASB really, really confusing.


    You can make everything consistent by either dropping the term "forward contract" or by making your illustrations truly forward contracts such as by making the rent payments a function of LIBOR (the underlying).


    Putting the term "real" in front of your terms makes it even more confusing. Real options were invented to deal with higher levels of uncertainty, and using them in the context of fixed annuity streams is totally inconsistent with the conceptualization of real options.

    Respectfully,
    Bob Jensen

     


    Francine wishing that the courts would drive Deloitte out of business
    "Big Four Auditors and Jury Trials: Not In The U.S.," by Francine McKenna, re:TheAuditors, June 19, 2012 ---
    http://retheauditors.com/2012/06/19/big-four-auditors-and-jury-trials-not-in-the-u-s/

    Deloitte has settled a shareholder case against the firm stemming from their role as auditor of Bear Stearns, one of the early financial services firms to fail, be force sold or nationalized during the financial crisis of 2008-2009. Deloitte was dangerously close to having to answer for its actions – or rather inactions – at a trial. For the Big 4 audit firms in the United States, trials over auditor liability are unheard of.

    Rare birds in modern times.

    Deloitte’s audits “were so deficient that the audit amounted to no audit at all,” the [Bear Stearns investors] plaintiffs argued in court papers.

    That was Reuters describing the rationale behind the decision of US District Judge Robert Sweet back on January 23, 2011 to allow a case against executives of Bear Stearns and its outside auditor, Deloitte, to go forward. I wrote in Forbes:

    In Ernst & Ernst v. Hochfelder, the Supreme Court held that actions under Section 10(b) of the Exchange Act and Rule 10b-5 require an allegation of “`scienter’—intent to deceive, manipulate, or defraud.” The “scienter” requirement, necessary to sustain allegations against the auditors in a securities claim under Section 10(b), is notoriously difficult to meet in an auditor liability case.

    If there’s anything of substance in a claim against auditors the case usually settles before the facts are made public. New Century Trustee v. KPMG is an early crisis mortgage originator case, cited several times in the Bear Stearns decision. However, those facts will never be heard in open court. In spite of – or perhaps because of – very particular examples of reckless behavior by the auditor documented by the bankruptcy examiner, the case was settled...since Ernst, most courts have concluded that recklessness can satisfy the requirement of “scienter” in a securities fraud action against an accountant.

    That standard requires more than a misapplication of accounting principles. Plaintiffs must prove that the accounting practices were so deficient that the audit amounted to no audit at all, or “an egregious refusal to see the obvious, or to investigate the doubtful,” or that the accounting judgments which were made were such that no reasonable accountant would have made the same decisions if confronted with the same facts.

    The plaintiffs’ attorneys In Re: Bear Stearns Companies, Inc. Securities Litigation successfully pled recklessness equivalent to “scienter” and more. They knocked the requirements for recklessness to prove “scienter” out of the park. The Complaint identified as a red flag the fact that Deloitte knew or should have known, absent recklessness, the risk factors inherent in the industry, such as declining housing prices, relaxation of credit standards, excessive concentration of lending, and increasing default rates.

    The Securities Complaint has alleged that JPMorgan discovered in the course of one weekend the overvaluation of assets and underestimation of risk exposure in Bear Stearns’ financial statements. JC Flowers & Co., a leverage-buyout company, had also reviewed Bear Stearns’ books the same weekend and made an unsuccessful proposal to buy 90% of the Company at a similar price between $2 and $2.60 per share. These allegations support an inference of Deloitte’s scienter.

     

    They’re specific enough about who, what, why, and when to nail “particularity”. The misstatements with respect to valuation and risk were adequately alleged with sufficient specificity and established as material. They showed how Deloitte, like the Bear Stearns executives, caused losses.

    But there will be no trial. Investors led by the State of Michigan Retirement Systems settled with Bear Stearns executives for $275 million – which will be covered by insurance –  and auditor Deloitte will pay, in cash, an additional $19.9 million.

    To put Deloitte’s settlement in perspective, I looked at the firm’s audit fees for Bear Stearns from 2003-2006. (Fee information for 2007 is not available since the firm was bought, under duress, by JP Morgan in 2008 and the proxy focuses on that transaction, not the typical disclosures.) Deloitte earned $110 million dollars, more than 5X this settlement amount, in just the last four years at Bear.

    . . .

    Next chance for a trial for a Big Four firm in the US is again against Deloitte. Steven Thomas, the only lawyer who consistently tries and wins cases against the biggest auditors has a trial for the Taylor Bean & Whitaker mortgage originator fraud case starting in June 2013.

    Continued in article

    Jensen Question
    Should we hope with Francine that this time Steven Tomas finally succeeds in destroying the fraudulent auditing firm of Deloitte and Touche?

    Maybe another Enron is the only way of making the remaining Big Three firms get more serious about audit independence and professionalism.

    In case you missed it, note how cheaply some Big Four auditing firms wiggled out of some major bank failure litigation. What could have been billions were settled for pennies on the dollar.

    "The Big Four Accounting Firms' Financial Tipping Point -- Time for a Fresh Look," by Jim Peterson, re:TheBalance, November 30, 2011 --- Click Here
    http://www.jamesrpeterson.com/home/2011/11/the-big-four-accounting-firms-financial-tipping-point-time-for-a-fresh-look-.html

    . . .

    Latest available figures for the Big Four indicate total annual global revenues of some $ 102 billion.

    Applied to those figures, the model indicates that the break-up threshold for any one of the Big Four firm’s litigation “worst-cases” would be in the range from a maximum of $ 6 billion down to $ 2.2 billion, if viewed at the global level.

    That is a considerable increase from the earlier numbers, owing to the great leap in total big-firm revenues in the intervening years.

    But cautions remain. Most importantly, cohesion of the international networks under the strain of death-threat litigation, or the extended availability of collegial cross-border financial support, cannot be assumed. Arthur Andersen’s rapid disintegration in 2002 with the flight of its non-US member firms is illustrative.

    So it is necessary to look at the bust-up range based on figures alone from the Americas, the most hazardous region. If left to their local resources, as was Andersen’s US firm, the disintegration range shrinks, from a maximum of less than $ 3 billion down to a truly frightening $ 675 million.

    Amounts at that level compare ominously with the litigation settlements recently extracted from the larger debacles of the last decade – examples led by Bank of America’s post-Countrywide mortgage-securities settlement of $8.5 billion (here) and including such investor settlements as Enron ($7.2 billion), WorldCom ($6.2 billion) and Tyco ($3.2 billion) (here).

    But those amounts were only available because inflicted on the investor-funded balance sheets of the corporations contributing to the settlements – resources not available to the private accounting partnerships. And they are even more darkly comparable with the exposures looming in the pending claims inventory.

    True, in recent months the large accounting firms have enjoyed remarkable success in disposing of large litigations for modest sums – examples include KPMG resolving Countrywide for $ 24 million (here) and New Century for $ 45 million (here), and Deloitte settling Washington Mutual for $ 18.5 million (here).

    However, hope for the indefinite continuation of such forbearance on the part of the plaintiffs is not a strategy, but only a wish.

    As the catastrophic impact of “black swan” events makes clear, it only takes one. And at that tipping point, all the marginal fiddling by Barnier, Doty and their ilk becomes academic.

     

    The auditors were giving out going concern opinions and hugely underestimating loan loss reserves when thousands of banks faiiled ---
    http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms

     

    "Deloitte’s Troubles Bubble To Surface," by Francine McKenna, re:TheAuditors, January 31, 2011 ---
    http://retheauditors.com/2011/01/31/deloittes-troubles-bubble-to-surface/

    "No Audit At All: Deloitte and Bear Stearns," by Francine McKenna, Forbes, January 25, 2011 ---
    http://blogs.forbes.com/francinemckenna/2011/01/25/no-audit-at-all-deloitte-and-bear-stearns/

    "PCAOB Inspection of Deloitte Audit – 20% Error Rate?" The Big Four Blog, May 6, 2010 ---
    http://bigfouralumni.blogspot.com/2010/05/pcaob-inspection-of-deloitte-audit-20.html

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


    "WHO REALLY CARES ABOUT AUDITOR ROTATION? NOT US!" by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, June 25, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/688

    . . .

    But if you just can’t seem to buy into our proposal to address audit quality, here is one last suggestion that virtually retains the status quo.  Let’s just rename what we are calling “independent audits.”  Let’s simply call them “GAAP compliance certifications” and drop any pretense of independence or an audit.  Now wouldn’t that save everyone time and money!

    Bob Jensen's threads on professionalism in auditing ---
    http://www.trinity.edu/rjensen/Fraud001c.htm


    "PCAOB Troubled by Increasing Audit Deficiencies," by Emily Chason, The Wall Street Journal, June 22, 2012 ---
    http://blogs.wsj.com/cfo/2012/06/22/pcaob-troubled-by-increasing-audit-deficiencies/?mod=wsjpro_hps_cforeport

    The rising number of audit deficiencies the U.S. auditor watch dog is catching in corporate audit inspections has provoked some anxiety, but it isn’t clear that audit quality can be fairly judged using that metric.

    In a speech this week in China, Public Company Accounting Oversight Board member Lewis Ferguson said he was “disappointed” that the frequency of audit deficiencies has increased in the past two years. But it is possible that the increase has simply been caused by the PCAOB successfully targeting areas for audit that are likely to expose problems.

    As CFOJ reported last month, the PCAOB has picked up a sharp increase in auditing errors around fair value measurement this year. Ferguson elaborated, saying:

    Some of these deficiencies, such as revenue and management estimates, have been consistently noted in our inspection reports over the last nine years.

    Other deficiencies have resurfaced in an area where we had previously seen improvements as firms are, once again, having difficulties performing appropriate substantive analytical review procedures. Finally, over the last two years, we have seen issues with firms’ testing of internal controls and with the procedures firms have performed to assess the reasonableness of fair value measurements for financial instruments.

    Ferguson also noted that audit regulators around the world have found issues with auditor independence, fair value measurements and going concern opinions. He said the International Forum of Independent Audit Regulators is preparing the first global report on audit findings.

    In 2011, the PCAOB said it inspected portions of 825 audits conducted by 213 firms based in the U.S. and overseas. But the board’s method for inspections focuses on areas it thinks it will turn up audit deficiencies. That makes it harder to tell whether these numbers are an actual indicator of a decline in audit quality, says Dennis Beresford, an accounting professor at the University of Georgia and former chairman of the Financial Accounting Standards Board. He believes it would be useful for the PCAOB to develop more standard methods of following trends in audit quality.

    “These inspection reports differ so dramatically because over time the PCAOB inspection teams gain experience and look at things more carefully,” said Beresford, who sits on the PCAOB’s standing advisory group and chairs the audit committees at Fannie Mae, Kimberly-Clark and Legg Mason Inc. “Many of these items are things that, by themselves, probably wouldn’t have resulted in an unfair presentation of financial statements, and they wouldn’t result in restating the financial statements or the audit opinion being incorrect.”

    "PCAOB Inspection of Deloitte Audit – 20% Error Rate?" The Big Four Blog, May 6, 2010 ---
    http://bigfouralumni.blogspot.com/2010/05/pcaob-inspection-of-deloitte-audit-20.html
    The other Big Four firms did not perform much better.

    Fair Value Adjustments for Marketable Securities:  Easier Said Than Audited

    The Survey of Fair Value Audit Deficiencies was released Wednesday by Acuitas, Inc., an Atlanta CPA firm that practices litigation and business valuation services. The analysis found that fair value measurement and impairment deficiencies accounted for 52 percent of all the audit deficiencies cited in the PCAOB’s 2010 inspection reports. The number of cited deficiencies has more than tripled since 2009. Fifty-two percent of audit deficiencies related to fair value measurement were the result of inadequate testing of asset prices provided by outside pricing services. In addition, 63.6 percent of impairment-related audit deficiencies related to the testing of management’s prospective financial information.
    "The Number of Financial Statement Audit Deficiencies Is Blowing Up," by Caleb Newquest, Going Concern, June 6, 2012 ---
    http://goingconcern.com/post/number-financial-statement-audit-deficiencies-blowing

     

    Bob Jensen's threads on professionalism in auditing ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

     


    "The Stanford Sentence SEC examiners first flagged Stanford way back in the 1990s," The Wall Street Journal, June 15, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303734204577466672525877312.html?mg=reno64-wsj#mod=djemEditorialPage_t

    Convicted Ponzi schemer R. Allen Stanford was sentenced Thursday to 110 years in federal prison for his $7 billion fraud. Stanford victimized thousands of individual investors to fund a lifestyle of private jets and island vacation homes. Now the question is whether there will be anything left at all for these victims once authorities in jurisdictions around the world finish sifting through the wreckage.

    Stanford "stole more than millions. He stole our lives as we knew them," said victim Angela Shaw, according to Reuters. Certificates of deposit issued by a Stanford bank in Antigua promised sky-high returns but succeeded only in destroying the savings of middle-class retirees. More than three years after U.S. law enforcement shut down the Stanford outfit, victims have recovered nothing.

    A receiver appointed by a federal court, Ralph Janvey, has collected $220 million from the remains of Stanford's businesses but has already used up close to $60 million in fees for himself and other lawyers, accountants and professionals, plus another $52 million to wind down the Stanford operation.

    And then there's the Securities and Exchange Commission, which didn't charge Stanford for years even after its own examiners raised red flags as early as the 1990s. The SEC has lately pursued a bizarre attempt at blame-shifting, trying to get the Securities Investor Protection Corporation to cover investor losses. Even the SEC must know that SIPC doesn't guarantee paper issued by banks in Antigua—or anywhere else for that matter.

    SEC enforcers should instead focus on catching the next Allen Stanford. Careful investors should expect that they won't.

    Bob Jensen's threads on Ponzi schemes are at
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi


    Not Deloitte's Finest Audit
    The Truth and Nothing But the Whole Truth We Will Never Know
    "MF Global Finds Its Phantom Reporting Error," CFO.com, June 6, 2012 --- Click Here
    http://www3.cfo.com/blogs/banking-cap-markets/banking--capital-markets/2012/06/MF-Global-Finds-Its-Phantom-Reporting-Error

    Would you allow your treasury department to make a manual adjustment to a cash account on the fly without sufficient backup documentation? Would you even allow it to happen without multiple levels of authorization or the review of a senior finance executive, especially if the report was being filed with regulators?

    MF Global, the commodity futures dealer that crashed spectacularly last year and “lost” $1.6 billion of customer money, apparently did.

    A new report by one of the company’s bankruptcy trustees sheds light on the mystery of an accounting “error” that bedeviled executives for three days prior to the firm’s bankruptcy – an error that may have kept some MF Global executives from realizing that customer funds were being raided to stave off illiquidity.

    I wrote about the hunt for the reporting glitch in April, citing a Chicago Mercantile Exchange timeline of MF Global’s final week. What was labeled a reporting glitch then, however, was actually an erroneous, $540 million manual adjustment by treasury staffers – one they should have never been allowed to make.

    Now you might be saying that except for the size of the adjustment, “So what?” Well, this was no ordinary account. It was the “customer-segregated” account that securities regulators tracked on a daily basis, and it was the account that held customer funds along with a buffer – an amount of money over and above customer funds that had to be maintained at all times. And the size of the adjustment? It made the difference between a deficit and a surplus, and the firm’s being in compliance or not.

    This collective delusion lasted from a Friday morning through a Sunday night with apparently no one in treasury or the company’s financial regulatory group able to prove that no adjustment should have been made. At one point treasury even thought that maybe the adjustment “was incorrectly booked backwards,” according to the trustee, because the customer account deficit was so large. (They hypothesized that $540 million had been debited to the account instead of credited.) And during all that time the senior finance leadership (even the company’s general counsel) seemed to take treasury staffers at their word – that there was no deficit in customer accounts and that there was some kind of hitch with bank reconciliations.

    To be sure, we may never know the whole truth. The bankruptcy trustee admits that “witnesses’ descriptions regarding this matter are confusing and contradictory.” I have no doubt. The fascinating descriptions of MF Global’s final days read like a screenplay for a Keystone Kops movie. “Everyone was running around uncertain what they were supposed to do or how to do it,” as one congressman described the federal government’s response to Hurricane Katrina.

    Continued in article

    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/

    "MF Global : 99 Problems And Auditor PwC Warned About None," by Francine McKenna, re:The Auditors, October 28, 2011 ---
    http://retheauditors.com/2011/10/28/mf-global-99-problems-and-pwc-warned-about-none-of-them/

    Not Deloitte's Finest Audit
    Read more about the MF Global scandal by scrolling down at
    http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte


    "Not Much Illumination: JP Morgan, MF Global & Man in the Middle, Jamie Dimon," by Francine McKenna, re:TheAuditors, June 15, 2012 ---
    http://retheauditors.com/2012/06/15/not-much-illumination-jp-morgan-mf-global-man-in-the-middle-jamie-dimon/

    The more I write about banks, auditors, legislators, regulators and the big money that passes amongst them, the easier it is to see the connections between them all.

    Jonathan Safran Foer wrote a book in 2002 called Everything is Illuminated. According to Wikipedia, the novel tells the story of…

    “…a young American Jew who journeys to Ukraine in search of Augustine, the woman who saved his grandfather’s life during the Nazi liquidation of Trachimbrod, his family shtetl. Armed with maps, cigarettes and many copies of an old photograph of Augustine and his grandfather, Jonathan begins his adventure with Ukrainian native and soon-to-be good friend, Alexander “Alex” Perchov, who is Foer’s age and very fond of American pop culture, albeit culture that is already out of date in the United States. Alex studied English at his university, and even though his knowledge of the language is not “first-rate”, he becomes the translator. Alex’s “blind” grandfather and his “deranged seeing-eye bitch,” Sammy Davis, Jr., Jr., accompany them on their journey. Throughout the book, the meaning of love is deeply examined.”

    It’s widely believed that the title of the book comes from a line in one of my all time favorite novels The Unbearable Lightness of Being by Milan Kundera:

    Continued in article

    "Should Some Bankers Be Prosecuted?" by Jeff Madrick and Frank Partnoy, New York Review of Books, November 10, 2011 ---
    http://www.nybooks.com/articles/archives/2011/nov/10/should-some-bankers-be-prosecuted/
    Thank you Robert Walker for the heads up!

    More than three years have passed since the old-line investment bank Lehman Brothers stunned the financial markets by filing for bankruptcy. Several federal government programs have since tried to rescue the financial system: the $700 billion Troubled Asset Relief Program, the Federal Reserve’s aggressive expansion of credit, and President Obama’s additional $800 billion stimulus in 2009. But it is now apparent that these programs were not sufficient to create the conditions for a full economic recovery. Today, the unemployment rate remains above 9 percent, and the annual rate of economic growth has slipped to roughly 1 percent during the last six months. New crises afflict world markets while the American economy may again slide into recession after only a tepid recovery from the worst recession since the Great Depression.

    n our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world.

    Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.

    In September 2011, the Securities and Exchange Commission asserted that overall it had charged seventy-three persons and entities with misconduct that led to or arose from the financial crisis, including misleading investors and concealing risks. But even the SEC’s highest- profile cases have let the defendants off lightly, and did not lead to criminal prosecutions. In 2010, Angelo Mozilo, the head of Countrywide Financial, the nation’s largest subprime mortgage underwriter, settled SEC charges that he misled mortgage buyers by paying a $22.5 million penalty and giving up $45 million of his gains. But Mozilo had made $129 million the year before the crisis began, and nearly another $300 million in the years before that. He did not have to admit to any guilt.

    The biggest SEC settlement thus far, alleging that Goldman Sachs misled investors about a complex mortgage product—telling investors to buy what had been conceived by some as a losing proposition—was for $550 million, a record of which the SEC boasted. But Goldman Sachs earned nearly $8.5 billion in 2010, the year of the settlement. No high-level executives at Goldman were sued or fined, and only one junior banker at Goldman was charged with fraud, in a civil case. A similar suit against JPMorgan resulted in a $153.6 million fine, but no criminal charges.

    Although both the SEC and the Financial Crisis Inquiry Commission, which investigated the financial crisis, have referred their own investigations to the Department of Justice, federal prosecutors have yet to bring a single case based on the private decisions that were at the core of the financial crisis. In fact, the Justice Department recently dropped the one broad criminal investigation it was undertaking against the executives who ran Washington Mutual, one of the nation’s largest and most aggressive mortgage originators. After hundreds of interviews, the US attorney concluded that the evidence “does not meet the exacting standards for criminal charges.” These standards require that evidence of guilt is “beyond a reasonable doubt.”

    This August, at last, a federal regulator launched sweeping lawsuits alleging fraud by major participants in the mortgage crisis. The Federal Housing Finance Agency sued seventeen institutions, including major Wall Street and European banks, over nearly $200 billion of allegedly deceitful sales of mortgage securities to Fannie Mae and Freddie Mac, which it oversees. The banks will argue that Fannie and Freddie were sophisticated investors who could hardly be fooled, and it is unclear at this early stage how successful these suits will be.

    Meanwhile, several state attorneys general are demanding a settlement for abuses by the businesses that administer mortgages and collect and distribute mortgage payments. Negotiations are under way for what may turn out to be moderate settlements, which would enable the defendants to avoid admitting guilt. But others, particularly Eric Schneiderman, the New York State attorney general, are more aggressively pursuing cases against Wall Street, including Goldman Sachs and Morgan Stanley, and they may yet bring criminal charges.

    Successful prosecutions of individuals as well as their firms would surely have a deterrent effect on Wall Street’s deceptive activities; they often carry jail terms as well as financial penalties. Perhaps as important, the failure to bring strong criminal cases also makes it difficult for most Americans to understand how these crises occurred. Are they simply to conclude that Wall Street made well- meaning if very big errors of judgment, as bankers claim, that were rarely if ever illegal or even knowingly deceptive?

    What is stopping prosecution? Apparently not public opinion. A Pew Research Opinion survey back in 2010 found that three quarters of Americans said that government policies helped banks and financial institutions while two thirds said the middle class and poor received little help. In mid-2011, half of those surveyed by Pew said that Wall Street hurts the economy more than it helps it.

    Many argue that the reluctance of prosecutors derives from the power and importance of bankers, who remain significant political contributors and have built substantial lobbying operations. Only 5 percent of congressional bills designed to tighten financial regulations between 2000 and 2006 passed, while 16 percent of those that loosened such regulations were approved, according to a study by the International Monetary Fund.2 The IMF economists found that a major reason was lobbying efforts. In 2009 and early 2010, financial firms spent $1.3 billion to lobby Congress during the passage of the Dodd-Frank Act. The financial reregulation legislation was weakened in such areas as derivatives trading and shareholder rights, and is being further watered down.

    Others claim federal officials fear that punishing the banks too much will undermine the fragile economic recovery. As one former Fannie official, now a private financial consultant, recently told The New York Times, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”

    The responsibility for reluctance, however, also lies with the prosecutors and the law itself. A central problem is that proving financial fraud is much more difficult than proving most other crimes, and prosecutors are often unwilling to try it. Congress could fix this by amending federal fraud statutes to require, for example, that prosecutors merely prove that bankers should have known rather than actually did know they were deceiving their clients.

    But even if Congress does not, it is not too late for bold federal prosecutors to try to bring a few successful cases. A handful of wins could create new precedents and common law that would set a higher and clearer standard for Wall Street, encourage more ethical practices, deter fraud—and arguably prevent future crises.

    Continued in article

    Watch the video! (a bit slow loading)
     Lynn Turner is Partnoy's co-author of the white paper."Make Markets Be Markets"
     "Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy, Roosevelt Institute, March 2010 ---
     http://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-transparency-balance-sheet-accounting
     Watch the video!

    The greatest swindle in the history of the world ---
    http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
     

    Bob Jensen's threads on how the banking system is rotten to the core ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking

     


    Question
    "Also noted in the article is the impact on the company's balance sheet and resulting financing options from the variability in the balance sheet liability."
    Is the main purpose accounting fiction rather than economic reality?

    From The Wall Street Journal Accounting Weekly Review on June 8m 2012

    GM Acts to Pare Pension Liability
    by: Sharon Terlep
    Jun 02, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Pension Accounting

    SUMMARY: General Motors has negotiated an annuity purchase from Prudential Financial, Inc., to "...hand over all assets and obligations of its salaried retiree pension program and management responsibility..." for the plan. "GM said it will spend about $29 billion to offload over $26 billion in pension obligations...Long-term benefits GM will realize justify the upfront cost, said Fitch Inc. analyst Stephen Brown in a note." GM's underfunded pension plans remained after the company's 2009 bankruptcy and the company still "...faces pressure from investors to address the $71 billion in obligations to union-represented factory workers..." which are underfunded by $10 billion. Also noted in the article is the impact on the company's balance sheet and resulting financing options from the variability in the balance sheet liability.

    CLASSROOM APPLICATION: The article is useful to discuss the option of satisfying pension obligations by purchasing an annuity. This discussion could then lead into a definition of the settlement rate used to calculate the present value of pension obligations.

    QUESTIONS: 
    1. (Introductory) What are GM's total pension liabilities? What types of plans does it maintain?

    2. (Advanced) How do these obligations "rise and fall on such factors as interest rates and the life expectancy of pensioners"?

    3. (Advanced) What is the funded status of GM's other pension plans? How does the plan status "limit [GM's] financial flexibility"?

    4. (Introductory) How is GM ridding its balance sheet of its pension obligations to its salaried employees?

    5. (Introductory) What other companies do analysts think may take similar actions to reduce their pension obligations?

    6. (Advanced) According to the article, by year end GM "...will have eliminated traditional pension plans for all current salaried employees." What is another term for "tradition pension plans"? What is another term for the 401(k) plans GM now offers to newly hired hourly workers?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "GM Acts to Pare Pension Liability," by Sharon Terlep, The Wall Street Journal, June 2, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303640104577440482972665496.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    General Motors Co. GM +0.09% said it aims to reduce its pension obligations by $26 billion by overhauling its U.S. pension plan for retired white-collar workers, cutting by nearly 20% the biggest drag on its balance sheet.

    GM also signaled it could consider a similar reworking of its pension plan for U.S. union retirees, which is roughly twice the size of the salaried-worker plan.

    The pension obligations are a drag on the Detroit auto maker because they rise and fall on such factors as interest rates and the life expectancy of pensioners. GM's $134 billion in global pension obligations, which face a $25 billion shortfall, have long been a concern of investors and debt-ratings firms.

    On Friday, GM said it will hand over all assets and obligations of its salaried retiree pension program and management responsibility to Prudential Financial Inc. PRU +0.21% through the purchase of a group annuity contract. Prudential could begin making pension payments starting next year. GM said retirees' payments won't change.

    Around 42,000 of its 118,000 salaried retirees would have the option of taking a one-time payment rather receiving monthly checks, similar to a plan Ford Motor Co. F -0.19% disclosed last month. GM, which was advised by Morgan Stanley, MS -3.80% sought bids from several insurance companies before picking Prudential Financial, said people familiar with the matter.

    Plan changes require regulatory approval.

    GM, by year end, will have eliminated traditional pension plans for all current salaried employees. Newly hired hourly workers already receive a 401(k), though veteran factory workers still get a traditional pension.

    GM faces pressure from investors to address the $71 billion in obligations to union-represented factory workers. That plan is underfunded by $10 billion.

    Finance chief Dan Ammann said GM has told the union that reducing pension risk is a priority and there is no regulatory hurdles to bringing such changes for hourly workers. He declined to say whether GM is talking to the United Auto Workers over such a move.

    GM's underfunded pension plans remained following the company's 2009 bankruptcy that eliminated much of the company's debt. Mr. Ammann said GM's pension obligations, on a relative basis, are greater than at other global companies and limit its financial flexibility.

    Under the proposal, GM will establish a new plan for active salaried employees with the same provisions as its existing plan. Union-represented hourly workers are not affected by the latest move.

    Over the last decade, many companies' pension liabilities have grown at a faster pace than the businesses themselves, and the value of their pension assets has also failed to keep up, forcing firms to take steps to address their pension exposures.

    The GM pension deal dwarfs previous agreements that others reached with insurers to reduce their pension liabilities. Others that might follow in GM's footsteps could include companies whose pension liabilities are large relative to their stock-market value, pension experts say.

    Continued in article

    "Rahmbo vs. Springfield:  Chicago's mayor says Illinois pensions are breaking his city," The Wall Street Journal, May 29, 2012 ---
    http://online.wsj.com/article/SB10001424052702304070304577398190881577740.html#mod=djemEditorialPage_t

    Horrible (shell game) accounting rules for pension accounting
    Over the past three decades, we have allowed a system of pension accounting to develop that is a shell game, misleading taxpayers and investors about the true fiscal health of their cities and companies -- and allowing management to make promises to workers that saddle future generations with huge costs. The result: According to a recent estimate by Credit Suisse First Boston, unfunded pension liabilities of companies in the S&P 500 could hit $218 billion by the end of this year. Others estimate that public pensions -- the benefits promised by state and local governments -- could be in the red upwards of $700 billion.
    Arthur Levitt, Jr., "Pensions Unplugged," The Wall Street Journal, November 10, 2005; Page A16 --- http://online.wsj.com/article/SB113159015994793200.html?mod=opinion&ojcontent=otep

    "New rules will decimate profits," by Steve Johnson, Financial Times, April 15, 2012 ---
    http://www.ft.com/intl/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#axzz1sCTvYf00

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#ixzz1sEKqe1T3

    New accounting rules that will stop companies from padding their earnings statements with anticipated pension fund returns that may never materialise will slash hundreds of millions of euros from the profits of many European companies next year, according to Citi, the investment bank.

    A tightening of the International Accounting Standards Board’s IAS 19 directive from 2013 will bar companies from using the so-called “corridor rule”, which allows them to keep actuarial losses suffered by their final salary pension schemes off their balance sheets.

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#ixzz1sEKwjTDD

    Companies will also have to align the forecast rate of return from their pension fund assets with the discount rate used to value future liabilities in their profit and loss accounts.

    These factors will cut the annual pre-tax profits of companies such as Nestlé, Fiat, BT, Siemens, Philips, Credit Suisse, National Grid, BAE Systems, Michelin and Akzo Nobel by more than €100m, said Citi.

    The US bank foresaw a hit of €780m at Alcatel-Lucent, the French telecoms group, more than erasing consensus forecasts for a pre-tax profit of €509m in 2013/14. In the UK, transport companies exposed to the £20bn Railways Pension Scheme are among those seen as likely to be worst hit, with the rule changes seen cutting earnings by 28.8 per cent at FirstGroup, 19.3 per cent at Go-Ahead Group and 12.2 per cent at Stagecoach.

    Many of these companies set the expected rate of return on their pension fund assets 1-2 percentage points higher than their discount rate, which is the yield on high-quality corporate bonds. For Alcatel-Lucent and Fiat, which has a pension deficit larger than its market capitalisation, the gap is 2.5 points.

    “The current IAS 19 accounting requirement usually flatters the earnings of companies with large pension schemes,” said Neil Dawson, an analyst at Citi. “We do not think this accounting change has been widely factored into earnings forecasts at this stage.”

    Both KPMG and Aon Hewitt said the accounting change was likely to wipe around £10bn from the annual profits of companies in the UK, where pension funds’ equity holdings are a relatively high 40 per cent.

    “There will be a handful of companies that are heavily impacted because [their pension funds] are heavily invested in equities. There may be a few surprises, in terms of how much of the profit was coming from the pension scheme,” said Mike Smedley, partner at KPMG.

    Eric Steedman, senior international consultant at Towers Watson, added: “For the majority it will decrease earnings because they will no longer be able to allow, in the P&L, for an assumed outperformance of riskier assets,” although it will increase earnings for a minority of companies that largely hold government bonds in their schemes, he added.

    As a result the changes may accelerate the pension schemes’ ongoing switch out of equities and into lower risk assets.

    “If you can no longer have access to a higher expected return on assets because you have risk-seeking assets then you have less incentive to take risk,” said Deborah Cooper, partner at Mercer.

    However Ms Cooper believed the outlawing of the corridor approach would have more impact on the continent, where the technique is more prevalent.

    “In continental Europe they are more likely to have used a corridor approach. They will have to start to recognise immediately the entire effect on their balance sheet and that will be an ongoing volatility on their balance sheet that they did not have before.”

    Continued in article

    Bob Jensen's threads on pension accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#Pensions

     


    From The Wall Street Journal Accounting Weekly Review on June 8, 2012

    Hedges Gone Awry Set Back Chesapeake
    by: Russell Gold
    Jun 04, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Advanced Financial Accounting, Derivatives, Disclosure, Hedging, Investments

    SUMMARY: "Chesapeake Energy Corp....compounded its troubles by taking a short-term gamble on gas prices that left it exposed to the worst gas market since 2001....The losses came mostly in the last few months of 2011 and first months of 2012 [on sales of derivative contracts against falling prices in natural gas]. And the removal of the hedges has left the company largely unprotected against low gas prices this year....Chesapeake's plays in the market resemble the approach of a hedge fund more so than an exploration company, which usually buys swaps or other financial contracts to try to lock in prices for a year or two sop it can concentrate on finding and producing oil and natural gas....'We don't hedge just to say we're hedged, we hedge to make money,' the company said in a recent presentation to investors."

    CLASSROOM APPLICATION: Questions relate to whether Chesapeake Energy's disclosure and comments as reported in this article are consistent with the definition of hedging activities; the questions also ask students to access disclosures in SEC filings about investments, derivatives and hedging, and comprehensive income. An interactive timeline of Chesapeake's troubles is available at http://online.wsj.com/article/SB10001424052702303918204577446424163519432.html

    QUESTIONS: 
    1. (Introductory) Based on information in the main and related articles, describe the nature of Chesapeake Energy Corp.'s operations and the current state of its affairs.

    2. (Introductory) Based on the discussion in the article, what are the sources of a "current cash crunch" at Chesapeake Energy Corp.?

    3. (Advanced) Access the Chesapeake Energy SEC filing on Form 10-Q for the quarter ended March 31, 2012, available at http://www.sec.gov/cgi-bin/viewer?action=view&cik=895126&accession_number=0001193125-12-228139&xbrl_type=v#. According to the financial statement disclosures, for what types of commodities does Chesapeake enter into derivatives contracts for hedging? In what other types of derivatives does Chesapeake enter derivatives contracts?

    4. (Introductory) How does the author describe the company's trading in derivatives and hedging activities?

    5. (Advanced) Compare the description given above with the definition of hedging in authoritative accounting literature, citing your authoritative source in your answer.

    6. (Advanced) What is the likely impact on Chesapeake during the rest of 2012 of the sales of derivatives during the fourth quarter of 2011? Compare your description to the discussion in the article of the position currently held by Devon Energy Corp.

    7. (Advanced) Again refer to the Chesapeake filing on Form 10-Q accessed above. Access The Condensed Consolidated Statements of Comprehensive Income (Loss). On what types of items does Chesapeake record items of other comprehensive income (OCI)?

    8. (Introductory) Now access the Notes to Financial Statements and navigate to Investments. What types of investments does Chesapeake hold? Which of these investments generated activity in other comprehensive income? Which of these investments generated income or losses impacting net income? Explain your reasoning.

    9. (Advanced) How do you think the investments listed in the financial statement footnotes relate to the nature of changing operations at Chesapeake Energy?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Chesapeake Readies Annual Meeting: McClendon, Icahn Expected to Clash
    by Angel Gonzalez
    Jun 04, 2012
    Page: B2

     

    "Hedges Gone Awry:  Set Back Chesapeake," by: Russell Gold, The Wall Street Journal, June 4, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303506404577444484279186736.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    Chesapeake Energy Corp. CHK -1.98% blames its current cash crunch on warm winter weather that reduced demand for the natural gas it pumps as the nation's second-largest producer of the fuel. But the situation is more complicated: The company compounded its troubles by taking a short-term gamble on gas prices that left it exposed to the worst gas market since 2001.

    Last October, Chesapeake sold the financial contracts that were its insurance, or hedge, against low gas prices. Though the company raised cash in the trade, a Wall Street Journal analysis of Chesapeake's disclosures about the hedging positions found losses between $750 million and $900 million.

    The losses came mostly in the last few months of 2011 and first months of 2012. And the removal of the hedges has left the company largely unprotected against low gas prices this year.

    The company declined to respond to questions about its hedging activity in the past year, though its executives have acknowledged that the trade last fall didn't work out as planned.

    Low natural-gas prices, which have fallen by more than 50% in the past 12 months, would harm any company with Chesapeake's level of exposure to the commodity. But Chesapeake's plays in the market resemble the approach of a hedge fund more so than an exploration company, which usually buys swaps or other financial contracts to try to lock in prices for a year or two so it can concentrate on finding and producing oil and natural gas.

    Chesapeake, in contrast, is an active trader in the commodities markets, buying and selling financial contracts on exchanges such as the New York Mercantile Exchange for short-term gains—or losses.

    "We don't hedge just to say we're hedged, we hedge to make money," the company said in a recent presentation to investors.

    And it has long been very successful. Between 2006 and the end of 2011, Chesapeake generated $22.4 billion in gas sales—and $8.7 billion in gains from gas hedges, according to a Journal calculation.

    Chesapeake and its chief executive, Aubrey McClendon, have won a good reputation for predicting commodity price moves, especially in natural gas, said Neal Dingmann, an energy analyst with SunTrust Robinson Humphrey.

    "Aubrey had made levered bets in the past and they worked out," says Mr. Dingmann. "He was clearly making a big bet and this was one of the first times it went against him in a big way."

    But rapid movements in and out of commodity markets are unusual for energy companies. "This type of trade would be more common for a privately held energy company or a large public company with a room of 200 traders," said Patrick Saunders, vice president of energy markets at Gelber & Associates, a Houston-based energy consultant. "Chesapeake has never really done it the way everyone else has done it."

    Energy companies with more conservative hedging programs now have more protection against current low gas prices. Anadarko Petroleum Corp., another big producer, has approximately 40% of its gas volumes hedged against price movements.

    Chesapeake hadn't locked in prices on any of its production in 2012 or 2013, according to its most recent statement of quarterly income.

    Many energy companies use derivatives and financial instruments to try to protect themselves against volatility. For example, Devon Energy Corp., a rival natural-gas producer in Oklahoma City, recently said in a presentation that it had about 39.5% of its gas production hedged at an average price of $4.42 per million British thermal units, well above the current price of about $2.33.

    Last year, Chesapeake also had financial contracts that locked in a fixed-rate price for natural gas. But last fall, Mr. McClendon and a small group of executives decided to liquidate the natural-gas hedges, selling the contracts for a profit.

    Mr. McClendon, who for several years operated his own hedge fund that traded energy and other commodities while also running Chesapeake, thought gas prices were dropping on news about Greece's economic problems, he said recently, and would rebound quickly.

    The company made about $353 million by selling the contracts, Chesapeake Chief Financial Officer Nick Dell'Osso said last month.

    The company was betting it could buy back the contracts, or others like them, at a lower price when natural-gas prices rose. But instead natural-gas prices kept falling, plummeting from about $4 per million BTUs in September to as low as $1.91 on April 19.

    The company couldn't replace the hedges, Mr. McClendon said.

    "Obviously we are not happy with that decision," the chief executive added.

    Without the hedges, the company had to sell its natural gas at market price. In the first quarter, Chesapeake sold the gas it produced at $2.35 per million British thermal units, less than half the price of six months earlier.

    Continued in article

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


    "A New Theory of the State Corporate Income Tax: The State Corporate Income Tax as Retail Sales Tax Complement," by Darien Shanske, SSRN, June 5, 2012 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078488 
    Tax Law Review, Forthcoming

    Abstract:
    The state corporate income tax has been and remains a vital source of income for the states. The theoretical justifications for this tax, however, are weak and, as reasonably predicted based on its poor design, the state corporate income tax has been in decline as a source of state revenue for decades. Nevertheless, states have taken important steps to shore up their corporate income taxes. At least one of these major reforms, apportioning the state corporate income tax base on the basis of in-state corporate sales, was probably undertaken on the basis of implausible policy arguments. Despite the ad hoc (at best) nature of these reforms, they have changed the state corporate income tax for the better. An initial goal of this Article is to collect this positive news at a time when most fiscal news remains bleak.

    The argument at the heart of this Article starts from the analytical observation (first made by Charles McLure) that these changes to the state corporate income tax have made the tax into an odd type of sales (consumption) tax. This Article then argues that this observation is important because this new corporate income tax is reaching sales on which no retail sales tax is due (e.g., most services) and sales on which no retail sales tax is generally remitted (e.g., sales made by certain internet retailers). This means that the new corporate income tax is acting not only like a sales tax, but as a complement to poorly designed state sales taxes. This Article argues that, assuming that states will not act directly to broaden their sales tax base, they can act to broaden their consumption tax base indirectly through their corporate income taxes.

    Bob Jensen's threads on taxation are at
    http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    Question
    In 2011 what were the main causes of financial statement restatements?

    "Restatements Flat in 2011, Foreign Firms Lead Pack," Maxwell Murphy, The Wall Street Journal, June 4, 2012 ---
    http://blogs.wsj.com/cfo/2012/06/04/restatements-flat-in-2011-foreign-firms-lead-pack/

    Financial restatements were essentially flat in 2011 compared with 2010, and foreign firms continue to post the largest restatements, according to new research.

    Audit Analytics said 702 unique filers produced 787 restatements last year, down from 790 restatements in 2010 and up from 708 restatements in 2009. In 2006, 1,560 unique filers produced 1,790 restatements.

    For the seventh straight year, the most common issue causing companies to restate prior results was accounting for debt, quasi-debt, warrants and equity, with 23.1% of all restatements last year related to those security-related issues. For the fifth consecutive year, recording expenses like payroll and selling, general and administrative costs came in second.

    The largest adjustment in 2011 was a $1.55 billion negative revision by China Unicom. Audit Analytics noted that this is the third year in a row where the largest negative restatement was disclosed by a foreign company, and in 2011 a foreign company also ranked No. 2 behind China Unicom.

     

    Bob Jensen's threads on debt (on and off balance sheet) ---
    http://www.trinity.edu/rjensen/Theory02.htm


    Absurdly Successful Tax Frauds
    "Woman's Absurdly Unsophisticated Tax Scheme Still Managed to Dupe The Oregon Department of Revenue," by Caleb Newquist, Going Concern, June 8, 2012 ---
    http://goingconcern.com/post/womans-absurdly-unsophisticated-tax-scheme-still-managed-dupe-oregon-department-revenue

    As we've witnessed, perpetrators of tax fraud oftentimes utilize very simple methods. Slapping a dead person's name, birthdate, social security number, isn't terribly difficult once the data is obtained; throw some minors on there as dependents and you've got yourself a nice little refund at the expense of some grieving family members. Not complicated. You don't even have to breathe free air to do it!

    Typically these frauds are small and repeated dozens, sometimes hundreds of times for a nice little haul. This, however was not the preferred technique for Krystle Marie Reyes of Salem, Oregon who couldn't be bothered with such tedious processes (allegedly!):

    According to the affidavit, Reyes used Turbo Tax, a popular tax preparation software package, to file a faked 2011 income tax return that reported wages of $3 million and claimed she was owed a $2.1 million refund. The state authorized the refund, and Turbo Tax issued Reyes a Visa debit card with the full refund amount. [...] State revenue officials did not discover the fraud until Reyes reported the card as lost or stolen. In the meantime, she racked up more than $150,000 in purchases. Reyes, according to the affidavit, paid $2,000 in cash for a 1999 Dodge Caravan and used the card to buy $800 worth of tires and wheels.

    Continued in article

    "Oakley (California) woman gets 41 months for filing false tax returns," by Daniel Jimenez, Contra Costa Times, June 8, 2012 ---
    http://www.mercurynews.com/news/ci_20808444/oakley-woman-gets-41-months-filing-false-tax

    An Oakley woman was sentenced Wednesday to 41 months in prison and ordered to pay more than $50,000 in restitution for conspiring to file false claims against the Internal Revenue Service, authorities said.

    Kensetta "Peaches" Johnson, 38, admitted in September 2011 that she had worked with others to file false federal tax returns in 2008 and 2009, according to a news release from U.S. Attorney Melinda Haag. Johnson said she was warned by her bank that she was committing fraud, but ignored the warning. A total of 61 false returns using stolen identities were electronically filed from Johnson's Oakley home, funneling refunds onto prepaid debit cards, authorities said.

    An federal investigation into more than 800 false tax returns filed in California -- claiming $6.2 million in fraudulent refunds -- is ongoing.

    In a related case, Latrece O'Neal, 42, also of Oakley, will be sentenced July 11. O'Neal pleaded guilty to filing false tax returns in March 2011.

     

    When you wish the auditor had been a Big Four firm with deep, deep pockets
    "City of Dixon Sues Auditors Over...Ya Know," by Caleb Newquist, Going Concern, June 8, 2012 ---
    http://goingconcern.com/post/city-dixon-sues-auditors-overya-know

    Absurdly Successful Mortgage Fraud
    Marvene Halterman, an unemployed Arizona woman with a long history of creditors, took out a $103,000 mortgage on her 576 square-foot-house in 2007. Within a year she stopped making payments. Now the investors with an interest in the house will likely recoup only $15,000.
    The Wall Street Journal slide show of indoor and outdoor pictures --- http://online.wsj.com/article/SB123093614987850083.html#articleTabs%3Dslideshow
    Jensen Comment
    The $15,000 is mostly the value of the lot since at the time the mortgage was granted the shack was virtually worthless even though corrupt mortgage brokers and appraisers put a fraudulent value on the shack. Bob Jensen's threads on these subprime mortgage frauds are at http://www.trinity.edu/rjensen/2008Bailout.htm
    Probably the most common type of fraud in the Savings and Loan debacle of the 1980s was real estate investment fraud. The same can be said of the 21st Century subprime mortgage fraud. Welcome to fair value accounting that will soon have us relying upon real estate appraisers to revalue business real estate on business balance sheets --- http://www.trinity.edu/rjensen/Theory01.htm#FairValue

    The Rest of Marvene's Story --- http://www.trinity.edu/rjensen/FraudMarvene.htm

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


    "ReadWriteWeb DeathWatch: Hewlett Packard," by Fredric Paul, ReadWriteWeb, June 8, 2012 ---
    http://www.readwriteweb.com/archives/readwriteweb-deathwatch-hewlett-packard.php

    For the second installment of ReadWriteWeb’s new DeathWatch series, we cast a beady eye on Hewlett Packard. Let’s be clear: Unlike our first DeathWatch victim, HP is not about to go out of business anytime soon. But momentous market changes - not to mention an epic series of fumbles, miscalculations and missed opportunities - presents the iconic company with serious long-term challenges that could eventually put an end to HP as we know it.

    Jim Martin's threads on Lean Enterprise accounting ---
    http://maaw.info/LeanConceptsandTermsSummary.htm


    June 19, 2012 message from Cheryl Dunn

    REA Accounting Systems
    Resources-Events-Agents: An ontology for designing, controlling, and using integrated enterprise systems
    by Cheryl Dunn
    Associate Professor
    Grand Valley State University
    Publisher:  McGraw-Hill Create, ISBN-13: 978-1-121-55585-3
    ISBN-10: 1-121-55585-3
     
     
    Earlier versions of this textbook were published by McGraw-Hill as Accounting, Information Technology, and Decision Making by Denna, Hollander, and Cherrington (2 editions)
    and Enterprise Information Systems: A Pattern-Based Approach by Dunn, Cherrington, & Hollander.  McGraw-Hill also expects to publish future editions of this textbook.  In order to make this edition available as soon as possible, we decided to bypass the hardcover publication process and make it immediately available via Create.  To order this textbook you may contact your McGraw-Hill representative or visit www.create.mcgraw-hil.com
     
    Table of Contents is as follows:
     

    CONTENTS

     

    Chapter 1

                Why REA? Accounting and Enterprise Systems as Economic Storytelling

                            Economic Storytelling: The Purpose of Enterprise Systems

    Integration of Enterprise Systems

    Re-inventing Enterprise Systems with REA

                           

    Chapter 2

                Representation and Patterns: An Introduction to the REA Enterprise Ontology

                            Representation and Modeling

                            Patterns

                                  Object Patterns

                                  Script Patterns

                            The REA Enterprise Ontology

                                  Value System

                                  Value Chain

                                  Business Processes

                                  Tasks

    An Example Enterprise

                                  Value System Level Modeling

                                  Value Chain Level Modeling

                            Concluding Comments

     

    Chapter 3

                Task Level Modeling

                            System Flowcharting

                            File Types, Media, and Processing Methods

                            Acquisition Cycle: Workflow and Documents

                            Revenue Cycle: Workflow and Documents

                            Concluding Comments

     

    Chapter 4

                Enterprise System Risks and Controls

                            The Relationships between Risks, Opportunities, and Controls

                            Regulations and Authoritative Guidance for Internal Control Systems

                            Using REA as a Framework for Risk Identification

                            Identification of Mitigating Controls

                            Concluding Comments

                           

    Chapter 5

                Conceptual and Logical Relational Database Models

                            Conceptual Modeling with UML Class Diagrams

                                        Alternative Conceptual Modeling Notations

                            Converting Conceptual Models into Relational Logical Models    

                                        Association Attribute Placement

                            Summary

     


     

    Chapter 6

                REA Core Business Process Modeling

                            REA Core Business Process Level Modeling Constructs

    Core REA Classes

    Core REA Associations

    REA Attributes

    REA Multiplicities: Some Heuristics

                            Step By Step – How to Create a Core REA Business Process Model

    Core REA Modeling of the Acquisition Cycle

    Acquisition Cycle Core Pattern - Example Enterprise

                            Core REA Modeling of the Revenue Cycle

                            Concluding Comments

     

    Chapter 7

                Expanded REA Business Process Modeling and View Integration

                            Expansions to the REA Core Business Process Model

                            Expanded REA Acquisition Cycle Model

                            Expanded REA Revenue Cycle Model

                            View Integration

                            Concluding Comments

     

    Chapter 8

                Database Design Implementation with Microsoft Access

                            Physical Implementation of Relational Model in Microsoft Access

                            Concluding Comments

     

    Chapter 9

                Introduction to Querying

                            Querying Relational Databases

                                        Relational Algebra

                                        Structured Query Language

                                        Query by Example in Microsoft Access

                                                    Parameter Queries

     

    Chapter 10

                Acquisition and Revenue Cycle Information Retrieval

                            Information Needs and Measures in the Acquisition and Revenue Cycles                                    

    Simple Class Queries

    Simple Association Queries

                Accounts Receivable

                Accounts Payable

                Weighted Average Unit Cost

                Days to Fill Orders

                            Concluding Comments

     


     

    Chapter 11

                Advanced Acquisition and Revenue Cycle Information Retrieval

                            Single Cycle-Multiple Association Queries

                                        Partially Filled Orders

                                        Accounts Payable by Supplier

                            Multiple Cycle-Multiple Association Queries

                                        Cash Balance

                                        Inventory Quantities on Hand

                                        Inventory Cost Balance

                                        Cost of Goods Sold

                            Concluding Comments

     

    Chapter 12

                Advanced REA Modeling Concepts

    Abstraction Mechanisms

    Operational and Policy Infrastructures

    Implementation Compromise

    Concluding Comments

     

    Chapter 13

                The Conversion Business Process

                            Conversion Process in an Enterprise Value System and Value Chain

                            Conversion Business Process Level Models

                                        Core Pattern

                                        Extended Pattern

                            Information Needs and Measures in the Conversion Process

                            Concluding Comments

     

    Chapter 14

                The Human Resource Business Process

                            Human Resource Process in an Enterprise Value System

                            Human Resource Process in Enterprise Value Chains

                            Human Resource Business Process Level Models

                            Information Needs and Measures in the Human Resource Process

                            Concluding Comments

     

    Chapter 15

                The Financing Business Process

                            Financing Process in an Enterprise Value System

                            Financing Process in Enterprise Value Chains

                            Financing Business Process Level Models

                            Information Needs and Measures in the Financing Process

                            Concluding Comments

     

    Chapter 16

                Current Accounting and Enterprise Systems

                            Organizing Principles of Current Accounting and Enterprise Systems

                            Goals and Methods of ERP Software and the REA Enterprise Ontology

                            Intra-Enterprise Integration

                            Electronic Commerce, Inter-Enterprise System Design and REA

                            Concluding Comments

     

     

    +++ AECM Home Page (View archives, unsubscribe, etc.): http://www.aecm.org +++

     


    Question
    What could possibly be wrong with mark-to-market accounting for financial instruments and derivative financial instruments?

    Hint
    It's called "asymmetric accounting" and the topic has been debated over an over again on the AECM (largely by Tom Selling versus Bob Jensen). This is also a topic that I recently recommended that Marc introduce to his "logic" analysis of fair value accounting for financial securities.

    "GAAP IS CRAP: THE CASE OF JP MORGAN," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, May 31, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/694

    Abraham Briloff complained that sometimes the accounting standard setters do a pathetic job by creating rules that enhance the ability of managers to manage earnings.  At those times, he indicated that GAAP becomes cleverly rigged accounting ploys.  The CRAP acronym is tart, but precise.

    David Reilly has written an excellent example of this proposition in his Wall Street Journal article, Heard on the Street: J.P. Morgan, Hedges and ‘Asymmetric Accounting.’”  The issue pivots on the use of portfolio hedging and the “asymmetric accounting” that arises when the portfolio hedge is accounted for by mark-to-mark accounting, and at least some of the hedged items are treated as available for sale securities.  This situation creates a mismatch in the accounting for these items, thereby potentially subjecting an entity to large gains or losses in the derivative, while gains or losses of the hedged items bypass the income statement, and going directly into stockholders’ equity.

    David Henry also has a nice essay about this chain of events, entitledJPMorgan Chase Sells $25 Billion in Securities To Offset ‘London Whale’ Losses.”  He quotes former SEC Chief Accountant Lynn Turner who said JP Morgan made two stupid mistakes. They did not comprehend the risks they took with these complex derivatives and they covered half the losses with gains from high income assets that they no longer enjoy.

    Jamie Dimon addressed these issues in a corporate conference call on May 10, 2012.  From an edited transcript of this conference call by Thomson Reuters StreetEvents, we read these comments by Mr. Dimon:

    Continued in article

    Jensen Comment
    Below is a reply that I wrote years ago on the AECM ---
    http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm


    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

     


    "Rate swaps have an embedded option to sue the bank," Sober Look, May 28, 2012 ---
    http://soberlook.com/2012/05/rate-swaps-have-embedded-option-to-sue.html?utm_source=BP_recent

    This happened in the US and is now happening globally. Municipalities, corporations, and even sovereign states who put on "hedges" against rising interest rates are suing banks because their hedges lost money. Let's see, you put on a position that will make money if rates rise, what do you think happens if rates fall?

    But that's OK because many organizations always have the option to sue the banks to recover these losses.
     
    Bloomberg: - Unitech Ltd., an Indian property developer, accused Deutsche Bank AG of selling it an interest- rate swap that wasn’t suitable and wasn’t properly explained, according to a London lawsuit over a $150 million loan deal.
    That's right, the hedge wasn't explained well. It's way too complicated. If interest rates rise, Unitech's property development funding costs go up and the swap makes them money to offset those incremental costs. If rates go down and funding costs decrease, the swap loses money and Unitech loses the savings from lower funding costs.

    Or maybe they don't have to give up those savings after all - because they can just play dumb and default on the swap payments.

     
    Unitech filed a counterclaim in May arguing Deutsche Bank was negligent to sell an unsuitable hedging agreement, and owed damages that canceled out its debt, according to court documents. Germany’s biggest bank had earlier sued Unitech saying a unit of the company owes $11 million under the swap contract and has missed payments.
    Deutsche Bank “knew, or must have appreciated, that it was likely to make significant amounts of money” from the contract at Unitech’s expense, the Indian company said in its lawsuit. 
    Of course Deutsche Bank knew that rates will go down. They always know which way rates are going.
     
    Interest-rate swaps that turned out to be costly for customers and profitable for banks have led to hundreds of lawsuits and an investigation by the U.K. Financial Services Authority into how they were sold. Unitech’s suit is one of the largest to reach the U.K. courts. The issue has affected bank customers from British seaside cafes to municipal governments including Milan in Italy and Jefferson County, Alabama.
    Banks make a spread on swaps they transact with clients. In general they offset the rate risk with futures, bonds, or swaps in the other direction (usually some combination of these). A typical swaps desk is indifferent to the detection of rates. That means if the client loses money, doesn't mean the bank makes that same amount of money, because the bank is rate neutral. Unless of course the client refuses to pay.

    This option to sue really comes in handy. Here is some investment advice: if you have a stock portfolio, hedge it with some S&P500 futures. If these futures make you money when your portfolio tanks, you've limited your losses. But if the futures lose money when the portfolio rallies, just sue the Chicago Mercantile Exchange. Wait, that might be a bit tough to do. Instead of futures, just enter into an equity index swap with some bank, and then sue it in some "friendly" jurisdiction. Just claim it wasn't well explained to you
    .

    Continued in article

    Jensen Comment
    The IASB in IFRS 9 is telling companies to bury their heads in the sand and no longer look for embedded derivatives. This is one of the worst decisions made by the IASB with respect to accounting for financial risk exposures, especially when the embedded derivatives have different risks than their host contracts.

    The FASB still requires detection of embedded derivatives and bifurcation accounting when the embedded derivative risks are significantly different from host contract underlying risks. But this will probably go by the boards when the U.S. caves in to IFRS standards.

    Bob Jensen's free tutorials on accounting for derivative financial instruments and hedging activities ---
    http://www.trinity.edu/rjensen/caseans/000index.htm


    Teaching Case on Revenue Recognition
    From The Wall Street Journal Accounting Weekly Review on June 15, 2012

    Dreamliner Hits a Milestone
    by: Jon Ostrower
    Jun 08, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Reporting, Long-Term Contracts, Managerial Accounting, Revenue Recognition

    SUMMARY: "Boeing reported that first-quarter profit at its Commercial Airplanes division more than doubled to $1.08 billion from a year earlier. But the company acknowledges that accounting for the costs of each individual plane would have resulted in a first-quarter loss of $138 million... The losses don't show up on Boeing's bottom line, because accounting rules let the company spread the Dreamliner's costs over years-effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes-a number it says reflects unprecedented demand. Boeing already has 854 Dreamliner orders from 57 customers." The losses to date "...are 'larger than anything in the company's history,' said...an aerospace analyst for Barclay's Capital who believes demand for the jet will eventually make up for the losses..." though other analysts believe the company's estimates which lead to the profits currently being recorded may be too optimistic.

    CLASSROOM APPLICATION: The article is useful to introduce revenue recognition for long term contracts in a financial accounting class and to discuss the effects of learning curves on costs in a managerial accounting course.

    QUESTIONS: 
    1. (Introductory) Based on the overall description in the article, what method of revenue recognition do you think Boeing is using for the income statement amounts generated by sales of aircraft? Support your answer.

    2. (Advanced) Access the Boeing SEC filing on Form 10-Q of its most recent quarterly financial statements available at http://www.sec.gov/cgi-bin/viewer?action=view&cik=12927&accession_number=0001193125-12-181463&xbrl_type=v# Click on the link to Accounting Policies. Can you confirm your answer to question 1 above? Explain.

    3. (Introductory) According to the article, what do analysts estimate as the profitability of the Dreamliners currently being sold? How do you think the analysts make these estimates? Cite the points in the article you use to make this assessment.

    4. (Advanced) How do analysts judge the amount of investment in early Dreamliner production that Boeing is making, across time or across companies? Explain your answer with reference to the article.

    5. (Advanced) What is a learning curve? How do estimated learning rates affect costs and profits at Boeing?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Dreamliner Hits a Milestone," by: Jon Ostrower, The Wall Street Journal, June 8, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303296604577452812969126758.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    Boeing Co. BA +1.10% rolled out the first 787 Dreamliner from its main factory that won't need major additional work before delivery, a long-delayed milestone that reflects streamlined manufacturing of the company's flagship passenger jet but also points up the program's enormous costs.

    This week's achievement comes as the aerospace giant races to both increase output and cut costs on the Dreamliner program, which Boeing hopes will sustain the company in future decades. Analysts, however, estimate Boeing is now effectively losing more than $100 million for each plane sold. The Dreamliner's accumulated production losses—which analysts say are far larger than any previous Boeing plane—put increasing pressure on Boeing's other commercial jetliners to churn out hefty profits.

    Assembling the 787—the first jetliner made from mostly carbon-fiber composites—involves tens of thousands of steps, from installing galleys and complex electrical systems to fusing the wings to the body. Boeing, which started making 787s in 2007, had been sending them out of its main factory in Everett, Wash., with many of those steps—sometimes thousands—unfinished, due to parts shortages and design changes on the advanced new jet. Those planes went to a separate facility in Boeing's giant campus to be completed.

    The plane that rolled out this week—Boeing's 66th Dreamliner—skipped that costly step. Workers had only around 300 mostly small assembly tasks left to complete, about 100 more than the company's goal, but far fewer than the roughly 6,000 on the earliest Dreamliners, said a person familiar with the plane.

    Boeing, in a statement, confirmed the plane "will be the first airplane to go straight into preflight operations" from the Everett plant. The minor tasks left for plane No. 66 can be handled outside of the factory before being prepared for delivery.

    Boeing also makes Dreamliners in North Charleston, S.C., where the first 787 recently rolled out with just under 100 tasks remaining. But that aircraft spent nearly eight months in production, compared to the average of five weeks at the main plant in Everett, which pushes a 787 out of its football-field sized doors every six-to-eight days.

    Analysts aren't sure exactly how much Boeing will save by producing finished planes, but they agree it is an important step to reduce costs.

    Quickly cutting production costs is essential for Boeing, which spent an estimated $14 billion developing the Dreamliner, according to Barclays Capital, and has already suffered costly delays. UBS analysts estimated last month that Boeing spends about $242 million to build each plane, and sells them for an average of $113 million. They and other analysts estimate that Boeing's losses will sink to at least $20 billion by the time costs fall enough that each Dreamliner sells for a profit, likely in 2014 or later. Boeing doesn't say exactly what year it expects to hit that milestone.

    The aggregate losses are "larger than anything in the company's history," said Carter Copeland, an aerospace analyst for Barclays Capital, who believes demand for the jet will eventually make up for the losses. The comparable hole for Boeing's last new twin-aisle jet, the 777, first delivered in 1995, was about $3.7 billion, adjusted for inflation, according to data provided by Boeing.

    The losses don't show up on Boeing's bottom line, because accounting rules let the company spread the Dreamliner's costs over years—effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes—a number it says reflects unprecedented demand. Boeing already has 854 Dreamliner orders from 57 customers.

    Boeing reported that first-quarter profit at its Commercial Airplanes division more than doubled to $1.08 billion from a year earlier. But the company acknowledges that accounting for the costs of each individual plane would have resulted in a first-quarter loss of $138 million—a drop UBS analyst David Strauss says is almost entirely attributable to the Dreamliner.

    The Dreamliner's drain on cash is balanced by strong sales of the profitable single-aisle 737 and long-range 777 models. And analysts estimate Boeing is reducing the losses per Dreamliner by about $10 million each quarter. But maintaining the pace of cost reduction gets harder as the simplest problems are solved. Meanwhile, Boeing aims to increase production of Dreamliners to 10 per month at the end of 2013, up from 3.5 per month today—meaning the losses per plane will be magnified, but will also be tempered by the decreasing cost of each jet.

    Some analysts believe Boeing's target for cost reduction on the Dreamliner could be too optimistic. Mr. Strauss of UBS says the company appears to be assuming it can reduce its cost 50% faster than it did with the 777. If instead the pace of cost reduction matches the 777, says one of UBS's models, the estimated $20 billion hole could double.

    Going to School on Revenue Recognition," by Tom Selling, The Accounting Onion, December 5, 2009 --- Click Here

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


    "Do Biologists Avoid Math-Heavy Papers?" Inside Higher Ed, June 27, 2012 ---
    http://www.insidehighered.com/quicktakes/2012/06/27/do-biologists-avoid-math-heavy-papers

    New research by professors at the University of Bristol suggests that biologists may be avoiding scientific papers that have extensive mathematical detail, Times Higher Education  reported. The Bristol researchers studied the number of citations to 600 evolutionary biology papers published in 1998. They found that the most "maths-heavy" papers were cited by others half as much as other papers. Each additional math equation appears to reduce the odds of a paper being cited. Tim Fawcett, a co-author of the paper, told Times Higher Education, "I think this is potentially something that could be a problem for all areas of science where there is a tight link between the theoretical mathematical models and experiment."

    "Maths-heavy papers put biologists off," by Elizabeth Gibney, Times Higher Education, June 26, 2012 ---
    http://www.timeshighereducation.co.uk/story.asp?sectioncode=26&storycode=420388&c=1

    The study, published in the Proceedings of the National Academy of Sciences USA, suggests that scientists pay less attention to theories that are dense with mathematical detail.

    Researchers in Bristol’s School of Biological Sciences compared citation data with the number of equations per page in more than 600 evolutionary biology papers in 1998.

    They found that most maths-heavy articles were referenced 50 per cent less often than those with little or no maths. Each additional equation per page reduced a paper’s citation success by 28 per cent.

    The size of the effect was striking, Tim Fawcett, research fellow and the paper’s co-author, told Times Higher Education.

    “I think this is potentially something that could be a problem for all areas of science where there is a tight link between the theoretical mathematical models and experiment,” he said.

    The research stemmed from a suspicion that papers full of equations and technical detail could be putting off researchers who do not necessarily have much mathematical training, said Dr Fawcett.

    “Even Steven Hawking worried that each equation he added to A Brief History of Time would reduce sales. So this idea has been out there for a while, but no one’s really looked at it until we did this study,” he added.

    Andrew Higginson, Dr Fawcett’s co-author and a research associate in the School of Biological Sciences, said that scientists need to think more carefully about how they present the mathematical details of their work.

    “The ideal solution is not to hide the maths away, but to add more explanatory text to take the reader carefully through the assumptions and implications of the theory,” he said.

    But the authors say they fear that this approach will be resisted by some journals that favour concise papers and where space is in short supply.

    An alternative solution is to put much of the mathematical details in an appendix, which tends to be published online.

    “Our analysis seems to show that for equations put in an appendix there isn’t such an effect,” said Dr Fawcett.

    But there’s a big risk that in doing that you are potentially hiding the maths away, so it's important to state clearly the assumptions and implications in the main text for everyone to see.”

    Although the issue is likely to extend beyond evolutionary biology, it may not be such a problem in other branches of science where students and researchers tend to be trained in maths to a greater degree, he added.

    Continued in article

    Jensen Comment
    The causes of this asserted avoidance are no doubt very complicated and vary in among individual instances. Some biologists might avoid biology quant papers because they themselves are not sufficiently quant to comprehend the mathematics. It would seem, however, that even quant biology papers have some non-mathematics summaries that might be of interest to the non-quant biologists.

    I would be inclined to believer that biologists avoid quant papers for other reasons, especially some reasons that accounting teachers and practitioners most often avoid accountics research studies (that are quant by definition). I think the main reason for this avoidance is that biology and academic quants typically do their research in Plato's Cave with "convenient" assumptions that are too removed from the real and much more complicated world. For example, the real world is seldom in a state of equilibrium or a "steady state" needed to greatly simplify the mathematical derivations.

    Bob Jensen's threads and illustrations of simplifying assumptions are at
    Mathematical Analytics in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Analytics


    Eugene Fama --- http://en.wikipedia.org/wiki/Eugene_Fama 

    Efficient Market Hypothesis (EMH) --- http://en.wikipedia.org/wiki/Efficient_Market_Hypothesis

    CAPM --- http://en.wikipedia.org/wiki/CAPM

    Eugene Fama's Still Begging for a Nobel Prize
    "The Father of Efficient Markets: Is Warren Buffett Smart or Lucky?" By Dan Richards, Advisor Perspectives, June 5, 2012 ---
    http://advisorperspectives.com/newsletters12/pdfs/The_Father_of_Efficient_Markets.pdf

    Jensen Comment
    One of the more distressing parts of this interview is the discussion of the holy grail of accountics research --- the CAPM that accountics scientists continue to plug into their models without challenge.

    Stocks are still the best investment for the long run. But maybe not for your long run.
    Justin Fox, "Are Stocks Still Good for the Long Run?" Time Magazine, June 15, 2009 --- http://www.time.com/time/magazine/article/0,9171,1902843-2,00.html
    Also see Jim Mahar's June 10, 2009 summary at http://financeprofessorblog.blogspot.com/
    In particular this references a study by Arnott that asserts that over the past 40 years the stock market underperformed the bond market. In my opinion, if you into bonds for the next 40 years they'd better be inflation-indexed bonds such as Treasury TIPs.

    A Great Example of What's Wrong in Plato's Cave Where Inconvenient Facts are Simply Assumed Away With an Academic Wand
    "Just How Efficient Is The Market?" Seeking Alpha, February 3, 2012 ---
    http://seekingalpha.com/article/339761-just-how-efficient-is-the-market

    For much of the last 25 years, most of the investment management world has promoted the idea that individual investors can't beat the market. To beat the market, stock pickers of course have to discover mispricings in stocks, but the Nobel-acclaimed Efficient Market Hypothesis (EMH) claims that the market is a ruthless mechanism acting instantly to arbitrage away any such opportunities, claiming that the current price of a stock is always the most accurate estimate of its value (known as "informational efficiency"). If this is true, what hope can there be for motivated stock pickers, no matter how much they sweat and toil, vs. low-cost index funds that simply mechanically track the market? As it turns out, there's plenty!

    The (absurd) rise of the Efficient Market Hypothesis

    First proposed in University of Chicago professor Eugene Fama’s 1970 paper Efficient Capital Markets: A Review of Theory and Empirical Work, EMH has evolved into a concept that a stock price reflects all available information in the market, making it impossible to have an edge. There are no undervalued stocks, it is argued, because there are smart security analysts who utilize all available information to ensure unfailingly appropriate prices. Investors who seem to beat the market year after year are just lucky.

    However, despite still being widely taught in business schools, it is increasingly clear that the efficient market hypothesis is "one of the most remarkable errors in the history of economic thought" (Shiller). As Warren Buffett famously quipped, "I'd be a bum on the street with a tin cup if the market was always efficient."

    Similarly, ex-Fidelity fund manager and investment legend Peter Lynch said in a 1995 interview with Fortune magazine: “Efficient markets? That’s a bunch of junk, crazy stuff.”

    So what's so bogus about EMH?

    Firstly, EMH is based on a set of absurd assumptions about the behaviour of market participants that goes something like this:

    1. Investors can trade stocks freely in any size, with no transaction costs;
    2. Everyone has access to the same information;
    3. Investors always behave rationally;
    4. All investors share the same goals and the same understanding of intrinsic value.

    All of these assumptions are clearly nonsensical the more you think about them but, in particular, studies in behavioural finance initiated by Kahneman, Tversky and Thaler has shown that the premise of shared investor rationality is a seriously flawed and misleading one.

    Secondly, EMH makes predictions that do not accord with the reality. Both the Tech Bubble and the Credit Bubble/Crunch show that that the market is subject to fads, whims and periods of irrational exuberance (and despair) which can not be explained away as rational. Furthermore, contrary to the predictions of EMH, there have been plenty of individuals who have managed to outperform the market consistently over the decades.

    Continued in article

     October 28, 2009 reply from Paul Williams [Paul_Williams@NCSU.EDU]

    Bob, et al,
    I never cease to marvel at the powers of rationalization defenders of sacred institutions can muster. The above characterization of EMH was certainly not the version pedaled by its accounting disciples (notably Bill Beaver) back in the late 60s and early 70s. An accounting research industry was created based on a version of EMH that was decidedly more certain that securities were "properly priced." [Why else do studies to debunk the Briloff effect?].

    Given the interpretation offered above, "Information Content Studies" make no sense. The whole idea of this methodology was that accounting data that correlated with prices implied market participants found it useful for setting prices based on publicly available data, which implied such prices were the ones that would exist in an idealized world of perfectly informed investors. Thus, this data met the test of being information and was to be preferred to other "non-information" to which the market did not react.

    But now we are told that this latest version of EMH does not justify such sanguinity because "...the prices in the market are mostly wrong...", thus prices are not an indicator of the value of data, i.e., just because there is a price effect we still don't know if that data is truly "information." Think of the millions and millions of taxpayer dollars that have been wasted over the last forty years subsidizing people to search for something that is indeterminate given the methodology they are employing.

    And for this the AAA awarded Seminal Contributions. Jim Boatsman had an ingenious little paper in Abacus eons ago titled, "Why Are There Tigers and Things," that cast serious doubts on the whole enterprise of "testing" market efficiency. It addressed the issue Carl Devine harped on about needing an independent definition of "information." And this is related to the logical slight of hand EMH required of surmising there is a way to know what the "true" price is since we glibly talk about over and under and mis-priced securities.

    But there is no way to know this, since security prices are CREATED by the institution of the securities market. There does not exist a natural process against which market performance can be compared. "Market value," which is what a price is, is a value established by the market. The market is all there is. To paraphrase NC's current governor's favorite expression, "The price is what it is."

    It isn't over or under or mis or proper or anything else, other than what a particular institution created by us at one moment in time determines it is. If we lived in a society in which mob rule settled issues of justice, it would make little sense to argue that someone the mob hung was "not guilty." Of course he was guilty, because the mob hung him!!

    Paul Williams
    paul_williams@ncsu.edu 
    (919)515-4436

    A Fundamentals Approach to Valuing a Business

    In the great book Dear Mr. Buffett, Janet Tavakoli shows how Warren Buffet learned value (fundamentals) investing while taking Benjamin Graham's value investing course while earning a masters degree in economics from Columbia University. Buffet also worked for Professor Graham.

    The following book supposedly takes the Graham approach to a new level (although I've not yet read the book). Certainly the book will be controversial among the efficient markets proponents like Professors Fama and French.

    Purportedly a Great, Great Book on Value Investing
    From Simoleon Sense, November 16, 2009 --- http://www.simoleonsense.com/

    OMG Did I Die & Go to heaven?
    Just Read, Applied Value Investing, My Favorite Book of the Past 5 Years!!
    Listen To This Interview!

    I have a confession, I might have read the best value investing book published in the past 5 years!

    The book is called Applied Value Investing By Joseph Calandro Jr. In the book Mr. Calandro applies the tenets of value investing via (real) case studies. Buffett, was once asked how he would teach a class on security analysis, he replied, “case studies”.  Unlike other books which are theoretical this book provides you with the actual steps for valuing businesses.

    Without a doubt, this book ranks amongst the best value investing books (with SA, Margin of Safety, Buffett’s letters to corporate America, and Greenwald’s book) & you dont have to take my word for it. Seth Klarman, Mario Gabelli and many top investors have given the book a plug!

    Here is an interview with the author of the book, Applied Value Investing ( I recommend listening to this). Who knows perhaps yours truly will interview him soon.

    Miguel

    P.S.

    A fellow blogger and friend will soon post a review of this book (hint: Street Capitalist!).

    Video:  Warren Buffett's Secrets To Success --- http://www.businessinsider.com/business-news/nov-24-alice1-2009-11

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

    Bob Jensen's threads on the economic crisis are at http://www.trinity.edu/rjensen/2008Bailout.htm

    Leading Accountics researchers like Bill Beaver and Steve Penman have a hard time owning up to CAPM's discovered limitations that trace back to their own research built on CAPM. Steve Penman owns up to this somewhat in his own latest book Accounting for Value that seems to run counter to his earlier book Financial Statement Analysis and Security Valuation.

    Bill Beaver's review of Accounting for Value makes an interesting proposition:
     Since Accounting for Value admits to limitations of CAPM and lack of capital market efficiency it should be of interest to investors, security analysts, and practicing accountants consulting on valuation. However, Penman's Accounting for Value is not of much interest to accounting professors and students who, at least according to Bill, should continue to dance in the fantasyland of assumed efficient markets and relevance of CAPM in accountics research.

    Accounting for Value
    by Stephan Penman
    (New York, NY: Columbia Business School Publishing, 2011, ISBN 978-0-231-15118-4, pp. xviii, 244).
    Reviewed by William H. Beaver
    The Accounting Review, March 2012, pp. 706-709
    http://aaajournals.org/doi/full/10.2308/accr-10208
    Jensen Note:  Since TAR book reviews are free to the public, I quoted Bill's entire review

    When I was asked by Steve Zeff to review Accounting for Value, my initial reaction was that I was not sure I was the appropriate reviewer, given my priors on market efficiency. As I shall discuss below, a central premise of the book is that there are substantial inefficiencies in the pricing of common stock securities with respect to published financial statement information. At one point, the book suggests that most, if not all, of the motivation for reading the book disappears if one believes that markets are efficient with respect to financial statement information (page 3). I disagree with this statement and found the book to be of value even if one assumes market efficiency is a reasonable approximation of the behavior of security prices.

    It is unclear who is the intended audience—academic or nonacademic. This is an important issue, because it determines the basis against which the book should be judged. For an academic audience, the book would be good as a supplemental text for an investments or financial statement analysis course. However, for an academic audience, it is not a replacement for his previous, impressive text, Financial Statement Analysis and Security Valuation (2009). The earlier text goes into much more detail, both in terms of how to proceed and what the evidence or research basis is for the security valuation proposed. The previous book is excellent as the prime source for a course, and the current effort is not a substitute for the earlier text.

    However, as clearly stated, the primary audience is not academic and is certainly not the passive investor. The book was written for investors, and for those to whom they trust their savings (page 1). Moreover, as stated on pages 3–4, the intended audience is the investor who is skeptical of the efficient market, who is one of Graham's “defensive investors,” who thinks they can beat the market, and who perceives they can gain by trading at “irrational” prices.1 For this reason, the book can be compared with the plethora of “how to beat the market” books that fill the “Investments” section of most popular bookstores. By this standard, Accounting for Value is well above the competition. It is much more conceptually based and includes references to the research that underlies the basic philosophy. By this standard, the book is a clear winner.

    Another standard is to judge the effort, not by the average quality of the competition, but by one of the best, Benjamin Graham's The Intelligent Investor (1949). This, indeed, is a high standard. The Intelligent Investor is the text I was assigned in my first investments course. My son is currently in an M.B.A. program, taking an investments course, so for his birthday I gave him a copy of Graham's book. However, markets and our knowledge of how markets work have changed enormously since Graham's book was written.

    The comparison with The Intelligent Investor is natural in part because the text itself explicitly invites such comparisons with the many references to Graham and by suggesting that it follows the heritage of Graham's book. It also invites comparisons because, like Graham's book, it is essentially about investing based on fundamentals and tackles the subject at a conceptual level with simple examples, without getting bogged down in extreme details of a “how to” book. I conclude that Accounting for Value measures up very well against this high standard and is one of the best efforts written on fundamental investing that incorporates what we have learned in the intervening years since the first publication of The Intelligent Investor in 1949. I have reached this conclusion for several reasons.

    One of the major points eloquently made is that modern finance theory (e.g., CAPM and option pricing models) consists of models of the relationship among endogenous variables (prices or returns). These models derive certain relative relationships among securities traded in a market that must be preserved in order to avoid arbitrage opportunities. However, as the text points out, these models are devoid of what exogenous informational variables (i.e., fundamentals) cause the model parameters to be what they are. For example, in the context of the CAPM, beta is a driving force that produces differential expected returns among securities. However, the CAPM is silent on what fundamental variables would cause one company's beta to be different from another's. One of major themes developed in the text is that accounting data can be viewed as a primary set of variables through which one can gain an understanding of the underlying fundamentals of the value of a firm and its securities.2 This is extremely important to understand, regardless of one's priors about market efficiency. A central issue is the identification of informational variables that aid in our understanding of security prices and returns. As accounting scholars, we have an interest in the “macro” (or equilibrium) role of accounting data beyond or independent of the “micro” role of determining whether it is helpful to an individual in identifying “mispriced” securities.

    Another major contribution is the development of a valuation model of fundamentals through the lens of accounting data based on accrual accounting. In doing so, the text makes another important point—namely the role of accrual accounting in bringing the future forward into the present (e.g., revenue recognition).3 In other words, accrual accounting contains implicit (or explicit) predictions of the future. It is argued that, since the future is difficult to predict, accrual accounting permits the investor to make judgments over a shorter time horizon and to base those judgments on “what we know.” The text develops the position that, in general, forecasts and hence valuation analysis based on accrual accounting numbers will be “better” than cash flow-based valuations. It is important to understand that the predictive role is a basic feature of accrual accounting, even if one disagrees about how well accrual accounting performs that role. Penman believes it performs that function very well and dominates explicit future cash flow prediction, based on the intuitive assumption that the investor does not have to forecast accrual accounting numbers as far into the future as would be required by cash flow forecasting. The implicit assumption is that the prediction embedded in accrual numbers is at least as good, if not better, than attempts to forecast future cash flows explicitly.

    A third major point is that book-value-only or earnings-only models are inherently underspecified and fundamentally incomplete, except in special cases. Instead, a more complete valuation approach contains both a book value and a (residual) earnings term. A point effectively made is that measurement of one term can be compensated for by the inclusion of the other variable by virtue of the over-time compensating mechanism of accrual accounting.

    A major implication of the model is the myopic nature of two of the most popular methods for selecting securities: market-to-book ratios and price-to-earnings ratios. Stocks may appear to be over- or underpriced when partitioning on only one these two variables. Using a double partitioning can help alleviate this myopia.

    The book is positioned almost exclusively from the perspective of the purchaser of securities. For example, one of the ten principles of fundamental analysis (page 6) is “Beware of paying too much for growth.” Presumably, a fundamental investor of an existing portfolio is a potential seller as well as a buyer. As a potential seller, the investor has an analogous interest in selling overpriced securities, but this is not the perspective explicitly taken. In spite of the apparent asymmetry of perspective, the concepts of the valuation model would appear to have important implications for the evaluation of existing securities held.

    In the basic valuation model, value is equal to current book value, residual earnings for the next two years, and a terminal value term based on the present value of residual earnings stream beyond two years.4 The model bears some resemblance to the modeling of Feltham and Ohlson (1995) but adds context of its own. A central feature of the approach is to understand what you know and separate it from speculation.5 In this context, book value is “what you know,” and everything else involves some degree of speculation. The degree of speculation increases as the time horizon increases (e.g., long-term growth estimates).

    A key feature is that it is residual earnings growth, not simply earnings growth, that is the driver in valuation. Price-earnings-only models are incomplete because of a failure to make this distinction. The nature of the long-term residual earnings growth is highly speculative, which leads to one of the investment principles—beware of paying too much for growth. The text provides some benchmarks in terms of the empirical behavior of long-term residual growth rates and reasons why abnormal earnings might be expected to decay rapidly. A higher expected residual growth is also likely to be associated with higher risk and hence a higher discount rate. All of these factors mitigate against long-term growth playing a large role in the fundamental value (i.e., do not pay too much for growth). A similar point is made with respect to the effect of leverage upon growth rates (Chapter 4).

    A remarkable feature of the book is how far it is able to develop its basic perspective without specifying the nature of the accounting system upon which it is anchoring valuation other than to say that it is based on accrual accounting. Chapter 5 begins to address the nature of the accrual accounting system. A central point is that accounting treatments that lower current book value (e.g., write-offs and the expensing of intangible assets) will increase future residual earnings (Accounting Principle 4). In particular, conservative accounting with investment growth induces growth in residual income (Accounting Principle 5). However, conservatism does not increase value. Hence, valuations that focus only on earnings to the exclusion of book value can lead to erroneous valuation conclusions. An investor must consider both (Valuation Principle 6).

    Chapter 6 addresses the estimation of the discount rate. A central theme is how little we know about estimating the discount rate (cost of capital), and we can provide, at best, very imprecise estimates. The proposed solution is to “reverse engineer” the discount rate implied by the current market price and ask yourself if you consider this to be a rate of return at which you are willing to invest, which is viewed as a personal attribute. Several examples and sensitivity analyses are provided.

    Chapter 7 synthesizes points made in earlier chapters about how the investor can gain insights into distinguishing growth that does not add to value from growth that does, through a joint analysis of market-to-book and price-to-earnings partitions. The joint analysis is clever and is likely to be informative to an investor familiar with these popular partitioning variables, but is perhaps not yet ready to use the explicit accounting-based valuation models recommended.

    Chapter 8 addresses the attributes of fair value and historical cost accounting and is the chapter that is the most surprising. The chapter is essentially an attack on fair value accounting. Up until this point, the text has been free of policy recommendations. The strength lies in taking the accounting rules as you find them, which is a very practical suggestion and has great potential readership appeal. The flexibility of the framework to accommodate a variety of accounting systems is one of its strengths. As a result, the conceptual framework is relatively simple. It does not attempt to tediously examine accounting standards in detail, nor does it attempt to adjust accounting earnings or assets to conform to a concept of “better” earnings or assets, in contrast to other valuation approaches. I found the one-sided treatment of fair value accounting to be disruptive of the overall theme of taking accounting rules as you find them.

    The text provides an important caveat. The framework is a starting point rather than the final answer. A number of issues are not explicitly addressed. It can also be important to understand the specific effects of complex accounting standards on the numbers they produce. Further, there is ample evidence that the market does price disclosures supplemental to the accounting numbers. Discretionary use of accounting numbers also can raise a number of important issues.

    In sum, the text provides an excellent framework for investors to think about the role that accounting numbers can play in valuation. In doing so, it provides a number of important insights that make it worthwhile for a wide readership, including those who may have stronger priors in favor of market efficiency.

    "AOL and the Case Against Efficient Market Theory," by Roben Farzad, Business Week, April 11, 2012 ---
    http://www.businessweek.com/articles/2012-04-11/aol-and-the-case-against-efficient-market-theory
     

    This time last week, I, like nine out of every 10 investors, believed AOL (AOL) was a dead-end investment. How could it not be? This is no longer a 56k, dial-up world, when those ubiquitous AOL disks inundated mailboxes. AOL botched the chance to morph into a broadband player with its spectacularly bad marriage to Time Warner (TWX). AOL is behind on social media, and is struggling to compete for ad dollars with Google (GOOG) and Facebook. Its sales declined in each quarter last year.

    How many chances does a legacy company get? (Remember this reinvention?)

    Then, on April 9, as if out of nowhere, Microsoft (MSFT)dropped in to buy $1 billion of AOL’s patents, sending the latter’s shares up 43 percent in a single day. In the two years leading up to the deal, the stock was down 37 percent.

    How could a supposedly omniscient market get this story so wrong? One explanation was offered by MDB, an intellectual property-focused investment bank. MDB says the AOL patents had more relevance to Microsoft and that company was uniquely well-studied on them, especially in light of AOL’s ancient acquisition of Netscape, that Microsoft nemesis in the age of Windows 95. MDB found that Microsoft cited AOL patents as related intellectual property 1,331 times in its own patent filings, vs. AOL citing its own patents 1,267 times.

    Even so, it’s surprising that this play remained largely the province of tech-geek attorneys. After all, about 15 Wall Street analysts cover AOL—nine of them rating it either a hold or sell. Hedge funds and bloggers are constantly on it. The Microsoft deal shot AOL shares up two and a half times where they traded in August, when the company owned the same patents.

    I was similarly puzzled last summer when Google paid big (63 percent-premium-to-close big) for remnants of Motorola—placing major emphasis on the legacy tech company’s patents. Motorola Mobility (MMI) shares popped 57 percent in a matter of hours. I also scratched my head in September 2010, when Hewlett-Packard (HPQ)emerged victorious from a bidding war for a tiny data storage company called 3Par—by paying $33 a share for a stock that traded below $10 just three weeks earlier. How did everyone completely whiff on 3Par’s desirability and valuation?

    These disconnects have me thinking back to the words of my friend, Justin Fox of the Harvard Business Review Group, whose book The Myth of the Rational Market excoriated the idea that “the decisions of millions of investors, all digging for information and striving for an edge, inevitably add up to rational, perfect markets.

    Continued in article

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

    Bob Jensen's critical threads on the Efficient Market Hypothesis (EMH) are at
    http://www.trinity.edu/rjensen/theory01.htm#EMH


    The Strange Thinking of Our U.S. Supreme Court Justices:  Who says Justice Thomas cannot agree with Justices Kennedy, Ginsburg, Sotomayor, and Kagan?
    "Taxation and Orwell's Animal Farm." The Faculty Lounge, June 5, 2012 ---
    http://www.thefacultylounge.org/2012/06/taxation-and-orwells-animal-farm.html

     


    Ernst & Young's annual outside audit of the HHS balance sheet last November was considered a triumph because several material weaknesses were downgraded merely to significant deficiencies. But on a "day-to-day or even monthly basis" HHS cannot accurately track its spending, according to the audit. The agency is in violation of numerous federal accounting rules written specifically for the bureaucracy, to say nothing of the financial reporting required of public companies.
    "Fannie Med:  Health and Human Services gets into the venture capital game," The Wall Street Journal, June 4, 2012 ---
    http://online.wsj.com/article/SB10001424052702303360504577408150150837834.html#mod=djemEditorialPage_t

    Perhaps you thought that the Affordable Care Act is all about making insurance more affordable. Too bad no one told Americans that the law also turned the Health and Human Services Department into a giant venture capital investor for health care. This won't turn out well.

    Awash in ObamaCare dollars, HHS has a growing investment portfolio that includes everything from new insurance companies to health-care start-ups to information technology. Secretary Kathleen Sebelius is rushing out loans and subsidies like nobody's business in case the Supreme Court overturns the law or Mitt Romney wins.

    "We're moving forward with implementing this law, including moving forward with this very important commitment by the President, by the Administration, to community health centers and the people they serve," said senior White House aide Cecelia Munoz on a recent conference call with reporters. She was referring to $728 million in seed money for new clinics that HHS dispensed last month.

    HHS already makes more grants than all other agencies combined, and it is the purchaser of health care for about one of three Americans via Medicare, Medicaid or both. The problem is that HHS spends its money—$788 billion for entitlements in 2012 and another $78 billion to run HHS's 300-odd programs—so badly.

    Ernst & Young's annual outside audit of the HHS balance sheet last November was considered a triumph because several material weaknesses were downgraded merely to significant deficiencies. But on a "day-to-day or even monthly basis" HHS cannot accurately track its spending, according to the audit. The agency is in violation of numerous federal accounting rules written specifically for the bureaucracy, to say nothing of the financial reporting required of public companies.

    The HHS inspector general revealed this year that his team can barely monitor HHS because its staff is too busy chasing the criminals exploiting HHS's incompetence. Experts disagree about how much is stolen from taxpayers through entitlement fraud—the Government Accountability Office puts it at $48 billion annually—but one sign of the problem is that Medicare allows doctors (or "doctors") to register for billing privileges as "other."

    One particular ObamaCare boondoggle that needs fly-specking is the HHS decision to finance nonprofit insurance companies with up to $7.25 billion in ultra-low-cost loans. These co-ops were a consolation prize for liberals after Democratic opposition killed the government-run public option, and the co-ops are supposed to be managed by and for consumers. But it turns out that running an insurance company is hard for amateurs who can't attract private financing.

    HHS officially estimates that the default rate on the loans will hit between 35% and 40%, which would be bad enough. But White House budget documents show that HHS expects to lose $3.1 billion of the $3.4 billion appropriated so far—which implies a default rate of 91%. The lack of accountability to shareholders or capital markets may help explain this propensity for failure.

    Another problem is the way HHS chose to structure the co-op loans. To protect the insured, states require insurers to maintain reserves in the event they go bankrupt—and debts that are supposed to be repaid are viewed as liabilities. To end run these solvency requirements, HHS is issuing "surplus notes" that subordinate the taxpayer to everyone else for repayment if a co-op fails.

    That seems likely, given the challenges of building a provider network and attracting members when expertise in such matters is legally prohibited under HHS rules. Any organization that wrote insurance policies prior to 2009—as it were, the pre-existing insurers of the Bush era—is barred from applying for loans or any significant role in the operations of a co-op. So the co-ops can't benefit from the business experience that might give them a chance to succeed.

    Continued in article

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

    Bob Jensen's threads on health care ---
    http://www.trinity.edu/rjensen/Health.htm


    "THE MOST-CITED LAW REVIEW ARTICLES OF ALL TIME," by Fred R. Shapiro and Michelle Pearse, Michigan Law Review, 2012 ---
    http://www.michiganlawreview.org/assets/pdfs/110/8/Shapiro_and_Pearse.pdf
    Thank you Paul Caron for the heads up.

    This Essay updates two well-known earlier studies (dated 1985 and 1996) by the first coauthor, setting forth lists of the most-cited law review articles. New research tools from the HeinOnline and Web of Science databases now allow lists to be compiled that are more thorough and more accurate than anything previously possible. Tables printed here present the 100 most-cited legal articles of all time, the 100 most-cited articles of the last twenty years, and some additional rankings. Characteristics of the top-ranked publications, authors, and law schools are analyzed as are trends in schools of legal thought. Data from the all-time rankings shed light on contributions to legal scholarship made over a long historical span; the recent-article rankings speak more to the impact of scholarship produced in the current era. The authors discuss alternative tools and metrics for measuring the impact of legal scholarship, running selected articles from the rankings through these tools to serve as points of illustration.

    The authors then contemplate how these alternative tools and metrics intersect with traditional citation studies and how they might impact legal scholarship in the future.

    Table of Contents

    I. Previous Studies and Rationale (Shapiro) .............        ..   .. . .. 1484

    II. Current Methodology (Shapiro) ...........................     ......     ... 1486

    III. Analysis (Shapiro) .............................................     ........     .. 1503

    A. The Effect of the Social Sciences on Legal Citation Analysis      1504

    B. Top Authors, Top Law Reviews, and Top Schools .....     .     .. 1504

    C. Reflections ......................................................... ....     ....      . 1506

    IV. Comparing Shapiro’s Lists with Modern Methods (Pearse) ..... 1508

     


    Case on Professional Writing in the Work Place
    From The Wall Street Journal Accounting Weekly Review on June 22, 2012

    This Embarrasses You and I*
    by: Sue Shellenbarger
    Jun 19, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Accounting


     

    SUMMARY: The article highlights the need for correct grammar in the workplace, particularly in corporate interactions with customers and other outsiders. It describes many corporations providing grammar training at the workplace, including holding spelling bees and other grammar-oriented competitions to get employees' competitive juices flowing. The narrative describes many industries including accounting via a paragraph about the chief internal auditor at the New York City Health and Hospitals Corp.


     

    CLASSROOM APPLICATION: The article is helpful for all instructors wanting to motivate students in their writing efforts for these WSJ Reviews. Good references to aid accounting instructors in leading this discussion are May, Claire B. and Gordon S. May, Effective Writing: A Handbook for Accountants, 9th Edition. Upper Saddle River, N.J.: Prentice Hall, 2011. ISBN #9780132567244 Strunk, W. Jr., and E.B. White, The Elements of Style, 5th Edition. Boston, MA: Allyn & Bacon, 2009. ISBN 978-0-205-31342-6.


     

    QUESTIONS: 
    1. (Introductory) Identify all professions or industries highlighted in the article.

     

    2. (Advanced) How have firms in each of the industries listed above been affected by diminished use of proper grammar?

     

    3. (Introductory) According to the author's discussion in the related video, what is the overall major concern with slippage in business use of appropriate English grammar?

     

    4. (Advanced) Take the online quiz offered in the interactive graphic for the article available at http://online.wsj.com/article/SB10001424052702303410404577466662919275448.html?KEYWORDS=grammar+workplace#project%3DWORKFAM0619%26articleTabs%3Dinteractive How many questions did you answer correctly? List all questions you answered incorrectly for which you do not know the reason behind your error.
     


     

    SMALL GROUP ASSIGNMENT: 
    Assign the WSJ article in one class. Then, in the ensuing class, break students into groups to discuss the errors listed in answer to question 4. Have students help one another to determine the reasons for the errors, then report out: 1. The most common grammatical errors in the group. 2. The reasons for the errors. Conduct discussion to ensure that all students have correct reasons for solutions to the common errors.

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "This Embarrasses You and I*,"  by Sue Shellenbarger, The Wall Street Journal, June 9, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303410404577466662919275448.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    When Caren Berg told colleagues at a recent staff meeting, "There's new people you should meet," her boss Don Silver broke in, says Ms. Berg, a senior vice president at a Fort Lauderdale, Fla., marketing and crisis-communications company.


     

    "I cringe every time I hear" people misuse "is" for "are," Mr. Silver says. The company's chief operations officer, Mr. Silver also hammers interns to stop peppering sentences with "like." For years, he imposed a 25-cent fine on new hires for each offense. "I am losing the battle," he says.


     

    Managers are fighting an epidemic of grammar gaffes in the workplace. Many of them attribute slipping skills to the informality of email, texting and Twitter where slang and shortcuts are common. Such looseness with language can create bad impressions with clients, ruin marketing materials and cause communications errors, many managers say.


     

    There's no easy fix. Some bosses and co-workers step in to correct mistakes, while others consult business-grammar guides for help. In a survey conducted earlier this year, about 45% of 430 employers said they were increasing employee-training programs to improve employees' grammar and other skills, according to the Society for Human Resource Management and AARP.


     

    "I'm shocked at the rampant illiteracy" on Twitter, says Bryan A. Garner, author of "Garner's Modern American Usage" and president of LawProse, a Dallas training and consulting firm. He has compiled a list of 30 examples of "uneducated English," such as saying "I could care less," instead of "I couldn't care less," or, "He expected Helen and I to help him," instead of "Helen and me."


     

    Leslie Ferrier says she was aghast at letters employees were sending to customers at a Jersey City, N.J., hair- and skin-product marketer when she joined the firm in 2009. The letters included grammar and style mistakes and were written "as if they were speaking to a friend," says Ms. Ferrier, a human-resources executive. She had employees use templates to eliminate mistakes and started training programs in business writing.


     

    At Work

    Readers weigh in on the grammar gaffes and malapropisms that make them fume. Share yours.


     

    Most participants in the Society for Human Resource Management-AARP survey blame younger workers for the skills gap. Tamara Erickson, an author and consultant on generational issues, says the problem isn't a lack of skill among 20- and 30-somethings. Accustomed to texting and social networking, "they've developed a new norm," Ms. Erickson says.


     

    At RescueTime, for example, grammar rules have never come up. At the Seattle-based maker of personal-productivity software, most employees are in their 30s. Sincerity and clarity expressed in "140 characters and sound bytes" are seen as hallmarks of good communication—not "the king's grammar," says Jason Grimes, 38, vice president of product marketing. "Those who can be sincere, and still text and Twitter and communicate on Facebook—those are the ones who are going to succeed."


     

    Also, some grammar rules aren't clear, leaving plenty of room for disagreement. Tom Kamenick battled fellow attorneys at a Milwaukee, Wis., public-interest law firm over use of "the Oxford comma"—an additional comma placed before the "and" or "or" in a series of nouns. Leaving it out can change the meaning of a sentence, Mr. Kamenick says: The sentence, "The greatest influences in my life are my sisters, Oprah Winfrey and Madonna," means something different from the sentence, "The greatest influences in my life are my sisters, Oprah Winfrey, and Madonna," he says. (The first sentence implies the writer has two celebrity sisters; the second says the sisters and the stars are different individuals.) After Mr. Kamenick asserted in digital edits of briefs and papers that "I was willing to go to war on that one," he says, colleagues backed down, either because they were convinced, or "for the sake of their own sanity and workplace decorum."


     

    Patricia T. O'Conner, author of a humorous guidebook for people who struggle with grammar, fields workplace disputes on a blog she cowrites, Grammarphobia. "These disagreements can get pretty contentious," Ms. O'Conner says. One employee complained that his boss ordered him to make a memo read, "for John and I," rather than the correct usage, "for John and me," Ms. O'Conner says.


     

    In workplace-training programs run by Jack Appleman, a Monroe, N.Y., corporate writing instructor, "people are banging the table," yelling or high-fiving each other during grammar contests he stages, he says. "People get passionate about grammar," says Mr. Appleman, author of a book on business writing.

    Continued in article

    Bob Jensen's helpers for writers are at
    http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries

     

     

    June 25, 2012 message from Phillip Drake at Arizona State University
     

     
    Professor Jensen,
     
    As a lurker on AECM, I wanted to share with you an Accounting Review article from 1951 lamenting the writing skills of junior accountants along with Northwestern's innovative approach to addressing it.

     
    Apparently we, as a profession, have struggled with this issue for generations.


     
    Respectfully,

     
    Phil Drake
     
    Clinical Professor of Accounting
     
    Arizona State University

     

    "Can Junior Accountants be Trained to Write Better," by George A. Owen and Richard C Gerfen, The Accounting Review, Volume 26, No. 3, 1951, pp. 313-320.
    The article is available from JSTOR.

    Jensen Comment
    The research is based on survey methodology. It's main conclusion is that there is incremental advantage to specialized (in this case on-the-job) writing of accounting reports. It also recommends that writing skills become more of a part of job performance expectations.

    Each Week ReadWriteWeb will feature a dying product or entire company --- This week it's RIM and the Blackberry
    "ReadWriteWeb DeathWatch: Research In Motion," by Cormac Foster, ReadWriteWeb, June 1, 2012 ---
    http://www.readwriteweb.com/mobile/2012/06/readwriteweb-deathwatch-research-in-motion.php


    "The New GMAT: Thanks, But No Thanks," Business Week, May 31, 2012 ---
    http://www.businessweek.com/articles/2012-05-31/the-new-gmat-thanks-but-no-thanks

    The future can be scary, especially if you’re headed to B-school. And if you haven’t taken the GMAT yet, the future can be downright terrifying. On June 2 the old GMAT will be consigned to the dustbin of history and replaced on June 5 (after a two-day blackout period) with a new version of the B-school entrance test. The new and improved exam replaces one of the existing writing sections with a new integrated reasoning section that apparently is giving test takers the night sweats.

    There’s been a mad rush on the part of students to register for the test before June 5. The Graduate Management Admission Council, which publishes the exam, isn’t saying exactly how mad, but if you charted test registrations it would look a lot like a bell curve. “We expected volumes to go up in April and May, and they have,” wrote GMAC spokesman Bob Ludwig in an e-mail. “Quite significantly.”

    What that means for test takers is that, according to test-prep companies, registering for the GMAT just got a lot more difficult, especially if you’ve waited until the last minute. To take the test before the big changeover, some students are driving an hour or two out of their way to less popular testing centers and taking the test mid-week rather than on the weekend.

    Andrew Mitchell, director of pre-business programs at Kaplan Test Prep, says a surge in test registrations before substantive changes is not unusual. In a recent survey, 38 percent of Kaplan GMAT students said they were trying to beat the June 2 deadline and take the old test. Many of them hadn’t even seen the new integrated reasoning questions yet—they were worried about the new section, sight unseen.

    Test takers have now had several months to eyeball the new section using sample questions supplied by GMAC and test-prep materials. Mitchell says students equate the new integrated reasoning section’s level of difficulty with that of the GMAT’s data sufficiency questions—some of the test’s toughest—which ask test takers to determine if the information supplied is enough to answer the question.

    “A business school student is generally going to want to take the easier path if there’s no disadvantage to doing so,” Mitchell says. “Integrated reasoning is all about working with data. Quant data is displayed graphically, and that’s intimidating to a lot of people. It makes sense that people would be apprehensive.”

    But it’s not like prospective MBAs were without options. It’s worth noting that the usual prescription for apprehension when it comes to the GMAT—hitting the books—was and is available for anyone contemplating the new test. Kaplan test-prep books that went on sale in January have material related to integrated reasoning, and integrated reasoning sections have been added to five of Kaplan’s nine full-length practice tests.

    At Veritas Prep, the number of website visitors using “integrated reasoning” as a search term has doubled every month since January. “We’re definitely seeing a lot of traffic,” says Brian Galvin, director of academic programs at Veritas. “It’s an exponential increase in interest.”

    Continued in article

    The New GMAT:  Part 1
    "The New GMAT: Questions for a Data-Rich World,: by: Alison Damast, Business Week, May 14, 2012 ---
    http://www.businessweek.com/articles/2012-05-14/the-new-gmat-questions-for-a-data-rich-world

    Editor’s Note: This is the first in a three-part series on the new GMAT, which makes its official debut on June 5. In this article, we examine the conceptual building blocks for the test’s new Integrated Reasoning section.

    On a blustery day in February 2009, a group of nine deans and faculty members from U.S. and European business schools huddled together in a conference room in McLean, Va., at the Graduate Management Admission Council’s headquarters. They were there to discuss what would be some of the most radical changes to the Graduate Management Admission Test (GMAT) in the exam’s nearly 60-year history.

    Luis Palencia, then an associate dean at Spain’s IESE Business School, was eager to press his case for the skills he thought today’s MBAs needed to have at their fingertips. Business students must be able to nimbly interpret and play with data in graphs, spreadsheets, and charts, using the information to draw swift but informed conclusions, he told his colleagues.

    “The GMAT was not becoming obsolete, but it was failing to identify the skills which might be important to warrant the success of our future candidates,” he said in a phone interview from Barcelona three years later.

    By the time the faculty advisory group commenced two days later, they had come up with a set of recommendations that would serve as a framework for what would eventually become the new “Integrated Reasoning” section of the Next Generation GMAT, which has been in beta testing for two years and will be administered to applicants for the first time on June 5.

    Until now, the B-school entrance exam, which was administered 258,192 times worldwide in 2011, was made up of verbal, quantitative, and two writing sections. The new section, which replaces one of the writing sections, is the biggest change to the GMAT since the shift to computer-adaptive testing 15 years ago, and one that has been in the works since 2006, when GMAC first decided to revisit the exam and the skills it was testing, says Dave Wilson, president and chief executive officer of GMAC.

    “At that time, we got a pretty good handle that the GMAT was working, but we wanted to know if there was anything that we weren’t measuring that would provide real value to the schools,” Wilson says.

    It turned out there was a whole slew of new skills business school faculty believed could be added to the exam. The recommendations put forth by Palencia and the rest of the committee that convened in 2009 served as the conceptual building blocks for what a new section might look like. Later that year, GMAC surveyed nearly 740 faculty members around the world, from business professors to admissions officers, who agreed with many of the committee’s findings and suggested that students needed certain proficiencies to succeed in today’s technologically advanced, data-driven workplaces.

    For example, they gave “high importance” ratings to skills such as synthesizing data, evaluating data from different sources, and organizing and manipulating it to solve multiple, interrelated problems, according to the Next Generation GMAC Skills Survey report.

    Those are all examples of skills that can now be found on the 30-minute Integrated Reasoning section, which GMAC has spent $12 million developing over the past few years, Wilson says. It will have 12 questions and include pie charts, graphs, diagrams, and data tables. The section employs four different types of questions that will allow students to flex their analytical muscles.

    Continued in article

     

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


    According to Hoyle:  The Number One Piece of Advice to Become a Better Teacher
    "On the Other Side of the Desk," by Joe Hoyle, Teaching Blog, June 1, 2012 ---
    http://joehoyle-teaching.blogspot.com/2012/05/on-other-side-of-desk.html

    Jensen Comment
    I'm not certain this can be done independently of circumstances, especially where circumstances dictate different needs and priorities. What works best in a Harvard Business School case course of 90 students is not what will work best in an online corporate tax course of 15 students or a basic accounting lecture hall of 860 young sophomore students.


    "Global accounting rules – an unfeasible aim," by Stella Fearnley and Shyam Sunder, Financial Times, June 3, 2012 ---
    http://www.ft.com/intl/cms/s/0/d467e660-a977-11e1-9772-00144feabdc0.html#axzz1wk6lvht0

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d467e660-a977-11e1-9772-00144feabdc0.html#ixzz1wouv6t50

    The introduction of the euro and the adoption of International Financial Reporting Standards (IFRS) in the EU and other countries were promoted by aspirational rhetoric about gains from uniformity. Applying uniform process or rule in diverse societies does not yield uniform outcomes. Effective oversight and control of the process and rule-making can become impossible and unbalanced with so many players involved. Failure to recognise and manage the risks associated with uniformity has driven the European Monetary Union to a critical precipice. Similar risks apply to the efforts of the International Accounting Standards Board (IASB), the accountancy profession and some international regulators to bring about adoption of IFRS for global use.

    The IASB and US Financial Accounting Standards Board have committed significant resources since 2002 trying to agree on common accounting standards. Despite their efforts, IFRS have not been approved by the Securities and Exchange Commission for US adoption. The SEC may never risk the political backlash from ceding control of its accounting to a non-US body. We can learn from the euro debacle and assess not only if the vision of one set of global accounting standards is achievable but also if it is desirable.

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d467e660-a977-11e1-9772-00144feabdc0.html#ixzz1wouzausG

    Accounting standards interact with law, commercial codes, and social norms in different countries in many ways. The IASB has pushed its agenda ahead taking no responsibility for recurrent unintended consequences. The disaster of some banks depleting their capital by paying bonuses and dividends out of false profits, generated under IFRS’s defective mark-to-market and loan-loss provision standards, is a good example.

    Abandonment of judgmental true-and-fair standards in favour of written rules make accounting vulnerable to mis-statements through complexity beyond the grasp of users and directors.

    China, Japan, and India have yet to be persuaded to adopt IFRS and watch from the sidelines. Within Europe, some countries view IFRS as an Anglo-American invention, and remain sceptical of its suitability for their own needs.

    Complexity and interactivity of social systems and markets make it all but impossible for a group of experts to divine the “best” accounting solution that will serve divergent economies. Even if it were feasible, it can only be developed through bottom-up evolution of accounting and not through top-down imposition of a single method selected by a board of “experts” with limited accountability.

    The IASB’s persistent denial that the procyclical and complex accounting model played a part in the banking crisis by inflating profits undermines trust in its competence and intent.

    The euro debacle points to prudent wariness of Icarus-like overreaching ambition that is not underpinned in theory or experience. Common standards, such as common currency, may appear a good idea, particularly for international companies, regulators and audit firms. But what did we get? A Board that issues standards that can induce false profits in reports and drown users in complexity; that has not accepted responsibility for the dysfunctional consequences of its standards; and has no effective mechanisms for timely correction of defects.

    Although the big players get economies of scale from applying IFRS across their international activities, shareholders and other stakeholders, particularly in the banking sector, have not been well served by the outcomes of IFRS standards.

    Continued in article

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


    "Online Classes See Cheating Go High-Tech," by Jeffrey R. Young, Chronicle of Higher Education, June 3, 2012 ---
    http://chronicle.com/article/Online-Courses-Can-Offer-Easy/132093/?sid=wb&utm_source=wb&utm_medium=en

    Easy A's may be even easier to score these days, with the growing popularity of online courses. Tech-savvy students are finding ways to cheat that let them ace online courses with minimal effort, in ways that are difficult to detect.

    Take Bob Smith, a student at a public university in the United States. This past semester, he spent just 25 to 30 minutes each week on an online science course, the time it took him to take the weekly test. He never read the online materials for the course and never cracked open a textbook. He learned almost nothing. He got an A.

    His secret was to cheat, and he's proud of the method he came up with—though he asked that his real name and college not be used, because he doesn't want to get caught. It involved four friends and a shared Google Doc, an online word-processing file that all five of them could read and add to at the same time during the test.

    More on his method in a minute. You've probably already heard of plenty of clever ways students cheat, and this might simply add one more to the list. But the issue of online cheating may rise in prominence, as more and more institutions embrace online courses, and as reformers try new systems of educational badges, certifying skills and abilities learned online. The promise of such systems is that education can be delivered cheaply and conveniently online. Yet as access improves, so will the number of people gaming the system, unless courses are designed carefully.

    This prediction has not escaped many of those leading new online efforts, or researchers who specialize in testing. As students find new ways to cheat, course designers are anticipating them and devising new ways to catch folks like Mr. Smith.

    In the case of that student, the professor in the course had tried to prevent cheating by using a testing system that pulled questions at random from a bank of possibilities. The online tests could be taken anywhere and were open-book, but students had only a short window each week in which to take them, which was not long enough for most people to look up the answers on the fly. As the students proceeded, they were told whether each answer was right or wrong.

    Mr. Smith figured out that the actual number of possible questions in the test bank was pretty small. If he and his friends got together to take the test jointly, they could paste the questions they saw into the shared Google Doc, along with the right or wrong answers. The schemers would go through the test quickly, one at a time, logging their work as they went. The first student often did poorly, since he had never seen the material before, though he would search an online version of the textbook on Google Books for relevant keywords to make informed guesses. The next student did significantly better, thanks to the cheat sheet, and subsequent test-takers upped their scores even further. They took turns going first. Students in the course were allowed to take each test twice, with the two results averaged into a final score.

    "So the grades are bouncing back and forth, but we're all guaranteed an A in the end," Mr. Smith told me. "We're playing the system, and we're playing the system pretty well."

    He is a first-generation college student who says he works hard, and honestly, in the rest of his courses, which are held in-person rather than online. But he is juggling a job and classes, and he wanted to find a way to add an easy A to his transcript each semester.

    Although the syllabus clearly forbids academic dishonesty, Mr. Smith argues that the university has put so little into the security of the course that it can't be very serious about whether the online students are learning anything. Hundreds of students took the course with him, and he never communicated with the professor directly. It all felt sterile, impersonal, he told me. "If they didn't think students would do this, then they didn't think it through."

    A professor familiar with the course, who also asked not to be named, said that it is not unique in this regard, and that other students probably cheat in online introductory courses as well. To them, the courses are just hoops to jump through to get a credential, and the students are happy to pay the tuition, learn little, and add an A.

    "This is the gamification of education, and students are winning," the professor told me.

    Of course, plenty of students cheat in introductory courses taught the old-fashioned way as well. John Sener, a consultant who has long worked in online learning, says the incident involving Mr. Smith sounds similar to students' sharing of old tests or bringing in cheat sheets. "There is no shortage of weak assessments," he says.

    He cautions against dismissing online courses based on inevitable examples of poor class design: "If there are weaknesses in the system, students will find them and try to game it."

    In some cases, the answer is simply designing tests that aren't multiple-choice. But even when professors assign papers, students can use the Internet to order custom-written assignments. Take the example of the Shadow Scholar, who described in a Chronicle article how he made more than $60,000 a year writing term papers for students around the country.

    Part of the answer may be fighting technology with more technology, designing new ways to catch cheaters.

    Countering the Cheaters

    When John Fontaine first heard about the Shadow Scholar, who was helping students cheat on assignments, he grew angry. Mr. Fontaine works for Blackboard, and his job is to think up new services and products for the education-software company. His official title is senior director of technology evangelism.

    "I was offended," he says. "I thought, I'm going to get that guy." So he started a research project to do just that.

    Blackboard's learning-management software features a service that checks papers for signs of plagiarism, and thousands of professors around the country use it to scan papers when they are turned in.

    Mr. Fontaine began to wonder whether authors write in unique ways that amount to a kind of fingerprint. If so, he might be able to spot which papers were written by the Shadow Scholar or other writers-for-hire, even if they didn't plagiarize other work directly.

    "People tend to use the same words over and over again, and people have the same vocabulary," he says. "I've been working on classifiers that take documents and score them and build what I call a document fingerprint." The system could establish a document fingerprint for each student when they turn in their first assignments, and notice if future papers differ in style in suspicious ways.

    Mr. Fontaine's work is simply research at this point, he emphasizes, and he has not used any actual student papers submitted to the company's system. He would have to get permission from professors and students before doing that kind of live test.

    In fact, he's not sure whether the idea will ever work well enough to add it as a Blackboard feature.

    Mr. Fontaine is not the only one doing such research. Scholars at the Massachusetts Institute of Technology say they are looking for new ways to verify the identity of students online as well.

    Anant Agarwal is head of MIT's Open Learning Enterprise, which coordinates the university's MITx project to offer free courses online and give students a chance to earn certificates. It's a leading force in the movement to offer free courses online.

    One challenge leaders face is verifying that online students are who they say they are.

    A method under consideration at MIT would analyze each user's typing style to help verify identity, Mr. Agarwal told me in a recent interview. Such electronic fingerprinting could be combined with face-recognition software to ensure accuracy, he says. Since most laptops now have Webcams built in, future online students might have to smile for the camera to sign on.

    Some colleges already require identity-verification techniques that seem out of a movie. They're using products such as the Securexam Remote Proctor, which scans fingerprints and captures a 360-degree view around students, and Kryterion's Webassessor, which lets human proctors watch students remotely on Web cameras and listen to their keystrokes.

    Research Challenge

    Researchers who study testing are also working on the problem of cheating. Last month more than 100 such researchers met at the University of Kansas at the Conference on Statistical Detection of Potential Test Fraud.

    One message from the event's organizers was that groups that offer standardized tests, companies developing anticheating software, and researchers need to join forces and share their work. "Historically this kind of research has been a bit of a black box," says Neal Kingston, an associate professor of education at the university and director of its Center for Educational Testing Evaluation. "It's important that the research community improve perhaps as quickly as the cheating community is improving."

    Continued in article

    Bob Jensen's threads on cheating issues somewhat unique to distance education ---
    http://www.trinity.edu/rjensen/Plagiarism.htm#OnlineCheating


    "CUNY biz school fixed Wall Streeters' GPAs to keep receiving tuition: sources," by Susan Edelman, Cynthia R. Fage, and Candice Glove, New York Post, June 17, 2012 ---
    http://www.nypost.com/p/news/local/is_on_at_cuny_fvNDXnweTy7guoYG9K8hQP 
    Thank you Marc Dupree for the heads up.

    While teaching how corporations cook their books, a CUNY business school was fixing grades.

    An administrator at Baruch College’s prestigious Zicklin School of Business forged professors’ names to raise the grade point averages of students seeking master’s degrees to become dealmakers and corporate leaders, The Post has learned.

    An internal CUNY probe found the course grades of “approximately 15 students” were falsified to keep their GPAs high enough to stay in the programs, Baruch officials acknowledged.

    The trickery prevented enrollees, including many mid-level Wall Streeters whose firms picked up their tabs, from flunking out — and kept their fat tuition checks flowing in.

    The accelerated “executive programs” in business and finance allow students to earn a master’s degree in 10 to 22 months while working full-time.

    The tuition: $45,000 to $75,000.

    “It was done for money,” an insider said of the scam. “They get a lot more money from those students. They don’t want to lose these people, so they changed their grades.”

    Baruch has referred the matter to law-enforcement agencies, the college said in a statement. Spokeswoman Christina Latouf would not say if students knew their grades were being changed or were complicit in the scheme.

    But Baruch has started calling some recent graduates with disturbing news: Their sheepskins are invalid.

    “What do you mean? My diploma’s on my wall. How can you tell me I don’t have a degree?” one grad said, according to a source.

    Chris Koutsoutis, a top administrator of the executive programs, allegedly forged professors’ signatures on “change of grade” forms, CUNY sources confirmed.

    “I won’t have a comment about that,” Koutsoutis said when confronted by The Post at his home in Flushing, Queens.

    Professors submit students’ final grades electronically. Any change requires the submission of a “change of grade” form in which a professor gives a reason for the revision and signs his or her name. The form also requires the approval and signature of supervisors.

    The CUNY probe also found “forged contracts,” officials said. Koutsoutis inked contracts with vendors who made travel and other arrangements for class trips to cities such as Milan, Copenhagen and Rio de Janeiro.

    Koutsoutis would not comment on the forged contracts except to deny he profited from them.

    “All I will say is whatever allegations that I did it for financial gain, they are false,” he said. “No students, faculty or administrators gave me any money. I never took any freebies. I was offered trips but never took any.”

    Continued in article

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

    Bob Jensen's threads on professors who cheat ---
    http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize


    Question
    How would you treat the issue of plagiarism below?

    I received this featured message below from one of those wearisome for-profit college promotion sites that tries to hide behind a link to an accounting history essay at
    http://www.onlineaccountingdegree.net/resources/luca-pacioli-the-father-of-accounting/


    Suppose that we pretend that one of your students (Jaime) submitted this essay to you as part of an assignment in your course.


    Without taking the time and trouble to find the original source of this essay using plagiarism detection software, suppose that you performed a simple text stream check on Google --- as I often did when I was still teaching.


    Further suppose that one of the text stream hits led to
    http://www.robertnowlan.com/pdfs/Pacioli, Luca.pdf 


    Firstly, are the essays similar enough to call Jaime to your office to discuss the possibility of plagiarism?



    How likely is it that both essays were plagiarized?
    Actually, when backing up the Robert Nowlan link it appears that the Robert Nowlan site is likely to be legitimate
    http://www.robertnowlan.com/ 
    http://www.robertnowlan.com/contents.html 



    Would you pursue a charge of plagiarism against your student who submitted the essay at
    http://www.onlineaccountingdegree.net/resources/luca-pacioli-the-father-of-accounting/
     


    Note that these two essays are not duplicates. But there are terms that lead to suspicion in my devious mind --- terms and phrases like the following:

     

    "vernacular"

    "came under the influence of the artist Piero della Francesca from whose work he freely"

    "Pacioli went to Venice to become a tutor to the sons of a wealthy merchant. In 1471 he arrived in Rome and entered the brotherhood of St. Francis. Pacioli traveled extensively, wandering through Italy and possibly to the Orient and lectured on mathematics at Perugia, Rome, Naples, Pisa, and Venice. He was at the court of Ludovico Sforza, known as the Moor, at Milan with Leonardo da Vinci. It was here, at the most glittering court in Europe, that Pacioli became the first occupant of the chair of mathematics. Pacioli spent the last years of his life in Florence and Venice, returning to the place of his birth to die.."


    I think that by now you probably get the picture.

    Bob Jensen's threads on Pacioli are at
    http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Respectfully,
    Bob Jensen

     

     

    ---------- Forwarded message ----------
    From: Jaime
    Date: Mon, Jun 4, 2012 at 3:05 PM
    Subject: Broken link on your page
    To: Bob
    <rjensen@trinity.edu>

     
    Hi Bob,

    I came across your website and wanted to notify you about a broken link on your page in case you weren't aware of it. The link on
    http://cs.trinity.edu/~rjensen/Calgary/CD/Theory/theory01.htm which links to http://acct.tamu.edu/smith/ethics/pacioli.htm is no longer working. I've included a link to a useful page on Luca Pacioli, the father of accounting that you could replace the broken link with if you're interested in updating your website. Thanks for providing a great resource!

    Link: http://www.onlineaccountingdegree.net/resources/luca-pacioli-the-father-of-accounting/

    Best,
    Jaime

    From The Wall Street Journal Accounting Weekly Review on June 8, 2012

    Dire CBO Report Urges Fiscal Fixes
    by: John D. McKinnon
    Jun 06, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Governmental Accounting

    SUMMARY: "The Congressional Budget Office [CBO] released new projections of a worsening U.S. fiscal outlook...By the end of this year, the CBO said, cumulative federal debt will reach roughly 70% of gross domestic product...the highest level since just after World War II.[and] up from about 40% in 2008.

    CLASSROOM APPLICATION: The article can be used in governmental accounting classes to differentiate between budget deficits and total U.S. debt.

    QUESTIONS: 
    1. (Introductory) Summarize the findings in the Congressional Budget Office report according to the description in this article.

    2. (Advanced) What two numbers comprise the 70% ratio forecasted by the end of 2012? How does this ratio help to be able to compare our country's circumstances over time? How do you think each component has changed since the 2008 measure of 40% to result in this rise to 70%?

    3. (Introductory) Define the term budget deficit. Does this 70% ratio have anything to do with the U.S. budget deficit?

    4. (Advanced) Consider the graph labeled Components of Spending and Revenue. What two amounts result in the U.S. budget deficit? What are the major components of U.S. governmental spending?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Dire CBO Report Urges Fiscal Fixes," by John D. McKinnon, The Wall Street Journal, June 6, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303918204577448343232424870.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    The Congressional Budget Office released new projections of a worsening U.S. fiscal outlook, adding fuel to the election-year debate over the causes of rising government debt.

    By the end of this year, the CBO said, cumulative federal debt will reach roughly 70% of gross domestic product—the value of all goods and services produced by the economy—the highest level since just after World War II. That's up from about 40% in 2008. Without changes in current policies, federal debt would reach about 200% of GDP in 25 years, the report said.

    "The explosive path of federal debt…underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course," CBO director Doug Elmendorf wrote on his blog on Tuesday.

    Budget watchdogs have long warned the U.S. was on an untenable fiscal path, due largely to the projected growth in spending on Medicare and other entitlement benefits as baby boomers age. Tax cuts enacted under former President George W. Bush also have contributed to the current fiscal plight.

    Without changes in benefits or higher taxes—or both—the federal debt held by the public could reach 199% of GDP in 25 years, the CBO said, up from 187% in last year's projection.

    The CBO said this course would likely have dire consequences for the economy, as well as forcing cuts in non-entitlement programs such as defense and social services. Without changes to stave off high debt and interest payments, U.S. GDP would be lower than otherwise over time.

    The report showed that under current tax and spending policies, Social Security, Medicare and Medicaid—the three major programs that benefit older people—would amount to 16.6% of GDP in 2037, up from 10.4% now. That would tend to increase deficits dramatically and push interest costs to almost 10% of GDP in 2037, up from 1.4% now.

    Republicans and Democrats blamed each other for the worsening budget outlook.

    In a statement, Lanhee Chen, a top aide to Mitt Romney, the presumptive GOP presidential nominee, said the report showed President Barack Obama "has placed us on a path to fiscal ruin" by allowing debt to rise so quickly.

    Obama campaign spokesman Ben LaBolt alluded to the policies of Mr. Obama's Republican predecessor, Mr. Bush, saying, "The president inherited a $1 trillion deficit as a result of two unfunded wars and tax cuts for the wealthiest." Mr. LaBolt added that Mr. Obama has "signed $2 trillion in deficit reduction into law and proposed a balanced plan to reduce the deficit by more than $4 trillion."

    The political sniping also reflected the parties' sharp disagreement over several budget issues, including how to reduce the deficit, how to fuel stronger economic growth and how to handle the large tax increases and spending cuts scheduled to occur at the end of 2012.

    Former President Bill Clinton, for example, appearing with Mr. Obama on Monday night, urged more short-term spending to boost the economy, and suggested Republicans were endangering growth with their zeal to cut spending.

    "If you do not have economic growth, no amount of austerity will balance the budget, because you will always have revenues go down more than you can possibly cut spending," Mr. Clinton said of Republican budget plans.

    Continued in article

    Bob Jensen's threads on entitlements ---
    http://www.trinity.edu/rjensen/Entitlements.htm


    "Suddenly, Audit Reports Get Sexy:  Dull, uninformative audit reports have been part of the European accounting landscape for decades. Now auditors will reveal a great deal more." by Andrew Sawers, CFO.com June 27, 2012 ---
    http://www3.cfo.com/article/2012/6/auditing_auditors-report-iaasb-ifrs-financial-statements-goodwill-accounting

    The auditor’s report is usually the most boring page in any company’s annual financial statements and that’s saying something. But now, in what could be the most important development in global financial reporting since Europe decided in 2002 to adopt international financial reporting standards, the staid, boilerplate letter from the firm that signs off on the accounts could be the first page investors turn to.

    For perhaps as long as anyone can remember, the report of the independent auditors has been a long, detailed, and uniquely uninformative letter that sheds no light on any control issues or valuation concerns arising between the audit firm and its client. In many jurisdictions, the wording has almost always been virtually identical from one company to the next.

    Now, the International Auditing and Assurance Standards Board (IAASB), the authority that publishes the rules regulating the audit profession’s work for clients, is suggesting that audit reports should actually say something interesting about the company concerned. It has issued an “Invitation to Comment” on its proposals, Improving the Auditor’s Report(The IAASB's standards have been adopted by 75 jurisdictions internationally, including for auditors of  private companies in the United States.)

    This could mean that auditors will explicitly comment on the quality of financial controls, the valuation models used to calculate the worth of financial instruments, the assumptions driving the decision to make or avoid a goodwill impairment charge in short, all the things that can make big trouble for companies in the weeks and months after their accounts have gotten the all-clear.

    It looks like a development that will not only change corporate behavior but also improve auditor independence. Instead of an audit firm approving a set of accounts, signing off on them through gritted teeth after wrangling over some edge-of-the-envelope valuations pushed hard by its fee-paying client, the audit firm could have the ability in fact, the requirement to reveal that the assumptions underlying the financial statements are far from conservative, though they may just fall within what the auditor regards as an acceptable range of valuations.

    That puts the auditor in a stronger position and perhaps even urges the corporate client to think again about the numbers it wants to publish. Instead of auditing being a “black box” that prevents anyone from knowing what’s really going on, a new environment of transparency will give everyone a clearer idea of the tussle between aggressive clients and cautious auditors.

    Fifteen years ago, you could have asked the heads of audit at any of the Big Six audit firms (as they were then; Big Four now) what sorts of discussions they had had with institutional investors about what they, as the shareholders, wanted from the audit. And each one would have looked at you as though you were from Mars. Why would an auditor talk to an investor?

    So it’s interesting to see in the IAASB’s document that “the call for change initially came primarily from institutional investors and financial analysts.” Why? Because as financial reporting got more and more complex, they wanted guidance from auditors as to “the areas on which the auditor’s work effort was focused particularly on the most subjective matters within the financial statements.” Those financial instruments are one example; goodwill is another.

    Continued in article

    Jensen Comment
    Yeah, maybe so but without the centerfold.

    Bob Jensen's threads on professionalism in auditing ---
    http://www.trinity.edu/rjensen/Fraud001c.htm


    "IS A LEASE ACCOUNTING BREAKTHROUGH IN THE OFFING? WE ARE HOLDING OUR BREATH," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, June 4, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/

    The Grumps Think Rite Aid Should Get a Going Concern Report from Deloitte

    "STILL SEARCHING FOR 'THE ‘RITE’ STUFF'," by Anthony H. Catanach Jr. and J. Edward, Ketz, Grumpy Old Accountants Blog, April 30, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/643

    There are no academy awards in the offing for Rite Aid’s version of the 1983 test pilot film classic.  Recently, the Company released its 10-K, and things are still a mess.  No rocket science here.  Rite Aid cannot earn a profit and cash flows are dwindling even with an extra week of operations included (2011 was a 53 week fiscal year).  And the balance sheet is disgraceful. The Company just cannot seem to do anything “rite!”  Maybe management would have done better with a comedy like “Failure to Launch.”

    Things have only worsened since we initially visited the Company in Rite Aid: Is Management Selling Drugs or Using Them?  It has not posted a positive earnings number since 2007.  Sure, the net loss is less than it was for the past few years, but a loss is still a loss, and remember, it had an extra week for this year’s performance reports.  It continues to bleed lease termination and impairment charges, as well as losses on debt modifications and retirements.  Yet, managers continue to perpetuate a turnaround façade via “improving” adjusted EBITDA numbers which suggest almost a $1 billion in “real” earnings.  Instead, the Company needs a dramatically new business model that emphasizes operating effectiveness and efficiency.  Only then will revenues rise, and cost of sales and other operating costs decline, both requirements for the Company’s delivering a profit.  We understand that the Company has implemented cost cutting initiatives, but when will see some believable and meaningful results?

    The balance sheet remains in shambles.  Okay, there are enough current assets to cover current liabilities, but that’s the end of any good news in the balance sheet.  Total assets are $7,364 (all accounts are in millions of dollars), while total liabilities are $9,951, thereby yielding a shareholders’ deficit of $(2,587).  How this firm avoids corporate bankruptcy we just don’t know!

    Actually, the balance sheet condition is much worse because the Company has humongous lease obligations that are carried “off-balance sheet.”  Using the data in financial statement note 10, we estimate the present value of the Company’s lease liabilities to be $5,939.  This adjustment increases total liabilities to $15,890, causing the stockholders’ deficit to worsen to $(8,526).

    At least Rite Aid does not carry goodwill on its books any more, having written off the last vestiges of this intangible “asset” in 2009.  The only remaining reported intangibles are for favorable leases and for prescription files.  Oh please…favorable leases for a Company in this financial condition…we would be inclined to reduce the favorable lease asset, but the amounts are just not big enough to fret over given the “death watch” status of the Company.

    However, to its credit, Rite Aid has not followed the example of Citicorp and some other banks that pumped earnings up by recognizing gains due to market value declines of debt due to problems in its own creditworthiness.  This practice is a sham even if condorsed (condoned and endorsed) by the FASB.

    Even though the cash flow statement does provide some positive news, reported cash flows are a bit down (and again there was that extra week in the fiscal period).  Cash flows from operating activities were $(325), $395, and $266 for 2009-2011, while free cash flows were $(519), $209, and $16, respectively.  So, Rite Aid is reporting a positive free cash flow, albeit smaller than last year’s.

    Ironically, if the Company would capitalize all of its operating leases, the cash flow picture improves considerably!  That’s because rental expenditures under operating lease accounting are displayed as operating activities; however, when leases are capitalized, the cash flows are divided between interest payments and payments against the lease obligation, the latter payments being properly categorized as financing cash flows.  Interest payments are still considered part of operating activities.  Thus, adjusted free cash flows paint a rosier picture for Rite Aid:  they are $(45), $691, and $545 for 2009-2011.

    Given the Company’s precarious state, why doesn’t the auditor, Deloitte & Touche, issue a going concern report?  After all, Rite Aid’s troubles make it a bankruptcy candidateClearly, profits are negative for five years, and there are significantly more liabilities than assets.  Perhaps the auditor also adjusts operating leases to obtain the healthier free cash flow numbers that we have estimated, and deduces that the firm can survive.  If so, then the auditor should persuade, if not require, Rite Aid to capitalize all of its leases.

    Taking a long term perspective, most of the troubles endured by Rite Aid over the last several years seem a result of the failed Eckerd and Brooks business combination, which it bought from the Jean Coutu Group.  In short, Rite Aid paid too much for the business.  When the subsidiary did not generate enough cash flows, Rite Aid borrowed to the hilt, and has been operating under a heavy debt burden ever since.  (As a side note the Jean Coutu Group recently sold a substantial number of its Rite Aid shares, reducing its ownership to about 20 percent.)

    Continued in article

    The Grumps respond to their AECM critics on accounting for leasing at Rite Aid. I forwarded the AECM messaging concerning whether the Grumps made a mistake on their Rite Aid posting.

    "A NOTE ON THE RITE AID ANALYSIS; AND A POX ON THE FASB," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, May ,, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/652

    Last time we discussed Rite Aid and claimed the balance sheet was in shamblesSome fellow accounting professors objected to the analysis, so we need to respond to them.  We’ll answer the criticism and point out the big point that they all missed.

    You will recall that Rite Aid’s most recent balance sheets has total assets of $7,364, total liabilities of $9,951, and shareholders’ equity of $(2,587).  As before, all amounts are in millions of U.S. dollars.  We then said our estimate of the present value of the operating leases was $5,939, thereby increasing total debts to $15,890 and causing shareholders’ equity to dip to $(8,526).

    The criticism we received concerns the hit to equity.  They state that the entire amount should not go against equity but that a sizable amount should be in assets.

    The criticism is well taken—up to a point.  Our analysis indicated that the assets were over half depreciated, so only a relatively small portion would be added to the left-hand side of the balance sheet.  Besides, as Rite Aid is a Pennsylvania corporation, we have been in several of the stores, and we think that the fair value of the leases needs to be written down.  At that point we took a short cut and assumed none of it would be there.  It made the work a lot shorter and helped us to make our point succinctly.

    But, since our friends and associates want a full-blown adjustment instead of this raw short cut, here goes.  We adjust the income statement by taking out rental expense and by adding in depreciation, interest, and the differential income tax.  We adjust the assets in the balance sheet for the leased resources minus their accumulated depreciation.  We adjust the current debts for the present value of next year’s lease payment.  We adjust noncurrent debts for the present value of the remaining lease payments and for deferred income taxes.  Finally, we adjust the stockholders’ equity for the cumulative effect of past year differences in the firm’s net income.

    What we find is the following:

       

    Reported

    Adjusted

    Revenues

    26,121

    26,121

    Expense

    26,490

    26,472

    Net income

    (368)

    (351)

           
           
           
    Current assets

    4,504

    4,504

    Plant  

    2,860

    5,177

    Total assets

    7,364

    9,681

           
    Current debts

    2,570

    3,547

    Long-term debts  

    7,381

    12,438

    Total debts  

    9,951

    15,985

    Equity  

    (2,586)

    (6,304)

    Total  

    7,364

    9,681

     

    Yes, the total assets are larger by $2.3 billion, but notice that the total debts are larger by $6 billion and the shareholders’ equity is lower by $3.7 billion.  (The liabilities are higher than the $5.9 we previously mentioned because now we are including the deferred income tax effect.)

    So the criticism is correct inasmuch as the full $5.9 billion does not decrease equity, only $3.7 billion.  But given that we originally just wanted a rough approximation, we still don’t think it was off as badly as our colleagues thought.  As they obviously are watching carefully, we promise not to take this short cut again.

    Having said that mea culpa, let’s observe that the thrust of our previous work is correct.  The balance sheet of Rite Aid is in shambles and the losses are habitual.  Operating cash flows are higher than reported, as we explained in the previous column, but that implies that financing cash outflows are correspondingly worse.  Rite Aid is in trouble.

    Jensen Comment
    I might note that to date the IASB and the FASB cannot agree on a new joint standard on leasing. The joint project is now entering a new Plan D under consideration. Until then, Rite Aid is subject to existing FASB rules on lease capitalization and expensing.

     

    Bob Jensen's threads on lease accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#Leases


    Question
    Why are the FASB and IASB hung up on insurance contracts standard?

    "Cross-Cutting Issues Impede Boards' Insurance Contracts Acquisition Costs Discussions," Bloomberg, June 6, 2012 ---
    http://www.bna.com/crosscutting-issues-impede-b12884909858/

    Cross-cutting issues involving other accounting rules appear to be impeding the Financial Accounting Standards Board and the International Accounting Standards Board from wrapping up discussions on how acquisition costs will be accounted for under an insurance contracts standard.

    The accounting of acquisition costs is important to insurers because they incur costs in acquiring and originating insurance contracts and these costs can be very high at contract inception.

    The boards May 24 redeliberated on the issue of how an insurer should account for the cash flows relating to the recovery of acquisition costs in the building block approach, including the presentation of information about those cash flows but did not conclude discussions on the topic which will continue in July. Suggestions included:

    Among issues that prevented the boards from moving forward in deliberations included current revenue recognition standard being developed, according to comments made by board members. Specifically, the implication that acquisition costs meet the criteria for an asset—one that raises issues of inconsistency within the insurance contracts discussions.

    Some board members said that acquisition costs should be dealt with consistently among accounting standards—pointing out that it was on the table for review. "I don't think we can answer the expense of an asset until we talk about revenue recognition," said FABB member Russell Golden. "…..it seems like if we're going to go down the [asset] route we ought to decide if it's an asset for all or an expense [but we] cannot decide today. Today we can decide do you want these in the margin or do you want these out of the margin," he said.

    Resolve Premiums.

    There are other issues, including guidance under U.S. GAAP to be considered to ensure consistency—that are also cross-cutting. Within the insurance industry direct acquisition costs (DAC) were always accounted for as an asset (basically allowing certain costs to acquire the business to be accounted for an asset). In the U.S. however—effective this year—there was a change in what could be included in that asset and what would be required to be expensed.

    The guidance, ASU No. 2010-26, Accounting for Costs Associated With Originating or Renewing Service Contracts, amends the guidance for insurance entities that apply the industry-specific guidance in ASC 944-30. It narrows the types of acquisition costs that can be deferred by insurers.

    Another issue stems from the accounting guidance under FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. This indicates that an entity's origination costs of a loan is the same as its acquisition cost (when it looks at what can be included in its origination cost).

    Those issues aside, some IASB members said the boards' first need to resolve issues surrounding premiums within the insurance contracts discussions before deciding on acquisition costs.

    The issue was all about presentation and is therefore linked very closely with premiums, said IASB member Stephen Cooper.

    "We haven't taken a decision yet about premiums," said Cooper. "Strikes me that the answer depends upon that decision; how can we make a decision on this before we can make a decision about premiums. It seems to me the only other question we can answer is whether you want an asset or not—can't answer any of the other questions," he said.

    Proposed Alternatives.

    The staff paper included the following as potential approaches (as written in the board handout) for the boards to consider:

    The IASB completely ruled out ever voting for Alternative A and the FASB completely ruled out ever voting for Alternative C.

    Potential Solution.

    In fact, all three alternatives were potentially problematic. "If we have premiums written I think C is the only way to do it B doesn't make any sense, said Cooper. "If we're going to have premiums earned neither of them make any sense," he said.

    He stated moreover that the problem with "C" is that "you have day revenue when you've done nothing—that doesn't make any sense…problem with B is your revenue is less than the premiums you actually receive—and you have no expense."

    Continued in article

    Insurance: A Scheme for Hiding Debt That Won't Go Away ---
    http://www.trinity.edu/rjensen/Theory02.htm#Insurance


    "Woman Who Couldn’t Be Intimidated by Citigroup Wins $31 Million," by Bob Ivry, Bloomberg News, May 31, 2012 ---
    file:///C:/Documents and Settings/rjensen/My Documents/My Web Sites/images

    Sherry Hunt never expected to be a senior manager at a Wall Street bank. She was a country girl, raised in rural Michigan by a dad who taught her to fish and a mom who showed her how to find wild mushrooms. She listened to Marty Robbins and Buck Owens on the radio and came to believe that God has a bigger plan, that everything happens for a reason.

    She got married at 16 and didn’t go to college. After she had her first child at 17, she needed a job. A friend helped her find one in 1975, processing home loans at a small bank in Alaska. Over the next 30 years, Hunt moved up the ladder to mortgage-banking positions in Indiana, Minnesota and Missouri, Bloomberg Markets magazine reports in its July issue.

    On her days off, when she wasn’t fishing with her husband, Jonathan, she rode her horse, Cody, in Wild West shows. She sometimes dressed up as the legendary cowgirl Annie Oakley, firing blanks from a vintage rifle to entertain an audience. She liked the mortgage business, liked that she was helping people buy houses.

    In November 2004, Hunt, now 55, joined Citigroup (C) Inc. as a vice president in the mortgage unit. It looked like a great career move. The housing market was booming, and the New York- based bank, the sixth-largest lender in the U.S. at the time, was responsible for 3.5 percent of all home loans. Hunt supervised 65 mortgage underwriters at CitiMortgage Inc.’s sprawling headquarters in O’Fallon, Missouri, 45 minutes west of St. Louis.

    Avoiding Fraud

    Hunt’s team was responsible for protecting Citigroup from fraud and bad investments. She and her colleagues inspected loans Citi wanted to buy from outside brokers and lenders to see whether they met the bank’s standards. The mortgages had to have properly signed paperwork, verifiable borrower income and realistic appraisals.

    Citi would vouch for the quality of these loans when it sold them to investors or approved them for government mortgage insurance.

    Investor demand was so strong for mortgages packaged into securities that Citigroup couldn’t process them fast enough. The Citi stamp of approval told investors that the bank would stand behind the mortgages if borrowers quit paying.

    At the mortgage-processing factory in O’Fallon, Hunt was working on an assembly line that helped inflate a housing bubble whose implosion would shake the world. The O’Fallon mortgage machinery was moving too fast to check every loan, Hunt says.

    Phony Appraisals

    By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses.

    Executives buried her findings, Hunt says, before, during and after the financial crisis, and even into 2012.

    In March 2011, more than two years after Citigroup took $45 billion in bailouts from the U.S. government and billions more from the Federal Reserve -- more in total than any other U.S. bank -- Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay in a conference room after a meeting.

    The encounter with Polkinghorne was brief and tense, Hunt says. The number of loans classified as defective would have to fall, he told them, or it would be “your asses on the line.”

    Hunt says it was clear what Polkinghorne was asking -- and she wanted no part of it.

    ‘I Wouldn’t Play Along’

    “All a dishonest person had to do was change the reports to make things look better than they were,” Hunt says. “I wouldn’t play along.”

    Instead, she took her employer to court -- and won. In August 2011, five months after the meeting with Polkinghorne, Hunt sued Citigroup in Manhattan federal court, accusing its home-loan division of systematically violating U.S. mortgage regulations.

    The U.S. Justice Department decided to join her suit in January. Citigroup didn’t dispute any of Hunt’s facts; it didn’t mount a defense in public or in court. On Feb. 15, 2012, the bank agreed to pay $158.3 million to the U.S. government to settle the case.

    Citigroup admitted approving loans for government insurance that didn’t qualify under Federal Housing Administration rules. Prosecutors kept open the possibility of bringing criminal charges, without specifying targets.

    ‘Pure Myth’

    Citigroup behaving badly as late as 2012 shows how a big bank hasn’t yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

    “This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth,” he says.

    As a reward for blowing the whistle on her employer, Hunt, the country girl turned banker, got $31 million out of the settlement paid by Citigroup.

    Hunt still remembers her first impressions of CitiMortgage’s O’Fallon headquarters, a complex of three concrete-and-glass buildings surrounded by manicured lawns and vast parking lots. Inside are endless rows of cubicles where 3,800 employees trade e-mails and conduct conference calls. Hunt says at first she felt like a mouse in a maze.

    “You only see people’s faces when someone brings in doughnuts and the smell gets them peeking over the tops of their cubicles,” she says.

    Jean Charities

    Over time, she came to appreciate the camaraderie. Every month, workers conducted the so-called Jean Charities. Employees contributed $20 for the privilege of wearing jeans every day, with the money going to local nonprofit organizations. With so many workers, it added up to $25,000 a month.

    “Citi is full of wonderful people, conscientious people,” Hunt says.

    Those people worked on different teams to process mortgages, all of them focused on keeping home loans moving through the system. One team bought loans from brokers and other lenders. Another team, called underwriters, made sure loan paperwork was complete and the mortgages met the bank’s and the government’s guidelines.

    Yet another group did spot-checks on loans already purchased. It was such a high-volume business that one group’s assignment was simply to keep loans moving on the assembly line.

    Powerful Incentive

    Still another unit sold loans to Fannie Mae, Freddie Mac and Ginnie Mae, the government-controlled companies that bundled them into securities for sale to investors. Those were the types of securities that blew up in 2007, igniting a global financial crisis.

    Workers had a powerful incentive to push mortgages through the process even if flaws were found: compensation. The pay of CitiMortgage employees all the way up to the division’s chief executive officer depended on a high percentage of approved loans, the government’s complaint says.

    By 2006, Hunt’s team was processing $50 billion in loans that Citi-Mortgage bought from hundreds of mortgage companies. Because her unit couldn’t possibly review them all, they checked a sample.

    When a mortgage wasn’t up to federal standards -- which could be any error ranging from an unsigned document to a false income statement or a hyped-up appraisal -- her team labeled the loan as defective.

    Missing Documentation

    In late 2007, Hunt’s group estimated that about 60 percent of the mortgages Citigroup was buying and selling were missing some form of documentation. Hunt says she took her concerns to her boss, Richard Bowen III.

    Bowen, 64, is a religious man, a former Air Force Reserve Officer Training Corps cadet at Texas Tech University in Lubbock with an attention to detail that befits his background as a certified public accountant. When he saw the magnitude of the mortgage defects, Bowen says he prayed for guidance.

    In a Nov. 3, 2007, e-mail, he alerted Citigroup executives, including Robert Rubin, then chairman of Citigroup’s executive committee and a former Treasury secretary; Chief Financial Officer Gary Crittenden; the bank’s senior risk officer; and its chief auditor.

    Bowen put the words “URGENT -- READ IMMEDIATELY -- FINANCIAL ISSUES” in the subject line.

    “The reason for this urgent e-mail concerns breakdowns of internal controls and resulting significant but possibly unrecognized financial losses existing within our organization,” Bowen wrote. “We continue to be significantly out of compliance.”

    No Change

    There were no noticeable changes in the mortgage machinery as a result of Bowen’s warning, Hunt says.

    Just a week after Bowen sent his e-mail, Sherry and Jonathan were driving their Toyota Camry about 55 miles (89 kilometers) per hour on four-lane Providence Road in Columbia, Missouri, when a driver in a Honda Civic hit them head-on. Sherry broke a foot and her sternum. Jonathan broke an arm and his sternum.

    Doctors used four bones harvested from a cadaver and titanium screws to stabilize his neck.

    “You come out of an experience like that with a commitment to making the most of the time you have and making the world a better place,” Sherry says.

    Three months after the accident, attorneys from Paul, Weiss, Rifkind, Wharton & Garrison LLP, a New York law firm representing Citigroup, interviewed Hunt. She had no idea at the time that it was related to Bowen’s complaint, she says.

    Home Computer

    The lawyers’ questions made her search her memory for details of loans and conversations with colleagues, she says. She decided to take notes from that time forward on a spreadsheet she kept on her home computer.

    Bowen’s e-mail is now part of the archive of the Financial Crisis Inquiry Commission, a panel created by Congress in 2009. Citigroup’s response to the commission, FCIC records show, came from Brad Karp, chairman of Paul Weiss.

    He said Citigroup had reviewed Bowen’s issues, fired a supervisor and changed its underwriting system, without providing specifics.

    Continued in article

    A CBS Sixty Minutes Blockbuster (December 4, 2011)
    "Prosecuting Wall Street"
    Free download for a short while
    http://www.cbsnews.com/8301-18560_162-57336042/prosecuting-wall-street/?tag=pop;stories
    Note that this episode features my hero Frank Partnoy

    Sarbanes–Oxley Act (Sarbox, SOX) ---
    http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

     Key provisions of Sarbox with respect to the Sixty Minutes revelations:

    The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

    Sarbanes–Oxley Section 404: Assessment of internal control ---
    http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act#Sarbanes.E2.80.93Oxley_Section_404:_Assessment_of_internal_control

    Both the corporate CEO and the external auditing firm are to explicitly sign off on the following and are subject (turns out to be a ha, ha joke)  to huge fines and jail time for egregious failure to do so:

    • Assess both the design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks;
    • Understand the flow of transactions, including IT aspects, in sufficient detail to identify points at which a misstatement could arise;
    • Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework;
    • Perform a fraud risk assessment;
    • Evaluate controls designed to prevent or detect fraud, including management override of controls;
    • Evaluate controls over the period-end financial reporting process;
    • Scale the assessment based on the size and complexity of the company;
    • Rely on management's work based on factors such as competency, objectivity, and risk;
    • Conclude on the adequacy of internal control over financial reporting.

    Most importantly as far as the CPA auditing firms are concerned is that Sarbox gave those firms both a responsibility to verify that internal controls were effective and the authority to charge more (possibly twice as much) for each audit. Whereas in the 1990s auditing was becoming less and less profitable, Sarbox made the auditing industry quite prosperous after 2002.

    There's a great gap between the theory of Sarbox and its enforcement

    In theory, the U.S. Justice Department (including the FBI) is to enforce the provisions of Section 404 and subject top corporate executives and audit firm partners to huge fines (personal fines beyond corporate fines) and jail time for signing off on Section 404 provisions that they know to be false. But to date, there has not been one indictment in enormous frauds where the Justice Department knows that executives signed off on Section 404 with intentional lies.

    In theory the SEC is to also enforce Section 404, but the SEC in Frank Partnoy's words is toothless. The SEC cannot send anybody to jail. And the SEC has established what seems to be a policy of fining white collar criminals less than 20% of the haul, thereby making white collar crime profitable even if you get caught. Thus, white collar criminals willingly pay their SEC fines and ride off into the sunset with a life of luxury awaiting.

    And thus we come to the December 4 Sixty Minutes module that features two of the most egregious failures to enforce Section 404:
    The astonishing case of CitiBank
    The astonishing case of Countrywide (now part of Bank of America)

    The Astonishing Case of CitiBank
    What makes the Sixty Minutes show most interesting are the whistle blowing  revelations by a former Citi Vice President in Charge of Fraud Investigations

    The astonishing case of Countrywide (now part of Bank of America)

    I was disappointed in the CBS Sixty Minutes show in that it completely ignored the complicity of the auditing firms to sign off on the Section 404 violations of the big Wall Street banks and other huge banks that failed. Washington Mutual was the largest bank in the world to ever go bankrupt. Its auditor, Deloitte, settled with the SEC for Washington Mutual for $18.5 million. This isn't even a hand slap relative to the billions lost by WaMu's investors and creditors.

     No jail time is expected for any partners of the negligent auditing firms. .KPMG settled for peanuts with Countrywide for $24 million of negligence and New Century for $45 million of negligence costing investors billions.

    "Citigroup Finds Obeying the Law Is Too Darn Hard: Jonathan Weil," by Jonothan Weil, Bloomberg News, November 2 , 2011 ---
    http://www.bloomberg.com/news/2011-11-02/citigroup-finds-obeying-the-law-is-too-darn-hard-jonathan-weil.html
     

    Bob Jensen's Rotten to the Core threads ---
    http://www.trinity.edu/rjensen/FraudRotten.htm

    Bob Jensen's threads on how white collar crime pays even if you get caught ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

    "Should Some Bankers Be Prosecuted?" by Jeff Madrick and Frank Partnoy, New York Review of Books, November 10, 2011 ---
    http://www.nybooks.com/articles/archives/2011/nov/10/should-some-bankers-be-prosecuted/
    Thank you Robert Walker for the heads up!


    A Mutation in the Evolution of Accountics Science Toward Real Science:  A Commentary Published in The Accounting Review in May 2012

    The publication of the Moser and Martin commentary in the May 2012 edition of TAR is a mutation of progress in accountics science evolution. We owe a big thank you to both TAR Senior Editors Steve Kachelmeier and Harry Evans.

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

     

    A small step for accountics science, A giant step for accounting

    Accountics science made a giant step in its evolution toward becoming a real science when it published a commentary in The Accounting Review (TAR) in the May 2012 edition.

    ""A Broader Perspective on Corporate Social Responsibility Research in Accounting," by Donald V. Moser and Patrick R. Martin, The Accounting Review, Vol. 87, May 2012, pp. 797-806 ---
    http://aaajournals.org/doi/full/10.2308/accr-10257

    We appreciate the helpful comments of Ramji Balakrishnan, Harry Evans, Lynn Hannan, Steve Kachelmeier, Geoff Sprinkle, Greg Waymire, Michael Williamson, and the authors of the two Forum papers on earlier versions of this commentary. Although we have benefited significantly from such comments, the views expressed are our own and do not necessarily represent the views of others who have kindly shared their insights with us.

    . . .

    In this commentary we suggest that CSR research in accounting could benefit significantly if accounting researchers were more open to (1) the possibility that CSR activities and related disclosures are driven by both shareholders and non-shareholder constituents, and (2) the use of experiments to answer important CSR questions that are difficult to answer with currently available archival data. We believe that adopting these suggestions will help accounting researchers obtain a more complete understanding of the motivations for corporate investments in CSR and the increasing prevalence of related disclosures.

    Our two suggestions are closely related. Viewing CSR more broadly as being motivated by both shareholders and a broader group of stakeholders raises new and important questions that are unlikely to be studied by accounting researchers who maintain the traditional perspective that firms only engage in CSR activities that maximize shareholder value. As discussed in this commentary, one example is that if CSR activities actually respond to the needs or demands of a broader set of stakeholders, it is more likely that some CSR investments are made at the expense of shareholders. Data limitations make it very difficult to address this and related issues in archival studies. In contrast, such issues can be addressed directly and effectively in experiments. Consequently, we believe that CSR research is an area in which integrating the findings from archival and experimental studies can be especially fruitful. The combination of findings from such studies is likely to provide a more complete understanding of the drivers and consequences of CSR activities and related disclosures. Providing such insights will help accounting researchers become more prominent players in CSR research. Our hope is that the current growing interest in CSR issues, as reflected in the two papers included in this Forum, represents a renewed effort to substantially advance CSR research in accounting.

     

    Jensen Comment
    There are still two disappointments for me in the evolution of accountics science into real science.


    It's somewhat revealing to track how this Moser and Martin commentary found its way into TAR. You might begin by noting the reason former Senior Editor Steve Kachelmeier gave to the absence of commentaries in TAR (since 1998). In fairness, I was wrong to have asserted that Steve will not send a "commentary" out to TAR referees. His reply to me was as follows ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    No, no, no! Once again, your characterization makes me out to be the dictator who decides the standards of when a comment gets in and when it doesn’t. The last sentence is especially bothersome regarding what “Steve tells me is a requisite for his allowing TAR to publish a comment.” I never said that, so please don’t put words in my mouth.

    If I were to receive a comment of the “discussant” variety, as you describe, I would send it out for review to two reviewers in a manner 100% consistent with our stated policy on p. 388 of the January 2010 issue (have you read that policy?). If both reviewers or even the one independent reviewer returned favorable assessments, I would then strongly consider publishing it and would most likely do so. My observation, however, which you keep wanting to personalize as “my policy,” is that most peer reviewers, in my experience, want to see a meaningful incremental contribution. (Sorry for all the comma delimited clauses, but I need this to be precise.) Bottom line: Please don’t make it out to be the editor’s “policy” if it is a broader phenomenon of what the peer community wants to see. And the “peer community,” by the way, are regular professors from all varieties of backgrounds. I name 574 of them in the November 2009 issue.

    Thus the reason given by Steve that a commentary was not published by TAR since 1998 is that the TAR referees rejected each and every submitted commentary  since 1998. In the back of my mind, however, I always thought the Senior and Associate Editors of TAR could do more to encourage the publication of commentaries in TAR.

    Thus it's interesting to track the evolution of the May 2012 Moser and Martin commentary published in TAR.

    "A FORUM ON CORPORATE SOCIAL RESPONSIBILITY RESEARCH IN ACCOUNTING  Introduction," by John Harry Evans III (incoming Senior Editor of TAR),  The Accounting Review, Vol. 87, May 2012, pp. 721-722 ---
    http://aaajournals.org/doi/full/10.2308/accr-10279

    In July 2011, shortly after I began my term as Senior Editor of The Accounting Review, outgoing editor Steve Kachelmeier alerted me to an excellent opportunity. He and his co-editors (in particular, Jim Hunton) had conditionally accepted two manuscripts on the topic of corporate social responsibility (CSR), and the articles were scheduled to appear in the May 2012 issue of TAR. Steve suggested that I consider bundling the two articles as a “forum on corporate social responsibility research in accounting,” potentially with an introductory editorial or commentary.

    Although I had never worked in the area of CSR research, I was aware of a long history of interest in CSR research among accounting scholars. In discussions with my colleague, Don Moser, who was conducting experiments on CSR topics with his doctoral student, Patrick Martin, I was struck by the potential for synergy in a forum that combined the two archival articles with a commentary by experimentalists (Don and Patrick). Because archival and experimental researchers face different constraints in terms of what they can observe and control, they tend to address different, but related, questions. The distinctive questions and answers in each approach can then provide useful challenges to researchers in the other, complementary camp. A commentary by Moser and Martin also offered the very practical advantage that, with Don and Patrick down the hall from me, it might be feasible to satisfy a very tight schedule calling for completing the commentary and coordinating it with the authors of the archival articles within two to three months.

    The Moser and Martin (2012) commentary offers potential insight concerning how experiments can complement archival research such as the two fine studies in the forum by Dhaliwal et al. (2012) and by Kim et al. (2012). The two forum archival studies document that shareholders have reason to care about CSR disclosure because of its association with lower analyst forecast errors and reduced earnings management. These are important findings about what drives firms' CSR activities and disclosures, and these results have natural ties to traditional financial accounting archival research issues.

    Like the two archival studies, the Moser and Martin (2012) commentary focuses on the positive question of what drives CSR activities and disclosures in practice as opposed to normative or legal questions about what should drive these decisions. However, the Moser and Martin approach to addressing the positive question begins by taking a broader perspective that allows for the possibility that firms may potentially consider the demands of stakeholders other than shareholders in making decisions about CSR activities and disclosures. They then argue that experiments have certain advantages in understanding CSR phenomena given this broader environment. For example, in a tightly controlled environment in which future economic returns are known for certain and individual reputation can play no role, would managers engage in CSR activities that do not maximize profits and what information would they disclose about such activities? Also, how would investors respond to such disclosures?

     

    Jensen Comment
    And thus we have a mutation in the evolution of "positive" commentaries in TAR with the Senior TAR editor being a driving force in that mutation. However, in accountics science we have a long way to go in terms of publishing critical commentaries and performing replications of accountics science research ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Replication
    As Joni Young stated, there's still "an absence of dissent" in accountics science.

    We also have a long way to go in the evolution of accountics science in that accountics scientists do very little to communicate with accounting teachers and practitioners ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

    But the publication of the Moser and Martin commentary in the May 2012 edition of TAR is a mutation of progress in accountics science evolution. We owe a big thank you to both TAR Senior Editors Steve Kachelmeier and Harry Evans.

     

    Bob Jensen's threads on Corporate Social Responsibility research and Triple-Bottom (Social, Environmental, Human Resource) Reporting ---
    ---
    http://www.trinity.edu/rjensen/Theory02.htm#TripleBottom


    "Why don’t people like markets?" by Pascal Boyer, Cognition and Culture, June 18, 2012 ---
    http://www.cognitionandculture.net/home/blog/35-pascals-blog/2423-why-dont-people-like-markets-the-largely-missing-cognition-and-culture-perspective

    People do not love markets – there is a lot of evidence for that. Is it relevant that, well, to put it bluntly, people do not seem to understand much about market economics?

    That is a common enough message from professional economists. It is put into sharper focus by Bryan Caplan in his book The myth of the rational voter. Caplan (among other important and interesting things) reports on systematic studies of voters’ knowledge of policies and their effects on economic processes. The take-home message is that people just don’t get it, and that their voting preferences are largely irrational.

    Now, voter ignorance or irrationality would not be very bad, if it was completely random. If most voters chose policies randomly, the net result would be no strong aggregate preference for any policy. But Caplan shows that people’s irrationality about economic issues is not random at all. There is method in their madness. It consists in a series of “biases”, like the anti-foreign and anti-trade bias (i.e., “when foreign countries prosper we suffer”). If this is true, many “rational voter” models in political science are in serious trouble.

    As usual when people describe folk-understandings as “irrational” or “biased”, we cognition and culture and evolution folks get a trifle impatient.

    Too often, such descriptions boil down to the observation that human minds do not follow some arbitrarily chosen normative model (see Tversky and Kahneman passim and Gerd Gigerenzer on the alternative perspective). Surely we should not stop at saying that people “don’t attend to base rates” or “have a bias against foreign trade”. The real questions is, why? What psychological processes lead to such biases?

    The truth is, no-one knows because no-one bothered to study that. I am surprized, nay flabbergasted that there is no study of folk-economics in the social science literature. No-one (except Caplan and a few others) seems to study what makes people’s economic modules tick. In psychology we have had decades of study of folk-physics, folk-biology, intuitive psychology and the like. Intuitive economics anyone?

    Robert Nozick observed that intellectuals dislike markets, probably because intellectuals are used to and thrive in knowledge-rewarding meritocracies, while markets do not really care for your effort, intelligence or just desert, as long as you provide what others want. This may be true. But it is not sufficient, for most people, not just intellectuals, are leery of markets.

    Market process are unloved for many reasons.

    One of them, obviously, is that market processes are not visible. Going through our everyday tasks, we fail to notice how millions of voluntary transactions resulted in precisely these goods and services being available to us when and where we want them at a price that makes them affordable. That is of course a point that Adam Smith and others made long ago, but could be made more forcefully if we understood the limits and susceptibilities of human imagination. In a powerful essay, 19th century free-trader Frédéric Bastiat noted that the economic process comprises ‘what is seen’ and ‘what is unseen’. For instance, when a government taxes its citizens and offers a subsidy to some producers, what is seen is the money taken and the money received. What is unseen is the amount of production that would occur in the absence of such transfers

    Another plausible factor is that markets are intrinsically probabilistic and therefore marked with uncertainty. Even though it is likely that whoever makes something that others want will earn income, it is not clear who these others will be, how much they will need what you make or when you will run into them. Like other living organisms, we are loss-averse and try to minimise uncertainty. (Note, however, that market uncertainty creates a niche for market-uncertainty insurance, which itself is all the more efficient as it is driven by demand).

    Continued in article

    Why do they hate us (professors)? --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#Hate

    Jensen Comment
    Professors (and other intellectuals) hate markets, and non-intellectuals hate professors. So we must learn to live with hate. We don't live very well without some things we hate. Students cannot imagine learning without the help of professors, both research professors who discover new knowledge and teachers who provide materials and other aids for learning existing knowledge.

    Nationwide experiments with resource allocation based up government planning boards are now mostly rotting hulls on the shores of failed experimental utopias. Where governments stepped in to distribute goods and services with coupon books or highly controlled prices, black markets moved in to make up for the failures of those controlled economies. The biggest failures came with mismatches of supply and demand creating surpluses of things consumers did not much want in great quantities and shortages of things that they desperately wanted. Countries that brutally control the black markets often end up with mass starvation like what has happened in North Korea for decades.

    This of course does not mean that government should not regulate prices and resource allocations where there are resources that are externalities incapable of being effectively and efficiently priced on the market such as clean air, pure water, national security, public safety, universal education. I think universal health care (at least at basic levels) should also be considered externalities needing government regulation. There are huge risks of overgrazing the commons without some government regulations and price controls.

    One major problem is where subsets, often very small subsets, of people desperately need some essentials that cannot be produced at prices they can afford to pay. For example, we're currently having this problem with certain life-saving cancer drugs that are enormously expensive to produce in the often small quantities desperately needed by the few patients who will die without them. On occasion very tough choices must be made regarding subsidized pricing. Should we raise taxes by a billion dollars per year to provide 25,000 children with a life saving drug? Should we raise taxes by a billion dollars per year to provide 10 children with a life saving drug? There are obviously tough decisions to be made for some externalities.

    The American Dream ---
    http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm

    June 26, 2012 reply from Richard Sansing

    Folk Economics ---
    http://www.jstor.org/discover/10.2307/1061637?uid=3739712&uid=2&uid=4&uid=3739256&sid=56278089403

     


    Definition of New Hampshire --- A state where residents from Canada, Vermontax, taxachusetts, and Maine come to shop
    Canadians come for lower prices on liquor, cigarettes, beer, and some big ticket items like air a new set of tires. I think there are limits to how much Canadians are allowed to bring back to Canada, and their cars are subject to searches at the border. However, unless narcotics are suspected, I doubt that inspectors look under seats and at all five tires.

    U.S. residents can cross back from New Hampshire with virtually zero risk of car inspections. Hotels commonly locates near a Wal-Mart for shoppers that want to spend the night and shop for two or more days.

    From The Wall Street Journal Accounting Weekly Review on June 18m 2012

    Canadians Crowd U.S. Airports. Why? Taxes
    by: Jack Nicas
    Jun 08, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Foreign Currency Exchange Rates, sales tax, Tax Policy, Taxation

    SUMMARY: 'Canadians have discovered a cheaper way to fly to the United States: drive there first." The taxes imposed on airline tickets and the fees charged by Canadian airports to fund major overhauls and expansions-items funded by the federal government in the U.S.-lead to much higher prices in Canada than in the U.S. The result has been a surge in border airline traffic that is mostly due to Canadian passenger travel to and from other U.S. locations "while overall air traffic in the U.S. has fluctuated over the past decade."

    CLASSROOM APPLICATION: The article can be used to describe the economic and behavioral effects of tax policy. It also mentions the impact of foreign exchange rates between the U.S. and Canadian dollars.

    QUESTIONS: 
    1. (Introductory) Summarize the conclusions in the recent Canadian Senate Committee report on the economic effects of Canadians migrating to U.S. airports to then fly elsewhere in the U.S.

    2. (Introductory) What are the different governmental policies affecting the difference in taxation of U.S. and Canadian airport operations?

    3. (Advanced) According to the online video and the table entitled "Stacking Up", which shows one airfare example, what two factors increase the price of Canadian airline tickets relative to U.S. ticket prices?

    4. (Introductory) How have smaller airlines in smaller airports along the U.S. border taken advantage of business opportunities from these pricing differences?

    5. (Advanced) Why does the author note that "the Canadian dollar has also remained largely on par with the U.S. dollar over the past two years..." What effect does that exchange rate have on the issues in the article?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Canadians Crowd U.S. Airports. Why? Taxes," by: Jack Nicas, The Wall Street Journal, June 8, 2012 ---
    http://professional.wsj.com/article/SB10001424052702303506404577448523616941712.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    Canadians have discovered a cheaper way to fly to the United States: Drive there first.

    Rising flight taxes and a strengthening Canadian dollar are pushing Canadians to begin their U.S.-bound trips on U.S. soil. Now airlines are rushing to meet the demand, adding service at small outposts along the border.

    Discount carrier Allegiant Travel Co. ALGT +1.54% first stumbled onto the strategy in 2004 when it began service from Bellingham, Wash., a city of 81,000 an hour south of Vancouver. The carrier quickly found that more than half of its passengers were driving there from Canada.

    Since then, Allegiant has unlocked a new customer base by filling planes with Canadians at a dozen lower-cost airports strung along the Canadian border.

    For the border airports, the Canadian passengers have meant new life. At the three where Canadians make up more than 60% of the passengers—Bellingham, Niagara Falls, N.Y., and Plattsburgh, N.Y.—departing passengers have more than tripled to a total of 750,000 since 2007, and major expansions are planned or under way.

    In Plattsburgh, just 60 miles south of Montreal, city officials in 2007 turned the former local Air Force base into an airport and nicknamed it "l'aéroport américain de Montréal." The airport's website and all of its signs are bilingual, and employees are offered French classes.

    "We knew it was going to be successful," said Michele Powers of the area chamber of commerce, "but we had no idea it was going to grow this quickly." Passenger traffic has tripled since 2008, and officials are now planning to double the size of the terminal just five years after its opening.

    Taxes and fees on a flight from Canada to U.S. cities can be four times higher, or nearly $100 more each way, than on flights to the same destinations from U.S. airports located just miles across the border. Canadian airlines say that gap has made it nearly impossible to compete.

    The tax-and-fee gap between the two countries is the result of differing governing philosophies.

    Canada views air travel as best paid for by fliers themselves, requiring them to fund airports' capital projects, said Daniel-Robert Gooch, president of the Canadian Airports Council.

    That strategy has made Canada home to some of the best aviation infrastructure in the world without burdening Canadian taxpayers as a whole, he said.

    The U.S., however, subsidizes many airports, especially in rural areas, betting they can drive economic activity.

    Canadian airports and airlines, meanwhile, are trying to plug the passenger leak. They recently commissioned studies on the exodus to lobby the Canadian government to lower taxes on flying.

    They found that U.S. airports near the border handled roughly 4.8 million Canadians departing or arriving last year—15% more than 2010, when it was first tracked. That is enough passengers to fill 64 Boeing Co. 747s per day, or more traffic than Ottawa International Airport, Canada's sixth-largest airport.

    "Everyone in Quebec is talking about how airline tickets are (less expensive) here" in the U.S., said Caroline Gallant. The Canadian woman made the 2½ hour drive to the airport in Burlington, Vt. because the $400 round-trip flight to Chicago was half the fare from Montreal, which is 20 minutes from her home.

    Friends told her about the Burlington, Vt. airport a year ago, and she has flown from it three times since. "I know it isn't good for our airports, but they should decrease the tax, what can I say?"

    On Tuesday, a Canadian Senate committee released a study on the migration, urging the government to stop charging local airport-operating authorities rent for airport land, and to lower taxes on flying, such as a fee to use the country's navigation system that can run as high as 20 Canadian dollars (US$19.50).

    "Our position is blown out of the water by all the taxes and fees," said Gregg Saretsky, chief executive of WestJet Airlines Ltd., WJA +1.78% Canada's largest discount carrier. If every Canadian who drove to the U.S. for a flight last year instead flew from Canada, Mr. Saretsky said WestJet's $149 million net profit would have increased by roughly half.

    "But this isn't just a question for the airlines; it is a question for the whole Canadian economy."

    Canadian airport officials estimate the preflight migration costs the country nearly 9,000 jobs and $1.1 billion in gross domestic product a year. They also say there are also countless Americans who fly to U.S. border airports and then drive to Canada to save on fares.

    On Wednesday, instead of flying directly to Montreal to visit his parents, Jean-Francois Brossoit and his family flew from their home in Indianapolis to Burlington, and then rented a car and drove to Canada, saving them hundreds of dollars.

    In the past two years, Canada and the U.S. have raised taxes by about $10 on flights south across the border.

    But more increases have come from individual Canadian airports which, unlike those in the U.S., rarely receive government funding and must rely on passenger fees for capital projects. In Calgary, for example, one fee on fliers is increasing to $30 from $20 to pay for a new $1 billion runway.

    In the U.S., however, the federal government is paying for a new runway at the airport in Niagara Falls, N.Y., where workers say they count, on average, eight Canadian license plates out of every 10 cars in the parking lot.

    Continued in article


    The PCAOB is Not Going to Give Up Until Audit Firm Rotation ---
    Resistance is Beginning to Look Futile in Spite of Overwhelming Opposition

    "PCAOB invites additional comments on audit firm rotation," by Ken Tysiac, Journal of Accountancy, June 26, 2012 ---
    http://journalofaccountancy.com/News/20125956.htm

    The PCAOB is soliciting further public comment on its concept release on auditor independence and mandatory audit firm rotation in anticipation of a public meeting on the issue Thursday in San Francisco.

    The comment period for the concept release was reopened Monday and will be extended through July 28. The release sought comment on how to enhance auditor independence, objectivity, and professional skepticism, and on mandatory audit firm rotation. Comments can be mailed to the PCAOB or emailed to comments@pcaobus.org.

    The PCAOB has already received more than 650 comment letters on the concept release, which was originally issued on Aug. 16, 2011. The AICPA sent a letter that supported the PCAOB’s overall goal of enhancing auditor independence, objectivity, and professional skepticism, but it urged the PCAOB to refrain from pursuing mandatory firm rotation because it “carries significant costs and possible unintended consequences that have the potential to hinder audit quality.”

    Panelists at the public meeting in San Francisco will include academics, investor advocates, audit committee chairmen, audit firm executives, and former regulators who are primarily based on the West Coast or in Asia. Former SEC Chairman Harold Williams and former SEC Chief Accountant Conrad Hewitt are among the former regulators on the panel. The meeting will be available via webcast at the PCAOB website.

    The PCAOB held a similar meeting March 21–22 in Washington, where some panelists offered alternatives to audit firm rotation that could improve auditor independence and objectivity.

     

    Jensen Comment
    Auditors for large CPA firms should think about ordering motor homes and customized buses for their families to live in after they manage to sell their homes.
    It might be better for auditors to look into divorces from spouses.

    Teaching Case on PCAOB Proposal to Rotate Auditing Firms

    From The Wall Street Journal Accounting Weekly Review on August 19, 2011

    Curbs on Auditor Terms Explored
    by: Michael Rapoport
    Aug 17, 2011
    Click here to view the full article on WSJ.com
     

    TOPICS: Audit Committee, Audit Firms, Audit Quality, Auditing, Auditing Services, Auditor Changes, Auditor Independence, Public Accounting, Public Accounting Firms

    SUMMARY: "The [Public Company Accounting Oversight Board (PCAOB)] voted Tuesday to explore whether companies should have to change their outside auditors every several years, with the aim of improving audit quality and auditors' independence from their clients."

    CLASSROOM APPLICATION: The article is useful in an auditing class to introduce the process of engaging auditors, auditor rotation, professional skepticism, and the PCAOB.

    QUESTIONS: 
    1. (Introductory) What is the Public Company Accounting Oversight Board (PCAOB)? What is this entity proposing with regard to the engagement of CPAs performing audits of financial statements?

    2. (Advanced) Who engages a certified public accountant to provide an audit opinion on annual financial statements?

    3. (Advanced) Define the term "professional skepticism" in performing an audit. According to the article, what evidence exists that auditors may have difficulty maintaining professional skepticism on audit engagements?

    4. (Advanced) What are the negative points related to the PCAOB proposal? How could those problems lead to difficulty in accomplishing the goals of an audit just as a lack of professional skepticism might do?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    "Curbs on Auditor Terms Explored," by: Michael Rapoport, The Wall Street Journal, August 17, 2011 ---
    http://professional.wsj.com/article/SB10001424053111903480904576512351445912480.html?mod=djem_jiewr_AC_domainid

    The U.S. government's auditing regulator voted Tuesday to explore whether companies should have to change their outside auditors every several years, with the aim of improving audit quality and auditors' independence from their clients.

    The move by the Public Company Accounting Oversight Board is the first step toward requiring auditor "term limits" that could break up client-auditor relationships that have lasted decades or even more than a century in some cases.

    Supporters say the move would help alleviate coziness between audit firms and clients that could lead an auditor to be not as skeptical as it should be in questioning a company's books. Critics say it would increase costs to companies as a new auditor gets up to speed and would deprive companies of a longstanding auditor's institutional knowledge.

    Investors "would be better positioned and the capital markets would be better served if we could increase the skepticism of auditors," said Joseph Carcello, a University of Tennessee professor who serves on two advisory boards that counsel the auditing watchdog. "This is one proposal that may get us there."

    The consideration of mandatory audit-firm rotation is still in its early stages. The board is accepting public comments on rotation, and soliciting input on other audit-independence ideas, until Dec. 14. It plans to hold a public discussion next March on the possibility of rotation. Any move to require rotation would be subject to approval by the Securities and Exchange Commission.

    Board Chairman James Doty said it is important to explore audit-firm rotation as a move that might help counter the pressures, incentives and mindset that might lead a longstanding auditor to go easy on a client.

    "For example, when we see auditors marketing themselves to potential clients as 'a partner in supporting and helping' the client 'achieve its goals,' it's hard not to question whether their mindset might have contributed to some of these audit failures," Mr. Doty said at the board's meeting Tuesday.

    Michael Gallagher, a managing partner at PricewaterhouseCoopers LLP, said in a statement that PwC wants to discuss how to improve audit quality, but "we are not supportive of mandatory audit-firm rotation." The firm believes the move could have "negative consequences"—for example, he said, it limits the discretion of a company's audit committee in choosing the auditor it believes is best suited to that company's needs.

    Mandatory rotation or any other new requirements should "meet the objective of improving audit quality," and making sure any benefits of new rules are worth the costs "should be central to the project," said Cindy Fornelli, executive director of the Center for Audit Quality, an accounting-industry group.

    Audit-firm rotation has been proposed before, notably in the discussions after the Enron Corp. and WorldCom Inc. accounting scandals that led to passage of the Sarbanes-Oxley corporate-overhaul law in 2002. In that case, Congress ultimately said the General Accounting Office—as the Government Accountability Office was known at the time—should study the issue, and the GAO, amid opposition from accounting firms and their clients, said rotation "may not be the most efficient way" to improve audit quality and auditor independence.

    But the GAO also said regulators could consider further auditor-independence steps after they had had time to evaluate the effectiveness of Sarbanes-Oxley's overhauls. Members of the auditing oversight board said the timing is appropriate now, since the board has inspected accounting firms for several years and uncovered hundreds of audit failures, indicating auditor independence may still be a problem.

    Continued in article

    Jensen Comment
    How some AECM actives vote, to date, on proposals to have mandatory rotation of audit firms of public company clients as long as the rotations are not too often (nothing less than 5-7 years between required rotations). Note that this is rotation between firms and not just the present rules for rotating auditors within one auditing firm assigned to a particular client.


    Tom Selling (Yes)


    Bob Jensen (No)

    Doty's initiative probably has epsilon chance of eventually happening in the near future. It ain't going to happen until more Andersen type audits happen that once again threaten the very foundation of securities markets --- when investors commence abandoning the securities markets in droves because of distrust of audited financial statements.


    Personally, I think there are better ways around the auditor independence issue than rotating audits between Big Four firms. Firstly, there are many huge international clients such that fixed costs of taking on a new huge client are enormous. Deloitte found this out when it had to bring over 600 new auditors to Washington DC when KPMG was fired from the audit of Fannie Mae and Deloitte took on the responsibility.


    Secondly the cost of dismantling after the loss of a huge client are enormous, especially in a local office that's responsible for most of the audit of a large client. Did KPMG have to ship over 600 auditors out of Washington DC when it was fired from the Fannie Mae audit?


    Thirdly, if there are only four firms that can really take on the largest clients in the world, the advantages of rotation are minimal, and "random rotation" is a bad joke. In this case I like Jim's carousel metaphor.
     

    Jim Peterson (No) ---
    http://www.jamesrpeterson.com/home/2011/08/mandatory-auditor-rotation-the-pcaob-sails-off-th-charts.html


    Francine Mckenna (No) ---
    http://retheauditors.com/2011/08/15/dear-pcaob-my-response-to-your-request-for-comments/

    Bob,
    You make excellent points about firm specialization (Jim P. did too from a country perspective) and the lack of true geographic mobility of staff even within the United States. There's the licensing issues and local taxes to deal with too. If an auditor works in another state they have to be licensed and pay local income taxes and head taxes like in NYC, Ohio, some cities, etc. It's a nightmare. They'd rather layoff staff if they lose a big client in NYC as Deloitte did during crisis (lost Bear Stearns and Merrill Lynch) and hire new cheaper grads in midwest or west for those new clients. Practices are run locally, rewards are dished out on local office results primarily, and partners protect their teams and won't pay another partner for their staff especially if they are higher paid and require travel.

    Francine


    Francine has a recent summary of her reactions to various PCAOB proposals and to some recent court decisions involving audit firms as defendants ---
    http://retheauditors.com/2011/08/15/dear-pcaob-my-response-to-your-request-for-comments/

    As I recall virtually all commentators on the AECM have been opposed to having the public sector (read that government) takeover private sector auditing. One exception has been David Albrecht who said that he favors government auditing but he did not elaborate on why the government would do a better job in the best interests of investors.
     

    Bob Jensen's threads on audit firm rotation are at
    http://www.trinity.edu/rjensen/Fraud001c.htm#Rotation

    The Saga of Auditor Professionalism and Independence ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

     




    Forwarded by Gene and Joan

    Who Knew??????

    1. To remove a bandage painlessly, saturate the bandage with vodka. The stuff dissolves adhesive. 

    2. To clean the caulking around bathtubs and showers, fill a trigger-spray bottle with vodka, spray the caulking, let set five minutes and wash clean. The alcohol in the vodka kills mold and mildew. 

    3. To clean your eyeglasses, simply wipe the lenses with a soft, clean cloth dampened with vodka. The alcohol in the vodka cleans the glass and kills germs. 

    4. Prolong the life of razors by filling a cup with vodka and letting your safety razor blade soak in the alcohol after shaving. The vodka disinfects the blade and prevents rusting. 

    5. Spray vodka on wine stains, scrub with a brush, and then blot dry. 

    6. Using a cotton ball, apply vodka to your face as an astringent to cleanse the skin and tighten pores. 

    7. Add a jigger of vodka to a 12-ounce bottle of shampoo. The alcohol cleanses the scalp, removes toxins from hair, and stimulates the growth of healthy hair.Straight vodka gets rid of nits too. 

    8. Fill a sixteen-ounce trigger-spray bottle with vodka and spray bees or wasps to kill them. Description: Description: Description: Image removed by sender..

    9 Pour one-half cup vodka and one-half cup water into a Ziploc freezer bag and freeze for a slushy, refreshing ice pack for aches, pain or black eyes. 

    10 .. Fill a clean, used mayonnaise jar with freshly packed lavender flowers, fill the jar with vodka, seal the lid tightly and set in the sun for three days. Strain liquid through a coffee filter, then apply the tincture to aches and pains. 

    11 .. To relieve a fever, use a washcloth to rub vodka on your chest and back as a liniment. 

    12 .. To cure foot odour, wash your feet with vodka. 

    13 Vodka will disinfect and alleviate a jellyfish sting. 

    14 .. Pour vodka over an area affected with poison ivy to remove the urushiol oil from your skin. 

    15. Swish a shot of vodka over an aching tooth. Allow your gums to absorb some of the alcohol to numb the pain. 

    And silly me! I used to drink the stuff!!

    Jensen Comment
    Except for drinking, the above uses don't require expensive vodka.
    In emergency situations, substitute gin, rum, or bourbon. Never waste the scotch.

     




    Humor June 30, 2012

    Bill Murray’s Baseball Hall of Fame Speech (and Hideous Sports Coat) --- Click Here
    http://www.openculture.com/2012/06/bill_murrays_baseball_hall_of_fame_speech_and_hideous_sports_coat.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

    Don't Push the Red Button --- http://youtube.googleapis.com/v/316AzLYfAzw%26autoplay=1%26rel=0

    Still Chasing Birds
    Video: Dead cat turned into remote-controlled helicopter ---
    http://www.sacbee.com/2012/06/05/4539709/video-dead-cat-turned-into-remote.html#storylink=cpy


    Forwarded by Dan Gheorghe Somnea

    YES, I'M A SENIOR CITIZEN!

    I'm the life of the party..... Even if it lasts until 8 p.m.

    I'm very good at opening childproof caps..... With a hammer.

    I'm awake many hours before my body allows me to get up.

    I'm smiling all the time because I can't hear a thing you're saying.

    I'm sure everything I can't find is in a safe secure place, somewhere.

    I'm wrinkled, saggy, lumpy, and that's just my left leg.

    I'm beginning to realize that aging is not for wimps.

    Yes, I'm a SENIOR CITIZEN and I think I am having the time of my life!


    Forwarded by Dan Gheorghe Somnea

    A Minister decided that a visual demonstration would add emphasis to his Sunday sermon.

    Four worms were placed into four separate jars.

    The first worm was put into a container of alcohol.

    The second worm was put into a container of cigarette smoke.

    The third worm was put into a container of chocolate syrup.

    The fourth worm was put into a container of good, clean soil.

    At the conclusion of the sermon, the Minister reported the following results:

    The first worm in alcohol ... Dead.

    Description: 48AD8E3665C74675AB435D23C8611614@tcrockettPC The second worm in cigarette smoke .... Dead.

    Description: 5F1396A16DDE43588DDA8B69893104AD@tcrockettPC

    The third worm in chocolate syrup ... Dead.

    Description: 3FA01E62914641ABB1492F03972A42C1@tcrockettPC

    The fourth worm in good, clean soil ... Alive .

    So the Minister asked the congregation, "What did you learn from this demonstration?"

    Maxine was sitting in the back and quickly raised her hand and said,

    Description: D8E7258463BE46F4858511443219E2AC@tcrockettPC

    "As long as you drink, smoke, and eat chocolate, you won't have worms!"


    Forwarded by Dan Gheorghe Somnea

    Jewish taxi driver A clearly inebriated woman, stark naked, jumped into a taxi in New York City.

    The cab driver, an old Jewish gentleman, opened his eyes wide and stared at the woman. He made no attempt to start the cab. The woman glared back at him and said, "What's wrong with you, honey? Haven't you ever seen a naked woman before?"

    The old Jewish driver answered, "Let me tell you sumsing, lady - I vasn't staring at you like you tink; det vould not be proper vair I come from."

    The drunk woman giggled and responded, "Well, if you're not staring at my boobs, sweetie, what are you doing then?"

    He paused a moment, then told her... "Vell, M'am, I am looking and I am looking, and I am tinking to myself, 'Vair in da hell is dis lady keeping de money to pay for dis ride?!'"


    Forwarded by Maureen

    How the world works lately...

    If a man cuts his finger off while Slicing salami at work, He blames the restaurant.

    If you smoke three packs a day For 40 years and die of lung cancer, Your family blames the Tobacco company.

    If your neighbor crashes Into a tree while driving home drunk, He blames the bartender.

    If your grandchildren are

    Brats without manners, You blame television.

    If your friend is shot by a Deranged madman, You blame the gun manufacturer..

    And if a crazed person breaks Into the cockpit and Tries to kill the pilot at 35,000 feet, And the passengers Kill him instead, The mother of the crazed deceased Blames the airline.

    I must have lived too long to Understand the world As it is anymore.

    So, if I die while my OLD WRINKLED ASS is parked in front of this computer, I want all of you to Blame Bill Gates


    Forwarded by Maureen

    THE ITALIAN POKER CLUB

    Six retired Italian fellows were playing poker in the condo clubhouse when Guido loses $500 on a single hand, clutches his chest, and drops dead at the table.

    Showing respect for their fallen comrade, the other five continue playing, but standing up.

    At the end of the game, Giovanni looks around and asks, "So, who's gonna' tell his wife?"

    They cut the cards. Pasquale picks the low card and has to carry the news.

    They tell him to be discreet, be gentle, don't make a bad situation any worse.

    "Discreet? I'm the most discreet person you'll ever meet. Discretion is my middle name. Leave it to me!"

    So, Pasquale goes over to the Guido's condo and knocks on the door.

    The wife answers through the door and asks what he wants?

    Pasquale declares: "Your husband just lost $500 in a poker game and is afraid to come home."

    "Tell him to drop dead!" yells the wife.

    "I'll go tell him." says Pasquale.


    BILL ENGVALL - Here's Your Sign Live (Part.1) --- Click Here
    http://www.youtube.com/watch?v=B7eYnDddsic&oref=http%3A%2F%2Fwww.youtube.com%2Fresults%3Fsearch_query%3Dbill%2Bengvall%2Bhere%2527s%2Byour%2Bsign%2Bjokes%26oq%3Dbill%2Bengvall%2Bhere%2527s%2Byour%2Bsign%26aq%3D4%26aqi%3Dg10%26aql%3D%26gs_l%3Dyoutube.1.4.0l10.10229.17057.0.20260.15.14.0.0.0.2.161.1193.9j5.14.0...0.0.2UzxqDN4fPU&has_verified=1


    Forwarded by Auntie Bev

    Puns by Ted Carmody



      1. ARBITRATOR: A cook that leaves Arby's to work at McDonalds



      2. AVOIDABLE: What a bullfighter tries to do



      3. BERNADETTE: The act of torching a mortgage



      4. BURGLARIZE: What a crook sees with



      5. CONTROL: A short, ugly inmate 



      6. COUNTERFEITERS: Workers who put together kitchen cabinets



      7. ECLIPSE: What an English barber does for a living



      8. EYEDROPPER: A clumsy ophthalmologist



      9. HEROES: What a guy in a boat does



      10. LEFTBANK: What the robber did when his bag was full of money



      11. MISTY: How golfers create divots



      12. PARADOX: Two physicians!!



      13. PARASITES: What you see from the top of the Eiffel Tower



      14. PHARMACIST: A helper on the farm



      15. POLARIZE: What penguins see with



      16. PRIMATE: Removing your spouse from in front of the TV!!


      17. RELIEF: What trees do in the spring


      18. RUBBERNECK: What you do to relax your wife


      19. SELFISH: What the owner of a seafood store does


      20. SUDAFED: Brought litigation against a government


    Forwarded by Auntie Bev

    Two Vermonters are drinking in a bar. One says, "Did you know that elks have sex 10 to 15 times a day?"

    "Aw shit..," says his friend, "and I just joined the Knights of Columbus!"


    Forwarded by Paula

    SUTHU-NUHS!
     
                                  Southerners know their summer weather report:
                                  Humidity
                                  Humidity
                                  Humidity
                                  -------------------------
                                  Southerners know their vacation spots:
                                  The beach
                                  The rivuh
                                  The crick
                                  --------
                                  Southerners know everybody's first name:
                                  Honey
                                  Darlin'
                                  Shugah
                                  --------
                                  Southerners know the movies that speak to their hearts:
                                  Fried Green Tomatoes
                                  Driving Miss Daisy
                                  Steel Magnolias
                                  Gone With The Wind
                                  -----------
                                  Southerners know their religions:
                                  Bapdiss
                                  Methdiss
                                  Football
                                  --------------
                                  Southerners know their cities dripping with Southern charm:
                                  Chawl'stn
                                  S'vanah
                                  Foat Wuth
                                  N'awlins
                                  Addlanna
                                  ---------------
                                  Southerners know their elegant gentlemen:
                                  Men in uniform
                                  Men in tuxedos
                                  Rhett Butler
                                  -----------------
                                  Southern girls know their prime real estate:
                                  The Mall
                                  The Country Club
                                  The Beauty Salon
                                  --------------
                                  Southern girls know the 3 deadly sins:
                                  Having bad hair and nails
                                  Having bad manners
                                  Cooking bad food

                                  ----------
                                  Only a Southerner knows the difference between a hissie fit and a conniption fit, and that you don't "HAVE" them, you "PITCH" them.
                                  _____
                                  Only a Southerner knows how many fish, collard greens, turnip greens, peas, beans, etc., make up "a mess."
                                  _____
                                  Only a Southerner can show or point out to you the general direction of "yonder."
                                  _____
                                  Only a Southerner knows exactly how long "directly" is, as in: "Going to town, be back directly."
                                  _____
                                  Even Southern babies know that "Gimme some sugar" is not a request for the white, granular, sweet substance that sits in a pretty little bowl in the middle of the table.
                                  _____
                                  All Southerners know exactly when "by and by" is. They might not use the term, but they know the concept well.
                                  _____
                                  Only a Southerner knows instinctively that the best gesture of solace for a neighbor who's got trouble is a plate of hot fried chicken and a big bowl of cold potato salad. If the neighbor's trouble is a real crisis, they also know to add a large banana puddin'!
                                  _____
                                  Only Southerners grow up knowing the difference between "right near" and "a right far piece." They also know that"just down the road" can be 1 mile or 20.
                                  _____
                                  Only a Southerner both knows and understands the difference between a redneck, a good ol' boy, and po' white trash.
                                  _____
                                  No true Southerner would ever assume that the car with the flashing turn signal is actually going to make a turn.
                                  _____
                                  A Southerner knows that "fixin" can be used as a noun, a verb, or an adverb.
                                  _____
                                  Only Southerners make friends while standing in lines, ... and when we're "in line,"... we talk to everybody!
                                  _____
                                  Put 100 Southerners in a room and half of them will discover they're related, even if only by marriage.
                                  _____
                                  In the South, “y'all” is singular, “all y'all” is plural.
                                  _____
                                  Southerners know grits come from corn and how to eat them.
                                  _____
                                  Every Southerner knows that tomatoes with eggs, bacon, grits, and coffee are perfectly wonderful; that red eye gravy is also a breakfast food; that scrambled eggs just ain’t right without Tabasco , and that fried green tomatoes are not a breakfast food.
                                  _____
                                  When you hear someone say, "Well, I caught myself lookin'," you know you are in the presence of a genuine Southerner!
                                  _____
                                  Only true Southerners say "sweet tea" and "sweet milk." Sweet tea indicates the need for sugar and lots of it -- we do not like our tea unsweetened. "Sweet milk" means you don't want buttermilk.
                                  _____
                                  And a true Southerner knows you don't scream obscenities at little old ladies who drive 30 MPH on the freeway. You just say,"Bless her sweet little heart"... and go your own way.
                                  _____
                                  To those of you who are still a little embarrassed by your Southernness: Take two tent revivals and a dose of sausage gravy and call me in the morning. Bless your little heart!
                                  _____
                                  And to those of you who are still having a hard time understanding all this Southern stuff....bless your hearts, I hear they’re fixin' to have classes on Southernness as a second language!
                                  _____
                                  Southern girls know men may come and go, but friends are fah-evah !
                                  There ain't no magazine named "Northern Living" for good reason. There ain't nobody interested in livin' up north, nobody would buy the magazine!

                            

    Forwarded by Eileen

    There was a bit of confusion at the store this morning. When I was ready to pay for my groceries, the cashier said, "Strip down, facing me.."

    Making a mental note to complain to my congressman about Homeland Security running amok, I did just as she had instructed.

    When the hysterical shrieking and alarms finally subsided, I found out that she was referring to my credit card.

    I have been asked to shop elsewhere in the future.

    They need to make their instructions to us seniors a little clearer!


    Forwarded by Auntie Bev

    Sometimes, When I Look At My Children, I say To myself, "Lillian, You Should Have Remained A Virgin." -
    Lillian Carter (mother of Jimmy Carter)

    I had a rose named after me and
    I was very flattered. But I was not
    pleased to read the description in the Catalogue:
    |"No good in a Bed, but fine against a Wall." -
    Eleanor Roosevelt

    Last week, I stated this woman was the ugliest woman I had ever seen. I have since been visited by her sister and now wish to withdraw that statement.. -
    Mark Twain

    The secret of a Good Sermon is to have a good beginning and a good ending; and to have the two as close together as possible -
    George Burns

    Santa Claus has the Right Idea. Visit people only once a year. -
    Victor Borge

    Be Careful About Reading Health Books. You May Die Of A Misprint. -
    Mark Twain

    By all means, Marry. If you get a Good Wife, you'll become Happy; if you get a Bad One, you'll become a Philosopher.
    Socrates

    I was Married by a Judge. I should have asked for a Jury. -
    Groucho Marx

    My Wife has a slight impediment in her Speech. Every now and then she stops to Breathe. -
    Jimmy Durante

    I have never hated a man enough to give his Diamonds back. -
    Zsa Zsa Gabor

    Only Irish Coffee Provides In A Single Glass All Four Essential Food Groups: Alcohol, Caffeine, Sugar And Fat. -
    Alex Levine

    My Luck is so bad that if I bought a Cemetery, people would stop Dying. -
    Rodney Dangerfield

    Money can't buy you Happiness .... But it does bring you a More Pleasant Form Of Misery. -
    Spike Milligan

    Until I was Thirteen, I thought my Name was SHUT UP. -
    Joe Namath

    I don't Feel Old. I don't feel anything until Noon. Then it's time for my Nap. -
    Bob Hope

    I never drink Water because of the disgusting things that Fish do in it.. -
    W. C. Fields

    We could certainly slow the Aging Process Down if it had to work its way through Congress. -
    Will Rogers

    Don't worry about avoiding Temptation. As you Grow Older, it will Avoid You. -
    Winston Churchill

    Maybe it's TRUE that Life Begins At Fifty... But everything else starts to WEAR OUT, FALL OUT, or SPREAD OUT. -
    Phyllis Diller

    By The Time A Man Is Wise Enough To Watch His Step, He's TOO OLD To Go Anywhere. -
    Billy Crystal

    And The Cardiologist's Diet: If It Tastes Good Spit It Out.

     


    Forwarded by Maureen

    Being Green

    Checking out at the store, the young cashier suggested to the older woman, that she should bring her own grocery bags because plastic bags weren't good for the environment.

    The woman apologized and explained, "We didn't have this green thing back in my earlier days."

    The young clerk responded, "That's our problem today. Your generation did not care enough to save our environment for future generations."

    She was right -- our generation didn't have the green thing in its day.

    Back then, we returned milk bottles, soda bottles and beer bottles to the store. The store sent them back to the plant to be washed and sterilized and refilled, so it could use the same bottles over and over. So they really were recycled.

    But we didn't have the green thing back in our day.

    Grocery stores bagged our groceries in brown paper bags, that we reused for numerous things, most memorable besides household garbage bags, was the use of brown paper bags as book covers for our schoolbooks. This was to ensure that public property, (the books provided for our use by the school) was not defaced by our scribblings. Then we were able to personalize our books on the brown paper bags.

    But too bad we didn't do the green thing back then.

    We walked up stairs, because we didn't have an escalator in every store and office building. We walked to the grocery store and didn't climb into a 300-horsepower machine every time we had to go two blocks.

    But she was right. We didn't have the green thing in our day.

    Back then, we washed the baby's diapers because we didn't have the throwaway kind. We dried clothes on a line, not in an energy-gobbling machine burning up 220 volts -- wind and solar power really did dry our clothes back in our early days. Kids got hand-me-down clothes from their brothers or sisters, not always brand-new clothing.

    But that young lady is right; we didn't have the green thing back in our day.

    Back then, we had one TV, or radio, in the house -- not a TV in every room. And the TV had a small screen the size of a handkerchief (remember them?), not a screen the size of the state of Montana . In the kitchen, we blended and stirred by hand because we didn't have electric machines to do everything for us. When we packaged a fragile item to send in the mail, we used wadded up old newspapers to cushion it, not Styrofoam or plastic bubble wrap. Back then, we didn't fire up an engine and burn gasoline just to cut the lawn. We used a push mower that ran on human power. We exercised by working so we didn't need to go to a health club to run on treadmills that operate on electricity.

    But she's right; we didn't have the green thing back then.

    We drank from a fountain when we were thirsty instead of using a cup or a plastic bottle every time we had a drink of water. We refilled writing pens with ink instead of buying a new pen, and we replaced the razor blades in a razor instead of throwing away the whole razor just because the blade got dull.

    But we didn't have the green thing back then.

    Back then, people took the streetcar or a bus and kids rode their bikes to school or walked instead of turning their moms into a 24-hour taxi service. We had one electrical outlet in a room, not an entire bank of sockets to power a dozen appliances. And we didn't need a computerized gadget to receive a signal beamed from satellites 23,000 miles out in space in order to find the nearest burger joint.

    But isn't it sad the current generation laments how wasteful we old folks were just because we didn't have the green thing back then?


    Forwarded by Maureen

    THE OLDER CROWD
    A distraught senior citizen Phoned her doctor's office. 'Is it true,' she wanted to know, 'that the medication You prescribed has to be taken For the rest of my life?' 'Yes, I'm afraid so,' the doctor told her. There was a moment of silence Before the senior lady replied, I'm wondering, then, Just how serious is my condition Because this prescription is marked 'NO REFILLS'.'

    ***********************
    An older gentleman was On the operating table Awaiting surgery And he insisted that his son, A renowned surgeon, Perform the operation. As he was about to get the anesthesia, He asked to speak to his son 'Yes, Dad, what is it? ' 'Don't be nervous, son; Do your best And just remember, If it doesn't go well, If something happens to me, Your mother Is going to come and Live with you and your wife....'
    ~~~~~~~~~~~~~~~~~

    Aging: Eventually you will reach a point When you stop lying about your age And start bragging about it. This is so true. I love to hear them say "you don't look that old."

    ---------------------------------

    The older we get, The fewer things Seem worth waiting in line for.

    ---------------------------------

    Some people Try to turn back their odometers. Not me! I want people to know 'why' I look this way. I've traveled a long way And some of the roads weren't paved. ********************

    When you are dissatisfied And would like to go back to youth, Think of Algebra.

    ~~~~~~~~~~~~~~~~~

    You know you are getting old when Everything either dries up or leaks.

    -------------------------------

    One of the many things No one tells you about aging Is that it is such a nice change From being young.

    Ah, being young is beautiful, But being old is comfortable.

    First you forget names, Then you forget faces. Then you forget to pull up your zipper. It's worse when You forget to pull it down.

    ---------------------------------

    Two guys one old one young Are pushing their carts around Wal-Mart When they collide. The old guy says to the young guy, 'Sorry about that. I'm looking for my wife, And I guess I wasn't paying attention To where I was going.

    The young guy says, 'That's OK, it's a coincidence. I'm looking for my wife, too...' I can't find her and I'm getting a little desperate'

    The old guy says, 'Well, Maybe I can help you find her.. What does she look like?' '

    The young guy says, 'Well, she is 27 yrs old, tall, With red hair, Blue eyes, is buxom wearing no bra, Long legs, And is wearing short shorts. What does your wife look like?' To which the first old guy says,

    'Doesn't matter, --- let's look for yours.'


    Forwarded by Paula

    A Scotsman and his wife walked past a swanky new restaurant last night...

    "Did you smell that food?" she asked... "Incredible!"

    Being the 'Kind Hearted Scotsman', he thought,

    "What the heck, I'll treat her!"

    .... So they walked past it again ...before going to a fish & chips dump.


    Forwarded by Paula

    It's 2012 and it's the Olympics in London .

    A Scotsman, an Englishman and an Irishman want to get in, but they haven't got tickets.

    The Scotsman picks up a manhole cover, tucks it under his arm and walks to the gate." McTavish , Scotland ," he says,

    "Discus" and in he walks.

    The Englishman picks up a length of scaffolding and slings it over his shoulder." Waddington-Smythe , England " he says, "Pole vault" and in he walks.

    The Irishman looks around and picks up a roll of barbed wire and tucks it under his arm. “O'Malley, Ireland," he says, "Fencing."

     


    Forwarded by Gene and Joan

    Punography I changed my i Pod name to Titanic. It's syncing now.

    I tried to catch some Fog. I mist.

    When chemists die, they barium.

    Jokes about German sausage are the wurst.

    A soldier who survived mustard gas and pepper spray is now a seasoned veteran.

    I know a guy who's addicted to brake fluid. He says he can stop any time.

    How does Moses make his tea? Hebrews it.

    I stayed up all night to see where the sun went. Than it dawned on me.

    This girl said she recognized me from the vegetarian club, but I'd never met herbivore.

    I'm reading a book about anti-gravity. I can't put it down.

    I did a theatrical performance about puns. It was a play on words .

    They told me I had type A blood, but it was a Type-O.

    A dyslexic man walks into a bra.

    PMS jokes aren't funny, period.

    Why were the Indians here first? They had reservations.

    Class trip to the Coca-Cola factory. I hope there's no pop quiz.

    Energizer bunny arrested. Charged with battery.

    I didn't like my beard at first. Then it grew on me.

    How do you make holy water? Boil the hell out of it!

    Did you hear about the cross eyed teacher who lost her job because she couldn't control her pupils?

    When you get a bladder infection, urine trouble.

    What does a clock do when it's hungry? It goes back four seconds.

    I wondered why the baseball was getting bigger. Then it hit me!

    Broken pencils are pointless.

    What do you call a dinosaur with a extensive vocabulary? A thesaurus.

    England has no kidney bank, but it does have a Liverpool.

    I used to be a banker, but then I lost interest.

    I dropped out of communism class because of lousy Marx.

    All the toilets in New York's police stations have been stolen. Police have nothing to go on.

    I got a job at a bakery because I kneaded dough.

    Haunted French pancakes give me the crepes.

    Velcro - what a rip off!

    Cartoonist found dead in home. Details are sketchy.

    Venison for dinner? Oh deer!

    Earthquake in Washington obviously government's fault.

    I used to think I was indecisive, but now I'm not so sure.

    Be kind to your dentist. He has fillings, too.

     


    Forwarded by Auntie Bev

    ADULT: 
    A person who has stopped growing at both ends and is now growing in the middle. 

    BEAUTY PARLOR: 
    A place where women curl up and dye. 
     

    CHICKENS: 
    The only animals you eat before they are born and after they are dead. 

    COMMITTEE: 
    A body that keeps minutes and wastes hours. 

    DUST: 
    Mud with the juice squeezed out. 

    EGOTIST
    Someone who is usually me-deep in conversation. 

    HANDKERCHIEF: 
    Cold Storage. 

    INFLATION: 
    Cutting money in half without damaging the paper. 

    MOSQUITO: 
    An insect that makes you like flies better. 

    RAISIN: 
    A grape with a sunburn. 

    SECRET: 
    Something you tell to one person at a time. 

    SKELETON: 
    A bunch of bones with the person scraped off. 

    TOOTHACHE:
     
    The pain that drives you to extraction. 


    TOMORROW: 
    One of the greatest labor saving devices of today. 

    YAWN: 
    An honest opinion openly expressed. 


    WRINKLES: 
    Something other people have, 
    Similar to my character lines.


    June 22, 2012 email message from the Queen of England

    To the citizens of the United States of America from Her Sovereign Majesty Queen Elizabeth II

     
    In light of your immediate failure to financially manage yourselves and also in recent years your tendency to elect incompetent Presidents of the USA and therefore not able to govern yourselves, we hereby give notice of the revocation of your independence, effective immediately. (You should look up 'revocation' in the Oxford English Dictionary.)

     
    Her Sovereign Majesty Queen Elizabeth II will resume monarchical duties over all states, commonwealths, and territories (except Kansas, which she does not fancy).

     
    Your new Prime Minister, David Cameron, will appoint a Governor for America without the need for further elections.

     
    Congress and the Senate will be disbanded.  A questionnaire may be circulated sometime next year to determine whether any of you noticed.

     
    To aid in the transition to a British Crown dependency, the following rules are introduced with immediate effect:

     
    1. The letter 'U' will be reinstated in words such as 'colour,' 'favour,' 'labour' and 'neighbour.'  Likewise, you will learn to spell 'doughnut' without skipping half the letters,  and the suffix '-ize' will be replaced by the suffix '-ise.'  Generally, you will be expected to raise your vocabulary to acceptable levels.  (look up 'vocabulary'). And you will spell "Center" as "Centre".
    ------------------------
    2. Using the same twenty-seven words interspersed with filler noises such as ''like' and 'you know' is an unacceptable and inefficient form of communication. There is no such thing as U.S. English. We will let Microsoft know on your behalf.  The Microsoft spell-checker will be adjusted to take into account the reinstated letter 'u'' and the elimination of  '-ize.'
    -------------------
    3. July 4th will no longer be celebrated as a holiday.
    -----------------
    4. You will learn to resolve personal issues without using guns, lawyers, or therapists.  The fact that you need so many lawyers and therapists shows that you're not quite ready to be independent.  Guns should only be used for shooting grouse.  If you can't sort things out without suing someone or speaking to a therapist, then you're not ready to shoot grouse.
    ----------------------
    5. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler although a permit will be required if you wish to carry a vegetable peeler in public.
    ----------------------
    6. All intersections will be replaced with roundabouts, and you will start driving on the left side with immediate effect.  At the same time, you will go metric with immediate effect and without the benefit of conversion tables.   Both roundabouts and metrication will help you understand the British sense of humour.
    --------------------
    7. The former USA will adopt UK prices on petrol (which you have been calling gasoline) of roughly $10/US gallon.  Get used to it.
    -------------------
    8. You will learn to make real chips.  Those things you call French fries are not real chips, and those things you insist on calling potato chips are properly called crisps.  Real chips are thick cut, fried in animal fat, and dressed, not with ketchup, but with vinegar.
    -------------------
    9. The cold, tasteless stuff you insist on calling beer is not actually beer at all.  Henceforth, only proper British Bitter will be referred to as beer, and European brews of  known and accepted provenance will be referred to as Lager.  New Zealand beer is also acceptable, as New Zealand is pound for pound the greatest sporting nation on earth and it can only be due to the beer.  They are also part of the British Commonwealth - see what it did for them.  American brands will be referred to as Near-Frozen Gnat's Urine, so that all can be sold without risk of further confusion.
    ---------------------
    10. Hollywood will be required occasionally to cast English actors as good guys.  Hollywood will also be required to cast English actors to play English characters.  Watching Andie Macdowell attempt English dialogue in Four Weddings and a Funeral was an experience akin to having one's ears removed with a cheese grater.
    ---------------------
    11. You will cease playing American football.  There are only two kinds of proper football; one you call soccer, and rugby (dominated by the New Zealanders).  Those of you brave enough will, in time, be allowed to play rugby (which has some similarities to American football, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body armour like a bunch of nancies).
    ---------------------
    12. Further, you will stop playing baseball.  It is not reasonable to host an event called the World Series for a game which is not played outside of America.  Since only 2.1% of you are aware there is a world beyond your borders, your error is understandable.  You will learn cricket, and we will let you face the Australians (World dominators) first to take the sting out of their deliveries.
    --------------------
    13. You must tell us who killed JFK.  It's been driving us mad.
    -----------------
    14. An internal revenue agent (i.e. tax collector) from Her Majesty's Government will be with you shortly to ensure the acquisition of all monies due (backdated to 1776).
    ---------------
    15. Daily Tea Time begins promptly at 4 p.m. with proper cups, with saucers, and never mugs, with high quality biscuits (cookies) and cakes; plus strawberries (with cream)  when in season.

     
    God Save the Queen!

     

     

     

     





    Humor Between June 1-30, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor063012

    Humor Between May 1-31, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor053112  

    Humor Between April 1-30, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor043012

    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 June 30, 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

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    Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm
     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/


     

    For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

    Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
     

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    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

     


     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
     

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    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/

     

     

    May 31, 2012

    Bob Jensen's New Bookmarks May 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/





    The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

     

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    I yust learnt to say yam and dey started calling it yelly
    Ole

    The SEC's Revamped Website --- http://sec.gov/


    And The Survey Says... Increasing Demand for Forensic Accounting ---
    http://blog.aicpa.org/2012/05/and-the-survey-says-increasing-demand-for-forensic-accounting.html

    Huge Problems in the Profession of Forensic Accounting ---
    http://www.trinity.edu/rjensen/Fraud001c.htm#Forensic


    Statement of Financial Accounting Concepts No. 8 --- Click Here
    http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175822892635&blobheader=application%2Fpdf

    September 2010

    CONTENTS

    Paragraph

    Numbers

    Chapter 1: The Objective of General Purpose Financial Reporting...... OB1–OB21

    Introduction .............................................................................................. OB1

    Objective, Usefulness, and Limitations of General Purpose

    Financial Reporting ..................................................................... OB2–OB11

    Information about a Reporting Entity’s Economic Resources,

    Claims, and Changes in Resources and Claims ....................... OB12–OB21

    Economic Resources and Claims ........................................ OB13–OB14

    Changes in Economic Resources and Claims ..................... OB15–OB21

    Financial Performance Reflected by Accrual

    Accounting................................................................. OB17–OB19

    Financial Performance Reflected by Past Cash Flows ............ OB20

    Changes in Economic Resources and Claims Not

    Resulting from Financial Performance................................... OB21

    Appendix: Basis for Conclusions for Chapter 1 ...............................BC1.1–BC1.35

    Introduction ................................................................................BC1.1–BC1.2

    Background.....................................................................................BC1.3

    General Purpose Financial Reporting ........................................BC1.4–BC1.7

    Financial Reporting of the Reporting Entity............................................BC1.8

    Primary Users ..........................................................................BC1.9–BC1.23

    Should There Be a Primary User Group? .....................................BC1.14

    Why Are Existing and Potential Investors, Lenders, and

    Other Creditors Considered the Primary Users?...........BC1.15–BC1.17

    Should There Be a Hierarchy of Users? .......................................BC1.18

    Information Needs of Other Users Who Are Not within

    the Primary User Group ................................................BC1.19–BC1.23

    Management’s Information Needs .........................................BC1.19

    Regulators’ Information Needs ................................BC1.20–BC1.23

    Usefulness for Making Decisions ...........................................BC1.24–BC1.30

    The Objective of Financial Reporting for Different

    Types of Entities ...........................................................BC1.29–BC1.30

    Information about a Reporting Entity’s Resources, Claims

    against That Entity, and Changes in Resources and

    Claims ..................................................................................BC1.31–BC1.35

    The Significance of Information about Financial

    Performance .................................................................BC1.31–BC1.33

    Financial Position and Solvency .....................................BC1.34–BC1.35

    Chapter 2: (Reserved for the Chapter on the Reporting Entity)...................XX–XX

    Chapter 3: Qualitative Characteristics of Useful Financial

    Information .........................................................................................QC1–QC39

    Introduction .....................................................................................QC1–QC3

    Qualitative Characteristics of Useful Financial Information ...........QC4–QC34

    Fundamental Qualitative Characteristics................................QC5–QC18

    Relevance.......................................................................QC6–QC11

    Materiality .........................................................................QC11

    Faithful Representation.................................................QC12–QC16

    Applying the Fundamental Qualitative

    Characteristics ............................................................QC17–QC18

    Enhancing Qualitative Characteristics .................................QC19–QC34

    Comparability................................................................QC20–QC25

    Verifiability ....................................................................QC26–QC28

    Timeliness................................................................................QC29

    Understandability ..........................................................QC30–QC32

    Applying the Enhancing Qualitative Characteristics......QC33–QC34

    The Cost Constraint on Useful Financial Reporting ....................QC35–QC39

    Appendix: Basis for Conclusions for Chapter 3 ...............................BC3.1–BC3.48

    Introduction ................................................................................BC3.1–BC3.3

    Background.....................................................................................BC3.3

    The Objective of Financial Reporting and the Qualitative

    Characteristics of Useful Financial Information ........................BC3.4–BC3.7

    Fundamental and Enhancing Qualitative Characteristics.........BC3.8–BC3.43

    Fundamental Qualitative Characteristics.........................BC3.11–BC3.31

    Relevance................................................................BC3.11–BC3.18

    Predictive and Confirmatory Value ...................BC3.14–BC3.15

    The Difference between Predictive Value and

    Related Statistical Terms..............................................BC3.16

    Materiality .........................................................BC3.17–BC3.18

    Faithful Representation............................................BC3.19–BC3.31

    Replacement of the Term Reliability.................BC3.20–BC3.25

    Substance over Form .....................................................BC3.26

    Prudence (Conservatism) and Neutrality ..........BC3.27–BC3.29

    Can Faithful Representation Be Empirically

    Measured?......................................................BC3.30–BC3.31

    Enhancing Qualitative Characteristics ............................BC3.32–BC3.43

    Comparability...........................................................BC3.32–BC3.33

    Verifiability ...............................................................BC3.34–BC3.36

    Timeliness................................................................BC3.37–BC3.39

    Understandability .....................................................BC3.40–BC3.43

    Qualitative Characteristics Not Included ................................BC3.44–BC3.46

    The Cost Constraint on Useful Financial Reporting ...............BC3.47–BC3.48

     

     


    Question
    Is the earned-income tax credit dysfunctional in that it actually discourages working?

    "Do Tax Credits Encourage Work," by Casey Mulligan, The New York Times, May 20, 2012 ---
    http://economix.blogs.nytimes.com/2012/05/23/do-tax-credits-encourage-work/
    Thank you Paul Caron for the heads up.

    The earned-income tax credit is often said to encourage work, but it may do just the opposite. ... The chart below shows the credit’s schedules for the 2011 tax year as a function of annual earned income for a given family situation (other family situations have the same basic shape). The schedule shown illustrates the mountain-plateau pattern described above: an increasing portion for the lowest incomes, a flat portion, a decreasing portion and then finally a flat portion of zero.

    Continued in article


    Videos of the Deficit Disaster

    In 2010 David Michael Walker was inducted into The Accounting Hall of Fame ---
    http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/david-michael-walker/

    The U.S. Economy is Unsustainable (David Walker on Sixty Minutes) ---
    http://www.youtube.com/watch?v=D6Q14HOBThM

    "We've lost control of the Federal Budget"- The Honorable David Walker
    http://www.youtube.com/watch?v=2L9o6qAj2a8

    The Federal Fiscal Crisis (David Walker) ---
    http://www.youtube.com/watch?v=xjmCiDB_72g \

    The Fiscal Wake-Up Tour Online (David Walker) ---
    http://www.youtube.com/watch?v=_cBnP8jDUMg

    Bob Jensen's threads on the Entitlements Crisis ---
    http://www.trinity.edu/rjensen/Entitlements.htm


    The Closing Paragraph of Joel Demski's 1973 TAR Paper

    "The General Impossibility of Normative Accounting Standards,"
    by Joel Demski,
    The Accounting Review
    , Vol. 48, No. 4, Oct., 1973, pp. 718-723

    Jensen Comment
    The closing paragraph of Joel's paper remains a mystery to me over nearly four decades. This landmark paper in general is opposed to using normative research and reasoning in the setting of accounting standards. Yet the final paragraph is among the strongest paragraphs I've ever read in favor of using normativism in judging whether standards work or do not work..

    Knowing Joel the way I've known him over nearly five decades, I'm not certain to this day whether the last paragraph is deadly serious or intended as a joke. Joel could by cynical in a very humorous way. I suspect that in this particular instance he was being serious and uncharacteristically realistic.

    On the premise that there is no such thing a perfect constitution, a perfect set of statutes, a perfect set of commandments, or a perfect set of accounting standards, the last paragraph in Joel's paper applies to all of these imperfect proclamations that inevitably need reworking over time and changing circumstances.

    We know these imperfect proclamations don't always work and do not produce the desired result in every instance. For example, in the case of an accounting standard, the standard cannot be expected to work for countless future variations in contracting, including those many variations that lawyers and accountants cleverly devise to circumvent the standard.

    Maybe it's my own inadequate reasoning, but it seems to me that more often than not the test of when these proclamations "work" versus when they "do not work" is a normative test. The test outcome should be judged in much the same way as we judge right from wrong in a court of law. For example, the Bankruptcy Examiner for Lehman Bros. found that FAS 140 "did not work" in preventing sales contracts to be booked as sales even though it was 100% certain that each and every sold item would be returned in a few weeks after the books were closed. Lehman Bros. and its auditors discovered a way in which FAS 140 "did not work" for the public good ---
    http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo

    Joel's mathematical model in this paper is so overly simplified and detached from the real world that it languished in Plato's Cave since it was published and cannot be used to judge what works and what does not work in the much, much more complicated real world.

    You can read those last paragraph of Joel Demski's brilliant paper at
    http://www.cs.trinity.edu/~rjensen/temp/Demski197301.jpg

    Vive La Normativism (as the test of a proclamation over time and changing circumstances)!


    The Cult of Statistical Significance:  How Standard Error Costs Us Jobs, Justice, and Lives, by Stephen T. Ziliak and Deirdre N. McCloskey (Ann Arbor:  University of Michigan Press, ISBN-13: 978-472-05007-9, 2007)
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

    Page 206
    Like scientists today in medical and economic and other sizeless sciences, Pearson mistook a large sample size for the definite, substantive significance---evidence s Hayek put it, of "wholes." But it was as Hayek said "just an illusion." Pearson's columns of sparkling asterisks, though quantitative in appearance and as appealing a is the simple truth of the sky, signified nothing.

    In Accountics Science R2 = 0.0004 = (-.02)(-.02) Can Be Deemed a Statistically Significant Linear Relationship ---
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm


    When Research Gets it Wrong
    "Something Does Not Add Up,"  by Joan O'Connell Hamilton, Stanford Magazine, May/June 2012 ---
    http://alumni.stanford.edu/get/page/magazine/article/?article_id=53345 

    Too much medicine relies on fatally flawed research. Epidemiologist John P.A. Ioannidis leads the charge to ensure health care you can count on.

    Last June, Stanford orthopedic surgeon Eugene Carragee and his editorial team at the Spine Journal announced they had examined data that Medtronic Inc. presented a decade ago to get approval for the spinal bone graft product sold as Infuse.

    Not only did the team find that evidence for Infuse's benefits over existing alternatives for most patients was questionable; they also discovered in a broad array of published research that risks of complications (including cancer, male sterility and other serious side effects) appeared to be 10 to 50 times higher than 13 industry-sponsored studies had shown. And they learned that authors of the early studies that found no complications had been paid between $1 million and $23 million annually by the company for consulting, royalties and other compensation. Carragee, MD '82, estimates Medtronic has sold several billion dollars' worth of Infuse for uses both approved and "off label." Medtronic issued a statement saying it believed the product was safe for approved use and gave a $2.5 million grant to Yale University researchers to review the data. Their analysis is expected this year.

    Continued in article

    Question
    In a 2010 AAA Plenary Session, what did Harvard's Bob Kaplan accuse accountics scientists of getting wrong?

    Answer
    What accountics scientists got wrong, according to Bob, is limiting the scope of their research to accountics epidemiology and not enough focus on the clinical side of accountancy.

    Members of the AAA who have access to the AAA Commons can watch Bob's video at
    Note that to watch the entire Kaplan video ---
    http://commons.aaahq.org/hives/531d5280c3/posts?postTypeName=session+video
    I think the video is only available to AAA members.

    "Accounting Scholarship that Advances Professional Knowledge and Practice," AAA Presidential Scholar Address by Robert S. Kaplan, The Accounting Review, March 2011, pp. 372-373 (emphasis added)

    I am less pessimistic than Schön about whether rigorous research can inform professional practice (witness the important practical significance of the Ohlson accounting-based valuation model and the Black-Merton-Scholes options pricing model), but I concur with the general point that academic scholars spend too much time at the top of Roethlisberger’s knowledge tree and too little time performing systematic observation, description, and classification, which are at the foundation of knowledge creation. Henderson 1970, 67–68 echoes the benefits from a more balanced approach based on the experience of medical professionals:

    both theory and practice are necessary conditions of understanding, and the method of Hippocrates is the only method that has ever succeeded widely and generally. The first element of that method is hard, persistent, intelligent, responsible, unremitting labor in the sick room, not in the library … The second element of that method is accurate observation of things and events, selection, guided by judgment born of familiarity and experience, of the salient and the recurrent phenomena, and their classification and methodical exploitation. The third element of that method is the judicious construction of a theory … and the use thereof … [T]he physician must have, first, intimate, habitual, intuitive familiarity with things, secondly, systematic knowledge of things, and thirdly an effective way of thinking about things.

     More recently, other observers of business school research have expressed concerns about the gap that has opened up in the past four decades between academic scholarship and professional practice.

    Examples include: Historical role of business schools and their faculty is as evaluators of, but not creators or originators of, business practice. (Pfeffer 2007, 1335) Our journals are replete with an examination of issues that no manager would or should ever care about, while concerns that are important to practitioners are being ignored. (Miller et al. 2009, 273)

    In summary, while much has been accomplished during the past four decades through the application of rigorous social science research methods to accounting issues, much has also been overlooked. As I will illustrate later in these remarks, we have missed big opportunities to both learn from innovative practice and to apply innovations from other disciplines to important accounting issues. By focusing on these opportunities, you will have the biggest potential for a highly successful and rewarding career.

    Integrating Practice and Theory: The Experience of Other Professional Schools
    Other professional schools, particularly medicine, do not disconnect scholarly activity from practice. Many scholars in medical and public health schools do perform large-scale statistical studies similar to those done by accounting scholars. They estimate reduced-form statistical models on cross-sectional and longitudinal data sets to discover correlations between behavior, nutrition, and health or sickness. Consider, for example, statistical research on the effects of smoking or obesity on health, and of the correlations between automobile accidents and drivers who have consumed significant quantities of alcoholic beverages. Such large-scale statistical studies are at the heart of the discipline of epidemiology.

    Some scholars in public health schools also intervene in practice by conducting large-scale field experiments on real people in their natural habitats to assess the efficacy of new health and safety practices, such as the use of designated drivers to reduce alcohol-influenced accidents. Few academic accounting scholars, in contrast, conduct field experiments on real professionals working in their actual jobs (Hunton and Gold [2010] is an exception). The large-scale statistical studies and field experiments about health and sickness are invaluable, but, unlike in accounting scholarship, they represent only one component in the research repertoire of faculty employed in professional schools of medicine and health sciences.

    Many faculty in medical schools (and also in schools of engineering and science) continually innovate. They develop new treatments, new surgeries, new drugs, new instruments, and new radiological procedures. Consider, for example, the angiogenesis innovation, now commercially represented by Genentech’s Avastin drug, done by Professor Judah Folkman at his laboratories in Boston Children’s Hospital (West et al. 2005). Consider also the dozens of commercial innovations and new companies that flowed from the laboratories of Robert Langer at MIT (Bowen et al. 2005) and George Whiteside at Harvard University (Bowen and Gino 2006). These academic scientists were intimately aware of gaps in practice that they could address and solve by applying contemporary engineering and science. They produced innovations that delivered better solutions in actual clinical practices. Beyond contributing through innovation, medical school faculty often become practice thought-leaders in their field of expertise. If you suffer from a serious, complex illness or injury, you will likely be referred to a physician with an appointment at a leading academic medical school. How often, other than for expert testimony, do leading accounting professors get asked for advice on difficult measurement and valuation issues arising in practice?

    One study (Zucker and Darby 1996) found that life-science academics who partner with industry have higher academic productivity than scientists who work only in their laboratories in medical schools and universities. Those engaged in practice innovations work on more important problems and get more rapid feedback on where their ideas work or do not work.

    These examples illustrate that some of the best academic faculty in schools of medicine, engineering, and science, attempt to improve practice, enabling their professionals to be more effective and valuable to society. Implications for Accounting Scholarship To my letter writer, just embarking on a career as an academic accounting professor, I hope you can contribute by attempting to become the accounting equivalent of an innovative, worldclass accounting surgeon, inventor, and thought-leader; someone capable of advancing professional practice, not just evaluating it. I do not want you to become a “JAE” Just Another Epidemiologist . My vision for the potential in your 40 year academic career at a professional school is to develop the knowledge, skills, and capabilities to be at the leading edge of practice. You, as an academic, can be more innovative than a consultant or a skilled practitioner. Unlike them, you can draw upon fundamental advances in your own and related disciplines and can integrate theory and generalizable conceptual frameworks with skilled practice. You can become the accounting practice leader, the “go-to” person, to whom others make referrals for answering a difficult accounting or measurement question arising in practice.

    But enough preaching! My teaching is most effective when I illustrate ideas with actual cases, so let us explore several opportunities for academic scholarship that have the potential to make important and innovative contributions to professional practice.

    Continued in article

    Added Jensen Comment
    Of course I'm not the first one to suggest that accountics science referees are inbred. This has been the theme of other AAA presidential scholars (especially Anthony Hopwood), Paul Williams, Steve Zeff, Joni Young, and many, many others that accountics scientists have refused to listen to over past decades.

    "The Absence of Dissent," by Joni J. Young, Accounting and the Public Interest 9 (1), 2009 --- Click Here

    ABSTRACT:
    The persistent malaise in accounting research continues to resist remedy. Hopwood (2007) argues that revitalizing academic accounting cannot be accomplished by simply working more diligently within current paradigms. Based on an analysis of articles published in Auditing: A Journal of Practice & Theory, I show that this paradigm block is not confined to financial accounting research but extends beyond the work appearing in the so-called premier U.S. journals. Based on this demonstration I argue that accounting academics must tolerate (and even encourage) dissent for accounting to enjoy a vital research academy. ©2009 American Accounting Association

    We could try to revitalize accountics scientists by expanding the gene pools of inbred referees.

    The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

    “An Analysis of the Evolution of Research Contributions by The Accounting Review: 1926-2005,” (with Jean Heck), Accounting Historians Journal, Volume 34, No. 2, December 2007, pp. 109-142.

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


    Boston University Libraries: Research Guide --- http://www.bu.edu/library/guides/index.html

    Ask a Librarian
    Cited References: How Do I Find Who Cited an Article or Book?
    Citing Your Sources
    Classes and Tutorials
    Dissertations (Guide for Writers of Theses and Dissertations)
    Information Literacy
    Locate Full-Text Articles
    Open Access
    Primary Sources
    Reference Services
    RefWorks [About]
    Research Process

     

    Jensen Comment
    There are 50 research guides in this resource, from accounting to zoology.
    The Accounting and Auditing Link is at --- http://www.bu.edu/library/guides/pml/accounting.html

    Business/Economics Research-
    Pardee Library


     

    General Research-
    BU Libraries

    Accounting researchers should not forget Jim Martin's great MAAW site ---
    http://maaw.info/


    The London School of Economics and Political Science: Video and Audio (Invited Speaker Collection) ---
    http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/Home.aspx


    "The endangered public company:  The rise and fall of a great invention, and why it matters," The Economist, May 19, 2012 ---
    http://www.economist.com/node/21555562

    AS THIS newspaper went to press, Facebook was about to become a public company. It will be one of the biggest stockmarket flotations ever: the social-networking giant expects investors to value it at $100 billion or so. The news raises several questions, from “Is it worth that much?” to “What will it do next?” But the most intriguing question is what Facebook’s flotation tells us about the state of the public company itself.

    At first glance, all is well. The public company was invented in the mid-19th century to provide the giants of the industrial age with capital. That Facebook is joining Microsoft and Google on the stockmarket suggests that public listings are performing the same miracle for the internet age. Not every 19th-century invention has weathered so well.

    But look closer and the picture changes (see article). Mark Zuckerberg, Facebook’s young founder, resisted going public for as long as he could, not least because so many heads of listed companies advised him to. He is taking the plunge only because American law requires any firm with more than a certain number of shareholders to publish quarterly accounts just as if it were listed. Like Google before it, Facebook has structured itself more like a private firm than a public one: Mr Zuckerberg will keep most of the voting rights, for example.

    The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain. The number of initial public offerings (IPOs) in America has declined from an average of 311 a year in 1980-2000 to 99 a year in 2001-11. Small companies, those with annual sales of less than $50m before their IPOs—have been hardest hit. In 1980-2000 an average of 165 small companies undertook IPOs in America each year. In 2001-09 that number fell to 30. Facebook will probably give the IPO market a temporary boost—several other companies are queuing up to follow its lead—but they will do little to offset the long-term decline.

    Companies are like jets; the elite go private

    Mr Zuckerberg will be joining a troubled club. The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth. Shareholders are also angry. Their interests seldom seem to be properly aligned at public companies with those of the managers, who often waste squillions on empire-building and sumptuous perks. Shareholders are typically too dispersed to monitor the men on the spot. Attempts to solve the problem by giving managers shares have largely failed.

    At the same time, alternative corporate forms are flourishing. Once “going public” was every CEO’s dream; now it is perfectly respectable to “go private”, like Burger King, Boots and countless other famous names. State-run enterprises have recovered from the wreck of communism and now include the world’s biggest mobile-phone company (China Mobile), its most successful port operator (Dubai World), its fastest-growing big airline (Emirates) and its 13 biggest oil companies.

    No doubt the sluggish public equity markets have played a role in this. But these alternative corporate forms have addressed some of the structural weaknesses that once held them back. Access to capital? Private-equity firms, helped by tax breaks, and venture capitalists both have cash to spare, and there are private markets such as SecondMarket (where $1 billion-worth of shares has changed hands since 2008). Limited liability? Partners need no longer be fully liable, and firms can have as many partners as they want. Professional managers? Family firms employ them by the HBS-load and state-owned ones are no longer just sinecures for the well-connected.

    Make capitalism popular again

    Does all this matter? The increase in the number of corporate forms is a good thing: a varied ecosystem is more robust. But there are reasons to worry about the decline of an organisation that has spread prosperity for 150 years.

    First, public companies have been central to innovation and job creation. One reason why entrepreneurs work so hard, and why venture capitalists place so many risky bets, is because they hope to make a fortune by going public. IPOs provide young firms with cash to hire new hands and disrupt established markets. The alternative is to sell themselves to established firms—hardly a recipe for creative destruction. Imagine if the fledgling Apple and Google had been bought by IBM.

    Second, public companies let in daylight. They have to publish quarterly reports, hold shareholder meetings (which have grown acrimonious of late), deal with analysts and generally conduct themselves in an open manner. By contrast, private companies and family firms operate in a fog of secrecy.

    Third, public companies give ordinary people a chance to invest directly in capitalism’s most important wealth-creating machines. The 20th century saw shareholding broadened, as state firms were privatised and mutual funds proliferated. But today popular capitalism is in retreat. Fewer IPOs mean fewer chances for ordinary people to put their money into a future Google. The rise of private equity and the spread of private markets are returning power to a club of privileged investors.

    All this argues for a change in thinking—especially among the politicians who have heaped regulations onto Western public companies, blithely assuming that businessfolk have no choice but to go public in the long run. Many firms now go (or stay) private to avoid red tape. The result is that ever more business is conducted in the dark, with rich insiders playing a more powerful role.

    Public companies built the railroads of the 19th century. They filled the world with cars and televisions and computers. They brought transparency to business life and opportunities to small investors. Because public companies sell shares to the unsophisticated, policymakers are right to regulate them more tightly than other forms of corporate organisation. But not so tightly that entrepreneurs start to dread the prospect of a public listing. The public company has long been the locomotive of capitalism. Governments should not derail it.

     

    The Problem in a Nutshell is the Age-Old Problem of Accounting Itself --- Inability to Value Intangibles (including the enormous Facebook audience)
    "The Facebook IPO: What Went Wrong?" Knowledge@Wharton, May 23, 2012 ---
    http://knowledge.wharton.upenn.edu/article.cfm?articleid=3007

    "DOES FACEBOOK STILL DESERVE AN (Our) “A” FOR ITS FINANCIAL REPORTING?" by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants, May 23, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/681

    "Crony Capitalism for Intellectuals," by Luigi Zingales, Chronicle of Higher Education, May 20, 2012 ---
    http://chronicle.com/article/Crony-Capitalism-for/131894/?sid=cr&utm_source=cr&utm_medium=en

    Bob Jensen's threads on valuation of intangibles and contingencies ---
    http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes


    May 18, 2012 message from Roger Debreceny

    Eric Cohen recently posted some interesting items on XBRL GL to the XBRL GL mailing list. 
     
    Roger D
     
    ---------- Forwarded message ----------
    From: Eric Cohen <eric.e.cohen@us.pwc.com>
    Date: Mon, May 14, 2012 at 1:50 AM
    Subject: [INT-GL] XBRL GL in print and in use
    To: INT-GL@xbrl.org


    I wanted to make sure you were aware of two things:

    1. Journal of Accountancy  has XBRL coverage, including XBRL GL, in its June 2012  issue

    2. Revenue Administration of the Turkish Republic chooses XBRL GL as its data archival format for e-bookkeeping


    1. Journal of Accountancy  has XBRL coverage, including XBRL GL

    The Journal of Accountancy is highlighting XBRL in its June 2012 edition (1) and XBRL's Global Ledger Taxonomy Framework (XBRL GL) has played a major role in those highlights.

    In the article "The future is now: XBRL emerges as career niche", both the work of the Maryland Association of CPAs (MACPA) and the efforts of Salisbury University in its collaboration with XBRL GL WG Chair Gianluca Garbellotto are described. (2)

    The article "MACPA project serves as XBRL case study for private companies, nonprofits" (3)  then drills more deeply into the XBRL GL implementation at the MACPA.

    You can read the issue at the links provided, or watch for your traditional hard copy in the mail.

    = = =

    2. Revenue Administration of the Turkish Republic chooses XBRL GL as its data archival format for e-bookkeeping

    I hope to have more news for you soon, but I wanted to point you to the use of XBRL GL as a tax archival format in the country of Turkey (4). We understand that the catalyst was the need for telecommunications companies to maintain their audit trails for a decade - and ten years of paper records is a burden to maintain. In response, an electronic archival format - XBRL GL - has been chosen as the mandatory format for those choosing to go with electronic records. In conjunction with electronic signatures on the part of both the Filer and the Revenue Administration of the Turkish Republic, XBRL GL provides a standard format for the complete audit trail across the audit reporting supply chain across all ERP applications from first transaction to end report.

    Representatives of the organization presented on XBRL GL and their plans at the 24th World Continuous Auditing Conference, held at İnönü University  in Malatya, Turkey. (5)

    = = =

    More about XBRL GL, of course, is available online ... (6)

    <eccn />

    References:


    (1) http://www.journalofaccountancy.com/Issues/2012/Jun/?WBCMODE=PresentationUnpublished

    (2)
    http://www.journalofaccountancy.com/Issues/2012/Jun/20124962.htm?WBCMODE=PresentationUnpublished

    (3)
    http://www.journalofaccountancy.com/Issues/2012/Jun/MACPA-XBRL-project.htm?WBCMODE=PresentationUnpublished

    (4)
    http://www.edefter.gov.tr/web/guest/2

    (5)
    http://24wcars.inonu.edu.tr/en-index.html

    (6)
    http://www.xbrl.org/GLTaxonomy
    http://wwww.xbrl.org/LFiles
    http://gl.iphix.net
    http://www.palgrave-journals.com/jdg/journal/v6/n3/full/jdg20095a.html

     

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


    "The Impact of Academic Accounting Research on Professional Practice: An Analysis by the AAA Research Impact Task Force," by Stephen R. Moehrle, Kirsten L. Anderson, Frances L. Ayres, Cynthia E. Bolt-Lee, Roger S. Debreceny, Michael T. Dugan, Chris E. Hogan, Michael W. Maher, and Elizabeth Plummer, Accounting Horizons, December 2009, pp. 411- 456.

    SYNOPSIS:
    The accounting academy has been long recognized as the premier developer of entry-level talent for the accounting profession and the major provider of executive education via master’s-level curricula and customized executive education courses. However, the impact that the academy’s collective ideas have had on the efficiency and effectiveness of practice has been less recognized. In this paper, we summarize key contributions of academic accounting research to practice in financial accounting, auditing, tax, regulation, managerial accounting, and information systems. Our goal is to increase awareness of the effects of academic accounting research. We believe that if this impact is more fully recognized, the practitioner community will be even more willing to invest in academe and help universities address the escalating costs of training and retaining doctoral-trained research faculty. Furthermore, we believe that this knowledge will attract talented scholars into the profession. To this end, we encourage our colleagues to refer liberally to research successes such as those cited in this paper in their classes, in their textbooks, and in their presentations to nonacademic audiences.

    Jensen Comment
    This paper received the AAA's 2010 Accounting Horizon's best paper award. However, I don't find a whole lot of recognition of work in practitioner journals. My general impression is one of disappointment. Some of my comments are as follows:

    Unsubstantiated Claims About the Importance of Accountics Event Studies on Practitioners
    The many citations of accounting event studies are more like a listing of "should-have-been important to practitioners" rather than demonstrations that these citations were "actually of great importance to practitioners." For example, most practitioners for over 100 years have known that earnings numbers and derived ratios like P/E ratios impact investment portfolio decisions and acquisition-merger decisions. The findings of accountics researchers in these areas simply proved the obvious to practitioners if they took the time and trouble to understand the complicated mathematics of these event studies. My guess is that most practitioners did not delve deeply into these academic studies and perhaps do not pay any attention to complicated studies that prove the obvious in their eyes. In any case, the authors of the above studies did not contact practitioners to test out assumed importance of accountics research in these events studies. In other words, this AAA Task Force did not really show, at least to me, that these events studies had a great impact on practice beyond what might've been used by standard setters to justify positions that they probably would've taken with or without the accountics research findings.

    Mention is made about how the FASB and government agencies included accounting professors in some deliberations. This is well and good but the study does not do a whole lot to document if and how these collaborations found accountics research of great practical value.

    Practitioner Journal Citations of Accountics Research
    The AAA Task Force study above did not examine practitioner journal citations of accountics research journals like TAR, JAR, and JAE. The mentions of practitioner journals refer mostly to accounting professors who published in practitioner journals such as when Kenney and Felix published a descriptive piece in the 1980 Journal of Accountancy or Altman/McGough and Hicks published 1974 pieces in the Journal of Accountancy. Some mentions of practitioner journal citations have to go way back in time such as the mention of the Mautz and Sharaf. piece in the 1961 Journal of Accountancy.

    Accountics professors did have some impact of auditing practice, especially in the areas of statistical sampling. The types of sampling used such as stratified sampling were not invented by accounting academics, but auditing professors did make some very practical suggestions on how to use these models in both audit sampling and bad debt estimation.

    Communication with Users
    There is a very brief and disappointing section in the AAA Task Force report. This section does not report any Task Force direct communications with practitioners. Rather it cites two behavioral studies using real-world subjects (rather than students) and vague mention studies related to SAS No. 58.

    Unsubstantiated Claims About the Importance of Mathematical Models on Management Accounting Practice
    To the extent that mathematical models may or may not have had a significant impact on managerial accounting is not traced back to accounting literature per se. For example, accounting researchers did not make noteworthy advances of linear programming shadow pricing or inventory decision models originating in the literature of operations research and management science. Accounting researcher advances in these applications are hardly noteworthy in the literature of operations research and management science or in accounting practitioner journal citations.

    No mention is made by the AAA Task Force of how the AICPA funded the mathematical information economics study Cost Determination: A Conceptual Approach, and then the AICPA  refused to publish and distanced itself from this study that was eventually picked up by the Iowa State University Press in1976. I've seen no evidence that this research had an impact on practice even though it is widely cited in the accountics literature. The AICPA apparently did not think it would be of interest to practitioners.

    The same can be said of regression models used in forecasting. Business firms do make extensive applications of regression and time series models in forecasting, but this usage can be traced back to the economics, finance, and statistics professors who developed these forecasting models. Impacts of accounting professors on forecasting are not very noteworthy in terms of accounting practice.

    Non-Accountics Research
    The most valid claims of impact of accounting academic research on practice were not accountics research studies. For example, the balanced score card research of Kaplan and colleagues is probably the best cited example of accounting professor research impacting practice, but Bob Kaplan himself is a long-time critic of resistance to publishing his research in TAR, JAR, and JAE.

    There are many areas where AIS professors interact closely with practitioners who make use of their AIS professor software and systems contributions, especially in the areas of internal control and systems security. But most of this research is of the non-accountics and even non-mathematical sort.

    One disappointment for me in the AIS area is the academic research on XBRL. It seems that most of the noteworthy creative advances in XBRL theory and practice have come from practitioners rather than academics.

    Impact of Academic Accountants on Tax Practice
    Probably the best section of the AAA Task Force report cites links between academic tax research and tax practice. Much of this was not accountics research, but credit must be given its due when the studies having an impact were accountics studies.

    Although many sections of the AAA Task force report disappointed me, the tax sections were not at all disappointing. I only wish the other sections were of the same quality.

    For me the AAA Task Force report is a disappointment except where noted above. If we had conducted field research over the past three years that focused on the A,B,C,D, or F grades practitioners would've given to academic accounting research, my guess is that most practitioners would not even know enough about most of this research to even assign a grade. Some of them may have learned about some of this research when they were still taking courses in college, but their interest in this research, in my opinion, headed south immediately after they received their diplomas (unless they returned to college for further academic studies).

    One exception might be limited exposure to academic accounting research given by professors who also teach CEP courses such as CEP courses in audit sampling, tax, audit scorecard, ABC costing, and AIS.  I did extensive CEP teaching on the complicated topics of FAS 133 on accounting for derivative financial instruments and hedging activities. However, most of my academic research citations were in the areas of finance and economics since there never has been much noteworthy research on FAS 133 in the accountics literature.

    Is there much demand for CEP courses on econometric modeling and capital markets research?

    Most practitioners who are really into valuation of business firms are critical of the lack of relevance of Residual Income models and Free Cash Flow models worshipped ad nauseum in the academic accounting research literature.

    During the past several decades, many leading B schools have quietly adopted an inappropriate --- and ultimately self-defeating --- model of academic excellence.  Instead of measuring themselves in terms of the competence of their graduates, or by how well their faculties understand important drivers of business performance, they measure themselves almost solely by the rigor of their scientific research. They have adopted a model of science that uses abstract financial and economic analysis, statistical regressions, and laboratory psychology.  Some of the research produced is excellent, but because so little of it is grounded in actual business practices. the focus of graduate business education has become increasingly circumscribed --- and less and less relevant to practitioners ...We are not advocating a return to the days when business schools were glorified trade schools.  In every business, decision making requires amassing and analyzing objective facts, so B schools must continue to teach quantitative skills.  The challenge is to restore balance to the curriculum and the faculty:  We need rigor and relevance.  The dirty little secret at most of today's best business schools is that they chiefly serve the faculty's research interests and career goals, with too little regard for the needs of other stakehollders.
    Warren G. Bennis and James O'Toole, "How Business Schools Lost Their Way," Harvard Business Review, May 2005.


    Civil War IEDs
    Forwarded by Joe Davis

    I have been reading some Civil War memoirs and found the quotations below interesting

    “On the 8th , as I rode along [from Atlanta to Savannah December 1864], I found the column turned out of the main road, marching through the fields. Close by, in the corner of a fence, was a group of men standing around a handsome young officer, whose foot had been blown to pieces by a torpedo planted in the road. He was waiting for a surgeon to amputate his leg, and told me that he was riding along with the rest of his brigade...when a torpedo trodden on by his horse had exploded, killing the horse and literally blowing off all the flesh from one of his legs. I saw the terrible wound, and made full inquiry into the facts. There had been no resistance at that point, nothing to give warning of danger, and the rebels had planted eight-inch shells in the road, with friction-matches to explode them by being trodden on. This was not war, but murder, and it made me very angry. I immediately ordered a lot of rebel prisoners to be brought from the provost-guard, armed with picks and spades, and made them march in close order along the road, so as to explode their own torpedoes, or to discover and dig them up. They begged hard, but I reiterated the order, and could hardly help laughing at their stepping so gingerly along the road, where it was supposed sunken torpedoes might explode at each step, but they found no other torpedoes till near Fort McAllister.”
    William Tecumseh Sherman, Memoirs, vol. 2. pt. 4. Location 320, Kindle edition.

    “The enemy, anticipating that I would march by this route [near Richmond] had planted torpedoes along it, and many of these exploded as the column passed over them, killing several horses and wounding a few men....The torpedoes were loaded shells planted on each side of the road, and connected by wires attached to friction-tubes in the shells, that when a horses hoof struck a wire the shell was exploded by the jerk on the improvised lanyard. After the loss of several horses and the wounding of some of the men by these torpedoes, I gave directions to have them removed, if practicable, so about twenty-five of the prisoners were brought up and made to get down of their knees, feel for the wires in the darkness, follow them up and unearth the shells. The prisoners reported the owner of one of the neighboring houses to be the principal person who had engaged in planting these shells, and I therefore directed that some of them be carried and placed in the cellar of his house, arranged to explode if the enemy’s column came that way, while he and his family were brought off as prisoners and held till after daylight.”
    Phillip H. Sheridan, Memoirs, vol. 1. Location 3084, Kindle edition.

     


    The New GMAT:  Part 1
    "The New GMAT: Questions for a Data-Rich World,: by: Alison Damast, Business Week, May 14, 2012 ---
    http://www.businessweek.com/articles/2012-05-14/the-new-gmat-questions-for-a-data-rich-world

    Editor’s Note: This is the first in a three-part series on the new GMAT, which makes its official debut on June 5. In this article, we examine the conceptual building blocks for the test’s new Integrated Reasoning section.

    On a blustery day in February 2009, a group of nine deans and faculty members from U.S. and European business schools huddled together in a conference room in McLean, Va., at the Graduate Management Admission Council’s headquarters. They were there to discuss what would be some of the most radical changes to the Graduate Management Admission Test (GMAT) in the exam’s nearly 60-year history.

    Luis Palencia, then an associate dean at Spain’s IESE Business School, was eager to press his case for the skills he thought today’s MBAs needed to have at their fingertips. Business students must be able to nimbly interpret and play with data in graphs, spreadsheets, and charts, using the information to draw swift but informed conclusions, he told his colleagues.

    “The GMAT was not becoming obsolete, but it was failing to identify the skills which might be important to warrant the success of our future candidates,” he said in a phone interview from Barcelona three years later.

    By the time the faculty advisory group commenced two days later, they had come up with a set of recommendations that would serve as a framework for what would eventually become the new “Integrated Reasoning” section of the Next Generation GMAT, which has been in beta testing for two years and will be administered to applicants for the first time on June 5.

    Until now, the B-school entrance exam, which was administered 258,192 times worldwide in 2011, was made up of verbal, quantitative, and two writing sections. The new section, which replaces one of the writing sections, is the biggest change to the GMAT since the shift to computer-adaptive testing 15 years ago, and one that has been in the works since 2006, when GMAC first decided to revisit the exam and the skills it was testing, says Dave Wilson, president and chief executive officer of GMAC.

    “At that time, we got a pretty good handle that the GMAT was working, but we wanted to know if there was anything that we weren’t measuring that would provide real value to the schools,” Wilson says.

    It turned out there was a whole slew of new skills business school faculty believed could be added to the exam. The recommendations put forth by Palencia and the rest of the committee that convened in 2009 served as the conceptual building blocks for what a new section might look like. Later that year, GMAC surveyed nearly 740 faculty members around the world, from business professors to admissions officers, who agreed with many of the committee’s findings and suggested that students needed certain proficiencies to succeed in today’s technologically advanced, data-driven workplaces.

    For example, they gave “high importance” ratings to skills such as synthesizing data, evaluating data from different sources, and organizing and manipulating it to solve multiple, interrelated problems, according to the Next Generation GMAC Skills Survey report.

    Those are all examples of skills that can now be found on the 30-minute Integrated Reasoning section, which GMAC has spent $12 million developing over the past few years, Wilson says. It will have 12 questions and include pie charts, graphs, diagrams, and data tables. The section employs four different types of questions that will allow students to flex their analytical muscles.

    Continued in article

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


    "B-School Research Briefs," by: Francesca Di Meglio, Business Week, May 11, 2012 ---
    http://www.businessweek.com/articles/2012-05-11/b-school-research-briefs

    "B-School Culture: A Plea for Change," by Philip Delves, Business Week, May 14, 2012 ---
    http://www.businessweek.com/articles/2012-05-14/b-school-culture-a-plea-for-change

    A guest post from Philip Delves Broughton, a former Paris bureau chief for Britain’s Daily Telegraph. Broughton graduated from Harvard Business School in 2006 and is the author of The Art of the Sale: Learning From the Masters About the Business of Life (Penguin Press, 2012).

    In 2007, Rakesh Khurana, a professor at Harvard Business School, published a sharp critique of American B-schools called From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession.

    He argued that MBA programs were flogging a product to students which did nothing to help them improve the business world once they graduated. They were given tools and equipped with skills but left with a gaping hole in the middle of their education where their morality was supposed to be.

    The ruling class of American business, with its obsession with shareholder returns over any broader social good, was a direct reflection of the intellectual and spiritual poverty of business schools. Much of Khurana’s work at HBS is devoted to trying to fix this.

    And now we have one of the intellectual lions of Harvard, Clay Christensen, publishing How Will You Measure Your Life?, a gripping personal story with lessons from business mixed in. Christensen’s decision to venture from innovation, the subject that made him famous, into the personal advice genre was provoked in part by seeing what happened to his peer group from Oxford University and Harvard Business School. (He was recently profiled in Bloomberg Businessweek and the New Yorker.)

    “Something had gone wrong for some of them along the way: Their personal relationships had begun to deteriorate, even as their professional prospects blossomed,” he writes in the prologue of his new book. When his friends stopped even attending reunions, he sensed that they “felt embarrassed to explain to their friends the contrast in the trajectories of their personal and professional lives.”

    Continued in article

    Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm


    "Texas A&M Gathers Accountability Data on New Web Site," Chronicle of Higher Education, May 18, 2012 ---
    http://chronicle.com/blogs/ticker/texas-am-launches-new-web-site-in-response-to-demand-for-accountability/43387?sid=wc&utm_source=wc&utm_medium=en

    Amid calls for more accountability, Texas A&M University has unveiled a website that makes data such as graduation rates, faculty workloads, demographics and student debt easily accessible.

    The site — accountability.tamu.edu — is composed of data that already was publicly available, but administrators say the effort is an unprecedented step toward ensuring public trust.

    “It is unfortunate that higher education faces new questions about its impact,” said Texas A&M President R. Bowen Loftin in a news release. “We want to do everything in our power to ensure the public trust in all we do.”

    Accountability was the subject of a public fight last year between the state’s two public research universities, A&M and UT-Austin, and the Gov. Rick Perry-backed conservative think tank, the Texas Public Policy Foundation.

    The group’s “seven breakthrough solutions” were a series of ideas with which the group aimed to address perceived accountability issues. The universities’ regents, all of whom are appointed by Perry, embraced some of the ideas and flirted with others until the schools pushed back following media attention.

    One of the most criticized of the ideas was one that reduced a faculty member’s value to a “bottom line” financial figure, represented by a number in either red or black, by subtracting his or her salary and benefits from money brought in through teaching and research.

    The document was taken down amid numerous complaints of inaccuracies in the data.

    “I’m not opposed to accountability,” said Peter Hugill, a Texas A&M faculty member and state conference president of the American Association of University Professors. “I was opposed to that crazy red and black report.”

    The new accountability website has no such measure.

    The site provides large amounts of information in a compact format with real-time changes, said Joe Pettibon, associate vice president for academic services, in the news release.

    “This is a bold step in transparency that holds the university to the highest standards regarding how we use our resources,” Pettibon said. “However, the site will always be a work in progress as information is added, updated, and improved to address what is happening in higher education and the university.”

     

    The accountability site is at
    https://accountability.tamu.edu/

    Texas A&M University is committed to accountability in its pursuit of excellence. The university expects to be held to the highest standards in its use of resources and in the quality of the educational experience. In fact, this commitment is a part of the fabric of the institution from its founding and is a key component of its mission statement (as approved by the Board of Regents and the Texas Higher Education Coordinating Board), its aspirations found in Vision 2020 (approved by the Board of Regents in 1999), and its current strategic plan, Action 2015: Education First (approved by the Chancellor in December 2010).

    Texas A&M Case on Computing the Cost of Professors and Academic Programs

    Jensen Comment
    In an advanced Cost/Managerial Accounting course this assignment could have two parts. First assign the case below. Then assign student teams to write a case on how to compute the cost of a given course, graduate in a given program, or a comparison of a the cost of a distance education section versus an onsite section of a given course taught by a tenured faculty member teaching three courses in general as well as conducting research, performing internal service, and performing external service in his/her discipline.

    From The Wall Street Journal Accounting Weekly Review on November 5, 2010

    Putting a Price on Professors
    by: Stephanie Simon and Stephanie Banchero
    Oct 23, 2010
    Click here to view the full article on WSJ.com



    TOPICS: Contribution Margin, Cost Management, Managerial Accounting


    SUMMARY: The article describes a contribution margin review at Texas A&M University drilled all the way down to the faculty member level. Also described are review systems in place in California, Indiana, Minnesota, Michigan, Ohio and other locations.
    CLASSROOM APPLICATION: Managerial concepts of efficiency, contribution margin, cost management, and the managerial dashboard in university settings are discussed in this article.


    QUESTIONS:
    1. (Introductory) Summarize the reporting on Texas A&M University's Academic Financial Data Compilation. Would you describe this as putting a "price" on professors or would you use some other wording? Explain.

    2. (Introductory) What is the difference between operational efficiency and "academic efficiency"?

    3. (Advanced) Review the table entitled "Controversial Numbers: Cash Flow at Texas A&M." Why do you think that Chemistry, History, and English Departments are more likely to generate positive cash flows than are Oceanography, Physics and Astronomy, and Aerospace Engineering?

    4. (Introductory) What source of funding for academics is excluded from the table review in answer to question 3 above? How do you think that funding source might change the scenario shown in the table?

    5. (Advanced) On what managerial accounting technique do you think Minnesota's state college system has modeled its method of assessing campuses' performance?

    6. (Advanced) Refer to the related article. A large part of cost increases in university education stem from dormitories, exercise facilities, and other building amenities on campuses. What is your reaction to this parent's statement that universities have "acquiesced to the kids' desire to go to school at luxury resorts"?

    Reviewed By: Judy Beckman, University of Rhode Island

    RELATED ARTICLES:
    Letters to the Editor: What Is It That We Want Our Universities to Be?
    by Hank Wohltjen, David Roll, Jane S. Shaw, Edward Stephens
    Oct 30, 2010
    Page: A16

    "Putting a Price on Professors," by Stephanie Simon and Stephanie Banchero, The Wall Street Journal, October 23, 2010 ---
    http://online.wsj.com/article/SB10001424052748703735804575536322093520994.html?mod=djem_jiewr_AC_domainid

    Carol Johnson took the podium of a lecture hall one recent morning to walk 79 students enrolled in an introductory biology course through diffusion, osmosis and the phospholipid bilayer of cell membranes.

    A senior lecturer, Ms. Johnson has taught this class for years. Only recently, though, have administrators sought to quantify whether she is giving the taxpayers of Texas their money's worth.

    A 265-page spreadsheet, released last month by the chancellor of the Texas A&M University system, amounted to a profit-and-loss statement for each faculty member, weighing annual salary against students taught, tuition generated, and research grants obtained.

    Ms. Johnson came out very much in the black; in the period analyzed—fiscal year 2009—she netted the public university $279,617. Some of her colleagues weren't nearly so profitable. Newly hired assistant professor Charles Criscione, for instance, spent much of the year setting up a lab to research parasite genetics and ended up $45,305 in the red.

    The balance sheet sparked an immediate uproar from faculty, who called it misleading, simplistic and crass—not to mention, riddled with errors. But the move here comes amid a national drive, backed by some on both the left and the right, to assess more rigorously what, exactly, public universities are doing with their students—and their tax dollars.

    As budget pressures mount, legislators and governors are increasingly demanding data proving that money given to colleges is well spent. States spend about 11% of their general-fund budgets subsidizing higher education. That totaled more than $78 billion in fiscal year 2008, according to the National Association of State Budget Officers.

    The movement is driven as well by dismal educational statistics. Just over half of all freshmen entering four-year public colleges will earn a degree from that institution within six years, according to the U.S. Department of Education.

    And among those with diplomas, just 31% could pass the most recent national prose literacy test, given in 2003; that's down from 40% a decade earlier, the department says.

    "For years and years, universities got away with, 'Trust us—it'll be worth it,'" said F. King Alexander, president of California State University at Long Beach.

    But no more: "Every conversation we have with these institutions now revolves around productivity," says Jason Bearce, associate commissioner for higher education in Indiana. He tells administrators it's not enough to find efficiencies in their operations; they must seek "academic efficiency" as well, graduating more students more quickly and with more demonstrable skills. The National Governors Association echoes that mantra; it just formed a commission focused on improving productivity in higher education.

    This new emphasis has raised hackles in academia. Some professors express deep concern that the focus on serving student "customers" and delivering value to taxpayers will turn public colleges into factories. They worry that it will upend the essential nature of a university, where the Milton scholar who teaches a senior seminar to five English majors is valued as much as the engineering professor who lands a million-dollar research grant.

    And they fear too much tinkering will destroy an educational system that, despite its acknowledged flaws, remains the envy of much of the world. "It's a reflection of a much more corporate model of running a university, and it's getting away from the idea of the university as public good," says John Curtis, research director for the American Association of University Professors.

    Efforts to remake higher education generally fall into two categories. In some states, including Ohio and Indiana, public officials have ordered a new approach to funding, based not on how many students enroll but on what they accomplish.

    Continued in article

    Jensen Comment
    This case is one of the most difficult cases that managerial and cost accountants will ever face. It deals with ugly problems where joint and indirect costs are mind-boggling. For example, when producing mathematics graduates in undergraduate and graduate programs, the mathematics department plays an even bigger role in providing mathematics courses for other majors and minors on campus. Furthermore, the mathematics faculty provides resources for internal service to administration, external service to the mathematics profession and the community, applied research, basic research, and on and on and on. Faculty resources thus become joint product resources.

    Furthermore costing faculty time is not exactly the same as costing the time of a worker that adds a bumper to each car in an assembly line. While at home in bed going to sleep or awakening in bed a mathematics professor might hit upon a Eureka moment where time spent is more valuable than the whole previous lifetime of that professor spent in working on campus. How do you factor in hours spent in bed in CVP analysis and Cost-Benefit analysis? Work sampling and time-motion studies used in factory systems just will not work well in academic systems.

    In Cost-Profit-Volume analysis the multi-product CPV model is incomprehensible without making a totally unrealistic assumption that "sales mix" parameters are constant for changing levels of volume. Without this assumption for many "products" the solution to the CPV model blows our minds.

    Another really complicating factor in CVP and C-B analysis are semi-fixed costs that are constant over a certain time frame (such as a semester or a year for adjunct  employees) but variable over a longer horizon. Of course over a very long horizon all fixed costs become variable, but this generally destroys the benefit of a CVP analysis in the first place. One problem is that faculty come in non-tenured adjunct, non-tenured tenure-track, and tenured varieties.

    To complicate matters the sources of revenues in a university are complicated and interactive. Revenues come from tuition, state support (if any), gifts and endowment earnings, research grants, services such as surgeries in the medical school, etc. Allocation of these revenues among divisions and departments is generally quite arbitrary.

    I could go on and on about why I would never attempt to do CVP or C-B research for one of the largest universities of the world. But somebody at Texas A&M has rushed in where angels fear to tread.

    Bob Jensen's threads on managerial and cost accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting 


    An Innovative Reference for a Cost/Managerial Accounting Course
    Some wonderful symphony orchestras have suspended operations because of the inability to manage costs

    Every symphony in the world incurs an operating deficit
    "Financial Leadership Required to Fight Symphony Orchestra ‘Cost Disease’," by Stanford University's Robert J Flanagan, Stanford Graduate School of Business, February 8, 2012 ---
    http://www.gsb.stanford.edu/news/headlines/symphony-financial-leadership.html

     What if you sat down in the concert hall one evening to hear Haydn’s Symphony No. 44 in E Minor and found 5 robots scattered among the human musicians? To get multiple audiences in and out of the concert hall faster, the human musicians and robots are playing the composition in double time.

    Today’s orchestras have yet to go down this road. However, their traditional ways of doing business, as economist Robert J. Flanagan explains in his new book on symphony orchestra finances, locks them into limited opportunities for productivity growth and ensures that costs keep rising.

     The symphonies’ financial problems are rooted in what has come to be known as the “cost disease,” a term coined in 1966 by two then-Princeton economics professors, William Baumol and William Bowen, in a study of the economics of the performing arts. “The labor requirements for the music are set by the composer. For the most part, you don’t toy around with that,” Flanagan says. Furthermore, it takes 25 minutes to perform a Haydn symphony. Speeding up the playing or substituting a robot or digital device for one of the players doesn’t appear on any music director’s solution list, at least not yet.

    U.S. manufacturing companies offset higher labor and materials costs through gains in productivity. They work to ensure that output rises for each person employed. Automakers, for example, have added hundreds of robots to their assembly lines. Productivity gains based on computer technology have also occurred in many white- collar fields, but performing arts groups haven’t found a way to do the same.

    Flanagan, the Konosuke Matsushita Professor of International Labor Economics and Policy Analysis, Emeritus, at the Graduate School of Business, has firsthand experience with the economics of playing music. He has played a clarinet and saxophone weekly for years in a 17-piece amateur jazz orchestra. He began investigating the finances of American symphony orchestras in 2006 and published a paper in 2008 that irritated more than a few symphony board members, managers, and musicians’ union officials, because it illuminated the fragile finances of orchestras, and questioned some management practices. In the last 20 years more than a dozen U.S. symphony orchestras declared bankruptcy.

    With assistance from data collected by others, Flanagan has analyzed the finances of orchestras in the United States, continental Europe, and Australia, and reported his findings in his book, The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges, published by Yale University Press in January 2012.

    The financial health of symphony orchestras in the United States continues down a perilous path of an ever-widening gap between operating revenues and expenses, he says, after studying the financial experience of the 63 largest domestic symphony orchestras between the 1987 and 2005 concert seasons. “Even the most artistically accomplished orchestras in the United States relentlessly have trouble balancing their books,” he says.

    Flanagan explores changes in operating revenues and expenses, searching for ways to narrow operating deficits. The book covers ticket pricing strategies, marketing activities, the rapid growth of artistic pay, and competition with other performing arts organizations for the time of potential patrons. He examines how tax policies, the economic capacity of a community, and orchestra policies influence the trends and determinants of nonperformance income, such as grants and donations from private and public sources. Because there is no guarantee that nonperformance income will exactly match operating deficits, the result is an uncertain financial future.

    Orchestras outside the United States face similar economic challenges even though they benefit from millions of dollars in direct government subsidies. “Every symphony in the world incurs an operating deficit,” Flanagan says, and, if the cost disease cannot be offset, “symphony orchestras will face increasing overall deficits.” For example, performance revenues of U.S. orchestras have declined from 60% of budgets in 1940 to 41% in the 2005-06 season.

    Classical music lovers in the United States often complain that U.S. governments should treat symphony orchestras as cultural necessities and support them with larger grants. In other countries grants often cover 50% and more of operating budgets. While direct federal government grants in the U.S. have fallen to what he describes as “a negligible level,” the value of federal government tax expenditures has soared. Those tax expenditures, defined as foregone government tax revenues, because individuals and corporations can deduct their donations from taxable income, now account for 96% of all federal government support to U.S. orchestras. Such tax expenditures are much less common abroad.

    Continued in article

    Bob Jensen's threads on cost and managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


    An Innovative Reference for a Cost/Managerial Accounting Course
    Some wonderful symphony orchestras have suspended operations because of the inability to manage costs

    Every symphony in the world incurs an operating deficit
    "Financial Leadership Required to Fight Symphony Orchestra ‘Cost Disease’," by Stanford University's Robert J Flanagan, Stanford Graduate School of Business, February 8, 2012 ---
    http://www.gsb.stanford.edu/news/headlines/symphony-financial-leadership.html

     What if you sat down in the concert hall one evening to hear Haydn’s Symphony No. 44 in E Minor and found 5 robots scattered among the human musicians? To get multiple audiences in and out of the concert hall faster, the human musicians and robots are playing the composition in double time.

    Today’s orchestras have yet to go down this road. However, their traditional ways of doing business, as economist Robert J. Flanagan explains in his new book on symphony orchestra finances, locks them into limited opportunities for productivity growth and ensures that costs keep rising.

     The symphonies’ financial problems are rooted in what has come to be known as the “cost disease,” a term coined in 1966 by two then-Princeton economics professors, William Baumol and William Bowen, in a study of the economics of the performing arts. “The labor requirements for the music are set by the composer. For the most part, you don’t toy around with that,” Flanagan says. Furthermore, it takes 25 minutes to perform a Haydn symphony. Speeding up the playing or substituting a robot or digital device for one of the players doesn’t appear on any music director’s solution list, at least not yet.

    U.S. manufacturing companies offset higher labor and materials costs through gains in productivity. They work to ensure that output rises for each person employed. Automakers, for example, have added hundreds of robots to their assembly lines. Productivity gains based on computer technology have also occurred in many white- collar fields, but performing arts groups haven’t found a way to do the same.

    Flanagan, the Konosuke Matsushita Professor of International Labor Economics and Policy Analysis, Emeritus, at the Graduate School of Business, has firsthand experience with the economics of playing music. He has played a clarinet and saxophone weekly for years in a 17-piece amateur jazz orchestra. He began investigating the finances of American symphony orchestras in 2006 and published a paper in 2008 that irritated more than a few symphony board members, managers, and musicians’ union officials, because it illuminated the fragile finances of orchestras, and questioned some management practices. In the last 20 years more than a dozen U.S. symphony orchestras declared bankruptcy.

    With assistance from data collected by others, Flanagan has analyzed the finances of orchestras in the United States, continental Europe, and Australia, and reported his findings in his book, The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges, published by Yale University Press in January 2012.

    The financial health of symphony orchestras in the United States continues down a perilous path of an ever-widening gap between operating revenues and expenses, he says, after studying the financial experience of the 63 largest domestic symphony orchestras between the 1987 and 2005 concert seasons. “Even the most artistically accomplished orchestras in the United States relentlessly have trouble balancing their books,” he says.

    Flanagan explores changes in operating revenues and expenses, searching for ways to narrow operating deficits. The book covers ticket pricing strategies, marketing activities, the rapid growth of artistic pay, and competition with other performing arts organizations for the time of potential patrons. He examines how tax policies, the economic capacity of a community, and orchestra policies influence the trends and determinants of nonperformance income, such as grants and donations from private and public sources. Because there is no guarantee that nonperformance income will exactly match operating deficits, the result is an uncertain financial future.

    Orchestras outside the United States face similar economic challenges even though they benefit from millions of dollars in direct government subsidies. “Every symphony in the world incurs an operating deficit,” Flanagan says, and, if the cost disease cannot be offset, “symphony orchestras will face increasing overall deficits.” For example, performance revenues of U.S. orchestras have declined from 60% of budgets in 1940 to 41% in the 2005-06 season.

    Classical music lovers in the United States often complain that U.S. governments should treat symphony orchestras as cultural necessities and support them with larger grants. In other countries grants often cover 50% and more of operating budgets. While direct federal government grants in the U.S. have fallen to what he describes as “a negligible level,” the value of federal government tax expenditures has soared. Those tax expenditures, defined as foregone government tax revenues, because individuals and corporations can deduct their donations from taxable income, now account for 96% of all federal government support to U.S. orchestras. Such tax expenditures are much less common abroad.

    Continued in article

    Human Resource Accounting for Financial Statements

    The value of human resource employees in a business is currently not booked and usually not even disclosed as an estimated amount in footnotes. In general a "value" is booked into the ledger only when cash or explicit contractual liabilities are transacted such as a bonus paid for a professional athlete or other employee. James Martin provides an excellent bibliography on the academic literature concerning human resource accounting ---
    http://maaw.info/HumanResourceAccMain.htm

    Bob Jensen's threads on human resource accounting are at
    http://www.trinity.edu/rjensen/theory02.htm#TripleBottom

    Bob Jensen's threads on cost and managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

     

    Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm


    There were 123 Big Four audit deficiencies related to asset impairments and fair-value estimates identified in a sampling by the PCAOB in 2010
    "Asset Valuations Trip Up Audits," by Emily Chason, The Wall Street Journal, May 22, 2012 ---
    http://blogs.wsj.com/cfo/2012/05/22/asset-valuations-trip-up-audits/?mod=wsjpro_hps_cforeport

    That’s the number of audit deficiencies related to asset-valuation problems found among clients of the Big Four accounting firms in 2010.

    Market volatility has made it hard for companies and their auditors to value assets based on market prices. They often have had to turn to outside advisers for an estimate. But overreliance on such advice has led to a sharp rise in the number of audit deficiencies cited by regulators, according to a study by business-valuation firm Acuitas Inc.

    The Public Company Accounting Oversight Board found 123 audit deficiencies related to fair-value estimates and asset impairments in 2010, making asset valuation the most common audit problem, Acuitas says. The firm studied the audit watchdog’s most recent inspection reports on 250 audits and other assignments of the Big Four audit firms. They are PricewaterhouseCoopers LLP, Deloitte LLP, Ernst & Young LLP and KPMG LLP.

    The PCAOB conducts annual inspections of the Big Four and reviews the audits it considers likely to be the most problematic. It flags the work as significantly deficient if it thinks the firm doesn’t have enough evidence to justify the audit; usually the firms are able to correct any problems.

    Out of the 234 audit deficiencies cited in the agency’s 2010 inspection reports on the Big Four, it found 92 fair-value deficiencies and 31 deficiencies related to asset impairments.

    That compares with 21 fair-value deficiencies and 17 impairment-related deficiencies out of a total of 72 deficiencies in 2009.

    “The PCAOB is saying that the auditors in certain situations didn’t provide enough scrutiny in terms of management’s forecasts, or didn’t look closely enough at the assumptions and methodologies that went into some of the modeling used by corporate pricing services,” said Mark Zyla, a managing director at Acuitas.

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


    Market Taking Versus Market Making

    Paul Williams wrote:
     "Anyone who has ever executed an estate knows the law is much more coherent on the matter of what is an asset -- what does the deceased possess that can be converted into cash to settle the "legal" (i.e., enforceable in law) claims against the estate."


    Jensen Comment
    The "estate valuation" analogy over simplifies the real problem of asset identification and valuation. For example, the estate of Steve Jobs most likely was a piece of cake compared to preparing a 10-K for Apple Corporation plus identifying and valuing Apple's intangible assets --- patents, copyrights, reputation, and human resources.


    When valuing Apple Corporation shares owned by estate of Steve Jobs as of a given date we need only look up a table in the pages of the WSJ.


    When providing accounting information to investors who make the daily market for Apple Corporation shares, the task is much more daunting.


    Estate valuation is a "market taking" task. Corporate accounting is a "market making" task. This is where Baruch Lev stumbled when trying to value intangibles. He relied upon share prices to value intangibles when in fact the purpose of financial accounting is to help investors set those transaction prices. Baruch put the cart full of intangibles in front of the horse ---
    http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
     

    Bob Jensen's threads on fair value accounting are at ---
    http://www.trinity.edu/rjensen/Theory02.htm#FairValue


    An Excellent Presentation on the Flaws of Finance, Particularly the Flaws of Financial Theorists

    A recent topic on the AECM listserv concerns the limitations of accounting standard setters and researchers when it comes to understanding investors. One point that was not raised in the thread to date is that a lot can be learned about investors from the top financial analysts of the world --- their writings and their conferences.

    A Plenary Session Speech at a Chartered Financial Analysts Conference
    Video: James Montier’s 2012 Chicago CFA Speech The Flaws of Finance ---
    http://cfapodcast.smartpros.com/web/live_events/Annual/Montier/index.html
    Note that it takes over 15 minutes before James Montier begins

    Major Themes

    1. The difference between physics versus finance models is that physicists know the limitations of their models.
       
    2. Another difference is that components (e.g., atoms) of a physics model are not trying to game the system.
       
    3. The more complicated the model in finance the more the analyst is trying to substitute theory for experience.
       
    4. There's a lot wrong with Value at Risk (VaR) models that regulators ignored.
       
    5. The assumption of market efficiency among regulators (such as Alan Greenspan) was a huge mistake that led to excessively low interest rates and bad behavior by banks and credit rating agencies.
       
    6. Auditors succumbed to self-serving biases of favoring their clients over public investors.
       
    7. Banks were making huge gambles on other peoples' money.
       
    8. Investors themselves ignored risk such as poisoned CDO risks when they should've known better. I love his analogy of black swans on a turkey farm.
       
    9. Why don't we see surprises coming (five excellent reasons given here)?
       
    10. The only group of people who view the world realistically are the clinically depressed.
       
    11. Model builders should stop substituting elegance for reality.
       
    12. All financial theorists should be forced to interact with practitioners.
       
    13. Practitioners need to abandon the myth of optimality before the fact.
      Jensen Note
      This also applies to abandoning the myth that we can set optimal accounting standards.
       
    14. In the long term fundamentals matter.
       
    15. Don't get too bogged down in details at the expense of the big picture.
       
    16. Max Plank said science advances one funeral at a time.
       
    17. The speaker then entertains questions from the audience (some are very good).

     

    James Montier is a very good speaker from England!

    Mr. Montier is a member of GMO’s asset allocation team. Prior to joining GMO in 2009, he was co-head of Global Strategy at Société Générale. Mr. Montier is the author of several books including Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioural Investing. Mr. Montier is a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts. He holds a B.A. in Economics from Portsmouth University and an M.Sc. in Economics from Warwick University
    http://www.gmo.com/america/about/people/_departments/assetallocation.htm

    There's a lot of useful information in this talk for accountics scientists.


    "The Radical New Humanities Ph.D.," by Kaustuv Basu, Inside Higher Ed, May 16, 2012 ---
    http://www.insidehighered.com/news/2012/05/16/rethinking-humanities-phd

    The warning last year from Russell Berman, who at the time was president of the Modern Language Association, was apocalyptic: If doctoral programs in the humanities do not reduce the time taken to graduate, they will become unaffordable and face extinction.

    Now, Berman has taken his ideas home. At Stanford University, where he is a professor of comparative literature and directs the German studies program, he and five other professors at the university have produced a paper that calls for a major rethinking at Stanford -- a reduction in the time taken to graduate by Ph.D. candidates in the humanities, and preparing them for careers within and beyond the academy. The professors at Stanford aren't just talking about shaving a year or so off doctoral education, but cutting it down to four or five years -- roughly half the current time for many humanities students.

    The Stanford professors aren’t alone in pushing this kind of thinking. The Department of Comparative Literature at Harvard University, for example, is already testing some ideas, and so is the University of Minnesota. The initiatives at all three places, whether proposed or in its infancy, involve changing academic culture and university policies to refashion the humanities Ph.D. The University of Colorado at Boulder recently announced a four-year Ph.D. in German studies, consistent with the principles being discussed at Stanford, although the Colorado effort applies to one small program while the Stanford and Minnesota initiatives are much broader.

    The Stanford document proposes a scenario where students decide on a career plan -- academic or nonacademic -- they want to embark on by the end of their second-year of graduate study, file the plan with their department, and then prepare projects and dissertation work that would support that career. Similarly, departments have to help students make realistic career choices at the end of the second year of graduate study, and advise students regularly. “…[T]hey should aim to balance academic training in a particular discipline and field with the provision of broader professional perspectives that may extend beyond the traditional academic setting,” the document said.

    This would represent a dramatic shift from the current norm, whereby many humanities grad students say that their entire program is designed for an academic career, and that they only start to consider other options when they are going on the job market -- a bit late to shape their preparation for nonacademic options.

    According to the document, one way to speed up time to degree would be to include “four-quarter” support for students instead of unfunded summers, currently the standard for many humanities Ph.D. programs. Gabriella Safran, a professor of Slavic languages and literature at Stanford, who also worked with Berman to create the proposal, said the key might be to anticipate when Ph.D. candidates are getting bogged down and respond to the issue earlier. “A better use of time might be to use the summers more effectively. Right now, I think there are too many unfunded summers when students don’t make progress,” she said.

    Berman, who said that the recent document was mostly an effort directed at administrators to “reform degree trajectories," believes that time to degree can be reduced to four or five years. “The study of the humanities need to be accessible and cheap. And we have to become more transparent about our placement records,” he said.

    The document said that departments should have suitable plans in terms of curriculum, examination schedule, and dissertation that will help speed up time to degree. “Scholarly fields have widened, and added a lot of expectations,” Berman said.

    He emphasized the need to amplify success stories of students who have ventured beyond the academic world. “We should be telling all their stories,” said Berman, who is also chairing a MLA task-force on the future of the doctorate in the languages and literature.

    David Damrosch, a professor of comparative literature at Harvard University, said that Ph.D. students and professors in his department have been thinking more carefully about coursework. “Very often, students drift for extended periods,” he said. Frequent meetings with dissertation committee members are helpful, he said. “All this result in fewer incompletes in coursework … and more consistent progress in the dissertations,” said Damrosch.

    “In anthropological terms, academia is more of a shame culture than a guilt culture: you may feel some private guilt at letting a chapter go unread for two or three months, but a much stronger force would be the public shame you'd feel at coming unprepared to a meeting with two of your colleagues,” he said. “It’s also ultimately a labor-saving device for the faculty as well as the student, as the dissertation can proceed sooner to completion and with less wasted effort for all concerned….” With frequent meetings, the students doesn’t lose time on “unproductive lines of inquiry” or “tangential suggestions tossed out by a single adviser,” Damrosch said.

    A two-hour oral exam, meetings each semester with “dissertation-stage” students and their committee members, and clearer feedback for students are part of the graduate program in the comparative literature department now. “We also introduced a monthly forum for students to share and discuss their own work; and an ambitious series of professional development talks, on everything from article submission to dissertation planning to alternative careers,” Damrosch said.

    The University of Minnesota is also taking a fresh look at its Ph.D. programs. Henning Schroeder, vice provost and dean of the graduate school at the university, said that professors and administrators have been discussing how to give the Ph.D. a narrower focus. “How much coursework do students need before they engage in scholarly research?” he asked.

    Getting students into a “research mode” earlier helps save time, Schroeder said. “The question is also, what can we do at the administrative level?” he said. The university has promoted discussion on best practices on advising, and also how the “prelim-oral” -- a test students take before writing their dissertations – can delay research. The university now lets students get credit for research work before the oral examination, in an effort to allow for more flexibility in curriculums and to reduce time to degree.

    Debra Satz, senior associate dean for the humanities at Stanford and a professor of philosophy, said that too many students end up spending six to eight years in the Ph.D. program. “There is no correlation between taking a longer time to degree and getting a job in an academic humanities department,” she said. And ultimately, she said, how can the length of time taken by a Ph.D. be justified if the person has to reinvent or retool at the end to be employed?

    The discussions should not only be about new career paths and the time taken to graduate, but about how to implement change without affecting the quality of the programs, Satz said. “Many ideas have been floated: creating paths for our humanities Ph.D.s to high school teaching, creating paths to the high technology industry, thinking about careers in public history, and so on,” she said.

    And while it is too early to see definite results from these institutions, many believe that the timing is right.

    Anaïs Saint-Jude, director of the BiblioTech program – which seeks to bridge the gulf between doctoral humanities candidates at Stanford and jobs outside academe, including those in the tech world -- believes that all this is happening because this is a pivotal moment in higher education. “It was kindling that was ready to be ignited…. We started talking about it, and it created such momentum that we were able to create a veritable program,” Saint-Jude said, referring to the BiblioTech program that began in 2011. Part of the program’s vision includes trying to change the mindset of academics and non-academics alike. “It is about garnering the trust of industry leaders, and trying to break apart and think differently,” she said. The program’s annual conference last week included venture capitalists as well as executives from Google and Overstock.com.

    Continued in article

    Jensen Comment
    Suppose Karen Smith enters into a customized PhD program at XXXXX State University with a goal of getting into a history tenure track position in the Academy. Wishing it so just is not going to make it so. When she graduates with her PhD diploma in hand, there will probably be over 100 qualified applicants wherever she applies in North America. The competition is keen.

    Some Things to Ponder When Choosing Between an Accounting Versus History PhD ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#HistoryVsAccountancy
     


    "Where the Fortune 500 CEOs Went to School:  These schools awarded at least 10 college and graduate degrees to America’s leading executives," by Menachem Wecker, US News, May 14, 2012 ---
    http://www.usnews.com/education/best-graduate-schools/top-business-schools/articles/2012/05/14/where-the-fortune-500-ceos-went-to-school

     

    Institution Total degrees Undergraduate degrees MBAs Other graduate degrees US News undergraduate rank US News business school rank
    Harvard 65 11 40 14 1 1
    Stanford 27 11 10 6 5 1
    Pennsylvania 24 7 13 4 5 3
    Columbia 18 3 4 11 4 8
    Michigan 14 6 5 3 28 13
    Notre Dame 14 10 1 3 19 25
    Virginia 14 4 4 6 25 13
    Cornell 13 8 3 2 15 16
    Dartmouth 12 9 3 0 11 9
    Indiana 11 5 6 0 75 23
    Northwestern 11 2 6 3 12 4
    Rutgers 11 5 3 3 68 63
    MIT 10 3 0 7 5 4

     

    Jensen Comment
    For years I've preached that students seek prestigious universities for much more than book learning. The top universities provide networking opportunities and alumni relations that probably exceed most anything students learn from the books. Of course, networking experiences are highly variable.

    But there also is a well-known problem of correlation versus causation going on here. There may be underlying causal factors such as the attributes of students who gain admission to prestigious schools that a subset of those students may rise to the top irrespective of where they graduate.

    If you annually track the backgrounds of CPAs admitted into the Big Four partnerships in the United States you will be surprised the proportion that graduated as accounting majors for Podunk College. Cream rising to the top is a fundamental attribute of molecular chemistry.

    But we cannot deny the fact that a degree from a prestigious university is a key that unlocks doors. This is especially the case when it comes to PhD graduates seeking tenure track positions. A Podunk College PhD generally does not stack up well with a doctorate from Harvard, Stanford, and Penn. There are exceptions of course, but these are rare in the Academy.


    "Empathy: The Most Valuable Thing They Teach at HBS,"  by James Allworth, Harvard Business School Blog, May 15, 2012 --- Click Here
    http://blogs.hbr.org/cs/2012/05/empathy_the_most_valuable_thing_they_t.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    These probably aren't words that you were expecting to see in the same sentence — Harvard Business School and empathy. But as I reflect back on my time as a student there, I've begun to realize that more than anything else, this is one of the the most valuable things that the school teaches.

    It starts on day one. You're put into a "section" with 90 incredibly smart folks, people with whom you quickly become good friends. Then the moment arrives when you step into class, prepared for a case discussion with what you're sure is the right answer — but just before you're able to stick your hand up and get in on the discussion, a good friend — someone who you deeply respect and admire — jumps in to the conversation with an opinion that's exactly the opposite of yours. And it begins to dawn on you...that what they've expressed is right.

    It's a humbling moment. It's valuable not just in reminding you that you're not always right (though that's always valuable), but also in teaching you to step out of your own shoes, and to put yourself into those of someone else.

    It's a trait that is sorely lacking at the moment. There's a case to be made that the American political system is suffering at present because empathy has been almost entirely exorcised from within its walls. Politicians are being elected on the back of their ability to vilify those with whom they don't agree. These are not people who come to office with questions, or who seek to understand; instead, many are dogmatists, able to see the world through their own eyes. Their interest in conversation runs only one way — many seem capable of only talking at, not with, those with a different point of view on the world. The jettisoning of compromise is a direct result of this state of affairs; why would you give an inch of your position to someone whose perspective you can't even bring yourself to entertain?

    The place for me, however, where an appreciation of empathy is most undervalued, is in business. The potential upside for those in business who are able to be empathetic is huge, and is eloquently described in Professor Clay Christensen's jobs-to-be-done theory. Understanding that people don't buy things because of their demographics — nobody buys something because they're a 25-30 year old white male with a college degree — but rather, because they go about living their life and some situation arises in which they need to solve a problem... and so they "hire" a product to do the job. This is a big "ah ha" to many folks when they first hear it; but when you really boil it down, the true power of this is in giving people in business a frame with which to exercise empathy. In fact, both Akio Morita of Sony and Steve Jobs were famous for never commissioning market research — instead, they'd just walk around the world watching what people did. They'd put themselves in the shoes of their customers.

    And for those businesses whose executives are incapable of it? Well, they are subject to the ultimate stick — disruption. No better example of this exists than the story of Blockbuster and its competitive tangle with Netflix.

    Blockbuster saw the rise of Netflix in the very early 2000s, and chose not to do anything about it. Why? Well, its management couldn't see the world from any perspective other than from the vantage point from which they sat: atop a $6 billion business with 60% margins, tens of thousands of employees and stores all across the country. Blockbuster's management couldn't bring itself to see Netflix's perspective: that while Netflix was only achieving 30% margins, Netflix wasn't comparing its 30% to Blockbuster's 60%. Netflix was comparing it to no profit at all. And Blockbuster's management certainly couldn't see the world from their customers' perspective: that late fees were driving folks up the wall, and that their range of movies eschewed anything that wasn't a new release. While Blockbuster knew it could invest to create a Netflix competitor, that would be an expensive proposition, it might not work, and even if it did, it would probably cannibalize its existing business. With that being their perspective, they saw two choices: creating a disruptive entrant with all the pitfalls of cost, and risk; or just continuing with the existing business. Thinking those were their options, continuing with the existing business looked like a pretty obvious choice.

    Continued in article

    Bob Jensen's threads on higher education controversies are at
    http://www.trinity.edu/rjensen/HigherEdControversies.htm


    MIT, like Harvard, places enormous value on having both feet planted in the real world

    The professions of architecture, engineering, law, and medicine are heavily dependent upon the researchers in universities who focus on needs for research on the problems of practitioners working in the real world.

    If accountics scientists want to change their ways and focus more on problems of the accounting practitioners working in the real world, one small step that can be taken is to study the presentations scheduled for a forthcoming MIT Sloan School Conference.

    Financial Education Daily, May 2012 ---
    http://paper.li/businessschools?utm_source=subscription&utm_medium=email&utm_campaign=paper_sub

    Learning best practice from the best practitioners

    MIT Sloan invites more than 400 of the world’s finest leaders to campus every year. The most anticipated of these visits are the talks given as part of the Dean’s Innovative Leader Series, which features the most dynamic movers and shakers of our day.

    At a school that places enormous value on having both feet planted in the real world, the Dean’s Innovative Leader Series is a powerful learning tool. Students have the rare privilege of engaging in frank and meaningful discussions with the leaders who are shaping the present and future marketplace.

    Bob Jensen's threads on other steps that should be taken by accountics scientists to become more focused on the needs of the profession ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    (Taxpayers) "are willing to accept a larger share of the burden required to reform the Social Security system as their concern about the future sustainability of the Social Security worsens." However, "this willingness to accept a larger share of the burden does not begin until participants' concerns reach a very high level...Prior to reaching that very high level of concern, the data...indicate there is no change in (taxpayer) willingness to accept a larger share of the burden."
    "The Effect of Accounting Information on Taxpayers' Acceptance of Tax Reform," Journal of the American Taxation Association, published twice a year by the AAA, by James J. Maroney, Cynthia M. Jackson, Timothy J. Rupert, and Yue (May) Zhang, Spring 2012
    Access us not free even for AAA members

    This study examines the extent to which investor-level taxes affect the pricing and pre-tax returns of securities. Specifically, we investigate whether the pre-tax yield on outstanding conventional preferred stock (CPS) decreased after the 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) reduced the individual's tax rate on dividends. Our research design for detecting tax effects is strong for two reasons: (1) JGTRRA provides a quasi-experimental setting that permits a pre/post design, and (2) we use trust preferred stock (TPS) issued by the same firm as the tax-disfavored benchmark asset, which permits a matched-pair design that controls for risk. Additional tests including CPS issues without TPS counterparts confirm the effect of JGTRRA on CPS issues. The results indicate that investors reacted to the new tax-favored status of CPS by bidding up its price, which lowered its yield.

    "AAA PUBLISHES STUDY ON AMERICANS' WILLINGNESS TO SACRIFICE TO SAVE SOCIAL SECURITY," by Bob Schneider, AccountingEducation.com, May 2012 ---
    http://www.accountingeducation.com/index.cfm?page=newsdetails&id=151976

    The authors state: "Given the urgency of this problem, our results may provide some guidance to policy makers as they consider possible reforms to the Social Security system and how to communicate the need for these reforms to taxpayers...While this information may heighten taxpayers' concern about the sustainability of the system, it also appears to increase their acceptance of traditionally unpopular reform measures." Accrual-basis information might also be featured, they add, in "the annual benefits statement ('Your Social Security Statement') sent to workers, so as to alert taxpayers about the financial condition of the Social Security fund."

    Adds Prof. Rupert: "The crux of our study is that people could very well respond to a clear and forthright presentation of this problem much as they have responded in the past to such national crises as wars or natural disasters."

    The new study consists of an
    experiment involving 159 undergraduate and graduate accounting students, "an important group to examine," in the researchers' words, "because it is likely that family and friends would seek their expertise and guidance to help them understand potential tax reform measures." Subjects were randomly divided into three groups as part of a project, they were told, "to study taxpayers' opinions about the Social Security system and taxpayers' attitudes about potential changes to the Social Security system."

    In conclusion, the professors put it this way: "Participants in our study appear to be exhibiting self-sacrificing behavior rather than self-interested behavior as their concern about Social Security's sustainability increases...However, we also find that as the participants' concern...reaches an extremely high level, their willingness to accept a larger share of the burden needed to reform the Social Security system begins to decline. Our finding is also consistent with [the] suggestion that when a crisis is believed to be so overwhelming as to induce feelings of helplessness, it may lead to self-interested behavior. If self-interested behavior does arise, Congress may need to act very soon to reform the Social Security and Medicare systems before younger taxpayers begin to believe the system is beyond repair."

    Bob Jensen's threads on entitlements ---
    http://www.trinity.edu/rjensen/Entitlements.htm


    Two finance professors at Trinity University are retiring this year. For those of you who know Phil Cooley and/or Carl Hubbard, the retirement party pictures are at
    https://picasaweb.google.com/103442420802627433815/TrinityUniversityRetirements2012
    Thank you Debbie Bowling

    Bob Jensen's 2006 retirement party pictures are at
    http://www.cs.trinity.edu/~rjensen/PictureHistory/2006RetirementParty/


    "Projects Aims to Build Online Hub for Archival Materials," by Jennifer Howard, Chronicle of Higher Education, May 13, 2012 ---
    http://chronicle.com/article/Building-a-Digital-Map-of/131846/?sid=wc&utm_source=wc&utm_medium=en

    In death, as in life, people don't always leave their papers in order. Letters, manuscripts, and other pieces of evidence wind up scattered among different archives, leading researchers on a paper chase as they try to hunt down what they need for their work.

    "It can be hugely frustrating—especially when you make a journey cross-country to an archive, and then discover the piece you really wanted must be somewhere else (or, God forbid, rotting away in a landfill)," says Robert Townsend, deputy director of the American Historical Association, in an e-mail interview. Chasing after distributed historical records is so common that "any historian who has not suffered from that problem can't be working very hard," he wrote.

    The Internet has made the hunt easier, as more archives post finding aids for their collections online. "Scholars have at least gotten to the point where they can search over the Internet for these materials," says Daniel V. Pitti, the associate director of the Institute for Advanced Technology in the Humanities, or IATH, at the University of Virginia. But what he calls "hunting and gathering" persists for document-seekers, who "a priori have to have some idea, some hunch, of where to go, because the access systems are distinct and not integrated any way."

    Now imagine a central clearinghouse for those records, an online hub researchers could consult to find archival materials.

    That vision drives a project of Mr. Pitti's called the Social Networks and Archival Context Project, or SNAC. It's a collaboration between researchers and developers at IATH, the University of California at Berkeley's School of Information, and the California Digital Library. The project recently finished its pilot stage with the help of a grant from the National Endowment for the Humanities. Another grant, from the Andrew W. Mellon Foundation, will support the project through another two years as it adds millions more records and begins beta testing with researchers.

    Some people have already found the prototype, which is up and running although not yet widely promoted. The site allows visitors to search for the names of individuals, corporate entities, or families to find "archival context records" for them.

    "So if I'm interested in a particular person," Mr. Pitti says, "I can find where all the records are that would be required to understand them." For instance, a search for Robert Oppenheimer turns up a link to a collection of the physicist's papers housed at the Library of Congress, plus links to other collections in which he is referenced, a biographical timeline, and a list of occupations and subjects related to his life and work.

    A researcher can explore a person's social and cultural environment with SNAC's radial-graph feature. It creates a web, which can be manipulated, of a subject's connections as revealed in archival records. The radial graph of Oppenheimer's network, for instance, includes George Kennan, Linus Pauling, Bertrand Russell, and Albert Schweitzer, among many other names represented as nodes on the graph.

    Not yet fully developed, the radial-graph feature supports one of the project's main goals: to visualize the social networks within which archival records were created. "What you're trying to do is put together the puzzle, the fabric of someone's life, the people that influenced them and the people they influenced," Mr. Pitti says. "One could certainly, in an analog context, piece this together, but it would take years and years of work. What we're demonstrating is that we can go out there and gather all that information and present it to you, which would liberate scholars." Connecting archival data can reveal patterns of association hidden in disparate collections.

    Data Quality Important

    To work well, SNAC requires good data. Its first phase drew on thousands of finding aids—encoded with a standard known as Encoded Archival Description, or EAD—from the Library of Congress, the Northwest Digital Archives, the Online Archive of California, and Virginia Heritage. A newer standard for encoding archival information, referred to as EAC-CPF, for Encoded Archival Context-Corporate Bodies, Persons, and Families, was then applied to those records, making them easier to find and connect.

    Archives are idiosyncratic, and it's not always easy to tell whether a name refers to a particular individual or to different people with identical or similar names. One of Mr. Pitti's main collaborators is Ray R. Larson, a professor in the School of Information at the University of California at Berkeley. He concentrates on what Mr. Pitti calls the "matching and merging" required to winnow out duplicate names, find variants of the same name, and so on. To do that Mr. Larson has tested several approaches, including machine learning, in which a computer is programmed to recognize, for example, common variations in spelling.

    The job is about to get much tougher, though, because SNAC is about to get much bigger. As part of the second phase of the project, supported by the Mellon grant, 13 state and regional archival consortia and more than 35 university and national repositories in the United States, Britain, and France will contribute records. The British Library "is giving me 300,000 names associated with their manuscript collections," going back to before the Christian era, says Mr. Pitti.

    The project will also ingest as many as 2 million standardized bibliographic records, in the widely used MARC format, from the online OCLC collaboration in which libraries exchange research and cataloging information. OCLC has its own centralized archival search function, called ArchiveGrid; Mr. Pitti describes it as complementary to SNAC. Unlike SNAC, though, "ArchiveGrid does not foreground the biographical-historical data, nor does it reveal the social networks that interrelate the archival resources," he says.

    Continued in article

    Bob Jensen's threads on archived databases ---
    http://www.trinity.edu/rjensen/Bookbob2.htm

    Bob Jensen's threads on electronic literature ---
    http://www.trinity.edu/rjensen/ElectronicLiterature.htm


    New Tool for Fair Value Accounting

    Stock and Bond Valuation App ---
    http://people.stern.nyu.edu/adamodar/New_Home_Page/uValue.html


    Higher Education Bubble --- http://en.wikipedia.org/wiki/Education_bubble

    Educating the Masses:  From MITx to EDX
    Harvard and MIT Create EDX to Offer Free Online Courses Worldwide --- Click Here
    http://www.openculture.com/2012/05/harvard_and_mit_create_edx_to_offer_free_online_courses_worldwide.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

    It all started early last fall. Sebastian Thrun went a little rogue (oh the audacity!) and started offering free online courses under Stanford’s banner to mass audiences, with each course promising a “statement of accomplishment” at the end. Hundreds of thousands of students signed up, and universities everywhere took notice.

    Since then we have witnessed universities and startups scrambling fairly madly to create their own MOOCs (Massive Open Online Courses), hoping to gain a foothold in a new area that could eventually disrupt education in a major way. In December, MIT announced the creation of MITx, promising free courses and a “certificate of completion” to students worldwide. Sebastian Thrun left Stanford to create Udacity, and another Stanford spinoff, Coursera, gained instant traction when it announced in April that it had raised $16 million in venture capital and signed partnerships with Princeton, Penn and U Michigan.

    Now comes the latest news. MIT has teamed up with its Cambridge neighbor, Harvard, to create a new non profit venture, EDX. To date, Harvard has barely dabbled in open education. But it’s now throwing $30 million behind EDX (M.I.T. will do the same), and together they will offer free digital courses worldwide, with students receiving the obligatory certificate of mastery at the end. The EDX platform will be open source, meaning it will be open to other universities. Whether EDX will replace MITx, or sit uncomfortably beside it, we’re not entirely sure (though it looks like it’s the former).

    Classes will begin next fall. And when they do, we’ll let you know … and, of course, we’ll add them to our massive collection of 450 Free Online Courses.

    For more information, you can watch the EDX press conference here and read an FAQ here.

    "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 & Khan Academy Team Up to Develop Science Videos for Kids. Includes The Physics of Unicycling --- Click Here
    http://www.openculture.com/2012/05/mit_khan_academy_team_up_to_develop_science_videos_for_kids.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

    Bob Jensen's threads on MITx and Khan Academy and other free videos from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

     

    "Innovations in Higher Education? Hah! College leaders need to move beyond talking about transformation before it's too late," by Ann Kirschner, Chronicle of Higher Education, April 8, 2012 ---
    http://chronicle.com/article/Innovations-in-Higher/131424/?sid=wc&utm_source=wc&utm_medium=en

    Bob Jensen's threads on free courses, lectures, videos, and course materials from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    "Stanford’s Credential Problem," by Kevin Carey, Chronicle of Higher Education, May 14, 2012 ---
    http://chronicle.com/blogs/brainstorm/stanfords-credential-problem/46851?sid=wc&utm_source=wc&utm_medium=en

    A couple of weeks ago, while discussing the announcement of the Harvard / MIT edX initiative, I included a brief recap of what’s been happening over the last six months in the land of Massively Open Online Courses (MOOC’s), which began as follows:

    Throughout the fall 2011 semester, a group of well-known Stanford professors had been running an unorthodox experiment by letting over 100,000 students around the world take their courses, online, for free. Those who did well got a certificate from the professor saying so.

    Later than day, I received an email titled “error in your blog” from a person who works in communications for Stanford, which I’m reprinting with permission. The person said:

    Students who did well did not receive a certificate. Neither Stanford nor the professors issued a certificate. All students who completed the courses received a letter from the professor saying that they had completed the course. And that’s it.

    This is telling. I used the word “certificate” deliberately, because “letter” seemed inadequate. A letter is a vehicle for interpersonal correspondence, e.g. “Dear Mom, I am having fun at camp this summer, please send cookies,” or “Dear Sir, we regret to inform you that your manuscript does not meet our standards for publication.” A certificate is a document describing some kind of important characteristic of the bearer, as attested by the issuer. A college diploma is a kind of certificate, as is a teaching certificate issued by a state licensing board, as were the old-fashioned “letters of introduction” people once used to facilitate business and social interactions. As is, I would argue, the document that students received upon completing the Stanford MOOC in question. Here it is:

     

    Continued in article

    Bob Jensen's threads on MITx, EDX, and other credential programs from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    Here is a politically incorrect tax loophole costing billions ---
    http://www.wthr.com/video?clipId=7054149&topVideoCatNo=103348&autoStart=true

    May 4, 2012 reply from Jim McKinney

    It does not seem to be a loophole but just simple fraud.

    From IRS Pub 972:

    Qualifying Child:

    4. Lived with you for more than half of 2011

    7. Was a U.S. citizen, a U.S. national, or a U.S. resident alien.


    Event Study --- http://en.wikipedia.org/wiki/Event_study

    From The Wall Street Journal Weekly Accounting Review on May 11, 2012

    Earnings Surprises Lose Punch
    by: Spencer Jakab
    May 07, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Earning Announcements, Earnings Forecasts, Earnings Management, Regulation

    SUMMARY: "Companies and the analysts who cover them typically set the [earnings expectations] bar low enough that a 'beat' has to be substantial, and not marred by unpleasant news about the outlook, to really have an impact." The article shows that the 20 year average proportion of firms beating the consensus of analysts' estimates is 58% each quarter, while the proportion for firms reporting their calendar first quarter of 2012 is 70%. From 1993 through 2001, about half of companies had positive earnings surprises, "which seems natural."

    CLASSROOM APPLICATION: The article is useful to introduce earnings forecasts in any financial accounting class.

    QUESTIONS: 
    1. (Advanced) What does it mean to say that a company may "meet or beat" earning expectations? In your answer, define who sets these expectations.

    2. (Introductory) What was the average proportion of firms who met or beat the consensus forecasts of analysts following their firms for the first calendar quarter of 2012?

    3. (Advanced) What was the percentage of firms who beat earnings forecasts from 1993 to 2001? Why should that result "seem natural"?

    4. (Advanced) What is the overall pattern of analysts' estimates? Why do you think this pattern emerges? How does it lead to the conclusion that "the important statistic is actual corporate profits"?

    5. (Introductory) What is the SEC's Regulation Fair Disclosure? (Hint; you may search on the SEC's web site at www.sec.gov to investigate this question.) According to the article, how does the implementation of Regulation FD impact the earnings forecasting process?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Earnings Surprises Lose Punch," by Spencer Jakab, The Wall Street Journal, May 7, 2012 ---
    http://online.wsj.com/article/SB10001424052702304020104577384304200945934.html?mod=djem_jiewr_AC_domainid

    Gomer Pyle might have been about as competent an equity strategist as he was a marine. While the knee-jerk reaction to a positive earnings surprise is often, well, positive, gains can be fleeting. The reason is that companies and the analysts who cover them typically set the bar low enough that a "beat" has to be substantial, and not marred by unpleasant news about the outlook, to really have an impact.

    Take the current earnings season. Now that a little over four-fifths of S&P 500 companies by market value have reported, Brown Brothers Harriman says 70% of those have beaten estimates. But since Alcoa Inc. informally kicked off the current reporting season April 10, the S&P 500 is down slightly.

    While this "positive surprise ratio" of 70% is above the 20 year average of 58% and also higher than last quarter's tally, it is just middling since the current bull market began in 2009. In the past decade, the ratio only dipped below 60% during the financial crisis. Look before 2002, though, and 70% would have been literally off the chart. From 1993 through 2001, about half of companies had positive surprises, which seems natural.

    What changed? One potential reason is the tightening of rules governing analyst contacts with management. Analysts now must rely on publicly available guidance or, gasp, figure things out by themselves. That puts companies, with an incentive to set the bar low so that earnings are received positively, in the driver's seat. While that makes managers look good short-term, there is no lasting benefit for buy-and-hold investors. In fact, an October study by CXO Advisory Group found that the average weekly index return during earnings season has been slightly negative since 2000, while it has been positive for the rest of the year.

    The important statistic is actual corporate profits. BBH estimates the S&P 500 recorded operating earnings of $25.31 a share last quarter. That is about $1.50 higher than analyst consensus estimates a month ago but around $1.00 below last July's estimate. That is a typical pattern as expectations start out too optimistic and, by the time actual earnings approach, are too low. When the ink is dry, though, actual profits rarely make it to where expectations first began.

    As Gomer would exclaim: "Well gaw-lee."


    From The Wall Street Journal Accounting Weekly Review on May 11. 2012

    Toyota's Profit, Outlook Soar as Full Production Recovers
    by: Yoshio Takahashi
    May 09, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Earning Announcements, Earnings Forecasts, Fixed Costs, Foreign Currency Exchange Rates, Variable Costs

    SUMMARY: "Buoyed by a five-fold surge in net income in the fiscal fourth quarter and a return to full production capacity, an upbeat Toyota Motor Corp. on Wednesday forecast a doubling of profits in the current fiscal year through March 2013."

    CLASSROOM APPLICATION: The article is useful in both financial and managerial accounting classes, or an MBA class, to combine topics in these two areas. Specific topics addressed are quarterly versus full year results, management guidance and earnings forecasts, fixed costs in heavy industries such as automobile manufacturing, and (for more advanced students) the impact of foreign currency exchange rates on operating results.

    QUESTIONS: 
    1. (Advanced) Access the announcement of financial results for the fiscal year ended March 31, 2012, available on the SEC web site at http://www.sec.gov/Archives/edgar/data/1094517/000119312512220104/d335606dex991.htm#toc. What does Toyota management say about its results for that year?

    2. (Introductory) Compare the discussion of annual results with the description in the WSJ article. On what information does the author focus analysis of results?

    3. (Introductory) Describe how the graphic related to the article summarizes the focus described in your answer above.

    4. (Advanced) Refer again to the filing by Toyota Motor Corp. What factors influenced output of automobiles in 2011 and 2012?

    5. (Advanced) Consider the nature of automobile manufacturing, typically described as heavy manufacturing. How does reduced output impact companies in this industry? Why does returning output to "normal" provide significant profit increases? In your answer, define the terms fixed and variable costs.

    6. (Introductory) Again refer to the Toyota Motor Corp. SEC filing. What management guidance about future sales and profits does the company provide?

    7. (Advanced) Why does the company have to state that the forecasted information is "...based on the assumption the dollar will average ¥80 and the euro ¥105 during the period"? Specifically describe the effect that different exchange rates might have on these expected results of operations.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Toyota's Profit, Outlook Soar as Full Production Recovers," byYoshio Takahashi, The Wall Street Journal, May 9, 2012 ---
    http://blogs.wsj.com/drivers-seat/2012/05/09/toyotas-profit-outlook-soar-as-full-production-recovers/?mod=djem_jiewr_AC_domainid

    Buoyed by a five-fold surge in net income in the fiscal fourth quarter and a return to full production capacity, an upbeat Toyota Motor Corp. on Wedneday forecast a doubling of profits in the current fiscal year through March 2013.

    Japan’s largest car maker by volume recorded a net profit of ¥121.0 billion ($1.51 billion) in the three months ended March, up from ¥25.4 billion a year earlier, marking the first quarterly growth in six quarters. The result beat analysts’ estimates for ¥112.9 billion net profit in a poll compiled by data provider FactSet.

    The company sees its net profit more than doubling to ¥760 billion in the current fiscal year through March. In the just-ended fiscal year, Toyota’s net profit dropped 30.5% to ¥283.56 billion. Sales for this fiscal year are seen rising 18.4% to ¥22.000 trillion, while operating profit is expected to nearly triple to ¥1.000 trillion.

    The upbeat outlook comes after a series of difficult challenges for Toyota over the last few years, including high-profile quality-control issues and natural disasters at home and abroad. The Japanese company ceded the title of world’s biggest auto maker to General Motors Co. last year.

    “In recent years, we have suffered periods of hardship,” said Toyota President Akio Toyoda at a press conference. “This year, I am determined to show tangible results of all our internal efforts,”

    The outlook for the fiscal year is based on the assumption the dollar will average ¥80 and the euro ¥105 during the period, compared with ¥79 and ¥109 in the previous 12 months.

    The marginally higher dollar rate for this fiscal year will slightly ease the pressure of the strong yen on its bottom line.

    But with the car maker in the midst of drive to increase exports from Japan to make up for lost production last year, Toyota Chief Financial Officer Satoshi Ozawa warned that sensitivity to any fluctuations in the dollar will rise this fiscal year.

    Each weakening of the dollar by one yen, will cut the company’s operating profit by ¥35 billion this fiscal year, larger than ¥32 billion in the last fiscal year, he said.

    Toyota joins Honda Motor Co. in projecting a substantial turnaround in the current fiscal year, underscoring how Japan’s auto industry aims to win back customers lost to U.S., German and South Korean rivals.

    Honda, Japan’s third biggest car maker by volume, in late April reported a 61% jump in net profit and said it expects its net profit to more than double to ¥470 billion for this fiscal year.

    Analysts expect Nissan Motor Co. to join its two major local rivals in forecasting a bright profit outlook when it releases January-March results and its projection for the year on Friday.

    Continued in article

    "The Prius V and Its Entune System," by David Pogue, The New York Times, May 3, 2012 ---
    http://pogue.blogs.nytimes.com/2012/05/03/the-prius-v-and-its-entune-system/

    When our 12-year-old minivan finally gave up the ghost, it was time to go car shopping.

    I didn’t want another minivan; driving around a gas-guzzling seven-seater didn’t make much sense when 98 percent of my trips involve one child and one driver. I definitely didn’t want an S.U.V.; in the 18 years I’ve lived in Connecticut, I have yet to encounter a flash flood or a sudden mountain on the way to the grocery store. Yet I wanted something roomier than my beloved Honda Fit. I love it, but two of my three children are now teenagers, so it has become a tight Fit indeed.

    I finally settled on the brand-new Prius V, which is an enlarged Prius.

    Toyota’s always been the leader in hybrid motors, and I’ve always loved the regular Prius. The Prius V (pronounced “vee,” not “five”) is something like a crossover Prius. To my children’s delight, it has as much room as a small S.U.V.; the back seats offer 30 percent more space than the regular Prius, and they even recline.

    I think it’s a great-looking car, too; Toyota finally eliminated the stupid support bar that used to block the back window. And the ride is perfect.

    Of course, you’re not going to go zero to 60 in five seconds in this car. But it gets 44 miles a gallon and produces one-tenth the pollution of a regular car, which makes me very happy.

    Best of all (for a technophile like me), the Prius V is the first Toyota to incorporate a new electronics system, Entune. The concept is brilliant; the dashboard touch screen offers buttons for apps like Bing, Traffic, Weather and Pandora radio that connect to the Internet through your phone. It works with iPhone or Android phones, as long as you’ve downloaded the necessary Entune phone app and signed up for a free account.

    For days, though, I couldn’t get the system to work. I’d paired my iPhone with the car’s Bluetooth system in seconds, so I could play music and make phone calls wirelessly with no problem at all. (A nice touch: your Bluetooth music fades and pauses when you get a phone call, even when you’re not sending the phone call through the car’s sound system.) But whenever I tried to use one of the car’s apps, I got a message that said something like, “No connection to the Internet.”

    It took some Googling to unearth the bizarre glitch. The Prius can see the Internet connection only when the iPhone is wired to the dashboard’s USB jack. It can’t connect over Bluetooth. (Android phones, on the other hand, work wirelessly.) Toyota indicates that it will fix that iPhone-specific shortcoming shortly.

    Once the problem was solved, though, I saw the potential instantly. Once I entered my Pandora name and password, I could tune in to any of my custom-made “radio stations” as I drove (with a watchful eye on my monthly Verizon data limit, of course). I could see the gas prices of nearby gas stations right on my dashboard, without having to pull off the highway.

    Wildest of all, Entune works with the car’s GPS system. Whenever it’s guiding you to a destination, it uses your phone’s Internet connection to download traffic data, and it spots coming traffic jams before you do. Suddenly, the dashboard screen might say, “Traffic jam in 2.1 miles, average speed 10 m.p.h.” You’re offered two buttons: Accept and Detour. That’s right; with one tap on the screen, you can direct the Prius to find its own way around the traffic jam.

    Continued in article

    The Price of Perfection:  That Straw That Saved the 10 Millionth Camel's Back 
    Contemplate the flip side of my argument. A 100 percent safe car is impossible to build. As a manufacturer approaches 100 percent safety, the manufacturing costs increase exponentially. The real question is what is the customer (or society) willing to pay for safety as it approaches 100 percent safe. Most consumers would be willing to pay $20,000 for a car that is 99.8 percent safe but not $100,000 for a car that is 99.9 percent safe. Are the customers wrong? How would they react to Washington bureaucrats telling them they had to pay an additional $80,000 for an incremental 1/10 of 1 percent of safety?
    Armstrong Williams, "Toyota’s Deadly Secret." Townhall, March 2, 2010 ---
    http://townhall.com/columnists/ArmstrongWilliams/2010/03/02/toyota%e2%80%99s_deadly_secret
    Jensen Comment
    I purchased a new Subaru in the Cash for Clunkers Program. I traded in my father's 1989 Cadillac that looked and ran like the day it was new. It accumulated 70,000 miles of absolutely trouble free driving. Now the Subaru cost me $19,700 plus some extras for heated seats and the extended warranty.

    Subaru is rated the most safe car in its class, but would I have done this deal if the trade-in price had been $87,000 for some added safety protection currently not available on new vehicles? Probably not, even though the old Cad I traded in did not even have air bags or various other safety features that are standard on a 2010 Subaru. Of course, up here we call it a rush hour traffic if we see two other vehicles on I-93 at 8:00 a.m. or 6:00 p.m.

    This begs the question of how much we should be forced to pay for epsilon improvements in safety? Of course I'm not talking about unsafe cars that lurch ahead uncontrollably or have defective braking systems. But my old Cad was extremely tried and true with respect to not having such severe safety hazards. In fact, the sheer complexity of my new Subaru with all its computerized controls of almost everything make it more of a risk in some ways as I drive to the village for milk and bread or a hair cut.

    This also applies to costs of production of goods and services. Some medical procedures now cost ten times more than in 1990 for safety benefits that may only save one life out of ten million people. It certainly seems worth it if you're life is the one saved, but in the grand scheme of things is this added protection really a luxury that society can no longer afford? The same question might be raised about many of the current OSHA requirements for working Americans. How many wannabe workers cannot find jobs because of more stringent OSHA requirements?

    Up here in the mountains, a small construction company that does a lot of building repair work laid off all of its full-time workers because of the cost of Workmen's Compensation Insurance. The former workers became "independent contractors" who now negotiate their own fees and no longer have benefits like employer-paid health insurance. Outsourced workers are paid by the job rather than the hour such that they, in turn, sometimes take more safety risks in their rush to finish jobs quickly.

     


    Baker Cooks the Books
    "Former Bakery Accountant Accused Of Stealing More Than $235K," CBS News, May 16, 2012 ---
    http://losangeles.cbslocal.com/2012/05/16/former-bakery-accountant-accused-of-stealing-more-than-235k/
    Thank you Going Concern for the heads up

    A former accountant for a Brea-based bakery chain was arrested Wednesday on charges of using company-issued credit cards to steal lots of dough, but not the kind you eat.

    Ligia Baciu, 35, was arrested at her Fullerton home by Brea police on multiple charges stemming from the alleged embezzlement which, they say, adds up to $236,000.

    Prosecutors allege she used the stolen money to buy an engagement ring, pay for fertility treatments, put a down payment on an Audi, as well as paying for car insurance, groceries and other goods at Costco, Deputy District Attorney Marc Labreche said.

    Baciu worked in accounting at Sweet Life Enterprises from August 2005 to October 2009, Labreche said. In 2007, the company was acquired by Fresh Start Bakeries Inc., which got its start making hamburger buns for McDonald’s.

    Baciu, who was responsible for the company’s credit card accounts, allegedly began stealing from the company in February 2008, Labreche said.

    She managed to conceal the theft by ordering bills from the credit card companies that she could manipulate to make it look like the expenses were from various other employees, Labreche alleged.

    Baciu was laid off from her job in October 2009, but allegedly kept using the credit cards. Her replacement in accounting uncovered the alleged theft in January 2010, Labreche said.

    “We had to get search warrants at a lot of different businesses,” the prosecutor said in explaining the delay in the arrest.

    Continued in article

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


    "Western Governors University embezzler is sentenced:   Courts » Check forger bought home with cash; still owes school $288K," by Cimaron Neugebauer, The Salt Lake Tribune, April 27, 2012 ---
    http://www.sltrib.com/sltrib/news/53997971-78/wilkinson-university-jail-checks.html.csp

    A woman who forged checks worth more than half a million dollars while working for Western Governors University — using a majority of the stolen cash to buy a house — was sentenced Friday to probation, community service and eight days in jail.

    Shelley Ann Wilkinson, 45, of Belgrade, Mont., was charged last year with one count of theft, a second-degree felony, and three counts of forgery, all third-degree felonies.

    Last month, Wilkinson pleaded guilty to two third-degree felony forgery counts and the other charges were dismissed.

    On Friday, Wilkinson stood in tears as 3rd District Judge Elizabeth Hruby-Mills ordered the jail time, 200 hours of community service, along with 36 months probation. Wilkinson also must continue paying restitution.

    Prosecutor Vincent Meister said that of the roughly $526,700 embezzled by Wilkinson, she used some to buy a $350,000 house in Canada.

    "The embezzlement in itself is selfish," Meister said, refuting the defense’s claims that Wilkinson always gave and helped others. "What she stole wasn’t something she needed for subsistence. She bought [another] house and she got caught."

    Defense attorney Taylor Hartley said that after a few weeks after buying the home, Wilkinson’s guilt got to her and she tried to sell it. She later turned the deed to the home over to the university and Wilkinson started paying money back, but still owes the school about $288,000.

    Meister said the most "aggravating factor" is that she had the money to pay back the school right away.

    Continued in article

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


    From The Wall Street Journal Accounting Weekly Review on June 1, 2012

    Adidas Accuses Former Officials in India of Fraud
    by: R. Jai Krishna and Rumman Ahmed
    May 24, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Accounting Changes and Error Corrections, Auditing, Executive Compensation, Fraudulent Financial Reporting, Restatement, Revenue Recognition

    SUMMARY: "German sportswear-and-equipment maker Adidas AG filed a criminal complaint against the former chief of its India operations and another former senior employee for alleged financial and commercial irregularities...of theft, fraud and accounting malpractices that resulted in the company taking a charge of $155 million, or 8.70 billion rupees....The alleged irregularities were uncovered during an internal probe by two Adidas executives between January and March [2012]."

    CLASSROOM APPLICATION: The article is most useful to cover auditing topics; particularly planning procedures designed to detect fraud, but is also useful for its mention of financial accounting topics of franchise revenue recognition, executive compensation, and fraudulently inflating sales.

    QUESTIONS: 
    1. (Advanced) What is a fraud? What are two types of fraudulent activities?

    2. (Introductory) What irregular or fraudulent activities does Adidas accuse two former executives of committing?

    3. (Advanced) In which of these two categories of fraud do you think that Adidas accuses its former executives?

    4. (Advanced) If the accusations described in the article are accurate, what seems to be the incentive behind the executives' actions?

    5. (Advanced) "The alleged irregularities were uncovered during an internal probe by two Adidas executives between January and March." Suppose you are an auditor charged with assisting in this investigation. For each item listed in answer to question 2, identify an audit procedure designed to determine whether or not the suspected irregular or fraudulent activity occurred.

    6. (Advanced) What are franchise fee revenues? How should such fees be recognized by Reebok or Adidas?

    7. (Introductory) What was the accounting result from these irregularities/fraudulent activities?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Adidas Accuses Former Officials in India of Fraud," by: R. Jai Krishna and Rumman Ahmed, The Wall Street Journal, May 24, 2012 ---
    http://online.wsj.com/article/SB10001424052702304707604577421620608248942.html?mod=djem_jiewr_AC_domainid

    NEW DELHI—German sportswear and equipment maker Adidas AG ADS.XE -4.02% filed a criminal complaint against the former chief of its India operations and another former senior employee for alleged financial and commercial irregularities.

    The complaint, filed Tuesday at a police station in the Delhi suburb of Gurgaon, accused Subhinder Singh Prem and Vishnu Bhagat of theft, fraud and accounting malpractices that resulted in the company taking a charge of $155 million, or 8.70 billion rupees. Adidas also said that restructuring its business in India as a result of the alleged irregularities will lead to a further charge of $87 million, or 4.87 billion rupees.

    Mr. Prem was managing director and head of the Indian operations at Adidas Group, while Mr. Bhagat was chief operating officer at the sportswear maker's India unit until their services were terminated March 26.

    Mr. Prem wasn't available for comment. Mr. Bhagat couldn't be reached. In previous interviews with Indian media, they have denied any wrongdoing.

    Back in April Adidas disclosed that irregularities at its Reebok India division were likely to result in a pretax charge of about $155 million, and may require the company to restate financial statements from last year.

    The alleged irregularities are a black eye for the sportswear giant, which had been expanding rapidly in India in recent years. India, until recently, only allowed "single brand" retailers such as Adidas to operate through joint ventures. That has been a deterrent to many global retailers, including Sweden's IKEA, which doesn't have any Indian stores. But Adidas and Reebok, which Adidas acquired in 2006, have been seeking to tap growing demand for branded goods and clothing as the nation's economy grows.

    Adidas and Reebok operated independently in India until 2011, when Mr. Prem was appointed managing director of the combined entity. Previously, he was head of Reebok in India. Mr. Bhagat handled finance at Reebok's India unit.

    The criminal complaint, filed by Adidas, claims the two former executives diverted the company's products to "secret" warehouses and recorded them as fake sales.

    Adidas also alleges that money was "fraudulently" collected from prospective franchisees on the pretext of opening new stores. The executives also are accused of claiming incentives and bonuses based on inflated sales numbers, which resulted in a higher tax payout for the company. And the complaint alleges they overstated receivables.

    Continued in article

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


    The FASB and IASB will reconsider all issues in the revenue recognition project (May 24, 2012) --- Click Here
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2342_RevenueRecognition_24May2012/$FILE/TothePoint_BB2342_RevenueRecognition_24May2012.pdf

    "Dataline 2012-04: Responses are in on the re-exposed proposed revenue standard -- Constituents voice their support...and concerns," PwC, May 30, 2012 ---
    http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=MSRA-8UTPD8&SecNavCode=TMCB-4L9HAT&ContentType=Content

    The FASB and IASB (the "boards") released an updated exposure draft, Revenue from Contracts with Customers, on November 14, 2011 (the "2011 Exposure Draft"). The boards received approximately 360 comment letters in response to the updated exposure draft, down significantly from the nearly 1,000 comment letters received on the exposure draft released in June 2010 (the "2010 Exposure Draft"). Since issuing the updated exposure draft, the boards have continued extensive outreach efforts, including four public and numerous private, industry-focused roundtables.

    Through the updated exposure draft and other outreach efforts, the boards asked whether the proposed guidance is clear, and specifically requested feedback on: (1) performance obligations satisfied over time; (2) presentation of the effects of credit risk; (3) recognition of variable consideration and the revenue recognition constraint; (4) the scope of the onerous performance obligation test; (5) disclosures in interim financial reports; and (6) transfer of non-financial assets that are outside an entity's ordinary activities (for example, the sale of property, plant and equipment). Respondents have commented on the questions asked by the boards, but also on a number of other areas, including the application of time value of money, transition, and annual disclosures. Industries have also asked the boards to address or clarify the application of the proposals to certain industry-specific issues.

    The Full Article --- Click Here
    http://cfodirect.pwc.com/CFODirectWeb/download;jsessionid=GGFFPJ2DlPjBgLmYZCK97bwrF13F8v9dsPXmd54Y79gMd3QXQg1q!-1405366314?sourcetype=contentattachment&content=MSRA-8UTPD8&filename=Dataline%202012-04%20--%20FASB%20%26%20IASB%20revenue%20comments.pdf  ---
     

    The FASB link --- Click Here
    http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176159659295

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


    "FASB and IASB agree on a three-category financial asset classification and measurement approach," PwC, May 22, 2012 --- Click Here
    http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=GBAD-8UJRHU&SecNavCode=MSRA-84YH44&ContentType=Content

    . . .

    Under their respective approaches, debt investments (e.g., loans and debt securities) would be classified based on an individual instrument's characteristics (as further explained below) and the business strategy for the portfolio. However, before this week's meeting, the IASB had defined two categories whereas the FASB had defined three categories.

    This week, the IASB agreed to introduce a third category in which debt investments are measured at fair value with changes in fair value recognized through other comprehensive income. The FASB also agreed on a revised definition for this category. As a result, the categories for debt investments would be broadly defined as follows:
     
    • Amortized cost – consists of debt investments where the primary objective is to hold the assets to collect the contractual cash flows.
    • Fair value with changes in fair value recognized in other comprehensive income – consists of debt investments with the primary objective of both holding the assets to collect contractual cash flows and realizing changes in fair value through sale. Interest and impairment would be recognized in net income in a manner consistent with the amortized cost category, and fair value changes would be recycled from other comprehensive income to net income when the asset is sold.
    • Fair value with changes in fair value recognized in net income – consists of debt investments that either (1) do not meet the instrument characteristics criterion or (2) meet the instrument characteristics criterion but do not meet one of the other category definitions (i.e., "the residual category").

    In addition, the FASB agreed to adopt the IASB requirement for prospective reclassifications between categories when there is a significant change in business strategy, which is expected to be "very infrequent."

    In previous meetings, the FASB had also agreed to incorporate the following aspects of the IASB's approach:
     
    • Instrument characteristics criterion. The contractual cash flows of the debt investment must represent solely payments of principal and interest in order to be eligible for the amortized cost or fair value with changes in fair value recognized in other comprehensive income categories.
       
    • Bifurcation of hybrid financial instruments. Separate accounting for financial asset host contracts and embedded derivatives in hybrid financial assets would be prohibited; instead the entire hybrid financial asset would be accounted for as a single instrument. However, hybrid financial liabilities would continue to be bifurcated.

     

    Continued in article

    Jensen Comment
    I favor most of these changes, especially changes that use OCI to avoid fluctuations in current earnings that will never be realized. However, I think the fact that the FASB's caving in on the issue of not bifurcating embedded derivatives in hybrid financial assets is absurd since the financial risks may vary so greatly between the host contract and its embedded derivatives. And my love of symmetry is appalled at bifurcation of hybrid liabilities but not hybrid assets is broken hearted.

    May 25, 2012 message from Bob Jensen

    Hi Eliot,

    The FASB is going along with the previous elimination of  "Held-to-Maturity" by the IASB. In IFRS paragraph BC77 the reference to ‘held-to-maturity investments’ is footnoted as follows:  IFRS 9 Financial Instruments, issued in November 2009, eliminated the category of held-to-maturity financial assets. Similarly, the category "Available-for-Sale" was eliminated.


    I suggest that you begin with the current IFRS 9, although IFRS 9 was delayed and will not be finalized and  implemented until early in 2015. IFRS 9 will become part of US GAAP even if there is no convergence, although I'm certain there will be a convergence road map by 2015.

    Bob Jensen


    "High-Income Tax Returns for 2009,"  by Justin Bryan, IRS, Spring 2012 ---
    http://www.irs.gov/pub/irs-soi/12insprbulhignincome.pdf

    Jensen Comment
    Less than three percent of all taxpayers hacw an AGI of $200,000. Can we really depend on increasing their taxes to wipe out the deficit and the National Debt? Get real!

    Taxes will never be "fair" until the middle class stops getting so many tax breaks:
    Case Studies in Gaming the Income Tax Laws ---
    http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm


    PCAOB 2011 Annual Report ---
    http://pcaobus.org/About/Ops/Documents/Annual Reports/2011.pdf


    The University of Chicago Centennial Catalogues --- http://www.lib.uchicago.edu/e/spcl/centcat/

    These catalogues provide a wealth of information about changes in higher education across over 100 years. For example, today business administration is a a big deal in the Booth School of Business, but in the late 19th Century business administration really did not exist apart from economics and economics studies did not really focus on studies of business management, leadership, organization behavior, marketing, and accounting.

    Household administration, however, did exist as an academic division of the University of Chicago until the middle of the 20th Century.

    What I found interesting about Household Administration at the University of Chicago is how it became the centerpiece of the struggle of women for academic opportunity. However, the struggle extended to far more than just academic opportunity.

    Marion Talbot | Household Administration ---
    http://www.lib.uchicago.edu/e/spcl/centcat/fac/facch05_01.html

    1858-1948
    One of the most important commitments made by the founders of the University of Chicago was to equal educational opportunities for men and women at the new institution. Marion Talbot, head of the Department of Household Administration and Dean of Women, constantly reminded the three presidents under whom she served of that pledge.

    Marion Talbot held firm convictions about education and the role of women in education. One of only a handful of women in American university administration, she advised female students at the University of Chicago to take full advantage of their academic opportunities. Always concerned about the distracting temptations of campus life, she urged women to limit their involvement in extracurricular activities and cultivate a strong sense of culture. In assuming a new role in society, women needed both personal self-confidence and the best professional education. Marion Talbot expected the University of Chicago to provide these in an environment in which they could be enhanced and develope

    Although Talbot advocated a continuing role for women in the home, her views were not traditional. Borrowing from progressive models of efficiency and scientific management and exploiting the new technology appearing at the time, modern women had the domestic tools to escape the drudgery of the past. Marion Talbot taught that a home could be "administered" in an effective way without compromising its vital role as a cultural hearth.

    Crucial to this view was access to academic opportunity. When the University appeared to renege on its early promises of equal education by promoting sexually segregated instruction at the turn of the century, Talbot challenged the administration to abandon its plan. Later, she pointed out the inequity of preponderently male faculty appointments and the overwhelming focus on men in University events, eloquently and precisely identifying the problem and leaving no doubt as to a solution. Despite her reputation as an advocate for women, Talbot argued that equality should mean simply that and nothing else. She expected no more and no less than anyone else received. Her courses in household administration were specifically open to both men and women, and she criticized decisions that she felt patronized any specific group. Marion Talbot asked only that everyone be given equal opportunities, a goal she vigorously pursued.

    Bob Jensen's threads on gender issues are at
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#Harvard

    Jensen Comment
    The Marion Talbot module is only a small part of the wealth of historical information provided by the University of Chicago Centennial Catalogues --- http://www.lib.uchicago.edu/e/spcl/centcat/


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 25, 2012

    How Women Can Get Ahead: Advice from Female CEOs
    by: John Bussey
    May 18, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Ethics, Nonfinancial performance measures, Work

    SUMMARY: The article begins by referencing Jack Welch's clash with a group of female executives at a forum on issues facing women executives that was held in the beginning of May. The author has written this article after discussing two issues with the 18 women CEOs of Fortune 500 companies; what factors, personal or in the workplace, fueled their careers and what myths about the advancement of women did they encounter along the way? The related video shows Jack Welch's participation in the WSJ's Women in the Economy conference.

    CLASSROOM APPLICATION: The article is useful to discuss equality in career aspirations and ethics in any business course

    QUESTIONS: 
    1. (Advanced) Who is Jack Welch? What points did Mr. Welch make at a recent WSJ forum about women's advancement to the highest levels of executive leadership?

    2. (Introductory) What factors do the women CEO's mentioned in the article concur with Jack Welch's assessment?

    3. (Introductory) What experiences of gender bias do women CEOs say they faced during their career advancement? How did they address these biases and related experiences?

    4. (Introductory) What steps are women leaders taking to help their organizations improve on the factors that lead to gender bias?

    5. (Advanced) Do you think that these organizational improvements also can help men in their career advancement? Explain.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Women, Welch Clash at Forum
    by John Bussey
    May 04, 2012
    Page: B1

     

    "How Women Can Get Ahead: Advice from Female CEOs,"  by: John Bussey, The Wall Street Journal, May 16, 2012 ---
    http://online.wsj.com/article/SB10001424052702303879604577410520511235252.html?mod=djem_jiewr_AC_domainid

    Our recent recounting of how Jack Welch clashed with a group of female executives over how best to advance to the top of corporate America touched a raw nerve in the business world.

    Readers fired off a barrage of comments. "He's right," one wrote about the former CEO of General Electric GE +0.36% . "RESULTS—that's all that counts, period."

    Not so, wrote another: "Mr. Welch's notion that his career, or anyone's, is a result of a single androgynous metric—'performance'—is false." The workplace is still an "old boys' network."

    So I went to the 18 women who are CEOs of Fortune 500 companies—a record number but still just 3.6% of the total—and asked their opinion. What factors, personal or in the workplace, fueled their careers and what myths about the advancement of women did they encounter along the way? Eleven gave their thoughts.

    Alan Murray talks with Jack and Suzy Welch at the Women in the Economy conference about what steps need to be taken to eliminate the cultural biases against women advancing in business.

    Their advice is practical. And notably, it echoes much—but not all—of what Mr. Welch had to say, albeit with a bit more nuance and finesse.

    A recap: Mr. Welch was speaking at The Wall Street Journal's Women in the Economy conference and said that, to get ahead, focus laserlike on performance. Mentoring programs, he said, are a bad idea; everyone on staff should be your mentor. Support groups, such as women's employee groups, can be likened to "victims' units," which the best women tend to avoid. And there is no such thing as work-life balance. There are work-life choices that have consequences you need to accept. To get ahead, he said, raise your hand for line jobs and tough, risky assignments. And take advantage of rigorous performance reviews, which are the best time to get coaching and address

    "The most important factor in determining whether you will succeed isn't your gender, it's you," argues Angela Braly, CEO of WellPoint WLP +1.63% . "Be open to opportunity and take risks. In fact, take the worst, the messiest, the most challenging assignment you can find, and then take control."

    "I have stepped up to many 'ugly' assignments that others didn't want," says KeyCorp's KEY +0.13% CEO, Beth Mooney.

    Ursula Burns, the CEO of Xerox, XRX -3.48% says it's wise for aspiring leaders to cultivate risk-taking. "There were lots of reasons for Xerox not to acquire Affiliated Computer Services," she says, by way of example. But the company took the gamble. "In the two years after we purchased ACS, we are transforming our company—more than half of our revenue comes from our services business and we continue to maintain a leadership position in the technology that made Xerox great."

    Along the career path, the CEOs say, pursue new skills relentlessly. Change jobs after you've mastered the current one. Be willing to tack sideways on the career track, or even backward, to pick up key expertise or command a business unit.

    "I knew from an early age that I wanted to lead a company," says Denise Morrison of Campbell Soup CPB +0.43% . "I developed a strategic process for my career plan that set the final destination, developed the career track, identified skills to build, took line positions to gain experience, and sought leadership and management training on the job, through special assignments, coaching and networking. For example, as VP of Marketing for Nestlé, NESN.VX +0.55% I actually worked in a manufacturing plant which gave me a deep appreciation for how the supply chain works."

    "In order to lead an organization, you have to be incredibly comfortable in your own skin," says Gracia Martore of Gannett, GCI +2.18% "and the only way to do that is to be confident in who you are."

    Look for opportunities to stand out from the crowd and ask for what you want, the CEOs advise. And when you hit a goal, speak up and toot your horn. Don't wait to get noticed. "For a lot of women, they think the myth is true, that if they just do a good job and work hard, they'll get recognized. That's not the case," says Maggie Wilderotter, CEO of Frontier Communications, FTR -2.00% and the sister of Ms. Morrison.

    Mentors were key in the careers of several of the CEOs. They endorse the idea of mentorship. Ms. Wilderotter says she regularly picked the brains of a range of senior execs. "I had many mentors, and they didn't know it."

    As for the sanctity of performance, Ellen Kullman, CEO of DuPont, DD -0.14% says it drove her career: "Accountability, performance and external benchmarking."

    "I had a very strong work ethic," adds Heather Bresch, CEO of Mylan, MYL +1.87% "and was willing to do whatever it takes to get the job done. There is simply no substitute for hard work when it comes to achieving success."

    "I don't disagree with Jack Welch that performance is the ticket to the dance," says Frontier's Ms. Wilderotter. "Unless you're delivering value, there is no right to move forward. I do disagree that all is fair in the workplace."

    "Men selectively listen," Ms. Wilderotter says. She recalls making points in boardrooms, then watching the group take note of a male later saying the same thing. "When that happened, I'd stop the conversation and say, 'Do you realize I said that 10 minutes ago?' Women have to take responsibility for the dynamic around them; you can't just say 'Woe is me.' "

    "My experiences with gender bias are probably the norm," says Ms. Bresch of Mylan. "What I found was that expectations of women were simply lower, and this resulted in being overlooked for certain opportunities. Now as a leader, I strive to create an environment different than the one I faced, an environment where good ideas can come from anyone—young, old, men, women, assistant, executive—and opportunities are open to everyone."

    Continued in article

     


    "The Yale Environment Review wants to brief you on the latest in environmental research," by David Wogan, Scientific American, May 4, 2012 ---
    http://blogs.scientificamerican.com/plugged-in/2012/05/04/the-yale-environment-review-wants-to-brief-you-on-the-latest-in-environmental-research/

    I’m excited to share with y’all the Yale Environment Review, fresh out of the Yale School of School of Forestry and Environmental Studies. The Review is a super refined weekly web publication curated by subject matter experts from Yale who summarize important research articles from leading natural and social science journals with the hope that people can make more informed decisions using latest research results.

    The Review launched this week and covers a wide range of topics, like this brief about climate change and biodiversity (“Biodiversity Left Behind in Climate Change Scenarios”):

    They find that simply using the traditional classification of a species in climate change simulations can underestimate the true scale of biodiversity loss. This happens because the subtle genetic variations among similar-looking species – typically hidden from view – are overlooked. Such a misstep in the models could undermine future conservation efforts.

    And another about the effect of air pollution standards on economic growth (“Economic Growth by Stricter Regulation”):

    Environmental regulation is often cast as a growth-inhibiting tax on producers and consumers. But a recent working paper from the National Bureau of Economic Research (NBER) provides a strong foundation for the economic benefits of regulation. The authors flip the conventional view on its head and present tighter regulation as an investment in human capital, and thus a tool for promoting economic growth.

    A quick glance at the topics page hints at future articles: business, climate change, ecosystem conservation, energy, environmental policy, industrial ecology, land management, urban planning, and water resources. It’s practically a greatest hits album of pressing environmental policy issues.

    Continued in article

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


  • "Making Up Users,"  Joni J. Young, Accounting, Organizations and Accounting, Vol. 31 (2006) 579–600 ---
    http://www.elsevierscitech.com/lmfile/otherformat/1359_Joni_Young.pdf

    Abstract
    Within recent years, financial statement users have been accorded great significance by accounting standard-setters. In the United States, the conceptual framework maintains that a primary purpose of financial statements is to provide information useful to investors and creditors in making their economic decisions. Contemporary accounting textbooks unproblematically posit this purpose for accounting. Yet, this emphasis is quite recent and occurred despite limited knowledge about the information needs and decision processes of actual users of financial statements. This paper unpacks the taken-for-grantedness of the primacy of financial statement users in standard-setting and considers their use as a category to justify and denigrate particular accounting disclosures and practices. It traces how particular ideas about financial statement users and their connection to accounting standard setting have been constructed in various documents and reports including the conceptual framework and accounting standards.  2006 Elsevier Ltd. All rights reserved.

    Joni's paper won the American Accounting Association's Notable Contribution to the Accounting Literature Award for 2011 ---
    http://aaahq.org/awards/awrd3win.htm

    Jensen Comment
    Accounting standard setters give primacy to providing information to investors but really don't know a whole lot about how investors and analysts use information. My long time complaint is that the both the IASB and FASB Conceptual Frameworks are stronger for balance sheet items vis-a-vis income statements.


    The primary indices that investors and analysts track are earnings and earnings-based indices such as P/E ratios. And the weakest part of both the IASB and FASB Conceptual Frameworks is the concept of earnings, including the inability to distinguish realized/realizable earnings from unrealized earnings such as the way unrealized changes if fair value of financial instruments (especially securities ultimately held to maturity) are mixed with earned profits from sales.


    For example, in May 2012 JP Morgan was lambasted in Congress and the media for $2-$3 billion so-called "losses" on credit derivatives. And some unrealized credit derivative losses will be booked and aggregated with realized/earned income of the bank.


    But how much of those $2-$3 billion so-booked losses will ultimately be realized?
    http://www.ritholtz.com/blog/2012/05/understanding-j-p-morgans-loss-and-why-more-might-be-coming/

    May 17, 2012 message from Bob Jensen

  • Hi Marc,

    One of the imperfect but often effective way that standard setters learn about investors, preparers, academics, and auditors is in responses to exposure drafts. I don't think Joni Young gives enough credit to the important role feedback on exposure drafts plays in the standard setting process.


    As a rule, standards are not just thrust into the world as surprises like newborn babies. In the gestation time period, between conception and birth, a standard is open for debate by virtually all jurisdictions that will be affected by the proposed new accounting standard. The most important happenings in this process are the exposure drafts (often a succession of such drafts) where standard setters invite and publish serious comments.


    And the public's comments often lead to dramatic changes between initial drafts and final standards, as was definitely the case between ED 162-A and FAS 133 --- a difference between night and day.


    Standard setters are generally disappointed by the quantity and quality of comments by professors to exposure drafts. Partly as a result of this, the American Accounting Association annually creates a committee of leading financial accounting professors to formally respond to exposure drafts. These responses are generally published in Accounting Horizons. Such responses can be great for student learning, and accounting professors are probably remiss in not assigning these AH articles in their syllabi.


    A great example at the moment are the many responses to four differing exposure drafts of the Joint Committee on a new leasing standard.


    Of course the responses to exposure drafts are imperfect ways of studying the various jurisdictions impacted by accounting standards. It would be better in many instances to scientifically study these jurisdictions in the context of the proposed standard. But this is generally not practical or cost effective. Accountics science has many imperfections and limitations. For example, studying students as surrogates for a real-world jurisdiction is not exactly an exciting way to learn about real-world decision makers.


    Capital markets events researchers seldom study standards events before the standards are implemented. They study the eventual event of a new standard's implementation, but the event of an exposure draft is much harder to study since an exposure draft does not usually impact a 10-K and is often greatly modified before becoming a finalized standard.


    Thus I think Joni Young overstates her case about standard setters being ignorant about investors. She has many good points, but I don't think members of the IASB and FASB are as ignorant about investors as she would like us to believe.


    Respectfully,
    Bob Jensen

    "Stanford Research Team Proposes Changes to Credit Default Swaps to Lower Looming Risks of Sovereign Default," MarketWatch, May 15, 2012 ---
    http://www.marketwatch.com/story/stanford-research-team-proposes-changes-to-credit-default-swaps-to-lower-looming-risks-of-sovereign-default-2012-05-15

    STANFORD, Calif., May 15, 2012 (BUSINESS WIRE) --
    STANFORD GRADUATE SCHOOL OF BUSINESS--If you're a bondholder of sovereign debt and think you've covered your risks by purchasing credit default swaps, think again.

    According to Darrell Duffie, finance professor from the Stanford Graduate School of Business, and Stanford economics student Mohit Thukral, a flaw within credit default swap (CDS) contracts means that only a small fraction of bondholder losses may be covered in the event of a sovereign debt restructuring.

    The flaw is tied to the fact that current CDS contracts only pay buyers of protection based on the price of the sovereign's outstanding bonds, even if the sovereign has just exchanged its legacy bonds for a much smaller amount of new bonds. This CDS payout ignores the additional loss to a bondholder from the effect of this "haircut."

    In a recently released research paper, Duffie and Thukral propose tying CDS settlements to the face value of new bonds that is given to bondholders per unit face value of old bonds. The resulting CDS payment approximates actual bondholder losses, allowing for better sovereign default risk management and CDS pricing that more accurately reveals sovereign default risk.

    "The current design of credit derivatives is of questionable value for managing the risk of sovereign default, which is a significant issue given the current stresses on the Eurozone," says Duffie. "Unless there is a change in the contract design, such as the one we propose, investors could be left without an effective tool for controlling their exposure to sovereign default, and CDS prices would be unreliable gauges of true default risk."

    Furthermore, he explains, if the CDS market is not an effective tool for managing risk, investors may have even more reason to shy away from sovereign bond purchases, leading to unintended consequences for market stability.

    Duffie and Thukral, an undergraduate economics major who recently took Duffie's MBA "Debt Markets" class, began their research following the restructuring of Greek sovereign debt in March of this year, when they realized the shortcomings of current CDS contracts. They propose a straightforward redesign of CDS contracts that would allow settlement based on the market value of whatever the sovereign government gives the bondholder in exchange for each old bond; this market value would be determined in a settlement auction.

    In practice, a sovereign government may give a package of several financial instruments in exchange for each old bond. Bondholders of Greek debt, for example, received a combination of new bonds, GDP-linked securities, and PSI payment notes that are obligations of the European Financial Stability Facility.

    According to Duffie and Thukral's proposal, the redesigned CDS contract would allow settlement based on the market value of the entire exchange package. This would mitigate one of the problems that arose with the Greek debt restructuring; namely, that the protection payment ignored the remainder of the exchange package.

    In this way, the team's proposal also provides a mechanism whereby the bond market can digest the complex instruments that may be created in a sovereign debt restructuring. This is important because not all bondholders are well situated to deal with the package of instruments they may receive in a restructuring.

    Continued in article

    For Bob Jensen's threads on accounting for credit default swaps look under the C-terms at
    http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm


    "Beware Fake or Unauthorized CPA Review Sellers," by Adrienne Gonzalez, Going Concern, May 14, 2012 ---
    http://goingconcern.com/post/beware-fake-or-unauthorized-cpa-review-sellers

    Jensen Comment
    I generally prefer used copies to new copies of books and hope that the previous owners were both really smart and made valuable marginal comments that add value to subsequent readers. I've never had ethics worries about reselling books of my own that I paid full price for as a new copy or a used copy from resellers that I feel confident legitimately purchased the books. I don't think I've ever purchased stolen copies or copies that were downloaded or photocopied illegally.

    Adrienne is obviously correct that purchasing illegal pirated copies should be discouraged in every way possible.

    But I think she's on shaky grounds when advising against resale of legally-owned copies.

    Copyrights --- http://en.wikipedia.org/wiki/Copyright

    The first-sale doctrine and exhaustion of rights

    Copyright law does not restrict the owner of a copy from reselling legitimately obtained copies of copyrighted works, provided that those copies were originally produced by or with the permission of the copyright holder. It is therefore legal, for example, to resell a copyrighted book or CD. In the United States this is known as the first-sale doctrine, and was established by the courts to clarify the legality of reselling books in second-hand bookstores. Some countries may have parallel importation restrictions that allow the copyright holder to control the aftermarket. This may mean for example that a copy of a book that does not infringe copyright in the country where it was printed does infringe copyright in a country into which it is imported for retailing. The first-sale doctrine is known as exhaustion of rights in other countries and is a principle which also applies, though somewhat differently, to patent and trademark rights. It is important to note that the first-sale doctrine permits the transfer of the particular legitimate copy involved. It does not permit making or distributing additional copies.

    In addition, copyright, in most cases, does not prohibit one from acts such as modifying, defacing, or destroying his or her own legitimately obtained copy of a copyrighted work, so long as duplication is not involved. However, in countries that implement moral rights, a copyright holder can in some cases successfully prevent the mutilation or destruction of a work that is publicly visible.

     

    Added Jensen Comment
    I noticed that Amazon resells used copies of many types of CPA review courses. For example, the Wiley four-volume set sells for about half the new price. Becker used copies sell for more than 50% off.

    I see nothing illegal or unethical in buying and selling used copies that are legally purchased.

    I think it's highly unethical for professors to sell review copies that they receive free from publishers. I also think it's unethical to give those copes away free to poor students of accounting who are intending to take the CPA examination. I even think it's unethical to give those books and DVDs away to poor people in general who might in turn sell those things in a resale market. And I think it's unethical to put these review copies on library reserve for students.

    Of course the above restrictions can be reversed by written permissions from the publishers themselves.


    "Former top ICE official James Woosley pleads guilty in $600,000 scam," by Jeff Black, msnbc.com, May 1, 2012 ---
    http://usnews.msnbc.msn.com/_news/2012/05/01/11489306-former-top-ice-official-james-woosley-pleads-guilty-in-600000-scam?lite
    Thank you Dennis Huber for the heads up.

    James M. Woosley, former Immigration and Customs Enforcement (ICE) intelligence chief, pleaded guilty on Tuesday to an elaborate scam over several years involving false travel expense reports totaling nearly $600,000.

    Woosley must surrender more than $180,000 he made in a scheme that also included several other ICE employees and contractors, federal prosecutors said.

    The former federal employees all pleaded guilty to submitting false receipts and vouchers for reimbursement of travel expenses and time worked, according to court documents.

    “Today James Woosley became the fifth — and highest-ranking — individual to plead guilty as part of a series of fraud schemes among rogue employees and contractors at ICE,” said U.S. Attorney Ronald Machen said in a statement. “He abused his sensitive position of trust to fleece the government by submitting phony paperwork for and taking kickbacks from subordinates who were also on the take.”

    Sentencing was scheduled for July 13. Woosley could serve 18 to 27 months in prison, and faces a potential fine.

    Continued in article

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


    "If the Auditors Sign Off, Does That Make It Okay?" by Lawrence Weiss, Harvard Business Review Blog, May 1, 2012 --- Click Here
    http://blogs.hbr.org/cs/2012/05/if_the_auditors_sign_off_on_it.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    Andrew Fastow, the former chief financial officer of Enron, recently completed a six-year prison sentence for his part in the scandalous deception that hid Enron's financial troubles from investors. After I was quoted late last year in an article on the 10th anniversary of the Enron debacle, Fastow contacted me and offered to speak to the Financial Statement Accounting class I teach at Tufts University's Fletcher School of Law and Diplomacy.

    Last month, Fastow made good on his offer. Why did he commit fraud? Why did a bright, aspiring, stereotypical MBA cross the line and misrepresent the true financial picture of Enron? According to Fastow, greed, insecurity, ego, and corporate culture all played a part. But the key was his proclivity to rationalize his actions through a narrow application of "the rules."

    Fastow's message, an important one for all managers and potential managers, has two key points. First, the rules provide managers with discretion to be misleading. Second, individuals are responsible for their actions and should not justify wrongful actions simply because attorneys, accountants, or corporate boards provide approval.

    After his guilty plea for fraud, Fastow forfeited $23.8 million in cash and property. He has helped the Enron Trust recover over $27 billion, of which $6 billion has gone to shareholders. (And he was not compensated for his presentation to my class.)

    He began the presentation by admitting he committed fraud and taking full responsibility for his actions. He made a heartfelt detailed apology and expressed remorse for having hurt so many people. He admitted making technical violations and taking wrongful actions that, while approved, were misleading. He said he knew what he was doing was wrong. But he rationalized those actions in his mind at the time, because the result was higher leverage, a higher return on equity, and a higher stock price. Further, he convinced himself that his actions were acceptable because they had been signed off by the firm's lawyers, accountants, and board and were disclosed in the financial reports. He told himself his actions were systemic, it is the way the game is played. All who cared to know knew. As Fastow rhetorically asked my students:

    "If the internal and external auditors and lawyers sign off on it, does that make it okay?"

    The problem is that attorneys, accountants, managers, boards, and bankers are not gatekeepers; rather, they are there to help businesses execute deals. They are enablers. In the case of Enron, these outside advisers played an active role in structuring and disclosing the deals, and the board approved them, but managers were still responsible for their own actions. Thus, technically following the rules as interpreted by these advisers, even if theirs is the best expertise money can buy, does not make a given action "right." Fastow emphasized that enablers are not an excuse: each individual is his or her own and only gatekeeper.

    Fastow suggested that to avoid falling into an ethical trap he should have asked himself the right questions: Am I only following the rules or am I following the principles? If this were a private partnership, would I do the same deal?

    Regulation has not prevented fraud. In fact, it may have exacerbated the problem. Enron viewed the complexity or ambiguity of rules as an opportunity to game the system.

    Compare Enron's deals with the structured finance innovations we've seen since the passage of the Sarbanes-Oxley Act: Enron's prepays (circular commodity sales which moved debt off the balance sheet and generated funds flow) look very similar to Lehman's Repo 105s (short-term loans secured with a transfer of securities treated as a sale of securities). The mispriced investments and derivatives at Enron look similar to mortgage-backed securities at banks or companies with a disproportionate amount of Level 3 fair-value assets (illiquid assets with highly subjective estimated values). Enron's $35 billion in off-balance sheet debt looks puny compared to the $1.1 trillion of off-balance sheet debt at Citi in 2007. Enron did not pay income taxes in four of its last five years, and GE pays little today. Banks are now engaging in "capital relief" deals that inflate regulatory capital in advance of the new Basel standards. Are these deals true risk transfers or are they cosmetic?

    Continued in article

    Bob Jensen's threads on the Enron and WorldCom frauds ---
    http://www.trinity.edu/rjensen/FraudEnron.htm

    Bob Jensen's threads on auditing professionalism ---
    http://www.trinity.edu/rjensen/Fraud001c.htm


    "Why Is The SEC Pursuing Deloitte Shanghai? Looks Like It’s Personal," by Francine McKenna, re:TheAuditors, May 10, 2012 ---
    http://retheauditors.com/2012/05/10/why-is-the-sec-pursuing-deloitte-shanghai-looks-like-its-personal/

    The Securities and Exchange Commission is rattling a dull sabre again towards Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for its refusal to provide the agency with audit work papers related to Longtop, a China-based company under investigation for potential accounting fraud against U.S. investors. The regulator filed an “enforcement action” instituting an “administrative proceeding” yesterday.

    Ooooh scary!

    This has been going on now for two years and seems to have escalated into the kind of fight men have when trying to prove who’s bigger and tougher. It looks to me like it’s personal rather than productive. The SEC has access to as much as they need to review the work of the Deloitte China firm’s audit of Longtop  - or any other Chinese fraud for a US listed company - assuming the US Deloitte firm had as much as they needed to sign off on the companies’ filings with the SEC over the years.

    The SEC admits in their latest complaint against Deloitte Shanghai that they asked Deloitte US for the information the firm has right here in the US on Longtop and other US listed foreign based audits. The firm’s first answer was to deny any involvement in the audit.

    4. On April 9, 2010, staff served Deloitte LLP, the U.S. member firm of the Global Firm with a subpoena requesting audit work papers relating to the Global Firm’s audit of Client A’s financial statements for the period January 1, 2008 through April 9, 2010.

    5. Between April 13, 2010 and May 18, 2010, staff had several communications with U.S. based counsels for both Deloitte LLP and the Global Firm.

    6. Counsel for Deloitte LLP initially informed the staff that Deloitte LLP did not perform any audit work for Client A, that all audit work was conducted by Respondent, and that Deloitte LLP did not have possession, custody, or control of the documents called for by the subpoena.

    7. Counsel for Deloitte LLP subsequently informed the staff that Deloitte LLP performed some review work of Client A’s periodic reports and produced certain documents relating to this review to the staff.

    Deloitte did eventually produce some documents related to the audit that are, and always have been, available in the US. If the Deloitte US reviews were sufficient, that should be enough for the SEC to see the quality of work performed by the Deloitte Shanghai unit.

    So why is SEC continuing to fight this inane fight when, in reality, they should have all the information they need to investigate the Longtop or any other fraud? I suspect that the SEC attorneys are super annoyed with Deloitte’s lawyers and have decided to use their unlimited budget and intimidating administrative powers to annoy them back. Unfortunately, this just puts more money in the pocket of the super expensive Sidley & Austin outside counsel representing Deloitte Shanghai.

    (Coincidentally, it was also a Sidley & Austin lawyer for KPMG that recently so annoyed a judge in a class action overtime case against the firm the judge ordered the firm to preserve the hardrives of all laptops for past, present and future class members. Note to Sidley & Austin:  Scorched earth tactics not working.)

    US-based GAAP and SEC reporting experts in the global audit firms review the workpapers behind the filings for every non-US based audit client that is listed on a US stock exchange, all over the world, before any filing with the SEC. That’s one of the quality control procedures all the firms who audit foreign-based, US listed multinationals have in place, not only because it is expected by regulators but because it’s good business.

    The SEC/GAAP reporting team or Reg S-X review team – it may be drawn from and called something different in each firm – is the last stop before a foreign-based US issuer can file its quarterly and annual reports, as well as any filings for additional stock or debt offerings, with the SEC. Sometimes the team consists of experts from the firm’s financial advisory consulting group or capital markets group – the professionals who help companies prepare for IPOs, especially foreign companies who want a stock exchange listing in the US. The team may also call on additional expertise from the firm’s national office – a kind of one-stop shop for getting questions answered on arcane technical matters or standards for specific industries. Professionals may play double duty as consultants to some companies and remote members of an audit team for others. That way they can pick up billable hours reviewing filings when there are no deals to be done.

    When a US-based listed company is a multinational, the US audit firm will use its member firm network extensively to do the audit work necessary all over the world to support the overall audit opinion. In this case, a US audit firm is expected to closely supervise and control the work of foreign affiliates who contribute to its audit.

    From Part 2 of the PCAOB’s inspection report – the private quality control review of US firms.

    Review of Processes Related to the Firm’s Use of Audit Work that the Firm’s Foreign Affiliates Perform on the Foreign Operations of the Firm’s U.S. Issuer Audit Clients

    The inspection team performed procedures in this area with respect to the processes the Firm uses to ensure that the audit work that its foreign affiliates perform on the foreign operations of U.S. issuers is effective and in accordance with applicable standards performed by the Firm’s foreign affiliates on the foreign operations of U.S. issuer clients.

    Some non-US audit member firms have more SEC reporting and GAAP experts on-site than others. I suspect the largest firms in Canada and the UK have their own SEC and GAAP reporting quality assurance review team for this purpose, but many countries do not.

    PwC, for example, has the Global Capital Markets Group, a team of professionals dedicated to providing technical, strategic and project management advisory services to non-US companies actively interested in raising capital and/or listing their securities in the US securities markets. GCMG has partners and hundreds of professionals in more than 20 countries around the world.

    GCMG assists companies in meeting ongoing SEC reporting requirements (e.g., review the company’s annual filing on Form 20-F and assist the company in responding to any SEC review comments). They are qualified to review management’s evaluation of the accounting treatment under U.S. GAAP and/or IFRS of new, complex or unusual transactions, such as a new type of financial instrument or a business combination. (Henri Steenkamp, a native of South Africa and a PwC alumni, is one of these accounting technical experts who helped companies prepare for IPOs for PwC before he helped Man Financial spin off MF Global and went on to become CFO of that PwC audit client.)

    Continued in article

    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 18, 2012

    Chinese Audits See New Heat
    by: Michael Rapoport
    May 10, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Audit Firms, Audit Quality, Auditing, Big Four, International Auditing, SEC, Securities and Exchange Commission

    SUMMARY: By bringing an enforcement action, the SEC is increasing pressure on the Chinese unit of Deloitte Touche Tohmatsu to submit audit work papers relating to its client Longtop Financial Technologies, Ltd. This company is one of a number of Chinese firms that were traded on U.S. stock exchanges and have become the subjects of SEC investigations into accounting fraud. Deloitte's Chinese unit resigned from the audit engagement but states that it is unable to comply with the SEC's subpoena for work papers under Chinese secrecy laws. The related article specifically quotes a Deloitte representative stating that the "Chinese authorities explicitly told its Shanghai unit in June 2011 that they 'did not consent to the production of the Longtop work papers directly to the SEC.'" If Deloitte does not comply with the SEC's recent action to enforce the subpoena, the firm could be barred from auditing publicly traded firms in the U.S.

    CLASSROOM APPLICATION: The article is useful to integrate global business perspectives on the conduct of the auditing profession.

    QUESTIONS: 
    1. (Introductory) What enforcement action has the SEC taken against the Chinese unit of the global Big Four accounting firm Deloitte Touche Tohmatsu?

    2. (Advanced) What circumstances precipitated this action by the SEC? Refer to the main and related article.

    3. (Introductory) What is the firm's explanation for not complying with the SEC subpoena and enforcement action?

    4. (Introductory) What could happen to Deloitte's Chinese unit and its staff if the firm does comply with the SEC request?

    5. (Advanced) Refer to the related article. How does the auditing firm hope that this matter will be resolved?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Chinese Audits See New Heat," by: Michael Rapoport, The Wall Street Journal, May 10, 2012 ---
    http://online.wsj.com/article/SB10001424052702304070304577394113011105628.html?mod=djem_jiewr_AC_domainid

    The Securities and Exchange Commission has ratcheted up the pressure in its monthslong dispute with Deloitte Touche Tohmatsu's Chinese arm, saying the firm's refusal to turn over documents violates U.S. law.

    Deloitte Touche Tohmatsu CPA Ltd., the Shanghai-based Chinese affiliate of the Big Four accounting firm, is violating the Sarbanes-Oxley Act by refusing to turn over audit work papers requested for a Deloitte client the agency is investigating, the commission said in an administrative proceeding filed Wednesday.

    The case marks the first time the commission has brought an enforcement action against a foreign audit firm for failing to comply with a request under Sarbanes-Oxley, which requires foreign firms that audit U.S.-traded companies provide documents to the SEC on request. If the proceeding is decided against the Chinese firm, it could be barred from auditing U.S.-traded companies.

    The SEC's move boosts the stakes in its clash with the Deloitte China affiliate that began last September, when Deloitte refused to comply with an SEC subpoena seeking documents relating to its client Longtop Financial Technologies Ltd., a financial-software company whose shares traded in the U.S. until last December.

    Deloitte cited concerns that Chinese authorities could penalize the firm or its partners under China's state-secrecy laws. The SEC filed suit in September to enforce the subpoena, and that case remains pending in U.S. District Court in Washington. Longtop couldn't be reached for comment.

    Deloitte's international organization said in a statement that its Chinese affiliate "is caught in the middle of conflicting laws of two different governments" and that Chinese law prohibits accounting firms in China from providing documents directly to foreign regulators without government approval, which hasn't been forthcoming. The firm said it "is hopeful that this diplomatic disagreement will be resolved soon."

    The SEC's latest action raises the potential penalties for Deloitte's Chinese arm and broadens the dispute, by bringing in a separate request for Deloitte documents relating to a second, unidentified client that is under SEC investigation.

    "The SEC is really upping the stakes here. This is a pretty strong action," said Paul Gillis, a professor of practice at Peking University's Guanghua School of Management in Beijing. The commission, he said, "is really playing tough on [Deloitte], and on the other side the Chinese aren't giving them a lot of room to wiggle."

    An SEC administrative-law judge will hear the proceeding against the Chinese firm. If the judge decides in the SEC's favor, the sanctions against the Deloitte affiliate could range from censure to denial of "the privilege of appearance and practice before the commission," according to the filing. The affiliate audits more than 40 Chinese companies that are traded on U.S. markets, according to data from the Public Company Accounting Oversight Board, the U.S. government's audit-industry regulator.

    Continued in article

    Bob Jensen's threads on professionalism in auditing ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

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


    "China and the Integrity of Accounting," by Floyd Norris, The New York Times, May 3, 2012 ---
    http://economix.blogs.nytimes.com/2012/05/03/china-and-the-integrity-of-accounting/?src=recg
    Thank you Roger Collins for the heads up

    Is progress about to be made on cooperation between the United States and China on the inspection of auditing firms?

    A year ago, when senior American and Chinese officials met, the joint statement pledged efforts to cooperate on inspections of auditing firms. Given the spate of Chinese accounting scandals, it is clear that something needs to be done, but the Public Company Accounting Oversight Board in the United States has been unable to reach an agreement for joint inspections.

    Instead of progress, there has been confrontation. The Securities and Exchange Commission wants to see work papers used by a Deloitte affiliate in China for its audit of Longtop Financial Technologies.

    Deloitte exposed the Longtop fraud, but had missed it in previous audits. The firm has gone to court to fight the S.E.C. request, saying that under Chinese law it cannot comply with the subpoena.

    Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Rodham Clinton are in Beijing on Thursday for another round of talks. A new statement is expected on Friday.

    A year ago, at a financial reporting conference at Baruch College in New York, James R. Doty, the chairman of the accounting board, gave a major speech on the integrity of auditing. This year Mr. Doty is nowhere to be seen, although the board has another member giving a speech.

    Continued in article

    Bob Jensen's threads on professionalism in auditing ---
    http://www.trinity.edu/rjensen/Fraud001c.htm


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 18, 2012

    Spain to Get Room on Deficit Rules
    by: Matthew Dalton
    May 10, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Statement Analysis, Governmental Accounting

    SUMMARY: "Spain's budget challenge highlights the dilemma facing the euro zone as it seeks to enforce its budget rules." The article narrative emphasizes those countries in financial difficulty--Portugal, Italy, Greece, and Spain--but it also exposes students to the euro-zone countries in general in a well-presented format. The graphic "Euro Zone by the Numbers" is an excellent summary introduction to the 17-nation members' economies. For governmental accounting classes, the tabs entitled "Budget Balance, 2011" and "Primary surplus or deficit" (budget deficits/surplus excluding interest payments) are of most interest and several questions refer to that graphic.

    CLASSROOM APPLICATION: The article is useful for a governmental accounting class and any financial reporting class to introduce students to the issues in Europe and the use of governmental financial statements for managing the Euro-zone.

    QUESTIONS: 
    1. (Advanced) Define the terms budgetary deficit and budgetary surplus.

    2. (Advanced) Why do Euro-Zone countries have specific budget-deficit targets?

    3. (Introductory) "Spain's budget challenge highlights the dilemma facing the euro zone as it seeks to enforce its budget rules." What is that dilemma?

    4. (Introductory) Access the interactive graphic entitled Euro Zone by the Numbers and scroll to the right to find Budget balance, 2011, and the Primary Surplus or Deficit tab. What is the difference between these two tabs? Why is it important to analyze both of these amounts?

    5. (Advanced) Is the total balance of each country's outstanding debt included in this graphic? Explain your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Spain to Get Room on Deficit Rules," by Matthew Dalton, The Wall Street Journal, May 10, 2012 ---
    http://online.wsj.com/article/SB10001424052702304543904577394381158093936.html?mod=djem_jiewr_AC_domainid

    Euro-zone governments are expected to give Spain more leeway to meet its budget-deficit target next year, according to officials involved in the discussions, in a sign they intend to shift away from rigid enforcement of the currency bloc's budget rules.

    Austerity will still be the guiding principle of European fiscal policies. But the likely Spanish move suggests the rules will be adjusted in some cases to account for the fact that when economies go into recession, their budget deficits usually grow.

    Officials said the flexibility is unlikely to stop with Spain's politically sensitive deficit target. Among other countries that may take advantage of the rules in the future is France, which would have to pass large cuts to achieve its current deficit target for next year—a task likely to clash with the pledges of Socialist President-elect François Hollande to spur economic growth.

    Spain's budget challenge highlights the dilemma facing the euro zone as it seeks to enforce its budget rules. Governments increasingly acknowledge that it is difficult to hit deficit targets while much of the bloc is afflicted with slow growth or recession. Greece's example has shown that sharp budget cuts can hurt growth, boosting the budget deficit and making debt repayments harder.

    Yet officials fear that allowing budget targets to be fudged, as in the past, could cause investors to lose confidence in the debt even of stronger euro-zone economies.

    Olli Rehn, the European Union's economics commissioner, hinted at the more flexible approach in a weekend speech, when he said the EU's budget framework "is not stupid" and allows "considerable scope for judgment."

    The shift is unlikely to have much impact on Greece, though it could provide Greek politicians with an argument for making the country's budget targets less rigid. Athens is regarded by other euro-zone governments as a special case—deep into a second bailout, having already restructured its debts, and seen as unlikely to hit its new budget targets as its economy sinks. That sets it apart even from Ireland and Portugal, which have also accepted bailouts, and a long way from Spain and other countries, which are still raising money in financial markets.

    Most officials acknowledge that Spain, in the midst of a recession with an unemployment rate of 24%, won't be able to cut its deficit next year to the current target of 3% of gross domestic product without driving its economy further into a downwardspiral.

    They are likely to give implicit approval, possibly at a finance ministers' meeting next week, for Spain to be judged by how it reduces its "structural deficit," which aims to estimate the deficit if the Spanish economy were operating at full capacity, officials said. The proposal would allow Spain to meet a structural deficit of about 3% of GDP next year, officials said. Estimates of the country's current structural deficit differ—the International Monetary Fund last month estimated it at around 3.4%, while the European Commission, the EU's executive arm, makes a higher estimate— but the agreement would mean less-severe budget cuts would be required this year and next.

    If Spain meets its structural deficit target of 3% next year, it could be on target to hit the 3% target for its actual deficit in 2014, provided there is a moderate economic recovery in those two years, officials said.

    The Spanish government, however, insists it is still aiming to meet its previously agreed targets: a 5.3% deficit this year and 3% next.

    Spain will probably be the first country to win leeway on the targets, but it may not be the last. "Spain is the country where the difference between hope and reality is sharpest," said a euro-zone official involved in the debate. "But at the end of the day, mMy guess is Spain will not be the last one." France could be next, the official said. Mr. Hollande has promised to create 150,000 new government jobs while also meeting the 3% target next year, a tall order given that France's deficit was 5.3% at the end of 2011. The IMF projects the French economy will grow just 0.5% this year and 1% next.

    A crucial moment will come this summer, when the government's finances are reviewed by a special French audit court.

    The review could uncover previously hidden debt or undermine Mr. Hollande's economic growth assumptions, forcing the incoming president to temper his pro-growth agenda or push Brussels to give his government leeway on next year's 3% target.

    "Mr. Hollande's program does not clearly specify how increased spending will be financed," said Marie Diron, director of forecasting at consulting firm Oxford Economics. "Moreover, the growth assumptions underpinning the fiscal plans are on the optimistic side."

    There is a real question whether France can afford to relax its deficit targets, Ms. Diron added. "If markets grow increasingly concerned about French public finances, we could see a sharp rise in bond yields that would force a larger fiscal adjustment," she said.

    Continued in article

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


    I think most of my wife's clothes were purchased from "Jauque Pennay".
    She was really, really disappointed when this famous mail order company dropped its mail order catalog
    But we still get this company's daily advertising mailings for 1-800 number orders from these mountains
    I keep the company's  Website a secret from her but that did not prevent our having more clothes on poles in the basement than you will find in the Concord NH department store

    I remember a short while back when the company's new pricing policy was announced with great fanfare
    Now this policy is an illustration of policy failure that we can teach to students.

    "J.C. Penney: Ditch the Risky Pricing Strategy," by Rafi Mohammed, Harvard Business Review Blog,, May 21, 2012 --- Click Here
    http://blogs.hbr.org/cs/2012/05/jc_penney_ditch_the_risky_pric.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    Jensen Comment
    This could probably be written up as a great CPV case in managerial accounting, the purpose being to illustrate how important demand elasticity is to CPV analysis.

    Bob Jensen's threads on managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


    When the IASB and the FASB Cannot Agree Try Plan D

    Whole contract, or Approach D, is a fourth possible approach for lease accounting that could be included in the second exposure draft for the lease accounting convergence project. It was added to the list of approaches after the International Accounting Standards Board and the Financial Accounting Standards Board could not agree on the other approaches. Whole contract "accrues the average rent as the reported lease cost ... and adjusts the lease liability on each balance sheet date to be the present value of the remaining lease payments," Erika Morphy writes in this article.
    AICPA Newsletter When Introducing the Link Below

    "What’s Approach D? Maybe the Answer to CRE’s Lease Accounting Concerns," by Erika Morphey, Globe Street, May 2012 ---
    http://www.globest.com/news/12_342/washington/accounting/Whats-Approach-D-Maybe-the-Answer-to-CREs-Lease-Accounting-Concerns-321140.html

    WASHINGTON, DC-A key concern of commercial real estate companies is looming changes to how they account for leases. The International Accounting Standards Board and the US Financial Standards Board have worked—or rather, struggled—to converge their two respective lease accounting standards, and so far the proposals have been less than pleasing to the CRE industry.

    Now, a new proposal has emerged that could be satisfactory to real estate and other business users, Bill Bosco, a consultant for the Washington, DC-based Equipment Leasing and Finance Association and principal of Leasing 101, tells GlobeSt.com.

    There are still some hurdles, namely IASB is reportedly not yet on board, he says. “But this is the proposal we think most of the stakeholders would agree is an acceptable method,” he states. “Certainly real estate owners, concerned about what their lease costs will look like, will accept this one as the best of all proposed methods.” He estimates that 75 to 80% of the dollar volume of operating leases are real estate leases.

    This new proposal is called whole contract. It accrues the average rent as the reported lease cost--much the same as current GAAP--and adjusts the lease liability on each balance sheet date to be the present value of the remaining lease payments. “It does not change the P&L or the cash flow presentation for what used to be the operating lease,” Bosco says.

    Whole contract, or Approach D as it is also called, was added as a fourth possibility after FASB and IASB could not come to an agreement this February on the lessee cost pattern issue. This is deemed to be the most significant unresolved issue that is holding up the issuance of a new exposure draft for converged lease accounting project.

    When the boards were unable to agree on any of the three lessee accounting approaches presented at their meetings, their staff was directed to conduct industry outreach to get preparer and user feedback. Approach D is up for consideration to be included in the second exposure draft.

    Continued in article

    May 3, 2012 reply from Dennis Beresford

    A key advantage of Plan D is that it is easy to apply. The other methods for expense recognition would require much more complicated calculations and record keeping to achieve dubious purity in the income statement. Most users are primarily concerned about getting lease obligations on the balance sheet, and this approach would be a good compromise to allow that primary objective to be achieved. Otherwise, the joint project might just fall apart.

    Deny Beresford

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


    The Grumps Think Rite Aid Should Get a Going Concern Report from Deloitte

    "STILL SEARCHING FOR 'THE ‘RITE’ STUFF'," by Anthony H. Catanach Jr. and J. Edward, Ketz, Grumpy Old Accountants Blog, April 30, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/643

    There are no academy awards in the offing for Rite Aid’s version of the 1983 test pilot film classic.  Recently, the Company released its 10-K, and things are still a mess.  No rocket science here.  Rite Aid cannot earn a profit and cash flows are dwindling even with an extra week of operations included (2011 was a 53 week fiscal year).  And the balance sheet is disgraceful. The Company just cannot seem to do anything “rite!”  Maybe management would have done better with a comedy like “Failure to Launch.”

    Things have only worsened since we initially visited the Company in Rite Aid: Is Management Selling Drugs or Using Them?  It has not posted a positive earnings number since 2007.  Sure, the net loss is less than it was for the past few years, but a loss is still a loss, and remember, it had an extra week for this year’s performance reports.  It continues to bleed lease termination and impairment charges, as well as losses on debt modifications and retirements.  Yet, managers continue to perpetuate a turnaround façade via “improving” adjusted EBITDA numbers which suggest almost a $1 billion in “real” earnings.  Instead, the Company needs a dramatically new business model that emphasizes operating effectiveness and efficiency.  Only then will revenues rise, and cost of sales and other operating costs decline, both requirements for the Company’s delivering a profit.  We understand that the Company has implemented cost cutting initiatives, but when will see some believable and meaningful results?

    The balance sheet remains in shambles.  Okay, there are enough current assets to cover current liabilities, but that’s the end of any good news in the balance sheet.  Total assets are $7,364 (all accounts are in millions of dollars), while total liabilities are $9,951, thereby yielding a shareholders’ deficit of $(2,587).  How this firm avoids corporate bankruptcy we just don’t know!

    Actually, the balance sheet condition is much worse because the Company has humongous lease obligations that are carried “off-balance sheet.”  Using the data in financial statement note 10, we estimate the present value of the Company’s lease liabilities to be $5,939.  This adjustment increases total liabilities to $15,890, causing the stockholders’ deficit to worsen to $(8,526).

    At least Rite Aid does not carry goodwill on its books any more, having written off the last vestiges of this intangible “asset” in 2009.  The only remaining reported intangibles are for favorable leases and for prescription files.  Oh please…favorable leases for a Company in this financial condition…we would be inclined to reduce the favorable lease asset, but the amounts are just not big enough to fret over given the “death watch” status of the Company.

    However, to its credit, Rite Aid has not followed the example of Citicorp and some other banks that pumped earnings up by recognizing gains due to market value declines of debt due to problems in its own creditworthiness.  This practice is a sham even if condorsed (condoned and endorsed) by the FASB.

    Even though the cash flow statement does provide some positive news, reported cash flows are a bit down (and again there was that extra week in the fiscal period).  Cash flows from operating activities were $(325), $395, and $266 for 2009-2011, while free cash flows were $(519), $209, and $16, respectively.  So, Rite Aid is reporting a positive free cash flow, albeit smaller than last year’s.

    Ironically, if the Company would capitalize all of its operating leases, the cash flow picture improves considerably!  That’s because rental expenditures under operating lease accounting are displayed as operating activities; however, when leases are capitalized, the cash flows are divided between interest payments and payments against the lease obligation, the latter payments being properly categorized as financing cash flows.  Interest payments are still considered part of operating activities.  Thus, adjusted free cash flows paint a rosier picture for Rite Aid:  they are $(45), $691, and $545 for 2009-2011.

    Given the Company’s precarious state, why doesn’t the auditor, Deloitte & Touche, issue a going concern report?  After all, Rite Aid’s troubles make it a bankruptcy candidateClearly, profits are negative for five years, and there are significantly more liabilities than assets.  Perhaps the auditor also adjusts operating leases to obtain the healthier free cash flow numbers that we have estimated, and deduces that the firm can survive.  If so, then the auditor should persuade, if not require, Rite Aid to capitalize all of its leases.

    Taking a long term perspective, most of the troubles endured by Rite Aid over the last several years seem a result of the failed Eckerd and Brooks business combination, which it bought from the Jean Coutu Group.  In short, Rite Aid paid too much for the business.  When the subsidiary did not generate enough cash flows, Rite Aid borrowed to the hilt, and has been operating under a heavy debt burden ever since.  (As a side note the Jean Coutu Group recently sold a substantial number of its Rite Aid shares, reducing its ownership to about 20 percent.)

    Continued in article

    The Grumps respond to their AECM critics on accounting for leasing at Rite Aid. I forwarded the AECM messaging concerning whether the Grumps made a mistake on their Rite Aid posting.

    "A NOTE ON THE RITE AID ANALYSIS; AND A POX ON THE FASB," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, May ,, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/652

    Last time we discussed Rite Aid and claimed the balance sheet was in shamblesSome fellow accounting professors objected to the analysis, so we need to respond to them.  We’ll answer the criticism and point out the big point that they all missed.

    You will recall that Rite Aid’s most recent balance sheets has total assets of $7,364, total liabilities of $9,951, and shareholders’ equity of $(2,587).  As before, all amounts are in millions of U.S. dollars.  We then said our estimate of the present value of the operating leases was $5,939, thereby increasing total debts to $15,890 and causing shareholders’ equity to dip to $(8,526).

    The criticism we received concerns the hit to equity.  They state that the entire amount should not go against equity but that a sizable amount should be in assets.

    The criticism is well taken—up to a point.  Our analysis indicated that the assets were over half depreciated, so only a relatively small portion would be added to the left-hand side of the balance sheet.  Besides, as Rite Aid is a Pennsylvania corporation, we have been in several of the stores, and we think that the fair value of the leases needs to be written down.  At that point we took a short cut and assumed none of it would be there.  It made the work a lot shorter and helped us to make our point succinctly.

    But, since our friends and associates want a full-blown adjustment instead of this raw short cut, here goes.  We adjust the income statement by taking out rental expense and by adding in depreciation, interest, and the differential income tax.  We adjust the assets in the balance sheet for the leased resources minus their accumulated depreciation.  We adjust the current debts for the present value of next year’s lease payment.  We adjust noncurrent debts for the present value of the remaining lease payments and for deferred income taxes.  Finally, we adjust the stockholders’ equity for the cumulative effect of past year differences in the firm’s net income.

    What we find is the following:

       

    Reported

    Adjusted

    Revenues

    26,121

    26,121

    Expense

    26,490

    26,472

    Net income

    (368)

    (351)

           
           
           
    Current assets

    4,504

    4,504

    Plant  

    2,860

    5,177

    Total assets

    7,364

    9,681

           
    Current debts

    2,570

    3,547

    Long-term debts  

    7,381

    12,438

    Total debts  

    9,951

    15,985

    Equity  

    (2,586)

    (6,304)

    Total  

    7,364

    9,681

     

    Yes, the total assets are larger by $2.3 billion, but notice that the total debts are larger by $6 billion and the shareholders’ equity is lower by $3.7 billion.  (The liabilities are higher than the $5.9 we previously mentioned because now we are including the deferred income tax effect.)

    So the criticism is correct inasmuch as the full $5.9 billion does not decrease equity, only $3.7 billion.  But given that we originally just wanted a rough approximation, we still don’t think it was off as badly as our colleagues thought.  As they obviously are watching carefully, we promise not to take this short cut again.

    Having said that mea culpa, let’s observe that the thrust of our previous work is correct.  The balance sheet of Rite Aid is in shambles and the losses are habitual.  Operating cash flows are higher than reported, as we explained in the previous column, but that implies that financing cash outflows are correspondingly worse.  Rite Aid is in trouble.

    May 5, 2012 reply from Denny Beresford

    Bob,

    Not to put too fine a point on this, but the Grumps state that “our analysis indicates that over half the assets were fully depreciated.” I don’t know how they derived their figures and I didn’t try to analyze Rite Aid’s financials myself. However, I would assume that the lease obligations are for the future use of premises mainly and, therefore, I’m not sure why they would be over half depreciated. Possibly that would be the case if a high percentage were for equipment leases such as delivery equipment, etc. but that seems unlikely 

    With respect to the comment that having been in several of the stores the fair value needs to be written down, that would imply that under existing GAAP the company would be obligated to record expense for the leases that are not expected to provide future value – for example, any abandoned stores or ones that are expected to produce negative cash flows. There’s no indication of this in the Grumps’ analysis that the company has recorded such accruals or that they should.

    Personally I don’t feel that I “missed a big point” in their initial analysis. Instead, I just see these additional pints as explaining why their error might not be as egregious as it was. After all they seem to be saying, is a few billion dollars really material? I’d be interested in others’ views.

    Denny

    P.S., I might not be fully independent on this as I have all of my prescriptions filled at a local, very nice Rite Aid store!

    Jensen Comment
    I might note that to date the IASB and the FASB cannot agree on a new joint standard on leasing. The joint project is now entering a new Plan D under consideration. Until then, Rite Aid is subject to existing FASB rules on lease capitalization and expensing.

    Whole contract, or Approach D, is a fourth possible approach for lease accounting that could be included in the second exposure draft for the lease accounting convergence project. It was added to the list of approaches after the International Accounting Standards Board and the Financial Accounting Standards Board could not agree on the other approaches. Whole contract "accrues the average rent as the reported lease cost ... and adjusts the lease liability on each balance sheet date to be the present value of the remaining lease payments," Erika Morphy writes in this article.
    AICPA Newsletter When Introducing the Link Below

    "What’s Approach D? Maybe the Answer to CRE’s Lease Accounting Concerns," by Erika Morphey, Globe Street, May 2012 ---
    http://www.globest.com/news/12_342/washington/accounting/Whats-Approach-D-Maybe-the-Answer-to-CREs-Lease-Accounting-Concerns-321140.html


    The Grumps Zigg and Zagg

    "DON’T GAG ON ZAGG," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants, May 7, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/657

    One of our loyal followers recently brought to our attention a company that just might be our first candidate for this year’s “poster child” of bad financial reporting: ZAGG.  The Company indicates that it is “Zealous About Great Gadgets,” and apparently the market likes this zealot.  ZAGG’s stock price has soared about 40 percent in the last several months, driven by both top and bottom line growth, and improving operating cash flows, all of which have been blessed by the company’s new Big 4 auditing firm, KPMG.  So, what’s the problem?  The numbers are giving off so much smoke that we think management may have blinded both the auditors and investors.

    Our review of the Company’s operating environment and 2011 10-K leads us to conclude that at the very least, the Company’s reported amounts are suspect.  At worst, management may be “cooking the books.”

     A number of performance factors exist that are creating huge pressures for managers to manipulate the financial statements.

    A number of managerial and control issues also suggest an environment ripe for material misstatements in the accounts.

    Continued in article

    "ADDENDUM TO ZAGG," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants, May 7, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/662

    Wow! We really hit a raw nerve in the ZAGG column this morning as we are receiving a large amount of comments. Some are direct allegations and some are accusations posed as questions, but they all come as visceral reactions to a story they don’t like.

    One writes, “I hope you too are shorting ZAGG so that you two losers may personally be squeezed out at some point.” We have no position in ZAGG, neither long nor short. We would report a position if we had one.

    A second writes, “Nice timing, so you waited till Monday morning, before market opens, one day after a good earnings report by the company which put shorts on defensive position to come out with your article? Hope those hedge funds are paying you enough to justify what you guys are doing.” Nobody paid us anything for this essay.

    Another asks, “Is Pardini one of your former students you felt compelled to support?” No, he isn’t, and neither of us knows him.

    And a fourth: “What level of trust can be placed in the source and what is their relationship to ZAGG?” The blog follower who suggested the story was not a source—he gave us no information about ZAGG; he just said it was an interesting firm to look at. We looked at it and provided our own observations. As to his holdings or those of his investment firm, we have no idea. We didn’t ask and we don’t care what his holdings are. His holdings didn’t affect our work. And neither of us knows the fellow personally.

    Sometimes blog followers point us in a particular direction. We take our own peek and do our own research. Sometimes we drop the idea; sometimes we decide to write it up. In all cases, we do our own analysis. You might not like the analysis, and you may disagree with the conclusions. That’s fine, but in this case we stand by our analysis: any firm that hides the fact that operating cash flow and free cash flow are negative by adding some receivables to cash is engaging in accounting shenanigans.

    "CLARIFICATION of ZAGG’S CASH FLOWS," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, May 9, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/674

    Except for one observation that we mention later, none of the dozens of comments by ZAGG investors, supporters, and management staff changed our opinion expressed Monday, but they did cause us to re-assess the study. We re-read the 10-K, re-ran several metrics, rethought what they meant, and checked FASB documents.

    Contrary to what we have been accused of, we desire to conduct independent research and publish our findings, wherever they might take us. And we make clarifications if necessary.

    You will recall in Monday’s piece that we adjusted cash from operations as part of our financial analyses, and said it was negative. Several commentators claimed that we misinterpreted footnote 10 by reading the fair value number as the value of cash and backed out the credit card receivables. After yet another reading, we still find the footnote ambiguous, and wish that the company had said it was the fair value of the credit card receivables.

    If these footnote 10 numbers are indeed credit card receivables as some parties suggest, we shall adjust our computations of two cash flow metrics. The result: operating cash flow adjustments are not as large as reported in our previous analysis, and operating cash flows are no longer negative.

    Continued in article

     

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


    I maintain a Timeline of Derivative Financial Instruments Scandals ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

    I'm toying with whether to even add the credit derivatives $2-$3 billion speculation losses of JP Morgan to this timeline. I probably will not add this to the timeline ---
    http://www.bloomberg.com/news/2012-05-11/jpmorgan-loses-2-billion-as-mistakes-trounce-hedges.html

    The firm’s chief investment office, run by Ina Drew, 55, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon told analysts yesterday. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure.

    “There were many errors, sloppiness and bad judgment,” Dimon said as the company’s stock fell in extended trading. “These were egregious mistakes, they were self-inflicted.”

    Continued in article

     

    If we rate derivatives financial instrument scandals on a scale of 1-10 with 10 being the most scandalous, there are two types of scandals that rate a 10:

     

    On this same scale of 1-10 I don't rate the JP Morgan speculation losses of $2 billion as even earning a rating of one. Firstly, this is not a $1 trillion loss that threatens Wall Street in the same way that the LTCM speculation threatened a complete meltdown of Wall Street.

    A $2 billion loss can be covered with loose change in the cash drawers of JP Morgan such that this in no way threatens the firm.

    The JP Morgan speculation will not trigger a Department of Justice investigation of rogue traders.

    At best the JP Morgan speculation losses will serve accounting and finance professors of a great illustration where internal control broke down and allowed top management to violate investment policy restricting speculations. This is the extent of the "scandal."

    Bob Jensen's threads/timeline on Derivative Financial Instruments Scandals ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds


    OSU President Gordon Gee --- http://en.wikipedia.org/wiki/Gordon_Gee

    "Scrutiny of Gordon Gee's Travel Expenses," Inside Higher Ed, May 8m 2012 ---
    http://www.insidehighered.com/quicktakes/2012/05/08/scrutiny-gordon-gees-travel-expenses

    Ohio State University has spent more than $800,000 on President Gordon Gee's travel expenses since 2007, including more than $550,000 in the last two years, The Dayton Daily News reported. Ohio State officials noted the value of Gee's travel, in reaching donors and others, and in spreading the word about Ohio State across the world. But the newspaper noted that Gee's travel expenses exceeded not only those of two Ohio governors, but also of the presidents of other big public universities with global ambitions and intense fund-raising efforts -- the Universities of Michigan, North Carolina at Chapel Hill and Virginia.

    Jensen Comment

    Just after Gordon was the President of OSU for the first time, I heard him give a speech saying that he left OSU because he was tired of earning less than the OSU  football coach. Presumably when he returned to once again become the President of OSU he was going to be paid more than the football coach. Or maybe he just gets more side benefits for luxurious travel.

    Many corporate CEOs, of course, get far more travel benefits, especially those that travel on corporate jets. Given the magnitude of Gordon's travel expenses, I suspect that he rents an executive jet on occasion.

    The IRS does frown on what it deems excessive salary and expense benefits of tax exempt organizations. Presumably OSU is not yet in trouble with the IRS.

    May 8, 2011 reply from Marc Dupree

    It's more interesting to monitor travel costs of OSU's president than our (University of Southern Mississippi's) president for many reasons. Nevertheless, we test important statements of our administrators and find many of them misleading, if not false. Among them is the costs of travel ("A Test of Social Reality": See my research at ssrn).

    During the recent recession when our president was firing tenured faculty, she also bought with taxpayer and student money a very expensive airplane. Here's one of the reports we did on the cost of her airplane travel.

    "Cost Per Flight Hour

    Costs and Uses of King Air N777AQ At the University of Southern Mississippi

    The purpose of this report is to show readers how to calculate cost per flight hour and use it to determine the cost of flights of N777AQ. We will also show why, in detail, cost per flight hour changes through time, but has in fact remained from beginning of the lease/purchase of N777AQ to the current time, over $5,500, not the $800 as claimed by President Saunders.

    The data used to measure cost per flight hour, costs of particular flights, and total costs to date are provided by the University of Southern Mississippi. usmnews.net employed the Mississippi Open Records Act (MORA) to obtain the information. usmnews.net invites readers to replicate and measure cost per flight hour for themselves and apply them to particular flights. As importantly, we invite readers to confirm the total cost of N777AQ to date (just short of two million so far). Since usmnews.net has paved the way obtaining information from Southern Miss via MORA, readers should expect to acquire cost and airplane use data with a minimum of delay and hassle. Thus, readers will not need to rely on usmnews.net’s data or measurements. They may verify facts and confirm the measurements for themselves. (More will be offered with regard to this idea in the conclusion.)..."

    "During the first 18 months, N777AQ was flown to the Beef-O-Brady’s Bowl. So, usmnews.net reported the flight cost using the measure of cost per flight hour and usage of N777AQ during the first 18 months. We repeat that measurement first for convenience of the reader.
    January 7, 2011, USM Interdepartmental Invoice reports a use of N777AQ on December 20 and 22, 2010 for a “5.1 hour round trip to St. Petersburg, FL for Dr. Martha Saunders, Troy Johnson [Jackson attorney], Doug Davis [MS State Senator], Doug [Member of IHL] and Pam [Doug’s spouse] Rouse, and Joe Bailey [Saunders’ husband].” Southern Miss pilots’ “King Air N777AQ Trip Log” listed an additional passenger: C. Driskell, Executive Assistant to President Saunders for External Affairs. The purpose of the flight as reported in USM’s “Interdepartmental Invoice” was to attend “the Beef-O- Brady’s Bowl.

    The number of actual flight hours as reported by the pilots in the “King Air N777AQ Trip Log” was 5.1. The cost to Mississippi taxpayers and Southern Miss students for Dr. Saunders and a chosen few to fly N777AQ to the Beef-O-Brady’s Bowl was

    $30,452.66 = ($5,971.11 actual cost per flight hour X 5.1 actual flight hours)

    Saunders publicly claims an estimated cost per flight hour of $800. Southern Miss “Interdepartmental Invoice” reports that she charged a total estimated cost of $4,080 (5.1 X $800) to the President’s Office for the flight to the Beef-O-Brady’s Bowl. That does not change the actual cost incurred of $30,452.66. The accounting records report the actual costs.

    Please note that when the $907,053.85 balloon payment (see the purchase/lease agreements), which is due at the end of the five year lease, is amortized over the five years of the lease/purchase, the cost per flight hour is $8,910.28. Including the balloon payment, this use of N777AQ cost $45,442.43. (Please note that usmnews.net has confirmed the existence of an extension of the lease through 2019..."

    Details and access to MORA documents are provide in the following report:

    http://www.usmnews.net/USMNews 02 14 2012 N777AQ.pdf 

    Marc Chauncey M. DePree, Jr., DBA,
    Professor, School of Accountancy,
    College of Business,
    University of Southern Mississippi

     

    Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm


    "An (Almost) Unnoticed $497 Million Accounting Error," by Jonathon Weil, Bloomberg, May 2, 2012 ---
    http://www.bloomberg.com/news/2012-05-02/an-almost-unnoticed-497-million-accounting-error.html

    One telltale sign of a bull market is that investors don't care as much about dodgy corporate accounting practices. A case in point: the public reaction -- or lack thereof -- to a financial restatement disclosed late yesterday afternoon by Williams Cos., the natural-gas producer.

    Williams didn't issue a press release about the restatement. As far as I can tell, there have been no news reports about the company's accounting errors, which Williams divulged in a filing with the Securities and Exchange Commission. They aren't a small matter, though.

    As a result of the restatement, Williams said its shareholder equity fell $497 million, or 28 percent, to $1.3 billion as of Dec. 31. Additionally, the company said it had "identified a material weakness in internal control over financial reporting," which is never a good sign. Net income wasn't affected.

    Shares of Williams were trading for $33.65 this afternoon, down 73 cents, after setting a 52-week high yesterday. The stock is up 88 percent since Oct. 4.

    Williams, which is audited by Ernst & Young, said the restatement was necessary to correct errors in deferred tax liabilities related to its investment in Williams Partners LP, a publicly traded master limited partnership in which it owns a 68 percent stake. A Williams spokesman, Jeff Pounds, declined to comment when asked why the company didn't issue a press release flagging the restatement.

    The answer seems obvious, though: The company didn't want anyone to write about it. Oh well.

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


    From The Wall Street Journal Accounting Weekly Review on June 1, 2012

    Private Firms Gain Relief
    by: Michael Rapoport
    May 24, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Accounting Standards Board, Standard Setting

    SUMMARY: "The foundation that oversees accounting rule-making created a panel aimed at making it easier for millions of privately held companies to follow accounting standards. The Private Company Council will work with the existing Financial Accounting Standards Board to carve out exceptions and modifications to accounting rules to benefit the nation's 28 million private companies. The Financial Accounting Foundation, which oversees the FASB, established the new panel at a meeting in Washington on Wednesday," May 23, 2012.

    CLASSROOM APPLICATION: The article is useful to discuss the structure of the FASB organization in establishing accounting standards as well as the changes being undertaken to better accommodate small to medium sized entities (SMEs). NOTE TO INSTRUCTORS: DELETE THE FOLLOWING STATEMENT BEFORE ISSUING THE SMALL GROUP ASSIGNMENT TO STUDENTS: To complete the small group assignment #1, students can locate a timeline in the FASB final report, Establishment of the Private Company Council (PCC) that was issued on May 30, 2012 and is available on the FASB web site www.fasb.org. For assignment #2, the IASB provides a background for its efforts for SMEs on its web site at www.iasb.org

    QUESTIONS: 
    1. (Introductory) What is the purpose of the new Private Company Council established by the Financial Accounting Foundation?

    2. (Advanced) What is the Financial Accounting Foundation? Why is it this group who has established the new Council, rather than the FASB itself?

    3. (Introductory) According to the description in the article, what is the background leading up to the establishment of this Council, i.e., why is this Council needed?

    4. (Advanced) How independently will the new Council operate relative to the FASB? To support your answer, provide detailed information from the article.
     

    SMALL GROUP ASSIGNMENT: 
    1. Investigate the historical development of the Private Company Council beginning at the FASB website www.fasb.org. Draw a timeline of events leading up to the establishment of the Private Company Council. 2. Compare the structure and expected output of the Private Company Council to the system in place in developing IFRS for small to medium sized entities (SMEs).

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Private Firms Gain Relief," by: Michael Rapoport, The Wall Street Journal, May 24, 2012 ---
    http://online.wsj.com/article/SB10001424052702304065704577422622260363222.html?mod=djem_jiewr_AC_domainid

    The foundation that oversees accounting rule-making created a panel aimed at making it easier for millions of privately held companies to follow accounting standards.

    The Private Company Council will work with the existing Financial Accounting Standards Board to carve out exceptions and modifications to accounting rules to benefit the nation's 28 million private companies. The Financial Accounting Foundation, which oversees the FASB, established the new panel at a meeting in Washington on Wednesday.

    Private companies have long complained that generally accepted accounting principles, the system of accounting rules used in corporate America, are overly burdensome for them. They often don't have the resources of larger, publicly traded companies, and some accounting rules don't apply to them. But they still have to follow GAAP when they prepare financial statements for lenders, bonding companies or regulators, resulting in extra costs, they said.

    That is where the Private Company Council comes in. The panel will identify and vote on areas of the rules in which accommodations are warranted for private companies, subject to the FASB's endorsement. For instance, the panel might establish exceptions or modifications for private companies in areas like how they measure the fair value of assets and obligations, or in the requirement to bring off-the-book entities onto the balance sheet, according to the Financial Accounting Foundation.

    The move will "give private company stakeholders additional assurance that their concerns will be thoroughly considered and addressed," foundation Chairman John Brennan said in a statement.

    The foundation had proposed the new council last fall, following a recommendation from a panel formed by the foundation, state accounting boards and the American Institute of Certified Public Accountants, the nation's largest accountants' trade group. The group had criticized the initial proposal, saying it didn't go far enough to help private companies and didn't give the new panel enough independence.

    Continued in article

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

     


    "Economical Writing, Second Edition [Paperback], by Deirdre McCloskey ( 978-1577660637, 1999)

    Sample Amazon Reviews

    Review "Deirdre McCloskey's Economical Writing, originally aimed to help economists write better, is in this second edition clearly a book that should be read by scholars in every field. Her thirty-one rules, offered with wit and delightful brevity, include the essential warning that though rules can help, bad rules hurt. McCloskey's are all of the helpful kind." -- Wayne Booth, University of Chicago

    "If you want to be read [and who doesn't] and be remembered [better yet], Economical Writing is for you. This entertaining volume will teach you how to write meaningful and joyful economics. A dose of McCloskey banishes the dismal from the 'dismal science.' McCloskey is the Strunk and White of economics, and Economic Writing should be required reading for all economists." -- Claudia Goldin, Harvard University

    "McCloskey tells economists to say what they have to say clearly and economically, and then shows them how. Students can learn to write so that the professor will know what they mean and, more important, professors can learn to write so that the rest of the world will know what they mean." -- Howard S. Becker, University of Washington

    "Professor McCloskey has written the best short guide to academic prose in the language. Is this language English and not the Academic Official Style? Does McCloskey write with a sense that is also a sense of humor? All true. Buy and believe." -- Richard Lanham, University of California, Los Angeles

    I added this to the AAA Commons Writing Forum ---
    http://commons.aaahq.org/posts/c5fdcaace5/comments/16088/edit?start=16&stop=30

    Bob Jensen's Helpers for Writers ---
    http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries


    "What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much," by Beckie Supiano, Chronicle of Higher Education, May 16, 2012 ---
    http://chronicle.com/article/What-Does-1-Trillion-Mean-/131900/

    Student-loan debt is having a moment in the spotlight. An interest-rate hike planned for July 1 has become a hot political issue. New graduates, the majority carrying loans, are entering a still-weak job market. Through it all, nearly every public analysis on education debt now cites the same statistic: The total amount of outstanding student-loan debt is more than $1-trillion.

    That milestone made headlines in The Wall Street Journal, Forbes, tabloids, and blogs; it was on CBS and NPR. Pundits and interest groups have used the number to raise eyebrows about the high volume of education debt, sometimes suggesting a crisis.

    A trillion is a big, round number. It has some shock value. But what does crossing the $1-trillion mark really tell us?

    For one thing, that more people are going to college—and graduate school. The sum is an estimate of all outstanding education debt: private and federal student loans for undergraduates, parents, and graduate and professional-school students. And greater educational attainment is a goal the Obama administration and many nonprofit groups are pushing.

    At the same time, in the wake of severe state budget cuts, tuition is rising, and students and their families are footing a larger share of the bill. A greater percentage of bachelor's-degree recipients have borrowed, and the average amount of debt per borrower has also risen. About two-thirds of graduates of public and private nonprofit colleges have loans, with the borrowers' average debt about $25,000, according to the most recent analysis, of the Class of 2010, by the Project on Student Debt. (The average debt for the Class of 2004 was under $19,000, according to the federal government, which counts somewhat differently.)

    Total outstanding student-loan debt—even $1-trillion of it—may not have broad economic implications. It's still too small a sum to derail the economy, at least for now, says Mark Kantrowitz. He runs a well-known consumer Web site, FinAid, that displays a Student Loan Debt Clock, perpetually ticking up. But the clock is "intended for entertainment purposes only," the site says.

    The student-loan market can't be viewed like the housing market, says Mr. Kantrowitz. No one speculates on the value of an education, artificially inflating its price.

    Total annual student-loan payments, which come to $60- or $70-billion, now represent only about 0.4 percent of GDP, Mr. Kantrowitz says. And should a day come when the federal government—which makes most student loans—is too hard up to offer them, that will be the least of the nation's worries.

    Besides, education debt is "good debt," says Anthony P. Carnevale, director of Georgetown University's Center on Education and the Workforce. "This is exactly the kind of debt a society wants."

    A homeowner might find himself underwater on a mortgage, but an education doesn't lose value. And the government's new "gainful employment" rules, which attempt to prevent borrowers from ending up with worthless degrees, should make student debt an even better bet, Mr. Carnevale says.

    Still, student loans have been called the next bubble. That doesn't faze Judith Scott-Clayton, an assistant professor of economics and education at Columbia University's Teachers College. It is "not something that keeps me up at night," she says.

    Parallels with the housing market, she says, are unconvincing. But rising debt levels could affect graduates' pursuits, potentially deterring them from careers in public service. The government does offer income-based repayment programs, but few borrowers take advantage of them, she says, a fact that puzzles economists.

    Individual Impact

    The $1-trillion total, which varies depending on where data come from and how interest is counted, didn't hit 13 digits suddenly. It has been climbing for years, and there's little reason to think it will stop now.

    So today's tally doesn't necessarily matter, says Robert A. Sevier, senior vice president for strategy at the higher-education marketing company Stamats. "It's the trend line that's terrifying."

    But pointing to an impressive number can be helpful to groups that want to raise awareness about student debt and what they see as its repercussions. "It represents the impact to the economy as a whole, not just to individuals," says Jen Mishory, deputy director of Young Invincibles, an advocacy group that has called itself the AARP for young people. Debt delays some recent graduates from buying homes or starting a family, she says, decisions that affect the economy. (The group conducted a poll last fall of about 900 people ages 18 to 34, finding that almost half had delayed purchasing a home, but because of the "current economy" in general, not student loans specifically.)

    Meanwhile, the total student-loan debt now has enough zeros to get the attention of policy makers, who are used to thinking in trillions, says Andy MacCracken, associate director of the National Campus Leadership Council, a new student advocacy group. But students themselves are more concerned with the numbers that bear on them directly: how much they have borrowed, what their monthly payments are, and whether they can afford to make them.

    Individual calculations, of course, have more impact on students and colleges. And the total amount of debt isn't inherently bad. "If it can be paid off the way it's supposed to be, it's not a problem," says Kathy Dawley, president of Maguire Associates, a higher-education consulting firm. What matters is who has borrowed, and if they can pay it back.

    Someone who borrows a reasonable amount to help finance a good education, finds a well-paying job, and repays loans comfortably is evidence of the system's working. But if a borrower has either taken on too much debt, attended a subpar college, or failed to graduate or find work, that's a different story. Last week The New York Times posited that student loans are "weighing down a generation with heavy debt." Unemployment for recent college graduates stood at 8.9 percent at the end of 2011.

    When the Institute for College Access & Success, an independent nonprofit, started the Project on Student Debt in 2005, its goal was to bring attention to an overlooked issue, says Lauren J. Asher, the group's president. Now, she says, it is no longer on the sidelines: "Student debt has touched more and more people's lives."

    Continued in article

    Jensen Comment
    I'm a long-time advocate of having financial literacy somewhere in the general education core curriculum ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#FinancialLiteracy

    What I found more interesting than Supiano's article (that I thought was naive) were some of the comments following her article. One in particular is quoted below:

    Comment by thececinc
    Thanks for the courage to critique without identifying yourself "11336405". That's very professional of you. With that approach I am certain you are held in the highest esteem by your colleagues. Good for you. 

    For your reference the fee is $3,500, not $750 and it's not for a seminar, it's for a complete and comprehensive Financial Education program for a campus to implement. The program has the ability to scale to 500 students per semester. Now let's compare that price to the average amount of student loan debt today's college graduate has: $25,000. The program is priced in a fair & equitable range. (Also for your reference The Rich Grad Project is developed by Collegiate EmPowerment a 501c3 non profit educational organization)

    So Dr. 11336405, let's get to the real heart of the matter. Currently there are over 4,813 degree granting colleges & universities in the US, enrolling approximately 18.3 million students. Based on the most current data from the CIRP Study from UCLA's Higher Education Research Institute The American Freshman, the #1 Lifetime Objective of today's college student is: To Be Very Well Off Financially (79.6%). 

    Now here is the current economic reality of the Student Loan Crisis: 
    1. We have a student loan debt amount exceeding $1 Trillion Dollars
    2. The average student will graduate with over $25,000 in student loan debt
    3. We have $67 Billion Dollars of student loan debt in DEFAULT 
    4. In July of 2012, the interest rate on federal student loans will jump from 3.4% to 6.8%

    Now put this in context with these two additional facts
    5. The #1 lifetime objective of today's student is: To Be Very Well Off Financially (wether you agree with it our not)
    6. Yet of the 4,813 degree granting institutions in the US, how many of them have Financial Education in the core curriculum? Take a guess....

    ONLY 1 (Champlain College, Burlington, VT)

    So let's forget that facts & economic indicators that show THE SKY IS FALLING when it comes to the student loan crisis. There is a much, much deeper problem here. It's the fact that we are graduating an entire generation of financial illiterates and then sticking them with a non-dischargable debt the size of mortgage. Not only does this hurt our students, not only does this hurt our industry of Higher Education bottom-line it hurts the future of our country. 

    So keep the critiques rolling in Dr. 11336405 and maybe you can learn a thing or two. Then again you probably bought your condo at the height of the Real Estate bubble too. How's that working for you? 

    Additional Jensen Comment
    Among the comments

    Ms. Sapaiano stated: "A homeowner might find himself underwater on a mortgage, but an education doesn't lose value. And the government's new "gainful employment" rules, which attempt to prevent borrowers from ending up with worthless degrees, should make student debt an even better bet, Mr. Carnevale says."

    I find the real estate mortgage versus student loan debt comparison to be misleading. Firstly, the value of an education is only a heart beat away from having no future value. An insured house has future value that is far less risky since home ownership is easily transferred in full.

    Secondly, the amount of mortgage is highly correlated with quality where usually a high quality house qualifies for a much larger mortgage than a low quality house. In the education market, the highest student loans are often going to the lowest quality education, especially some of those for-profit university scams. This begs the question of why students will opt to borrow more for a low quality education given the choice of higher quality education, including distance education degrees, from state universities?

    The answer is that students are borrowing for grades rather than education. They are gaming the system for grades and are willing to borrow more for a low quality education as long as they can game for an A grade average ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#GamingForGrades


    "Convicted former CFO seeks $60 million from Tyco," by Karen Freifeld, Reuters, May 7, 2012 ---
    http://www.chicagotribune.com/business/sns-rt-us-tyco-swartzbre84617r-20120507,0,3939041.story

    Former Tyco International Chief Financial Officer Mark Swartz, who is serving a prison sentence for looting the company, has sued for $60 million in retirement and other money he says he is owed.

    The lawsuit, which was made public on Monday, accuses Tyco of breach of contract and unjust enrichment for not paying him some $48 million from an executive retirement agreement, $9 million in reimbursement for New York taxes, and other money.

    "We know of no basis on which Swartz could recover from the company," Tyco spokesman Paul Fitzhenry said in an email, although the company had not yet been served with the complaint.

    Swartz was convicted of grand larceny and securities fraud in 2005, along with former Chief Executive Dennis Kozlowski. They are each serving sentences of 8-1/3 to 25 years.

    In his lawsuit, filed in New York state Supreme Court, Swartz charges the company knew the Manhattan District Attorney intended to bring criminal charges against him when it approved the main contract at issue in the lawsuit.

    "The directors and management of Tyco approved the subject agreement with actual knowledge that he was shortly to be indicted," the lawsuit said.

    Tyco has a separate suit against Swartz pending in U.S. District Court in the Southern District of New York. That case, to fix the amount Swartz must pay Tyco, is scheduled for trial in September, Fitzhenry said.

    Tyco also brought a similar suit in federal court against Kozlowski. In that case, the judge dismissed Kozlowski's counterclaims for pay and benefits after 1995. The remaining issues are scheduled for trial in August, Fitzhenry said.

    Swartz was chief financial officer of the industrial conglomerate from 1995 through 2002. He was indicted in September 2002 and convicted in June 2005. Besides the prison sentence, he paid $72 million in court-ordered restitution and fines.

    Since September, Swartz has been assigned to Lincoln Correctional Facility in New York city, a minimum-security facility where Kozlowski also is based, according to the state Department of Corrections.

    Swartz is on a furlough schedule where he can leave on Wednesdays and return on Monday. He is scheduled to appear before the Parole Board in September 2013.

    Kozlowski, whose purchase of a $6,000 shower curtain made him a symbol of corporate greed, was denied parole in April.

    Continued in article

    A message from Andrew Priest on February 34. 2002

    Yahoo! is carrying this news story in respect of Tyco International. Apparently the firm spent $US8 billion in its past three fiscal years on more than 700 acquisitions that were never announced to the public. The story is at http://au.news.yahoo.com/020205/2/3vlo.html  .

    Is this another Andersen client? :-) Seriously does anyone know who the auditor is on this one?

    Thanks 
    Andrew Priest

    The auditor is PricewaterhouseCoopers (PwC)

    Bob Jensen's threads on Tyco are at
    http://www.trinity.edu/rjensen/Fraud001.htm
    Search for Tyco at the above site.
    Unlike many companies that failed after their top executives went to prison, Tyco was and remained financially very sound because of successful acquisitions engineered by the top executives that went to prison for criminal activities along the way, including stealing from the company.


    "Jenkins: The IPO From Hell? The Facebook fiasco was a blessing for the mom and pop investors who were shut out of the deal," by Holman W. Jenkins Jr., The Wall Street Journal, May 22, 2012 ---
    http://online.wsj.com/article/SB10001424052702304019404577420383358865326.html?mod=djemEditorialPage_t

    Anti-capitalist progressives are dancing in the street
    But The Economist Magazine is really, really worried

    "The endangered public company:  The rise and fall of a great invention, and why it matters," The Economist, May 19, 2012 ---
    http://www.economist.com/node/21555562

    AS THIS newspaper went to press, Facebook was about to become a public company. It will be one of the biggest stockmarket flotations ever: the social-networking giant expects investors to value it at $100 billion or so. The news raises several questions, from “Is it worth that much?” to “What will it do next?” But the most intriguing question is what Facebook’s flotation tells us about the state of the public company itself.

    At first glance, all is well. The public company was invented in the mid-19th century to provide the giants of the industrial age with capital. That Facebook is joining Microsoft and Google on the stockmarket suggests that public listings are performing the same miracle for the internet age. Not every 19th-century invention has weathered so well.

    But look closer and the picture changes (see article). Mark Zuckerberg, Facebook’s young founder, resisted going public for as long as he could, not least because so many heads of listed companies advised him to. He is taking the plunge only because American law requires any firm with more than a certain number of shareholders to publish quarterly accounts just as if it were listed. Like Google before it, Facebook has structured itself more like a private firm than a public one: Mr Zuckerberg will keep most of the voting rights, for example.

    The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain. The number of initial public offerings (IPOs) in America has declined from an average of 311 a year in 1980-2000 to 99 a year in 2001-11. Small companies, those with annual sales of less than $50m before their IPOs—have been hardest hit. In 1980-2000 an average of 165 small companies undertook IPOs in America each year. In 2001-09 that number fell to 30. Facebook will probably give the IPO market a temporary boost—several other companies are queuing up to follow its lead—but they will do little to offset the long-term decline.

    Companies are like jets; the elite go private

    Mr Zuckerberg will be joining a troubled club. The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth. Shareholders are also angry. Their interests seldom seem to be properly aligned at public companies with those of the managers, who often waste squillions on empire-building and sumptuous perks. Shareholders are typically too dispersed to monitor the men on the spot. Attempts to solve the problem by giving managers shares have largely failed.

    At the same time, alternative corporate forms are flourishing. Once “going public” was every CEO’s dream; now it is perfectly respectable to “go private”, like Burger King, Boots and countless other famous names. State-run enterprises have recovered from the wreck of communism and now include the world’s biggest mobile-phone company (China Mobile), its most successful port operator (Dubai World), its fastest-growing big airline (Emirates) and its 13 biggest oil companies.

    No doubt the sluggish public equity markets have played a role in this. But these alternative corporate forms have addressed some of the structural weaknesses that once held them back. Access to capital? Private-equity firms, helped by tax breaks, and venture capitalists both have cash to spare, and there are private markets such as SecondMarket (where $1 billion-worth of shares has changed hands since 2008). Limited liability? Partners need no longer be fully liable, and firms can have as many partners as they want. Professional managers? Family firms employ them by the HBS-load and state-owned ones are no longer just sinecures for the well-connected.

    Make capitalism popular again

    Does all this matter? The increase in the number of corporate forms is a good thing: a varied ecosystem is more robust. But there are reasons to worry about the decline of an organisation that has spread prosperity for 150 years.

    First, public companies have been central to innovation and job creation. One reason why entrepreneurs work so hard, and why venture capitalists place so many risky bets, is because they hope to make a fortune by going public. IPOs provide young firms with cash to hire new hands and disrupt established markets. The alternative is to sell themselves to established firms—hardly a recipe for creative destruction. Imagine if the fledgling Apple and Google had been bought by IBM.

    Second, public companies let in daylight. They have to publish quarterly reports, hold shareholder meetings (which have grown acrimonious of late), deal with analysts and generally conduct themselves in an open manner. By contrast, private companies and family firms operate in a fog of secrecy.

    Third, public companies give ordinary people a chance to invest directly in capitalism’s most important wealth-creating machines. The 20th century saw shareholding broadened, as state firms were privatised and mutual funds proliferated. But today popular capitalism is in retreat. Fewer IPOs mean fewer chances for ordinary people to put their money into a future Google. The rise of private equity and the spread of private markets are returning power to a club of privileged investors.

    All this argues for a change in thinking—especially among the politicians who have heaped regulations onto Western public companies, blithely assuming that businessfolk have no choice but to go public in the long run. Many firms now go (or stay) private to avoid red tape. The result is that ever more business is conducted in the dark, with rich insiders playing a more powerful role.

    Public companies built the railroads of the 19th century. They filled the world with cars and televisions and computers. They brought transparency to business life and opportunities to small investors. Because public companies sell shares to the unsophisticated, policymakers are right to regulate them more tightly than other forms of corporate organisation. But not so tightly that entrepreneurs start to dread the prospect of a public listing. The public company has long been the locomotive of capitalism. Governments should not derail it.

     

    "Crony Capitalism for Intellectuals," by Luigi Zingales, Chronicle of Higher Education, May 20, 2012 ---
    http://chronicle.com/article/Crony-Capitalism-for/131894/?sid=cr&utm_source=cr&utm_medium=en

    Jensen Comment
    If economists were truly better forecasters they would all be at the top of the 1%. They would have invested in billions in short sales contracts and naked put options in 2007, because even the poor can leverage themselves into the 1% with short sales and naked put options if they know "when" the economy will melt down.

    Forecasting has twin brothers named If and When. The guy named If is a pretty uncomplicated scholar who builds models on assumptions. But the secret of success is not If but When, and When is a very mysterious guy who resorts to to a crystal ball. What we know is that If just can't cut it no matter how hard he wants to be in the 1%, and When's crystal ball turns out to be no better than chance itself.

    The End of Capitalism, Economics, and Investment Banking as We Know It ---
    http://www.trinity.edu/rjensen/2008Bailout.htm#InvestmentBanking

     


    From The Wall Street Journal Accounting Weekly Review on May 4, 2012

    Postal Rescue Passes Senate
    by: Corey Boles
    Apr 26, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Governmental Accounting

    SUMMARY: "Even in its current reduced state, [the U.S. Postal Service is] carrying 165 billion pieces of mail a year..." but the operation is currently unsustainable. The Postal Service has said it will close distribution centers in rural locations and discontinue Saturday delivery to lower costs if the U.S. Congress does not act to improve its funding assistance. Legislation will "...trigger early retirement for as many as 100,000 postal workers as part of a plan to save $20 billion a year...but a congressional rescue...remains in doubt as another bill languishes in the [Republican controlled] House."

    CLASSROOM APPLICATION: The article is useful for governmental accounting courses to highlight the difference between governmental services and for-profit delivery services.

    QUESTIONS: 
    1. (Introductory) What were the results of the U.S. Postal Service operations in the fiscal quarter ended December 31? Why should that period typically be its strongest?

    2. (Advanced) What does it mean to say that the U.S. Postal service operations are "unsustainable"?

    3. (Introductory) With what entities must the U.S. Postal service compete as a business?

    4. (Advanced) Why is it in our nation's interest to operate postal services in rural locations?

    5. (Advanced) How do these rural operations make it challenging for the post office to compete with for-profit businesses?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Postal Rescue Passes Senate," by: Corey Boles, The Wall Street Journal, April 26, 2012 ---
    http://online.wsj.com/article/SB10001424052702304811304577366341665567810.html?mod=djem_jiewr_AC_domainid

    The Senate approved a bill that would avert closings of post offices and distribution centers for two years and continue Saturday mail delivery.

    It also would trigger early retirement for as many as 100,000 postal workers, as part of a plan to save $20 billion a year at the financially distressed U.S. Postal Service.

    But a congressional rescue of the 237-year-old service remains in doubt as another bill languishes in the House.

    Senators voted 62-37, on a bipartisan basis, for the legislation, which took shape during months of negotiations. Thirteen Republicans, mainly centrists and lawmakers from rural states, voted with the Democratic majority, while four Democrats, who voiced concerns about the impact on rural states, joined most Republicans in opposing the bill. Republicans in general were critical of the bill's impact on the federal budget deficit.

    Under the bill, the early retirements would save $8 billion a year, and the Postal Service would receive $10.9 billion from the U.S. Treasury, money the service has overpaid to the federal employee pension system. The bill would allow current Postal Service retirees to opt out of the federal employee health-benefits system and use Medicare, which is generally cheaper, as their primary source of health-care coverage. It also would allow the Postal Service to set up its own health-care plan if management and labor unions agreed to do so.

    "The financial situation facing the U.S. Postal Service is dire, but it is not hopeless," said Sen. Tom Carper (D., Del.), one of the bill's main backers. "The time to act is now, and this legislation will provide the Postal Service with much-needed flexibility so it can rightsize, modernize and remain competitive for decades to come."

    If Congress doesn't act, the Postal Service has warned, it would embark on its cost-savings plan, one that could see as many as 3,700 post offices and 223 distribution centers closed and overnight first-class mail delivery stopped in many rural areas of the country.

    In a statement, the Postal Service's board of governors said the Senate action "falls far short" of a plan to return to financial viability. "It is totally inappropriate in these economic times to keep unneeded facilities open," the statement said. "There is simply not enough mail in our system today."

    Legislation in the House, which takes a significantly different approach, has stalled because Democrats oppose it, many rural Republicans worry that it would curb mail service in their districts and some say it would make matters worse for the Postal Service, its employees and customers. A senior House Republican leadership aide said there have been no discussions among leaders about bringing a House bill to the floor soon.

    "Instead of finding savings to help the Postal Service survive, the Senate postal bill has devolved into a special-interest spending binge that would actually make things worse," said Rep. Darrell Issa (R., Calif.), the chairman of the House Oversight and Government Reform Committee, which approved the House postal bill.

    The Postal Service is under intense financial pressure as email and package-delivery services have been on the rise. The service lost $3.3 billion in its fiscal first quarter, ended Dec. 31, its worst loss ever in a period that is generally its strongest.

    Continued in article

    Jensen Comment
    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

    I wonder what would've happened to the U.S. Postal service had it beat Google to the punch in introducing G-Mail. This might be analogous to U.S. Railroads starting up airline companies in the 1950s.

    I've never studied whether G-Mail is money winner or money loser for Google. If the U.S. Postal Service owned G-Mail it would then stand for "Government Email."


    "Financial matters are top cause of couples’ arguments, survey shows," by Ken Tysiac, Journal of Accountancy, May 4, 2012 ---
    http://journalofaccountancy.com/News/20125634.htm

    Jensen Comment
    I've been a long-time advocate of adding financial literacy in some way, shape, or form in the required Common Curriculum of every college ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#FinancialLiteracy

    Bob Jensen's personal finance helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


    "Northern Arizona U. Overhauls Curriculum to Focus on 'Global Competence'," by Ian Wilhelm, Chronicle of Higher Education, May 20, 2012 ---
    http://chronicle.com/article/Northern-Arizona-U-Overhauls/131925/?sid=at&utm_source=at&utm_medium=en

    Jensen Comment
    For openers, Northern Arizona might make The Economist required cover-to-cover reading. I find myself sometimes learning about countries that I did not know even existed ---
    http://www.economist.com/


    In two pending lawsuits and in her first public interview, Ms. Koper described company-paid luxuries that she said appeared to violate the Internal Revenue Service’s ban on “excess compensation” by nonprofit organizations as well as possibly state and federal laws on false bookkeeping and self-dealing.
    "Family feud reveals luxuries at largest Christian TV network:  Granddaughter attacks founders, who accuse her of embezzlement," by Erik Eckholm, MSNBC, May 5, 2012 ---
    http://www.msnbc.msn.com/id/47307792/ns/us_news-the_new_york_times/#.T6ZBU5gZtio
    Thank you Dennis Huber for the heads up

    NEWPORT BEACH, Calif. — For 39 years, the Trinity Broadcasting Network has urged viewers to give generously and reap the Lord’s bounty in return.

    The prosperity gospel preached by Paul and Janice Crouch, who built a single station into the world’s largest Christian television network, has worked out well for them.

    Mr. and Mrs. Crouch have his-and-her mansions one street apart in a gated community here, provided by the network using viewer donations and tax-free earnings. But Mrs. Crouch, 74, rarely sleeps in the $5.6 million house with tennis court and pool. She mostly lives in a large company house near Orlando, Fla., where she runs a side business, the Holy Land Experience theme park. Mr. Crouch, 78, has an adjacent home there too, but rarely visits. Its occupant is often a security guard who doubles as Mrs. Crouch’s chauffeur.

    The twin sets of luxury homes only hint at the high living enjoyed by the Crouches, inspirational television personalities whose multitudes of stations and satellite signals reach millions of worshipers across the globe. Almost since they started in the 1970s, the couple have been criticized for secrecy about their use of donations, which totaled $93 million in 2010.

    Now, after an upheaval with Shakespearean echoes, one son in this first family of televangelism has ousted the other to become the heir apparent. A granddaughter, who was in charge of TBN’s finances, has gone public with the most detailed allegations of financial improprieties yet, which TBN has denied, saying its practices were audited and legal.

    The granddaughter, Brittany Koper, and her husband have been fired by the network, which accused them of stealing $1.3 million to buy real estate and cars and make family loans. "They’re just trying to divert attention from their own crimes," said Colby May, a lawyer representing TBN. Janice and Paul Crouch declined requests for interviews.

    In two pending lawsuits and in her first public interview, Ms. Koper described company-paid luxuries that she said appeared to violate the Internal Revenue Service’s ban on “excess compensation” by nonprofit organizations as well as possibly state and federal laws on false bookkeeping and self-dealing.

    The lavish perquisites, corroborated by two other former TBN employees, include additional, often-vacant homes in Texas and on the former Conway Twitty estate in Tennessee, corporate jets valued at $8 million and $49 million each and thousand-dollar dinners with fine wines, paid with tax-exempt money.

    In the lawsuits and interviews, Ms. Koper, 26, also charges that TBN has spent millions of dollars in sweetheart deals with a commercial film company owned until recently by a son of the Crouches, Matthew, including poorly monitored investments made after he joined the TBN board in 2007.

    “My job as finance director was to find ways to label extravagant personal spending as ministry expenses,” Ms. Koper said. This is one way, she said, the company avoids probing questions from the I.R.S. She said that the absence of outsiders on TBN’s governing board — currently consisting of Paul, Janice and Matthew Crouch — had led to a serious lack of accountability for spending. Image: Religious theme park souvenir Brian Blanco for The New York Times A Holy Land Experience souvenir of a park actor depicting Jesus. Performers are said to be ministers playing roles.

    Ms. Koper and the two other former TBN employees also said that dozens of staff members, including Ms. Koper, chauffeurs, sound engineers and others had been ordained as ministers by TBN. This allowed the network to avoid paying Social Security taxes on their salaries and made it easier to justify providing family members with rent-free houses, sometimes called “parsonages,” she said.

    The company did not always succeed. Last year, officials in Orange County, Fla., turned down TBN’s application to register the adjacent lakefront houses in Windermere as parsonages, saying they served no religious purpose, The Orlando Sentinel reported. The designation would have resulted in religious exemptions and saved TBN roughly $50,000 in taxes a year.

    Ms. Koper said that the company run by Matthew Crouch, 50, who is her uncle, had received an estimated $50 million in TBN money over the years, with little oversight, to finance religious film projects and television shows. TBN recouped only a small fraction of its loans and investments, sometimes forgiving large sums in return for broadcast rights of limited value, she said.

    Continued in article

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


    I went to college in the wrong generation. Can you imagine sitting on campus in 2025 and willing that any coed of your choosing will walk over and ask you for a date? Of course she might also, in her phantom mind, wish you would drop dead.

    "The Real Power of the Phantom Mind," by Josh Fischman, Chronicle of Higher Education, May 16, 2012 ---
    http://chronicle.com/blogs/percolator/the-real-power-of-the-phantom-mind/29247?sid=wc&utm_source=wc&utm_medium=en

     Jensen Question
    Will Joe Hoyle still be teaching when he can more effectively wish students prepare for class=

    "A Story For My Students -- Learning to Deal with the Unexpected," by Joe Hoyle, Teaching Blog, April 24, 2012 ---
    http://joehoyle-teaching.blogspot.com/2012/04/story-for-my-students-learning-to-deal.html

    There are many times in teaching that a teacher needs to explain things to students. In many college classes, they are young people with limited experience. Occasionally, they simply don’t understand, especially when things are not as they have experienced them in the past. Part of my job as a teacher is to explain things beyond my subject matter.

    There are stories that can sometimes help them come to a better understanding. I often have students come to my office after I return a test. They are upset that they didn’t make the grade they had wanted or expected. It is common for me to hear something like “I cannot tell you how hard I studied. In fact, I studied with Mr. A and Ms. B and I knew just as much as they did. We worked every question from class 8 times apiece. Yet, they made a 95 and I made an 83. What am I supposed to do?”

    I guess this is on my mind because one of my students told me this afternoon that the 83 he got on a recent test was the first grade he had received in college under 98.

    To the student, the facts are clear. He or she did the same work as Mr. A and Ms. B and they made significantly higher scores on the test. At this point, the world doesn’t make sense.

    Here’s one story that I sometimes use in cases like this. “Assume you have two tightrope walkers. They both can walk a tightrope. It is a mechanical skill and they both can do it. But, for whatever reason, the first person is just more comfortable. Maybe, the first one practices more carefully. Maybe, the first one thinks more about the mechanics of tightrope walking. Maybe, the first one sits in his room at night and thinks of what odd things can happen and then dreams up a proper response. Or, maybe, tightrope walking just comes more naturally to the first person. Everyone has different abilities in life.

    “So, both people are high up on the tightrope one afternoon and they both look great. Suddenly, a very unexpected and very harsh wind blows up. What happens?”

    The student realizes the expected answer. “The first person hangs on and the second person falls off.”

    And, my response is: “Yeah, exactly. As long as things go as expected, they both do fine. It is the ability to react to the unexpected that usually makes a difference in life between great and adequate and the same is true on tests.

    Continued in article


    Super Teacher Joe Hoyle Congratulates His Nine Intermediate Accounting II Students Who Received an A Grade (9/52=17.2%) ---
    http://joehoyle-teaching.blogspot.com/2012/05/congratulations.html

    Congratulations!!!

    I am sending this note to the nine students who earned the grade of A this semester in Intermediate Accounting II. We started the semester with 52 students but we only had nine (17.3 percent) who earned the grade of A. And, you did – congratulations!! I very much appreciate the effort that it took to excel in such a challenging class. From the first day to the last, we pushed through some terribly complicated material. We never let up, not for one day. And, you did the work that was necessary. You didn’t let the challenge overwhelm you. I am so very proud of you and pleased for you. More importantly, you should be proud of yourself. I sincerely believe that all 52 of those students who started back in January had the ability to make an A. But you nine made it happen. In life, success comes from more than ability. It comes from taking on real challenges and investing the time necessary to make good things happen. I occasionally get frustrated that more students don’t set out to truly excel. However, I cannot say that about you.

    As I am sure you know (or remember), I always ask the students who make an A in my class to write a short paragraph (well, write a short paragraph directed to next fall’s students) and explain how you did it. I find this is important. You nine understood what I wanted you to do and you did it. So many students never catch on to what my goals are. It is always helpful (I believe) when the A students one semester tell the students before the next semester “Listen, everyone can make an A in this class but you really have to do certain things.” What are those things?

    I only ask two things: be serious and tell the truth. There's really nothing more that I can ask of you.

    And, write that paragraph for me before you forget.

    Have a great summer. Work hard, learn a lot, see the world, experience great things. There is plenty of time to be a boring adult after you graduate. Open your mind and pour as much into it as you can over the summer.

    Congratulations again. It has been a genuine pleasure to have had the chance to work with you.

    Jensen Comment
    Although we don't know the entire distribution of Joe's grades in this course, it's nice to know that in this era of massive grade inflation the median grade is not an A grade.

    Bob Jensen's threads on the national disgrace of grade inflation ---
    http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor


    "Google Stores, Syncs, Edits in the Cloud," by Walter S. Mossberg, The Wall Street Journal, April 27, 2012 ---
    http://online.wsj.com/article/SB10001424052702303459004577362111867730108.html

    For years, some people who wanted to store files on remote servers in the cloud have been emailing the files to their Gmail accounts, or uploading them to Google's GOOG -0.07% lightly used Google Docs online productivity suite, even if they had no intention of editing them there.

    Now, Google is formally jumping into the cloud-based file storage and syncing business, offering a service called Google Drive, which will compete with products like Dropbox and others by offering lower prices and different features. It works on multiple operating systems, browsers and mobile devices, including those of Google's competitors Apple AAPL -0.32% and Microsoft MSFT -0.02% . There are apps for Windows, Mac and mobile devices that automatically sync files with Google Drive.

    I've been testing Google Drive, which launches today, and I like it. It subsumes the editing and file-creation features of Google Docs, and replaces Google Docs (though any documents you have stored there carry over). In my tests—on a Mac, a Lenovo PC, a new iPad and the latest Samsung 005930.SE +1.16% Android tablet—Google Drive worked quickly and well, and most of its features operated as promised. At launch, it's available for Windows PCs, Macs and Android devices. The version for the iPhone and iPad is planned for release soon.

    Google Drive, which can be found at drive.google.com, offers users 5 gigabytes of free storage, compared with 2 gigabytes free for the popular Dropbox, and equal to the free offering from another cloud storage and syncing service I like, SugarSync. That's enough for thousands of typical documents, photos and songs.

    Prices for additional storage drastically undercut Dropbox and SugarSync. For instance, 100 GB on Google Drive costs $4.99 a month. By contrast, 100 GB costs $14.99 monthly on SugarSync and $19.99 on Dropbox. Google Drive will offer huge capacities, in tiers, all the way up to 16 terabytes. (A terabyte is roughly 1,000 gigabytes.) And if you buy extra storage for Google Drive, your Gmail quota rises to 25 GB.

    But one of Google's biggest rivals isn't standing still. Microsoft is expanding both the features and capacity of its little-known SkyDrive cloud storage service as well. That product started out as a free, fixed-capacity (25 gigabytes) online locker mostly for users of the stripped-down, cloud-based version of Microsoft Office, though it also has been available as an app for Windows Phone smartphones and for iPhones. It's giving away even more free storage than Google—7 GB, though that is a cut from what it used to offer free. It also is charging less than Google. For instance, you can add 100 gigabytes for $50 a year. And users of the old version get to keep their 25-gigabyte free allotment. I wasn't able to test this new version of SkyDrive for this column. It also is offering syncing apps for Windows and Mac.

    Google Drive is meant as an evolution of Google Docs. While you could previously upload a file to Google Docs using your Web browser, for Google Drive, the company is providing free apps for Mac and Windows that, like Dropbox, do this for you. They create special folders that sync with your cloud-based repository and with the Web version of the product. So, you can drag a file into these local folders on your computer and that file will be uploaded to your cloud account and will rapidly appear in the Web version of Google Drive, in the Google Drive folders on your other computers, and in the Google Drive apps on Android, iPhone and iPad devices. These local apps also sync any changes to the files you make.

    One big difference between Dropbox and Google Drive is you can edit or create files in the latter, rather than merely storing or viewing them. This is because Google Drive includes the rudimentary word processor, spreadsheet, presentation and other apps that make up Google Docs.

    But there is a catch. If your stored document is in a Microsoft Office format, you can only view it. To edit it, you have to click a command to convert the file to Google's own formats, or choose a setting that converts Microsoft Office files when uploaded. But this latter feature only works when uploading from the website.

    Google Drive also is missing some features of SugarSync I like. The latter doesn't require you to place files in a special folder; it syncs the folders you already use on your PC and Mac. Also, unlike SugarSync, Google Drive doesn't let you email files directly into your cloud locker.

    Google Drive allows you to share files and folders, and collaborate with others. You can also email files as attachments. People with whom you share files can be allowed different rights: to view, comment, or edit them. You can also keep the files private.

    Because Google has run into hot water over keeping users' information private, some people may be reluctant to trust their files to Google Drive. But the company insists that, while it does process and store your files, no human can see them and, at least today, the files aren't used to target advertising at users. The company notes no file can be placed in Google Drive unless the user wants it there.

    The service does a very good job of searching files, even finding words inside PDF or scanned documents. The company claims it can find images when you type in words describing them, like "bridge" or "mountain"—even if those words don't appear in the image's file name. But I found this mostly worked with photos of famous places or people Google has collected via its Google Goggles product. Google Drive failed to find images with generic file names on almost all of my own pictures, even when they included things like mountains or other common objects.

    Continued in article

    Bob Jensen's threads on data storage alternatives ---
    http://www.trinity.edu/rjensen/Bookbob4.htm#archiving


    "How to End Apple's Offshore Tax Shenanigans," by Robert McIntyre, Citizens for Tax Justice, May 4, 2012 ---
    http://ctj.org/ctjreports/2012/05/how_to_end_apples_offshore_tax_shenanigans.php
    Thank you Paul Caron for the heads up

    On Friday, May 4, the New York Times ran a letter from CTJ’s director, Robert McIntyre, responding to a recent Times article describing Apple’s tax dodging. McIntyre explains,
     

    “In its latest annual report, Apple said that as of last September, it had a staggering $54 billion parked offshore (since grown, as the Times points out, to $74 billion).  Almost all of this huge hoard is accumulated in tax havens and has never been taxed by any government. More to the point, most of these untaxed profits are almost certainly United States profits that Apple has artificially shifted offshore to avoid its United States tax responsibilities.

    “There’s a simple way to curb this kind of corporate tax dodging, of which Apple is only one prominent example: repeal the tax rule that indefinitely exempts offshore profits from United States corporate income tax. If those profits were taxable (with a credit for any foreign taxes paid), then Apple alone would have paid an additional $17 billion in federal income taxes over the past decade. That would have tripled the federal income taxes that Apple actually paid.

    “Congressional scorekeepers estimate that ending the offshore corporate tax exemption would increase overall federal revenues by about $600 billion over the next decade. That’s money that could be put to good use in these times of strained budgets.”

    Postscript: In our major study of corporate tax rates last November (Corporate Taxpayers & Corporate Tax Dodgers), we reluctantly included figures on Apple that reported the company’s 2008-10 effective federal tax rate on its reported U.S. profits to be 31.3%. In our notes we pointed out, “For better or worse, we did, with grave reservations, include some potential “liar companies” that we highly suspect made a lot more in the U.S., and less overseas, than they reported to their shareholders (e.g., Apple . . . ). We urge our readers to treat these companies’ true “ef­fec­tive U.S. income tax rates” as possibly much lower than what we reluctantly report. We will be working more on this issue.”

    Since then, we have spent quite a bit more time studying Apple’s annual reports. As our letter to the New York Times above notes, at the end of Apple’s 2011 fiscal year, it had accumulated $54 billion in cash offshore, almost all of it in tax havens, and almost all untaxed by any government. Since Apple’s profits stem mainly from its U.S.-created technology, most, if not all, of these untaxed profits are almost certainly United States profits that Apple has artificially shifted offshore.

    If we treat all of the untaxed portion of Apple’s offshore profits as really U.S. profits that were artificially shifted to offshore tax havens, then Apple’s U.S. tax rate is much lower than Apple reports. Under this approach, Apple’s 2008-10 effective federal tax rate comes to only 13.4%, and its effective federal tax rate over the last six years (2006-11) was only 12.1%. (Likewise, Apple’s revised effective state tax rate in 2008-10 was only 3.6%, instead of the 8.0% we reported in our state corporate tax study issued last December.)

    This alternative calculation is not necessarily perfect, since some of the profits Apple booked in tax havens may have been shifted from foreign countries in which it actually does real business (such as countries in Europe). But even if only three-quarters of the untaxed tax-haven profits are really U.S. profits, then Apple’s actual 2006-11 federal tax rate is still only 14%, less than half of the 31% tax rate that Apple’s annual reports indicate.

    A table showing the alternative calculations for Apple’s effective tax rate is at the bottom of this page. (in the article itself)

    Post-postscript: How do we know that Apple paid no tax to any government on almost all of its offshore cash hoard? Surprisingly, Apple actually tells us, although it takes a close reading of Apple’s annual reports and a knowledge of U.S. tax laws to understand.

    The key is this: the U.S. indefinitely exempts U.S. companies from tax on the profits of their offshore subsidiaries. Only if a foreign subsidiary pays a dividend to its U.S. parent are those profits taxable. If the subsidiary has already paid income tax to foreign governments, the parent company gets a “foreign tax credit” against its U.S. tax for that foreign tax.

    So here’s what Apple reveals in it annual reports: Apple says that if it told its foreign subsidiaries to pay Apple the whole $54 billion offshore amount as a dividend, then Apple would owe $17 billion in U.S. federal income taxes. That reflects a $19 billion tax at 35 percent, less a $2 billion foreign tax credit (the sum of all the foreign income taxes that Apple has ever paid). Which means, with a little more arithmetic, that about 90 percent of the $54 billion in accumulated offshore profits has never been taxed by any government.

    Continued in article

    Jensen Comment
    One factor to consider is that the big surge in profits for Apple Corporation is the sales of iPhones that are being made in China for world markets and most importantly for the iPhone market in China which is soaring faster than anywhere else in the world. One of the excuses given by multinational companies for not returning their international profits to U.S. soil is that these were profits were not earned in the U.S. and should not be taxed at the high U.S. corporate rates until U.S. corporate tax rates are more in line with tax rates in nations where those profits are earned. I prefer not to express an opinion on this since I'm really an advocate of replacing corporate income taxation itself with a VAT tax. This is of course a very unpopular idea with liberals and conservatives alike.

    It's popular in the liberal press and TV stations like MSNBC to attack "tax breaks for oil companies." For some reason, companies like Apple often escape the wrath of the progressive media. In fact, there aren't many really important tax breaks available to oil companies that are not also available to other companies. So if Congress ever gets serious about wiping out tax breaks for oil companies it will probably have to wipe out tax breaks for companies in general, including such breaks as accelerated depreciation, LIFO, energy credits, etc.

    One of the big laughs a few years ago was when two new (shall I say naive) members of Congress proposed that the U.S. government buy the oil refineries in the U.S. and make oil refining a government enterprise. The laugh was that oil companies would like nothing better as long as the government gave them a reasonably fair price for their investments in those refineries. Oil refining is bound up in constant fights with environmentalists and often is a losing proposition for oil companies. After the industry had its laugh over government-owned refineries, the two red-faced members of Congress said no more about that dumb idea.

    "Breaking It Down: Oil-Industry Tax Breaks," by Olga Belogolova, National Journal, May 12, 2012 ---
    http://www.nationaljournal.com/energy/breaking-it-down-oil-industry-tax-breaks-20110512 

    Domestic Manufacturing
    The Section 199 domestic manufacturing deduction is most targeted of the tax breaks for the five biggest oil companies. Eliminating it is a part of the proposal by Senate Finance Chairman Max Baucus, D-Mont., as well as the one by House Democrats called the Taxpayer and Gas Price Relief Act. House Democrats also brought the deduction up during a floor debate of a bill to expand offshore drilling last week, trying to force a vote on repealing it for the big five. The motion was tabled.

    Available to almost every kind of company, this deduction allows for up to 9 percent of profits from domestic manufacturing to be deducted. Even though the oil and gas industry is limited to a 6 percent deduction, it is considered to be “most egregious” by Democrats, as the industry is expected to save $18.2 billion over the next 10 years, according to the AP report.

    Continued in article (including some other big tax breaks by oil companies, including depletion deductions)


    "Tuck Brings Online Learning Into the MBA Classroom," by Alison Damast, Business Week, May 4, 2012 ---
    http://www.businessweek.com/articles/2012-05-04/tuck-brings-online-learning-into-the-mba-classroom

    Dartmouth College’s Tuck School of Business is transforming the way it teaches many of its MBA core classes, delivering portions of them online via video lectures, and using online quizzes and discussion boards. About a dozen Tuck professors are participating in the effort, using videos to teach introductory material in classes such as Managerial Economics, Statistics for Managers, Corporate Finance, and Operations Management, the school said. Beyond the core classes, the school has experimented with using videos for two of its elective courses: Retail Pricing and Service Operations.

    Tuck Dean Paul Danos, who spearheaded the pilot program this school year, says he got the idea after doing an online tutorial with his granddaughter on Khan Academy, the nonprofit education website that offers thousands of free YouTube-based lessons.

    “I was doing the lesson with her and I thought, Why can’t we do something similar to the Khan Academy?” says Danos. “I told professors anything you can put up on a whiteboard should be put up in advance so you can have more time in the classroom for conversation and face-to-face interaction.”

    Praveen Kopalle, a Tuck marketing professor who teaches the Statistics for Managers course, a required class for first-year students, was the first professor who participated in the project. Kopalle liked the idea of exposing students to some of the concepts in class before they step into the lecture hall, he said. He also thought it would be especially helpful for the school’s international students and those who have not studied statistics before, as they could review the material at their own pace.

    For his introductory statistics course this fall, Kopalle produced nine videos using a tablet and Camtasia screen recording software, and he distributed them to students before the term started. Students don’t see his face during the video but hear his voice while he explains the concepts on the tablet, which functions as an online whiteboard. He asks students to study the video pertaining to the lesson he’s teaching before coming to class. He also asks them to take an online quiz where they can see instantly if they’d mastered the concepts; the quiz counts toward their class participation grade, he said. If students have questions about the material, they can post a comment on an online discussion board and receive an answer from either Kopalle or a fellow student.

    The videos have proved to be a success so far; in a survey of 134 first-year MBA students who took Kopalle’s class this fall, about 80 percent of students said they found the videos to be a useful part of their overall class experience and liked the technology, while 72 percent said it improved the way they learned the material. It also has proved to be a useful tool for Kopalle, who can monitor which of his 270 students took the quizzes, what scores they received, and how much time they spent watching the videos.

    “It gives me lots of diagnostic information that I can then link to class preparation,” he said. “The classroom experience is much richer because of the experience, because we can dig deeper into the material.”

    Professors from other schools are beginning to experiment with online courses, with some making them available to the public.  Back in February, we wrote about how several professors from top MBA programs were participating in The Faculty Project, a website that allows professors to upload free courses and supplementary course materials, as well as interact with students.

    For now, Tuck’s videos are only available to students, but the school is “discussing whether to make the course material public,” said Christopher Huston, Tuck’s digital specialist, in an e-mail.

    Continued in article

    Jensen Comment
    At Dartmouth's Tuck School and nearly all top MBA programs, most classes are not lectures. Instead they are case discussions where the true test of a top case teacher is to resist lecturing or even giving out his/her opinions as to the "best answers." Indeed many of the excellent cases used in these schools have no known "best answers."

    My question then is how to video a case class before it actually meets?

    Bob Jensen's threads on open sharing courses, lectures, videos, and other case materials from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    "The FASB's conceptual framework, financial accounting and the maintenance of the social world," Ruth D. Hines, Accounting, Organizations and Society, Volume 16, Issue 4, 1991 ---
    http://www.sciencedirect.com/science/article/pii/036136829190025A

    Abstract

    This paper addresses the functional failure of the FASB's Conceptual Framework. It suggests that the reason for the problems encountered by the FASB in its CF project (and those encountered in other CF projects), is that the FASB CF is elaborated around a highly problematic conception of the relationship between financial accounting and economic reality. The CF involves a process of mundane reasoning around a central incorrigible proposition of our society, that social reality exists objectively and intersubjectively. This paper draws on anthropology to show that this assumption of a concrete, objective social reality is a product of everyday reasoning such as that of the FASB members. A comparison of the FASB's reasoning about economic reality, with the reasoning of the African Azande about their poison oracle reality, shows how those two realities are both socially maintained by the same process of commonsense reasoning. A number of important implications follow which extend beyond CFs and financial accounting practices. These implications relate to the essential culture and value-dependency of logic, reasoning and rationality, and have attendant inferences for the potential role of accounting researchers in influencing society rather than merely participating in the legitimizing and reproduction of the status quo.


    How to get students to prepare for class?
    "Now, That Is a Very Good Question," by Joe Hoyle, Teaching Blog, May 14, 2012 ---
    http://joehoyle-teaching.blogspot.com/2012/05/now-that-is-very-good-question.html

    Jensen Comment
    As with most things in life, there are positive incentives and negative incentives. Sometimes it's hard to classify incentives on this binary scale. Is a pop quiz a positive or negative incentive? It's positive if it adds significant points toward a top grade in the course. It's negative if failure to earn pop quiz points can lower the final grade.

    Barry Rice used to pose questions in a lecture hall and then randomly flash a student's name and picture on a screen in front of the class. Presumably, a student who fumbles the answer is likely to spend more time preparing for the next class. A student who gives a great answer has, at a minimum, earns brownie points.

    Joe Hoyle has some other ideas about this chronic problem.


    A Grumpy Message to Graduates

    "A MESSAGE TO ACCOUNTING GRADUATES: REMEMBER WORLDCOM AND GET GRUMPY!" by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, May 14, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/670

    This is a proud moment for those who are graduating, as well as families and friends.  You have successfully earned your degree in Accounting, and you soon will enter the profession to begin practicing auditing, tax, corporate finance, and the like.  Also, you will study for and soon pass the CPA exam.  Your futures are bright indeed.  And your faculty are very proud of you, including these two Grumpy Accountants.

    You have learned a lot about accounting and a variety of other topics while in school.  Your educational foundation is now complete.  Of course, you will be building on this important base through your work experiences as you actually “learn by doing.”  This will give you tremendous insights into the nuances of accounting, finance, as well as business in general.

    For those of you who will be working in accounting, you are entering a good profession, one that plays several important roles in society, all dealing in one way or another with information.  We gather information, we process information, we aggregate information, we communicate information to the appropriate audience, and we interpret the information.  Accounting plays a vital role in business and society since quality information drives quality decision-making.

    However, you also are entering a profession that is in trouble; some may even say one that is in crisis.  Most of you know about the accounting scandal at Enron.  Unfortunately, Enron is not an isolated instance.  There have been hundreds of accounting and reporting scandals over the years, and accountants appear culpable in many of them.  As a consequence, we are losing our credibility as information providers and as auditors of information.

    It is very important to realize that the accounting problems which are contributing to our profession’s decline are not limited to just a few “bad apples.”  There simply have been too many accounting and audit failures for this “bad apple” story to have merit.  As proof, consider the below listed statistics from Audit Analytics for companies issuing securities in US capital markets.  Note that the term “restatements” reflects accounting and reporting errors requiring the correction of financial statements.

    Some of these restatements are due to mistakes, while others are due to internal control issues, and a few reflect incorrect estimates.  But, a lot of these accounting restatements relate to purposeful exaggerations and purposeful omissions intended to inflate an entity’s true worth.  Too many are fraudulent.

    With hundreds and hundreds of these accounting “miscues,” clearly we have a lot of bad apples in the accounting profession.  Indeed, with so many bad apple trees, one wonders about the whole fruit farm.

    The matter rests in our hands, and that includes you.  Either we change the accounting profession, or it will rot.  As you begin your career, we ask you to be part of the solution and not part of the problem.

    As we near the tenth anniversary of the WorldCom debacle,  consider the story of Cynthia Cooper.  She led the Internal Auditing department at WorldCom that discovered the accounting fraud at WorldCom.  Without this group’s perseverance and Cynthia’s leadership and strength of character, it is possible that the company’s fraud may have gone undetected.

    Her team’s work was so impressive that Bernie Ebbers, WorldCom’s CEO, and Scott Sullivan, the CFO, demanded they quit looking at the financial statements, and concentrate on various operational audits.  Indeed, top management kept the internal auditors busy by adding more and more projects to their “to do” list to distract them from the financial statements.  But Cooper and her small staff were undeterred.

    They wanted to serve their real master: the capital providers.  They wanted to serve the public interest.  They recognized that they weren’t serving Ebbers and Sullivan; their responsibilities were far greater.

    They had integrity.  They smelled a rat and would not drop their detective work until they were satisfied one way or another.  Professional integrity dominated dictates by the CEO and CFO.

    They had courage.  They fully realized the potential consequences to their careers of their actions.  If Ebbers and Sullivan had known that Cooper and her staff were still performing financial statement audits after they were ordered to quit, they probably would have lost their jobs.  But Cynthia Cooper and her staff continued anyway.

    Continued in article

    Bob Jensen's threads on Andersen clients Enron and Worldcom ---
    http://www.trinity.edu/rjensen/FraudEnron.htm

     




    Humor May 1-31, 2012

    Warren Buffett on How to Reform Congress and End the Deficit in Less Than One Year ---
    http://www.snopes.com/politics/quotes/buffett.asp

    Forwarded by Maureen
    Just wanted to let you know - today I received my 2012 Social Security Stimulus Package. It contained two tomato seeds, cornbread mix, a prayer rug, a machine to blow smoke up my ass, 2 discount coupons to KFC, an "Obama Hope & Change" bumper sticker, and a "Blame it on Bush" poster for the front yard. The directions were in Spanish.


    Authorities say a northern New York man had his friend shoot him in the leg with a rifle because he wanted to know what it feels like to be shot ---
    http://hosted.ap.org/dynamic/stories/U/US_ODD_SHOT_BY_REQUEST?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-05-15-07-18-38

    Jensen Comment
    Where I grew up among Norwegian immigrants it would come as no surprise that the dummy who asked to be shot in the leg lived in a a town called Stockholm.


    The Jovers (Video) --- http://biggeekdad.com/2012/05/the-jovers/


    Bits of Trivia That I Did Not Verify

    Forwarded by Maureen

    Did you know? Green Bay Packers backup quarterback Matt Hasselbeck has been struck by lightning twice in his life.

    It takes three thousands cows to supply the NFL with enough leather for a year's supply of footballs.

    The Super Bowl is broadcast in over 182 countries. That is more than 88 percent of the countries in the world.


    Forwarded by Paula

    Absolutely Priceless

    A 1st grade (more likely an 8th grade) school teacher had twenty-six students in her class. She presented each child in her classroom the 1st half of a well-known proverb and asked them to come up with the remainder of the proverb. It's hard to believe these were actually done by first graders. Their insight may surprise you. While reading, keep in mind that these are first-graders, 6-year-olds, because the last one is a classic!

    1.
    Don't change horses
    until they stop running.
    2.
    Strike while the
    bug is close.
    3.
    It's always darkest before
    Daylight Saving Time.
    4.
    Never underestimate the power of
    termites.
    5.
    You can lead a horse to water but
    how?
    6.
    Don't bite the hand that
    looks dirty.
    7.
    No news is
    impossible.
    8.
    A miss is as good as a
    Mr.
    9.
    You can't teach an old dog new
    math.
    10.
    If you lie down with dogs, you'll
    stink in the morning.
    11.
    Love all, trust
    me.
    12.
    The pen is mightier than the
    pigs.
    13.
    An idle mind is
    the best way to relax.
    14.
    Where there's smoke there's
    pollution.
    15.
    Happy the bride who
    gets all the presents.
    16.
    A penny saved is
    not much.
    17.
    Two's company, three's
    the Musketeers.
    18.
    Don't put off till tomorrow what
    you put on to go to bed.
    19.
    Laugh and the whole world laughs with you, cry and
    you have to blow your nose.
    20.
    There are none so blind as
    Stevie Wonder.
    21.
    Children should be seen and not
    spanked or grounded.
    22.
    If at first you don't succeed
    get new batteries.
    23.
    You get out of something only what you
    see in the picture on the box.
    24.
    When the blind lead the blind
    get out of the way.
    25.
    A bird in the hand
    is going to poop on you.
    And the WINNER (and last one!)
    26.
    Better late than
    pregnant.
     

     


    Forwarded by Auntie Bev

    The Stranger

    A few years after I was born, my Dad met a stranger who was new to our small town. From the beginning, Dad was fascinated with this enchanting newcomer and soon invited him to live with our family. The stranger was quickly accepted and was around from then on.

    As I grew up, I never questioned his place in my family. In my young mind, he had a special niche. My parents were complementary instructors: Mom taught me good from evil, and Dad taught me to obey. But the stranger... He was our storyteller. He would keep us spellbound for hours on end with adventures, mysteries and comedies.

    If I wanted to know anything about politics, history or science, he always knew the answers about the past, understood the present and even seemed able to predict the future! He took my family to the first major league ball game. He made me laugh, and he made me cry. The stranger never stopped talking, but Dad didn't seem to mind.

    Sometimes, Mom would get up quietly while the rest of us were shushing each other to listen to what he had to say, and she would go to the kitchen for peace and quiet. (I wonder now if she ever prayed for the stranger to leave.)

    Dad ruled our household with certain moral convictions, but the stranger never felt obligated to honor them. Profanity, for example, was not allowed in our home - not from us, our friends or any visitors. After our long time visitor stayed longer he became more daring however, and even got away with four-letter words that burned my ears and made my dad squirm and my mother blush. My Dad didn't permit the liberal use of alcohol but the stranger encouraged us to try it on a regular basis. He made cigarettes look cool, cigars manly, and pipes distinguished. He talked freely (much too freely!) about sex. His comments were sometimes blatant, sometimes suggestive, and generally embarrassing..

    I now know that my early concepts about relationships were influenced strongly by the stranger. Time after time, he opposed the values of my parents, yet he was seldom rebuked... And NEVER asked to leave.

    More than fifty years have passed since the stranger moved in with our family. He has blended right in and is not nearly as fascinating as he was at first. Still, if you could walk into my parents' den today, you would still find him sitting over in his corner, waiting for someone to listen to him talk and watch him draw his pictures.

    His name?....
    We just call him 'TV.'


    Forwarded by Eileen,

    A Canadian female libertarian wrote a lot of letters to the Canadian government, complaining about the treatment of captive insurgents (terrorists) being held in Afghanistan National Correctional System facilities. She demanded a response to her letter correspondence. She received back the following reply:

    National Defence Headquarters M Gen George R. Pearkes Bldg., 15 NT 101 Colonel By Drive Ottawa , ON K1A 0K2 Canada

    Dear Concerned Citizen,

    Thank you for your recent letter expressing your profound concern of treatment of the Taliban and Al Qaeda terrorists captured by Canadian Forces who were subsequently transferred to the Afghanistan Government and are currently being held by Afghan officials in Afghanistan National Correctional System facilities.

    Our administration takes these matters seriously and your opinions were heard loud and clear here in Ottawa. You will be pleased to learn, thanks to the concerns of citizens like yourself, we are creating a new department here at the Department of National Defence, to be called 'Liberals Accept Responsibility for Killers' program, or L.A.R.K. for short.

    In accordance with the guidelines of this new program, we have decided to divert one terrorist and place him in your personal care. Your personal detainee has been selected and is scheduled for transportation under heavily armed guard to your residence in Toronto next Monday.

    Ali Mohammed Ahmed bin Mahmud (you can just call him Ahmed) is to be cared for pursuant to the standards you personally demanded in your letter of complaint!

    It will likely be necessary for you to hire some assistant caretakers. We will conduct weekly inspections to ensure that your standards of care for Ahmed are commensurate with those you so strongly recommended in your letter. Although Ahmed is a sociopath and extremely violent, we hope that your sensitivity to what you described as his 'attitudinal problem' will help him overcome these character flaws. Perhaps you are correct in describing these problems as mere cultural differences.

    We understand that you plan to offer counselling and home schooling. Your adopted terrorist is extremely proficient in hand-to-hand combat and can extinguish human life with such simple items as a pencil or nail clippers. We advise that you do not ask him to demonstrate these skills at your next yoga group. Please advise any Jewish friends, neighbours or relatives about your house guest, as he might get agitated or even violent, but we are sure you can reason with him. He is also expert at making a wide variety of explosive devices from common household products, so you may wish to keep those items locked up, unless (in your opinion) this might offend him.

    Ahmed will not wish to interact with you or your daughters (except sexually) since he views females as a subhuman form of property thereby having no rights, including refusal of his sexual demands. This is a particularly sensitive subject for him and he has been known to show violent tendencies around women who fail to comply with the new dress code that he will "recommend" as more appropriate attire. I'm sure you will come to enjoy the anonymity offered by the burka over time. Just remember that it is all part of 'respecting his culture and religious beliefs' as described in your letter.

    Thanks again for your concern. We truly appreciate it when folks like you keep us informed of the proper way to do our job and care for our fellow man.

    You take good care of Ahmed and remember we'll be watching. Good luck and God bless you.

    Cordially, Gordon O'Connor Minister of National Defence

     


    Forwarded by Auntie Bev

    Why, Why, Why do we press harder on a remote control when we know the batteries are getting weak?

    Why do banks charge a fee due to insufficient funds when they already know you're broke?


    Why is it that when someone tells you that there are one billion stars in the universe, you believe them but, if they tell you there is wet paint, you have to touch it to check?


    Why do they use sterilized needles for lethal injections?


    Why doesn't Tarzan have a beard?


    Why does Superman stop bullets with his chest, but ducks when you throw a revolver at him?


    Why did Kamikaze pilots wear helmets?


    Whose cruel idea was it to put an "s" in the word "lisp"?


    If people evolved from apes, why are there still apes?


    Why is it that, no matter what color bubble bath you use, the bubbles are always white?


    Is there ever a day that mattresses are not on sale?


    Why do people constantly return to the refrigerator with hopes that something new to eat will have materialized?


    Why do people run over a string a dozen times with their vacuum cleaner, then reach down, pick it up, examine it, then put it down to give the vacuum one more chance?


    Why is it that no plastic bag will open from the first end you try?


    How do those dead bugs get into enclosed light fixtures?


    Why is it that whenever you attempt to catch something that's falling off the table you always manage to knock something else over?


    Why, in winter, do we try to keep the house as warm as it was in summer when we complained about the heat?


    How come you never hear father-in-law jokes?


    Do you ever wonder why you gave me your e-mail address in the first place?


    And my FAVORITE¦

    The statistics on sanity say that one out of every four persons is suffering from some sort of mental illness. Think of your three best friends.

    If they're OK, then it's you.

     


    Forwarded by Jim Kirk

    Quiz

      for Bright People

    There are

      only nine questions.

    This is a quiz for people who know  everything!
    I found out in a hurry that I didn't. These are not trick questions.
    They are straight  questions with straight answers..


    1. Name the one sport in  which neither the spectators nor the participants know the score or the  leader until the contest ends.

    2. What famous North American landmark is constantly moving backward?


    3. Of all vegetables, only  two can live to produce on their own for several growing seasons. All other vegetables must be replanted every year. What are the only two perennial vegetables?


    4. What fruit has its seeds on the outside?

    5. In many liquor stores, you can buy pear brandy, with a real pear inside the bottle. The pear is whole and ripe, and the bottle is genuine; it hasn't been cut in any way. How did the pear get inside the bottle?


    6. Only three words in  standard English begin with the letters ' dw' and they are all common  words. Name two of them.

    7. There are 14 punctuation marks in English grammar. Can you name at least half of them?

    8. Name the only vegetable or fruit that is never sold frozen, canned, processed, cooked, or in any other form except fresh.

    9. Name 6 or more things that you can wear on your feet beginning with the letter 'S.'

     

    Answers To Quiz:

    1. The one sport in which neither the spectators nor the participants know the score or the leader until the contest ends: Boxing.


    2. North American landmark constantly moving backward: Niagara Falls . The rim is worn down about two and a half feet each year because of the millions of gallons of water that
     rush over it every minute.

    3. Only two vegetables that can live to produce on their own for several growing seasons: Asparagus and rhubarb.


    4. The fruit with its seeds on the outside: Strawberry.


    5. How did the pear get inside the brandy bottle? It grew inside the bottle. The bottles are placed over pear buds when they are small, and are wired in place on the tree. The bottle is left in place for the entire growing season. When the pears are ripe, they are snipped off at the stems.
    Video:  http://www.youtube.com/watch?v=uOz0HE5Uygk


    6. Three English words beginning with dw: Dwarf, dwell and dwindle...


    7. Fourteen punctuation marks in English grammar: Period, comma, colon, semicolon, dash, hyphen, apostrophe, question mark, exclamation point, quotation mark, brackets,
    parenthesis, braces, and ellipses.


    8. The only vegetable or fruit never sold frozen, canned, processed, cooked, or in any other form  but fresh: Lettuce.


    9. Six or more things you can wear on your feet beginning with 'S': Shoes, socks, sandals, sneakers,
    slippers, skis, skates, snowshoes, stockings, stilts.

      


    Forwarded by Paula

    Yesterday I had an appointment to see the urologist for a Prostate
    exam. Of course I was a bit on edge because all my friends have either
    gone under the knife or had those pellets implanted.

     The waiting room was filled with patients. As I approached the
    receptionist's desk, I noticed that the receptionist was a large,
    unfriendly woman who looked like a Sumo wrestler.
     
     I gave her my name.

     In a very loud voice, the receptionist said, "YES, I HAVE YOUR NAME
    HERE; YOU WANT TO SEE THE DOCTOR ABOUT IMPOTENCE, RIGHT?"

     All the patients in the waiting room snapped their heads around to
    look at me, a now very embarrassed man. But as usual, I recovered
    quickly and in an equally loud voice replied,

     'NO, I'VE COME TO INQUIRE ABOUT A SEX CHANGE OPERATION, BUT I DON'T
    WANT THE SAME DOCTOR THAT DID YOURS."

     The room erupted in applause!
      
     DON'T MESS WITH OLD, RETIRED GUYS!


    Forwarded by Paula

    I was in Star Buck`s recently when I suddenly realized I desperately needed to fart.
    The music was really loud so I timed my fart with the beat of the music.
    After a couple of songs I started to feel better.
    I finished my coffee and noticed that everyone was staring at me…
    And suddenly I remembered I was listening to my iPod
    …and how was your day?
    That's what happens when old people start using technology !


    On the Other Side of 50 (video) --- http://www.youtube-nocookie.com/embed/6dbBfXCMbH4?rel=0
    Being on the Green Side of the Grass


    Forwarded by Maurine


     I Owe My Mother
    1. My mother taught me TO APPRECIATE A JOB WELL DONE .
    "If you're going to kill each other, do it outside.. I just finished cleaning."

    2. My mother taught me RELIGION.
    "You better pray that will come out of the carpet."

    3. My mother taught me about TIME TRAVEL.
    "If you don't straighten up, I'm going to knock you into the middle of next week!"

    4. My mother taught me LOGIC.
    "Because I said so, that's why."

    5. My mother taught me MORE LOGIC .
    "If you fall out of that swing and break your neck, you're not going to the store with me."

    6. My mother taught me FORESIGHT.
    "Make sure you wear clean underwear, in case you're in an accident."

    7. My mother taught me IRONY.
    "Keep crying, and I'll give you something to cry about."

    8. My mother taught me about the science of OSMOSIS .
    "Shut your mouth and eat your supper."

    9. My mother taught me about CONTORTION-ISM.
    "Will you look at that dirt on the back of your neck!"

    10. My mother taught me about STAMINA ..
    "You'll sit there until all that spinach is gone."

    11. My mother taught me about WEATHER.
    "This room of yours looks as if a tornado went through it."

    12. My mother taught me about HYPOCRISY.
    "If I told you once, I've told you a million times. Don't exaggerate!"

    13. My mother taught me the CIRCLE OF LIFE.
    "I brought you into this world, and I can take you out.."

    14. My mother taught me about BEHAVIOR MODIFICATION .
    "Stop acting like your father!"

    15. My mother taught me about ENVY.
    "There are millions of less fortunate children in this world who don't have wonderful parents like you do."

    16. My mother taught me about ANTICIPATION.
    "Just wait until we get home."

    17. My mother taught me about RECEIVING .
    "You are going to get it when you get home!"

    18. My mother taught me MEDICAL SCIENCE.
    "If you don't stop crossing your eyes, they are going to get stuck that way."

    19. My mother taught me ESP.
    "Put your sweater on; don't you think I know when you are cold?"

    20. My mother taught me HUMOR.
    "When that lawn mower cuts off your toes, don't come running to me."

    21. My mother taught me HOW TO BECOME AN ADULT .
    "If you don't eat your vegetables, you'll never grow up."

    22. My mother taught me GENETICS.
    "You're just like your father."

    23. My mother taught me about my ROOTS.
    "Shut that door behind you. Do you think you were born in a barn?"

    24. My mother taught me WISDOM.
    "When you get to be my age, you'll understand."

    And my favorite:
    25. My mother taught me about JUSTICE.
    "One day you'll have kids, and I hope they turn out just like you !"

    Only you folks my age understand these profound statements!!!
    But, there is one missing from this list~~My personal all time favorite!!

    My mother taught me about CHOICE.
    "Do you want me to stop this car?"
     

    Forwarded by Paula

    The Irish have solved their own fuel problems.
    They imported 50 million tonnes of sand from the Arabs and they're going to drill for their own oil.


    Me mate's missus left him last Thursday, she said she was going out for a pint of milk & never come back! 
    I asked him how he was coping and he said,"Not bad, I've been using that powdered stuff."

     The police came to my front door last night holding a picture of my wife. 
    They said, "Is this your wife, sir?" 
    Shocked, I answered, " Yes." 
    They said, "I'm afraid it looks like she's been hit by a bus." 
    I said, "I  know, but she has a lovely personality."

    Two Irishmen find a mirror in the road.
    The first one picks it up & says, "Blow me I know dis face but I can't put a name to it." 
    The second picks it up & says, "You daft bastard it's me!"

    Paddy's in jail.. The Guard looks in his cell and see's him hanging by his feet. 
    "What are you doing?" he asks. 
    "Hanging myself," Paddy replies. 
    "It should be round your neck," says the guard. 
    "I tried that," says Paddy, "but I couldn't breathe."

    Two lrishmen are hammering floorboards down in a house. 
    Paddy picks up a nail, realises it's upside down & throws it away. 
    He carries on doing this until Murphy says, "Why are you throwing them away?" 
    "Because they're upside down," says Paddy. 
    "You daft prat," replies Murphy, "save 'em for the ceiling!!"

     


    Forwarded by Maureen
    Just wanted to let you know - today I received my 2012 Social Security Stimulus Package. It contained two tomato seeds, cornbread mix, a prayer rug, a machine to blow smoke up my ass, 2 discount coupons to KFC, an "Obama Hope & Change" bumper sticker, and a "Blame it on Bush" poster for the front yard. The directions were in Spanish.


    Forwarded by Paula

    After being married for thirty years, a wife asked her husband to describe her.

    He looked at her for a while ... Then said, "You're A, B, C, D, E, F, G, H, I, J, K."

    She asks ... "What does that mean?"

    He said,
    "Adorable, Beautiful, Cute, Delightful, Elegant, Foxy, Gorgeous, Hot.

    She smiled happily and said ... "Oh, that's so lovely ... What about I, J, K?"

    He said, "I'm Just Kidding!"


    The swelling in his eye is going down and the doctor is fairly optimistic about saving his testicles.

     


     

     

     



     

    Humor Between May 1-31, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor053112  

    Humor Between April 1-30, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor043012

    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 May 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/

     

     


     


    April 30, 2012

    Bob Jensen's New Bookmarks April 1-30, 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/




    Accountics Scientists Seeking Truth: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     


    A message from the Dean of the Business School at Columbia University

    Dear Colleagues:

    I am saddened to announce the loss of a dear and respected colleague in
    the Columbia Business School community and an influential figure in the
    field of accounting. Gordon Shillinglaw, a Columbia Business School
    professor for nearly 30 years, died on March 31, at age 86, after a long
    battle with cancer.


    Gordon was recruited in 1961 by Columbia University as a professor of
    accounting. He went on to teach thousands of students in accounting,
    business law, and taxation, and he authored a textbook that became a
    hallmark for introductory accounting courses. Gordon ultimately became
    chairman of the accounting department and a highly regarded teacher in
    his profession. In the mid-1970s, Gordon served as director of the
    Executive Degree Program, helping to revive the educational curriculum
    for busy executives seeking business degrees.

    Before coming to the School, Gordon worked for business consulting firm
    Joel Dean Associates before being recruited by MIT in Boston to teach in
    the relatively new academic field of accounting. While at MIT, he teamed
    with Myron J. Gordon to write _Accounting: A Management Approach
    _(Richard D. Irwin, 1969), a book that was revised through eight
    editions and several co-authors. Gordon also served on the federal Cost
    Accounting Standards Board, setting measures for how cost accounting
    should be applied in US companies, and he was an active member of the
    American Accounting Association.


    Gordon was born in 1925 in Albany, NY. After graduating from Brown
    University with a degree in naval sciences, he was assigned as an ensign
    to the U.S.S. New Orleans and he was involved in two of the last major
    naval battles of the war in Okinawa and the Philippines in 1945. After
    the war, Gordon served with the US Navy in China before earning his
    master’s degree in business administration at the University of
    Rochester. He was accepted as a doctoral candidate at Harvard in
    economics and completed his dissertation at Harvard in 1950 while
    teaching at Hamilton College.


    A memorial service will be held May 31, at 10:00 a.m., at St. Paul’s
    Chapel on the Columbia University campus. Community members are welcome
    to attend. Gordon is survived by his wife, the former Barbara Ann Cross;
    two children, James Shillinglaw and Laura Sakshaug, and their respective
    spouses, Saralyn Bass and Robert Sakshaug; and four grandchildren,
    Gregory Shillinglaw, Carolyn Shillinglaw, Elizabeth Rapp, and Marguerite
    Rapp.

    Gordon was a valued member of our community and will be missed. Our
    thoughts and prayers are with his family.

    With regards,

    Glenn Hubbard
    April 5,
    2012


     


    Jensen Comment
    In the early days of my career there were certain professors/chairs that were cornerstones of accountancy programs at their respected universities. These included Bill Paton at Michigan, Sidney Davidson at Chicago, Bob Anthony at Harvard, Chuck Horngren at Stanford, Art Wyatt at Illinois, James Don Edwards at Michigan State, Ray Chambers at Sydney, Abe Briloff at Baruch, Carl Nelson at Minnesota, Tom Dyckman at Cornell, Wilton Anderson at Oklahoma State, Wayne Shroyer at the University of Denver, Steve Zeff first at Tulane and then at Rice, Gordon Shillinglaw at Columbia, and the list goes on with names that became synonymous with the accounting programs in those days. Their skills varied. Some like Gordon Shillinlaw were noted teachers. Some like Steve Zeff were noted researchers. And some like Wilton Anderson and Wayne Shroyer were noted administrators and fund raisers. Most of them, however, were good at everything.


    I listened to a number of Professor Shillinglaw's presentations years ago on attributable costs.

    Shillinglaw, Gordon (1963). "The Concept of Attributable Costs". Journal of Accounting Research (Spring): 73–85.


    Also see http://www.columbia.edu/cu/alumni/connection/connect/mycu/1925.html

     


    Accounting ListServs and Blogs and Social/Professional Networking --- http://www.trinity.edu/rjensen/ListservRoles.htm


    A scholar going by the name of Centurian comments following the following article
    "One Economist's Mission to Redeem the Field of Finance," by Robert Schiller, Chronicle of Higher Education, April 8, 2012 ---
    http://chronicle.com/article/Robert-Shillers-Mission-to/131456/

    Economics as a "science" is no different than Sociology, Psychology, Criminal Justice, Political Science, etc.,etc.. To those in the "hard sciences" [physics, biology, chemistry, mathematics], these "soft sciences" are dens of thieves. Thieves who have stolen the "scientific method" and abused it.

    These soft sciences all apply the scientific method to biased and insufficient data sets, then claim to be "scientific", then assert their opinions and biases as scientific results. They point to "correlations". Correlations which are made even though they know they do not know all the forces/factors involved nor the ratio of effect from the forces/factors.

    They know their mathematical formulas and models are like taking only a few pieces of evidence from a crime scene and then constructing an elaborate "what happened" prosecution and defense. Yet neither side has any real idea, other than in the general sense, what happened. They certainly have no idea what all the factors or human behaviors were involved, nor the true motives.

    Hence the growing awareness of the limitations of all the quantitative models that led to the financial crisis/financial WMDs going off.

    Take for example the now thoroughly discredited financial and economic models that claimed validity through the use of the same mathematics used to make atomic weapons; Monte Carlo simulation. MC worked on the Manhattan Project because real scientists, who obeyed the laws of science when it came to using data, were applying the mathematics to a valid data set.

    Economists and Wall Street Quants threw out the data set disciplines of science. The Quant's of Wall Street and those scientists who claimed the data proved man made global warming share the same sin of deception. Why? For the same reason, doing so allowed them to continue their work in the lab. They got to continue to experiment and "do science". Science paid for by those with a deep vested financial interest in the the false correlations proclaimed by these soft science dogmas.

    If you take away a child's crayons and give him oil paints used by Michelangelo, you're not going to get the Sistine Chapel. You're just going to get a bigger mess.

    If Behavioral Finance proves anything it is how far behind the other Social Sciences economists really are. And if the "successes" of the Social Sciences are any indication, a lot bigger messes are waiting down the road.

    Centurion

    "The Standard Error of Regressions," by Deirdre N. McCloskey and Stephen T. Ziliak, Journal of Economic Literature, 1996, pp. 97-114

    THE IDEA OF statistical significance is old, as old as Cicero writing on forecasts (Cicero, De Divinatione, I. xiii. 23). In 1773 Laplace used it to test whether comets came from outside the solar system (Elizabeth Scott 1953, p. 20). The first use of the very word "significance" in a statistical context seems to be John Venn's, in 1888, speaking of differences expressed in units of probable error,

    They inform us which of the differences in the above tables are permanent and significant, in the sense that we may be tolerably confident that if we took another similar batch we should find a similar difference; and which are merely transient and insignificant, in the sense that another similar batch is about as likely as not to reverse the conclusion we have obtained. (Venn, quoted in Lancelot Hogben 1968, p. 325).

    Statistical significance has been much used since Venn, and especially since Ronald Fisher. The problem, and our main point, is that a difference can be permanent (as Venn put it) without being "significant" in o ther senses, such as for science or policy. And a difference can be significant for science or policy and yet be insignificant statistically, ignored by the less thoughtful researchers.

    In the 1930s Jerzy Neyman and Egon S. Pearson, and then more explicitly Abraham Wald, argued that actual investigations should depend on substantive not merely statistical significance. In 1933 Neyman and Pearson wrote of type I and type II errors:

    Is it more serious to convict an innocent man or to acquit a guilty? That will depend on the consequences of the error; is the punishment death or fine; what is the danger to the community of released criminals; what are the current ethical views on punishment? From the point of view of mathematical theory all that we can do is to show how the risk of errors may be controlled and minimised. The use of these statistical tools in any given case, in determining just how the balance should be struck, must be left to the investigator. (Neyman and Pearson 1933, p. 296; italics supplied)

    Wald went further:

    The question as to how the form of the weight [that is, loss] function . . . should be determined, is not a mathematical or statistical one. The statistician who wants to test certain hypotheses must first determine the relative importance of all possible errors, which will depend on the special purposes of his investigation. (1939, p. 302, italics supplied)

    To date no empirical studies have been undertaken measuring the use of statistical significance in economics. We here examine the alarming hypothesis that ordinary usage in economics takes statistical significance to be the same as economic significance. We compare statistical best practice against leading textbooks of recent decades and against the papers using regression analysis in the 1980s in the American Economic Review.

     

    An Example

    . . .

    V. Taking the Con Out of Confidence Intervals

    In a squib published in the American Economic Review in 1985 one of us claimed that "[r]oughly three-quarters of the contributors to the American Economic Review misuse the test of statistical significance" (McCloskey 1985, p. 201). The full survey confirms the claim, and in some matters strengthens it.

    We would not assert that every economist misunderstands statistical significance, only that most do, and these some of the best economic scientists. By way of contrast to what most understand statistical significance to be capable of saying, Edward Lazear and Robert Michael wrote 17 pages of empirical economics in the AER, using ordinary least squares on two occasions, without a single mention of statistical significance (AER Mar. 1980, pp. 96-97, pp. 105-06). This is notable considering they had a legitimate sample, justifying a discussion of statistical significance were it relevant to the scientific questions they were asking. Estimated coefficients in the paper are interpreted carefully, and within a conversation in which they ask how large is large (pp. 97, 101, and throughout).

    The low and falling cost of calculation, together with a widespread though unarticulated realization that after all the significance test is not crucial to scientific questions, has meant that statistical significance has been valued at its cost. Essentially no one believes a finding of statistical significance or insignificance.

    This is bad for the temper of the field. My statistical significance is a "finding"; yours is an ornamented prejudice.

    Continued in article

    Jensen at the 2012 AAA Meetings?
    http://aaahq.org/AM2012/program.cfm
    A Forthcoming AAA Plenary Session to Note

    Sudipta Basu called my attention to the 2012 AAA annual meeting website that now lists the plenary speakers.
    See: http://aaahq.org/AM2012/Speakers.cfm

    In particular note the following speaker

    Deirdre McCloskey Distinguished Professor of Economics, History, English, and Communication, University of Illinois at Chicago ---
    http://www.deirdremccloskey.com/

    Deirdre McCloskey teaches economics, history, English, and communication at the University of Illinois at Chicago. A well-known economist and historian and rhetorician, she has written sixteen books and around 400 scholarly pieces on topics ranging from technical economics and statistics to transgender advocacy and the ethics of the bourgeois virtues. She is known as a "conservative" economist, Chicago-School style (she taught for 12 years there), but protests that "I'm a literary, quantitative, postmodern, free-market, progressive Episcopalian, Midwestern woman from Boston who was once a man. Not 'conservative'! I'm a Christian libertarian."

    Her latest book, Bourgeois Dignity: Why Economics Can't Explain the Modern World (University of Chicago Press, 2010), which argues that an ideological change rather than saving or exploitation is what made us rich, is the second in a series of four on The Bourgeois Era. The first was The Bourgeois Virtues: Ethics for an Age of Commerce (2006), asking if a participant in a capitalist economy can still have an ethical life (briefly, yes). With Stephen Ziliak she wrote in 2008, The Cult of Statistical Significance (2008), which criticizes the proliferation of tests of "significance," and was in 2011 the basis of a Supreme Court decision.


    Professor Basu called my attention to the plan for Professor McCloskey to discuss accountics science with a panel in a concurrent session following her plenary session. I had not originally intended to attend the 2012 AAA meetings because of my wife's poor health. But the chance to be in the program with Professor McCloskey on the topic of accountics science is just too tempting. My wife is now insisting that I go to these meetings and that she will come along along with me. One nice thing for us is that Southwest flies nonstop from Manchester to Baltimore with no stressful change of flights for her.

    I think I am going to accept Professor Basu's kind invitation to be on this panel.

    I think we are making progress against the "Cult of Statistical Significance."

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    Why must all accounting doctoral programs be social
    science (particularly econometrics) "accountics" doctoral programs?
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

     


    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
     


    Most downloaded articles of Accounting, Organizations and Society ---
    http://www.journals.elsevier.com/accounting-organizations-and-society/most-read-articles/
    Most cited --- http://www.journals.elsevier.com/accounting-organizations-and-society/most-cited-articles/


    Accountics Scientists Seeking Truth: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    Now that the AAA Commons has been formed Rhett, you've got an opportunity to explain your AAA journal research publication successes to interested  accounting teachers, researchers, and practitioners who visit the Commons.
    Accounting Teacher Scarlet O'Hara

    Frankly, Scarlett, after I get a hit for my resume in an AAA journal I just don't give a damn.
    Accountics Scientist Rhett Butler

     

    The American Accounting Association (AAA) Commons was formed in 2008 as "The Gathering Place for Accounting" ---
    http://commons.aaahq.org/pages/home

    Since AAACommons was launched at CTLA 2008, the site has evolved to include teaching materials, home pages for sections and regions, research links, conversations from professors, and input from partner firms. This session will introduce new users to the AAACommons, demonstrate how to share teaching materials, and obtain feedback so that we can evolve into the online community you need. We are interested in learning what your institution values as evidence of your contributions. We need your feedback so that we can continue to refine the teaching areas within AAACommons and evolve into the gathering place for accounting that you will use. Please join us to see how AAACommons can be used to share ideas about teaching, research, and service.

    Jensen Comment
    This is a work in progress. When I find time I will add more author panels from TAR and other AAA journals.

    My priors are, however, that AAA journal authors to date are not making an effort on the AAA Commons to explain their research efforts to accounting teachers, researchers, and practitioners who visit the Commons.

    Perhaps a hive could be automatically opened up for each paper published in an AAA journal. Then the author(s) could be signalled whenever somebody makes a comment in the hive. The Commons already notifies me by email whenever somebody makes a comment on one of my postings or to a posting where I've added a comment. Wouldn't it be great if this was extended to research and teaching papers published in AAA journals?

    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    Why Pick on The Accounting Review (TAR)?

    The Accounting Review (TAR) since 1926 ---
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

    Jensen Comment
    Occasionally I receive messages questioning why I pick on TAR when in fact my complaints are really with accountics scientists and accountics science in general.

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]

    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm 

     

    Major problems in accountics science:

    Problem 1 --- Control Over Research Methods Allowed in Doctoral Programs and Leading Academic Accounting Research Journals
    Accountics scientists control the leading accounting research journals and only allow archival (data mining), experimental, and analytical research methods into those journals. Their referees shun other methods like case method research, field studies, accounting history studies, commentaries, and criticisms of accountics science.
    This is the major theme of Anthony Hopwood, Paul Williams, Bob Sterling, Bob Kaplan, Steve Zeff, Dan Stone, and others ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Appendix01

    Since there are so many other accounting research journals in academe and in the practitioner profession, why single out TAR and the other very "top" journals because they refuse to publish any articles without equations and/or statistical inference tables. Accounting researchers have hundreds of other alternatives for publishing their research.

    I'm critical of TAR referees because they're symbolic of today's many problems with the way the accountics scientists have taken over the research arm of accounting higher education. Over the past five decades they've taken over all AACSB doctoral programs with a philosophy that "it's our way or the highway" for students seeking PhD or DBA degrees ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    In the United States, following the Gordon/Howell and Pierson reports in the 1950s, our accounting doctoral programs and leading academic journals bet the farm on the social sciences without taking the due cautions of realizing why the social sciences are called "soft sciences." They're soft because "not everything that can be counted, counts. And not everything that counts can be counted."

    Be Careful What You Wish For
    Academic accountants wanted to become more respectable on their campuses by creating accountics scientists in literally all North American accounting doctoral programs. Accountics scientists virtually all that our PhD and DBA programs graduated over the ensuing decades and they took on an elitist attitude that it really did not matter if their research became ignored by practitioners and those professors who merely taught accounting.

    One of my complaints with accountics scientists is that they appear to be unconcerned that they are not not real scientists. In real science the primary concern in validity, especially validation by replication. In accountics science validation and replication are seldom of concern. Real scientists react to their critics. Accountics scientists ignore their critics.

    Another complaint is that accountics scientists only take on research that they can model. The ignore the many problems, particularly problems faced by the accountancy profession, that they cannot attack with equations and statistical inference.

    "Research on Accounting Should Learn From the Past" by Michael H. Granof and Stephen A. Zeff, Chronicle of Higher Education, March 21, 2008

    The unintended consequence has been that interesting and researchable questions in accounting are essentially being ignored. By confining the major thrust in research to phenomena that can be mathematically modeled or derived from electronic databases, academic accountants have failed to advance the profession in ways that are expected of them and of which they are capable.

    Academic research has unquestionably broadened the views of standards setters as to the role of accounting information and how it affects the decisions of individual investors as well as the capital markets. Nevertheless, it has had scant influence on the standards themselves.

    Continued in article

     

    Problem 2 --- Paranoia Regarding Validity Testing and Commentaries on their Research
    This is the major theme of Bob Jensen, Paul Williams, Joni Young and others
    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

     

    Problem 3 --- Lack of Concern over Being Ignored by Accountancy Teachers and Practitioners
    Accountics scientists only communicate through their research journals that are virtually ignored by most accountancy teachers and practitioners. Thus they are mostly gaming in Plato's Cave and having little impact on the outside world, which is a major criticism raised by then AAA President Judy Rayburn  and Roger Hermanson and others
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
    Also see
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

    Some accountics scientists have even warned against doing research for the practicing profession as a "vocational virus."

    Joel Demski steers us away from the clinical side of the accountancy profession by saying we should avoid that pesky “vocational virus.” (See below).

    The (Random House) dictionary defines "academic" as "pertaining to areas of study that are not primarily vocational or applied , as the humanities or pure mathematics." Clearly, the short answer to the question is no, accounting is not an academic discipline.
    Joel Demski, "Is Accounting an Academic Discipline?" Accounting Horizons, June 2007, pp. 153-157

     

    Statistically there are a few youngsters who came to academia for the joy of learning, who are yet relatively untainted by the vocational virus. I urge you to nurture your taste for learning, to follow your joy. That is the path of scholarship, and it is the only one with any possibility of turning us back toward the academy.
    Joel Demski, "Is Accounting an Academic Discipline? American Accounting Association Plenary Session" August 9, 2006 ---
    http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

    Too many accountancy doctoral programs have immunized themselves against the “vocational virus.” The problem lies not in requiring doctoral degrees in our leading colleges and universities. The problem is that we’ve been neglecting the clinical needs of our profession. Perhaps the real underlying reason is that our clinical problems are so immense that academic accountants quake in fear of having to make contributions to the clinical side of accountancy as opposed to the clinical side of finance, economics, and psychology.

     

    Problem 4 --- Ignoring Critics: The Accountics Science Wall of Silence
    Leading scholars critical of accountics science included Anthony Hopwood, Paul Williams Roger Hermanson, Bob Sterling, Judy Rayburn, Bob Kaplan, Steve Zeff, Joni Young, Bob Sterling,  Jane Mutchler, Dan Stone, Bob Jensen, and many others. The most frustrating thing for these critics is that accountics scientists are content with being the highest paid faculty on their campuses and their monopoly control of accounting PhD programs (limiting outputs of graduates) to a point where they literally ignore they critics and rarely, if ever, respond to criticisms.
    See http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm  

    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     

    CONCLUSION from
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

    In the first 40 years of TAR, an accounting “scholar” was first and foremost an expert on accounting. After 1960, following the Gordon and Howell Report, the perception of what it took to be a “scholar” changed to quantitative modeling. It became advantageous for an “accounting” researcher to have a degree in mathematics, management science, mathematical economics, psychometrics, or econometrics. Being a mere accountant no longer was sufficient credentials to be deemed a scholarly researcher. Many doctoral programs stripped much of the accounting content out of the curriculum and sent students to mathematics and social science departments for courses. Scholarship on accounting standards became too much of a time diversion for faculty who were “leading scholars.” Particularly relevant in this regard is Dennis Beresford’s address to the AAA membership at the 2005 Annual AAA Meetings in San Francisco:

    In my eight years in teaching I’ve concluded that way too many of us don’t stay relatively up to date on professional issues. Most of us have some experience as an auditor, corporate accountant, or in some similar type of work. That’s great, but things change quickly these days.
    Beresford [2005]

     

    Jane Mutchler made a similar appeal for accounting professors to become more involved in the accounting profession when she was President of the AAA [Mutchler, 2004, p. 3].

    In the last 40 years, TAR’s publication preferences shifted toward problems amenable to scientific research, with esoteric models requiring accountics skills in place of accounting expertise. When Professor Beresford attempted to publish his remarks, an Accounting Horizons referee’s report to him contained the following revealing reply about “leading scholars” in accounting research:

    1. The paper provides specific recommendations for things that accounting academics should be doing to make the accounting profession better. However (unless the author believes that academics' time is a free good) this would presumably take academics' time away from what they are currently doing. While following the author's advice might make the accounting profession better, what is being made worse? In other words, suppose I stop reading current academic research and start reading news about current developments in accounting standards. Who is made better off and who is made worse off by this reallocation of my time? Presumably my students are marginally better off, because I can tell them some new stuff in class about current accounting standards, and this might possibly have some limited benefit on their careers. But haven't I made my colleagues in my department worse off if they depend on me for research advice, and haven't I made my university worse off if its academic reputation suffers because I'm no longer considered a leading scholar? Why does making the accounting profession better take precedence over everything else an academic does with their time?
    As quoted in Jensen [2006a]

     

    The above quotation illustrates the consequences of editorial policies of TAR and several other leading accounting research journals. To be considered a “leading scholar” in accountancy, one’s research must employ mathematically-based economic/behavioral theory and quantitative modeling. Most TAR articles published in the past two decades support this contention. But according to AAA President Judy Rayburn and other recent AAA presidents, this scientific focus may not be in the best interests of accountancy academicians or the accountancy profession.

    In terms of citations, TAR fails on two accounts. Citation rates are low in practitioner journals because the scientific paradigm is too narrow, thereby discouraging researchers from focusing on problems of great interest to practitioners that seemingly just do not fit the scientific paradigm due to lack of quality data, too many missing variables, and suspected non-stationarities. TAR editors are loath to open TAR up to non-scientific methods so that really interesting accounting problems are neglected in TAR. Those non-scientific methods include case method studies, traditional historical method investigations, and normative deductions.

    In the other account, TAR citation rates are low in academic journals outside accounting because the methods and techniques being used (like CAPM and options pricing models) were discovered elsewhere and accounting researchers are not sought out for discoveries of scientific methods and models. The intersection of models and topics that do appear in TAR seemingly are borrowed models and uninteresting topics outside the academic discipline of accounting.

    We close with a quotation from Scott McLemee demonstrating that what happened among accountancy academics over the past four decades is not unlike what happened in other academic disciplines that developed “internal dynamics of esoteric disciplines,” communicating among themselves in loops detached from their underlying professions. McLemee’s [2006] article stems from Bender [1993].

     “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.”

    For the good of the AAA membership and the profession of accountancy in general, one hopes that the changes in publication and editorial policies at TAR proposed by President Rayburn [2005, p. 4] will result in the “opening up” of topics and research methods produced by “leading scholars.”

     

    Picking on TAR is merely symbolic of my concerns with the larger problem of the what I view are much larger problems caused by the take over of the research arm of academic accountancy.

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     


    Thomas Kuhn --- http://en.wikipedia.org/wiki/Thomas_Kuhn

    On its 50th anniversary, Thomas Kuhn’s "The Structure of Scientific Revolutions" remains not only revolutionary but controversial.
    "Shift Happens," David Weinberger, The Chronicle Review, April 22, 2012 ---
    http://chronicle.com/article/Shift-Happens/131580/

    April 24, 2012 reply from Jagdish Gangolly

    Bob,

    A more thoughtful analysis of Kuhn is at the Stanford Encyclopedia of Philosophy. This is one of the best resources apart from the Principia Cybernetika ( http://pespmc1.vub.ac.be/ ).

    http://plato.stanford.edu/entries/thomas-kuhn/ 

    Regards,

    Jagdish

     

    April 24, 2012

    Excellent article. It omits one aspect of Kuhn's personal life (probably because the author thought it inconsequential). Apparently Kuhn liked to relax by riding roller coasters.In a way, that's a neat metaphor for the impact of his work.

    Thanks Bob.

    Roger

    Roger Collins
    TRU School of Business & Economics

    April 24, 2012 message from Zane Swanson

    One of the unintended consequences of a paradigm shift may have meaning for the replication discussion which has occurred on this list.  Consider the relevance of the replications when a paradigm shifts.  The change permits an examination of replications pre and post the paradigm shift of key attributes.  In accounting, one paradigm shift is arguably the change from historical to fair value.  For those looking for a replication reason of being, it might be worthwhile to compare replication contributions before and after the historical to fair value changes.

      In other words, when the prevailing view was that “the world is flat” … the replication “evidence” appeared to support it. But, when the paradigm shifted to “the world is round”, the replication evidence changed also.  So, what is the value of replications and do they matter?  Perhaps, the replications have to be novel in some way to be meaningful.

    Zane Swanson

    www.askaref.com accounting dictionary for mobile devices

     

    April 25, 2012 reply from Bob Jensen

    Kuhn wrote of science that "In a science, on the other had, a paradigm is rarely an object for replication. Instead like a judicial decision in the common law, it is an object for further articulation and specification under new and more stringent conditions." This is the key to Kuhn's importance in the development of law and science for children's law. He did seek links between the two fields of knowledge and he by this insight suggested how the fields might work together ...
    Michael Edmund Donnelly, ISBN 978-0-8204-1385 --- Click Here
    http://books.google.com/books?id=rGKEN11r-9UC&pg=PA23&lpg=PA23&dq=%22Kuhn%22+AND+%22Replication%22+AND+%22Revolution%22&source=bl&ots=RDDBr9VBWt&sig=htGlcxqtX9muYqrn3D4ajnE0jF0&hl=en&sa=X&ei=F9WXT7rFGYiAgweKoLnrBg&ved=0CCoQ6AEwAg#v=onepage&q=%22Kuhn%22%20AND%20%22Replication%22%20AND%20%22Revolution%22&f=false

    My question Zane is whether historical cost (HC) accounting versus fair value (FV) accounting is truly a paradigm shift. For centuries the two paradigms have worked in tandem for different purposes where FV is used by the law for personal estates and non-going concerns and HC accounting has never been a pure paradigm for any accounting in the real world. Due to conservatism and other factors, going-concern accounting has always been a mixed-model of historical cost modified in selected instances for fair value as in the case of lower-of-cost-or-market (LCM) inventories.

    I think Kuhn was thinking more in terms of monumental paradigm "revolutions" like we really have not witnessed in accounting standards that are more evolutionary than revolutionary.

    My writings are at
    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    Respectfully,
    Bob Jensen

    The quick and dirty answer to your question Marc is that the present dominance of accountics scientists behind a wall of silence on our Commons is just not sustainable. They cannot continue to monopolize AACSB accounting doctoral programs by limiting supply so drastically in the face of rising demand for accounting faculty ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms 

    They cannot continue to monopolize the selection of editors of their favored journals (especially TAR and AH) in the face of increasing democracy in the AAA.

    The Emperor cannot continue to parade without any clothes in the presence of increasing criticism from AAA Presidents, including criticisms raised by President Waymire ( who's an accountics scientist )  in the 2011 Annual Meetings ---
    Watch the Video:  http://commons.aaahq.org/posts/b60c7234c6 

    What we cannot do is expect change to happen overnight. For the past four decades our doctoral programs have cranked out virtually nothing but accountics scientists. Something similar happened in the Pentagon in the 1920s when West Point and Naval Academy graduates dominated the higher command until the 1940s. We began to see the value of air power, but it took decades to split the Air Force out from under the Army and to create an Air Force Academy. More importantly Pentagon budgets began to shift more and more to air power in both the Air Force and the Naval Air Force.

    It's been a long and frustrating fight in the AAA dating back to Bob Anthony when it was beginning to dawn on genuine accountants that we had created an accountics scientist monster.

    I don't know if you were present when Bob Anthony gave his 1989 Outstanding Educator Award Address to the American Accounting Association. It was one of the harshest indictments I've ever heard concerning the sad state of academic research in serving the accounting profession. Bob never held back on his punches.

    We built the most formidable military in the world by adapting to changes and innovations. Eventually the Luddite accountics scientists will own up to the fact they never did become real scientists and that their research methods and models are just too limited and out of date. His colleague at Harvard, Bob Kaplan, now carries on the laments of Bob Anthony.

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

    The accountics scientist monopoly of our doctoral programs is just not a sustainable model.  But don't expect miracles overnight. For 40 years our accounting doctoral graduates have never learned any research methods other than those analytical and inference models favored by accountics scientists.

    Respectfully,
    Bob Jensen

     


    Biography of an Experiment --- http://www.haverford.edu/kinsc/boe/

    Questions

    1. Apart from accountics science journals are there real science journals that refuse to publish replications?
    2. What are biased upward positive effects?
    3. What is the "decline" effect as research on a topic progresses?
    4. Why is scientific endeavor sometimes a victim of its own success?
    5. What is “statistically significant but not clinically significant” problem.
      Jensen note: 
      I think this is a serious drawback of many accountics science published papers.

      In the past when invited to be a discussant, this is the first problem I look for in the paper assigned for me to discuss.
      This is a particular problem in capital markets events studies having very, very large sample sizes. Statistical significance is almost always assured when sample sizes are huge even when the clinical significance of small differences may be completely insignificant.

      An example:
      "Discussion of Foreign Currency Exposure of Multinational Firms: Accounting Measures and Market Valuation," by Robert E. Jensen,  Rutgers University at Camden, Camden, New Jersey, May 31, 1997. Research Conference on International Accounting and Related Issues,

     

    "The Value of Replication," by Steven Novella, Science-Based Medicine, June 15, 2011 ---
    http://www.sciencebasedmedicine.org/index.php/the-value-of-replication/

    Daryl Bem is a respected psychology researcher who decided to try his hand at parapsychology. Last year he published a series of studies in which he claimed evidence for precognition — for test subjects being influenced in their choices by future events. The studies were published in a peer-reviewed psychology journal, the Journal of Personality and Social Psychology. This created somewhat of a controversy, and was deemed by some to be a failure of peer-review.

    While the study designs were clever (he simply reversed the direction of some standard psychology experiments, putting the influencing factor after the effect it was supposed to have), and the studies looked fine on paper, the research raised many red flags — particularly in Bem’s conclusions.

    The episode has created the opportunity to debate some important aspects of the scientific literature. Eric-Jan Wagenmakers and others questioned the p-value approach to statistical analysis, arguing that it tends to over-call a positive result. They argue for a Bayesian analysis, and in their re-analysis of the Bem data they found the evidence for psi to be “weak to non-existent.” This is essentially the same approach to the data that we support as science-based medicine, and the Bem study is a good example of why. If the standard techniques are finding evidence for the impossible, then it is more likely that the techniques are flawed rather than the entire body of physical science is wrong.

    Now another debate has been spawned by the same Bem research — that involving the role and value of exact replication. There have already been several attempts to replicate Bem’s research, with negative results: Galak and Nelson, Hadlaczky, and Circee, for example. Others, such as psychologist Richard Wiseman, have also replicated Bem’s research with negative results, but are running into trouble getting their studies published — and this is the crux of the new debate.

    According to Wiseman, (as reported by The Psychologist, and discussed by Ben Goldacre) the Journal of Personality and Social Psychology turned down Wiseman’s submission on the grounds that they don’t publish replications, only “theory-advancing research.” In other words — strict replications are not of sufficient scientific value and interest to warrant space in their journal. Meanwhile other journals are reluctant to publish the replication because they feel the study should go in the journal that published the original research, which makes sense.

    This episode illustrates potential problems with the  scientific literature. We often advocate at SBM that individual studies can never be that reliable — rather, we need to look at the pattern of research in the entire literature. That means, however, understanding how the scientific literature operates and how that may create spurious artifactual patterns.

    For example, I recently wrote about the so-called “decline effect” — a tendency for effect sizes to shrink or “decline” as research on a phenomenon progresses. In fact, this was first observed in the psi research, as the effect is very dramatic there — so far, all psi effects have declined to non-existence. The decline effect is likely a result of artifacts in the literature. Journals are more inclined to publish dramatic positive studies (“theory-advancing research”), and are less interested in boring replications, or in initially negative research. A journal is unlikely to put out a press release that says, “We had this idea, and it turned out to be wrong, so never-mind.” Also, as research techniques and questions are honed, research results are likely to become closer to actual effect sizes, which means the effect of researcher bias will be diminished.

    If the literature itself is biased toward positive studies, and dramatic studies, then this would further tend to exaggerate apparent phenomena — whether it is the effectiveness of a new drug or the existence of anomalous cognition. If journals are reluctant to publish replications, that might “hide the decline” (to borrow an inflammatory phrase) — meaning that perhaps there is even more of a decline effect if we consider unpublished negative replications. In medicine this would be critical to know — are we basing some treatments on a spurious signal in the noise of research.

    There have already been proposals to create a registry of studies, before they are even conducted (specifically for human research), so that the totality of evidence will be transparent and known — not just the headline-grabbing positive studies, or the ones that meet the desires of the researchers or those funding the research. This proposal is primarily to deal with the issue of publication bias — the tendency not to publish negative studies.

    Wiseman now makes the same call for a registry of trials before they even begin to avoid the bias of not publishing replications. In fact, he has taken it upon himself to create a registry of attempted replications of Bem’s research.

    While this may be a specific fix for replications for Bem’s psi research — the bigger issues remain. Goldacre argues that there are systemic problems with how information filters down to professionals and the public. Reporting is highly biased toward dramatic positive studies, while retractions, corrections, and failed replications are quiet voices lost in the wilderness of information.

    Most readers will already understand the critical value of replication to the process of science. Individual studies are plagued by flaws and biases. Most preliminary studies turn out to be wrong in the long run. We can really only arrive at a confident conclusion when a research paradigm produces reliable results in different labs with different researchers. Replication allows for biases and systematic errors to average out. Only if a phenomenon is real should it reliably replicate.

    Further — the excuse by journals that they don’t have the space now seems quaint and obsolete, in the age of digital publishing. The scientific publishing industry needs a bit of an overhaul, to fully adapt to the possibilities of the digital age and to use this as an opportunity to fix some endemic problems. For example, journals can publish just abstracts of certain papers with the full articles available only online. Journals can use the extra space made available by online publishing (whether online only or partially in print) to make dedicated room for negative studies and for exact replications (replications that also expand the research are easier to publish). Databases and reviews of such studies can also make it as easy to find and access negative studies and replications as it is the more dramatic studies that tend to grab headlines.

    Conclusion

    The scientific endeavor is now a victim of its own success, in that research is producing a tsunami of information. The modern challenge is to sort through this information in a systematic way so that we can find the real patterns in the evidence and reach reliable conclusions on specific questions. The present system has not fully adapted to this volume of information, and there remain obsolete practices that produce spurious apparent patterns in the research. These fake patterns of evidence tend to be biased toward the false positive — falsely concluding that there is an effect when there really isn’t — or at least in exaggerating effects.

    These artifactual problems with the literature as a whole combine with the statistical flaws in relying on the p-value, which tends to over-call positive results as well. This problem can be fixed by moving to a more Bayesian approach (considering prior probability).

    All of this is happening at a time when prior probability (scientific plausibility) is being given less attention than it should, in that highly implausible notions are being seriously entertained in the peer-reviewed literature. Bem’s psi research is an excellent example, but we deal with many other examples frequently at SBM, such as homeopathy and acupuncture. Current statistical methods and publication biases are not equipped to deal with the results of research into highly implausible claims. The result is an excess of false-positive studies in the literature — a residue that is then used to justify still more research into highly implausible ideas. These ideas can never quite reach the critical mass of evidence to be generally accepted as real, but they do generate enough noise to confuse the public and regulators, and to create an endless treadmill of still more research.

    The bright spot is that highly implausible research has helped to highlight some of these flaws in the literature. Now all we have to do is fix them.

    Jensen Recommendation
    Read all or at least some of the 58 comments following this article

    daedalus2u comments:
    Sorry if this sounds harsh, it is meant to be harsh. What this episode shows is that the journal JPSP is not a serious scientific journal. It is fluff, it is pseudoscience and entertainment, not a journal worth publishing in, and not a journal worth reading, not a journal that has scientific or intellectual integrity.

    “Professor Eliot Smith, the editor of JPSP (Attitudes and Social Cognition section) told us that the journal has a long-standing policy of not publishing simple replications. ‘This policy is not new and is not unique to this journal,’ he said. ‘The policy applies whether the replication is successful or unsuccessful; indeed, I have rejected a paper reporting a successful replication of Bem’s work [as well as the negative replication by Ritchie et al].’ Smith added that it would be impractical to suspend the journal’s long-standing policy precisely because of the media attention that Bem’s work had attracted. ‘We would be flooded with such manuscripts and would not have page space for anything else,’ he said.”

    Scientific journals have an obligation to the scientific community that sends papers to them to publish to be honest and fair brokers of science. Arbitrarily rejecting studies that directly bear on extremely controversial prior work they have published, simply because it is a “replication”, is an abdication of their responsibility to be a fair broker of science and an honest record of the scientific literature. It conveniently lets them publish crap with poor peer review and then never allow the crap work to be responded to.

    If the editor consider it impractical to publish any work that is a replication because they would then have no space for anything else, then they are receiving too many manuscripts. If the editor needs to apply a mindless triage of “no replications”, then the editor is in over his head and is overwhelmed. The journal should either revise the policy and replace the overwhelmed editor, or real scientists should stop considering the journal a suitable place to publish.

    . . .

    Harriet Hall comments
    A close relative of the “significant but trivial” problem is the “statistically significant but not clinically significant” problem. Vitamin B supplements lower blood homocysteine levels by a statistically significant amount, but they don’t decrease the incidence of heart attacks. We must ask if a statistically significant finding actually represents a clinical benefit for patient outcome, if it is POEMS – patient-oriented evidence that matters.

     

    "Alternative Treatments for ADHD Alternative Treatments for ADHD: The Scientific Status," David Rabiner, Attention Deficit Disorder Resources, 1998 ---
    http://www.addresources.org/?q=node/279 

    Based on his review of the existing research literature, Dr. Arnold rated the alternative treatments presented on a 0-6 scale. It is important to understand this scale before presenting the treatments. (Note: this is one person's opinion based on the existing data; other experts could certainly disagree.) The scale he used is presented below:

    • 0-No supporting evidence and not worth considering further.
    • 1-Based on a reasonable idea but no data available; treatments not yet subjected to any real scientific study.
    • 2-Promising pilot data but no careful trial. This includes treatments where very preliminary work appears promising, but where the treatment approach is in the very early stages of investigation.
    • 3-There is supporting evidence beyond the pilot data stage but carefully controlled studies are lacking. This would apply to treatments where only open trials, and not double-blind controlled trials, have been done.

      Let me briefly review the difference between an open trial and a double-blind trial because this is a very important distinction. Say you are testing the effect of a new medication on ADHD. In an open trial, you would just give the medication to the child, and then collect data on whether the child improved from either parents or teachers. The child, the child's parents, and the child's teacher would all know that the child was trying a new medication. In a double-blind trial, the child would receive the new medicine for a period of time and a placebo for a period of time. None of the children, parents, or teachers would know when medication or placebo was being received. The same type of outcome data as above would be collected during both the medication period and the placebo period.

      The latter is considered to be a much more rigorous test of a new treatment because it enables researchers to determine whether any reported changes are above and beyond what can be attributed to a placebo effect. In an open trial, you cannot be certain that any changes reported are actually the result of the treatment, as opposed to placebo effects alone. It is also very hard for anyone to provide objective ratings of a child's behavior when they know that a new treatment is being used. Therefore, open trials, even if they yield very positive results, are considered only as preliminary evidence.

    • 4-One significant double-blind, controlled trial that requires replication. (Note: replicating a favorable double-blind study is very important. The literature is full of initially promising reports that could not be replicated.)
    • 5-There is convincing double-blind controlled evidence, but further refinement is needed for clinical application. This rating would be given to treatments where replicated double-blind trials are available, but where it is not completely clear who is best suited for the treatment. For example, a treatment may be known to help children with ADHD, but it may be effective for only a minority of the ADHD population and the specific subgroup it is effective for is not clearly defined.
    • 6-A well established treatment for the appropriate subgroup. Of the numerous alternative treatments reviewed by Dr. Arnold, no treatments received a rating of 6.

    Only one treatment reviewed received a rating of 5. Dr. Arnold concluded that there is convincing scientific evidence that some children who display

    Continued in article

    "If you can write it up and get it published you're not even thinking of reproducibility," said Ken Kaitin, director of the Tufts Center for the Study of Drug Development. "You make an observation and move on. There is no incentive to find out it was wrong."
    April 14, 2012 reply from Richard Sansing

    Inability to replicate may be a problem in other fields as well.

    http://www.vision.org/visionmedia/article.aspx?id=54180

    Richard Sansing

    Bob Jensen's threads on replication in accountics science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm


    Replication Paranoia:  Can you imagine anything like this happening in accountics science?

    "Is Psychology About to Come Undone?" by Tom Bartlett, Chronicle of Higher Education, April 17, 2012 --- Click Here
    http://chronicle.com/blogs/percolator/is-psychology-about-to-come-undone/29045?sid=at&utm_source=at&utm_medium=en

    If you’re a psychologist, the news has to make you a little nervous—particularly if you’re a psychologist who published an article in 2008 in any of these three journals: Psychological Science, the Journal of Personality and Social Psychology, or the Journal of Experimental Psychology: Learning, Memory, and Cognition.

    Because, if you did, someone is going to check your work. A group of researchers have already begun what they’ve dubbed the Reproducibility Project, which aims to replicate every study from those three journals for that one year. The project is part of Open Science Framework, a group interested in scientific values, and its stated mission is to “estimate the reproducibility of a sample of studies from the scientific literature.” This is a more polite way of saying “We want to see how much of what gets published turns out to be bunk.”

    For decades, literally, there has been talk about whether what makes it into the pages of psychology journals—or the journals of other disciplines, for that matter—is actually, you know, true. Researchers anxious for novel, significant, career-making findings have an incentive to publish their successes while neglecting to mention their failures. It’s what the psychologist Robert Rosenthal named “the file drawer effect.” So if an experiment is run ten times but pans out only once you trumpet the exception rather than the rule. Or perhaps a researcher is unconsciously biasing a study somehow. Or maybe he or she is flat-out faking results, which is not unheard of. Diederik Stapel, we’re looking at you.

    So why not check? Well, for a lot of reasons. It’s time-consuming and doesn’t do much for your career to replicate other researchers’ findings. Journal editors aren’t exactly jazzed about publishing replications. And potentially undermining someone else’s research is not a good way to make friends.

    Brian Nosek knows all that and he’s doing it anyway. Nosek, a professor of psychology at the University of Virginia, is one of the coordinators of the project. He’s careful not to make it sound as if he’s attacking his own field. “The project does not aim to single out anybody,” he says. He notes that being unable to replicate a finding is not the same as discovering that the finding is false. It’s not always possible to match research methods precisely, and researchers performing replications can make mistakes, too.

    But still. If it turns out that a sizable percentage (a quarter? half?) of the results published in these three top psychology journals can’t be replicated, it’s not going to reflect well on the field or on the researchers whose papers didn’t pass the test. In the long run, coming to grips with the scope of the problem is almost certainly beneficial for everyone. In the short run, it might get ugly.

    Nosek told Science that a senior colleague warned him not to take this on “because psychology is under threat and this could make us look bad.” In a Google discussion group, one of the researchers involved in the project wrote that it was important to stay “on message” and portray the effort to the news media as “protecting our science, not tearing it down.”

    The researchers point out, fairly, that it’s not just social psychology that has to deal with this issue. Recently, a scientist named C. Glenn Begley attempted to replicate 53 cancer studies he deemed landmark publications. He could only replicate six. Six! Last December I interviewed Christopher Chabris about his paper titled “Most Reported Genetic Associations with General Intelligence Are Probably False Positives.” Most!

    A related new endeavour called Psych File Drawer allows psychologists to upload their attempts to replicate studies. So far nine studies have been uploaded and only three of them were successes.

    Both Psych File Drawer and the Reproducibility Project were started in part because it’s hard to get a replication published even when a study cries out for one. For instance, Daryl J. Bem’s 2011 study that seemed to prove that extra-sensory perception is real — that subjects could, in a limited sense, predict the future — got no shortage of attention and seemed to turn everything we know about the world upside-down.

    Yet when Stuart Ritchie, a doctoral student in psychology at the University of Edinburgh, and two colleagues failed to replicate his findings, they had a heck of a time getting the results into print (they finally did, just recently, after months of trying). It may not be a coincidence that the journal that published Bem’s findings, the Journal of Personality and Social Psychology, is one of the three selected for scrutiny.

    Continued in article

    April 21 reply from Dan Stone

    To clarify - the Replication Project includes data collection -- meaning that all chosen studies will be fully replicated. The procedures are very specific and well-written. On the surface, this appears to be very good science that takes advantage of a crowd-sourcing approach to creating "coauthors". Very innovative. Very interesting.

    What I am amazed by in this project is: what is in it for the collaborators? I think the biggest risk of this project is that an insufficient number of collaborators will sign on to conduct replications. Perhaps schools that demand research "of a lesser God", meaning not in the top X journals will accept this work towards tenure.

    And the reason this would never happen in accounting is quite simple: because whomever engaged in such replications would be turned down at their next tenure, promotion, raise, chair, professorship review for engaging in a "worthless activity". Very sad but such is the state of our profession that only publications in the mythical top X journals count toward tenure at many schools.

     

    Jensen Comment

    Scale Risk
    In accountics science such a "Reproducibility Project" would be much more problematic except in behavioral accounting research. This is because accountics scientists generally buy rather than generate their own data (Zoe-Vonna Palmrose is an exception). The problem with purchased data from such as CRSP data, Compustat data, and AuditAnalytics data is that it's virtually impossible to generate alternate data sets, and if there are hidden serious errors in the data it can unknowingly wipe out thousands of accountics science publications all at one --- what we might call a "scale risk."

    Assumptions Risk
    A second problem in accounting and finance research is that researchers tend to rely upon the same models over and over again. And when serious  flaws were discovered in a model like CAPM it not only raised doubts about thousands of past studies, it made accountics and finance researchers make choices about whether or not to change their CAPM habits in the future. Accountics researchers that generally look for an easy way out blindly continued to use CAPM in conspiracy with journal referees and editors who silently agreed to ignore CAPM problems and limitations of assumptions about efficiency in capital markets---
    http://www.trinity.edu/rjensen/Theory01.htm#EMH
    We might call this an "assumptions risk."

    Hence I do not anticipate that there will ever be a Reproducibility Project in accountics science. Horrors. Accountics scientists might not continue to be the highest paid faculty on their respected campuses and accounting doctoral programs would not know how to proceed if they had to start focusing on accounting rather than econometrics.

    "How to Avoid the Big Data 'Gotcha's'," by Jill Dyche, Harvard Business Review Blog, April 17, 2012 --- Click Here
    http://blogs.hbr.org/cs/2012/04/how_to_avoid_the_big_data_gotc_1.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    April 21, 2012 reply from Steve Kachelmeier

    I will not find fault with any of your points Dan, but I think you also need to acknowledge that replication is easier in psychology, where hoards of introductory psychology students are forced to take part in experiments or let their grades suffer as a result. Accountants (at least those I know) recruit experimental participants on a volunteer basis, and when students are involved, they are generally compensated for their time. These aspects make replication more costly.

    April 22. 2012 reply from Bob Jensen

    Steve Kachelmeier wrote:
    "In accounting, by contrast, experiments often use professionals as
    participants, and they are in much shorter supply. Even for those
    researchers (like me) who conduct experiments with students, there
    is always compensation involved, and participation is always strictly
    voluntary. Suffice it to say that these aspects make our participants
    more difficult to get and more costly, such that a full-scale replication
    project like this would probably be cost-prohibitive."



     
    Jensen Comment
    I think if you, Steve, tabulated all the behavioral experiments conducted by accountics scientists over the past three decades that you will find that the overwhelming majority of the studies were conducted on students, including many of the studies that you approved as Senior Editor of TAR.


    In general I have serious doubts about using student decision makers in artificial and simplistic experiments where they play the hypothetical roles of real world decision makers.

     

    An example of a meaningless experiment using students as surrogates is provided below.

    "Are Independent Audit-Committee Members Objective?" The Harvard Law School, July 6, 2009 --- http://blogs.law.harvard.edu/corpgov/2009/07/06/are-independent-audit-committee-members-objective/
    Based upon an Accounting Review article by Matthew Magilke of the University of Utah, Brian W. Mayhew of the University of Wisconsin-Madison, and Joel Pike of the University of Illinois at Urbana-Champaign.)
    The working paper can be downloaded from SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097714

    Abstract:
    We use experimental markets to examine stock-based compensation's impact on the objectivity of participants serving as audit committee members. We compare audit committee member reporting objectivity under three regimes: no stock-based compensation, stock-based compensation linked to current shareholders, and stock-based compensation linked to future shareholders. Our experiments show that student participants serving as audit committee members prefer biased reporting when compensated with stock-based compensation. Audit committee members compensated with current stock-based compensation prefer aggressive reporting, and audit committee members compensated with future stock-based compensation prefer overly conservative reporting. We find that audit committee members who do not receive stock-based compensation are the most objective. Our study suggests that stock-based compensation impacts audit committee member preferences for biased reporting, suggesting the need for additional research in this area.

    Keywords: Audit Committee, Stock Compensation, Independence

    Jensen Comment
    I hate to keep repeating myself, but this will probably go down as one of those student experiments that have dubious extrapolations to the real world. The student compensation is nowhere near the possible compensations of real board members of real corporations. My traditional example here is my banker friend who gambles for relatively large stakes with his poker-playing friends, but never gambles even small time time with his local Bangor bank.

    Even more discouraging is that following decades of publications of empirical academic research, the findings will simply be accepted as truth without ever replicating the outcomes as would be required in real science. In science, it's the replications that are more eagerly anticipated than the original studies. But this is not the case in accounting research --- http://www.trinity.edu/rjensen/theory01.htm#Replication

    Probably the most fascinating study of an audit committee is the history of the infamous Audit Committee of Enron. Evidence in retrospect seems to point to the fact that the Audit Committee and the Board of Directors (Bob Jaedicke was on both Boards) were truly deceived by clever and unscrupulous Enron executives. Probably the most penetrating study of what happened was the after-the-fact Power's Study conducted by the Board itself --- http://www.trinity.edu/rjensen/FraudEnron.htm
    There are times when I'm more impressed by a sample of one than a sample of students in an artificial experiment that is never replicated.

    Also see Question  15 at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

    July 8, 2009 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    Bob,

    I read the first 25 or so pages of the paper. As an actual audit committee member, I feel comfortable in saying that the assumptions going into the experiment design make no sense whatsoever. And using students to "compete to be hired" as audit committee members is preposterous.

    I have served on five audit committees of large public companies, all as chairman. My compensation has included cash, stock options, restricted stock, and unrestricted stock. The value of those options has gone from zero to seven figures and back to zero and there have been similar fluctuations in the value of the stock. In no case did I ever sell a share or exercise an option prior to leaving a board. And in every case my *only *objective as an audit committee member was to do my best to insure that the company followed GAAP to the best of its abilities and that the auditors did the very best audit possible.

    No system is perfect and not all audit committee members are perfect (certainly not me!). But I believe that the vast majority of directors want to do the right thing. Audit committee members take their responsibilities extremely seriously as evidenced by the very large number of seminars, newsletters, etc. to keep us up to date. It's too bad that accounting researchers can't find ways to actually measure what is going on in practice rather than revert to silly exercises like this paper. To have it published in the leading accounting journal shows how out of touch the academy truly is, I'm afraid.

    Denny Beresford

    July 8, 2009 reply from Bob Jensen

    Hi Denny,

    It's clear why TAR didn't send you this manuscript to referee. It would be dangerous to have experienced audit committee members have an input to this type of accountics research that takes place in the academy's sandbox.

    Bob Jensen

    April 22, 2012 reply from Steve Kachelmeier

    You are entitled to your opinion, of course, but I could not disagree more strongly. Vernon Smith won the 2002 Nobel Prize in Economics for precisely the style of incentive-based experimentation with student participants that you so summarily dismiss. Real world environments are very complex, as you know. So experimental economic designs abstract away from that complexity to examine the underlying theoretical roots under incentive compatible conditions. Such researchers generally use students because the incentives (given budget constraints) are more meaningful for that population.

    I am very proud to have accepted and published the Magilke, Mayhew, and Pike experiment, and I think it is excellent research, blending both psychology and economic insights to examine issues of clear importance to accounting and auditing. In fact, the hypocrisy somewhat amazes me that, amidst all the complaining about a perceived excess of financial empirical-archival (or what you so fondly call "accountics" studies), even those studies that are quite different in style also provoke wrath.

    Denny Beresford's comments and concerns that you copied and pasted are interesting, because Denny also wrote me some kind words several years ago in praise of a 2002 Accounting Horizons article I wrote (with Ron King) on how experimental designs of both the economics and psychology traditions could help to shed insights of importance to accounting policy. Our point was that experiments can examine policy questions "ex ante" by manipulating the features policymakers are considering, not just those that policymakers have already implemented. But the style of experimentation I was mentioning then is precisely what Magilke et al. used in their study.

    Bob, if you want a study that fully captures and simulates the "reality" of accounting, don't look at experiments. The whole point of experimentation is to tease apart reality with intentional abstraction to isolate different theoretical parts of the puzzle. I thought that someone with such a self-avowed sense of "science" would have a better understanding of that point.

    Best,

    Steve

    April 22, 2012 reply from Bob Jensen

    Steve Kachelmeier wrote:
    "I am very proud to have accepted and published the Magilke, Mayhew, and Pike experiment, and I think it is excellent research, blending both psychology and economic insights to examine issues of clear importance to accounting and auditing. In fact, the hypocrisy somewhat amazes me that, amidst all the complaining about a perceived excess of financial empirical-archival (or what you so fondly call "accountics" studies), even those studies that are quite different in style also provoke wrath."

    July 8, 2009 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    Bob,

    I read the first 25 or so pages of the paper. As an actual audit committee member, I feel comfortable in saying that the assumptions going into the experiment design make no sense whatsoever. And using students to "compete to be hired" as audit committee members is preposterous.

    I have served on five audit committees of large public companies, all as chairman. My compensation has included cash, stock options, restricted stock, and unrestricted stock. The value of those options has gone from zero to seven figures and back to zero and there have been similar fluctuations in the value of the stock. In no case did I ever sell a share or exercise an option prior to leaving a board. And in every case my *only *objective as an audit committee member was to do my best to insure that the company followed GAAP to the best of its abilities and that the auditors did the very best audit possible.

    No system is perfect and not all audit committee members are perfect (certainly not me!). But I believe that the vast majority of directors want to do the right thing. Audit committee members take their responsibilities extremely seriously as evidenced by the very large number of seminars, newsletters, etc. to keep us up to date. It's too bad that accounting researchers can't find ways to actually measure what is going on in practice rather than revert to silly exercises like this paper. To have it published in the leading accounting journal shows how out of touch the academy truly is, I'm afraid.

    Denny Beresford

    Bob Jensen's Reply
    Thanks Steve, but if if the Maglke, Mayhew, and Pike experiment was such excellent research, why did no independent accountics science researchers or practitioners find it worthy of being validated?

    It seems to me that replication studies would've gone a long way toward addressing complaints like Denny Beresford raised about the Maglike et. al. TAR paper. Instead no attempt, to my knowledge, has been made to replicate the Maglike et al. study.

    The least likely accountics science research studies to be replicated are accountics behavioral experiments that are usually quite similar to psychology experiments and commonly use student surrogates for real life professionals? Why is that these studies are so very, very rarely replicated by independent researchers using either other student surrogates or real world professionals?

    Why are these accountics behavioral experiments virtually never worthy of replication?

    Years ago I was hired, along with another accounting professor, by the FASB to evaluate research proposals on investigating the impact of FAS 13. The FASB reported to us that they were interested in capital markets studies and case studies. The one thing they explicitly stated, however, was that they were not interested in behavioral experiments. Wonder why?

     

    Question
    Are college students good surrogates for real life studies?
    The majority of behavioral experiments in accounting have used students as experimental subjects.

    The WSJ interviewed experts on use of student surrogates. Here's what they found:

    "Too Many Studies Use College Students As Their Guinea Pigs," by Carl Bialik, The Wall Street Journal, August 10, 2007; Page B1--- http://online.wsj.com/article/SB118670089203393577.html?mod=todays_us_marketplace

    Many of the numbers that make news about how we feel, think and behave are derived from studying a narrow population: college students. It's cheap for social scientists to tap into the on-campus research pool -- everyone from psychology majors who must participate in studies for course credit to students who respond to posters promising a few bucks if they sign up.

    Consider just three studies that have received press in the past month. In one, muscular men were twice as likely as their less well-built brethren to have had more than three sex partners -- at least according to 99 UCLA undergraduates. Another, an examination of six separate studies that tape-recorded college students' conversations, found that women, despite being stereotyped as relatively chatty, spoke just 3% more words each day than men. And in the third, 40 undergraduates at Washington University in St. Louis were 6% more likely to complete verbal jokes and 14% more likely to complete visual jests than 41 older study participants.

    College students are "essentially free," says Brian Nosek, a psychology professor at the University of Virginia. "We walk out of our office, and there they are." The epitome of a convenience sample, they have become the basis for what some critics call the "science of the sophomore."

    But psychologists may be getting what they pay for. College students aren't representative by age, wealth, income, educational level or geographic location. "What if you studied 7-year-old kids and made inferences about geriatrics?" asks Robert Peterson, a marketing professor at the University of Texas, Austin. "Everyone would say you can't do that. But you can use these college students."

    Prof. Peterson scoured the literature for examples of studies that examined the same psychological relationships in students and nonstudents. In almost half of the 63 relationships he examined, there were major discrepancies between students and nonstudents: The two groups either produced contradictory results, or one showed an effect at least twice as great as the other.

    In a follow-up study, not yet published, Prof. Peterson demonstrated that even college students are far from homogeneous. With help from faculty at 58 schools in 31 states, he surveyed undergraduate business students across the country and found that they vary widely from school to school. That means a professor studying the relationship between students' attitudes toward capitalism and business ethics at one school could reach a sharply different conclusion than a professor at another school.

    "People have always been aware of this issue," Prof. Peterson says, but many have chosen to ignore it. A 1986 paper by David Sears, a UCLA psychology professor, documented the increased use of college students for research in the prior quarter century and explored the potential biases that might introduce. In the meantime, the use of college students has, if anything, risen, researchers say.

    Authors of the recent studies on sex, chattiness and humor acknowledge the limitations of their research pool. But they argue that college students do just fine for purposes of studying basic cognitive processes. Others agree. "If you think all people have the same attitudes as introductory psychology students, that's really problematic," says Tony Bogaert, a psychology professor at Brock University in St. Catharines, Ontario. "But if you're looking at cognitive processes, intro psych students probably work OK."

    After all, every study is hampered by possible differences between those who volunteer to participate and those who don't, whether they're college students or a broader group.

    In any case, the fault often lies not with the researchers, who are careful not to overstate the impact of their findings, but with the news articles suggesting the numbers apply to all humanity. "Even if you only focus on college students, the results are still generalizable to millions of Americans," says David Frederick, a UCLA psychology graduate student and lead author of the study on muscularity and sex partners.

    Prof. Nosek, a critic of the science of the sophomore, responds that college students are still developing their personalities and behavior. "There is no other time outside my life as an undergraduate where I thought it would be a good idea to wear all my clothes inside out," he says, or to "stay up for as many hours in a row as I could just to see what happens."

    To widen the pool of people answering questions about, say, all-nighters, Prof. Nosek has submitted a proposal to the National Institutes of Health to fund the creation of an international, online research panel. That would build on studies his laboratory has already administered online at ProjectImplicit.net.

    Online research has its own problems, but at least it taps into the hundreds of millions of people who are online globally, rather than just the hundreds of people enrolled in Psych 101.

    "The scientific reward structure does not benefit someone who puts in the enormous effort" to create a representative research sample, Prof. Nosek says. "The way to change researchers' data habits is to make it easier to collect data in a more generalizable way."

    "The Absence of Dissent," by Joni J. Young, Accounting and the Public Interest 9 (1), 1 (2009); 

    Joni won the 2011 AAA Notable Contributions to the Literature Award for the following article:
    "Making Up Users"
    Accounting, Organizations and Society, v. 31, n. 6, 579-600 (2006)

    Within recent years, financial statement users have been accorded great significance by accounting standard-setters. In the United States, the conceptual framework maintains that a primary purpose of financial statements is to provide information useful to investors and creditors in making their economic decisions. Contemporary accounting textbooks unproblematically posit this purpose for accounting. Yet, this emphasis is quite recent and occurred despite limited knowledge about the information needs and decision processes of actual users of financial statements. This paper unpacks the taken-for-grantedness of the primacy of financial statement users in standard-setting and considers their use as a category to justify and denigrate particular accounting disclosures and practices. It traces how particular ideas about financial statement users and their connection to accounting standard setting have been constructed in various documents and reports including the conceptual framework and accounting standards

     

     

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

    Bob Jensen's rant on the lack of replication in "accountics (pseudo science) research" can be found at http://www.trinity.edu/rjensen/theory01.htm#Replication

    Bob Jensen's threads on replication and other forms of validity checking ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm


    From Ernst & Young on April 26, 2012
    Comment letter on testing indefinite-lived intangibles for impairment
    http://lyris.ey.com/t/604468/1640432/4427/0/

    In our comment letter on the FASB's proposal to give entities the option to use a qualitative screen to test indefinite-lived intangible assets for impairment, we support the Board's efforts to reduce the cost and complexity of performing the impairment test. We also say the Board should consider adding implementation guidance on how to assess a mix of positive and negative evidence affecting the significant inputs used to determine fair value.
     


    Question
    Do you know of any blog of a leading accountics scientist that is devoted to issues of research and accountics science?

    I present an ad hoc listing of some of the leading accountics scientists at
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

     

    "The Virtues of Blogging as Scholarly Activity," by Martin Weller, Chronicle of Higher Education, April 29, 2011 ---
    http://chronicle.com/article/The-Virtues-of-Blogging-as/131666/?sid=cr&utm_source=cr&utm_medium=en

    I have been an active blogger since 2006, and I often say that becoming one was the best decision I have ever made in my academic life.

    In terms of intellectual fulfillment, creativity, networking, impact, productivity, and overall benefit to my scholarly life, blogging wins hands down. I have written books, produced online courses, led research efforts, and directed a number of university projects. While these have all been fulfilling, blogging tops the list because of its room for experimentation and potential to connect to timely intelligent debate. That keeps blogging at the top of the heap.

    My academic identity—I'm a professor of educational technology at the Open University in the United Kingdom—is strongly allied with my blog. Increasingly we find that our academic identities are distributed. There was a time when you could have pointed to a list of publications as a neat proxy for your academic life, but now you might want to reference not only your publications, but also a set of videos, presentations, blog posts, curated collections, and maybe even your social network. All of these combine to represent the modern academic. My blog sits at the heart of these, the place where I reference the other media and representations.

    This is not to argue that a blog should play the same role for everyone. A key aspect of the digital revolution is not the direct replacement of one form of scholarly activity with another, but rather the addition of alternatives to existing forms. In his book From Gutenberg to Zuckerberg: What You Really Need to Know About the Internet (Quercus, 2012), my colleague John Naughton argues that this is a lesson we should learn. "Looking back on the history," he writes, "one clear trend stands out: Each new technology increased the complexity of the ecosystem."

    This trend is evident in academic practice. Previously if I wanted to convey an idea or a research finding, my choices were limited to a conference paper or journal article or, if I could work it up, a book. These choices still remain, but in addition I can create a video, podcast, blog post, slidecast, and more. It may be that a combination of these is ideal—a blog post gets immediate reaction and can then be worked into a conference presentation, shared through SlideShare, or turned into a paper that is submitted to a journal. In each case the blog or social network becomes a key route for sharing and disseminating the findings. One recent study suggests that use of Twitter, for instance, can both boost and predict citations of journal articles.

    So blogging works for me, but it might not work for you. Maybe you're more of a YouTube person, or a podcaster, or maybe your skill really lies in acting as a filter and a curator, using a tool such as Scoop.it, which allows you to curate and share resources on a particular topic. Or maybe you're the trusted source for finding the valuable research in your field. It's clear, though, that our academic ecosystem

    is a more complex one now. This raises two difficult questions for academics who are expected to do research: First, do these new types of activity count as scholarship? And, if so, how do we recognize and reward them?

    In my book The Digital Scholar: How Technology Is Transforming Scholarly Practice (Bloomsbury USA, 2011; free online), I argue that if you look across all scholarly activities, the use of new technology has the potential to change practice. For example, those who teach now have access to abundant, free, online content, while in the past teaching resources were often scarce and expensive.

    Scholars no longer need a television series to engage the public. The academic publishing system is being thrown into question as we look at open-access approaches and different means of conducting peer review. And so on. There is hardly an area of scholarly practice that remains unaffected.

    An example I like to cite is that of my colleague Tony Hirst, who blogs at OUseful.Info. He likes to play with open data, visualization tools, and mashups. On any one day an idea may occur to him, such as, '"I wonder how the people who tweet a particular link are connected? And who are they connected to?" In a short space of time, he will have experimented with data and tools to provide an answer, and blogged his results. None of this requires research funds or a peer-review filter, and it takes place over a much shorter time period than traditional research. Yet it would be difficult to argue that the blog does not constitute widely accepted definitions of scholarly research.

    So I would argue that the answer to the first question above, as to whether new approaches such as blogging constitute scholarly activity, is an emphatic yes. Which leads us to a more problematic question: How should we recognize it?

    This is where the issue of increased complexity really begins to cause friction. When it comes to tenure and promotion, the three factors generally considered are teaching, service, and research. The first two are easily understood by tenure committees. The last, and often most heavily weighted one for scholars expected to do research, is that of scholarship. Here tenure committees have increasingly come to rely upon journal-impact factors to act as a proxy for research quality. In short, we know what a good publication record looks like. But these criteria begin to creak and groan when we apply them to blogs and other online media. Simple metrics are subject to gaming, and because of the removal of the peer-review filter, may be meaningless anyway. I may have a YouTube clip of a skateboarding octopus with two million hits, but that doesn't make it scholarly work.

    It's a difficult problem, but one that many institutions are beginning to come to terms with. Combining the rich data available online that can reveal a scholar's impact with forms of peer assessment gives an indication of reputation. Universities know this is a game they need to play—that having a good online reputation is more important in recruiting students than a glossy prospectus. And groups that sponsor research are after good online impact as well as presentations at conferences and journal papers.

    Institutional reputation is largely created through the faculty's online identity, and many institutions are now making it a priority to develop, recognize, and encourage practices such as blogging.

    Continued in article

    Bob Jensen's threads on accounting professors who blog ---
    http://www.trinity.edu/rjensen/ListservRoles.htm


    Teaching Case from The Wall Street Journal Accounting Weekly Review on April 27, 2012

    MetLife Reports Loss After Website Snafu
    by: Lauren Pollock and Leslie Scism
    Apr 21, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Operating Income, Regulation, SEC, Securities and Exchange Commission, Segment Analysis

    SUMMARY: "MetLife Inc. posted a first-quarter shortfall on steeper derivatives losses...Operating earnings...climbed in the period and topped estimates, though operating revenue...grew more slowly than expected." The operating results were disclosed two weeks earlier than MetLife had intended because the company "...inadvertently post[ed] some of the data on its website....The technological foul-up stemmed from an effort by the insurer to get revamped historical data into investors' hands in advance of MetLife's previously planned May 2 earnings release date..." because the company reorganized its segments into six units within 3 broad geographic regions.

    CLASSROOM APPLICATION: The article covers basic quarterly reporting and market reactions to earnings releases, segment reporting and the effect of a business reorganization on that reporting, and Regulation Fair Disclosure (Reg FD). Under this regulation, the company had to release first quarter earnings information to all parties once the inadvertent disclosure to some analysts was discovered.

    QUESTIONS: 
    1. (Introductory) Define operating revenues and operating earnings and highlight what generates the difference between the two. How did MetLife perform on each of these measures in the first quarter of 2012?

    2. (Introductory) How did the market react to these results? What information in the article do you think generated that market reaction, the operating revenues, the operating earnings, the "snafu" in posting earnings, or something else?

    3. (Advanced) Access the announcement about these first quarter results in the SEC filing of Form 8-K on April 24, 2012, available at http://www.sec.gov/Archives/edgar/data/1099219/000119312512168620/0001193125-12-168620-index.htm, by clicking on the link to the Form 8-K document. What business organizational change did the company undertake? In your answer, include an explanation of how the company's business was organized before the organizational change.

    4. (Advanced) What authoritative accounting guidance requires companies to provide information according to how the business is organized? Provide specific reference to promulgated accounting standards.

    5. (Advanced) Refer again to the MetLife SEC filing. Click on the link to the "Historical Results Financial Supplement" below the Form 8-K filing link. Summarize how the information is presented and what benefit MetLife hoped to provide its investors and other financial statement users.

    6. (Introductory) What is Regulation Fair Disclosure? Search on the SEC web site to find this answer and provide a reference to your source.

    7. (Advanced) Refer again to the MetLife SEC filing of Form 8-K. Why does the Metlife filing indicate in item 7.01 that the company is complying with Regulation FD by providing the earnings release covering results of operations and financial condition?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "MetLife Reports Loss After Website Snafu," by: Lauren Pollock and Leslie Scism, The Wall Street Journal, April 21, 2012 ---
    http://online.wsj.com/article/SB10001424052702303425504577355563837307548.html?mod=djem_jiewr_AC_domainid

    MetLife Inc. MET +1.39% posted a first-quarter shortfall on steeper derivatives losses, in results the life insurer released two weeks ahead of schedule after inadvertently posting some of the data on its website.

    Operating earnings, which exclude investment gains and losses, climbed in the period and topped estimates, though operating revenue, which also strips out some investment effects, grew more slowly than expected.

    MetLife, the biggest U.S. life insurer, reported its results earlier than planned after the company had learned that historical data posted Wednesday on the investor-relations section of its website "could be accessed in ways to make visible" the preliminary quarterly results. It discovered the snafu on Thursday.

    The company's shares fell 1.2% to $34.96 Friday. They have climbed 12% this year.

    MetLife posted a loss of $64 million, compared with a year-earlier profit of $877 million. On a per-share basis, which reflects the payment of preferred dividends, the company posted a loss of 9 cents, versus a profit of 66 cents. Operating earnings rose to $1.37 a share from $1.23. Operating revenue climbed 6.9% to $16.69 billion.

    Analysts polled by Thomson Reuters were looking for operating earnings of $1.25 a share and operating revenue of $16.72 billion. The better-than-expected operating results were aided by the stock market's strong showing, which lifted products such as variable annuities, said Morgan Stanley analyst Nigel Dally. International earnings were at "the upper-end" of the prior guidance range provided by the company, he said, mostly attributable to MetLife's Asian operations.

    Like its fellow insurers, MetLife uses derivatives to hedge a number of risks, including changes in interest rates and fluctuations in foreign currencies. Certain derivatives tend to produce losses in quarters when shares of MetLife and the broader market are rallying, and vice versa. In the most recent period, the company booked net derivative losses of $1.98 billion compared with a year-earlier derivative loss of $315 million.

    Analysts also applauded a sharp drop in MetLife's sales of variable annuities. While the investment products can be lucrative to insurers, they can be costly to hedge when interest rates are low and markets are volatile.

    John Nadel, an analyst at Sterne Agee, said MetLife seems to have its variable-annuity sales "under control."

    MetLife executives, led by chief executive Steven Kandarian, have said profits were likely to rise in 2012, as better results at its U.S. retirement-products business and its international operations offset the effects of sluggish economic growth.

    Continued in article

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


    How much voting power lies in shareholder hands?
    Teaching Case from The Wall Street Journal Accounting Weekly Review on April 27, 2012

    Memo to Citi Directors: Wake Up on Pay
    by: Francesco Guerrera
    Apr 24, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Executive Compensation, SEC, Securities and Exchange Commission

    SUMMARY: At Citigroup's annual meeting on April 17, 2012, shareholders voted not to support the company's executive compensation plan. The article is written by Francesco Guerrera, the WSJ's Money & Investing editor; this piece is an opinion item and students are asked to identify that fact. The related video specifically identifies the Citigroup executive pay proposal on which shareholders voted as bad "corporate governance" both for proposing that top management be given bonuses based on a low threshold of performance and for poorly explaining the reason behind that pay. Questions ask the students to access SEC filings of both the proxy statement filed prior to the annual meeting and the report of the results of the meeting.

    CLASSROOM APPLICATION: The article is useful in any class covering executive compensation and SEC disclosure in undergraduate or graduate financial accounting or auditing classes.

    QUESTIONS: 
    1. (Advanced) Access the Citigroup filing of its proxy statement for this annual meeting on Schedule 14a on March 8, 2012, available at http://www.sec.gov/Archives/edgar/data/831001/000119312512104047/0001193125-12-104047-index.htm. By reviewing the Table of Contents, identify the items that were planned for consideration at the annual meeting.

    2. (Advanced) Access the Citigroup filing with the SEC on Form 8-K on April 25, 2012 describing the outcome of its shareholder meeting on. http://www.sec.gov/Archives/edgar/data/831001/000114420412022937/v310009_8k.htm. What outcomes were reported to the SEC?

    3. (Introductory) Based on the discussion in the article, what was the most significant outcome of the Citigroup annual meeting?

    4. (Advanced) How does the result of this shareholder vote impact what Citigroup may pay its top executives? In your answer, define the term "corporate governance."

    5. (Introductory) Who is the author of this article? Do you feel that the author's opinion on this matter is expressed in the article? Support your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Memo to Citi Directors: Wake Up on Pay," by: Francesco Guerrera, The Wall Street Journal, April 24, 2012 ---
    http://online.wsj.com/article/SB10001424052702303592404577361762087563238.html?mod=djem_jiewr_AC_domainid

    Citigroup Inc.'s C +0.59% shareholders have spoken but is anybody listening?

    The rejection of Citi's compensation plan at last week's annual investor meeting is more than a stinging rebuke for its board and management.

    Citigroup Inc.'s C +0.59% shareholders have spoken but is anybody listening?

    The rejection of Citi's compensation plan at last week's annual investor meeting is more than a stinging rebuke for its board and management.

    Citigroup Inc.'s C +0.59% shareholders have spoken but is anybody listening?

    The rejection of Citi's compensation plan at last week's annual investor meeting is more than a stinging rebuke for its board and management.

    Sure, Mr. Pandit can share with Uncle Sam the credit for pulling Citi back from the brink.

    But Citi's shares are down more than 88% since he took over. The stock has underperformed not just healthier banks like J.P. Morgan Chase JPM +1.46% & Co. and Wells Fargo WFC +1.45% & Co. but also fellow problem child Bank of America Corp. BAC +0.12% And dividend increases and share buybacks for Citi have been halted by regulators, leaving shareholders with little to celebrate.

    This is no time for lucrative victory laps.

    If the pay bump is to compensate Mr. Pandit for two lean years, let's remember that the decision to take $1 in salary was his. And that he received at least $165 million in 2007 when Citigroup bought his hedge fund—only to wind it down 11 months later amid mediocre returns.

    The second argument is that, with the profit-sharing arrangement, Citigroup's directors sought to provide Mr. Pandit with "a financial incentive to remain as CEO."

    That's what Citi's blog says. What it really means is that, after years during which some regulators, directors and shareholders privately questioned Mr. Pandit's leadership of the company, the board of directors wanted to back him unequivocally.

    That's understandable but if directors are so confident in his ability, they should set much more demanding performance targets.

    Not once has the board explained how it arrived at the $12 billion figure or how it has calculated the profit shares of each executive.

    Mr. Parsons and fellow directors are at fault on this: They should have dealt with shareholders' concerns long before last week's embarrassing vote. Michael O'Neill, the banking veteran who replaced Mr. Parsons, will have to pick up the pieces.

    Mr. O'Neill, who will also head the board's compensation committee, should review the performance targets, discuss them with shareholders and then change them.

    My suggestion: Set relative metrics that compare Citigroup's profits to its peers; have more than one target, so different levels of performance are compensated differently; and make sure that the CEO's bonus is tied to more-demanding hurdles than his underlings.

    Continued in article

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

    Years of Creative Accounting by CitiGroup
    My all-time heroes Frank Partnoy and Lynn Turner contend that Wall Street bank accounting is an exercise in writing fiction: Watch the video! (a bit slow loading) Lynn Turner is Partnoy's co-author of the white paper "Make Markets Be Markets" "Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy, Roosevelt Institute, March 2010 --- http://makemarketsbemarkets.org/modals/report_off.php 

    Bob Jensen's threads on outrageous executive compensation ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation


    Case Illustration of ROI Issues
    Teaching Case from The Wall Street Journal Accounting Weekly Review on April 27, 2012

    Unilever Takes Palm Oil in Hand
    by: Paul Sonne
    Apr 24, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Assurance Services, Financial Accounting, Managerial Accounting, Nonfinancial performance measures, Supply Chains

    SUMMARY: "Unilever PLC is negotiating to build a $100 million palm-oil processing plant in Indonesia....which would make sustainable palm-kernel oil in Sumatra and turn out about 10% of Unilever's annual consumption....The company's new goal...is that within eight years all of the palm oil it buys will come from traceable sources that are certified as sustainable." The company currently supports its assessment that "about two-thirds of the palm oil it used last year" was sustainably produced by buying "803,000 GreenPalm certificates" in addition to sourcing 2% of its palm oil from traceable plantations. GreenPalm certificates are issued by the Roundtable on Sustainable Palm Oil, or RSPO, an organization comprising producers, buyers and environmental groups.

    CLASSROOM APPLICATION: Questions begin by addressing return on investment and whether all benefits that Unilever perceives from its investment in the Indonesian plant can be quantified. The article also is useful to discuss the development of private sector demand for auditing sustainability in business processes, just as private sector demand led to the auditing of financial statements.

    QUESTIONS: 
    1. (Introductory) Why is Unilever constructing a processing plant in Indonesia?

    2. (Advanced) What is return on investment? In general, what factors are considered in undertaking an ROI calculation?

    3. (Advanced) Consider Unilever's decision to invest in a new plant. Indicate the specific factors listed in the article that you think Unilever would include in an ROI analysis for this plant construction project. Can you quantify all of the factors? Explain.

    4. (Introductory) Consider the company's goal, within 8 years, to source all of its palm oil from "traceable sources that are certified as sustainable." How does Unilever currently identify the proportion of palm oil it obtains in this way?

    5. (Advanced) What audit functions are needed to satisfy demand by companies such as Unilever for sustainable sources of their products?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Unilever Takes Palm Oil in Hand," by: Paul Sonne, The Wall Street Journal, April 25, 2012 ---
    http://online.wsj.com/article/SB10001424052702303978104577362160223536388.html?mod=djem_jiewr_AC_domainid

    LONDON—Unilever UN -1.29% PLC is negotiating to build a $100 million palm-oil processing plant in Indonesia, an attempt to accelerate its commitment to sourcing the oil in ways that don't destroy the environment.

    Unilever is trying to more closely trace the source of the palm oil it uses at a time when the industry is falling short of goals to make extraction of the key ingredient less insidious. The harvesting of palm oil has become a hot-button environmental issue for the role it plays in deforestation in countries such as Indonesia and Malaysia, where rain forests have been cleared to make way for palm-oil plantations. In the process, orangutan, tiger and rhino habitats have been destroyed.

    Unilever is in advanced discussions with the Indonesian government to build the plant, which would make sustainable palm-kernel oil in Sumatra and turn out about 10% of Unilever's annual consumption. The company hopes to break ground on the plant later this year.

    The Anglo-Dutch company is the world's biggest consumer of palm oil, using 1.36 million tons of the ingredient a year to make products such as Dove soap, Magnum ice cream and Vaseline lotion.

    The company's new goal, which will be formally announced on Tuesday, is that within eight years all of the palm oil it buys will come from traceable sources that are certified as sustainable. Last year, only 27,000 tons, or about 2%, of the palm oil Unilever bought came from such sources.

    "I am not aware of anyone else who has made that commitment, particularly on our scale," says Marc Engel, Unilever's chief procurement officer.

    The thirst for palm oil is rapidly expanding, thanks to the widespread application of it and its derivatives in products ranging from cakes to lipsticks. Last year, the world consumed about 50 million tons of the oil, according to the World Wildlife Foundation. About five million to six million tons came from plantations certified as sustainable by the Roundtable on Sustainable Palm Oil, or RSPO, an organization comprising producers, buyers and environmental groups.

    It isn't easy for consumer-goods companies to figure out whether palm oil comes from an audited sustainable plantation. Processing plants often combine oil from sustainable plantations with nonsustainable oil in a vat, making the source of a final ingredient difficult to pinpoint. Unilever also employs palm oil in lots of different ways—often using derivatives of the oil rather than oil itself—making the supply chain even more complex.

    Mr. Engel compared it to crude oil. "When you actually want to know where the petrol in your car is coming from—from which oil well—it's very hard to see," he said.

    For that reason, the RSPO developed a system of GreenPalm certificates that companies such as Unilever can buy. The RSPO certifies plantations as sustainable and awards them one certificate per ton of palm oil they produce.

    Unilever considered about two-thirds of the palm oil it used last year sustainable, not because it actually came from traceable sources, but because it bought 803,000 GreenPalm certificates, plus the 27,000 tons of oil it bought from traceable plantations.

    This year, the company says it will match all the palm oil it doesn't buy from traceable plantations with certificates so it reaches a target of 100% certified sustainable palm oil, three years ahead of the 2015 deadline the company set in 2010.

    That, however, doesn't mean the palm-oil derivative in a bar of Dove soap or Magnum ice cream actually came from a sustainable palm-oil plantation.

    "In theory, all of the palm oil could be sustainable, or none of it could be," Mr. Engel says.

    He says that although the sustainable oil attached to the certificates may not have ended up in Unilever products, the company bought a certificate for a ton of palm oil "out there" that came from a sustainable plantation, helping shift the balance toward sustainable production.

    The certificate system has its critics, who say it allows companies to claim they are buying sustainable palm oil when they aren't.

    "A lot of people are hiding behind green certificates as if that's going to change the industry," says Alan Chaytor, executive director of New Britain Palm Oil Ltd., a Papua New Guinea-based producer that makes about 600,000 tons of sustainable palm oil a year.

    Continued in article

    Bob Jensen's threads on ROI and other ratios ---
    http://www.trinity.edu/rjensen/roi.htm


    Question
    Could something like this happen to expensive accountics science research programs in major universities like the University of Florida?\

    Hint:
    This probably means losing some of the Department's most expensive faculty who prefer research and minimal teaching loads (like one or two courses a year).

    "Protests Over Cuts to Computer Science at U. of Florida" Inside Higher Ed, April 20, 2012 ---
    http://www.insidehighered.com/quicktakes/2012/04/20/protests-over-cuts-computer-science-u-florida

    Students and others are protesting plans at the University of Florida to move research functions from the computer science department, allowing it to focus on teaching, The Gainesville Sun reported. Critics say that the plan will diminish the quality of the department, while university officials stress that they must save money to deal with erosion in budget support.
     

    Jensen Comment
    In many instances cutbacks have already taken place in the numbers of faculty devoted to accounting doctoral programs in the 21st Century compared with those doctoral programs decades ago. The largest accounting doctoral programs in the 1970s that graduated over 10 accounting PhDs per year have reduced their graduates to less than five a year and in some cases to one or two per year ---
    http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf

    Accoutics science faculty are the most expensive accounting faculty on campus in many instances and may be the first to go if policies like those of the University of Florida become more common in times of shrinking budgets. The result may be for some doctoral programs to seriously reconsider expanding the scope of their accountancy doctoral programs beyond accountics science ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

     



    "Business groups ask PCAOB to drop mandatory audit-firm rotation proposal," CFO Journal, April 20, 2012 ---
    http://blogs.wsj.com/cfo/2012/04/20/business-groups-forget-mandatory-auditor-rotation/tab/print/

    Bob Jensen's threads on audit firm rotation are at
    http://www.trinity.edu/rjensen/Fraud001c.htm
    Search on the word "rotation"


    "Online-Education Start-Up Teams With Top-Ranked Universities to Offer Free Courses," by Nick DeSantis, Chronicle of Higher Education, April 18, 2012 --- Click Here
    http://chronicle.com/blogs/wiredcampus/online-education-start-up-teams-with-top-ranked-universities-to-offer-free-courses/36048?sid=wc&utm_source=wc&utm_medium=en

     

    Bob Jensen's threads on free online courses, lectures, videos, tutorials, and course materials from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    Here is the 2011 1040 tax return of Barack ant Michelle Obama. The 20.5% tax rate is higher than the 15% rate of Mitt Romney. Both are well short of President Obama's proposed 30% tax rate ---
    http://www.whitehouse.gov/sites/default/files/president_obama_complete_return_2011.pdf

    Jensen Comment
    The Obama family could've reduced some of their taxes by investing more in the nations towns, counties, and school districts. TaxProf Paul Caron provides the following year-to-year comparisons:

    As John F. Kennedy put it in 1963 when he endorsed a cut in this tax: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital" as well as "the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy." Today's Democrats in Washington are no Jack Kennedys. As President Obama told Charlie Gibson of ABC News in 2008, whether or not a higher capital-gains tax raises more revenue is irrelevant to him. He wants a higher rate as a matter of "fairness.".
    "Obama's Revenue Soup: A History Lesson on Capital Gains Taxes:" The Wall Street Journal, April 9, 2012 ---
    http://online.wsj.com/article/SB10001424052970203918304577241513296604128.html?mod=djemEditorialPage_h
    Jensen Comment
    I might buy into the "fairness" argument if President Obama would also agree to index the cost basis of long-term capital gains for inflation before applying the higher rate. It's highly unfair, for example, to treat the cost of farm land purchased in 1945 that is sold in 2012 as if the 1945 dollars had the same purchasing power as 2012 dollars. For example, in 1945 you could buy a cup of coffee for a dime and an new Chevy for $1,200. Fairness demands that capital gains taxes be applied to costs and revenues having the same purchasing power.


    "The Buffett Tax Loss:  It turns out this Obama proposal will cost federal revenue," The Wall Street Journal, April 13, 2012 ---
    http://online.wsj.com/article/SB10001424052702304444604577341832674519416.html?mod=djemEditorialPage_t

    The case for the Buffett tax keeps eroding. When President Obama announced the idea, he said it would help "stabilize our debt and deficits over the next decade." Then came the inconvenient revelation that the new 30% millionaire's tax would raise only $46.7 billion over 10 years, and would leave about 99.5% of the deficit intact in 2013. It was a far cry from "stabilizing the debt."

    Now we learn that the Buffett tax the Senate is expected to vote on early next week will make the deficit worse. That's because both Mr. Obama and Senate Democrats have made it clear that their new "fairness" tax is to offset the revenue loss from another provision related to the Alternative Minimum Tax.

    That measure would exempt more than 20 million middle class Americans with incomes as low as $80,000 a year from getting nailed by the AMT. This year's Obama budget clearly describes their intent: "The Buffett Rule should replace the Alternative Minimum Tax, which now burdens middle-class Americans rather than stopping the richest Americans from paying too little as was originally intended."

    The Joint Tax Committee—the official scoring referee on tax bills—calculates that the combination of AMT repeal for the middle class and the Buffett tax would add $793.3 billion to the debt over the next decade. As Mr. Obama has said, "This isn't politics, this is math."

    The Buffett tax is losing any serious rationale by the day. Mr. Obama's position now is that we need a new fairness tax, because the old AMT fairness tax that was targeted at millionaires and billionaires isn't raising much money from the Warren Buffetts of the world. Instead it's siphoning income out of more and more nonmillionaires. So they argue it's time for a new Buffett rule, that is almost identical to the old Buffett rule, and no doubt in time will have the same unintended consequences.

    The Buffett rule itself may die, but the name will live on as a metaphor for pointless public policy.

     


    April 10, 2012 message from Eileen Taylor regarding her XBRL Project

    Hi Bob: Could you please post this to AECM for me? I seem to have trouble posting from my new gmail account.

    For those who are interested in using my XBRL project that was published in Issues in Accounting Education, but are having trouble because the SEC has removed the viewer link.

    Bowne, https://xbrlviewer.bowne.com/  offers a free, practically identical viewer.

    It even allows you to open several companies' financials at once, and do the charting.

    Eileen

    April 13, 2012 message from Louis Matherne

    Glen,

    I’m not sure which link you are referring to but all filings in the EDGAR system include a direct ‘interactive data’ link. 

    If you’re looking for a tool that supports comparative analysis, a good place to start is the XBRL US website – www.xbrl.us.

    As I think you know, XBRL US recently completed their first XBRL Challenge.  There were several excellent entries and you’ll find them listed here http://xbrl.us/research/Pages/challenge.aspx but you could start with the winner, Calcbench, which is a free tool for comparative and time series analysis using XBRL data.  Try it out here – www.calcbench.com.

    And while it requires membership to access, the XBRL US Consistency Suite (http://xbrl.us/research/pages/CSuite.aspx) is an excellent tool for mining XBRL filings to support analysis.  We use it daily.  XBRL US has a very reasonably priced academic membership - http://xbrl.us/membership/Pages/academic.aspx.

    Hope that helps.

    J. Louis Matherne
    Chief of Taxonomy Development
    Financial Accounting Standards Board

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


    Question
    What is the logical inconsistency of stands taken by standard setters regarding the role of auditors (and clients) regarding Going Concern qualitative evaluations and conclusions?

    "FASB makes decision on qualitative going-concern disclosures," by Ken Tysiac, Journal of Accountancy,April 12, 2012 ---
    http://journalofaccountancy.com/Web/20125488.htm

    Jensen Comment
    The logical inconsistency is that IFRS and FASB standards are intended only for firms assessed qualitatively to be going concerns. These standards do not apply to firms that auditors qualitatively judge to be non-going concerns. Hence, the conclusion is that whenever IFRS or FASB standards are applied the auditors are declaring to the public that their client is a going concern.

    The bottom line is that criticisms that over a thousand failed U.S, banks received no going concern qualifications before they failed shortly after 2006. Don't expect any better going concern evaluations by auditors after these milk toast standards are put in place in 2012.

    This is analogous to putting a work harness on a dying horse that's too sick to stand up.

    In the economic collapse in the subprime mortgage scandals where were the auditors ---
    http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms


    Bending the IFRS Rules?
    The International Accounting Standards Board plans to establish a formal network to give standard-setting bodies a voice when their countries switch to International Financial Reporting Standards. There is conflict, however, over how the network will operate and whether it would dilute IFRS as a single set of reporting standards. Advocates of such a network say the U.S. will not commit to IFRS without it.

    AICPA Newsletter when linking to the article below

    "Long push for new accounting standards," by Huw Jones, The Star, April 29, 2012 ---
    http://thestar.com.my/news/story.asp?file=/2012/4/29/nation/11193657&sec=nation

    The United States is seen to be dragging its feet in deciding to come on board.

    SHAREHOLDERS and regulators have long wanted the “holy grail” of a single set of reporting standards as a bedrock for comparing performance and value of companies across the world but US reluctance means this goal is still a distant prospect.

    US conditions for backing a common accounting language look likely to leave investors having to pick apart local rules and regulations as they scour global markets for havens in which to put their money.

    The International Accounting Standards Board (IASB), whose guidelines are used in more than 100 countries mainly in Asia and Europe, and the US Financial Accounting Standards Board (FASB) have been locked in talks to align their rules for years.

    The work has become bogged down in technical debates and pressure from auditors such as KPMG, PwC, Deloitte and Ernst & Young to take time to get it right, but policymakers are losing patience as investors are left waiting.

    Finance ministers from the world's top 20 economies (G20) gave the two rule-setters an ultimatum recently, saying they must finish alignment by mid-2013 “at the latest”, 30 months after the original G20 deadline.

    “The delay is pretty hard to fathom for outsiders like politicians and regulators,” said Nigel Sleigh-Johnson, head of the financial reporting faculty at international accounting body ICAEW (Institute of Chartered Accountants in England and Wales).

    Much is at stake, with the United States playing a central role. Successful alignment is essential for the US to decide whether to adopt IASB rules outright. This would in turn reassure Japan, India, Singapore and China to fully commit to IASB rules as well and create a truly common accounting language for investors.

    But the US has repeatedly delayed its adoption decision as alignment drags on and may now be tempted to push it back further, raising concern that momentum risks fizzling out.

    The issue is politically sensitive, with US Congress leery of handing sovereignty in accounting to a body in London.

    “Will the Securities and Exchange Commission take any action prior to the presidential elections in November? The indications coming out of the SEC is that they want to move to International Financial Reporting Standards cautiously,” said Ed Nusbaum, chief executive of Grant Thornton auditing firm and a member of FASB's oversight foundation.

    Industry officials close to the IASB still expect the SEC to publish proposals on adoption in the coming months, though a final vote by SEC commissioners could take longer.

    Bits and pieces

    To coax the Americans on board, the IASB is setting up a formal network this year to give local standard setters like FASB a voice after their country switches to IASB standards known as the IFRS (International Financial Reporting Standards). But tension is emerging over how such a network will operate and whether countries should have leeway in implementing rules locally and risk muddying the picture for global investors as a price for adopting IASB rules.

    Some fear local wriggle room would dilute the benefits of a single accounting language while others say the US and others simply won't commit to IASB rules without it.

    “If it's just a matter of providing input, then that will not be sufficient. It needs to be involvement in designing and ratifying standards to the point where ratification at the national level can end up with modifications,” Nusbaum said.

    Full carve-outs or exemptions from IASB rules would be a “mistake” but the model used in the EU of simply ratifying a new rule without possible local tweaks will not do, Nusbaum said.

    “I think it's a battle to come but if you get the United States on board then it's over, you have a global set of standards. If they don't come on board, you run the constant risk of it all falling apart,” Nusbaum said.

    Even if the US does commit itself to IASB rules, it may adopt each rule individually over time, still making it hard for investors to compare transatlantic companies.

    “Let's take this a step further, maybe ratify the whole thing or bits and pieces,” said Nusbaum, who has been a sceptic on IFRS.

    SEC chief accountant James Kroeker said in February the planned network must be able to deal with remaining differences between national and IASB rules after adoption.

    “It does leave open the possibility that there are some areas where we will have to continue over time to narrow the differences,” Kroeker has said.

    The IASB wants the network to focus on applying the rules in the same way.

    “The trustees' strategy review describes various initiatives to ensure consistent application of the IFRS internationally, including the deepening cooperation with national and regional bodies involved in accounting standard-setting,” an IASB spokesman said.

    India too

    A senior European accounting policymaker said the US would only adopt IFRS if it would have room for local tweaks and that the IASB might be ready to accept this in return for becoming the global rule-setter.

    “The IASB trustees are very keen on preserving their brand and want to look more closely at consistent application, but if this is a price to pay to get the US on board then they will be ready to pay it,” the policymaker added.

    India is also keen on having local freedom.

    “India sees a series of carve-outs as being necessary so they can adopt the IFRS. We are still hopeful we will talk them out of that,” said Kevin Stevenson, chairman of the Australian Accounting Standards Board and of the Asian-Oceanian Standard-Setters Group (AOSSG).

    “Our attitude has to be to put all the heavy working into getting the standard into the shape you want before it's issued and not fiddling with it after it's issued.

    “I don't think FASB has a strong hand to be holding out but if the IASB is wise, it has to keep them in touching distance and part of the family.”

    Liz Murrall, director of company reporting at Britain's Investment Management Association, an investor body, said the IASB should concentrate on setting high quality standards.

    “When setting standards then yes, you liaise heavily to see what is acceptable, but if you start to have carve-outs and national tweaks then the IASB would have not achieved its objective and comparability would be lost,” said Murrall, who is also a member of the IASB's advisory council.

    ICAEW's Sleigh-Johnson said there was no way of stopping some “national tweaks” but there should be a commitment to keep them to an absolute minimum or else the benefits of having a global accounting language would be lost.

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


    "Islamic finance - the social paradigm," Financial Times, April 16, 2012 --- Click Here
    http://www.ftseglobalmarkets.com/index.php?option=com_k2&view=item&id=3243:islamic-finance-the-social-paradigm&Itemid=54
    Thank you to a practitioner on the AECM for the heads up.

    The genie out of a modern day bottle is the first home purchase plan approved by the Financial Services Authority (FSA) for the mainstream UK market, rather than a specialised market. It demonstrates that the religious principles underlying Islamic products are relevant in the ethical and social finance marketplace; that Islamic principles can inspire and enhance the finance products being developed to meet these challenging times in the residential domestic market. Natalie Elphicke, head of structured housing finance, partner, international law firm Stephenson Harwood gives her take on the application of Shari’a principles to ethically-charged social housing and the investment opportunities that arise from it.

    Risk sharing, not profiting unjustly or unfairly, not charging excessive charges; in a residential purchase context, allowing part rent, part purchase, sharing equity upside, sharing downside property risks. These characteristics apply equally to an approved Islamic home finance plan as they do to a new conventional purchase plan designed for a housing association in the north east of England.

    What does this matter? For many years it has been felt that Western finance constructs have been squeezed and shaped to meet the requirements of the fatwa (approval) for Islamic finance. One result of this has been an understandable reluctance to provide an Islamic checklist to those structured financiers who specialise in dressing a product to fit a market, rather than perhaps understanding and applying the underlying intentions and principles. The desire to conform to those Islamic standards is being driven by a desire to access a rich seam of devout consumers prepared to pay a premium for compliance, and to harness rich Islamic investment funds, rather than shape and deliver products or investments which enhance and develop the lives of Muslims within their beliefs and philosophy.

    The tide is turning. In ethical and social investment arenas there is significant interest in three areas of Islamic finance: Ijara, Musharaka and Mudaraba. Musharaka is the basis for property transactions which allow shared equity participation within a trust holding, providing much more flexibility to manage changes in lifestyle and more fairly share market rises and falls in residential property over a longer period of time. This can provide a much more transparent and fairer approach than Western style 100% mortgage finance or the more limited traditional shared ownership structures.

    There are similarities between partnership finance structures of Mudaraba, and ljara leases. In the former, some people provide labour and others money, in a plethora of 'Big Society' style co-operatives and social enterprises, bringing together those who work, and give their 'sweat equity'. Then there are those who provide funding and those who share in a financial loss/gain Ijara- based lease-purchase contracts, which can offer a fairer sort of hire-and hire-purchase arrangement of equipment, such as washing machines and other household appliances.

    If there is an interest from ethical and social residential property to engage with and be inspired by Islamic based principles, how interested are Islamic funds in residential property, especially student, affordable or social housing?

    The evidence is mixed. There is also anecdotal evidence of a tightening of conditions for investment funding to reflect wider, purposive beliefs of Islamic funds. One such interesting example is the financing of student halls of residence. The usual student bar and pool table on the ground floor is being replaced by a coffee bar, with a restrictive covenant on the space becoming licensed, as a condition to access to that investment funding.

    Housing associations have started dialogues with Islamic funds which have financed other UK core infrastructure and utilities, such as ports and airports, water and electricity. Social housing can offer a solid investment yield. Not racy but solid and responsible, reflecting the core values of a mature residential regulated housing industry worth around £100bn.

    Continued in article

    "AAOIFI in wide review of Islamic finance standards," by Bernardo Vizcaino, Reuters, April 29, 2012 ---
    http://www.reuters.com/article/2012/04/29/us-islamic-finance-regulation-idUSBRE83S04A20120429

    Islamic finance may face its biggest shake-up in years as a top standard-setting body seeks to reform the way the industry does business, including the role of highly paid scholars in enforcing religious principles.

    Khaled Al Fakih, the new secretary-general of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), outlined plans for a sweeping review of its guidelines in an interview with Reuters.

    Some of AAOIFI's reforms may prove controversial by challenging entrenched interests in the fast-growing business. Islamic financial assets hit $1.3 trillion globally last year, a 150 percent rise in the past five years as the industry expanded beyond core markets in the Middle East and Malaysia, financial lobby group TheCityUK estimates.

    "We would like to see insightful debate...that can help us develop standards that can benefit the industry," Fakih said by email from Bahrain, ahead of AAOIFI's annual meeting there on May 7 and 8.

    His organization plans to start consultations on reforming the operations of sharia boards, the groups of Islamic scholars which rule on whether financial institutions' activities and products are religiously acceptable, by the middle of this year. A final draft of the reforms is not expected to be ready before the end of next year at the earliest.

    AAOIFI will also work on a new framework for disclosing financial data, and will look at revising standards for takaful (Islamic insurance), investment accounts and other products.

    Fakih, a Lebanese-born commercial banker who took over at AAOIFI in February, said basic elements of Islamic finance such as murabaha, mudaraba and ijara - structures designed to permit investment while obeying religious bans on paying interest and pure monetary speculation - would be reviewed next year.

    CONTROVERSY

    For many in the industry, AAOIFI's review cannot come too soon. Although far smaller than conventional banking, which has tens of trillions of dollars of assets, Islamic finance has grown much more quickly in the last few years, so its flaws could start to affect banking systems and economies.

    Much of its growth has occurred because it can count on the support of large pools of sharia-compliant funds in the booming Gulf and southeast Asia, which have not pulled back during the global financial crisis as Western funds have.

    Last year's Arab Spring uprisings in the Middle East promise a fresh wave of growth; new, Islamist-led governments want to promote the industry after their authoritarian predecessors discouraged it for ideological reasons.

    But the growth has exposed weaknesses in Islamic finance. One is the lack of a clear consensus on what products and procedures are permissible; the sharia boards of individual banks and investment firms can issue conflicting rulings.

    This can create big controversies. When Goldman Sachs (GS.N) announced last October that it planned a $2 billion sukuk issue, which would make it one of the first top Western banks to raise money in that way, its own sharia advisors approved the plan. But some other scholars criticized it; six months later, the sukuk has not been issued and it is not clear when it might be.

    The sharia board system is open to accusations of conflict of interest because scholars are paid handsomely - in some cases, with hourly fees of $1,000 or more - by the very firms whose behavior they are supervising.

    The ambiguity in regulation has let some Islamic financial institutions, such as Kuwait's Investment Dar, argue in court that contracts into which they had entered were not valid because they were not sharia-compliant in the first place.

    AAOIFI plans to improve the operations of sharia boards by strengthening the certification process for scholars, Fakih said. The organisation currently offers scholars two professional credentials, but they have been criticized as not sufficiently rigorous and too easy to obtain.

    In addition, AAOIFI is developing new guidance on the relationship between Islamic financial firms and their sharia boards, "similar to international best practices on terms of reference for financial institutions' board of directors".

    One way to reduce conflicts of interest might be to limit the length of scholars' tenure at individual firms, to prevent them from forming excessively close relationships with their employers that might compromise their objectivity. However, Fakih did not mention this idea. Current AAOIFI standards acknowledge "engagement over a prolonged period of time may pose a threat to independence", but do not prescribe specific limits.

    AAOIFI will also look at ways of fostering the rise of a new, younger generation of Islamic scholars, through steps such as training courses, Fakih said. This could remove a bottleneck to growth in the industry by loosening the dominance of about two dozen veteran scholars who have practiced for decades and hold multiple board positions.

    RESISTANCE

    It is not yet clear whether reformers in AAOIFI will be able to push through changes over the potential opposition of many veteran scholars and financiers who profit from the status quo.

    Yasser Dalhawi, chief executive of Syariah Review Bureau, an Islamic finance advisory firm in Saudi Arabia, said change would be difficult. But he added that many people in the wider industry would support change as a way of ensuring growth and bringing Islamic finance closer to its religious principles.

    A survey of customers' attitudes to sharia boards, conducted a few years ago by a Gulf financial firm, found widespread dissatisfaction which was expressed in some cases with expletives, one prominent scholar told Reuters, declining to be named because of the sensitivity of the issue.

    To balance opposition to change within AAOIFI, Fakih seems to want to involve the widest possible range of industry interests in the debate; he called for "rigorous and meaningful discussions...not only among scholars but also with all participants of Islamic finance."

    Continued in article

    Bob Jensen's threads on Islamic finance and accoutning ---
    http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting

     


    A Rose by Any Name
    Islamic (Co-Ownership) Home Finance --- http://guidanceresidential.com/how-it-works


    Derivative deals done using a unique Spot/Spot commodity trading mechanism, which is fully compliant with Islamic Sharia principles ---
    http://www.ameinfo.com/100675.html


    "Islamic Accounting: Challenges, Opportunities and Terror," AccountingWeb, October 5, 2006 ---
    http://www.accountingweb.com/cgi-bin/item.cgi?id=102651

    Recent events, from the start of Ramadan, to the Pope’s controversial remarks about Islam, to the discovery of a new tape by two of the September 11 attackers, to the release of Bob Woodward’s latest book, have once more made Islam a topic of conversation. Beyond the headlines, however, exists a complex religious and social system that affects far more people than just Muslims. Islamic finance, particularly Islamic banking, insurance and accounting, is playing a growing role around the globe, especially in the business world.

    Islamic accounting is generally defined as an alternative accounting system which aims to provide users with information enabling them to operate businesses and organizations according to Shariah, or Islamic law. With little doubt, the greatest challenges to Islamic accounting and finance in the United States stem from a lack of knowledge and understanding of Islam and the intricacies of its financial laws and concerns regarding terrorism, combined with the U.S. regulatory framework and guiding principles of American business. The Muslim and Islamic financial markets within the U.S. and around the world, currently represent an enormous opportunity for those willing to overcome these challenges.

    Islam & Islamic Financial Laws

    “To professional accountants who have been brought-up on the idea of accounting as an ‘objective’, technical and value-free discipline, the idea of attaching a religious adjective to accounting may seem embarrassing, unprofessional and even dangerous,” Dr. Shahul Hameed bin Mohamed Ibrahim says in Islamic Accounting – A Primer.

    Both conventional and Islamic accounting provide information and define how that information is measured, valued, recorded and communicated. Conventional accounting provides information about economic events and transactions, measuring resources in terms of assets and liabilities, and communicating that information through financial statements users, typically investors, rely on to make decisions regarding their investments. Islamic accounting, however, identifies socio-economic events and transactions measured in both financial and non-financial terms and the information is used to ensure Islamic organizations of all types adhere to Shariah and achieve the socio-economic objectives promoted by Islam. This is not to say, or imply, Islamic accounting is not concerned with money, rather it is not concerned only with money.

    Islamic accounting, in many ways, is more holistic. Shariah prohibits interest-based income or usury and also gambling, so part of what Islamic accounting does is help ensure companies do not harm others while making money and achieve an equitable allocation and distribution of wealth, not just among shareholders of a specific corporation but also among society in general. Of course, as with conventional accounting, this is not always achieved in practice, as an examination of the wide variances in wealth among the populations of Arab nations, particularly those with majority Muslim populations shows.

    In addition, because a significant part of operating within Shariah means delivering on Islam’s socio-economic objectives, Islamic organizations have far wider interests and engage in more diverse activities than their non-Islamic counterparts.

    Concerns About Terrorism

    The diverse activities and interests organizations pursue under Shariah is a cause for concern when applying conventional accounting to Islamic organizations. After all, conventional accounting can be used to disguise unethical and even illegal activities within the very organizations they were intended to provide information about. Imagine how easy it is to overlook or just not identify such information when employing an accounting system not designed for use with the type of organization it is being applied to.

    In the past, the issues raised by this mismatch focused on the ability of users beyond the Muslim world to make appropriate decisions regarding investments. Since September 11, 2001, however, the concern has changed from the potential loss of investment to the possibility of supporting terrorism.

    This concern is particularly significant for non-profit organizations involved in providing humanitarian relief outside the U.S.. Fortunately, the U.S. Department of the Treasury (DoT) has issued updated Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-based Charities (Guidelines).

    “The abuse of charities by terrorist organizations is a serious and urgent matter, and the Guidelines reinforce the need for the U.S. Government and the charitable sector alike, to keep this challenge at the forefront of our complementary efforts,” Pat O’Brien, Assistant Secretary for the Treasury’s Office of Terrorist Financing and Financial Crime, said in a statement announcing the updated guidelines. The Treasury Department is committed to protecting and enabling legitimate and vital charity worldwide, and will continue to work with the sector to advance our mutual goals.”

    The Guidelines urge charities to take a proactive, risk-based approach to protecting against illicit abuse and are intended to be applied by those charities vulnerable to such abuse, in a manner commensurate with the risks they face and the resources with which they work. At the request of the charitable sector, the Guidelines contain extensive anti-terrorist financing guidance, as well as guidance on sound governance and financial practices that helps prevent the exploitation of charities.

    Regulatory Issues

    The regulatory environment Islamic individuals and organizations are most concerned with, considering the current political climate, are those relating to anti-terrorism and anti-money laundering. Yet the tensions arising from regulatory requirements within the U.S. related to American business practices often prove more difficult to resolve.

    It is in trying to balance the expectations of distinct business cultures that the differences between conventional and Islamic accounting are most notable. For instance, depending upon the type of transactions the organizations are engaged in, the roles, responsibilities and rights assigned to each party can be contradictory and even in direct conflict. In some situations, such as transactions involving private equity, venture capital, profit sharing and liquidations, organizations and individuals employing conventional accounting may actually find they prefer Islamic accounting. Other issues, such as those related to taxation, require significant effort to resolve. The inherent flexibility of Shariah is a benefit under these circumstances, since the complexity of the American tax code is highly inflexible.

    The number of Muslim consumers, investors and business owners has grown along with the Muslim American population which is currently estimated to be between six and seven million. Although demand for Islamic financial products and services has increased, both the supply and the number of providers remain insufficient. It should also be noted that Islamic orthodoxy, expressed as the desire to implement Shariah as the sole legal foundation of a nation, is actually associated with progressive economic principles, including increasing government for the poor, reducing income inequality and increasing government ownership of industries and industries, especially in the poorer nations of the Muslim world.

    “While it is common to associate traditional religious beliefs with conservative political stances on a wide range of issues, this is only partly true,” said Robert V. Robinson, Chancellor’s Professor and chair of Indiana University’s Department of Sociology. “The Islamic orthodox are more conservative on issues having to do with gender, sexuality and the family, but more liberal or left on economic issues.

    Islamic Accounting Web --- http://www.iiu.edu.my/iaw/

    The Islamic Accounting Website is a project of the Department of Accounting, Kulliyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur. This project is under the direction of Dr. Shahul Hameed bin Mohamed Ibrahim, Assistant Professor and the current Head of the Department. The philosophy of the University is to Islamize knowledge to solve the crisis in Muslim thinking brought about by the secularization of knowledge and furthermore contributing as a centre of educational excellence to revive the dynamism of the Muslim Ummah in knowledge, learning and the professions. The Department of Accounting is fully committed to this vision and strives to Islamicise Accounting.

    "ISLAMIC ACCOUNTING STANDARDS," by Shadia Rahman --- http://islamic-finance.net/islamic-accounting/acctg5.html

    Sharing site of Dr Shahul Hameed Bin Hj Mohamed Ibrahim --- http://islamic-finance.net/islamic-accounting/

    articles by the author

     

    articles by other scholars

     

    "Islamic Accounting," IAS Plus, January 3, 2011  --- http://www.iasplus.com/islamicfinance/islamicaccounting.htm

    Accounting Standards for financial reporting by Islamic financial institutions have to be developed because in some cases Islamic financial institutions encounter accounting problems because the existing accounting standards such as IFRSs or local GAAP were developed based on conventional institutions, conventional product structures or practices, and may be perceived to be insufficient to account for and report Islamic financial transactions. Shariah compliant transactions that observe the prohibition to charge interest may not have parallels in conventional financing and therefore, there may be significant accounting implications. Likewise, the Islamic finance industry is under considerable pressure to enhance practice and improve risk management systems and protect investors.

    On this page, we maintain a history of recent developments in Islamic accounting requirements and practices.

     

    Bob Jensen's threads on Islamic and Social Responsibility Accounting ---
    http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting


    "Paying Peter More Than Paul," by Mitch Smith, Inside Higher Ed, April 13, 2012 ---
     http://www.insidehighered.com/news/2012/04/13/some-staff-upset-after-kenyon-gives-higher-raises-faculty

    Jensen Comment
    At the senior faculty level moving to a higher paying universities probably has more considerations than for younger faculty. One of those considerations is whether "higher paying" also means the possibility of pay raise caps in the future under what Professor Obama might call "fairness."

    Consider the following scenario. Suppose all ten faculty in Department D are paid $10,000 per year. A philanthropist gratefully donates enough money to pay for Professor X to join the Department D faculty for $20,000 per year. After a year Department D is given 10% for pay raises. Suppose the ten faculty members receive $1,000 each whereas Professor X receives $2,000. Then in the following year, when Department D is given another 10% to allocate in pay raises, each of the ten faculty members receives a $1,100 bump in pay whereas Professor X receives a bump of $2,200. Continuing this pattern on year after year in the future leads to an increasing gap between what Professor X earns versus what her ten colleagues earn.

    Under these circumstances it becomes tempting to eventually cap Professor X pay percentage raises in some manner to reduce the widening gap in pay within the university.

    When I moved to Trinity University I was one of the two highest paid faculty members on campus. I was also given a five year summer research stipend of 20%  guaranteed for five years. However, even under those conditions I worried that my long-term future pay raises might be capped due to the possibility of widening the gap between my salary and what my colleagues were paid. Hence, it was also written into my contract that a cap would not be placed on my percentage of pay increases solely because of my salary level. To my satisfaction, Trinity more than honored its commitment to not cap my pay raise percentage over the next 24 years. Of course in those years, economic times were better and pay raises for all faculty were more substantial than they are in these troubled economic times. However, they were less than 10% each year except for a couple of very surprisingly good years.

    The thing to remember about pay raises as opposed to bonuses and summer stipends is that they generally are permanent annuities rather than single-year cash flows. This makes administrators think more carefully about the size of a raise as opposed to the size of a one-shot bonus.

    Bob Jensen's threads on higher education controversies are at
    http://www.trinity.edu/rjensen/HigherEdControversies.htm


    KPMG Foundation's Minority PhD Project --- http://www.phdproject.org/index.asp

    The PhD Project

    The mission of The PhD Project is "to increase the diversity of business school faculty by attracting African-Americans, Hispanic-Americans, and Native Americans to business doctoral programs and providing a network of support during their doctoral programs."

    In pursuit of its mission and objectives, The PhD Project reaches out to bright, highly motivated minority individuals, encouraging them to consider doctoral studies in business and careers as business professors. KPMG Foundation is the founder, lead sponsor, and administrator of The PhD Project.

    Since its inception in 1994, the Project has tripled the number of minority business professors.

    The PhD Project Doctoral Students Associations (DSAs) help sustain a high level of commitment and sense of connection among minority doctoral students in business through networking, joint research opportunities, peer support, and mentoring. As a result, 92 percent of DSA members have completed or are continuing in their doctoral programs, compared with 70 percent among doctoral candidates generally. AACSB International reports that 67 percent of those who earn business doctorates are in teaching positions. For The PhD Project, that number is an astounding 99 percent!

    For more information about The PhD Project and its Doctoral Students Associations, visit www.phdproject.org.

    FAQs --- http://www.phdproject.org/faqs.html

    Jensen Comment
    10 new scholarships of $10,000 each were awarded 2011-2012. All such scholarships are renewable for five years plus there is various types of customized support available to students with needs such as travel funding. 40 recipients are currently in the pipeline on scholarship. The Foundation has funded 297 schlarships to minority doctoral students since the first five were awarded in 1993.

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


    "12 Deadly Grammatical Errors Startups Must Avoid," by Joe Brockmeier, ReadWriteWeb, April 16, 2012 ---
    http://www.readwriteweb.com/start/2012/04/the-dirty-dozen-grammatical-er.php

    Jensen Comment
    I've known these rules since high school. But in retirement on the AECM when I'm typing on the fly without proof reading I will commit most of these errors at times because my brain on the fly thinks phonetically.

    You might note some of the interesting links provided in the comments following the above article.

    I added the above link to the Writing Forum on the AAA Commons ---
    http://commons.aaahq.org/posts/c5fdcaace5


    Accountics science is defined at http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
     Also see http://www.trinity.edu/rjensen/TheoryTAR.htm

    Unlike real scientists, accountics scientists seldom replicate published accountics science research by the exacting standards real science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Replication

    It's also relatively uncommon for accountics scientists to criticize each others' published works. A notable exception is as follows:
    "Selection Models in Accounting Research," by Clive S. Lennox, Jere R. Francis, and Zitian Wang,  The Accounting Review, March 2012, Vol. 87, No. 2, pp. 589-616.

    This study explains the challenges associated with the Heckman (1979) procedure to control for selection bias, assesses the quality of its application in accounting research, and offers guidance for better implementation of selection models. A survey of 75 recent accounting articles in leading journals reveals that many researchers implement the technique in a mechanical way with relatively little appreciation of important econometric issues and problems surrounding its use. Using empirical examples motivated by prior research, we illustrate that selection models are fragile and can yield quite literally any possible outcome in response to fairly minor changes in model specification. We conclude with guidance on how researchers can better implement selection models that will provide more convincing evidence on potential selection bias, including the need to justify model specifications and careful sensitivity analyses with respect to robustness and multicollinearity.

    . . .

    In addition this paper has presents a replication of a previously published study --- pp. 603-609

    . . .

    CONCLUSIONS

    Our review of the accounting literature indicates that some studies have implemented the selection model in a questionable manner. Accounting researchers often impose ad hoc exclusion restrictions or no exclusion restrictions whatsoever. Using empirical examples and a replication of a published study, we demonstrate that such practices can yield results that are too fragile to be considered reliable. In our empirical examples, a researcher could obtain quite literally any outcome by making relatively minor and apparently innocuous changes to the set of exclusionary variables, including choosing a null set. One set of exclusion restrictions would lead the researcher to conclude that selection bias is a significant problem, while an alternative set involving rather minor changes would give the opposite conclusion. Thus, claims about the existence and direction of selection bias can be sensitive to the researcher's set of exclusion restrictions.

    Our examples also illustrate that the selection model is vulnerable to high levels of multicollinearity, which can exacerbate the bias that arises when a model is misspecified (Thursby 1988). Moreover, the potential for misspecification is high in the selection model because inferences about the existence and direction of selection bias depend entirely on the researcher's assumptions about the appropriate functional form and exclusion restrictions. In addition, high multicollinearity means that the statistical insignificance of the inverse Mills' ratio is not a reliable guide as to the absence of selection bias. Even when the inverse Mills' ratio is statistically insignificant, inferences from the selection model can be different from those obtained without the inverse Mills' ratio. In this situation, the selection model indicates that it is legitimate to omit the inverse Mills' ratio, and yet, omitting the inverse Mills' ratio gives different inferences for the treatment variable because multicollinearity is then much lower.

    In short, researchers are faced with the following trade-off. On the one hand, selection models can be fragile and suffer from multicollinearity problems, which hinder their reliability. On the other hand, the selection model potentially provides more reliable inferences by controlling for endogeneity bias if the researcher can find good exclusion restrictions, and if the models are found to be robust to minor specification changes. The importance of these advantages and disadvantages depends on the specific empirical setting, so it would be inappropriate for us to make a general statement about when the selection model should be used. Instead, researchers need to critically appraise the quality of their exclusion restrictions and assess whether there are problems of fragility and multicollinearity in their specific empirical setting that might limit the effectiveness of selection models relative to OLS.

    Another way to control for unobservable factors that are correlated with the endogenous regressor (D) is to use panel data. Though it may be true that many unobservable factors impact the choice of D, as long as those unobservable characteristics remain constant during the period of study, they can be controlled for using a fixed effects research design. In this case, panel data tests that control for unobserved differences between the treatment group (D = 1) and the control group (D = 0) will eliminate the potential bias caused by endogeneity as long as the unobserved source of the endogeneity is time-invariant (e.g., Baltagi 1995; Meyer 1995; Bertrand et al. 2004). The advantages of such a difference-in-differences research design are well recognized by accounting researchers (e.g., Altamuro et al. 2005; Desai et al. 2006; Hail and Leuz 2009; Hanlon et al. 2008). As a caveat, however, we note that the time-invariance of unobservables is a strong assumption that cannot be empirically validated. Moreover, the standard errors in such panel data tests need to be corrected for serial correlation because otherwise there is a danger of over-rejecting the null hypothesis that D has no effect on Y (Bertrand et al. 2004).10

    Finally, we note that there is a recent trend in the accounting literature to use samples that are matched based on their propensity scores (e.g., Armstrong et al. 2010; Lawrence et al. 2011). An advantage of propensity score matching (PSM) is that there is no MILLS variable and so the researcher is not required to find valid Z variables (Heckman et al. 1997; Heckman and Navarro-Lozano 2004). However, such matching has two important limitations. First, selection is assumed to occur only on observable characteristics. That is, the error term in the first stage model is correlated with the independent variables in the second stage (i.e., u is correlated with X and/or Z), but there is no selection on unobservables (i.e., u and υ are uncorrelated). In contrast, the purpose of the selection model is to control for endogeneity that arises from unobservables (i.e., the correlation between u and υ). Therefore, propensity score matching should not be viewed as a replacement for the selection model (Tucker 2010).

    A second limitation arises if the treatment variable affects the company's matching attributes. For example, suppose that a company's choice of auditor affects its subsequent ability to raise external capital. This would mean that companies with higher quality auditors would grow faster. Suppose also that the company's characteristics at the time the auditor is first chosen cannot be observed. Instead, we match at some stacked calendar time where some companies have been using the same auditor for 20 years and others for not very long. Then, if we matched on company size, we would be throwing out the companies that have become large because they have benefited from high-quality audits. Such companies do not look like suitable “matches,” insofar as they are much larger than the companies in the control group that have low-quality auditors. In this situation, propensity matching could bias toward a non-result because the treatment variable (auditor choice) affects the company's matching attributes (e.g., its size). It is beyond the scope of this study to provide a more thorough assessment of the advantages and disadvantages of propensity score matching in accounting applications, so we leave this important issue to future research.

    April 11, 2012 reply by Steve Kachelmeier

    Thank you for acknowledging this Bob.  I've tried to offer other
    examples of critical replications before, so it is refreshing to see you
    identify one.  I agree that the Lennox et al. (2012) article is a great
    example of the type of thing for which you have long been calling, and
    I was proud to have been the accepting editor on their article.
    Steve Kachelmeier

    April 11, 2011 reply by Bob Jensen

    Hi Steve

    I really do hate to be negative so often, but even in the excellent Lennox et al. study I have one complaint to raise about the purpose of the replication. In real science, the purpose of most replications is driven out of interest in the conclusions (findings) more than the methods or techniques. The main purpose of the Lennox et al. study was more one of validating model robustness rather than the findings themselves which are validated more or less incidentally to the main purpose.

    Respectfully,
    Bob Jensen

    April 12, 2012 reply by Steve Kachelmeier

    Fair enough Bob. But those other examples exist also, and one immediately came to mind as I read your reply. Perhaps at some point you really ought to take a look at Shaw and Zhang, "Is CEO Cash Compensation Punished for Poor Firm Performance?" The Accounting Review, May 2010. It's an example I've raised before. Perhaps there are not as many of these as there should be, but they do exist, and in greater frequency than you acknowledge.

    Best,
    Steve

    April 12, 2011 reply by Bob Jensen

    Firstly,

    Firstly, I might note that in the past you and I have differed as to what constitutes "replication research" in science. I stick by my definitions.---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Replication

    In your previous reply you drew our attention to the following article:
    "Is CEO Cash Compensation Punished for Poor Firm Performance?" by Kenneth W. Shaw and May H. Zhang, The Accounting Review, May 2010 ---
    http://aaajournals.org/doi/pdf/10.2308/accr.2010.85.3.1065

    ABSTRACT:
    Leone et al. (2006) conclude that CEO cash compensation is more sensitive to negative stock returns than to positive stock returns, due to Boards of Directors enforcing an ex post settling up on CEOs. Dechow (2006) conjectures that Leone et al.’s 2006 results might be due to the sign of stock returns misclassifying firm performance. Using three-way performance partitions, we find no asymmetry in CEO cash compensation for firms with low stock returns. Further, we find that CEO cash compensation is less sensitive to poor earnings performance than it is to better earnings performance. Thus, we find no evidence consistent with ex post settling up for poor firm performance, even among the very worst performing firms with strong corporate governance. We find similar results when examining changes in CEO bonus pay and when partitioning firm performance using earnings-based measures. In sum, our results suggest that CEO cash compensation is not punished for poor firm performance.

    The above Shaw and Zhang study does indeed replicate an earlier study and is critical of that earlier study. Shaw and Zhang then extend that earlier research. As such it is a great step in the right direction since there are so few similar replications in accountics science research.

    My criticisms of TAR and accountics science, however, still are valid.
    Note that it took four years before the Leone (2006) study was replicated. In real science the replication research commences on the date studies are published or even before. Richard Sansing provided me with his own accountics science replication effort, but that one took seven years after the study being replicated was published.

    Secondly, replications are not even mentioned in TAR unless these replications significantly extend or correct the original publications in what are literally new studies being published. In real science, journals have outlets for mentioning replication research that simply validates the original research without having to significantly extend or correct that research.

    What TAR needs to do to encourage more replication efforts in accountics science is to provide an outlet for commentaries on published studies, possibly in a manner styled after the Journal of Electroanalytical Chemistry (JEC) that publishes short versions of replication studies. I mention this journal because one of its famous published studies on cold fusion in 1989 could not (at least not yet) be replicated. The inability of any researchers worldwide to replicate that study destroyed the stellar reputations of the original authors Stanley Pons and Martin Fleischmann.

    Others who were loose with their facts:  former Harvard researcher John Darsee (faked cardiac research); radiologist Rober Slutsky (altered data; lied); obstetrician William McBride (changed data, ruined stellar reputation), and physicist J. Hendrik Schon (faked breakthroughs in molecular electronics).
    Discover Magazine, December 2010, Page 43

    See http://www.trinity.edu/rjensen/TheoryTAR.htm#TARversusJEC

    In any case, I hope you will continue to provide the AECM illustrations of replication efforts in accountics science. Maybe one day accountics science will grow into real science and, hopefully, also become more of interest to the outside world.

    Respectfully,
    Bob Jensen

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm


    Equity Valuation for the Real World Versus the Fantasyland of Accountics Researchers and Teachers in Academe

    Equity Valuation
    TAR book reviews are free online. I found the September 2010 reviews quite interesting, especially Professor Zhang's review of
    PETER O. CHRISTENSEN and GERALD A. FELTHAM, Equity Valuation, Hanover, MA:Foundations and Trends® in Accounting, 2009,
    ISBN 978-1-60198-272-8 --- Click Here

    This book is an advanced accountics research book and the reviewer leaves many doubts about the theory and practicality of adjusting for risk by adjusting the discount rate in equity valuation. The models are analytical mathematical models subject to the usual limitations of assumed equilibrium conditions that are often not applicable to the changing dynamics of the real world.

    The authors develop an equilibrium asset-pricing model with risk adjustments depending on the time-series properties of cash flows and the accounting policy. They show that operating characters such as the growth and persistence of earnings can affect the risk adjustment.

    What are the highlights of this book? The book contains five chapters and three appendices. Chapters 2 to 5 each contain separate yet closely related topics. Chapter 2 reviews and identifies problems with the implementation of the classical model. In Chapters 3 to 5, the authors develop an accounting-based, multi-period asset-pricing model with HARA utility. My preferences are Chapters 2 and 5. Chapter 2 contains a critical review of the classical valuation approach with a constant risk-adjusted discount rate. As noted above, the authors highlight several problems in estimating these models. Many of these issues are not properly acknowledged and/or dealt with in many of the textbooks. The authors provide a nice step-by-step analysis of the problems and possible solutions.

    Chapter 5 contains the punch line. The authors push ahead with the idea of adjusting risk in the numerator, and deal with the thorny issue of identifying and simplifying the so-called “pricing kernel.” Although the final model involves a rather simplifying assumption of a simple VAR model of the stochastic processes of residual income and for the consumption index, it provides striking and promising ideas of how to estimate and adjust for risk based on fundamentals, as opposed to stock return. It provides a nice illustration of how to incorporate time-change risk characteristics of firms with the change in firms’ operations captured by the change in residual income. This is very encouraging.

    There are some unsettling issues in this book. Not surprisingly, I find the authors’ review of the classical valuation approach to be somewhat tilted toward the negative side. For instance, many of the problems cited arise from the practice of estimating a single, constant risk-adjusted discount rate for all future periods. This seems to be based on the assumption that firms’ risk characteristics do not change materially over future periods. Of course, this is a grossly simplified approach in dealing with the issues of time-changing interest rates and inflation. To me, errors introduced by such an approach reflect more the shortcomings in the empirical or practical implementation, rather than the shortcomings in the valuation approach per se. As noted by the authors, using date-specific discount rates can avoid many of the problems. After all, under most circumstances in a neo-classical framework, putting the risk adjustment in the numerator or in the denominator may simply be an easy mathematical transformation. In some cases, of course, adjusting risk in the denominator does not lead to any solution to the problem. In that sense, adjusting in the numerator is more flexible.

    After finishing the book, I asked myself the following question: Am I convinced that the practice of adjusting risk in the discount rate should be abolished? The answer seems unclear, for a couple of reasons. First, despite the authors’ admirable effort in bringing context to it, the concept of “consumption index” still seems rather elusive. As a result, it lacks the appeal of the traditional CAPM, namely, a clear and intuitive idea of risk adjustment.

     Professor Zhang seems to favor CAPM risk adjustment without delving into the many controversies of using CAPM for risk adjustment in the real world ---
    http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious
    It would be interesting to see how these sophisticated analytical models are really used by real-world equity valuation analysts.

    Update on April 12, 2012
    Leading Accountics researchers like Bill Beaver and Steve Penman have a hard time owning up to CAPM's discovered limitations that trace back to their own research built on CAPM. Steve Penman owns up to this somewhat in his own latest book Accounting for Value that seems to run counter to his earlier book Financial Statement Analysis and Security Valuation.

    Bill Beaver's review of Accounting for Value makes an interesting proposition:
     Since Accounting for Value admits to limitations of CAPM and lack of capital market efficiency it should be of interest to investors, security analysts, and practicing accountants consulting on valuation. However, Penman's Accounting for Value is not of much interest to accounting professors and students who, at least according to Bill, should continue to dance in the fantasyland of assumed efficient markets and relevance of CAPM in accountics research.

    Accounting for Value
    by Stephan Penman
    (New York, NY: Columbia Business School Publishing, 2011, ISBN 978-0-231-15118-4, pp. xviii, 244).
    Reviewed by William H. Beaver
    The Accounting Review, March 2012, pp. 706-709
    http://aaajournals.org/doi/full/10.2308/accr-10208
    Jensen Note:  Since TAR book reviews are free to the public, I quoted Bill's entire review

    When I was asked by Steve Zeff to review Accounting for Value, my initial reaction was that I was not sure I was the appropriate reviewer, given my priors on market efficiency. As I shall discuss below, a central premise of the book is that there are substantial inefficiencies in the pricing of common stock securities with respect to published financial statement information. At one point, the book suggests that most, if not all, of the motivation for reading the book disappears if one believes that markets are efficient with respect to financial statement information (page 3). I disagree with this statement and found the book to be of value even if one assumes market efficiency is a reasonable approximation of the behavior of security prices.

    It is unclear who is the intended audience—academic or nonacademic. This is an important issue, because it determines the basis against which the book should be judged. For an academic audience, the book would be good as a supplemental text for an investments or financial statement analysis course. However, for an academic audience, it is not a replacement for his previous, impressive text, Financial Statement Analysis and Security Valuation (2009). The earlier text goes into much more detail, both in terms of how to proceed and what the evidence or research basis is for the security valuation proposed. The previous book is excellent as the prime source for a course, and the current effort is not a substitute for the earlier text.

    However, as clearly stated, the primary audience is not academic and is certainly not the passive investor. The book was written for investors, and for those to whom they trust their savings (page 1). Moreover, as stated on pages 3–4, the intended audience is the investor who is skeptical of the efficient market, who is one of Graham's “defensive investors,” who thinks they can beat the market, and who perceives they can gain by trading at “irrational” prices.1 For this reason, the book can be compared with the plethora of “how to beat the market” books that fill the “Investments” section of most popular bookstores. By this standard, Accounting for Value is well above the competition. It is much more conceptually based and includes references to the research that underlies the basic philosophy. By this standard, the book is a clear winner.

    Another standard is to judge the effort, not by the average quality of the competition, but by one of the best, Benjamin Graham's The Intelligent Investor (1949). This, indeed, is a high standard. The Intelligent Investor is the text I was assigned in my first investments course. My son is currently in an M.B.A. program, taking an investments course, so for his birthday I gave him a copy of Graham's book. However, markets and our knowledge of how markets work have changed enormously since Graham's book was written.

    The comparison with The Intelligent Investor is natural in part because the text itself explicitly invites such comparisons with the many references to Graham and by suggesting that it follows the heritage of Graham's book. It also invites comparisons because, like Graham's book, it is essentially about investing based on fundamentals and tackles the subject at a conceptual level with simple examples, without getting bogged down in extreme details of a “how to” book. I conclude that Accounting for Value measures up very well against this high standard and is one of the best efforts written on fundamental investing that incorporates what we have learned in the intervening years since the first publication of The Intelligent Investor in 1949. I have reached this conclusion for several reasons.

    One of the major points eloquently made is that modern finance theory (e.g., CAPM and option pricing models) consists of models of the relationship among endogenous variables (prices or returns). These models derive certain relative relationships among securities traded in a market that must be preserved in order to avoid arbitrage opportunities. However, as the text points out, these models are devoid of what exogenous informational variables (i.e., fundamentals) cause the model parameters to be what they are. For example, in the context of the CAPM, beta is a driving force that produces differential expected returns among securities. However, the CAPM is silent on what fundamental variables would cause one company's beta to be different from another's. One of major themes developed in the text is that accounting data can be viewed as a primary set of variables through which one can gain an understanding of the underlying fundamentals of the value of a firm and its securities.2 This is extremely important to understand, regardless of one's priors about market efficiency. A central issue is the identification of informational variables that aid in our understanding of security prices and returns. As accounting scholars, we have an interest in the “macro” (or equilibrium) role of accounting data beyond or independent of the “micro” role of determining whether it is helpful to an individual in identifying “mispriced” securities.

    Another major contribution is the development of a valuation model of fundamentals through the lens of accounting data based on accrual accounting. In doing so, the text makes another important point—namely the role of accrual accounting in bringing the future forward into the present (e.g., revenue recognition).3 In other words, accrual accounting contains implicit (or explicit) predictions of the future. It is argued that, since the future is difficult to predict, accrual accounting permits the investor to make judgments over a shorter time horizon and to base those judgments on “what we know.” The text develops the position that, in general, forecasts and hence valuation analysis based on accrual accounting numbers will be “better” than cash flow-based valuations. It is important to understand that the predictive role is a basic feature of accrual accounting, even if one disagrees about how well accrual accounting performs that role. Penman believes it performs that function very well and dominates explicit future cash flow prediction, based on the intuitive assumption that the investor does not have to forecast accrual accounting numbers as far into the future as would be required by cash flow forecasting. The implicit assumption is that the prediction embedded in accrual numbers is at least as good, if not better, than attempts to forecast future cash flows explicitly.

    A third major point is that book-value-only or earnings-only models are inherently underspecified and fundamentally incomplete, except in special cases. Instead, a more complete valuation approach contains both a book value and a (residual) earnings term. A point effectively made is that measurement of one term can be compensated for by the inclusion of the other variable by virtue of the over-time compensating mechanism of accrual accounting.

    A major implication of the model is the myopic nature of two of the most popular methods for selecting securities: market-to-book ratios and price-to-earnings ratios. Stocks may appear to be over- or underpriced when partitioning on only one these two variables. Using a double partitioning can help alleviate this myopia.

    The book is positioned almost exclusively from the perspective of the purchaser of securities. For example, one of the ten principles of fundamental analysis (page 6) is “Beware of paying too much for growth.” Presumably, a fundamental investor of an existing portfolio is a potential seller as well as a buyer. As a potential seller, the investor has an analogous interest in selling overpriced securities, but this is not the perspective explicitly taken. In spite of the apparent asymmetry of perspective, the concepts of the valuation model would appear to have important implications for the evaluation of existing securities held.

    In the basic valuation model, value is equal to current book value, residual earnings for the next two years, and a terminal value term based on the present value of residual earnings stream beyond two years.4 The model bears some resemblance to the modeling of Feltham and Ohlson (1995) but adds context of its own. A central feature of the approach is to understand what you know and separate it from speculation.5 In this context, book value is “what you know,” and everything else involves some degree of speculation. The degree of speculation increases as the time horizon increases (e.g., long-term growth estimates).

    A key feature is that it is residual earnings growth, not simply earnings growth, that is the driver in valuation. Price-earnings-only models are incomplete because of a failure to make this distinction. The nature of the long-term residual earnings growth is highly speculative, which leads to one of the investment principles—beware of paying too much for growth. The text provides some benchmarks in terms of the empirical behavior of long-term residual growth rates and reasons why abnormal earnings might be expected to decay rapidly. A higher expected residual growth is also likely to be associated with higher risk and hence a higher discount rate. All of these factors mitigate against long-term growth playing a large role in the fundamental value (i.e., do not pay too much for growth). A similar point is made with respect to the effect of leverage upon growth rates (Chapter 4).

    A remarkable feature of the book is how far it is able to develop its basic perspective without specifying the nature of the accounting system upon which it is anchoring valuation other than to say that it is based on accrual accounting. Chapter 5 begins to address the nature of the accrual accounting system. A central point is that accounting treatments that lower current book value (e.g., write-offs and the expensing of intangible assets) will increase future residual earnings (Accounting Principle 4). In particular, conservative accounting with investment growth induces growth in residual income (Accounting Principle 5). However, conservatism does not increase value. Hence, valuations that focus only on earnings to the exclusion of book value can lead to erroneous valuation conclusions. An investor must consider both (Valuation Principle 6).

    Chapter 6 addresses the estimation of the discount rate. A central theme is how little we know about estimating the discount rate (cost of capital), and we can provide, at best, very imprecise estimates. The proposed solution is to “reverse engineer” the discount rate implied by the current market price and ask yourself if you consider this to be a rate of return at which you are willing to invest, which is viewed as a personal attribute. Several examples and sensitivity analyses are provided.

    Chapter 7 synthesizes points made in earlier chapters about how the investor can gain insights into distinguishing growth that does not add to value from growth that does, through a joint analysis of market-to-book and price-to-earnings partitions. The joint analysis is clever and is likely to be informative to an investor familiar with these popular partitioning variables, but is perhaps not yet ready to use the explicit accounting-based valuation models recommended.

    Chapter 8 addresses the attributes of fair value and historical cost accounting and is the chapter that is the most surprising. The chapter is essentially an attack on fair value accounting. Up until this point, the text has been free of policy recommendations. The strength lies in taking the accounting rules as you find them, which is a very practical suggestion and has great potential readership appeal. The flexibility of the framework to accommodate a variety of accounting systems is one of its strengths. As a result, the conceptual framework is relatively simple. It does not attempt to tediously examine accounting standards in detail, nor does it attempt to adjust accounting earnings or assets to conform to a concept of “better” earnings or assets, in contrast to other valuation approaches. I found the one-sided treatment of fair value accounting to be disruptive of the overall theme of taking accounting rules as you find them.

    The text provides an important caveat. The framework is a starting point rather than the final answer. A number of issues are not explicitly addressed. It can also be important to understand the specific effects of complex accounting standards on the numbers they produce. Further, there is ample evidence that the market does price disclosures supplemental to the accounting numbers. Discretionary use of accounting numbers also can raise a number of important issues.

    In sum, the text provides an excellent framework for investors to think about the role that accounting numbers can play in valuation. In doing so, it provides a number of important insights that make it worthwhile for a wide readership, including those who may have stronger priors in favor of market efficiency.

    "AOL and the Case Against Efficient Market Theory," by Roben Farzad, Business Week, April 11, 2012 ---
    http://www.businessweek.com/articles/2012-04-11/aol-and-the-case-against-efficient-market-theory 

    This time last week, I, like nine out of every 10 investors, believed AOL (AOL) was a dead-end investment. How could it not be? This is no longer a 56k, dial-up world, when those ubiquitous AOL disks inundated mailboxes. AOL botched the chance to morph into a broadband player with its spectacularly bad marriage to Time Warner (TWX). AOL is behind on social media, and is struggling to compete for ad dollars with Google (GOOG) and Facebook. Its sales declined in each quarter last year.

    How many chances does a legacy company get? (Remember this reinvention?)

    Then, on April 9, as if out of nowhere, Microsoft (MSFT)dropped in to buy $1 billion of AOL’s patents, sending the latter’s shares up 43 percent in a single day. In the two years leading up to the deal, the stock was down 37 percent.

    How could a supposedly omniscient market get this story so wrong? One explanation was offered by MDB, an intellectual property-focused investment bank. MDB says the AOL patents had more relevance to Microsoft and that company was uniquely well-studied on them, especially in light of AOL’s ancient acquisition of Netscape, that Microsoft nemesis in the age of Windows 95. MDB found that Microsoft cited AOL patents as related intellectual property 1,331 times in its own patent filings, vs. AOL citing its own patents 1,267 times.

    Even so, it’s surprising that this play remained largely the province of tech-geek attorneys. After all, about 15 Wall Street analysts cover AOL—nine of them rating it either a hold or sell. Hedge funds and bloggers are constantly on it. The Microsoft deal shot AOL shares up two and a half times where they traded in August, when the company owned the same patents.

    I was similarly puzzled last summer when Google paid big (63 percent-premium-to-close big) for remnants of Motorola—placing major emphasis on the legacy tech company’s patents. Motorola Mobility (MMI) shares popped 57 percent in a matter of hours. I also scratched my head in September 2010, when Hewlett-Packard (HPQ)emerged victorious from a bidding war for a tiny data storage company called 3Par—by paying $33 a share for a stock that traded below $10 just three weeks earlier. How did everyone completely whiff on 3Par’s desirability and valuation?

    These disconnects have me thinking back to the words of my friend, Justin Fox of the Harvard Business Review Group, whose book The Myth of the Rational Market excoriated the idea that “the decisions of millions of investors, all digging for information and striving for an edge, inevitably add up to rational, perfect markets.

    Continued in article

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

    Bob Jensen's critical threads on the Efficient Market Hypothesis (EMH) are at
    http://www.trinity.edu/rjensen/theory01.htm#EMH


    "Why an MBA Is Not Always the Right Choice," by Rose Martinelli , Bloomberg Business Week, April 4, 2012 ---
    http://www.businessweek.com/articles/2012-04-04/why-an-mba-is-not-always-the-right-choice

    A guest post from Rose Martinelli, formerly the longtime admissions director at the University of Chicago’s Booth School of Business, where she wrote a popular admissions blog, The Rose Report.

    My last two posts focused on knowing yourself, making sense of all the pieces, and sharing what you learned with your circle of supporters. Now it’s time to focus on evaluating educational options by defining two of the most common academic pathways—subject-focused master’s degrees and MBA degree programs.

    Subject-focused master’s degrees are typically one-year academic programs that focus on a single topic in great detail, with application of these concepts focused in functional areas. Programmatic features vary by school and program, so make sure to do your homework, especially if particular programs or career support are among your priorities.

    MBA programs, on the other hand, are typically two-year programs, although they are now offered in one-year or accelerated formats. These “professional” programs focus on developing the fundamental tools of resource management (accounting, finance, operations, statistics, marketing, human resources, economics, and so forth).

    The vast majority of MBA programs require core classes, with the opportunity to pursue majors or concentrations in specific areas of study. The value of MBA programs can be found through the breadth of exposure from academic options and co-curricular activities to professional outcomes. Offered in full-time, part-time, and executive formats, this degree can be taken at various stages in your professional development.

    Which type of program is right for you? While there are no right or wrong answers here, I would recommend that your choice be based upon your undergraduate education, prior work experience, and future career goals.

    If you do not have an undergraduate business degree, the MBA may be a good option because of its focus on the fundamentals of business and experiential opportunities, as well as the breadth of career support available. Even students who have pursued economics majors or who have done consulting can benefit from the MBA degree if one of the driving reasons for pursuing education is the chance to explore and experiment.

    If you have an undergraduate business degree and want additional depth in a particular area, the subject-oriented masters degree may be ideal. Typically, these are smaller programs that provide focused instruction in that area of study. While another option for business undergraduates may be to pursue an MBA, selecting a school with a flexible core curriculum will be important if you do not want to repeat prior coursework. We’ll talk more about that in future posts.

    If you are just completing your undergraduate degree and wish to pursue additional education in order to prepare you for your first career step, a subject-oriented masters degree may be just the right choice. Over the past several years, there has been an expansion in these programs, largely fueled by the lack of good employment opportunities for college graduates, as well as the limited number of MBA programs that admit students without work experience.

    Continued in article

    Jensen Comment

    In 1982 when I joined the faculty at Trinity University I taught mostly in Trinity's small MBA program which was one of the three surviving masters programs that existed after 20+ masters programs had already been dropped. Interestingly Trinity dropped most of its masters programs after enormous gifts to its endowment made it possible to increase the competitive prestige of its undergraduate programs. Trinity now ranks extremely high in the nation in terms of endowment per student.

    But in the 1980s our MBA program was very small and most of my classes had less than ten students, many of whom were military officers stationed at the six major army and air force bases in San Antonio. We did a market study and discovered what we already knew --- San Antonio was just not a good city for placements of MBA graduates since it had so little business sector industry. And our MBA program just did not have a reputation to compete with MBA graduates of the University of Texas, Texas A&M, Texas Tech, and SMU.

    And so we dropped the MBA program. Some years later when Texas adopted the 150-hour rule to take the CPA exam in Texas, we installed a new one-year masters program that mostly served our own graduating accounting students. We prospered with our small masters program in accounting mostly because the then Big Five in San Antonio took a goodly share of our graduating masters students in accounting. Houston and Dallas Big Five CPA firms picked up most of the other graduates.

    In other words we could place a goodly share of our masters students in accounting locally or in nearby Dallas and Houston. This never was the case for our MBA program.

     


    "Making Computer Science a Requirement?" by Robert Talbert, Chronicle of Higher Education, April 4, 2012 ---
    http://chronicle.com/blognetwork/castingoutnines/2012/04/04/making-computer-science-a-requirement/?sid=wc&utm_source=wc&utm_medium=en

    Jensen Comment
    Making a new course requirement runs counter to the turf war compromises (e.g., at Harvard) of replacing required courses with required categories wherein students chose from a smorgasbord of alternative courses and even disciplines.

    I like to think more in terms of required general education topics. For example, I've been a long time advocate of requiring personal finance topics, including some tax education in so far as it affects personal finance. It depresses me greatly that so many graduates have no understanding of time value of money, inflation, tax exempt income, tax deductions and strategies, pensions, financial risk, and other essentials of financial literacy. In support of my advocacy is the research that concludes financial distress is a leading cause of divorce, especially distress arising from such rudimentary mistakes as piling up more credit card debt than can be afforded or buying new cars when gently used cars may be a better strategy.
    Bob Jensen's threads on requiring financial literacy (at least minimal) among all college graduates ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#FinancialLiteracy

    Back when Bill Paton was a towering force on campus at the University of Michigan it was reported to me (I never verified this) that Accounting 101 was a required course. I suspect that this would be rare today except for selected majors such as economics, health care administration, and business.

    What topics as opposed to courses should be required in gen ed?


    Career Options for Women (developed in Canada) --- http://careeroptions.org/careeroptions/english_index.htm

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

    "Deloitte Commits $60 Million in Pro Bono Services to Nonprofit Organizations:  New Pledge Totals $110 Million to Make Communities Stronger and Advance Key Women/Girls, Education and Human Service Organizations," MarketWatch, April 6, 2012 ---
    http://www.marketwatch.com/story/deloitte-commits-60-million-in-pro-bono-services-to-nonprofit-organizations-2012-04-06
    Thank you Eliot Kamlet for the heads up.

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


    The Australian Centre for Corporate Social Responsibility (ACCSR) has released a research report on how stakeholders read sustainability reports, how they use them, how this affects an organisation’s reputation, and what causes stakeholders concern, April 2012 ---
    http://www.iasplus.com/en/news/2012/april/australian-research-report-sheds-light-on-sustainability-reporting

    We should wait for a safer way to get at this gas --- this is not a long term efficient solution and may do irreparable damage
    Hydraulic Fracturing Concerns --- http://en.wikipedia.org/wiki/Fracking
    Gasland - OTRAVIREA VOITA A APEI. METODA FRACTIONARII HIDRAULICE
    http://www.youtube.com/watch?feature=player_detailpage&v=iLal7aUqZRM 
    Thank you Dan Gheorghe Somnea for the heads up.


    "GASB issues guidance on deferred outflows and deferred inflows, plus technical corrections ," by Kentysiac, Journal of Accountancy, April 2, 2012 ---
    http://journalofaccountancy.com/Web/20125426.htm

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


    Garbage Statistics
    How do law schools (read that lawyers) lie with statistics?
    Why are so many lower ranking law school doing so much better in placing their graduates than the prestigious law schools?

    "When True Numbers Mislead: 98% Employment "Not Fully Accurate Picture," ASU Dean Says," by Brian Tamanaha (Washington U.), Balkinization, April 2, 2012 ---
    http://balkin.blogspot.com/2012/04/when-true-numbers-mislead-98-employment.html

    Turkey times for overstuffed law schools ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools


    Social Security Will Run Out of Money Much Faster Than Last Forecasted
    So Will Funds for Disabled People
    "Will Social Security Be There For Your Retirement?" by Janet Novak, Forbes, April 23, 2012
    http://www.forbes.com/sites/janetnovack/2012/04/23/will-social-security-be-there-for-your-retirement/

    Jensen Comment
    Of course Social Security will be there for your retirement. If Congress never agrees to increase taxes and decrease government spending to balance the budget, the one thing they will agree upon is printing all the greenbacks needed to meet entitlements --- of course your Social Security monthly payment might not even be enough for one Big Mac at McDonalds. Much depends on how many years before you can begin collecting your inflated dollars. Sometimes it pays to be old even there isn't much else that's good about becoming old.

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


    "My Favorite Quotes About Teaching – Number Six," by Joe Hoyle, Teaching Blog, August 11, 2012 ---
    http://joehoyle-teaching.blogspot.com/2012/04/my-favorite-quotes-about-teaching.html
    Hint:  Think about it!
     

    Jensen Comment
    The quote probably overstates the case since experienced teachers often think better than neophytes.

    One time a relatively young lawyer friend of mine commented that it's probably best to have a relatively young physician and a relatively old lawyer. Of course in this era computers are doing most of the medical diagnostics of lab tests, and younger physicians may be more adept at the latest technologies of medicine.

    Old lawyers are often shrewd where it counts, have years of experience playing golf and poker with the judges, and own a fleet of young legal researchers back at the office on the computers.


    According to Hoyle:  A Personal Note from Joe
    Teaching Blog, April 17, 2012
    http://joehoyle-teaching.blogspot.com/2012/04/personal-note-from-joe.html


    Question
    Among the 46% (some say 49.5%) of taxpayers not paying any taxes, is it mostly the outliers (extremely rich and extremely poor) who pay no income taxes?

    Answer
    Well, only in part. Most (89%) of those so-called "taxpayers" making less than $20,000 pay no taxes. A few like college students who are still claimed as dependents on the tax returns of their parents may pay a slight amount of income tax on part-time earnings.

    Most of those making more than $100,000 pay some income taxes. Bloomberg reports that 98% of those that pay no income taxes have less than $100,000 in earnings. Most are availing themselves of recent tax breaks such as energy credits, tax breaks from employer contributions to medical insurance, increased tax breaks for dependents, and deferred tax breaks such as breaks professors get for employer contributions to TIAA-CREF.

    Watch the April 3, 2012 Bloomberg Video ---
    http://www.bloomberg.com/video/89503501/

    Also see
    "Growing Unequal? Income Distribution and Poverty in OECD Countries," OECD ---
    http://www.oecd.org/document/4/0,3343,en_2649_33933_41460917_1_1_1_1,00.html
    What is happening in the United States as well as other OECD countries is a dramatic shift in the age distribution. For example, consider what has happend in the United States:

    Child poverty – that is, children in a household with less than half the median income – has fallen since 1985, from 25% to 20% but poverty rates among the elderly increased from 20 to 23%. Both of these trends are in the opposite direction to those of the other countries in the OECD.

    Also see
    "Comparing the top and the bottom income earners: Distribution of income and taxes in the United States," by Govind S. Iyera, Peggy Jimeneza, and Philip M.J. Reckers, Journal of Accounting and Public Policy, March–April 2012, Pages 226–234 ---
    http://www.sciencedirect.com/science/article/pii/S027842541200004X
    Thank you Steve Sutton for the heads up.

    Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores.
    Note that the Excel file includes payroll taxes as well as income taxes ---
    (Here are the IRS data, excel file.)
    "U.S. Taxes Really Are Unusually Progressive," by Clive Crook, The Atlantic, February 10, 2012 ---
    http://www.theatlantic.com/business/archive/2012/02/us-taxes-really-are-unusually-progressive/252917/

    If you ask me, Jonathan Chait, a writer I respect, has made an ass of himself in a fight he picked with Veronique de Rugy over taxes and progressivity. She offended him by saying that America's income taxes are more progressive than those of other rich countries. Chait assailed her "completely idiotic" reasoning, called her an "inequality denier", "a ubiquitous right-wing misinformation recirculator" and asked if it was really any wonder he cast insults now and then at such "lesser lights of the intellectual world". (Paul Krugman said he sympathises. With Chait, obviously. The only danger here is in being too forgiving, Krugman advises. Chait may think the de Rugys of this world are only lazy and incompetent, but we know them to be liars as well.)

    Just one problem. On the topic in question, De Rugy is right and Chait is wrong.

    Income taxes in America are more progressive than in other rich countries--according to an authoritiative official study which, to my knowledge, has not been contradicted. The OECD's report "Growing Unequal", on poverty and inequality in industrial countries, includes a table that provides two measures of income tax progressivity in 2005. This is evidently the source of de Rugy's numbers. Here they are in an excel file. According to one measure, America's income taxes were the most progressive of the 24 countries in the sample, except for Ireland. According to the other, they were the most progressive full stop. (A more recent OECD report, "Divided We Stand", uses different data, a smaller sample of countries and a different measure of progressivity: the results are similar.)

    Before you ask, this ranking takes account of employee-side payroll tax as well as the federal income tax.

    Chait first objected to de Rugy's claim about progressivity because he thought she was inferring it from the fact that the US collects the biggest share of income taxes--45 percent of the total, col B1 in the table--from the top income decile. That would be a false inference, as Chait says, because it could be true of a country with a very unequal income distribution even if its taxes were not especially progressive. But look at the table. There was no need for de Rugy to draw any such inference, let alone try to mislead readers. All she needed to do--and all, I'm sure, she did--was glance over to the last column, which actually gives the measure of progressivity, showing the US to have the highest score.

    The measure of progressivity is hard to explain, so I can see why de Rugy quoted the tax share instead. But she could have chosen a much more dramatic number if she was seeking merely to bamboozle her readers. Exclude payroll tax, and the top 1 percent of taxpayers, not the top 10 percent, have lately accounted for nearly 40 percent of income tax receipts, the top 5 percent for nearly 60 percent, and the top decile for roughly 70 percent. (Here are the IRS data, excel file.)

    For the reason I just gave, this does not prove that the US tax system is more progressive than anybody else's--but it surely has some relevance to the question, "Are the rich paying their fair share of income tax?" If this isn't fair, what would be?

    When Chait, with all the authority of a leading light of the intellectual world, says "Rich Americans pay a bigger share of the tax burden because they earn a bigger share of the income, not because the U.S. tax code is more progressive," he is making the same kind of sloppy bias-driven error he falsely accuses de Rugy of making. (I'll refrain from wondering whether he made the mistake deliberately.) According to the OECD, rich Americans bear a bigger share of the tax burden because they earn a bigger share of the income and because the US income tax system is more progressive.

    There's a lot more to say on this subject.

    Is measuring progressivity straightforward? No. It's difficult, because the underlying data are very complicated and hard to compare across countries. Another problem: expressing progressivity across the whole income range as a single number, so that one can say A is more or less progressive than B, can be misleading. Unfortunately, we all want to be able to say, A is more or less progressive than B.

    Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores.

    How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments.

    Continued in article

    Most developed nations, other than the U.S., provide relief on double taxation
    "Corporate Dividend and Capital Gains Taxation: A Comparison of the United States to Other Developed Nations," by Ernst & Young (Drs. Robert Carroll and Gerald Prante), February 2012 ---
    http://images.politico.com/global/2012/02/120208_asidividend.html

    Jensen Comment
    Of course the wealthy are taking advantages of enormous loopholes that Congress built in primarily for them. The top 5% of the wealthy pay 50% of the income tax collections but would pay a whole lot more without their friends in Congress. And fortunately for the wealthy, taking away the most popular loopholes would badly hurt both the poor and the middle class. For example, taking away tax exempt interest breaks on municipal bonds would greatly raise the cost of capital for schools, towns, counties, and states selling bonds. And eliminating interest deductions on mortgages would be a fatal blow to a sick real estate market and destroy construction jobs and jobs in factories making home building and repair materials. Thus many of the tax loopholes taken advantage of by high rollers are pretty well set in concrete.

    Case Studies in Gaming the Income Tax Laws ---
    http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm


    Nepotism and Insider Trading in Washington DC

    Congress is our only native criminal class.
    Mark Twain --- http://en.wikipedia.org/wiki/Mark_Twain

    We hang the petty thieves and appoint the great ones to public office.
    Attributed to Aesop

    Crescent Dunes Solar Energy Project --- http://en.wikipedia.org/wiki/Crescent_Dunes_Solar_Energy_Project

    Under a power purchase agreement (PPA) between SolarReserve and NV Energy, all power generated by the Crescent Dunes project in the next 20 years will be sold to Nevada Power Company for $0.135 per kilowatt-hour.[3] In late September, Tonopah received a $737 million loan guarantee from the U.S. Department of Energy (DOE).[

    Nepotism in Washington DC

    Pacific Corporate Group --- http://www.pcgfunds.com/
    Financial Report --- http://www.pcgfunds.com/PDF/GIPS_PCG_Core%20Performance_Composite__123106_D&T.pdf

    Ron Pelosi --- http://en.wikipedia.org/wiki/Ron_Pelosi

    "$737 million in green-tech loan to company connected to Pelosi family?"
    http://hotair.com/archives/2011/09/29/737-million-in-green-tech-loan-to-company-connected-to-pelosi-family/

    Tonapa Solar Home --- http://www.tonopahsolar.com/

    The Tonopah Solar company in Harry Reid's Nevada received a $737 million loan from the Department of Energy.

    * The project will produce a 110 megawatt power system and employ 45 permanent workers.

    * That's only costing us $16 million per job.
    *
    One of the investment partners in this endeavor is Pacific Corporate Group (PCG).

    * The PCG executive director is Ron Pelosi, who is the brother-in-law of Nancy Pelosi.

    Nancy Pelosi Alleged Insider Trading--- http://en.wikipedia.org/wiki/Nancy_Pelosi#Allegations_of_insider_trading

    In November 2011, 60 Minutes alleged that Pelosi and several other member of Congress had used information they gleaned from closed sessions to make money on the stock market. The program cited Pelosi's purchases of Visa stock while a bill that would limit credit card fees was in the House. Pelosi denied the allegations and called the report "a right-wing smear.

    The Wonk (Professor) Who Slays Washington

    Insider trading is an asymmetry of information between a buyer and a seller where one party can exploit relevant information that is withheld from the other party to the trade. It typically refers to a situation where only one party has access to secret information while the other party has access to only information released to the public. Financial markets and real estate markets are usually very efficient in that public information is impounded pricing the instant information is made public. Markets are highly inefficient if traders are allowed to trade on private information, which is why the SEC and Justice Department track corporate insider trades very closely in an attempt to punish those that violate the law. For example, the former wife of a partner in the auditing firm Deloitte & Touche was recently sentenced to 11 months exploiting inside information extracted from him about her husband's clients. He apparently did was not aware she was using this inside information illegally. In another recent case, hedge fund manager Raj Rajaratnam was sentenced to 11 years for insider trading.

    Even more commonly traders who are damaged by insiders typically win enormous lawsuits later on for themselves and their attorneys, including enormous punitive damages. You can read more about insider trading at
    http://en.wikipedia.org/wiki/Insider_trading

    Corporate executives like Bill Gates often announce future buying and selling of shares of their companies years in advance to avoid even a hint of scandal about exploiting current insider information that arises in the meantime. More resources of the SEC are spent in tracking possible insider information trades than any other activity of the SEC. Efforts are made to track trades of executive family and friends and whistle blowing is generously rewarded.

    Question
    Trading on insider information is against U.S. law for every segment of society except for one privileged segment that legally exploits investors for personal gains by trading on insider information. What is that privileged segment of U.S. society legally trades on inside information for personal gains?

    Hints:
    Congress is our only native criminal class.
    Mark Twain --- http://en.wikipedia.org/wiki/Mark_Twain

    We hang the petty thieves and appoint the great ones to public office.
    Attributed to Aesop

    Answer (Please share this with your students):
    Over the years I've been a loyal viewer of the top news show on television --- CBS Sixty Minutes
    On November 13, 2011 the show entitled "Insider" is the most depressing segment I've ever watched on television ---
    http://www.cbsnews.com/video/watch/?id=7387951n&tag=contentMain;contentBody#ixzz1dfeq66Ok
    Also see http://financeprofessorblog.blogspot.com/2011/11/congress-trading-stock-on-inside.html

    Jensen Comment

    • It came as no surprise that many (most?) members of the U.S. House of Representatives and the U.S. Senate that writes the laws of the land made it illegal for to trade in financial and real estate market by profiting personally on insider information not yet available, including pending legislation that they will decide, wrote themselves out of the law making it legal for them to personally profit from trading on insider information. What came as a surprise is how leaders at the very top of Congress make millions trading on inside information with impunity and well as immunity.
       
    • The Congressional  leader that comes off the worst in this Sixty Minutes "Insider" segment is former House Speaker and current Minority leader Nancy Pelosi. When confronted with specific facts on how she and her husband made some of their insider trading millions she fired back at reporter Steve Kroft with an evil glint saying what is tantamount to:  "How dare you question me about insider trades that are perfectly legal for members of Congress. Who are you to question my ethics about exploiting our insider trading privileges. Back off Steve or else!" Her manner can be extremely scary. Other Democratic Party members of Congress come off almost as bad in terms of insider trading for personal gain.
       
    • Current Speaker of the House, John Boehner, is more subtle. He denies making any of his personal portfolio investment decisions and denies communicating with the person he hires to make such decision. However, that trust investor mysteriously makes money for Rep. Boehner using insider information obtained mysteriously. Other Republican members of Congress some off even worse in terms of insider trading.
       
    • Members of Congress on powerful committees regularly make insider profits on legislation currently being written into the law that is still being held secret from the public. One of my heroes, former Senator Judd Gregg, is no longer my hero.
       
    • Everybody knows that influence peddling in Congress by lobbyists, many of them being former members of Congress, is a dirty business of showering gifts on current members of Congress. What is made clear, however, is that these lobbyists are personally getting something in return from friendly members of Congress who pass along insider information to lobbyists. The lobbyists, in turn, peddle this insider information back to the private sector, such as hedge fund managers, for a commission. Moral of story:  Voters do not stop insider trading by a member of Congress by voting him or her out of office if they become peddlers of insider information obtained, as lobbyists, from their old friends still in the Congress.
       
    • Five out of 435 members of the House of Representatives are seeking to sponsor a bill to make it illegal for representatives and senators to profit from trading on inside information. The Sixty Minutes show demonstrates how Nancy Pelosi, John Boehner, and other House leaders have buried that effort so deep in the bowels of the legislative process that there's no chance in hell of stopping insider trading by members of Congress. Insider trading is a privilege that attracts unethical people to run for Congress.

     

     

    "CONGRESS THE CORRUPT," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants, January 9, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/474

    The Christmas and New Year’s break allows university faculty not only to enjoy family and friends, but also it supplies a moment to do some nontechnical reading.  After all, we don’t need that much time to look over our teaching notes.  Faculty need something constructive to do during the three or four weeks we have off, and catching up on our reading fits in marvelously.

    We read two interesting books during this break.  The first is Throw Them All Out by Peter Schweizer The subtitle tells it all: “How politicians and their friends get rich off insider stock tips, land deals, and cronyism that would send the rest of us to prison.”  For example, the author discusses how Speaker Nancy Pelossi (Democrat) and her husband garnered Visa IPO shares in 2008 after intimating that she would introduce legislation which would prove very costly to Visa.  Of course, Pelosi backed off her threat once she and her husband received those IPO shares.  Schweizer also gives the example of Speaker Dennis Hastert (Republican), who used his knowledge of a proposed interchange for Interstate 88 to buy acreage on the cheap and sell it for its new market value.  Hastert realized millions in profits.

    Worse, the ethics rules of the House and the Senate allow these things to occur.  In some twisted logic, Congress permits its members to engage in insider trading and land deals and regulatory intimidation.  It has legalized what is criminal for the rest of us.

    We also read China in Ten Words by Yu HuaThe text is part autobiographical, part historical, and part social commentary.  Mr. Hua describes China in ten chapters, each titled with a single word.  The words he chooses are people, leader, reading, writing, Lu Xun, revolution, disparity, grassroots, copycat, and bamboozle.  With these words, he describes the incredible social and economic changes in China during his life-time, starting with the Cultural Revolution from 1966 until late 1970s, which was followed by the economic revolution to the present.

    The description records incredible changes in China, such as the nation’s becoming the second largest economic power in the world.  It also traces the failings of this transformation, such as ranking about 100th in the world in per capita income.  The contradiction between these two measures foreshadows social conflict that must be dealt with sooner or later.

    What proved serendipitous, even ironic, in this reading is to note the connection between the books.  In certain ways the two countries show similar contradictions and shortcomings.  Yu Hua discusses “today’s large-scale, multifarious corruption” in China; but the U.S. Congress engages in similar dishonesty.

    Continued in article

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


    "Minnesota Accounting Professor's Real World Experience Proves To Be a Double-Edged Sword," Going Concern, April 25, 2015 ---
    http://goingconcern.com/post/minnesota-accounting-professors-real-world-experience-proves-be-double-edged-sword

    Joseph Traxler was the CFO of Centennial Mortgage and Funding Inc. in Bloomington. He helped run an $8 million fraud by misleading banks that allowed Centennial to obtain more loans. He also hid defaults and double-funded mortgages from lenders, as well as little check kiting in order to keep the business afloat (rather than enrich himself [?]). For this hodge-podge of fraudulent activity, he was sentenced to five years in prison, which is a shame, especially since he was such a popular guy at the Minnesota School of Business in Shakopee.

    Traxler joined the faculty of the Minnesota School of Business in Shakopee in January 2009 as chair of its accounting program and has taught the fraud course there three times. That year he was voted the school's top faculty member. The school kept him on even after the charges were filed last September. In January, after the guilty plea, Faculty Dean Linda VanDuzee and Campus Director Bruce Christman wrote to the court: "It would be a significant blow to our students and staff if Mr. Traxler were to leave our school."

    Jensen Comment
    It's ironic that today, on April 25, 2012 a trial is going on where former Senator and 2008 Presidential Candidate John Edwards in on trial for alleged financial fraud ---
    http://en.wikipedia.org/wiki/John_Edwards

    The issue in both instances is how allegedly good guys succumb to engage in financial fraud at a given time and place largely because unique opportunities and circumstances arise in their lives. The rhetorical question is whether they would engage in such frauds in a countless variety of circumstances or whether their frauds depended upon a highly unique set of circumstances?

    Does one cheat for selfish reasons versus cheat to save others such as when cooking the books or refraining  from blowing a whistle will save a company and jobs of hundreds of innocent co-workers?

    Moral absolutism ---
    http://en.wikipedia.org/wiki/Moral_absolutism

    Moral Relativism ---
    http://en.wikipedia.org/wiki/Moral_relativism

     


    "BLOWING THE WHISTLE ON FRAUDULENT REPORTING," by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants, April 23, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/634

    Some insiders of business corporations know when others are carrying out untoward actions or are neglecting their affirmative duties with respect to the securities laws. To crack down on fraudulent accounting, society needs to elicit information from these insiders to learn what actually took place. We need to find ways to convert these insiders into whistleblowers!

    Jordan Thomas recently spoke at the mid-year meeting of the Forensic and Investigative Accounting section of the American Accounting Association on this topic. Mr. Thomas currently is a partner at Labaton Sucharow, and is the chair of the firm’s Whistleblower Representation practice. Previously, he was an Assistant Director at the SEC, where he had a leadership role in the development of the Commission’s Whistleblower Program. He also led fact-finding visits to other federal agencies with whistleblower programs, ultimately drafted legislation and implementation rules, and briefed House and Senate staffs on the proposed legislation.

    Jordan Thomas began his March 30 speech by noting that regulators have a hard time fighting crimes on their own. “The reality is that securities fraud schemes are often difficult to detect and prosecute without inside information or assistance from participants in the scheme, or their associates.” The issue is how to bring these individuals to the table with regulators and prosecutors.

    There are always people who observe the shenanigans of these schemers. Whether the fraud was Enron, Fannie Mae, Citicorp, MF Global, or Olympus, there were witnesses to the crime. The point is that we need to protect these witnesses from the fear of retaliation, and we must provide incentives to get them to testify about what they know.

    Mr. Thomas noted that after Sarbanes-Oxley, many managers and independent auditors reported compliance with its requirements, and claimed that the scandals of the past were indeed in the past. As we all now know, these assurances were hollow, as evidenced by the Madoff, MF Global, and other recent scandals.

    Continued in article


    Question
    What became of the Lehman employee that blew the whistle on the Repo 105 frauds that are at the center of controversy for both former Lehman executives and the auditing firm Ernst & Young?

    Answer is shown below.

    Ernst & Young Takes Another Big (CBS Sixty Minutes) Hit for Putting Client Interests Above Investor Interests
    The SEC and the Department of Justice Also Get Hammered for Doing Nothing Against Lehman and E&W in a "Debt Masking" Scandal

     

    "The case against Lehman Brothers," CBS Sixty Minutes, April 22, 2012 --- Click Here
    http://www.cbsnews.com/8301-18560_162-57417397/the-case-against-lehman-brothers/?tag=contentMain;cbsCarousel

    Steve Kroft talks to the bank examiner whose investigation reveals the how and why of the spectacular financial collapse of Lehman Brothers, the bankruptcy that triggered the world financial crisis. Web Extras

    The case against Lehman Brothers Kroft: When to give up on accountability Inside the SEC More »

    Update: A statement from Ernst and Young: Lehman's bankruptcy occurred in the midst of a global financial crisis triggered by dramatic increases in mortgage defaults, associated losses in mortgage and real estate portfolios, and a severe tightening of liquidity.

    We firmly believe that our work met all applicable professional standards, applying the rules that existed at the time. Lehman's demise was caused by the global financial crisis that impacted the entire financial sector, not by accounting or financial reporting issues.

    It's hard to overstate the enormity of the 2008 collapse of Lehman Brothers. It was the largest bankruptcy in history; 26,000 employees lost their jobs; millions of investors lost all or almost all of their money; and it triggered a chain reaction that produced the worst financial crisis and economic downturn in 70 years.

    Yet four years later, no one at Lehman has been held responsible. Steve Kroft investigates the collapse of Lehman Brothers: what the SEC did and didn't know about the firm's finances, the role of a top accounting firm, and why no one at Lehman has been called to account.

    The following script is from "The Case Against Lehman" which originally aired on April 22, 2012. Steve Kroft is the correspondent. James Jacoby and Michael Karzis, producers.

    On September 15, 2008, Lehman Brothers, the fourth largest investment bank in the world, declared bankruptcy -- sparking chaos in the financial markets and nearly bringing down the global economy. It was the largest bankruptcy in history -- larger than General Motors, Washington Mutual, Enron, and Worldcom combined. The federal bankruptcy court appointed Anton Valukas, a prominent Chicago lawyer and former United States attorney to conduct an investigation to determine what happened.

    Included in the nine-volume, 2,200-page report was the finding that there was enough evidence for a prosecutor to bring a case against top Lehman officials and one of the nation's top accounting firms for misleading government regulators and investors. That was two years ago and there have been no prosecutions. Anton Valukas has never given an interview about his report until now.

    Steve Kroft: This is the largest bankruptcy in the world. What were the effects?

    Anton Valukas: The effects were the financial disaster that we are living our way through right now.

    Steve Kroft: And who got hurt?

    Anton Valukas: Everybody got hurt. The entire economy has suffered from the fall of Lehman Brothers.

    Steve Kroft: So the whole world?

    Anton Valukas: Yes, the whole world.

    When Lehman Brothers collapsed, 26,000 employees lost their jobs and millions of investors lost all or almost all of their money, triggering a chain reaction that produced the worst financial crisis and economic downturn in 70 years. Anton Valukas' job was to provide the bankruptcy court with accurate, reliable information that the judges could use to resolve the claims of creditors picking over Lehman's corpse.

    Steve Kroft: Had you ever done anything like this before?

    Anton Valukas: I've never done anything like Lehman Brothers. I don't think anybody else has ever done anything like Lehman Brothers.

    Steve Kroft: So your job, I mean, in some ways, your job was to assess blame?

    Anton Valukas: Our job is to determine what actually happened, put the cards face up on the table, and let everybody see what the facts truly are.

    Valukas' team spent a year and a half interviewing hundreds of former employees, and pouring over 34 million documents. They told of how Lehman bought up huge amounts of real estate that it couldn't unload when the market went south -- how it had borrowed $44 for every one it had in the bank to finance the deals -- and how Lehman executives manipulated balance sheets and financial reports when investors began losing confidence and competitors closed in.

    Steve Kroft: Did these quarterly reports represent to investors a fair, accurate picture of the company's financial condition?

    Anton Valukas: In our opinion, they did not.

    Steve Kroft: And isn't that against the law?

    Anton Valukas: It certainly, in our opinion, was against civil law if you will. There were colorable claims that this was a fraud, yes.

    By colorable claims Valukus means there is sufficient evidence for the Justice Department or the Securities and Exchange Commission to bring charges against top Lehman executives, including CEO Richard Fuld, for overseeing and certifying misleading financial statements, and against Lehman's accountant, Ernst and Young, for failing to challenge Lehman's numbers.

    Anton Valukas: They'd fudged the numbers. They would move what turned out to be approximately $50 billion of assets from the United States to the United Kingdom just before they printed their financial statements. And a week or so after the financial statements had been distributed to the public, the $50 billion would reappear here in the United States, back on the books in the United States.

    Steve Kroft: And then the next financial statement, they would move it overseas again, and file the report, and then move it back?

    Anton Valukas: Right.

    Steve Kroft: It sounds like a shell game.

    Anton Valukas: It was a shell game. It was a gimmick.

    Lehman misused an accounting trick called Repo 105 to temporarily remove the $50 billion from its ledgers to make it look as though it was reducing its dependency on borrowed money and was drawing down its debt. Lehman never told investors or regulators about it.

    Steve Kroft: This is really deception to make the company look healthier than it was?

    Anton Valukas: Yes.

    Steve Kroft: Deliberate?

    Anton Valukas: Yes.

    Steve Kroft: How are you so sure of that?

    Anton Valukas: Because we read the emails in which we observed the people saying that they were doing it. We interviewed the witnesses who wrote those emails, or some of those emails, and asked them why they were doing it, and they told us they were doing it for purposes of affecting the numbers.

    Steve Kroft: Do you think that Lehman executives knew that this was wrong?

    Anton Valukas: For some of 'em, certainly. There was concerns being expressed by-- at high levels about whether this is appropriate, what happens if the street found out about it. So, you know, there was a concern that there's a real question about whether we can do this, whether this was right or not.

    One of those people was Matthew Lee who had been a senior executive at Lehman and the accountant responsible for its global balance sheet. Lee was one of the first to raise objections inside Lehman about the accounting trick known as Repo 105.

    Matthew Lee: It sounded like a rat poison, Repo 105, when I first heard it. So I investigated what it was, and I didn't like what I saw.

    Continued in article

    Jensen Comment
    Lehman executives took an interesting tack when defending themselves from the SEC. Their defense is that the SEC knew in advance about the Repo 105 and Repo 108 transactions and could've prevented those deceptions from happening in the first place. Hence if the SEC sues over these deceptions the SEC will end up bringing a lawsuit against itself.

    In any case who cares about an SEC lawsuit. Director Mary Shapiro only throws marshmallows. Only the Department of Justice can throw people in Jail, which is what the Lehman Bankruptcy Examiner (Valukas) really wants in this case. But the DOJ is too busy trying to get itself out of the mess its in for sending terrifying weapons to the Mexican Drug Cartels.

    Question
    Were the Ernst & Young's auditors negligent or cleverly deceived or complicit in the deception by the Lehman Brothers?

    The Examiner's Report is not at all kind to Ernst & Young
    Lehman’s use of Repo 105 — hidden from the firm’s board but not its auditors at Ernst & Young — helped the investment bank look less indebted than it really was.

    As quoted in
    Volumes 1-9 of the Examiner's Report --- http://dealbook.blogs.nytimes.com/2010/03/11/lehman-directors-did-not-breach-duties-examiner-finds/#reports

     

    More from the examiner’s report:

    Lehman never publicly disclosed its use of Repo 105 transactions, its accounting treatment for these transactions, the considerable escalation of its total Repo 105 usage in late 2007 and into 2008, or the material impact these transactions had on the firm’s publicly reported net leverage ratio. According to former Global Financial Controller Martin Kelly, a careful review of Lehman’s Forms 10‐K and 10‐Q would not reveal Lehman’s use of Repo 105 transactions. Lehman failed to disclose its Repo 105 practice even though Kelly believed “that the only purpose or motive for the transactions was reduction in balance sheet”; felt that “there was no substance to the transactions”; and expressed concerns with Lehman’s Repo 105 program to two consecutive Lehman Chief Financial Officers – Erin Callan and Ian Lowitt – advising them that the lack of economic substance to Repo 105 transactions meant “reputational risk” to Lehman if the firm’s use of the transactions became known to the public. In addition to its material omissions, Lehman affirmatively misrepresented in its financial statements that the firm treated all repo transactions as financing transactions – i.e., not sales – for financial reporting purposes.

     

    "Report Details How Lehman Hid Its Woes as It Collapsed," by Michael de la Merced and Andrew Ross Sorkin, The New York Times, March 11, 2010 ---
     http://www.nytimes.com/2010/03/12/business/12lehman.html?src=me

    Jensen Comment
    Former employees of Big Four firms (alumni) have a blog that is generally upbeat and tends not to be critical of their former employers
    However, with respect to the impact of the Lehman Bankruptcy Examiners Report, this Big Four Blog is unusually critical of Ernst and Young and predicts a very tough time for E&Y in the aftermath.

    The next few days will reveal how the regulators, erstwhile shareholders of Lehman and other stakeholders will move against E&Y. Valukas’ statement that there is sufficient evidence to show that E&Y was negligent is enough to spur a whole host of law suits. E&Y is in a very tough spot now, and while it may escape an imploding collapse like Andersen, the long tail of Lehman is sure to create a strong whiplash with painful monetary, reputational and punitive
    "Ernst and Young Found Negligent in Lehman Report, Tough Consequences," The Big Four Blog, March 17, 2010 ---
    http://bigfouralumni.blogspot.com/2010/03/ernst-and-young-found-negligent-in.html

    There’s been so much press on the recently released report on the spectacular failure of Lehman Brothers by Anton Valukas, so we’ll just focus on the key elements which involve Lehman’s auditor Ernst & Young.

    Valukas is highly critical of E&Y’s work, claiming that they did not perform the due diligence needed by audit firms, the ultimate watchdog of investors’ interests. He believes there is a case of negligence and professional malpractice against the firm. Though in a very limited sense Lehman perhaps followed standard accounting principles, and this is the basis on which E&Y signed off on their annual and quarterly filings, they wrongly categorized a repo as a sale to knowingly report a lower leverage ratio, they exceeded internal limits on the infamous Repo 105, and they found a loophole in the British system to execute these transactions, and keep them off the public eye.

    Lehman was clearly at fault and grossly fraudulent in hiding this from investors, and then obfuscating answers to clear questions from analysts. Is Ernst and Young equally culpable?

    E&Y should have been more rigorous in pursuing this issue, knowing that it was material, being misrepresented and highly abused. With full knowledge of its usage, and then signing off on SEC documents is definitely negligent.

    E&Y is now being investigated by the FRC in the UK and very likely in due course by the SEC. The Saudi government has already cancelled E&Y’s security license in the kingdom. The law suits are yet to hit the wires, but they are coming. The key is whether a criminal indictment of the firm is likely, recall that this is what brought down Andersen. Dealing with civil suits is only a matter of money, but a criminal charge is going to send clients away in droves. The critical question is whether the industry can withstand the loss of a $20 billion accounting giant, the consequences of a Big Three are quite hard to imagine.

    E&Y was recently hit with a $8.5 million fine by the SEC for its involvement with Bally Fitness, and in that settlement E&Y agreed to tighten internal procedures and refrain from audit abuse. So the SEC is unlikely to look favorably on this.

    The next few days will reveal how the regulators, erstwhile shareholders of Lehman and other stakeholders will move against E&Y. Valukas’ statement that there is sufficient evidence to show that E&Y was negligent is enough to spur a whole host of law suits.

    E&Y is in a very tough spot now, and while it may escape an imploding collapse like Andersen, the long tail of Lehman is sure to create a strong whiplash with painful monetary, reputational and punitive consequences.

    Bob Jensen's threads on the Examiner's Report aftermath can be found at
    http://www.trinity.edu/rjensen/fraud001.htm#Ernst
    Also see "Repo Sales Gimmicks" at
    http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo

    "Lehman's Demise and Repo 105: No Accounting for Deception," Knowledge@Wharton, March 31, 2010 ---
    http://knowledge.wharton.upenn.edu/article.cfm?articleid=2464

    "Auditors Face Fraud Charge:  New York Set to Allege Ernst & Young Stood By as Lehman Cooked Its Books," by Liz Rappaport and Michel Rapoport, The Wall Street Journal, December 20, 2010 ---
    http://online.wsj.com/article/SB10001424052748704138604576029991727769366.html?mod=djemalertNEWS 

    "Ernst & Young — Cuomo Initiates Settlement Talks With Filing," by Walter Pavlo, Forbes, December 24, 2010 ---
    http://blogs.forbes.com/walterpavlo/2010/12/24/ernst-young-cuomo-initiates-settlement-talks-with-filing/?boxes=financechannelforbes


    "WHAT DOES COSO STAND FOR?" by Anthony H. Catanach and J.Edward Ketz, Grumpy Old Accountants Blog, April 16, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/572

    Jensen Comment
    Sometimes COSO means "Change One Side Only"
    But in Spanish it means a place for Bull Fights
    The latter definition seems to fit better.

    Oh all right!
     

    Question
    What is COSO?

    Answer --- http://www.coso.org/ 

    COSO is a voluntary private sector organization dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance. COSO was originally formed in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, an independent private sector initiative which studied the causal factors that can lead to fraudulent financial reporting and developed recommendations for public companies and their independent auditors, for the SEC and other regulators, and for educational institutions.

    The National Commission was jointly sponsored by the five major financial professional associations in the United States, the American Accounting Association, the American Institute of Certified Public Accountants, the Financial Executives Institute, the Institute of Internal Auditors, and the National Association of Accountants (now the Institute of Management Accountants). The Commission was wholly independent of each of the sponsoring organizations, and contained representatives from industry, public accounting, investment firms, and the New York Stock Exchange.

    The Chairman of the National Commission was James C. Treadway, Jr., Executive Vice President and General Counsel, Paine Webber Incorporated and a former Commissioner of the U.S. Securities and Exchange Commission. (Hence, the popular name "Treadway Commission"). Currently, the COSO Chairman is John Flaherty, Chairman, Retired Vice President and General Auditor for PepsiCo Inc.

    AICPA seeks some changes to COSO’s updated framework proposal ---
    http://journalofaccountancy.com/Web/20125441.htm

    Bob Jensen's threads on COSO are at
    http://www.trinity.edu/rjensen/Fraud001c.htm
    Search for COSO at the above link


    From The Wall Street Journal Accounting Weekly Review on April 20, 2012

    Buffett Feasts on Goldman's Scraps
    by: Matt Wirz
    Apr 12, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Debt, Investment Banking, Investments, Mark-to-Market

    SUMMARY: A unit of Warren Buffett's Berkshire Hathaway Inc. purchased loans to publisher Lee Enterprises from Goldman Sachs. The publisher was on the verge of bankruptcy and, "in November [2011], Goldman received a call from a loan trader at Citigroup Inc., who said an unidentified client was interested in buying Lee Enterprises loans....At the time, the bank didn't know the buyer was Mr. Buffett...While the trade was agreed in November, it wasn't until March that Mr. Buffett's identity leaked out." The author stresses that Goldman had lost several of its top loan traders and "at the end of October, Goldman combined the loan-trading desk with a trading desk that specialized in bonds....Traders on the enlarged public desk jettisoned many of the loans they inherited because they didn't want to risk losses on positions they weren't familiar with...[and] that included the Lee Enterprises loans..."

    CLASSROOM APPLICATION: The article is useful to demonstrate that there is a market for debt and to introduce market values of loans and debt securities prior to teaching accounting for investments in debt securities. It also discusses the operations of Goldman Sachs to those interested in understanding investment banking. The related video is very clear on describing the processes in loan and debt markets.

    QUESTIONS: 
    1. (Introductory) According to the article, what caused Goldman Sachs to sell its investment in the debt of Lee Enterprises Inc.?

    2. (Advanced) What do you think led to the sharp drop in prices that Goldman Sachs received for these loans relative to the price that it had paid?

    3. (Advanced) What does the author mean when he writes that "Mr. Buffett has since made a tidy paper profit on the loans" because they are now worth about 82 cents on the dollar. What other type of profit could Mr. Buffett's Berkshire Hathaway Inc. make?

    4. (Introductory) According to information in the article, what is the difference between a loan made by Goldman Sachs (or purchased from another bank) and investment in a bond?

    5. (Advanced) How did Goldman Sachs manage those two types of assets? Do you think the change in management impacted the sales price of these loans? Explain your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Warren Buffett Building Newspaper Empire?
    by Matt Wirz
    Apr 12, 2012
    Online Exclusive

     

    "Buffett Feasts on Goldman's Scraps," by: Matt Wirz, The Wall Street Journal, April 12, 2012 ---
    http://online.wsj.com/article/SB10001424052702303624004577338070658967732.html?mod=djem_jiewr_AC_domainid

    If there is one skill Goldman Sachs Group Inc. GS -1.52% traders pride themselves on, it is the art of buying low and selling high.

    But last year, anticipating new regulatory restrictions on proprietary trading and seeking to reduce the bank's exposure to risky assets, Goldman loan traders unloaded hundreds of millions of dollars of leveraged loans at a loss, people familiar with the matter say. Making matters worse, many of those loans have since jumped in value.

    Details of one trade in particular have recently caused a stir in the market. In November, Goldman sold about $85 million of loans in troubled newspaper publisher Lee Enterprises Inc. LEE +3.48% Goldman sold the debt at about 65 cents on the dollar, having bought it months before at around 80 cents, resulting in a loss of at least $13 million.

    The buyer: a unit of Warren Buffett's Berkshire Hathaway Inc., BRKB -0.58% according to several people familiar with the matter.

    Mr. Buffett has since made a tidy paper profit on the loans, which are now worth about 82 cents on the dollar, the people said.

    A Goldman spokesman declined to comment on the loan sales. Mr. Buffett didn't return requests for comment. Related Reading

    Deal Journal: Is Warren Buffett Building a Newspaper Empire?

    The sale of loans came amid discussions of new regulations that Goldman officials worried might restrict its ability to own and trade loans, and concerns within the firm that financial markets could take a turn for the worse after a promising start to the year. Goldman, as well, was conducting a broad consolidation of its credit-trading desks as it focused more on facilitating trades between customers.

    Goldman decided in the spring of 2011 to vastly reduce the amount of loans held by its biggest loan-trading desk, called the global bank-loan trading and distressed-debt investing unit, which had a portfolio of more than $4 billion. The desk sold heavily through the summer, just as U.S. and European markets were collapsing. In October, that desk was merged with another desk, whose traders continued to sell, creating additional losses.

    To be sure, the losses on the loan sales made up a small portion of Goldman's overall performance, and some of its trades were profitable over the course of 2011, according to people familiar with the matter. The loan desk also used hedges to offset some of its losses, the people said.

    But Goldman traders also sold at a loss loans of Clear Channel Communications Inc. and Harrah's Las Vegas PropCo LLC, which have since rebounded in price, according to people familiar with the matter.

    "There's no question that when decisions are made to de-emphasize trading business, decisions are going to be made that are uneconomic," said one of the people.

    Several senior loan traders left the firm last year. The head of the European business, Allen Ukritnukun, left the bank in the late summer, and a senior trader in the U.S., Courtney Mather, departed in October, the people said. Buckley Ratchford, who ran the loan trading unit globally, and Blake Mather, head of bank-loan sales, retired shortly thereafter, the people said.

    The losses on the loan desk contributed to a $907 million net loss reported by Goldman for the third quarter from debt securities held across all its investing and lending businesses, though it is unclear how much. Goldman as a whole for that period booked its first quarterly loss since 2008.

    By late October, about half of the trading desk's loans had been sold.

    The value of the Harrah's loan, which was one of the larger positions that Goldman sold, dropped 18% in the third quarter. The unit also lost money on European loans, which were hit by the region's sovereign-debt crisis, the people said.

    Still, not all sales produced a loss and some traders in the global bank-loan business made money in 2011, including on loans of bankrupt media company Tribune Co., they said.

    At the end of October, Goldman combined the loan-trading desk with a trading desk that specialized in bonds. The difference between the two was large. The loan desk was a private desk with access to confidential information about the borrowers of the loans it held, a crucial advantage in proprietary trading. The bond desk only had access to public information.

    But the two were combined because maintaining both was costly and "a majority of our clients prefer access to a fully integrated leveraged finance business," the Goldman spokesman said.

    Continued in article


    "Lawsuit Challenges IRS's Authority to Ban Contingent Fees in Tax Cases," by Michael Cohn, Accounting Today, April 13, 2012 ---
    http://www.accountingtoday.com/news/Firm-Sues-IRS-Contingent-Fee-Ban-62341-1.html

    Global tax services firm Ryan has filed suit in a federal court in Washington against Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman challenging Circular 230 provisions governing contingency fee arrangements.

    In 2007, Circular 230 was revised to generally prohibit attorneys, CPAs and other practitioners from entering into contingent fee arrangements for services rendered in connection with any matter before the Internal Revenue Service, including the preparation and filing of claims for refunds after a taxpayer has filed its original tax return, but before the IRS has initiated an audit of the return. Before the 2007 revision, the firm noted, Circular 230 prohibited contingent fee arrangements for preparing original returns, but permitted the use of contingent fee arrangements for services rendered in connection with the preparation and filing of refund claims if the practitioner reasonably anticipated that the claim would receive substantive review by the IRS.

    Ryan's legal challenge seeks a declaratory judgment that the Circular 230 provisions prohibiting the use of contingent fee arrangements in the preparation and filing of ordinary refund claims and any related representation before the IRS are unconstitutional, exceed the scope of the authorizing statute, and thereby warrant a permanent injunction against the prohibition. Ryan is represented by the law firm Morrison & Foerster, LLP.

    “Ryan is leading the charge against regulatory overreach that negatively impacts the ability of taxpayers with bona fide refund claims to obtain representation to pursue their statutory right to a tax refund," said chairman and CEO G. Brint Ryan in a statement. “Ryan will continue to aggressively defend our rights and the rights of our clients to engage advisors in whatever manner they so choose.”

    In the complaint, he and his firm claim that the Circular 230 restrictions violate his First Amendment right to petition the government for a redress of grievances, and his due process right to obtain a refund of taxes paid. He claims the restrictions also violate Ryan chief operating officer Gerald D. Ridgely Jr.'s right as a CPA to practice before the IRS. Ridgely is also named as a plaintiff.

    Continued in article

    Jensen Comment
    One underlying issue is that it's hard for lawyers and CPAs to be competitive by the hour when the hourly rates are $1 million per hour. They could wave such high client fees if they win in court, thereby making the IRS pay, but if they start waving those client fees if the IRS wins it smacks of contingency fee dressed in sheep's clothing.

    But not to worry! Things don't look good for the GOP and Sen. Ryan for next year after the 2012 election. The Democrats are not likely to fight the law firm rights to make billions in contingency fees and punitive damages.


    AICPA seeks some changes to COSO’s updated framework proposal ---
    http://journalofaccountancy.com/Web/20125441.htm

    Question
    What is COSO?

    Answer --- http://www.coso.org/ 

    COSO is a voluntary private sector organization dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance. COSO was originally formed in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, an independent private sector initiative which studied the causal factors that can lead to fraudulent financial reporting and developed recommendations for public companies and their independent auditors, for the SEC and other regulators, and for educational institutions.

    The National Commission was jointly sponsored by the five major financial professional associations in the United States, the American Accounting Association, the American Institute of Certified Public Accountants, the Financial Executives Institute, the Institute of Internal Auditors, and the National Association of Accountants (now the Institute of Management Accountants). The Commission was wholly independent of each of the sponsoring organizations, and contained representatives from industry, public accounting, investment firms, and the New York Stock Exchange.

    The Chairman of the National Commission was James C. Treadway, Jr., Executive Vice President and General Counsel, Paine Webber Incorporated and a former Commissioner of the U.S. Securities and Exchange Commission. (Hence, the popular name "Treadway Commission"). Currently, the COSO Chairman is John Flaherty, Chairman, Retired Vice President and General Auditor for PepsiCo Inc.

    Bob Jensen's threads on professionalism and independence ---
    http://www.trinity.edu/rjensen/Fraud001c.htm


    Jensen Comment
    Among cities that have hotels large enough for AAA annual meetings, what cities might be avoided in an effort not to surprise attendees with enormous add ons to rental car fees, hotel bills, and restaurant tabs?

    What I don't know is whether this also includes those special surcharges added to local sales taxes for construction of sports arenas that cost hundreds of millions of dollars. My guess is that these surcharges are not added in for some of the cities ranked below, because sometimes arena surcharges are only tacked onto hotel bills in the city.

    Warning:  Note the difference between amount of a sales tax and its breadth --- which makes Hawaii possibly the most expensive place to visit or live.

    "Sales Tax Rates in Major U.S. Cities," by Scott Drenkard, Alex Raut and Kevin Duncan, The Tax Foundation, April 11, 2012 ---
    http://www.taxfoundation.org/news/show/28117.html

    . . .

    Conclusion

    Of course, sales taxes are just one part of an overall tax structure and should be considered in context. For example, Washington State has high sales taxes but no income tax; Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts. One gauge of competitiveness is how a city's sales tax rate compares to its neighbors.

    City
    State
    State Rate
    Local Rate
    Total Rate
    Rank
    Birmingham (a) Alabama 4.0% 6.0% 10.0% 1
    Montgomery Alabama 4.0% 6.0% 10.0% 1
    Chicago Illinois 6.25% 3.25% 9.5% 3
    Glendale Arizona 6.6% 2.9% 9.5% 3
    Seattle Washington 6.5% 3.0% 9.5% 3
    Phoenix Arizona 6.6% 2.7% 9.3% 6
    Memphis Tennessee 7.0% 2.25% 9.25% 7
    Nashville Tennessee 7.0% 2.25% 9.25% 7
    Tucson Arizona 6.6% 2.5% 9.1% 9
    Mesa Arizona 6.6% 2.45% 9.05% 10
    Baton Rouge Louisiana 4.0% 5.0% 9.0% 11
    New Orleans (b) Louisiana 4.0% 5.0% 9.0% 11
    Scottsdale Arizona 6.6% 2.35% 8.95% 13
    New York New York 4.0% 4.875% 8.875% 14
    Chandler Arizona 6.6% 2.2% 8.8% 15
    Gilbert Arizona 6.6% 2.2% 8.8% 15
    Buffalo New York 4.0% 4.75% 8.75% 17
    Fremont (c) California 7.25% 1.5% 8.75% 17
    Long Beach (c) California 7.25% 1.5% 8.75% 17
    Los Angeles (c) California 7.25% 1.5% 8.75% 17
    Oakland (c) California 7.25% 1.5% 8.75% 17
    Spokane Washington 6.5% 2.2% 8.7% 22
    Tulsa Oklahoma 4.5% 4.017% 8.517% 23
    San Francisco (c) California 7.25% 1.25% 8.5% 24
    Saint Louis Missouri 4.225% 4.266% 8.491% 25
    Oklahoma City Oklahoma 4.5% 3.875% 8.375% 26
    Austin (d) Texas 6.25% 2.0% 8.25% 27
    Corpus Christi Texas 6.25% 2.0% 8.25% 27
    Dallas Texas 6.25% 2.0% 8.25% 27
    El Paso Texas 6.25% 2.0% 8.25% 27
    Fort Worth Texas 6.25% 2.0% 8.25% 27
    Garland Texas 6.25% 2.0% 8.25% 27
    Houston Texas 6.25% 2.0% 8.25% 27
    Irving Texas 6.25% 2.0% 8.25% 27
    Laredo Texas 6.25% 2.0% 8.25% 27
    Lubbock Texas 6.25% 2.0% 8.25% 27
    Plano Texas 6.25% 2.0% 8.25% 27
    San Jose (c) California 7.25% 1.0% 8.25% 27
    San Antonio Texas 6.25% 1.875% 8.125% 39
    Henderson Nevada 6.85% 1.25% 8.1% 40
    Las Vegas Nevada 6.85% 1.25% 8.1% 40
    North Las Vegas Nevada 6.85% 1.25% 8.1% 40
    Arlington Texas 6.25% 1.75% 8.0% 43
    Atlanta Georgia 4.0% 4.0% 8.0% 43
    Aurora (e) Colorado 2.9% 5.1% 8.0% 43
    Philadelphia Pennsylvania 6.0% 2.0% 8.0% 43

    Contineud in article


    BDO = Big Dollars Out

    "Accounting firm settles $285M claim over LeNature's loan," Bloomberg News, April 6, 2012 ---
    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_790077.html

    BDO Seidman LLP, the accounting firm, settled investor claims over a $285 million loan that was made to LeNature's Inc. before the drink maker went bankrupt in 2006, according to a court filing.

    Terms of the settlement were not disclosed in the Monday filing in New York State Supreme Court in Manhattan.

    BDO Seidman, based in New York, prepared LeNature's financial statements, and Wachovia Capital Markets arranged the loan. Normandy Hill Master Fund LP, which bought some of the debt on the secondary market, sued Wachovia, BDO Seidman and others in June 2010.

    "It has been resolved, and the parties are pleased to put it behind them," Aaron Mitchell, an attorney for the plaintiffs, said on Thursday.

    Timothy Hoeffner, an attorney representing BDO Seidman, could not be reached for comment on the settlement.

    Wachovia Capital Markets, now a part of Wells Fargo & Co., said in court documents filed in February that it settled claims against it in the lawsuit, without disclosing terms.

    LeNature's, based in Latrobe, made bottled water, tea and other flavored drinks. Gregory J. Podlucky, the company's founder, and others were indicted in September 2009 on charges that they duped creditors out of more than $800 million by overstating company revenue. Podlucky pleaded guilty in May 2011 and was sentenced to 20 years in prison in October.

    Continued in article

    "Ex-BDO Seidman Partner Favato Gets 18 Months for Tax Crimes," by David Voreacos, Bloomberg Business Week, April 16, 2012 ---
    http://www.businessweek.com/news/2012-04-16/ex-bdo-seidman-partner-favato-gets-18-months-for-tax-crimes 

    Bob Jensen's threads on BDO Seidman  are at
    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_790077.html


    "Non-Financial Data is Material: the Sustainability Paradox," by Eric Rostin, Bloomberg News, April 13, 2012 ---
    http://www.bloomberg.com/news/2012-04-13/non-financial-data-is-material-the-sustainability-paradox.html

    You might think any corporate data that helps investors weigh the value of a company would be called "financial information," right? Not so. Welcome to the world of "non-financial information."

    Five U.S. companies in 2011 expanded their financial disclosures -- information required of publicly traded companies -- to include data about environmental performance, employee and community relations, and corporate governance. Investors, nongovernmental organizations and even some governments are increasingly seeking this information as it relates to business risks and opportunities. Non-financial information, it turns out, can have a pretty big impact on financial performance.

    So here's the paradox: If non-financial data, such as greenhouse gas emissions per dollar of revenue, is included in a financial report for investors, how can it still be called non-financial? Institutional investors and companies aren't yet making the leap to calling greenhouse gas emissions, percentage of female executives or other ESG metrics "financial." But they are increasingly considering them to be material.

    Combining this so-called non-financial information with legally mandated disclosures is called integrated reporting, a practice that emerged from the widespread publication of corporate sustainability reports. It requires a deep knowledge of what's strategically important to a company.

    A company might disclose data on any of dozens of metrics beyond conventional balance-sheet accounting, whether they are "integrated" or released in a separate format. Practitioners collectively refer sustainability reporting as ESG, for the three major categories of data -- environmental, social and corporate governance.

    The amount of non-financial information flying around the marketplace is overwhelming and growing. The main delivery mechanism is the corporate sustainability report, or the corporate responsibility report, or the citizenship report, environment report, corporate social responsibility report "or some title that fits," as Hank Boerner put it. Boerner is chairman of Governance & Accountability Institute, Inc. The group collects and analyzes companies' disclosures, and is the U.S. data partner for the Global Reporting Initiative (GRI), a widely used framework for producing sustainability reports.

    Boerner's organization has completed its tally of U.S. sustainability reports for 2011 -- the conventional, feel-good variety, not necessarily integrated with balance sheets. The numbers themselves aren’t as significant as the jumbled snapshot they offer to investors -- who expect standardized disclosures that are generally comparable from company to company and industry to industry.

    Companies and nonprofits in the U.S. issued 242 reports last year, 228 of which came from corporations or their U.S. subsidiaries. Thirty-one company reports were assured by an independent auditor.

    GRI guidelines were followed by 186 companies, about 44 percent more than in 2010.

    The five U.S. companies who combined traditional and sustainability data into one "integrated" report were Clorox, Northrup Grumman, SAS, Genentech and Polymer Group Inc.

    Companies considering integrated reporting are determining what information is "material" to their business, according to a recent Deloitte report. The U.S. Securities and Exchange Commission said in 1999 that "a matter is 'material' if there is a substantial likelihood that a reasonable person would consider it important." This definition hasn't changed with the advent of sustainability disclosure and integrated reporting. The rest of the world has.

    The Securities and Exchange Commission issued guidance to public companies in early 2010, clarifying the circumstances in which public companies should disclose information related to climate change. Apple is the most recent company to discover that global supply chains and intense public interest make worker conditions, even at far-flung factories, material.

    Continued in article

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


    Bogus Wash Trades to Cheat the Canadian Government
    "Regulator Accuses Royal Bank of Canada  of ‘Massive’ Trading Scheme," by Ben Protess, The New York Times, April 2, 2012 ---
    http://dealbook.nytimes.com/2012/04/02/regulator-accuses-rbc-of-massive-trading-scheme/

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


    "Relighting the Charitable Deductions: A Proposed Public Benefit Exception," Kristin Balding Gutting, SSRN, April 1, 2012 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2031709 
    Thank you Paul Caron for the heads up.

    Abstract:     
    This Article critically examines the efficiency of the quid pro quo test and its need for an exception in order to conform to the purpose of the charitable deduction; acting as a subsidy to those organizations the government feels provides a community benefit. Throughout the country, firefighters risk their lives on a daily basis to keep the public safe. It is, therefore, imperative they receive the best possible training. One invaluable training method is live-burn training, in which a structure is set on fire providing firefighters with “a level of realism that is unsurpassed.” For over thirty five years, relying on a United States Tax Court case, many believed a taxpayer could claim a charitable deduction for the donation of the taxpayer’s home to the local municipality for live-burn training, while still retaining ownership of the underlying land (live burn donation). In recent years, however, there has been much confusion and debate on whether live burn donations qualify for charitable deductions culminating in the Internal Revenue Service specifically targeting live burn donations and the United States Tax Court overruling its long standing opinion. While it appears that the Service has won the fight in the Courts, this article proposes the live burn donation not be extinguished. Instead, Congress should consider exceptions to the application of the quid pro quo test when the benefit of the donation to the public substantially outweighs the benefit received by the taxpayer (the public benefit exception). Ultimately, this will encourage donations that otherwise would be underfunded, as is the case in live burn donations. In conclusion, this Article proposes an amendment to charitable deductions, thereby allowing a charitable deduction for live burn donations, while recognizing the need for limitations given the perceived abuse and the valuation difficulties of the live burn donation.

    Jensen Comment
    Good thing she's not an aging male with that name. Picture an old guy who's really losing his hair and growing a beer gut. I suspect she's heard jokes about her name before this.


    Garbage Statistics
    How do law schools (read that lawyers) lie with statistics?
    Why are so many lower ranking law school doing so much better in placing their graduates than the prestigious law schools?

    "When True Numbers Mislead: 98% Employment "Not Fully Accurate Picture," ASU Dean Says," by Brian Tamanaha (Washington U.), Balkinization, April 2, 2012 ---
    http://balkin.blogspot.com/2012/04/when-true-numbers-mislead-98-employment.html

    Turkey times for overstuffed law schools ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools

    The Current Mess and Confusion of Certification of Forensic Professionals

    March 30, 2012 message from Dennis Huber

    This was brought to my attention today by a fellow AECMer. (Don't know if it's OK to say who, so I'm not.) 
    "The Association of Certified Financial Crime Specialists (ACFCS) is a member organization for private and public sector professionals who work in various disciplines that control, detect and combat financial crime. Financial crime encompasses fraud, money laundering, and corruption, as well as counter efforts including institutional and corporate compliance and due diligence programs, regulatory and enforcement efforts of government agencies, and the recovery of assets wrongfully taken or held by financial criminals.
     
    By 2013, ACFCS will offer the Certified Financial Crime Specialist certification, a rigorous examination and certification process that will be constructed according to top testing and psychometric standards."
    For more information check it's web site: http://acfcs.org/.
     
    However, since it was not yet stated on its website, I thought I would check it out. I found that the ACFCS was incorporated in Florida on December 9, 2011 as a for-profit corporation owned by Charles and Joy Intriago (brief bio for Charles given on the website).
     
    Charles Intriago is co-founder of the Association of Certified E-Discovery Specialists (AECDS), a FL for-profit corporation (http://aceds.org/about/verisqil) and "co-founded, with Joy Meason Intriago, the Association of Certified Anti-Money Laundering Specialists (ACAMS, http://www.acams.org/Home/), which is the world's leading credentialing organization for private and public sector persons in the anti-money laundering field. They also formed the International Association for Asset Recovery in 2008." ACAMS is also a for-profit FL corporation.
     
    Dennis

    March 31, 2012 reply from Bob Jensen

    Hi Dennis,

    One of the problems in for-profit corporations in the certification business is the moral hazard of conflict of interest.

    It's been found that many arsonists are paid fire fighters, including some fire fighters who have started the worst forest fires in history.

    One of the worst problems for computer and networking security is that some for-profit companies spreading anti-virus and anti-malware Trojan horses are the same companies that sell the computer and network protection services for taming Trojan horses.

    I think your last option is the best option --- certification of forensic specialists should involve government regulation in some form or another. Another alternative is for respected professional organizations to take forensic certification under their wings. For example, the Federal Bar Association might create a special branch for examining and certifying lawyers who want to be forensic specialists. NASBA could create a special branch for examining CPAs who want to become forensic specialists.

    Instead of the silly CGMA joint effort of the IMA and AICPA maybe these two respected professional organizations could begin a much more serious joint effort for certifying forensic accountants.

    Respectfully,
    Bob Jensen

    "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.

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

    This is related to issues of "badges" in academe
    "A Future Full of Badges," by Kevin Carey, Chronicle of Higher Education, April 8, 2012 ---
    http://chronicle.com/article/A-Future-Full-of-Badges/131455/?sid=wc&utm_source=wc&utm_medium=en


    From The Wall Street Journal Weekly Accounting Review on April 13, 2012

    Wealth or Waste? Rethinking the Value of a Business Major
    by: Melissa Korn
    Apr 05, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Ethics

    SUMMARY: The author cites statistics from the National Center for Education Studies that 21.7% of bachelor's degrees awarded in 2008-2009 were for business majors and that the percentage has held quite steady for about 30 years. She reports on a conference at George Washington University in February 2012 that was attended by more than 20 U.S. and European business schools. The author writes that recruiters have some concerns about business graduates having sufficient critical thinking, writing, and other skills typically thought to be developed from liberal arts courses. A finishing quote from a human resource executive in the banking industry, however, says that "application from the liberal arts often need to 'undertake extra due diligence on the industry.'"

    CLASSROOM APPLICATION: The article is useful in any business class to discuss the need for "soft skills" and ethical decision-making in business professionals.

    QUESTIONS: 
    1. (Introductory) At what meeting did this WSJ reporter develop her ideas for this article and make contacts with whom she discussed these educational issues? What information in the article do you think she obtained from presentations or discussions at the meeting? Provide a specific list.

    2. (Introductory) Why does the author say that it is important for business majors to have liberal arts components to their degree programs? Summarize the issues in the article.

    3. (Advanced) Do you think your overall college education experience is helping you to develop critical thinking and writing skills? Explain how.

    4. (Advanced) View the related video for this article. Do you think that the author's own biases could be introduced into the discussion in this article? Explain.

    5. (Advanced) Consider the quote in the last paragraph from Tara Udut, head of campus recruitment for the Americas at Barclays. What does she say about the experience of hiring business majors versus liberal arts? In your answer, define the term "due diligence."
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Wealth or Waste? Rethinking the Value of a Business Major," by Melissa Korn, The Wall Street Journal, April 5, 2012 ---
    http://online.wsj.com/article/SB10001424052702304072004577323754019227394.html?mod=djem_jiewr_AC_domainid

    Undergraduate business majors are a dime a dozen on many college campuses. But according to some, they may be worth even less.

    More than 20% of U.S. undergraduates are business majors, nearly double the next most common major, social sciences and history.

    The proportion has held relatively steady for the past 30 years, but now faculty members, school administrators and corporate recruiters are questioning the value of a business degree at the undergraduate level.

    The biggest complaint: The undergraduate degrees focus too much on the nuts and bolts of finance and accounting and don't develop enough critical thinking and problem-solving skills through long essays, in-class debates and other hallmarks of liberal-arts courses.

    Companies say they need flexible thinkers with innovative ideas and a broad knowledge base derived from exposure to multiple disciplines. And while most recruiters don't outright avoid business majors, companies in consulting, technology and even finance say they're looking for candidates with a broader academic background.

    William Sullivan, co-author of "Rethinking Undergraduate Business Education: Liberal Learning for the Profession," says the divide between business and liberal-arts offerings, however unintentional, has hurt students, who see their business instruction as "isolated" from other disciplines.

    Schools are taking the hint. The business schools at George Washington University, Georgetown University, Santa Clara University and others are tweaking their undergraduate business curricula in an attempt to better integrate lessons on history, ethics and writing into courses about finance and marketing.

    Along with more than 20 other U.S. and European business schools, those institutions met last month at George Washington for a conference to discuss ways to better integrate a liberal-arts education into the business curriculum. It was organized by the Aspen Institute, a nonprofit group with an arm that studies management education and society. Other participants included Franklin & Marshall College, Babson College and Esade, a business and law school at Barcelona's Ramon Llull University.

    Doug Guthrie, dean of the George Washington University School of Business, is planning to draw on expertise in the university's psychology and philosophy departments to teach business ethics and he'll seek help from the engineering program to address sustainability. He expects to introduce the new curriculum, which will also include a core course on business and society, in the fall.

    Such changes should appease recruiters, who have been seeking well-rounded candidates from other disciplines, such as English, economics and engineering. Even financial companies say those students often have sharp critical-thinking skills and problem-solving techniques that business majors sometimes lack.

    "Firms are looking for talent. They're not looking for content knowledge, per se," says Scott Rostan, founder of Training the Street Inc., which provides financial training courses for new hires at a number of investment banks. "They're not hiring someone just because they took an M&A class."

    Business degrees have been offered since at least the 1800s, but they were often considered vocational programs. Some experts argue that the programs belong at trade schools and that students should use their undergraduate years to learn something about the world before heading to business school for an M.B.A.

    Next fall, the University of Denver's Daniels College of Business will provide a required course to teach first-year students how to view business issues in a global context. The class, being piloted this spring, will have instruction in business history, ethics, social responsibility, sustainability and other subjects.

    Introducing such concepts early in students' academic careers should help them "connect the dots," says Daniel Connolly, associate dean for undergraduate programs at the business school.

    Continued in article

    "Stanford Remakes Curriculum, Following Trend to Focus on Critical Thinking vs. Disciplinary Content," by Dan Berrett, Chronicle of Higher Education, January 26, 2012 ---
    http://chronicle.com/article/Curriculum-Proposals-at/130461/

    Jensen Comment
    One way to make students think more critically is to make them make presentations or write papers on multiple sides of an issue rather than just the side they favor. Sadly, our major media reporters and commentators are increasingly prone to being one-sided on controversial issues.

    Attorneys develop critical thinking skills since when must make convincing cases for causes they do not wholeheartedly support such as getting defendants set free that they know are guilty of heinous crimes. In accounting, one critical thinking challenge would be to have students defend as well as attack historical costs or lower capital gains tax rates.

    Bob Jensen's threads on Critical Thinking and Why It's So Hard to Teach ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#CriticalThinking


    "Do Price Controls Help Students?" by Nate Johnson, Inside Higher Ed, April 13, 2012 ---
    http://www.insidehighered.com/views/2012/04/13/essay-defending-two-tier-tuition-pricing-community-colleges

    Jensen Comment
    This is a classic of where ignorance politics trumps scholarly economics.

    Price Controls --- http://en.wikipedia.org/wiki/Price_Controls

    Zimbabwe

    In 2007, Robert Mugabe's government imposed a price freeze in Zimbabwe because of hyperinflation. That policy led only to shortages.


    "Scottsdale accountant indicted in $66 million ponzi scheme," by Peter Corbett, azcentral.com, April 19. 2012 ---
    http://www.azcentral.com/community/scottsdale/articles/2012/04/19/20120419scottsdale-accountant-indicted-million-ponzi-scheme-brk.html

    A federal grand jury in Phoenix has returned a 102-count indictment against a former Scottsdale certified public accountant on charges he operated a $66 million ponzi scheme.

    The indictment of Daniel Wise, 55, was announced Thursday by the U.S. Attorney's Office for Arizona. He is accused of mail and wire fraud, and money laundering.

    "The U.S. Attorney's Office will continue to work with our law enforcement partners to investigate and prosecute those who prey on the public for personal financial gain," said Ann Birmingham Scheel, acting U.S. Attorney for Arizona.

    Read more: http://www.azcentral.com/community/scottsdale/articles/2012/04/19/20120419scottsdale-accountant-indicted-million-ponzi-scheme-brk.html#ixzz1sbYPzZih

    The indictment alleges Wise fraudulently induced victims to invest $66 million with false promises of high-yield returns by making short-term, high-interest, hard-money loans in real estate ventures. He is accused of using a web of bank accounts and entities from June 2005 to December 2008 to deceive his clients.

    The indictment alleges that Wise did not make the investments but instead operated a ponzi scheme by using money obtained from newer victims to pay off older victims.

    Bob Jensen's threads on Ponzi schemes are at
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi


    How true can you get?
    As (Commissioner) Bridgeman left office last year, he praised (Controller) Rita Crundwell for being an asset to the city and said she "
    looks after every tax dollar as if it were her own," according to meeting minutes.

    As quoted by Caleb Newquest on April 27, 2012 ---
    http://goingconcern.com/post/heres-ominous-statement-former-dixon-city-finance-commissioner-made-about-accused-embezzler

    She was mostly just horsing around
    "Somehow the City of Dixon, Illinois Just Noticed (after six years) That $30 Million Was Missing," Going Concern, April 19, 2012 ---
    http://goingconcern.com/post/somehow-city-dixon-illinois-just-noticed-30-million-was-missing

    Rita Crundwell has been the CFO/comptroller of Dixon, Illinois since the 1980s; a typical tenure for even an unelected Illinois official. In those 30-ish years, it appears that she performed her duties adequately enough, but she was just put on unpaid leave. You see, at some point in 2006, it is alleged that Ms. Crundwell started helping herself to money that belonged to the citizens of Ronald Reagan's boyhood home. Prosecutors allege that this went for the last six years and that Crundwell made off with $30,236,503 (and 51¢). 

    Federal agents served warrants and seized contents of her bank accounts, seven trucks and trailers, a $2 million motor home  and a Ford Thunderbird—all of which prosecutors allege were paid for with money taken from city bank accounts by Crundwell. [...] Bank records obtained by the FBI allegedly show Crundwell illegally withdrew $30,236,503 from Dixon accounts since July 2006 , money she used, among other things, to buy a 2009 Liberty Coach Motor home for $2.1 million; a tractor truck for $147,000; a horse trailer for $260,000; and $2.5 million in credit card payments for items that included $340,000 in jewelry.

    So a decent haul, but a Ford Thunderbird? Good Christ, spring a bit for the Lincoln Continental at least. Questionable taste in automobiles aside, one can't help but wonder how Dixon - a city with a population of just ~15,000 - could not notice millions of dollars missing. But they did! It's strange because in a city of that size, people gossip about one another's $35 overdraft fees, never mind millions of dollars being spent on multi-million dollar motorhomes. Anyway, Crundwell (who has a thing for horses apparently) had a good thing going, but then made the mistake of taking a little extra vacation: 

    [L]ast year she took an additional 12 weeks of unpaid vacation. A city employee substituting for Crundwell examined bank statements and notified the mayor of activity in an account that, according to the complaint, he didn't know existed. Bank records list the primary account holder as the City of Dixon. An entity named RSCDA also is named on the account, with checks written on the account more expansively identifying that second account holder as "R.S.C.D.A., C/O Rita Crundwell."

    So basically the city discovered the missing cash by the virtue of dumb luck, which sometimes is what it takes for these things to get uncovered. Better late than, oh whatever... seriously, a Thunderbird?

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


    "Tacoma woman charged with $540K embezzlement," Seattle Times, April 19, 2012 ---
    http://seattletimes.nwsource.com/html/localnews/2018025234_apwatacomaembezzlement.html

    A Tacoma woman has been indicted on charges she stole more than $540,000 from the company she worked for, Food Services of America.

    Julie Anne White worked as an accountant at FSA's center in Kent. Federal prosecutors say that from 2007 until last year, she used the company's electronic payment system to pay the mortgage on her home, to transfer money to her own account and to buy a $39,000 boat.

    White pleaded not guilty Thursday to five counts of wire fraud. Prosecutors are seeking to seize her home and the boat as proceeds of illegal activity.



    "Cultural Narratives of the Legal Profession: Law School, Scamblogs, Hopelessness and the Rule of Law," by Daniel D. Barnhizer, SSRN, February 7, 2012 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2004597
    Thank you Paul Caron for the heads up.

    Abstract:
    This essay discusses the potential impacts of the narratives that lawyers, law student, legal educators, and others use to define what it means to be part of the legal profession on the lawyer's traditional role as a conservator of the rule of law and other legal institutions. While cultural narratives about the law have always included legal mythologies of long hours, difficult partners and clients, and the dedication required to practice law, more recent narratives such as legal “scamblogs," and oral traditions among students seem to signal a marked shift to failure stories based in despondency, despair, and anger. Whether these recent narratives will dominate the culture of lawyering remains to be seen, but the proliferation of these types of stories potentially threatens the willingness of current and future lawyers to participate in a rule of law system that appears to cheat them of both their careers and their future happiness.

    Bob Jensen's threads on Turkey Times for Overstuffed Law Schools ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools

    Arts in Accounting and Finance

    I encountered the following interesting site that attempts to merge education of the arts and sciences (especially STEM) ---
    http://www.artstem.org/

    It made me think about how somewhat similar experiments might be attempted with education in accounting, finance, economics, and business. For example, could we have playwrights in accounting labs and in such education centers as the Trading Rooms at Bentley College? ---
    http://tradingroom.bentley.edu/

    There is what I now conclude is probably a failed experiment at the University of North Texas on merging humanities into accounting courses at the University of North Texas under one of the Accounting Education Change Commission (AECC) experiments ---
    http://aaahq.org/AECC/changegrant/chap11.htm

    Perhaps the UNT experiment failed because it was more of a merger in the classroom of humanities and accounting teachers. the ARTstem program mentioned above is more focused on the merger of humanities and science students in joint projects. Students in traditional accounting courses like intermediate and accounting did not want have accounting content deleted by to make room for humanities modules. On the other hand, if selected accounting, finance, economics, and business courses made an attempt to draw in humanities majors who could conduct joint projects in a manner somewhat similar to the way ARTstem works, there might be more opportunity for merging humanities and business.

    This might also be one of the ways for accounting, finance, economics, and business students to become more involved in NCUR ---
    http://www.weber.edu/ncur2012/

     

    "Humanities Initiatives at Duke and Stanford," Inside Higher Ed, June 29, 2011 ---
    http://www.insidehighered.com/news/2011/06/29/qt#263684

    In an era when many scholars worry about lack of attention and funds for the humanities, Duke and Stanford Universities on Tuesday announced separate, foundation-supported efforts in the humanities. Duke announced a five-year, $6 million grant from the Andrew W. Mellon Foundation for the "Humanities Writ Large" initiative, which will support visiting scholars and new faculty appointments, undergraduate research, humanities labs, and support for interdisciplinary collaborations across departments and institutions. Stanford announced a $4 million endowment -- half of the funds from the family of an alumnus and the other half from the William and Flora Hewlett Foundation -- to support top humanities graduate students.

    Humanities Versus Business --- That is the Question ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#HumanitiesVsBusiness

    Jensen Comment
    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/

    Born in 1994

    First website on Bryn Mawr College campus

    Hosted the Bryn Mawr College website, c. 1995-96

    Hosted the College Library's first website

    Over 4 million unique visitors in 2009

    More than 26,000 pages

    Averages more than 20,000 unique visitors per day

    More than 99% of its visitors are from off-campus

    Home of Center for Science in Society, 2001 - present

    Hosted College Diversity Conversations, c. 2004-06

    Most popular exhibit:
    Mind and Body: Rene Descartes to William James
    translated into Spanish and Russian

    Significant exhibits from the last several years:
    Serendip's Exchange (2006- present)
    Ant Colonies: Social Organization Without a Director (2006)
    Exploring Emergence: The World of Langton�s Ant (2005)
    Education and Technology: Serendip's Experiences 1994-2004
    Thinking About Segregation and Integration (2003)

    Hosted the first Bryn Mawr College undergraduate course to welcome alumnae into online discussion with current students (2007)

    Notable Annual Milestones:

    2007:

    Serendip's new materials are now created in a Content Management System (CMS), Drupal, which extends Serendip's interactivity and functionality in significant ways. Almost all pages may be appended with comments from any visitor from the web, and Serendip automatically analyzes its own content and generates related links to relevant material.

    Serendip publishes an expanded collection of hands-on activities for teaching biology to middle school or high school students, a project of Dr. Ingrid Waldron, faculty member in the Biology Department of the University of Pennsylvania, and her colleagues. There are now 23 interactive activities, and its home page averages 400 visitors/day. The most popular downloads are currently Is Yeast Alive and Mitosis and Meiosis. The collection is the first search result in Google for the terms, teaching biology.

    Serendip offers blog technology to K-12 teachers attending summer institutes.

    Serendip hosts the first Bryn Mawr College undergraduate course to welcome alumnae into online discussion with current students.

    2006: Serendip surpasses 3 million unique visitors in 2006.

    Serendip becomes yet more expansive in its outreach, publishing articles by and conversations with scholars in art history, psychoanalysis, philosophy of science, writing, geology and philosophy, among others. Interacting with and publishing Serendip readers' stories grows, and storytelling across the humanities and sciences, as well as storytelling as a biological process is a major focus.

    Getting it Less Wrong evolves, and is quoted in the New York Times, among other places on the web.

    Serendip continues to develop partnerships with two arts organizations, the Wilma Theater in Philadelphia and the Bryn Mawr Film Institute. Among several Wilma productions, Serendip offers an online forum for Brecht's The Life of Galileo, and Paul Grobstein is a panelist in a Wilma discussion series centered around the play.

    2005: Serendip partners with Alice Lesnick (Education) at Bryn Mawr College to publish an online book developed in an undergraduate Education course, Empowering Learners: A Handbook for the Theory and Practice of Extra-Classroom Teaching.

    A sampling of university courses around the world which use Serendip materials is compiled.

    Serendip surpasses 2 million unique visitors in 2005.

    2004: Serendip hosts The Story of Evolution and the Evolution of Stories: Exploring the Significance of Diversity, an undergraduate course taught by Anne Dalke (English) and Paul Grobstein (Biology) at Bryn Mawr College, the first undergraduate course that we are aware of that could be taken for English or Biology credit.

    Serendip publishes Writing Descartes: I Am, and I Can Think, Therefore ... , an essay by Paul Grobstein and an ongoing experiment in story sharing and story evolution among many colleagues.

    Serendip surpasses 1 million unique visitors in 2004.

    2003: Serendip's Home Page changes to suggest different ways to navigate through Serendip's more than 10,000 pages in a non-hierarchical fashion.

    In teacher workshops, Philadelphia-area teachers were encouraged to create their own web pages in the "experimental sandbox," using wiki technology.

    Serendip partners with Ray McDermott (Stanford) and Herve Varenne (Columbia) to publish an online version of Culture as Disability supplemented by online discussion.

     

    Bob Jensen's links to scholarly sites categorized by discipline ---
    http://www.trinity.edu/rjensen/Bookbob2.htm
    Scroll down to the "Free Tutorials"


    Video from Robert Half
    Finance & Accounting Salary Survey 2011 in the United Kingdom ---
    http://www.youtube.com/watch?v=EmwiT9qU9-0

    Accounting Firm News - KPMG News, KPMG Events, Surveys (Big4.com video Feb 2012-3) ---
    http://www.youtube.com/watch?v=rW7fO7deGt4


    Question
    Is a lower degree of religion in a state correlated with more financial Irregularities?

    "The Impact of Religion on Financial Reporting Irregularities," by Sean T. McGuire, Thomas C,. Omer, and Nathan Y. Sharp, The Accounting Review, March 2012, Volume 87, No. 2, pp 645-674 ---
    http://aaajournals.org/doi/full/10.2308/accr-10206

    This study examines the impact of religion on financial reporting. We predict that firms in religious areas are less likely to engage in financial reporting irregularities because prior research links religiosity to reduced acceptance of unethical business practices. Our results suggest that firms headquartered in areas with strong religious social norms generally experience lower incidences of financial reporting irregularities. We also examine whether religiosity influences managers' methods of managing earnings. Although we find a negative association between religiosity and abnormal accruals, we find a positive association between religiosity and two measures of real earnings management, suggesting that managers in religious areas prefer real earnings management over accruals manipulation. We provide evidence that our results are not driven by firms headquartered in rural areas and conclude that religious social norms represent a mechanism for reducing costly agency conflicts, particularly when other external monitoring is low.

    . . .

    CONCLUSION

    Prior research documents that firms headquartered in areas with high numbers of religious adherents exhibit conservative corporate investing behavior (Hilary and Hui 2009). We use a unique measure of religiosity and extend this line of research to investigate the impact of religious social norms on financial reporting irregularities. We expect firms in religious areas to be less likely to experience financial reporting irregularities because prior research links religiosity to reduced acceptance of unethical business practices. We measure religiosity using a unique database comprised of responses to three questions about religion extracted from over 610,000 interviews conducted nationwide by the Gallup organization during 2008 and 2009.

    Consistent with Dyreng et al. (2010) and Grullon et al. (2010), our results suggest that firms headquartered in areas with strong religious social norms generally experience lower incidences of financial reporting irregularities. Although we find a negative association between religiosity and abnormal accruals, we find a positive association between religiosity and two measures of real earnings management, suggesting that managers of firms in more religious areas prefer real earnings management over accruals manipulation. We also find evidence that the impact of religion on financial reporting is stronger among firms with low levels of external monitoring, and we provide evidence that our results are not attributable to differences in religiosity between rural and urban areas. We conclude that religious social norms represent a mechanism for reducing costly agency conflicts, particularly when other external monitoring is low.

    This study makes several contributions. Our primary contribution to the literature is our finding that religiosity appears to act as a mechanism for monitoring corporate reporting behavior, especially when external monitoring is low. In addition, our findings extend research that examines managers' earnings management activities (e.g., Cohen et al. 2008; Cohen and Zarowin 2010; Badertscher 2011; Zang 2012) by providing evidence consistent with managers in religious areas appearing to favor real earnings management over accrual manipulation. Our overall results also complement concurrent research (Dyreng et al. 2010; Grullon et al. 2010). Specifically, we find that firms headquartered in highly religious areas are less likely to engage in financial reporting irregularities. In our tests, religious social norms are associated with lower accounting risk and lower likelihoods of misreporting associated with accounting-related shareholder lawsuits and accounting restatements.

    More generally, we contribute to the growing number of studies that examine the influence of religion on corporate decision-making (e.g., Hilary and Hui 2009; Dyreng et al. 2010). We provide evidence that financial reporting irregularities are affected by the religious attitudes of the population surrounding corporate headquarters. Our findings indicate that local levels of religiosity influence firms in ways that can affect shareholder value; thus, our study should be of interest to investors, managers, boards of directors, and regulators.

    Jensen Comment

    One of the interesting tables in this study is the ranking of states by "RELIGIOSITY":

    http://www.cs.trinity.edu/~rjensen/temp/ReligiosityByState02.jpg

    Additional Comments by Bob Jensen
    FBI Report on Variables Affecting Crime ---
    http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/crime-in-the-u.s.-2010/caution-against-ranking

    Historically, the causes and origins of crime have been the subjects of investigation by many disciplines. Some factors that are known to affect the volume and type of crime occurring from place to place are:

    • Population density and degree of urbanization. 
    • Variations in composition of the population, particularly youth concentration. 
    • Stability of the population with respect to residents’ mobility, commuting patterns, and transient factors.
    • Modes of transportation and highway system.
    • Economic conditions, including median income, poverty level, and job availability. 
    • Cultural factors and educational, recreational, and religious characteristics
    • Family conditions with respect to divorce and family cohesiveness. 
    • Climate. 
    • Effective strength of law enforcement agencies. 
    • Administrative and investigative emphases of law enforcement. 
    • Policies of other components of the criminal justice system (i.e., prosecutorial, judicial, correctional, and probational). 
    • Citizens’ attitudes toward crime. 
    • Crime reporting practices of the citizenry.

    Obviously some causes work at cross purposes and much depends upon what types of crime are being considered. This makes ranking of states according to crimes somewhat difficult. For example, murder rates tend to increase with population density and weather temperatures, whereas economic conditions affect property crimes. The southern states that rank highest in poverty also rank highest in property crimes ---
    http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/crime-in-the-u.s.-2010/crime-map

    http://www.cs.trinity.edu/~rjensen/temp/RegionalPropertyCrimeRates.jpg

     


    JOBS Act would let companies keep regulatory disputes (including accounting disputes with the SEC)  secret from investors

    It would be nice if this was an April Fools Day joke --- no such luck!
    "In Wake of Groupon Issues, Critics Wary of JOBS Act ," by Michael Rapaport, The Wall Street Journal, April 1, 2012 ---
    http://online.wsj.com/article/SB10001424052702304023504577317932455874856.html?mod=dist_smartbrief

    A little-noticed provision in the new JOBS Act would allow companies to iron out disagreements with regulators behind closed doors before they go public—a provision that might have prevented investors from finding out about Groupon Inc.'s GRPN -11.19% early accounting questions until after they had been resolved.

    The provision, part of the bill passed by Congress and expected to be signed by President Barack Obama this week, would enable companies to submit confidential drafts of their initial-public-offering documents to the Securities and Exchange Commission before they file publicly.

    A little-noticed provision in the new JOBS Act would allow companies to iron out disagreements with regulators behind closed doors before they go public—a provision that might have prevented investors from finding out about Groupon Inc.'s GRPN -11.19% early accounting questions until after they had been resolved.

    The provision, part of the bill passed by Congress and expected to be signed by President Barack Obama this week, would enable companies to submit confidential drafts of their initial-public-offering documents to the Securities and Exchange Commission before they file publicly.

    Continued in article

    "GROUPON’S FIRST 10-K: APRIL FOOL’S!," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, April 1, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/593

    What’s all the hoopla about Groupon’s latest “revision” to its financial reports and lack of internal controls?  Why is everyone acting so surprised?  You should have known something was up when the Groupon’s 10K was so long in coming after earnings were originally released on February 8th.  Moreover, we warned you all in “Trust No One, Particularly Not Groupon’s Accountants,” that this day would soon come.  Remember this?

     It is absolutely ludicrous to think that Groupon is anywhere close to having an effective set of internal controls over financial reporting having done 17 acquisitions in a little over a year.  When a company expands to 45 countries, grows merchants from 212 to 78,466, and expands its employee base from 37 to 9,625 in only two years, there is little doubt that internal controls are not working somewhere.  Any M&A expert will agree.  And don’t forget that Groupon admitted to having an inexperienced accounting and reporting staff.

    We just can’t resist: TOLD YOU SO!  We just wonder what took E&Y so long to figure this out…after all, as Groupon’s auditors, they get to see the Company’s books and records, and we don’t.  Maybe it’s just a case of not being able to see the forest for all of the trees.  That’s not very comforting is it?

    And could it be any more appropriate that this latest “revision” release comes so close to April Fool’s Day?

    For those of you that have real lives and may have missed it, here’s what happened:

    • On February 8, 2012, Groupon issued a press release reporting revenues of $506.5 million, free cash flows of $155.1 million, and operating profits of $15.0 million (among other things). See the Company’s 8K filed on this date for more details.
    • Then, this past Friday after the markets’ close, the Company announced a “revision” to its original earnings press release.  2011 revenues and operating profits were both revised downward, revenues down to $492.2 million and operating profits flipping to a loss of $15 million.  See Groupon’s 8K filed on March 30, 2012 for more details.
    • But the biggest “surprise,” or confirmation of trouble, can be found in Item 9A of the Company’s 2011 10K, also filed on March 30, where Groupon admits to having a material weakness in internal control over financial reporting.  The following Company admissions are particularly damning:

     We did not maintain financial close process and procedures that were adequately designed, documented and executed to support the accurate and timely reporting of our financial results.

     We did not maintain effective controls to provide reasonable assurance that accounts were complete and accurate and agreed to detailed support, and that account reconciliations were properly performed, reviewed and approved.

     We did not have adequate policies and procedures in place to ensure the timely, effective review of estimates, assumptions and related reconciliations and analyses, including those related to customer refund reserves. As noted previously, our original estimate disclosed on February 8 of the reserve for customer refunds proved to be inadequate after we performed additional analysis.

    So, what should all this mean for investors and market regulators?  Well, first of all, the Groupon’s earnings revision which was prompted by an increased reserve requirement for customer refunds, highlights the subjectivity and uncertainty associated with any accounting assumptions (or judgments) made by relatively “new” companies, operating in “new” industries, with inexperienced management: yes, internet companies!  In short, internet company accounting is suspect given all the unsupported assertions and assumptions that must be made to comply with generally accepted accounting principles, not to mention the likely internal control weakness issue.

    Next, we question whether there is any real corporate governance at Groupon whatsoever.  Usually, when material weaknesses surface, heads roll…not at Groupon!  Instead, the board of directors rewarded the Company’s chief financial officer with a salary increase and bonus.  According to a Groupon 8K filed on March 19, 2012:

    Mr. Child’s base salary was increased from $350,000 to $380,000 per year. This increase will be effective on April 1, 2012…Mr. Child’s annual bonus guarantee of $350,000 will remain in place for 2012, and he will receive half of the guaranteed bonus in June 2012. The remainder of the guarantee plus any additional bonus earned under the plan will be paid in the first quarter of 2013.

    Absolutely unbelievable!  Not only does the guy who is responsible for the aforementioned system of internal control bust get to keep his job, but he gets a raise and a bonus!  Need we say more?

    Finally, do you really believe that this material weakness in internal control (and related refund issue) mysteriously appeared in the fourth quarter of 2011?  Of course not, but by assigning it to the fourth quarter of 2011, Groupon and E&Y can avoid the embarrassment of admitting that the financial statements included in the Company’s IPO filing were incorrect.  This is probably not a bad strategy from their perspective given the impending securities litigation that is now lurking.

    Continued in article

    Teaching Case on Groupon
    From The Wall Street Journal Accounting Weekly Review on April 6, 2012

    SEC Probes Groupon
    by: Shayndi Raice and Jean Eaglesham
    Apr 03, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Cash Flow, Contingent Liabilities, Internal Controls, Reserves, Restatement

    SUMMARY: As described by Colin Barr in the related video, "One month after they came out with their fourth quarter numbers, '[Groupon] said--guess what-- "Oh, those were wrong..." The company reissued is report for the quarter and year ended December 31, 2011 because they had not booked a sufficient reserve for customer refunds. In the first quarter of 2012, customer refunds under the company's policy exceeded the amount that management had expected because the company faces higher refund rates when selling Groupons for higher priced goods.

    CLASSROOM APPLICATION: The article is useful in a financial reporting class to cover corrections of errors, restatements, accruals for contingent liabilities, and the difference between earnings and cash flows. The article conveys a sense of the need for confidence in financial reporting in order for investors and others to have confidence in management's abilities. Also mentioned in the article is the firm's auditor, Ernst & Young, stating that this event clearly represents a material weakness in internal control.

    QUESTIONS: 
    1. (Introductory) Based on the information in the article and the related video, what problem is Groupon now having to correct?

    2. (Advanced) Access the press release announcing the revised fourth quarter and full year 2011 results, available on the SEC web site at http://www.sec.gov/Archives/edgar/data/1490281/000110465912022869/a12-8401_3ex99d1.htm. What accounts are affected by the revision? What was the nature of the accounting problem?

    3. (Advanced) Why does first quarter 2012 activity result in accounting changes to fourth quarter 2011 results of operations?

    4. (Advanced) What accounting standards require reissuing Groupon's financial statements as the company has done under these circumstances? What disclosures must be made in these circumstances? Provide references to authoritative accounting standards for these requirements.

    5. (Advanced) As noted in the press release, there was no change to the company's previously reported operating cash flows. Why not?

    6. (Introductory) What sense is portrayed in the article and the video about Groupon's operations and the maturity of its leadership in handling a public company? How does this viewpoint stem from the accounting problems that they have faced in the first quarter of operating as a public company?

    7. (Advanced) How has the company's stock price reacted to this announcement?

    8. (Advanced) (Refer to the related article) What is a material weakness in internal control?

    9. (Advanced) (Refer to the related article) Do you think that Groupon's auditor Ernst & Young needed to perform any systems testing to make the statement about internal control that was quoted in the article? Explain your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Groupon Forced to Revise Results
    by Shayndi Raice and John Letzing
    Mar 31, 2012
    Page: A1

     

    "SEC Probes Groupon," by: Shayndi Raice and Jean Eaglesham, The Wall Street Journal, April 3, 2012 ---
    http://online.wsj.com/article/SB10001424052702303816504577319870715221322.html?mod=djem_jiewr_AC_domainid

    The Securities and Exchange Commission is examining Groupon Inc.'s GRPN -2.48% revision of its first set of financial results as a public company, according to a person familiar with the situation.

    The regulator's probe into the popular online-coupon company is at a preliminary stage and the SEC hasn't yet decided whether to launch a formal investigation into the matter, the person said.

    The SEC decision to examine the circumstances surrounding Groupon's surprise revision is the start-up's latest run-in with the regulator. Groupon twice revised its finances before its November IPO. An SEC spokesperson declined to comment, as did a spokesman for Groupon.

    Groupon shares plunged Monday, ending the day down nearly 17% at $15.27, far below its $20 IPO price. The selloff came despite damage control efforts by Groupon's top two executives, Chief Executive Andrew Mason and finance chief Jason Child.

    The Chicago company also closed ranks around Mr. Child, even as accounting experts and investors criticized his performance. People familiar with the situation said Mr. Child, who joined Groupon from Amazon.com Inc. in December 2010, continues to have the support of Mr. Mason and others at the company.

    Groupon said Friday it was revising its results for the fourth quarter after discovering executives had failed to set aside enough money for customer refunds. The company had reported a loss of $37 million for its fourth quarter. The accounting changes reduced the company's revenue for the quarter by $14.3 million and widened its loss by $22.6 million.

    The revision came after an unsettling discovery in late February. That's when Groupon's chief accounting officer told Messrs. Mason and Child that many customers had returned their coupons in January, said a person familiar with the matter. Read More

    Heard: Disclosure Could Aid Groupon Therapy Deal Journal: Analysts Question Groupon Model After Groupon, Critics Wary of JOBS Act Groupon Forced to Revise Results 3/31/12

    What's worse: the four-year-old company didn't have enough money set aside in its reserves to cover those refunds, according to this person.

    The duo questioned whether this meant people weren't interested in buying daily deals anymore, according to this person: "It made [the executives] think there's got to be something [they] don't understand. A business just doesn't go sideways and go in another direction overnight." Related Video

    Groupon shares slid Monday as several Wall Street analysts questioned the stability of the company's business following a revision of its fourth-quarter results, Dan Gallagher reports on digits. Photo: AP.

    Ultimately both men got comfortable after an internal analysis found only certain types of coupons were being returned, this person said.

    The moment of crisis illustrates how deep the growing pains are at Groupon as it comes to grips with its status as a newly public Web company. In addition to revising its quarterly results, the company on Friday revealed a "material weakness in its internal controls." Insight from CFO Journal

    Investor Outreach Having Big Effect on Say-on-Pay Results Lufthansa Convertibles Monetize JetBlue Stake Multiemployer Pension Plans May Be in Hot Water

    According to people familiar with the situation, Groupon expects to address the material weakness by the time it reports its first-quarter earnings on May 14.

    Groupon has also hired a second accounting firm, KPMG, in addition to its current accountant Ernst & Young. KPMG's role is to make Groupon compliant with Sarbanes-Oxley, federal regulations around accounting and disclosures of public companies. In addition, Groupon plans to hire more accounting and finance staff, said a person familiar with the matter.

    The revision threw open the question of "whether there is any real corporate governance at Groupon whatsoever," wrote professors Anthony Catanach of Villanova University and Ed Ketz of Penn State University on their Grumpy Old Accountants blog.

    Others fingered Groupon's fast growth—its revenue was $1.62 billion last year, up from $14.5 million in 2009—as the culprit for its recent mishaps. Groupon previously had to change its accounting twice before its IPO in response to SEC concerns.

    "I view this as growing pains," said one Groupon investor who declined to be named. "This is like a high school kid who is a five-foot sophomore and becomes seven feet by the time he's a senior."

    At the heart of Groupon's most recent problem is something known as the "Groupon Promise" which allows customers to return one of its coupons. The company has no plans to change its policy, said a person familiar with the matter, since it uses it to compete with rivals like LivingSocial Inc.

    But that policy led to a meeting in late February between Mr. Child and his chief accounting officer Joe Del Preto, just a few weeks after Groupon had reported its first earnings report as a public company.

    For the month of January, Mr. Del Preto told Mr. Child the number of refunds had exceeded all previous models Groupon had built to predict its customers' behavior, said a person familiar with the matter.

    Continued in article

    "Groupon: You Must Have Fallen From The Sky," by Francine McKenna, re:TheAuditors, April 7, 2012 ---
    http://retheauditors.com/2012/04/07/groupon-you-must-have-fallen-from-the-sky/

    Last week was Groupon’s big week, although not in a good way. What happened? Well, the premier source of daily deal dish got knocked down a few more pegs after announcing a revision to 4th quarter earnings and the announcement by management that there was a material weakness in internal controls over financial reporting that was causing their disclosure controls to be ineffective. Groupon went public just a few months ago, last November, and the annual report was the company’s first filing as a public company.

    Here’s one of the few journalists who got the details right, Jonathan Weil of Bloomberg, explaining why, in this case, the news was especially bad:

    Didn’t Groupon know before its initial public offering that its controls were weak? A company spokesman, Paul Taaffe, declined to comment. Let’s assume for the moment, though, that its executives did know. Even then, they wouldn’t have had to tell investors beforehand.

    That’s because there is no requirement to disclose a control weakness in a company’s IPO prospectus. Groupon would have had no obligation to disclose the problem until it filed its first quarterly or annual report as a public company — which is what it did. Sandbagging IPO investors in this manner is perfectly legal, it turns out.

    The reason lies with a gaping hole in the Sarbanes-Oxley Act, which Congress passed in 2002 in response to the accounting scandals at Enron Corp. and WorldCom Inc. That statute had two main sections related to companies’ internal controls, which are the systems and processes that companies are supposed to have in place to ensure the information they report is accurate. Those provisions apply only to companies that are public already, not ones that have registered for IPOs.

    One section, called 302, requires public companies’ top executives to evaluate each quarter whether their disclosure controls and procedures are effective. The other section, known as 404, is better known. It requires public companies in their annual reports to include assessments by management and outside auditors about the effectiveness of their internal controls over financial reporting. Congress left it to the Securities and Exchange Commission to write the rules implementing those provisions.

    Here’s where it gets tricky. Groupon reported the weakness in its financial-reporting controls through a Section 302 disclosure, not a Section 404 report. In other words, the problem was serious enough that it amounted to a shortcoming in the company’s overall disclosure controls.

    Groupon won’t have to comply with Section 404’s requirements until its second annual report, due next year, under an exemption the SEC passed in 2006 for newly public companies. Likewise, Groupon’s auditor, Ernst & Young LLP, to date has expressed no opinion on the company’s internal controls in its audit reports.

    From the moment Groupon announced the revision on March 30, there were two important facts that almost all major media financial journalists got wrong:

    1) The announcement of lower revenue and lower income for the fourth quarter was a revision of an earnings release, not a restatement. Groupon never filed a 10Q so there was no SEC filing to restate. Fessing up to the right numbers in the annual report was the first time the company was bound to report those numbers and, at that time, they corrected previously announced earnings for the 4th Quarter.

    2) Management made the assessment of the material weakness in internal controls over financial reporting that caused disclosure controls to be ineffective, not auditor Ernst & Young. Ernst & Young deserves no credit for the announcement, nor any blame, just yet, for the fact that the weaknesses had to be finally admitted. There is no transparency regarding the auditor’s agreement or disagreement previously with Groupon, any public documentation of their discussions or any reason to believe Ernst & Young either encouraged or discouraged Groupon to get their act together sooner.

    We just don’t know.

    Continued in article

    "THE “BEAUTY” OF INTERNET COMPANY ACCOUNTING," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, April 9, 2012 ---
    http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/604#more-604

    And the same can be said for financial reporting as practiced by internet companies given their “new business models” that require “new accounting.”  Internet company financial statements seem to mean different things to different people, not unlike a piece of artwork.  Unfortunately, some of this accounting “artwork” is junk, as we have recently reported in the case of Groupon (First 10K: April Fool’s!).  At times like this beauty rests in the I of the artist.

    How can management and directors and auditors see one thing, when the complete opposite reflects reality?  And why do internet IPOs seem particularly vulnerable? Well, we think the problem is with the accounting “standards” (and we use that term loosely) that apply to these companies.  As we stated in an earlier post:

    Internet company accounting is suspect given all the unsupported assertions and assumptions that must be made to comply with generally accepted accounting principles…

    Think about it.  The internet company balance sheet is generally dominated by intangible assets whose values are based on assumptions that are works of art themselves.  And then there’s revenue recognition in these companies with management making all kinds of assumptions about primary obligors, selling price hierarchies, and virtual sales.  Yes, what makes internet company accounting “special” is that so many of the applicable accounting rules require major assumptions, many of which could be better characterized as “giant leaps of faith.”  Clearly, the accounting rules used for internet companies should not be called “standards,” as their many judgments make any meaningful comparison an impossibility!  Enough pontificating…

    Given Groupon’s recent accounting struggles we thought it might be interesting to see if there were any other internet company accounting issues lurking within today’s “hot” internet companies.  So, we looked at the most recent 10K filings of Demand Media, Facebook, Groupon, Linked In, and Zynga, focusing primarily on revenue and expense recognition, “unusual” accounting issues, and of course some of our favorites: intangible assets, cash flows, and non-GAAP financial metrics.  Here is what we found.

     

    Revenue

    Two of the five companies (Demand Media and Facebook) generate a significant amount of their revenue from advertising. The way these companies record revenue appears to be relatively straight-forward.  Generally, ad revenue is recognized either when the ad content is delivered, or for click-based ads, when a user clicks on an ad.  Nothing very interesting or complicated here.

    Linked In, on the other hand, has a much more subjective revenue recognition method for its hiring and marketing solutions.  Most of the Company’s contractual arrangements include multiple deliverables, i.e., several products packaged together which Linked In swears can’t be pulled apart to record revenue separately.  Gee, if the Company’s cost accounting system keeps track of product and service costs separately, why can’t revenue be estimated separately? Interesting question, huh?  Anyway, Linked In uses convoluted GAAP criteria to record revenue, the relative selling price method, based on a selling price hierarchy.  In short, management decides what revenue will be based on vendor specific evidence, third party evidence, or management’s best estimate of selling price, in that order of priority.  Which one do you thing management likely favors?

    Then, there’s our poster child for bad internet company accounting, Groupon.  As you may recall, the Company was busted by the SEC for improper revenue recognition last September. SeeGroupon Finally Restates Its Numbers.”  Basically, Groupon ignored accounting guidance (that’s a much better word than “standard”) in Emerging Issues Task Force (EITF) 99-19, as well as SEC Staff Accounting Bulletin 101 (question 10), and recorded the gross amounts it received on Groupon sales as revenues. Since being forced to restate its financial statements, the Company now records revenue at the net amount retained from the sale of Groupons (gross collections less an agreed upon percentage of the purchase price due to the featured merchant excluding any applicable taxes), since it is acting as the merchant’s agent in the transaction.

    It should be noted that Demand Media also faces the “gross vs. net” revenue issue discussed in EITF 99-19.  For revenue sharing arrangements in which the Company is considered the primary obligor, it reports revenue on a gross basis.  But for those situations where it distributes its content on third-party websites and the customer acts as the primary obligor, it records revenue on a net basis.

    And last, but not least, there is Zynga with its consumable or durable virtual goods! For the sale of consumable virtual goods (goods consumed by player game actions), revenue is recognized as the goods are consumed. On the other hand, revenue from the sale of durable virtual goods (goods accessible to a player over an extended period of time) is recognized ratably over the estimated average playing period of paying players for the applicable game.  Confused yet?  Basically, we have to rely on Zynga to provide us with a best estimate of the lives of both consumable and virtual goods to book revenue. As we indicated in “Zynga’s First 10K: Zestful Zephyrs,” by merely changing the game’s rules, the Company can change what it books as revenue! This is all too arbitrary. Are we really surprised?

    So, when it comes to recording revenue, it appears that booking advertising income is relatively easy, compared to the management estimates needed for multiple deliverables (Linked In) and virtual good sales (Zynga), or deciding who the “primary obligor” is (Demand Media and Groupon).  We would not be surprised if some internet companies don’t intentionally complicate their product offerings to make revenue recognition a function of management guesstimates!

     

    Cost Capitalization

    Given that several of these companies are struggling to achieve or maintain profitability, it is not surprising that they would try to record as an asset what really is an expense.  And sure enough, we find several instances of this.  For example, Demand Media capitalizes many different types of costs including content costs, registration and acquisition costs for undeveloped websites and internally developed software, as well as intangible assets acquired in acquisitions.  How significant is this?  Over 72 percent of the Company’s $590.1 million in total assets are intangible in nature!  Now that takes cost capitalization to a new height…we’d probably try that too if we were losing as much money every year as they are (2011’s net loss was $18.5 million).

    Linked In also plays this “game,” but with a new twist.  The Company does do something quite interesting…it defers expensing $13.6 million in commissions already paid on non-cancelable subscription contracts, presumably to match the commission costs with the related revenue streams.  Why stop there?  Couldn’t you make the same argument for a whole host of other expenses as well?  Maybe they did, but Deloitte didn’t buy it.

    Groupon and Zynga also have played a slightly different version of the cost capitalization game, by recording tax assets that presumably will lower future tax liabilities.  In recording these tax assets, the companies reduce income tax expense in the income statement, thus improving the bottom line.  The only problem is that a company must have future taxable income in order to use these alleged tax assets!  Well, if the companies did this to mitigate their operating losses, the game has ended for Zynga, and soon will end for Groupon.

    In 2011 Zynga recorded a $113.4 million allowance against its deferred tax assets, almost fully reserving these assets, and effectively wiping them off the books.  This suggests that the Company may have had a reality check as to its future prospects, given that it no longer projects a future that includes profitability, more specifically taxable income.

    As for Groupon, we highlighted this same tax issue earlier in Groupon’s First 10K: Looking Under the HoodIn 2011, the Company increased its valuation reserve for deferred tax assets by $72.3 million reducing reported deferred tax assets to $65.3 million.  Although Groupon gave no reason for the increased reserve, it likely was forced to record it for the same reason as Zynga, i.e., little likelihood of generating taxable income in the foreseeable future against which deferred tax assets could be used.  So, who would have thought…the income tax note might actually shed some light on what a company really thinks its profit forecast is (as opposed to the press release)!

     

    Other Accounting Issues

    Our internet company reviews also turned up a couple of interesting points, which give us insight into managements’ attitude toward financial reporting transparency…and believe it or not, Groupon is NOT involved!

    The first involves cash, naturally, and how Demand Media “defines” cash.  You may recall that we first reported on the increasing trend of companies to manipulate reported cash balances in What’s Up With Cash Balances?”  And, yes, Demand Media is overstating its balance sheet cash by including accounts receivable as cash even though it has yet to receive the monies.  Here is what the Company’s accounting policy note says:

    Continued in article

    Jensen Comment
    In the 1990s tech boom, startup companies in particular were not making any profits and had cash shortage problems. These companies tried to shift the focus to revenues and devised all sort of (mostly fraudulent) schemes to record non-cash revenue. The EITF worked overtime trying to plug the dikes against new revenue reporting schemes ---
    http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 

     

    Various Teaching Cases Featuring Groupon ---
    http://www.trinity.edu/rjensen/Fraud001.htm

    Search on the word "Groupon"


    There was a time pre-GC when Francine's ReTheAuditors was the only game in town when it came to gossip, layoff news etc. She could generate 500 comments on an article and it was interesting. Not any longer. She is shrill, one sided, and clearly has an axe to grind. She has 99 problems and the Big 4 is all of them. And never any solutions. But worst of all, she has become BORING. Check her website - she's lucky to generate 3 comments on a post these days. Thank god for GC.
    A Comment at in the Going Concern Accounting News Roundup, April 23, 2012 ---
    http://goingconcern.com/post/accounting-news-roundup-ernst-youngs-friends-studying-greats-rick-perry-poor-mans-grover
     

    Francine's re:TheAuditors --- http://retheauditors.com/

    Jensen Comment
    I don't know that Francine has sharpened her axe. She always had an axe to grind, particularly on Deloitte. When she started writing blogs for Forbes her attention to her own blog waned. But she still has some good blogs occasionally about problems of independence among auditors.


    Tax accounting professors Rodney Mock (Cal Poly) and Nancy Shurtz (Oregon) published an opinion piece in the April 16, 2012 edition of The Wall Street Journal.

    "Mock and Shurtz: The TurboTax Crime Wave," by Rodney P. Mock and Nancy Shurtz, The Wall Street Journal, April 16, 2012 ---
    http://online.wsj.com/article/SB10001424052702304444604577339840734386180.html?mod=djemEditorialPage_t

    Jensen Comment
    The so-called Turbo Tax defense has been rejected by the IRS in all but two cases in history (apart from Timothy Geithner's infamous Turbo Tax defense when seeking to be appointed as U.S. Treasury Secretary. These rejections have led to free online consulting services by leading developers of tax preparation services to deal with instances where generalized tax software does not deal with very special and peculiar tax questions. When taxpayers get tax advice directly from consultants it tends to reduce chances of hard nose rejections by the IRS.

    Bob Jensen's tax helpers are at
    http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    If you've not done so, it pays to register with the Federal Government's "Do Not Call List" ---
    http://www.snopes.com/inboxer/pending/donotcall.asp
    Most of us with landline phones have already done so, but this is not entirely successful when seeking to avoid nuisance telemarketing calls. One thing I noticed is that telemarketers are trying to get around the Do Not Call List by using telephone recordings instead of live phone operators who might not be able to avoid your questions that trouble them about phoning you when you're on the Do Not Call List.

    According to Snopes, however, it's unnecessary to re-register to get on a Cell Phone Do Not Call List ---
    http://www.snopes.com/politics/business/cell411.asp


    Owning Up to False Accounting in the Academy
    "Institute Accused of Falsely Reporting How It Spent State Dept. Funds Settles Lawsuit for $1-Million," by Ian Wilhelm, Chronicle of Higher Education, April 16, 2012 ---
    http://chronicle.com/article/Institute-Accused-of-Falsely/131563/?sid=at&utm_source=at&utm_medium=en

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


    With Democrats like Representative Carolyn Maloney of New York, who needs the Republicans?
    Francine McKenna, "New York’s Carolyn Maloney More Focused On Politics Than Investors," re:TheAuditors, April 12, 2012 ---
    http://retheauditors.com/2012/04/12/new-yorks-carolyn-maloney-more-focused-on-politics-than-investors/

    Jensen Comment
    Even though Francine has a long line of labor union DNA and is most likely of progressive persuasion in politics, there's one Democrat that's a burr under Francine's saddle. It's a good thing for Carolyn Maloney that Francine resides in Chicago and not East Side Manhattan or West Side Queens.


    "The Business Side of World University Rankings," by Kris Olds, Inside Higher Ed, April 12, 2012 ---
    http://www.insidehighered.com/blogs/globalhighered/business-side-world-university-rankings

    Bob Jensen's threads on university and college ranking controversies ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings


    "Why Hedge Interest Rate Exposures?" by Mary Brooikhart, Bank Asset/Liability Management, March 2012 ---
    http://www.kawaller.com/pdf/BALM-WhyHedgeInterestRateExposures.pdf
    Thank you Ira Kawaller for the heads up.

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


    LIBOR --- http://en.wikipedia.org/wiki/Libor

    This is Crime, Not Capitalism
    "Wall Street con trick," by Ellen Brown, Asia Times, March 24, 2012 ---
    http://www.atimes.com/atimes/Global_Economy/NC24Dj05.html

    "Far from reducing risk, derivatives increase risk, often with catastrophic results." -
    Derivatives expert Satyajit Das, Extreme Money (2011)

    *****************
    Jensen Comment
    Derivatives are great contracts to manage risk if their markets are efficient, fair, and transparent.
    They don't reduce risk in most instances, because it's impossible in hedging to reduce risk in most instances. Rather hedging entails shifting risk. For example, a company that has cash flow risk due to variable interest rate debt can hedge that cash flow risk. However, elimination of cash flow risk creates fair value risk. The issue is not one of reducing risk. Rather it is a shift in risk preferences.
    ******************

    The "toxic culture of greed" on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times. In other recent eyebrow-raisers, London Interbank Offered Rates (or LIBOR) - the benchmark interest rates involved in interest rate swaps - were shown to be manipulated by the banks that would have to pay up; and the objectivity of the International

    Swaps and Derivatives Association was called into question, when a 50% haircut for creditors was not declared a "default" requiring counterparties to pay on credit default swaps on Greek sovereign debt.

    Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade. In February, JP Morgan Chase revealed that it had cleared US$1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank's biggest sources of profit. According to the Bank for International Settlements:
    [I]nterest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of June 2009 in OTC [over-the-counter] interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007. The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.
    For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.

    This was not a flood, earthquake, or other insurable risk due to environmental unknowns or "acts of God". It was a deliberate, manipulated move by the Federal Reserve, acting to save the banks from their own folly in precipitating the credit crisis of 2008. The banks got into trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers.

    How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled "Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire":
    In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.
    Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean. But the Fed artificially manipulated the rates to the save the banks.

    After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals. Auction interest rates soared when bond insurers' ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

    Continued in article

    Bob Jensen's fraud updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    Bob Jensen's tutorials on derivative financial instruments ---
    http://www.trinity.edu/rjensen/caseans/000index.htm

    Bob Jensen's timeline of derivative financial instruments and hedging scandals ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

     


    Knowledge Maps Versus Concept Maps

    Knowledge Mapping --- http://en.wikipedia.org/wiki/Knowledge_mapping

    April 7, 2012 message from Scott Bonacker

    While looking at references to the book "Getting to Yes" in the context of contemporary politics I came across another mapping tool.

    This is the article - and information about the tool - http://litemind.com/getting-to-yes/ 

    There is also a related free product - http://freemind.sourceforge.net/wiki/index.php/Main_Page 

    Scott Bonacker CPA -
    McCullough and Associates LLC -
    Springfield, MO

     

    The Theory Underlying Concept Maps and How to Construct and Use Them

    Concept Maps --- http://en.wikipedia.org/wiki/Concept_maps

    Concept Mapping Software --- http://www.trinity.edu/rjensen/000aaa/thetools.htm

    Description: Concept mapping (a method of brainstorming) is a technique for visualizing the relationships between concepts and creating a visual image to represent the relationship.  Concept mapping software serves several purposes in the educational environment.  One is to capture the conceptual thinking of one or more persons in a way that is visually represented.  Another is to represent the structure of knowledge gleaned from written documents so that such knowledge can be visually represented.  In essence, a concept map is a diagram showing relationships, often between complex ideas.  With new mapping software such as the open source Cmap ( http://www.cmap.ihmc.us/download/ ), concepts are easily represented with images (bubbles or pictures) called concept nodes, and are connected with lines that show the relationship between and among the concepts.  In addition, the software allows users to attach documents, diagrams, images other concept maps, hypertextual links and even media files to the concept nodes.  Concept maps can be saved as a PDF or image file and distributed electronically in a variety of ways including the Internet and storage devices.

     

    "The Theory Underlying Concept Maps and How to Construct and Use Them." by Joseph D. Novak & Alberto J. Cañas, Florida Institute for Human and Machine Cognition Pensacola Fl, 32502 --- http://cmap.ihmc.us/Publications/ResearchPapers/TheoryCmaps/TheoryUnderlyingConceptMaps.htm

    Concept maps are graphical tools for organizing and representing knowledge. They include concepts, usually enclosed in circles or boxes of some type, and relationships between concepts indicated by a connecting line linking two concepts. Words on the line, referred to as linking words or linking phrases, specify the relationship between the two concepts. We define concept as a perceived regularity in events or objects, or records of events or objects, designated by a label. The label for most concepts is a word, although sometimes we use symbols such as + or %, and sometimes more than one word is used. Propositions are statements about some object or event in the universe, either naturally occurring or constructed. Propositions contain two or more concepts connected using linking words or phrases to form a meaningful statement. Sometimes these are called semantic units, or units of meaning. Figure 1 shows an example of a concept map that describes the structure of concept maps and illustrates the above characteristics.

    Another characteristic of concept maps is that the concepts are represented in a hierarchical fashion with the most inclusive, most general concepts at the top of the map and the more specific, less general concepts arranged hierarchically below. The hierarchical structure for a particular domain of knowledge also depends on the context in which that knowledge is being applied or considered. Therefore, it is best to construct concept maps with reference to some particular question we seek to answer, which we have called a focus question. The concept map may pertain to some situation or event that we are trying to understand through the organization of knowledge in the form of a concept map, thus providing the context for the concept map.

    Another important characteristic of concept maps is the inclusion of cross-links. These are relationships or links between concepts in different segments or domains of the concept map. Cross-links help us see how a concept in one domain of knowledge represented on the map is related to a concept in another domain shown on the map. In the creation of new knowledge, cross-links often represent creative leaps on the part of the knowledge producer. There are two features of concept maps that are important in the facilitation of creative thinking: the hierarchical structure that is represented in a good map and the ability to search for and characterize new cross-links.

    A final feature that may be added to concept maps is specific examples of events or objects that help to clarify the meaning of a given concept. Normally these are not included in ovals or boxes, since they are specific events or objects and do not represent concepts.

    Concept maps were developed in 1972 in the course of Novak’s research program at Cornell where he sought to follow and understand changes in children’s knowledge of science (Novak & Musonda, 1991). During the course of this study the researchers interviewed many children, and they found it difficult to identify specific changes in the children’s understanding of science concepts by examination of interview transcripts. This program was based on the learning psychology of David Ausubel (1963; 1968; Ausubel et al., 1978). The fundamental idea in Ausubel’s cognitive psychology is that learning takes place by the assimilation of new concepts and propositions into existing concept and propositional frameworks held by the learner. This knowledge structure as held by a learner is also referred to as the individual’s cognitive structure. Out of the necessity to find a better way to represent children’s conceptual understanding emerged the idea of representing children’s knowledge in the form of a concept map. Thus was born a new tool not only for use in research, but also for many other uses.

    Psychological Foundations of Concept Maps

    The question sometimes arises as to the origin of our first concepts. These are acquired by children during the ages of birth to three years, when they recognize regularities in the world around them and begin to identify language labels or symbols for these regularities (Macnamara, 1982). This early learning of concepts is primarily a discovery learning process, where the individual discerns patterns or regularities in events or objects and recognizes these as the same regularities labeled by older persons with words or symbols. This is a phenomenal ability that is part of the evolutionary heritage of all normal human beings. After age 3, new concept and propositional learning is mediated heavily by language, and takes place primarily by a reception learning process where new meanings are obtained by asking questions and getting clarification of relationships between old concepts and propositions and new concepts and propositions. This acquisition is mediated in a very important way when concrete experiences or props are available; hence the importance of “hands-on” activity for science learning with young children, but this is also true with learners of any age and in any subject matter domain.

    Continued in article

    "Using Cmap Tools to Create Concept Diagrams for Accounting," by Rick Lillie, AAA Commons --- http://commons.aaahq.org/posts/6d0b8c8402
    There are many comments following this entry on the AAA Commons

     


    I certainly hope this isn't an April Fools Day joke..
    "Texas jury slaps $195 million penalty on TaxMasters, CEO Cox (files for bankruptcy)," by Libloather, Yahoo News, March 30, 2012 ---
    http://www.freerepublic.com/focus/f-news/2866808/posts

    Jensen Comment
    This makes me wonder where this scum bag buried his loot.

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


    "New rules will decimate profits," by Steve Johnson, Financial Times, April 15, 2012 ---
    http://www.ft.com/intl/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#axzz1sCTvYf00

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#ixzz1sEKqe1T3

    New accounting rules that will stop companies from padding their earnings statements with anticipated pension fund returns that may never materialise will slash hundreds of millions of euros from the profits of many European companies next year, according to Citi, the investment bank.

    A tightening of the International Accounting Standards Board’s IAS 19 directive from 2013 will bar companies from using the so-called “corridor rule”, which allows them to keep actuarial losses suffered by their final salary pension schemes off their balance sheets.

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/b5acc0e6-84b1-11e1-b4f5-00144feab49a.html#ixzz1sEKwjTDD

    Companies will also have to align the forecast rate of return from their pension fund assets with the discount rate used to value future liabilities in their profit and loss accounts.

    These factors will cut the annual pre-tax profits of companies such as Nestlé, Fiat, BT, Siemens, Philips, Credit Suisse, National Grid, BAE Systems, Michelin and Akzo Nobel by more than €100m, said Citi.

    The US bank foresaw a hit of €780m at Alcatel-Lucent, the French telecoms group, more than erasing consensus forecasts for a pre-tax profit of €509m in 2013/14. In the UK, transport companies exposed to the £20bn Railways Pension Scheme are among those seen as likely to be worst hit, with the rule changes seen cutting earnings by 28.8 per cent at FirstGroup, 19.3 per cent at Go-Ahead Group and 12.2 per cent at Stagecoach.

    Many of these companies set the expected rate of return on their pension fund assets 1-2 percentage points higher than their discount rate, which is the yield on high-quality corporate bonds. For Alcatel-Lucent and Fiat, which has a pension deficit larger than its market capitalisation, the gap is 2.5 points.

    “The current IAS 19 accounting requirement usually flatters the earnings of companies with large pension schemes,” said Neil Dawson, an analyst at Citi. “We do not think this accounting change has been widely factored into earnings forecasts at this stage.”

    Both KPMG and Aon Hewitt said the accounting change was likely to wipe around £10bn from the annual profits of companies in the UK, where pension funds’ equity holdings are a relatively high 40 per cent.

    “There will be a handful of companies that are heavily impacted because [their pension funds] are heavily invested in equities. There may be a few surprises, in terms of how much of the profit was coming from the pension scheme,” said Mike Smedley, partner at KPMG.

    Eric Steedman, senior international consultant at Towers Watson, added: “For the majority it will decrease earnings because they will no longer be able to allow, in the P&L, for an assumed outperformance of riskier assets,” although it will increase earnings for a minority of companies that largely hold government bonds in their schemes, he added.

    As a result the changes may accelerate the pension schemes’ ongoing switch out of equities and into lower risk assets.

    “If you can no longer have access to a higher expected return on assets because you have risk-seeking assets then you have less incentive to take risk,” said Deborah Cooper, partner at Mercer.

    However Ms Cooper believed the outlawing of the corridor approach would have more impact on the continent, where the technique is more prevalent.

    “In continental Europe they are more likely to have used a corridor approach. They will have to start to recognise immediately the entire effect on their balance sheet and that will be an ongoing volatility on their balance sheet that they did not have before.”

    Continued in article

    Bob Jensen's threads on accounting theory are at
    http://www.trinity.edu/rjensen/Theory01.htm


    From The Wall Street Journal Accounting Weekly Review on April 6, 2012

    Tax Pitfalls for Fund Investors
    by: Rachel Louise Ensign
    Apr 05, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: Capital Gains, Personal Taxation, Tax Laws, Tax Planning

    SUMMARY: This article is the first in an entire report on tax strategies and other issues related to investing in mutual funds. The related video discusses the potential changes in taxation from expected lapses in current tax laws. As well, the article has a related Podcast of only audio broadcast at http://podcast.mktw.net/wsj/audio/20120402/pod-wsjepensign/pod-wsjepensign.mp3 that discusses "mistakes mutual fund investors make"-the focus of this article.

    CLASSROOM APPLICATION: The article is useful in a class on personal taxation when covering topics related to Schedule D and to IRAs.

    QUESTIONS: 
    1. (Introductory) What is the difference in tax treatment between ordinary income and capital gains? How are these terms defined in tax law?

    2. (Advanced) Why should an investor consider putting certain types of investments in an IRA or 401(K) plan while including others in taxable investment accounts?

    3. (Advanced) If an investor has capital gains on an investment but also has incurred losses on another investment, what should that investor do? How must an investor be careful to avoid "wash sale rules"? In your answer, define the term "wash sales."

    4. (Advanced) Why are gains on investments in an exchange-traded funds (ETFs) that hold gold taxed differently than are gains on investments in other mutual funds?

    5. (Advanced) According to the related podcast, when considering whether to invest in a Roth IRA or a 401 K, investors should consider what changes to tax rates are expected. Why?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Tax Pitfalls for Fund Investors," by Rachel Louise Ensign, The Wall Street Journal, April 5, 2012 ---
    http://online.wsj.com/article/SB10001424052970204603004577269872566639722.html?mod=djem_jiewr_AC_domainid

    Fund investors can go wrong in all sorts of ways. But since mid-April is fast approaching, let's talk about one of the most common and least understood: taxes.

    Even if it is too late to do anything about this year's returns, it is a good time to start planning for next year's.

    At the root of the most common blunders are three types of taxable fund payouts: interest income, dividends and capital gains. While all three are subject to a complex web of tax rates and regulations, investors can limit their tax bills by understanding their funds, planning carefully and staying abreast of tax changes in Washington.

    Here, according to financial advisers, are five of the biggest mistakes many fund investors make:

    1. Keeping 'tax-inefficient' funds in a taxable brokerage account

    Some types of funds distribute lots of dividends, interest income and capital gains, all of which can boost tax bills. Many investors would be better off holding those funds in tax-sheltered retirement accounts. With a standard 401(k) plan or individual retirement account, you pay tax only when you make withdrawals; earnings and withdrawals usually are tax-free in a Roth 401(k) or Roth IRA.

    Tax-efficient funds—those unlikely to make big distributions—can be left in a taxable account, says Michael Gibney, a financial adviser in Riverdale, N.J. You will owe capital-gains tax if you sell those securities at a gain, but at least the timing of such sales is under your control.

    Taxable-bond funds, including high-yield funds and funds holding Treasury inflation-protected securities, are among the investments you might consider holding in an IRA, advisers say. Ditto for funds that emphasize high-dividend stocks. Meanwhile, index funds that track a broad stock-market benchmark—and most but not all ETFs—might be candidates for a taxable account, as would municipal bond funds, since interest earned is tax-free.

    Determining whether a fund is going to have capital gains can be tricky. Each year, funds must distribute gains if portfolio managers sell securities for a net taxable gain. One indicator is the level of turnover in the portfolio, though, admittedly, it is an imprecise gauge.

    The higher a fund's turnover, a figure that can be found on Morningstar.com, the more likely it is to pay out capital gains, says Mark Armbruster, president of Armbruster Capital Management, which is in the Rochester, N.Y., area. If a fund has paid out capital gains in the past, something that also can be found on Morningstar, that also is a sign it may do so again, he says.

    Small-stock funds may produce more capital gains than large-stock funds, advisers say, because there are many more small stocks to trade among.

    Broad index funds, which don't change their holdings very often, are less likely to pay out capital gains than some actively managed funds that change their investments based on market conditions. The Vanguard 500 Index fund, for example, has a 4% turnover ratio and hasn't distributed capital gains since 1999. The actively managed CGM Focus, on the other hand, has a nearly 500% turnover rate. It has performed poorly in recent years, so it hasn't been in a position to distribute gains, but it distributed $8.21 a share in mostly short-term capital gains in 2007.

    Still, when and why a fund realizes capital gains is complex, so "turnover is only a very rough gauge of tax efficiency," says Christine Benz, director of personal finance at Morningstar. Another gauge is Morningstar's "potential capital-gains exposure" statistic, an estimate of the percentage of a fund's assets that represent mostly unrealized gains.

    ETFs, in particular, rarely distribute capital gains, Mr. Armbruster says. That is because most are index funds but also because they are structured to minimize taxable sales of portfolio securities.

     

    2. Holding on to funds that cost you big

    Capital gains, whether taken on purpose by the investor or passed along by a fund, can add to your tax bill. But you can lessen their impact by strategically booking capital losses when holdings decline in value, so that they offset any gains dollar for dollar. In any year, if your capital losses exceed your capital gains, you can take up to $3,000 of the loss as a tax deduction and carry the rest of the loss forward to offset gains in future years.

    This "tax-loss harvesting" has to be done carefully, however, to comply with Internal Revenue Service rules. Once you sell a fund or other security at a loss, you have to wait 30 days before buying either that same fund or a very similar fund (for instance, one that tracks the same index), or the loss is invalidated. "The securities cannot be 'substantially identical,' " says Gil Charney, principal tax researcher at the Tax Institute at H&R Block, a division of H&R Block Inc., but "the IRS never clearly defined what substantially identical means.… It's gray."

    If you want to keep exposure to the sector that fund covered, you can buy a slightly different fund—for instance, you likely could sell a fund tracking the Standard & Poor's 500-stock index and immediately buy one tracking the Russell 1000, says Mr. Armbruster. You could later return to your original holding.

    Keep tax-loss harvesting in mind any time the market or a particular holding suffers a major decline; you'll miss opportunities if you think about this only near year-end.

     

    3. Buying an ETF without learning what its tax treatment is

    Gains and income from certain ETFs are subject to funky tax rules because of the funds' holdings or their corporate structures. Though most of these aberrations invest in niche industries, some of the most popular ETFs could leave you with a surprisingly large tax bill.

    The most popular offender: Gains from selling SPDR Gold Shares, GLD +0.70% the second-largest exchange-traded product by assets, are taxed at a top 28% rate on collectibles, rather than the maximum 15% rate on long-term capital gains. That is true for all other funds that hold physical precious metals.

    There are different rules for ETFs that provide commodities exposure by investing in futures contracts: Gains are taxed 60% at a long-term rate and 40% at a short-term rate. ETFs structured this way include some from the U.S. Commodity, PowerShares and ProShares families.

    Also, some non-stock ETFs are structured as partnerships and report their tax information on a Schedule K-1 instead of the common 1099 form. Schedule K-1 typically is sent later than a 1099—it may not even arrive before your tax return is due because the partnership has to file its own return before sending you this form, says Eric Smith, an IRS spokesman. In this situation, you'll want to ask for an extension from the IRS, he says. You can avoid these hassles by holding these funds in an IRA.

     

    4. Fudging the new forms

    Reporting securities sales on your tax return has gotten more complex, with new rules that require brokerage firms and fund companies to report to the IRS what you paid for some securities you sell. Because that reporting applies only to securities purchased after specified dates, you may have sales of both "covered" and non-covered assets. As in the past, for non-covered securities, the financial firm may voluntarily provide cost information only to you.

    The new rules could make tax preparation more complex, tripping up some investors.

    "Basically what they've done is taken Schedule D and added a new schedule behind it—Form 8949. All the transactions you used to put directly on Schedule D…are now on this new form," says Robert Schmansky, a financial adviser in Bloomfield Hills, Mich.

    The most important thing to know about Form 8949 is that you will have to separate the covered transactions from those that aren't and report them on different lines. Individual stocks purchased on or after Jan. 1, 2011, are covered; for mutual funds and most ETFs, the new treatment applies to purchases on or after Jan. 1, 2012. Then, you must add the covered and non-covered transactions and put the total on Schedule D.

     

    5. Investing without paying attention to the tax debate in Washington

    When deciding when to take gains and what account to hold various funds in, it is important to stay abreast of what is going on in Washington.

    Think hard about where tax rates are likely headed in the future. While some tax changes affecting funds are already in store, some experts watching the political debate—and the ballooning federal deficit—say investors may want to hedge their bets against higher rates and pay taxes on their gains soon.

    There are a number of big tax changes on tap starting in 2013 that could deal a huge blow to your funds. If the Bush tax cuts are allowed to expire, the top rate on ordinary income and short-term capital gains will rise to 39.6% from 35%.

    The current top 15% rate on long-term capital gains is set to rise to 20%. Qualified dividends will no longer be taxed at a top 15% rate and will be taxed as ordinary income. Also, net investment income, which includes dividends, interest and capital gains, will be subject to a new 3.8% Medicare tax, part of the Affordable Care Act, for married couples filing jointly who earn more than $250,000 a year and individuals earning more than $200,000 a year.

    One possibility is that some of the current rates will be extended for most taxpayers, but not for high earners. "People who are over the $250,000 mark—Obama has drawn a line in the sand for those people," says Ken Weingarten, a financial adviser in Lawrenceville, N.J. "It's going to be crazy after the election. There is going to be a lot of horse trading to get these things straightened out."

    Continued in article

    Bob Jensen's tax helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    From Ernst & Young
    Joint Project Watch - March 2012

    The standard-setting activities of the FASB and the IASB on their joint projects continue to move forward. The Boards have issued final guidance or exposure drafts on several projects and continue to redeliberate others. Our Joint Project Watch publication is designed to give you a snapshot of key developments from a US GAAP perspective, along with our observations about the potential implications for companies.
    http://lyris.ey.com/t/600656/1640432/4353/0/


    Fair Value Accounting Triples Pension Plan Deficits

    "Multiemployer Pension Plans May Be in Hot Water," by Vipal Monga, CFO Journal, March 30, 2012
    http://blogs.wsj.com/cfo/2012/03/30/multiemployer-pension-plans-may-be-in-hot-water/?mod=wsjpro_hps_cforeport

    "US union pensions hole deepens to $369bn," by Dan McCrum and Ajay Makan, Financial Times, April 8, 2012 ---
    http://www.ft.com/intl/cms/s/0/45dbbafe-7838-11e1-bffc-00144feab49a.html#axzz1rYrnhC2W

    The hole in the pension plans of US labour unions now stands at $369bn Credit Suisse has calculated with the aid of new reporting standards. This raises the prospect of higher pension contributions for employers and deteriorating industrial relations.

    Multi-employer pension schemes, managed by trade unions on behalf of members working for many different employers, are now just 52 per cent funded, the bank calculates with m ost of the burden to close this gap likely to fall on small and midsize companies.

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/45dbbafe-7838-11e1-bffc-00144feab49a.html#ixzz1rYt41s8G

    S&P 500 companies’ share of this obligation is estimated at just $43bn. However Credit Suisse identifies seven large companies in the S&P, including Safeway and UPS, where the pension liability is a significant proportion of their market capitalisation.

    There is also a “last man standing” risk for companies if other contributors to a fund fail. In 2007 it cost UPS $6.1bn to withdraw entirely from the Central States Pension Fund, capping its liability.

    More than 10m people are covered by such multi-employer schemes with contribution rates typically set by the collective bargaining agreements that cover pay, benefits and working conditions. Membership of these funds, and the businesses contributing to them, tend to be concentrated in industries with highly unionised workforces, such as construction, transport, retail and hospitality.

    The Financial Accounting Standards Board, which regulates reporting of US pensions, now requires companies to disclose more details about their involvement with such plans in their annual regulatory filings.

    Credit Suisse combined these with separate filings from over 1,350 multi-employer plans. “FASB provided the key to unlocking the door”, said David Zion, head of accounting research for the bank.

    Continued in article

    Bob Jensen's threads on pension accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#Pensions

     

     

    Jensen Comment
    I my view, this is precisely the reason we need better pension accounting. Short term mark-to-market adjustments can be somewhat misleading when pension obligations are long term. Fir example, the enormous crash of markets in 2008 recovered dramatically in 2010. There are no disputes that both cost and fair values should be disclosed. The controversies arise as to whether current earnings should go up and down with booked (as opposed to disclosed) short term volatility in pension assets, volatility that most likely will not be realized until pension payments are made in the distant funter.

    Bob Jensen's threads on pension accounting controversies are at
    http://www.trinity.edu/rjensen/Theory02.htm#Pensions

    Bob Jensen's threads on fair value accounting controversies are at
    http://www.trinity.edu/rjensen/Theory02.htm#FairValue


    The SEC is doing a big favor for tort lawyers

    The SEC prides itself on ensuring that U.S. markets are transparent, but in ruling out arbitration it has said no without any explanation. The matter deserves a fair hearing.
    "The Alternative to Shareholder Class Actions:  The SEC blocks arbitration without any explanation," by Hal Scott and Leslie Silverman, The Wall Street Journal, April 1, 2012 ---
    http://online.wsj.com/article/SB10001424052702303816504577312373860495762.html#mod=djemEditorialPage_t

    Last month, the Securities and Exchange Commission rejected attempts by the Carlyle Group, and proposals by stockholders of Pfizer and Gannett, to mandate arbitration rather than litigation in disputes between investors and management. The SEC gave no explanation for its action on Carlyle (related to an upcoming public offering), and it said opaquely the Pfizer and Gannett proposals might violate the securities laws.

    Arbitration has opponents inside the agency, of course, and among plaintiffs lawyers. They claim stockholders will receive less for management wrongdoing, and that this will lead to less deterrence of such wrongdoing. But this argument ignores some important facts. And it does not address the problem identified by the Committee on Capital Markets Regulation—that securities class-action litigation may be the most burdensome feature of U.S. capital markets.

    From 2000 through 2011, the total value of all U.S. securities class-action settlements was approximately $64.4 billion, according to NERA Economic Consulting. These settlements do little to accomplish the class action's traditional goals of compensation and deterrence.

    Unlike mass tort litigation, securities class actions involve stockholders who are often both plaintiffs and investors in the defendant corporation. The suits are invariably settled before trial, generally for pennies on the dollar. Small investors recover so little they often do not bother to file for their money: 40%-60% of settlement funds generally go unclaimed, according to research prepared for the Committee on Capital Markets. Regardless, plaintiffs attorneys take up to 35% of the total settlement.

    The lawsuits do little to deter wrongdoing. The stockholders funding a settlement generally have no knowledge of management misdeeds—they simply held the wrong stock at the wrong time. Managements—the actual wrongdoers and proper objects of deterrence—rarely pay a dime, as the corporation's directors' and officers' insurance picks up the settlement cost.

    Real deterrence comes from whistleblowers and the media, whose reports of fraud send share prices plunging. Deterrence also comes from the strongest public-enforcement system in the world—administered by the Department of Justice, the SEC and the state officials.

    Securities class actions undercut the competitiveness of the U.S. capital markets. Plaintiffs attorneys have demonstrated a clear tendency to target the largest public companies, and because insurance firms will not provide settlement coverage over a few hundred million dollars, public companies face substantial risk. Further, foreign corporations are reluctant to list and trade here, while private U.S. corporations have grown wary of going public.

    In 2011, 7% of U.S. companies that did go public did so abroad. They were no doubt motivated in part by the litigiousness they can avoid under the Supreme Court's decision in Morrison v. National Australia Bank (2010), which does not permit securities claims by private plaintiffs for shares purchased or sold on a foreign exchange. Historically, it was almost unheard of for American companies to go public outside the U.S.

    It does not have to be this way. Companies and their stockholders have recently begun exploring mechanisms by which disputes must be settled in individual, private arbitration, taking advantage of the lower costs and quicker results such arbitration affords. They are following the national policy in favor of arbitration embodied in the Federal Arbitration Act of 1925 and confirmed by the Supreme Court in AT&T Mobility v. Concepcion (2011), which struck down a California anti-arbitration law. Other important Supreme Court cases include Rodriguez de Quijas v. Shearson American Express (1989), which held that arbitration does not violate federal securities laws that prohibit waivers of substantive rights guaranteed by law, such as anti-fraud provisions.

    Despite arbitration's endorsement by Congress and the Supreme Court, the SEC has rebuffed efforts to substitute arbitration for securities class actions. So in the recent cases cited above, investors—prospective, in the case of Carlyle, and existing, in the case of Pfizer and Gannett—were deprived of the opportunity to decide upon the dispute-resolution procedure they preferred.

    The SEC prides itself on ensuring that U.S. markets are transparent, but in ruling out arbitration it has said no without any explanation. The matter deserves a fair hearing.

    Continued in article

    Jensen Comment
    Mary Shapiro's SEC repeatedly brings down tiny and insignificant punishments on wrongdoers. My guess is that she fears arbitrators will be too tough on wrongdoers that have a lot of clout with her bosses in Congress.

     

    Is this an April Fools Joke?

    Caleb Newquist, Editor of Going Concern, is joining KPMG
    But I'm not certain whether or not this is a April Fools Joke

    From his partner Jr. Deputy Accountant Adrienne Gonzolaz on April 1, 2012

    I have to admit, I never thought I would be writing this. I bring you this news with both sadness and excitement; sadness for losing my partner-in-crime and excitement for finally being able to make an unlimited number of misogynist bro jokes without getting berated by my editor.

    According to KPMG sources that asked not to be identified, our esteemed Going Concern founder Caleb Newquist has been lured back to the firm at which he learned to question all things public accounting and will be leaving us to take a position in KPMG's communications department.

    "Our communications department is thrilled to finally be able to get it," said our source. "We look forward to actually relating to the kids and getting the recognition we deserve as a true Big 4 firm and know that Mr. Newquist has the ability to deliver these kinds of results for KPMG."

    Calls made after hours to the KPMG Denver and New York offices where Colin once worked were not returned.

    Effective immediately, all outstanding tips and advice emails you have sent us will be distributed evenly between me, Braddock and Joe Kristan.

    "I have to admit I'm shocked," said Sift Media Managing Director Tom Dunkerley via email this morning. "I wish Caleb the best of luck, he'll need it."

    Although Colin wasn't answering my texts all night, I finally got this statement out of him: "Frankly, I was a little surprised when I got the call offering me the position. I thought most of my bridges were burned after publishing so many unflattering stories about KPMG and ribbing John Veihmeyer with all the Notre Dame jokes. I look forward helping KPMG break into the Big 4. I'll miss working with Adrienne, Dan, and Joe and the rest of Sift Media. But not Tom Dunkerley. He can sod off."

    We'll miss you, homie. Please send us a hat.


    "Students Endlessly E-Mail Professors for Help. A New Service Hopes to Organize the Answers," by Jeffrey R. Young, Chronicle of Higher Education, April 1, 2012 ---
    http://chronicle.com/article/Students-Endlessly-E-Mail/131390/?sid=wc&utm_source=wc&utm_medium=en

    Meet the Ed-Tech Start-Ups

    It's a golden age for educational-technology start-ups. The past three years have seen a spike in venture-capital investment in upstart companies, many founded by entrepreneurs just out of college. Last month The Chronicle outlined the trend ("A Boom Time for Education Start-Ups"), but we wanted to dig deeper.

    Below are short features on three such companies, focusing on the problems they hope to solve and the challenges they face in selling their unusual ideas. To get a sense of the emerging field, we've included a list of a dozen other start-ups competing for a piece of the action.

    Pooja Sankar may eliminate the need for professors to hold office hours, or to endlessly respond to student questions by e-mail.

    Ms. Sankar, a recent graduate of Stanford University's M.B.A. program, leads a start-up focused on finding a better way for college students to ask questions about course materials and assignments online. Her company, Piazza, has built an online study hall where professors and teaching assistants can easily monitor questions and encourage students who understand the material to help their peers.

    At first blush, the service seems unnecessary. Students can already e-mail questions to professors or fellow students, and most colleges already own course-management systems like Blackboard that include discussion features. But Ms. Sankar feels that such options are clunky. She says professors are finding that Piazza can save them hours each week by allowing them to post answers to a single online forum rather than handle a scattershot of student e-mails.

    Piazza is a Web site that refreshes with updates as new questions or answers come in. Professors simply set up a free discussion area for their course on the service at the beginning of the term and invite their students to set up free accounts to participate. Ms. Sankar says that students typically keep Piazza open on their screens as they work on homework, often staying on the site for hours at a time.

    Ms. Sankar, who is 31, was inspired to create the service based on her own experience as an undergraduate in India, where she studied at the highly selective Indian Institute of Technology at Kanpur. She says she was a shy student, and one of only three women majoring in computer science, so she often found herself watching from the wings as more social students collaborated on homework assignments. She felt there had to be a way to recreate a study hall online, in a way that made it easy for shy students to ask questions anonymously.

    After graduating, she got a master's degree in computer science at the University of Maryland at College Park, and then worked as an engineer for Facebook and other companies for a few years. When she decided to head to Stanford to study business, she was sure she would not try to start a company of her own, since she found the prospect "too scary." But a course on entrepreneurship made her realize that the path to a company was simply a series of "baby steps," and that she wanted to bring her vision of a better "question-and-answer platform" to life.

    She wrote the original version of Piazza herself, after teaching herself the programming language Ruby on Rails from a book. By the time she first sought investors, she already had hundreds of students using the service. She raised an initial round of $1.5-million last year from the venture-capital firm Sequoia Capital, and raised an additional $6-million from investors in November.

    As of yet, the site has no plans to generate revenue—the service is free and does not carry advertisements. Ms. Sankar said that she didn't write a business plan for the site, because she doesn't believe in them, and that she believes that once a critical mass of students and professors are signed up, revenue models can emerge. When pressed, she says that in the future the company may charge for advanced analytics for professors or other extra features.

    She spends much of her time seeking feedback from users and obsessively tinkering with the service in hopes of improving it. "I am an engineer at heart," she explains.

    To spread the word about the site, she has taken an unusually personal approach. She sends e-mail messages to professors telling her story and the goal of the site, and asking them to try it.

    Greg Morrisett, a computer-science professor at Harvard University, got one of those e-mails. He said he was curious, but he was concerned that the site's policy noted that it claimed ownership over comments posted on the site, which Mr. Morrisett felt violated Harvard's policies. So he wrote back to Ms. Sankar and said he wasn't able to use it. "Ten minutes later she wrote back and said, 'We fixed the policy,'" the professor recalls. (Users now own their own posts.) So he gave it a shot.

    Continued in article

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


    PAYING TAXES TO THE BOSS: HOW A GROWING NUMBER OF STATES SUBSIDIZE COMPANIES WITH THE WITHHOLDING TAXES OF WORKERS
    By Philip Mattera, Kasia Tarczynska, Leigh McIlvaine, Thomas Cafcas and Greg LeRoy
    http://www.goodjobsfirst.org/sites/default/files/docs/pdf/taxestotheboss.pdf
    Thank you Paul Caron for the heads up

    Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers – and are keeping the money with the states’ approval, says an eye-opening report published on Thursday.

    The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid. ...

    Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years. ...

    The five most scandalous states are New Jersey, Indiana, Ohio, South Carolina, and Missouri. But 11 other states are allowing this terrible deed of making workers themselves pay to keep their jobs.


    I don't think this is an April Fools Joke
    "The Countdown is Over. We’re #1 (in terms of high corporate tax rates): How the U.S. Has Fallen Behind by Standing Still on Corporate Taxes," by Scott A. Hodge, The Tax Foundation, April 1, 2012 ---
    http://www.taxfoundation.org/files/ff_294.pdf


    Bye By Blackberry!

    "The End of RIM As We Know It," by Dan Frommer, ReadWriteWeb, March 29, 2012 ---
    http://www.readwriteweb.com/archives/the_end_of_rim_as_we_know_it.php

    The important bits from RIM's earnings release (PDF) include:

    • Sales down 25% year-over-year to $4.2 billion, for the quarter ending on March 3. (For context, Apple's iPhone revenue grew 133% year-over-year in Q4, and even struggling Motorola's mobile device sales grew 5%.)
    • A net loss of $125 million, versus a profit of $934 million a year ago.
    • "The company expects continued pressure on revenue and earnings throughout fiscal 2013." It will also stop making public predictions of how it's going to do financially. (So as not to keep missing those numbers, and end up looking worse.)
    • RIM's former co-CEO Jim Balsillie - who was often the face of the company - will leave its board of directors. And its COO and CTO are leaving.
    • RIM is "undertaking a comprehensive review of strategic opportunities including partnerships and joint ventures, licensing, and other ways to leverage RIM's assets and maximize value for our stakeholders." In other words, figuring out what to do next.

    This is a completely different company than the one that helped lead the smartphone revolution over the past decade, and even than the one we knew just a year ago, when it was at least still profitable. (Its rise and fall, captured in the chart above, is worth a look.)

    Not only is RIM in worse financial shape, but all bets are off for its recovery.

    There is a very real chance that RIM will come out of this as the property of another company, or at least very different than it is today. If it stays independent, it will have to become smaller and more nimble before maybe becoming successful again.

    Jensen Comment
    The graph resembles those cartoon sales graphs in The New Yorker.

     


     

    "Security rating for cloud services selection," ISACA, April 2, 2012 ---
    https://www.isaca.org/Knowledge-Center/Blog/Lists/Posts/Post.aspx?ID=183
    Thank you Jerry Trites for the heads up on April 2, 2012 ---
    http://uwcisa-assurance.blogspot.com/

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

     




    Humor Between April 1-30, 2012

     David Letterman's (Dumb) Top 10 Accounting Jokes ---
    http://profalbrecht.wordpress.com/2012/04/16/your-accountant-is-so-dumb/


    Advances in Psychology --- The Phobia Workshop ---
    http://biggeekdad.com/2010/03/the-phobia-workshop/

    The Critic: Hilarious Oscar-Winning Film Narrated by Mel Brooks (1963) --- Click Here
    http://www.openculture.com/2012/04/ithe_critici_hilarious_oscar-winning_film_narrated_by_mel_brooks_1963.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

    Tax Poetry from The New York Times (yawn) ---
    http://www.nytimes.com/2012/04/15/opinion/sunday/at-tax-time-no-accounting-for-poetry.html?_r=3&src=rechp


    Punographics forwarded by Eileen

    I changed my iPod's name to Titanic. It's syncing now.

    When chemists die, they barium.

    Jokes about German sausage are the wurst.

    I know a guy who's addicted to brake fluid. He says he can stop any time.

    How does Moses make his tea? Hebrews it.

    I stayed up all night to see where the sun went. Then it dawned on me.

    This girl said she recognized me from the vegetarian club, but I'd never met herbivore.

    I'm reading a book about anti-gravity. I just can't put it down.

    I did a theatrical performance about puns. It was a play on words.

    They told me I had type-A blood, but it was a Type-O.

    PMS jokes aren't funny; period.

    Why were the Indians here first? They had reservations.

    We’re going on a class trip to the Coca-Cola factory. I hope there's no pop quiz.

    I didn't like my beard at first. Then it grew on me.

    Did you hear about the cross-eyed teacher who lost her job because she couldn't control her pupils?

    When you get a bladder infection urine trouble.

    Broken pencils are pointless.

    I tried to catch some fog, but I mist.

    What do you call a dinosaur with an extensive vocabulary? A thesaurus.

    England has no kidney bank, but it does have a Liverpool.

    I used to be a banker, but then I lost interest.

    I dropped out of communism class because of lousy Marx.

    All the toilets in New York's police stations have been stolen. The police have nothing to go on.

    I got a job at a bakery because I kneaded dough.

    Haunted French pancakes give me the crêpes.

    Velcro — what a rip off!

    A cartoonist was found dead in his home. Details are sketchy.

    Venison for dinner again? Oh deer!

    The earthquake in Washington obviously was the government's fault.

     


    Forwarded by Auntie Bev

    All I need to know
    I learned from the Easter Bunny!

    Don't put all your eggs in one basket.

    Everyone needs a friend who is all ears.

    There's no such thing as too much candy.

    All work and no play can make you a basket case.

    A cute tail attracts a lot of attention.

    Everyone is entitled to a bad hare day.

    Let happy thoughts multiply like rabbits.

    Some body parts should be floppy.

    Keep your paws off of other people's jelly beans.

    Good things come in small, sugar coated packages.

    The grass is always greener in someone else's basket.

    To show your true colors, you have to come out of the shell.

    The best things in life are still sweet and gooey.

    May the joy of the season fill your heart.

    AND MAY GOD BLESS YOU! 

    Happy Easter!

    Love,
    Bev


    Repeats forwarded by Auntie Bev

    1) NUDITY I was driving with my three young children one warm summer evening when a woman in the convertible ahead of us stood up and waved. She was stark naked! As I was reeling from the shock, I heard my 5-year-old shout from the back seat, 'Mom, that lady isn't wearing a seat belt!'

    2) OPINIONS On the first day of school, a first-grader handed his teacher a note from his mother. The note read, 'The opinions expressed by this child are not necessarily those of his parents.'

    3) KETCHUP A woman was trying hard to get the ketchup out of the jar. During her struggle the phone rang so she asked her 4-year-old daughter to answer the phone. 'Mommy can't come to the phone to talk to you right now. She's hitting the bottle.'

    4) MORE NUDITY

    A little boy got lost at the YMCA and found himself in the women's locker room. When he was spotted, the room burst into shrieks, with ladies grabbing towels and running for cover. The little boy watched in amazement and then asked, 'What's the matter, haven't you ever seen a little boy before?'

    5) POLICE # 1 While taking a routine vandalism report at an elementary school, I was interrupted by a little girl about 6 years old. Looking up and down at my uniform, she asked, 'Are you a cop? Yes,' I answered and continued writing the report. My mother said if I ever needed help I should ask the police. Is that right?' 'Yes, that's right,' I told her. 'Well, then,' she said as she extended her foot toward me, 'would you please tie my shoe?'

    6) POLICE # 2 It was the end of the day when I parked my police van in front of the station. As I gathered my equipment, my K-9 partner, Jake, was barking, and I saw a little boy staring in at me. 'Is that a dog you got back there?' he asked. 'It sure is,' I replied. Puzzled, the boy looked at me and then towards the back of the van. Finally he said, 'What'd he do?'

    7) ELDERLY While working for an organization that delivers lunches to elderly shut-ins, I used to take my 4-year-old daughter on my afternoon rounds. She was unfailingly intrigued by t he various appliances of old age, particularly the canes, walkers and wheelchairs... One day I found her staring at a pair of false teeth soaking in a glass. As I braced myself for the inevitable barrage of questions, she merely turned and whispered, 'The tooth fairy will never believe this!'

    8) DRESS-UP A little girl was watching her parents dress for a party. When she saw her dad donning his tuxedo, she warned, 'Daddy, you shouldn't wear that suit..' 'And why not, darling?' 'You know that it always gives you a headache the next morning.'

    9) DEATH While walking along the sidewalk in front of his church, our minister heard the intoning of a prayer that nearly made his collar wilt.. Apparently, his 5-year-old son and his playmates had found a dead robin.. Feeling that proper burial should be performed, they had secured a small box and cotton batting, then dug a hole and made ready for the disposal of the deceased. The minister's son was chosen to say the appropriate prayers and with sonorous dignity intoned his version of what he thought his father always said: 'Glory be unto the Faaather, and unto the Sonnn, and into the hole he goooes.' (I want this line used at my funeral!)

    10) SCHOOL A little girl had just finished her first week of school. 'I'm just wasting my time,' she said to her mother. 'I can't read, I can't write, and they won't let me talk!'

    11) BIBLE A little boy opened the big family Bible. He was fascinated as he fingered through the old pages. Suddenly, something fell out of the Bible. He picked up the object and looked at it. What he saw was an old leaf that had been pressed in between the pages. 'Mama, look what I found,' the boy called out.. 'What have you got there, dear?' With astonishment in the young boy's voice, he answered, 'I think it's Adam's underwear!'

     


    Forwarded by Paula
    Bob Jensen did not check to see if some of them are urban legends.

    Thought you knew everything?
    Stewardesses is the longest word typed with only the left hand.

    And 'lollipop' is the longest word typed with your right hand.
    (Bet you tried this out mentally, didn't you?)

    No word in the English language rhymes with month, orange, silver, or purple.

    ' Dreamt' is the only English word that ends in the letters 'mt'.
    (Are you doubting this?)

    Our eyes are always the same size from birth, but our nose and ears never stop growing.

    The sentence: 'The quick brown fox jumps over the lazy dog' uses every letter of the alphabet.
    (Now, you KNOW you're going to try this out for accuracy, right?)

    The words 'racecar,' 'kayak' and 'level' are the same whether they are read left to right or right to left (palindromes).
    (Yep, I knew you were going to 'do' this one.)

    There are only four words in the English language which end in 'dous': tremendous, horrendous, stupendous, and hazardous.
    (You're not possibly doubting this, are you ?)

    There are two words in the English language that have all five vowels in order: 'abstemious' and 'facetious.'
    (Yes, admit it, you are going to say, a e i o u)

    TYPEWRITER is the longest word that can be made using the letters only on one row of the keyboard.
    |(All you typists are going to test this out)

    A cat has 32 muscles in each ear.

    A goldfish has a memory span of three seconds
    (Some days that's about what my memory span is.)

    A 'jiffy' is an actual unit of time for 1/100th of a second. A shark is the only fish that can blink with both eyes. A snail can sleep for three years.
    (I know some people that could do this too!)

    Almonds are a member of the peach family.

    An ostrich's eye is bigger than its brain.
    (I know some people like that also . Actually I know A LOT of people like this!)

    Babies are born without kneecaps They don't appear until the child reaches 2 to 6 years of age.

    February 1865 is the only month in recorded history not to have a full moon.

    In the last 4,000 years, no new animals have been domesticated.

    If the population of China walked past you, 8 abreast, the line would never end because of the rate of reproduction.

    Leonardo Da Vinci invented the scissors

    Peanuts are one of the ingredients of dynamite!

    Rubber bands last longer when refrigerated.

    The average person's left hand does 56% of the typing.

    The cruise liner, QE 2,

    moves only six inches for each gallon of diesel that it burns. The microwave was invented after a researcher walked by a radar tube and a chocolate bar melted in his pocket.
    (Good thing he did that.)

    The winter of 1932 was so cold that Niagara Falls froze completely solid .

    There are more chickens than people in the world.

    Winston Churchill was born in a ladies' room during a dance.

    Women blink nearly twice as much as men.

    Now you know more than you did before!!


    Forwarded by James Don Edwards

       1. In my many years I  have come to a conclusion that one useless man is a shame, two is a law firm and  three or more is a congress.

        -- John  Adams

        2. If you don't read  the newspaper you are uninformed, if you do read the newspaper you are  misinformed.

        -- Mark  Twain

        3. Suppose you were an  idiot. And suppose you were a member of Congress. But then I repeat  myself.

        -- Mark  Twain

        4. I contend that for  a nation to try to tax itself into prosperity is like a man standing in a bucket  and trying to lift himself up by the handle.

        -- Winston  Churchill

        5. A government which  robs Peter to pay Paul can always depend on the support of  Paul.

        -- George Bernard  Shaw

        6. A liberal is  someone who feels a great debt to his fellow man, which debt he proposes to pay  off with your money.

        -- G. Gordon  Liddy

        7. Democracy must be  something more than two wolves and a sheep voting on what to have for  dinner.

        -- James Bovard, Civil  Libertarian (1994)

        8. Foreign aid might  be defined as a transfer of money from poor people in rich countries to rich  people in poor countries.

        -- Douglas Casey,  Classmate of Bill Clinton at Georgetown   University

        9. Giving money and  power to government is like giving whiskey and car keys to teenage  boys.

        -- P.J. O'Rourke,  Civil Libertarian

        10. Government is the  great fiction, through which everybody endeavors to live at the expense of  everybody else.

        -- Frederic Bastiat,  French economist(1801-1850)

        11. Government's view  of the economy could be summed up in a few short phrases: If it moves, tax it.  If it keeps moving, regulate it. And if it stops moving, subsidize  it.

        -- Ronald Reagan  (1986)

        12. I don't make  jokes. I just watch the government and report the  facts.

        -- Will  Rogers

        

        13. If you think  health care is expensive now, wait until you see what it costs when it's  free!

        -- P.J.  O'Rourke

        14. In general, the  art of government consists of taking as much money as possible from one party of  the citizens to give to the other.

        -- Voltaire  (1764)

        15. Just because you  do not take an interest in politics doesn't mean politics won't take an interest  in you!

        -- Pericles (430  B.C.)

        16. No man's life,  liberty, or property is safe while the legislature is in  session.

        -- Mark Twain  (1866)

        17. Talk is  cheap...except when Congress does it.

        --  Anonymous

        18. The government is  like a baby's alimentary canal, with a happy appetite at one end and no  responsibility at the other.

        -- Ronald  Reagan

        19. The inherent vice  of capitalism is the unequal sharing of the blessings. The inherent blessing of  socialism is the equal sharing of misery.

        -- Winston  Churchill

        20. The only  difference between a tax man and a taxidermist is that the taxidermist leaves  the skin.

        -- Mark  Twain

        21. The ultimate  result of shielding men from the effects of folly is to fill the world with  fools.

        -- Herbert Spencer,  English Philosopher (1820-1903)

        22. There is no  distinctly Native American criminal class...save  Congress.

        -- Mark  Twain

        23. What this country  needs are more unemployed politicians.

        -- Edward Langley,  Artist (1928-1995)

        24. A government big  enough to give you everything you want, is strong enough to take everything you  have.

        -- Thomas  Jefferson

        25. We hang the petty  thieves and appoint the great ones to public  office.

        --  Aesop

     

        FIVE  BEST SENTENCES

        1.   You cannot legislate the poor into prosperity, by legislating the  wealth out of prosperity.

        2.  What one person receives  without working for...another person must work for without  receiving.

        

        3. The government cannot give to anybody anything that  the government does not first take from somebody else.

        4. You  cannot multiply wealth by dividing it.

        5. When half of the people  get the idea that they do not have to work, because the other half is going  to take care of them, and when the other half gets the idea that it does no  good to work, because somebody else is going to get what they work for,  that is the beginning of the end of any nation!

     

     


    David Albrecht finds humor in audit firm rotation "with a twist" --- "
    http://profalbrecht.wordpress.com/2012/04/01/pcaob-proposes-auditor-rotation-with-a-twist/



     





    Humor Between April 1-30, 2012 --- http://www.trinity.edu/rjensen/book12q2.htm#Humor043012

    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 April 30, 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
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    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/

     

     


     




     

     

  • 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
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    http://www.trinity.edu/rjensen/2008Bailout.htm

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    Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

     

     

    Bob Jensen's Personal History in Pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

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