New
Bookmarks
Year 2012 Quarter 3: July 1 - September 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
September
30
August 31
July 31
September
30, 2012
Bob
Jensen's New Bookmarks September 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
2012 AAA
Meeting Plenary Speakers and Response Panel Videos ---
http://commons.aaahq.org/hives/20a292d7e9/summary
I think you have to be a an AAA member and log into the AAA Commons to view
these videos.
Bob Jensen is an obscure speaker following Rob Bloomfield
in the 1.02 Deirdre McCloskey Follow-up Panel—Video ---
http://commons.aaahq.org/posts/a0be33f7fc
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
Message from Barry Rice on July 17, 2012
There are
some great flash mob videos of accounting practitioners (including the Maryland
Association of CPAs) and accounting students at
https://www.google.com/search?sourceid=navclient&aq=f&oq=%22flash+mob%22+accountants&ie=UTF-8&rlz=1T4LENP_en___US481&q=%22flash+mob%22+accountants&gs_upl=0l0l0l27342lllllllllll0#q=%22flash+mob%22+accountants&hl=en&safe=off&rlz=1T4LENP_en___US481&prmd=imvns&source=univ&tbm=vid&tbo=u&sa=X&ei=rZgFUKLFCY-KrQGt_4jICA&ved=0CGAQqwQ&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=960fd2c1c95a1532&biw=1013&bih=459.
I Goggled “’flash mob’ accountants” to find them.
If practicing accountants can have a “flash mob,”
surely ACADEMIC accountants can do so.
IFRS in Your Pocket (contact a Deloitte Office for a Copy)
IAS Plus, August 22, 2012
http://www.iasplus.com/en/news/2012/august/ifrss-in-your-pocket-2012
We have published the
eleventh edition of our popular guide to IFRSs — 'IFRSs In Your Pocket
2012'. This publication provides an update of developments in IFRSs through
the second quarter of 2012.
This 136-page guide includes information
about:
- The IASB organisation — its
structure, membership, due process, contact information, and a
chronology
- Use of IFRSs around the world,
including updates on Europe, United States, Canada and elsewhere in
the Americas, and Asia-Pacific
- Recent pronouncements — those
which are effective and those which can be early adopted
- Summaries of current Standards
and related Interpretations, as well as the Conceptual Framework for
Financial Reporting and the Preface to IFRSs
- IASB agenda projects and active
research topics
- IFRS Interpretations Committee
current agenda topics
- Other useful IASB-related
information
Please contact your local
Deloitte practice office to request a printed copy.
Jensen Comment
I don't know of any FASB ACS in Your Pocket counterpart for domestic standards.
It would be great if Wild West Accountants of 2012 could have a two-holster
belt for fast drawing each In-Your-Pocket Guide.
Bob Jensen's threads on controversies in accounting standard setting ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
American Accounting Association Past
Presidents are listed at
http://www.cs.trinity.edu/~rjensen/temp/PastPresidentsAAA.htm
"2012 tax software survey: Which products and features yielded
frustration or bliss?" by Paul Bonner, Journal of Accountancy, September
2012 ---
http://www.journalofaccountancy.com/Issues/2012/Sep/20125667.htm
Bob Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Epistemologists present several challenges to Popper's arguments
"Separating the Pseudo From Science," by Michael D. Gordon, Chronicle
of Higher Education, September 17, 2012 ---
http://chronicle.com/article/Separating-the-Pseudo-From/134412/
Bob Jensen's threads on how accountics scientists shield their findings from
validation ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
September 25, 2012 message from Barry Rice
The clip is 1 minute, 45 seconds long and is a
great promotion for E&Y and our profession.
http://www.youtube.com/watch?v=yXaVOkv_tyA&feature=share
This reminds me of when I was moving to Baltimore
in 1967 and had job offers from all 6 of the Big 8 CPA firms that had
Baltimore offices. I did a meticulous spreadsheet comparing the firms’
attributes such as starting salary, clients, professional development
opportunities, etc. Price Waterhouse came out on top and I joined them.
However, I have always wondered if the REAL reason I chose that firm was the
fact that it was the only one my parents in rural southwestern Virginia knew
about. They knew the firm name because of the Academy Awards shows on TV.
Barry Rice
AECM Founder
CGMA Videos ---
http://www.cgma.org/Resources/Videos/Pages/videos-list.aspx
Links to Ethics Games and Software for Making Ethics Games
Hi Marc,
I've not had first-hand experience with ethics games. But here are a few
ideas (not all are accounting games):.
Ethics Games and Puzzles (and other ethics learning resources) ---
http://www.ethics.org/resource/ethics-games-and-puzzles
Putting Yourself in Somebody Else's Shoes ---
http://thinkingethics.typepad.com/thinking_ethics/games/
Situation Ethics Games ---
http://www.rsrevision.com/games/alevel/situationethics.htm
Scruples Game ---
http://en.wikipedia.org/wiki/Scruples_%28game%29
Ethics Training Games ---
http://www.ehow.com/info_8028940_ethics-training-games-ideas.html
This has a "brainstorming category."
Concept Mapping is a type of brainstorming ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#ConceptMaps
There's a good brainstorming accountics science paper in
"Auditors’ Use of Brainstorming in the Consideration of Fraud: Reports from the
Field," The Accounting Review, 2010, Vol 85, No. 4
John A. Schatzel at Stonehill College does research on simulation games for
teaching auditing, some of which entail ethics ---
You must have access to the AAA Commons for the above link.
John posts to the AECM on occasion. Maybe he will read this and help us out.
You might consider easy-to-use software for making your own games
http://commons.aaahq.org/posts/41dab78f88
"Games in the Classroom (part 3)," by Anastasia Salter, Chronicle of
Higher Education, September 30, 2011 ---
http://chronicle.com/blogs/profhacker/games-in-the-classroom-part-3/36217?sid=wc&utm_source=wc&utm_medium=en
The challenge of finding
a game for the classroom can be difficult,
particularly when the games you’ve imagined doesn’t exist. And if you wait
for a particular challenge or topic to make its way into game form, it might
be a while. Educational games and “serious” games haven’t always kept up
with the rest of video gaming, in part because there’s no high return.
Modern game development tends towards large teams and impressive budgets,
and these resources are rarely used on explicitly educational productions.
While efforts like the
STEM Video Game Challenge provide incentives for
new learning games, and commercial titles can often be
adapted for the classroom, there’s still more
potential than games have yet reached.
But if you have a new concept for playful learning,
you can still bring it to life for your classroom. There are two ways to
start thinking about making games in the classroom: the first is to build a
game yourself, and the second is to engage students in making games as a way
to express their own understanding.
You’re probably not
a game designer, although there’s a game for that:
Gamestar Mechanic
can help you “level up” from player to designer. But
it’s also important to remember building games rarely happens alone: as with
digital humanities projects, games lend themselves to collaboration. If you
have a game design program (or even a single course) at your university or a
neighboring school, there might be an opportunity to partner your students
with them towards creating valuable content-based educational games.
Similarly, there may be other faculty who are interested in collaborating on
grant-funded projects to build new educational experiences, or collective
and expanding projects like Reacting
to the Past (which many readers cited as a
classroom game system of choice). You might also find collaborators,
inspiration and games in progress through communities such as
Gameful,
a “secret HQ for making world-changing games”–and community manager Nathan
Maton has a few things to say about
building serious games for education.
There’s also a difference between making a game or
asking your students to make a game as an expression of content for
pedagogical purposes and making a game in the industry. Even a flawed game
can provide an opportunity for learning and discussion. And your students
will often bring a wealth of their own experiences with games to the
process, offering them a chance to make new connections with your course
material.
Ready to try making games? Here are a few tools for
getting started.
- Board and card games can be a
great first project, particularly for students. Digital games are
flashy, but board and card games offer the advantages of structured play
with a lower barrier to entry. They can also be good practice for
learning the mechanics and structure of games
without getting bogged down in programming and logic. We’ve all played
some version of classroom jeopardy before, and it remains an example of
taking game-like mechanics and applying them to any content–but when
content guides the way, board games can transcend these roots.
- Inform 7
is a modern heir to text-based games, and it’s a
free development tool that’s perfect for interpreting and building
worlds without needing visual elements. Aaron Reed’s Creating
Interactive Fiction with Inform 7 is a
thorough guide to the system. The
Voices of
Spoon River IF offers one example of literary
instruction through the form, while Nick Montfort’s
Book
and Volume demonstrates the potential for
systematic logic. There’s even the
ECG Paper Chase
IF for a meta-experience on the origin of gaming
and educational technology. (Curveship,
a newer interactive narrative platform, is less friendly to
non-programmers than Inform 7 but offers some impressive possibilities.)
-
GameMaker
(with a free
lite version)
allows for building games on two levels: at the surface is an easy to
manipulate, graphical interface for building games. Beneath that, an
advanced scripting language allows for the possibility of delving
further. The
GameMaker’s Apprentice textbook goes
step-by-step through making a variety of basic games drawn from arcade
genre standbys, many of which could serve as the basis for more creative
projects while also offering the tools to build procedural literacy and
digital skills.
- GameSalad
is a free tool for building simple
games. While GameSalad is only available for Macs, it offers a code-free
way to create graphical games for both mobile platforms and HTML5. It’s
relatively new, and most of the educational games created for it aim at
the younger crowd of kid-friendly mobile apps, but it definitely offers
the chance for experience with logic and rapid
prototyping.
"Games in the Classroom (part 4)," by Anastasia Salter, Chronicle
of Higher Education, October 6, 2011 ---
http://chronicle.com/blogs/profhacker/games-in-the-classroom-part-4/36294?sid=wc&utm_source=wc&utm_medium=en
Throughout this series, we’ve talked about
why you might want to use games in the classroom,
how you can find them, and
how to start making your own.
But games can also inspire us to
rethink our classrooms at a structural level, and
particularly as sites for collaboration and playful learning that can extend
long beyond a single lesson plan. Game designers are pointing out the
similarities between games and the classroom.
Extra Credits, a video series by game designers
taking a deeper look at the form, recently did an episode on
Gamifying Education that provides a great starting
point for a conversation on game-inspired classroom design.
For ideas on getting started, I recently spoke with
Lee Sheldon, author of the recently released The Multiplayer
Classroom: Designing Coursework as a Game (Cengage
Learning 2011), whose book chronicles both his own
and others’ experiments with taking the structures, terminology, and
concepts of a massive multiplayer role-playing game and applying them to the
classroom. You can check out Lee Sheldon’s syllabus at his blog on Gaming
the Classroom, along with more of his reflections
on the experiment, which divided his students into guilds and encouraged
them to “level up” through the semester. After using the course model in its
latest iteration, he reported perfect attendance. He also notes the value in
his system of “grading by attrition”—students are not being punished for
failing, but instead rewarded for progressing and thus less likely to be
defeated early.
As a professional game designer teaching courses on
game design, Lee Sheldon has a natural environment for innovation–but his
concepts open the door for a conversation across disciplines. Lee Sheldon
describes his model as “designing the class as a game”—so not just focusing
on extrinsic rewards (the typical focus of gamification), but instead trying
to promote “opportunities for collaboration” and “intrinsic rewards from
helping others.” As game designers, like teachers, are focused on creating
an experience, many of the strategies for building a class as game are
similar to more traditional preparation. And he advises that these ideas can
work for anyone: “You don’t have to a be a game designer…you can prep like
putting together a lesson plan, but learn the terminology.” Lee Sheldon
explains that one of the benefits of using games as a model is that a game
is abstracted—it has to “feel real”, but you get to “take out the stuff
that isn’t fun.” He also notes that “You can do just about anything in a
game that you can do in real life,” and the wealth of games today is a
testament to that range of possibilities.
Lee Sheldon and his team at RPI are now working on
an experiment with their new
Emergent Reality Lab that offers a possible future
for courses as games. He explained their current project, teaching Mandarin
Chinese as an alternate reality game, as a “Maltese Falcon-esque mystery”
narrative—the class will start out as usual, in a normal classroom, but it
will be interrupted and move into the lab as the students take a virtual
journey across China aided by motion-aware Kinect interfaces in an immersive
environment. Lee Sheldon said that his ideal outcome would be for students
to learn more Chinese than they would in a traditional class.
Continued in article
Edutainment Idea for Class
This might be a fun thing to try in class.
The instructor could identify three students in the class that have some cartoon
drawing skills.
Then the three-column Jeopardy-like listing of choices could be presented to the
class where the choices relate to accounting issues.
Students pick one issue from each column.
The cartoon-drawing students could then commence their cartoons.
While they're drawing, the instructor could show New Yorker's accounting
cartoons to the class. At The New Yorker Website it is possible to drill
down to accounting cartoons.
Video: Improv With New Yorker Cartoonists ---
Click Here
http://www.openculture.com/2011/07/improv_with_new_yorker_cartoonists.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
You could have students draw accounting ethics cartoons similar to those
wonderful cartoons that appear in the New Yorker.
Educational Comics Collection ---
http://contentdm.unl.edu/cdm4/browse.php?CISOROOT=/edcomics
Hollywood's Accounting, Ethics, and Business Movies ---
http://www.trinity.edu/rjensen/AccountingNovels.htm
Professor Roselyn Morris has a listing of ethics movies and some
accounting movies---
http://ceae.aicpa.org/NR/rdonlyres/1E737CC7-562B-4660-936E-91A817EE669E/0/Morris_2006.pdf
"Perceptions of accountants' ethics: evidence from their portrayal in cinema.:
by Felton, S., Dimnik, T. and Bay, D. (2008, December). Journal of
Business Ethics, 83(2), 217-232.
Abstract: "This article examines popular
representations of accountants' ethics by studying their depiction in
cinema. As a medium that both reflects and shapes public opinion, films
provide a useful resource for exploring the portrayal of the profession's
ethics. We employ a values theoretical framework to analyze 110 movie
accountants on their basic ethical character, ethical behavior, and values."
Hollywood Accounting ---
http://en.wikipedia.org/wiki/Hollywood_accounting
Spout's Movies Tagged for Accounting ---
http://www.spout.com/members/0/tags/accounting/MemberTagFilms.aspx
Amazon's Wall Street Movies ---
http://www.amazon.com/Wall-Street-Movies/lm/R2Q5QMM6BWWEAL
And here are some entrepreneur movies. Of course there are
countless movies that feature business (usually in a bad light).
"Must-See Movies for Entrepreneurs," by Anthony Tjan, Harvard
Business Review Blog, March 12, 2010 ---
http://blogs.hbr.org/tjan/2010/03/mustsee-movies-for-entrepreneu.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE
After the Oscars last weekend, I started to think
about which movies have really inspired me as an entrepreneur. Here are
three films I believe that you should not only see, but also share with your
teams. Each ties to an important entrepreneurial and leadership lesson.
Man on Wire
A story of the fanatical pursuit of a dream. Philippe
Petit, a French tightrope walker, was consumed by the idea of walking a wire
between New York's former World Trade twin towers. To do so, he would need
years of planning and would have to do it as a covert mission. When I first
watched this film, I did not know if it was based on a true story or not.
The narrative and grainy black-and-white shots made me constantly question
whether I was wishing for this to be true or if it was just brilliant
story-telling. The fact that Petit is real and actually accomplished the
feat in August of 1974 is beyond incredible. In an
earlier post, I wrote about the thin line that
great entrepreneurs balance between what Oscar Levant described as genius
and insanity. You want someone like Petit to succeed because it seems so
improbable and outlandish that it takes a creative visionary with some
degree of craziness to pull it off. Seeing this movie is an inspiration for
those who dare to think differently and push the boundaries.
More than a Game
This is the inspiring story of a high school
basketball team and their quest for the national title. It is also happens
to be the documentary of the high school basketball team on which superstar
Lebron James played. I loved this movie for so many reasons, but the
inspiration for entrepreneurs is in the unfolding of how Lebron and four of
his closest friends from childhood pursued a dream, Starting as a team of
fifth graders playing and growing up together in some of the poorest
neighborhoods and practicing in a Salvation Army basketball court with
linoleum floors. The movie highlights how the journey is always as important
as the ultimate goal and inspires us to believe that almost anything is
possible with the right people and right dedication.
Slumdog Millionaire
A hugely successful film about how you can create your
own luck. So many successful entrepreneurs I have met talk about the role of
luck in their careers, but it is equally true that they put themselves in
the pathway of opportunity. In some ways this movie was like a modern day
Bollywood version of
Forrest Gump (we all need a little Bubba Gump
shrimp luck in our lives). Both are believable tales because of the
attitudes of the protagonists who, like great entrepreneurs, have a
boundless optimism and openness that allow luck to come to them.
That's it for my Siskel and Ebert moment. I'll see
you all at Netflix.
A lot of ethics cases are available ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
Bob Jensen's threads on edutainment ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
"SEC Comments and Trends An analysis of current Reporting Issues,"
Ernst & Young, October 2012 ---
Click Here
http://www.ey.com/Publication/vwLUAssetsAL/SECCommentsTrends_CC0357_October2012/$FILE/SECCommentsTrends_CC0357_October2012.pdf
Every year, we track the Securities and Exchange
Commission (SEC) staff’s comments on public company filings to provide you
with insights on the SEC staff’s concerns and areas of focus. Although each
registrant’s facts and circumstances are different, the economic conditions
in which they operate and their financial reporting challenges are often
similar. Understanding the comments and trends discussed in this publication
can help as you head into the year-end reporting season.
In its comments, the SEC staff questions
disclosures that may conflict with SEC rules or accounting principles, as
well as disclosures the SEC staff believes could be enhanced or clarified.
The resolutions vary. In some cases, registrants sufficiently support their
existing accounting or disclosures, and in others they agree to expand
disclosures in future filings or amend previous filings. Appendix C of this
publication provides an overview of the SEC staff filing review process, as
well as best practices for responding to staff comments. While the SEC staff
continues to comment on familiar topics such as significant estimates,
revenue recognition, impairment and financial instruments, it has increased
its focus in other areas, including:
• Nonperformance covenants contained in lease
agreements and how these contractual provisions affect the classification of
leases
• Pro forma financial information disclosed in
registration statements and Form 8-Ks reporting a significant acquisition,
including how the requirements of Article 11 of Regulation S-X have been met
for various pro forma adjustments
• The presentation of guarantor condensed
consolidating information pursuant to the relief provided in Rule 3-10 of
Regulation S-X
Segment reporting continues to be a common area of
focus in SEC comment letters. The SEC staff often considers disaggregated
information to be better for users of financial statements. As a result, the
staff frequently questions registrants’ conclusions about operating segments
being economically similar and their aggregation into a reportable segment.
The SEC staff also requests that registrants provide more robust analysis of
their segments in their MD&A.
The number of SEC staff comments on loss
contingency disclosure requirements has stabilized over the past year. While
the SEC staff has said that it has seen improvement in the disclosure of
loss contingencies, it is expected to continue to focus on evaluating and
enforcing compliance with ASC 450 in its filing reviews.
The SEC staff continues to focus on disclosures for
registrants with foreign operations. In particular, the SEC staff has been
questioning the tax effects of operating in foreign jurisdictions, including
the effects on liquidity of indefinitely reinvesting foreign earnings. The
SEC staff also has been asking registrants to provide more detailed
disclosures about any exposure they may have to European debt. To help
companies determine what to disclose about their exposures to countries
experiencing significant economic, fiscal or political challenges, the SEC
staff issued
CF
Disclosure Guidance: Topic No. 4: European Sovereign Debt Exposures
in January 2012. CF disclosure
guidance is a new type of interpretive guidance that the SEC staff has been
using to provide observations and views about disclosures required by
existing SEC rules and regulations.
Management’s discussion and analysis (MD&A)
....................................... 1
Critical accounting estimates
.......................................................................... 1
Liquidity and capital resources
....................................................................... 3
Non-GAAP financial measures
........................................................................ 7
Results of operations
.....................................................................................
9
SEC reporting issues
............................................................................
11
Board structure and nominee criteria
............................................................ 11
Emerging growth companies
........................................................................ 12
Executive compensation disclosures
............................................................. 14
Guarantor financial information
.................................................................... 16
Internal control over financial reporting and
disclosure controls and procedures
..................................................................................
19
Materiality
...................................................................................................
21
Pro forma adjustments
...............................................................................
22
Related-party transactions
........................................................................ 24
Risk factors
.......................................................................................
.......... 25
State sponsors of terrorism
........................................................................ 27
XBRL exhibits
...................................................................................
........... 28
Other SEC reporting issues
......................................................................... 30
Financial statement
presentation..................................................
........ 31
Accounts receivable
..................................................................
........... 34
Business combinations
..........................................................
............... 36
Contingencies
....................................................................
.................. 38
Debt
.....................................................................................
................ 40
Fair value measurements
.................................................
.................... 41
Financial instruments
...................................................
........................ 44
Goodwill
.......................................................................
........................ 48
Impairment of long-lived assets
..............................
.............................. 51
Income taxes
............................................................................
............ 53
Intangible assets
...................................................................
............... 57
Investments in debt and equity securities
....................... ...................... 60
Leases
....................................................................................
............. 64
Pension and other postretirement employee benefit
plans .................... 65
Revenue recognition
..................................................................
.......... 68
Segment reporting
.................................................................
.............. 73
Share-based payments
......................................................
................... 77
Appendix A: Industry supplements ............
.................. 82
Automotive supplement
......................................................
......................... 82
Banking supplement
..........................................................
........................... 84
Insurance supplement
.................................................
................................. 93
Life sciences supplement
........................................................
...................... 95
Media and entertainment supplement
..................................... ................... 106
Mining and metals supplement
.................................................................... 108
Oil and gas supplement
........................................................
...................... 110
Provider care
supplement................................................
........................... 115
Real estate supplement
...............................................................
............... 117
Retail and consumer products supplement
.................................................. 120
Technology supplement
.............................................................
................ 123
Telecommunications supplement
.......................................................... ...... 127
Appendix B: Foreign Private Issuers supplement
........... 128
Appendix C: SEC review process and best practices
...... 135
Appendix D: Abbreviations
................................................ 140
Other 2012 Issues ---
http://www.ey.com/UL/en/AccountingLink/Current-topics-SEC-Other-regulators
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
AccountingWeb's 50-State Report on College and Career Readiness ---
http://www.accountingweb.com/article/50-state-report-college-and-career-readiness/219874?source=education
With all fifty states and the District of Columbia
(DC) having adopted college- and career-ready standards in English and
mathematics,
Achieve's seventh
annual
Closing the Expectations Gap report
(released September 13) shows how all states are aligning those standards
with policies to send clear signals to students about what it means to be
academically prepared for college and careers after high school graduation.
For the first time, the report also details not
only states' policy progress on the college- and career-ready agenda,
but also their efforts to implement those policies, since only faithful
implementation can improve student achievement. The report was released
during the opening session of Achieve's eighth annual American Diploma
Project Leadership Team Meeting in Alexandria, Virgina, which brought
together nearly 300 education leaders in cross-sector teams from
thirty-four states.
"With all states adopting college- and
career-ready standards, they have now taken the first step toward
reorienting the mission of their K-12 systems to reflect the demands of
the twenty-first century," said Mike Cohen, Achieve's president, to a
crowd of education leaders from across the country. "As this report
shows, various states are making some movement toward fulfilling the
college- and career-ready agenda by putting new policies in place to
support this new mission, but there is still much room for progress to
be made."
Achieve conducts an annual policy survey that asks
all fifty states and DC whether they have adopted standards, graduation
requirements, assessments, and accountability systems aligned to the
expectations of two- and four-year colleges and employers. The national
survey of state education leaders has measured the same areas of reform
each year since the National Governors Association and Achieve
cosponsored the National Education Summit in 2005. This year's survey
reveals the following results:
Standards:
- All fifty states and DC have adopted standards
aligned to the expectations of college and careers.
- Forty-six states and DC have adopted the
Common Core State Standards.
- Four have state-developed College and Career
Ready (CCR) standards.
- By 2015-2016, all English language arts and
mathematics instruction should reflect CCR expectations.
Graduation Requirements:
- Today, twenty-three states and DC have adopted
college- and career-ready graduation requirements that require all
students to meet the full set of expectations defined in the CCSS.
- Hawaii, Iowa, and Washington raised their
graduation requirements to the college- and career-ready level in 2011.
Assessments:
- Today, eighteen states administer college- and
career-ready high school assessments capable of producing a readiness
score that postsecondary institutions use to make placement decisions.
- Four new states - Florida, North Carolina,
Oregon, and Wyoming - joined this list in 2011 by adopting a policy to
administer a college- and career-ready test to its high school students.
- It is expected that forty-four states and DC
that are participating in one or both Race to the Top assessment
consortia will meet this criteria when the next generation assessments
are administered for the first time in 2014-2015.
Accountability:
- A majority of states, thirty-two, have now
incorporated at least one of four accountability indicators that Achieve
has identified as critical to promoting college and career readiness.
- As in last year's report, only Texas meets
Achieve's criteria regarding the use of all indicators in its college-
and career-ready accountability system.
- Florida, Georgia, Indiana, and Kentucky have
included the use of multiple college- and career-ready indicators in
their accountability systems in multiple ways.
- Since last year, states have made important
gains on the college- and career-ready agenda with all adopting college-
and career-ready standards, and additional states moving toward more
accountability.
- Even as additional progress is made, states
have further to go by turning their attention to the implementation of
standards and related policies.
"States and the larger education
community must make sure educators have access to resources like quality
instructional materials and effective professional development," Cohen
urged. "Success is going to take the combined effort of all education
stakeholders - students, teachers, principals, K-12 leaders, school
board members, superintendents, administrators, policymakers,
postsecondary education leaders, the business community, and parents."
Continued in article
Bob Jensen's threads on careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
CFO = Chief Finalizing Officer
"CFO Accused of Murder-for-Hire on His Employer's Dime," by Teresa
Ambord, AccountingWeb, September 18, 2012 ---
http://www.accountingweb.com/article/cfo-accused-murder-hire-his-employers-dime/219868?source=education
A Slide Show from the Tax Foundation (Click the arrows on the right side of
the screen)
"Putting a Face on America's Tax Returns: A Chartbook September 24, 2012,"
by Scott A. Hodge William McBride, Tax Foundation, September 24, 2012
http://taxfoundation.org/slideshow/putting-face-americas-tax-returns
Thank you Caleb Newquist for the heads up.
You can get the above content in PDF format at
http://taxfoundation.org/sites/taxfoundation.org/files/docs/putting_a_face_on_americas_tax_returns_a_chartbook.pdf
Jensen Comment
This slide show focuses heavily on inequality.
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Ask your grocer when he will have a special on black swans: Tax
consequences of the widespread drought
How Do Market Failures Justify Interventions in Rural Credit Markets?
Author: Timothy Besley
Source: The World Bank Research Observer, Vol. 9, No. 1 (Jan., 1994), pp. 27-47
Published by: Oxford University Press
Stable URL:
http://www.jstor.org/stable/39865
Jensen Comment
This article discusses how failures of credit markets in the 1990s led to branch
banking in small farm towns in order to make farm lending more effective and
efficient, where bankers could become closer with both the needs of their farm
customers and the risks of lending to farmers for their crops and livestock
feeding operations.
One of the problems is the inefficiency of national and world credit markets
for local lending to farmers. Whereas there are vast markets for collateralized
loans in such things as home mortgages, there is almost no market for the loans
made to farmers for crops, livestock, and farm equipment. Banks that lend to
these farmers carry the loans on their own books unless the banks themselves go
under, in which case the FDIC has to move in, manage the bank through a crisis,
and in some cases pick up the bank receivables that cannot be sold in credit
markets ---
http://seekingalpha.com/instablog/388783-christopher-menkin/857961-oldest-bank-fails-in-missouri
In the U.S. many of these "branch banks" were former locally-owned banks that
were gobbled up by banking chains that now operate them as branch banks. In
other parts of the world, the larger banks had to establish new branch banks to
make farm lending more effective and efficient.
Implications of the S&L banking crisis in the 1980s on rural banks
"Deteriorating Farm Finances Affect Rural Banks and Communities," by
Daniel L. Milkove, Patrick J. Sullivan, and James J. Mikeseil,
http://naldc.nal.usda.gov/download/IND87013364/PDF
Financial problems in the agricultural sector are
eventually transmitted to farm lenders. As cash flow problems cause farmers
and farm-related businesses to fall behind on loan payments, the quality of
lenders' loan portfolios deteriorates. Lenders must set aside reserves to
cover actual and anticipated loan losses. These and other adjustments by
agricultural lenders to cope with their problem loans can affect credit
availability for the community at large.
Bank financial problems caused 69 agricultural
banks to fail last year, and some predict even more agricultural bank
failures this year. While bank failures dramatically portray the problems of
farm lenders, the failures generally are not as devastating to local banking
services as many fear. In the past, most failed rural banks reopened almost
immediately under new ownership.
A more widespread problem for rural areas may be
the growing number of agricultural banks with serious financial problems. As
banks adjust their lending decisions to deal with weaknesses identified by
bank regulators, "marginally qualified" borrowers are likely to be denied
credit. This may force some farmers into bankruptcy, but it will also reduce
credit to nonfarm businesses, putting rural communities in agricultural
areas of the country at a disadvantage in attracting new businesses and
holding existing firms. Depending on the size and structure of the local
banking system, less credit availability could dampen the growth potential
of the local nonfarm economy, just when off-farm employment is needed by
members of foundering family farms and by people displaced from agriculture.
Agricultural communities in unit-banking and
limited-branching States have local banking systems heavily involved in
agricultural loans. Furthermore, since small agricultural banks depend on
local borrowers, these banks will likely make every effort to service the
credit needs of farmers despite their cash flow problems. This may help some
farmers who would otherwise be denied credit, but could depress the
community's economy if local banks support agriculture at the expense of the
nonfarm sector.
Continued in article
But most rural banks weathered the S&L crisis because there were no
weather-related black swans.
A leading cause of the Great Depression of the 1930s was weather related, but
the combination of causes was far more complicated.
Black Swan ---
http://en.wikipedia.org/wiki/Black_swan_theory
The widespread 2012 drought in the Midwest could well become the Black Swan
of rural banks that are mostly dependent upon farm lending.
"Drought brings local farmers on the brink," by Jacob Barker, The
Columbia Daily Tribune, July 14, 2012 ---
http://www.columbiatribune.com/news/2012/jul/14/drought-brings-local-farmers-brink/?business
Also see
http://droughtresources.unl.edu/
Tax Consequences of Drought ---
http://droughtresources.unl.edu/web/cattleproduction/taxconsequences-drought
It’s been a few years since we’ve had to deal with
the drought related tax laws, but with the recent drought conditions across
the Midwest, it’s a good time to review them.
Jensen Comment
It's too soon to know whether climate changes will be black swan events in the
banking industry. There will be some rural bank failures due to the 2012 drought
in the Midwest, South, and West. However, the real danger of a black swan event
lurks if there is a 2013 drought as large or larger than the 2012 drought.
In 2012 farmers will dig deep into savings to keep going and be forced to
borrow more for their 2013 crop hopes.
But for livestock farmers (ranch, feeder lots, and containment feeding
operations) the widespread drought of 2012 is leading to the slaughtering of
herds and shutting down of feeding businesses. The reason is that demand for
meat is highly price elastic. Livestock farmers cannot simply save themselves by
passing along feed price increases to their customers. Compounding this is the
rising price of fuel that affects distribution costs to supermarkets and
restaurants.
Ask your grocer when he will have a special on black swans.
A Billion Here, A Billion There: Sometimes it's not real money
"Harvard Endowment Lost Money in Last Fiscal Year," Inside Higher Ed,
September 27, 2012 ---
http://www.insidehighered.com/quicktakes/2012/09/27/harvard-endowment-lost-money-last-fiscal-year
Harvard University's endowment lost about $1
billion in the 12 months through June, Bloomberg reported. The fund, still
the largest university endowment in the world, ended up at $30.7 billion,
down about 0.05 percent. Harvard, like many other universities, saw major
losses the year that the recession started, but many other universities have
been posting gains more recently. Harvard officials said that their losses
were due to investments in publicly traded non-U.S. companies and in
"emerging market" shares.
Things are worse for most other universities
"One-Third of Colleges Are on Financially
'Unsustainable' Path, Bain Study Finds," by Goldie Blumenstyk, The
Chronicle of Higher Education, July 23, 2012 ---
http://chronicle.com/article/One-Third-of-Colleges-Are-on/133095/
Bob Jensen's threads on higher education
controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Gee: Living High on the Buckeye at Ohio State University
"Gordon Gee, the Teflon President, Weathers Another Storm Over Expenses,"
by Jack Stripling, Chronicle of Higher Education, September 26, 2012 ---
http://chronicle.com/article/Gordon-Gee-the-Teflon/134694/
It has been said that the only survivors of a
nuclear holocaust will be cockroaches and Cher. At this point, it might seem
reasonable to add E. Gordon Gee to that list.
At a time when college leaders are being tossed out
at the very first whiff of a scandal, the Ohio State University president
appears impervious to controversy.
Over the course of his decades-long career in
higher education, Mr. Gee has weathered athletics scandal, spending probes,
and even jokes about his ex-wife's smoking pot in the president's residence
at Vanderbilt University.
Through it all, the unflappable Mr. Gee, 68, has
never seemed to stop smiling.
Continued in article
Why do they hate us?
http://www.trinity.edu/rjensen/HigherEdControversies.htm#Hate
Solyndra ---
http://en.wikipedia.org/wiki/Solyndra
"Washington's Knack for Picking Losers,"
by Michael J. Boskin, The Wall Street Journal, February 15, 2012 ---
http://online.wsj.com/article/SB10001424052970204883304577221630318169656.html?mod=djemEditorialPage_t
"Solyndra factory to be auctioned off; debt holders (including US gov.)
are not expected to recover much," Sober Look, September 27, 2012 ---
http://soberlook.com/2012/09/solyndra-factory-to-be-auctioned-off.html
Yet another reason the CPA profession differs from the law profession
"CPA Mobility Becomes Law in California," by Anne Rosivach,
AccountingWeb, September 26, 2012 ---
http://www.accountingweb.com/article/cpa-mobility-becomes-law-california/219922?source=aa
Certified public accountants from outside
California will now be able to serve clients in the state without obtaining
a license or paying a fee to the California Board of Accountancy (CBA) under
a new law signed on September 20 by Governor Jerry Brown. Changes in the law
governing the accounting profession will bring California into conformance
with CPA mobility legislation in forty-eight other states and the District
of Columbia. It takes effect on July 1, 2013.
Under current law, CPAs from other states need
permission from the CBA to practice in the state. Mobility laws already in
place in other states have allowed California CPAs to provide most services
to their clients without registering with the appropriate board of
accountancy.
"The change in the law makes the playing field even
for California CPAs and eliminates the possibility of retaliatory action by
other states that could reduce opportunities outside our state for
California CPAs," said Johanna Sweaney Salt, chair of the 40,000-member
California Society of CPAs (CalCPA).
The new law protects consumers. Out-of-state CPAs
practicing in California will be subject to the jurisdiction of the CBA.
Out-of-state CPA firms still must register with the CBA before they may
audit firms based in California. Such firms also will need to register with
the CBA to provide compilations and reviews of entities headquartered in
California.
Consumers will be able to access licensing
information for out-of-state CPAs through the CBA.
The movement to CPA mobility gained momentum in
1997 when the AICPA and National Association of State Boards of Accountancy
(NASBA) amended the Uniform Accountancy Act (UAA) which has been used as the
basis for most state statutes, including the new California law, that allow
interstate mobility. The amendment to the UAA states that a CPA with a valid
license from a state with CPA licensing criteria "substantially equivalent"
to those outlined in the UAA could practice in another state without
obtaining another license. Substantial equivalency in licensure and
certification criteria outlined in the UAA is understood to mean 150 hours
of education, a passing grade on the CPA exam, and at least one year of
experience.
Following the change to the UAA, most states
adopted CPA mobility provisions relatively quickly, but as in California,
legislation in New York and Massachusetts was stalled in part because these
states first needed to change their licensing requirements. The governor of
New York signed that state's legislation in November 2011; Massachusetts
approved a mobility statute in July 2011.
"This legislation has been a long-term goal of
CalCPA," noted Salt. "Nowadays even relatively small businesses may have
offices or representatives in other states, let alone in other nations. With
passage of this law, California CPAs will be better able to serve clients
with multistate locations."
Hawaii is the only state that has not passed
legislation that provides similar privileges to out-of-state CPAs.
Teaching Case on XBRL
"XBRL Tagging of Financial Statement Data Using XMLSpy:The Small Company Case,"
by Rick Elam, Mitchell R. Wenger and Kelly L. Williams, Issues in
Accounting Education, Vol. 27, No. 3, August 2012, pp. 76-782 ---
http://aaajournals.org/doi/abs/10.2308/iace-50162
This is not a free article.
Publicly traded companies in the U.S. are required
by the Securities and Exchange Commission (SEC) to file their financial
statement data using XBRL tags. Other countries using international
accounting standards have adopted similar XBRL filing requirements. This
case provides a brief introduction to XBRL for business or accounting
majors, and uses freely available software products (Altova XMLSpy) and
training tools that help learners quickly progress through a basic
introduction to XML (the foundation for XBRL), the XBRL taxonomy schema, and
actual tagging of financial statement numbers. The basic skills learned in
this case give accountants and other business professionals a working
knowledge of how XBRL and other XML-based business documents are and can be
used in practice. The case also raises awareness of the XBRL taxonomy
development bodies, filing repositories, and development tools available in
this domain for those interested in pursuing this technology in more detail.
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
Zoom.us -- An Amazing
Cloud-based, Video-Conferencing Posting the AAA Commons by Rick Lillie
Zoom.us -- An
Amazing Cloud-based, Video-Conferencing...
blog entry posted September 1, 2012 by
Rick Lillie, last edited Yesterday
, tagged
research,
teaching,
technology,
technology tools
103 Views,
3 Comments
title:
Zoom.us -- An
Amazing Cloud-based, Video-Conferencing Service (It's free!)
intro text:
Recently,
I read about
Zoom.us
a new free, cloud-based, video-conferencing service.
Yesterday, three of us used zoom.us to work on a research
project. We are located throughout the U.S. We logged into
the video conference call and worked for more than an hour.
The audio and video were crystal clear. We shared desktops
to work on documents together. Wow! The virtual work
session was very productive and enjoyable.
I use
Skype to work with
colleagues and to offer virtual office hours for my
students. Skype offers a free 1:1 video-conference call
with desktop sharing. To include more than two people in a
Skype video call, you need to subscribe to
Skype's premium service. Skype's
fee is very reasonable; however, it's difficult to beat
"free."
Both
Zoom.us and Skype have features
that meet specific needs. Therefore, both services are
valuable to the teaching-learning experience. The quality
of the zoom.us video-conference call was exceptional. Zoom.us
versus Skype is not an either/or situation. Using one
service or the other is a judgment call regarding features
that best fit the need as hand.
Getting started with zoom.us is quick and easy to do. Their
support page explanations
are easy to follow. The service works with Google and
Facebook, iPad, iPhone, Windows and Mac. When I set up
zoom.us, I had to download a small file to my computer that
includes the zoom.us interface. The download was quick. No
problem.
Below is a
screenshot from the support page indicating key features of
the zoom.us interface screen. Individual members
participating in a video call are shown at the top of the
screen. When a member speaks, the border of the member's
screen turns "green." The speaker's screen displays in the
"big screen" section of the interface window. This process
works as the conversation switches among participants. Wow!
This is amazing and allows each speaker to be the center of
attention.
Check out
zoom.us. I think you'll like this new
video-conference service.
Best wishes,
Rick Lillie
(
CSU San Bernardino)
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
2012 AAA Meeting Plenary
Speakers and Response Panel Videos ---
http://commons.aaahq.org/hives/20a292d7e9/summary
I think you have to be a an AAA member and log into the AAA Commons to view
these videos.
Bob Jensen is an obscure speaker following the handsome Rob Bloomfield
in the 1.02 Deirdre McCloskey Follow-up Panel—Video ---
http://commons.aaahq.org/posts/a0be33f7fc
"Deriving the True Size of U.S. Megabanks Is Far From Simple," David
Reily, The Wall Street Journal, September 23, 2012 ---
http://professional.wsj.com/article/SB10000872396390443890304578010573777776536.html?mod=dist_smartbrief&mg=reno64-wsj
Does J.P. Morgan Chase have $2.3 trillion in
assets, $4 trillion or perhaps somewhere in between?
Just how big the biggest U.S. bank is depends on
your view of how derivatives should be accounted for on banks' books. And
the potentially huge difference in size shows why simplifying bank
regulation is anything but easy.
In recent weeks, Thomas Hoenig, a director at the
Federal Deposit Insurance Corp., and Andrew Haldane, executive director for
financial stability at the Bank of England, have decried the additional
complexity of postcrisis regulations. Both urged more reliance on simpler
measures that avoid distortions caused by risk-weighting assets as called
for under new iterations of Basel capital rules.
Mr. Hoenig, a former Kansas City Fed president,
said regulation should focus more on measures of tangible equity. Mr.
Haldane called for greater emphasis on measures of overall
leverage—basically assets to equity. Excess on that front was a big
contributor to the financial crisis.
Risk-weighting of assets is indeed a problem. Banks
will base some weightings, which influence capital needs, on complex,
internal models. Such weightings also incent banks to hold supposedly
risk-free debt, such as government bonds, which the European crisis has
shown can actually be quite risky.
The trouble is, even clearer-cut measures of
tangible equity and leverage aren't always straightforward. While both
depend on measures of assets that aren't affected by risk weighting, the
size of those assets can vary greatly due to the treatment of derivatives.
Under U.S. accounting rules, banks offset many
derivative holdings against others to come up with a net asset number. So
while J.P. Morgan reports $1.7 trillion in gross derivative assets in notes
to its financial statements, it includes just $85.5 billion on its balance
sheet.
International rules require banks to show gross
derivative values on their balance sheet with less netting allowed. That
makes European banks appear larger than they would under U.S. rules.
This all makes it tough for investors to compare
the leverage employed by different international banks. It may also mask the
dangers posed by derivatives to individual firms or the wider financial
system.
Deutsche Bank's DBK.XE +0.03% balance sheet, for
example, shows assets that are 40 times equity. But under an approach more
like that of the U.S., the bank says it would fall to 22 times.
At $2.3 trillion, J.P. Morgan's assets as shown on
its balance sheet are 12 times its equity. But if all its derivative assets
are included, the bank's assets would swell to about $4 trillion and its
leverage rises to about 18 times.
Granted, even on that measure, U.S. banks tend to
be less levered than European peers.
Continued in article
Jensen Comment
This is one time where I'm on the side of the accounting standard setters,
especially with respect to notionals in derivative financial instruments
contracts.
For example, compare the financial instrument of a semi-annual 4% coupon bond
for n=10 years and a $10,000 face for an investment portfolio of 100 such bonds.
The interest payments become $20,000 every six months with a $1 million cash
flow bond receivable in10 years. The notional of $1 million is a cash flow
obligation that will be received on the maturity date. If there's no default
risk, there also is no cash flow risk in these financial instrument bonds. There
is fair value risk, however, based upon changes in market rates of interest.
However, the value of the bonds converges on $1 million from above or below at
the maturity date. If held-to-maturity the bond investor receives $1 million in
cash.
Next consider a speculation in an interest rate swap that changes this $1
million investment from a fixed rate to a floating rate semi-annual payments
that can now vary from $20,000 payments depending upon the current market rate
of interest. The speculation now has cash flow risk, but if there's no default
risk the fair value risk has been eliminated. The value of the bonds still
converges on $1 million after 10 years, but the fair value of the interest rate
swap with a notional of $1 million converges on $0.
Even though both the bond portfolio and the swap have separate notionals of
$1 million, the $1 million notional on the swap was never is a $1 million
cash flow obligation. This swap notional, and most notionals on derivative
financial instruments, are merely artifacts (parameters) used in computing the
net-settled interim swap payments for interest due on the notional.
Similarly, if an investor buys a call option on the CBOT exchange to buy $2
million worth of corn in six months, the $2 million notional never changes
hands. Whenever an option in-the-money is settled, the only cash flow is
difference between the spot value minus the strike value (the contracted forward
price) is net settled.
Hence, it would be very misleading to book notional values of net-settled
derivative financial instruments on financial statements. These notionals re
merely artifacts (parameters) used in computing the net-settled interim swap
payments for interest due on the notional. On the other hand the owner of
the bonds should book the fair value of the $1 bond notional should book the
full fair value of the bond since this is a cash flow obligation. Those are more
than artifacts (parameters) for interest calculations. Those are full cash flow
obligations.
What is confusing on top of all this are derivative contracts that are not
net settled. For example, if a livestock farmer buys a call option to have
physical delivery of $2 million (strike price) of corn trucked to his farm in
six months this is a cash flow obligation that is in substance a purchase
contract at a contracted strike price. This contract has fair value risk but no
cash flow risk.
And all of this blows my mind when comparing FAS 133 (where bifurcation of
embedded derivatives may be required) with the new IFRS 9 (that no longer
requires bifurcation). For example, I understand the FASB's DIG B38 solution,
but I don't have a clue about how to account for this embedded derivative
under IFRS 9. Makes me glad that I'm retired ---
http://www.fasb.org/derivatives/issueb38.shtml
Those naive readers who think that the FASB has simplified accounting for
derivative financial instruments by ignoring embedded derivatives have, in some
instances, another think coming. Makes me glad that I'm retired and not trying
to consult on the ambiguous IFRS 9.
Bob Jensen's tutorials for FAS 133 (but not updated for IFRS 9) ---
http://www.trinity.edu/rjensen/caseans/000index.htm
"The Real Cost of Default: New research indicates it is even higher
than you might think," Stanford Graduate School of Business, September 2012
---
Click Here
http://www.gsb.stanford.edu/news/research/real-cost-of-default.html?utm_campaign=September
2012 Knowledgebase&utm_medium=email&utm_source=newsletter&utm_content=The Real
Cost of Default
Six of the ten biggest corporate bankruptcies in
history have occurred since late 2008 — and all ten of the top ten, if you
include companies that escaped bankruptcy by being bailed out. The names are
etched in our memories: Lehman Brothers, General Motors, Chrysler, A.I.G.,
Fannie Mae, and Freddie Mac.
However, for all that, the actual costs of
corporate defaults and bankruptcy remain murky and mysterious. Calculations
about default risk loom behind almost every decision by investors and
corporate strategists. They affect how much it costs a company to borrow,
how it structures its finances, and what it does if it edges near the abyss.
It’s obvious that filing for bankruptcy takes a
huge toll, on top of the costs that stem from a company’s underlying
problems with sales and profits. Whatever else may be happening, defaults
bring a slew of costs on their own: customers and major suppliers often
flee; brands can be permanently damaged; assets may have to be sold at
fire-sale prices. All that is quickly reflected in a stricken company’s
stock and bond prices.
But it’s hard to untangle the cost of a default
from the cost of everything else going on with stock and bond valuations.
Cash problems and operating losses often overlap and reinforce each other,
but they have different causes and consequences. If the costs of a default
are lower than the players assume, investors and corporate architects risk
making miscalculations that will haunt them for years in the future.
Ilya A. Strebulaev, associate professor of finance
at Stanford’s Graduate School of Business, says those costs are higher than
assumed. In a new paper, coauthored with Sergei A. Davydenko and Xiaofei
Zhao of the University of Toronto, Strebulaev combined historical data on
corporate defaults with a new analytical model to tease out investor
reactions to a default both before and after it happens.
Their conclusion: default causes a much bigger
decline in a company’s total market value than is generally assumed. They
estimate that defaults, which can range from missed bond payments to
outright bankruptcy filings, will, on average, reduce a corporation’s total
market value by 21.7%. For “fallen angels” — companies that started out with
investment-grade ratings — default will destroy about 30% of the total asset
value.
That is an eye-opener. Until now, the best estimate
had been that corporate defaults cost companies about 20% of their value.
But that estimate was based only on defaults at 30 companies that had
originally been financed with high-yield junk bonds. Strebulaev analyzed 175
corporations, including many fallen angels that defaulted between 1997 and
2010.
The real breakthrough, however, was to come up with
a way to distinguish the cost of default from the cost of economic
deterioration. In the real world, a troubled company’s stock price usually
plunges for a host of different reasons at the same time. A company with
falling sales and mounting losses will lose value and edge closer to
bankruptcy. But the prospect of bankruptcy itself usually adds many other
costs.
That was the case with United Airlines, which filed
for bankruptcy in 2002 after being battered by brutal cost competition and
slumping traffic volumes. Once it filed for bankruptcy, it lost additional
value as suppliers and industry partners, such as regional airlines, backed
away.
How to unravel the mess? Strebulaev has been
working for years to tease out the causes and consequences of corporate
defaults. In a series of papers, he and his colleagues have analyzed
defaults going back as far as 150 years. Along the way, he has turned up a
number of unexpected discoveries. One surprise: cash-heavy companies are
actually more likely to default over the long-term than companies with
smaller reserves. Why? Because executives often shore up cash when they are
worried. The seemingly rich coffers can be a sign of trouble, rather than a
sign of health. Another surprise: many companies wait to liquidate
unsuccessful projects until a broader industrial downturn, so their failures
will “blend into the crowd” and won’t be as embarrassing. When the downturn
comes, though, the accumulation of living-dead zombie ventures can aggravate
an industry-wide investment bust.
For Strebulaev, the patterns and practices of
companies in financial distress constitute a rich new opportunity. The goal
isn’t simply to provide a new tool for corporate strategists. The real
purpose is to illuminate why corporations and investors make the choices
they do, and to understand the consequences. Corporate defaults are costly —
their losses extend well beyond the ones caused by a company’s underlying
business problems.
But how big are those costs? Strebulaev and his
colleagues measured the total cost by looking at the drop in market value of
a company’s equity and debt. The first step was measuring the drop in stock
and bond prices right after a company announced a default.
In most cases, though, investors anticipate a
default weeks or months in advance and begin to discount a company’s
valuation long before it defaults. The full cost of a default needs to
include the anticipatory drop in value, but it needs to exclude the losses
tied to the company’s economic deterioration.
It sounds impossible, which is why there had only
been one other major empirical study of the subject. But Strebulaev and his
colleagues came up with a novel approach. They built a sophisticated, yet
intuitive, model of how investors typically anticipate a corporate default,
and applied this model to historical data stretching back two decades. The
crux of the new approach is that investors only partially predict a
corporate default, and that there is always an element of surprise when it
occurs. This surprise causes a reaction in stock and bond prices at default.
The approach uses historical default patterns to mathematically model
investors’ typical anticipation of default.
Continued in article
A Debate by Experts About Teaching Evaluations
"Professors and the Students Who Grade Them," The New York Times,
September 17, 2012 ---
http://www.nytimes.com/roomfordebate/2012/09/17/professors-and-the-students-who-grade-them?hp
Jensen Comment
One of the experts is a man after my own heart:
Stuart Rojstaczer, a
former professor of geology and civil engineering at Duke University, is the
creator of of the Grade
Inflation Web site. He is writing a book about undergraduate education in
the U.S.
Grade inflation is, in my opinion, the Number One disgrace in higher
education, and the major cause of grade inflation is the teaching evaluation
process where students impact the promotion, tenure, and salary outcomes of
their teachers ---
http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor
"The Future of Public Sector Accounting Standards," by Ken Warren,
Deloitte, September 13, 2012 ---
http://www.iasplus.com/en/news/2012/september/the-future-for-ipsas
Ken Warren, a board member of the International
Public Sector Accounting Standards Board (IPSASB) and the New Zealand
External Reporting Board (XRB), has written an article providing some
insights into the future direction of International Public Sector Accounting
Standards (IPSAS). The article, entitled 'IPSASs through the looking glass'
and recently published on the website of the New Zealand Institute of
Chartered Accountants (NZICA), discusses conceptual differences between IFRS
and IPSAS and likely developments in public sector accounting.
The sad state of governmental accounting: It's all done with smoke and
mirrors ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
September 3, 2012 message from Mark Nigrini <mark_nigrini@msn.com>
Hello Bob,
I hope that you are doing well. I remember that
we've spoken with each other, but the details are hazy now. We wpoke about
your home in NEw Hampshire and so it was around the time of you moving up
north.
Your website is one where I can start reading and
an hour later feel that I've just scratched the surface and need to come
back for more.
You mention Benford's Law on your site (see
attached) and I was hoping that you could reference my new book (especially
since it's been 13 years since my JOA 1999 article).
In "Benford's Law: Applications for forensic
accounting, auditing, and fraud detection" (Wiley, 2012) author Mark Nigrini,
a pioneer in forensic accounting, describes the mathematical foundations of
Benford’s Law in a way that is easily understood by accounting and other
business-related professionals. He then shows many examples of authentic and
accurate data that conformed to Benford’s Law—and the fraudulent and
invented numbers that did not. Nigrini goes way beyond the first digits test
and outlines a series of digit- and number-based tests called the Nigrini
Cycle. These tests are based on the state-of-the-art with respect to the
mathematics underlying Benford’s Law. The companion website
http://www.nigrini.com/benfordslaw.htm has
free Excel templates, data sets, photos, and other interesting items.
Thanks, Mark
"Audit Firms' Work Deemed Deficient," by Michael Rapoport, The Wall
Street Journal, September 16, 2012 ---
http://professional.wsj.com/article/SB10000872396390443720204578000132856766230.html?mg=reno64-wsj
Regulators still are finding a high level of
serious deficiencies in the work of major audit firms, continuing a trend
begun last year, a member of the U.S.'s audit-industry oversight panel said.
Most of the Public Company Accounting Oversight
Board's 2011 inspection reports of the biggest firms have yet to be issued,
but they will show a continued "spike" in audits found to have serious
problems, PCAOB member Jeanette Franzel said in a speech in Chicago on
Thursday.
In some cases, Ms. Franzel said, the board's
inspectors found that auditors gave their clients a clean bill of health
even though the audit work wasn't completely or properly conducted, or the
company's financial statements were contradicted by other evidence.
Last year, in reports issued on 2010 inspections,
"we saw a high level of serious inspection findings, an increase over
previous years," and that trend remains in the 2011 reports, Ms. Franzel
said. In the reports issued last year, the board found deficiencies in
nearly a third of the audits they examined at the Big Four accounting
firms—PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLP
and KPMG LLP.
The PCAOB conducts annual inspections of the
biggest firms, scrutinizing a sample of their audits. The inspections focus
on audits that the board believes are at highest risk for problems, so the
PCAOB says the results may not reflect how frequently a firm's overall audit
work is deficient. The inspections are intended only to evaluate a firm's
performance and point out areas for improvement, so offending firms aren't
subject to penalties.
PCAOB findings of problems are "to be taken
seriously and firms will continue to work on areas that need to be
improved," said Cindy Fornelli, executive director of the accounting
industry's Center for Audit Quality.
The only Big Four firm with a 2011 report issued
thus far is KPMG, in which the PCAOB found deficiencies in 12 out of the 52
audits they examined.
Bob Jensen's threads on audit firm professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Jensen Comment
If there ever was BS about a BS or a PhD this has to be the site ---
http://www.collegemeasures.org/
One thing I always warned my students about is that education is much more
than a ticket to a job. Education is part and parcel to almost everything in
life.
And when looking at career alternatives, I always warned my students to
pretty much ignore starting salaries when choosing a career or choosing
from first-time job alternatives. Reasons are as follows:
- Some companies will offer higher starting salaries because they're weak
in other attractions such as training, exposure to quality clients, job
security, travel requirements, benefits, etc. In public accountancy, for
example, the most important things are training and exposure to quality
clients who frequently offer jobs to selected members of audit teams that
conduct onsite audits or consulting for these clients.
- Local, state, and federal government job offers often look low relative
to job offers from the private sector. But there are often many advantages
to starting out with government such as starting out with the IRS.
Government sometimes offers great training opportunities. Secondly,
government may offer "client" exposures that provide similar opportunities
for career advancement in the private sector following that first-job in
government. Some of our best accounting firm tax experts are former IRS
agents, and some of our best tax professors were former IRS agents. The name
Amy Dunbar at the University of Connecticut rings a bell here.
- Large firms may offer the highest starting salaries, but the career
opportunities may be greater in small firms. For example, the probability
that an accounting graduate who starts out in a Big Four accounting firm
will ultimately make partner varies among the hundreds of offices around the
world, but the overall probability is much less than 20%. In fairness, most
graduates want Big Four training and client exposure opportunities without
ever intending to stick around long enough to become partners. Other
accounting graduates would prefer to start out with smaller accounting firms
or companies where they can start out as larger fish in small ponds with
much greater opportunity to become partners or senior managers or
executives.
- Relative to salary at any point in a career, also think about mobility.
It is quite common for employees to change jobs for a number of reasons,
including termination (e.g., no tenure or promotion), unhappiness in a
particular job, transfer of a spouse, desire to get out of a city, desire to
get into a city, etc. Some careers have greater mobility upon relocation.
And high-mobility careers may not have the highest starting salaries. For
example, my UPS driver up here in the mountains has a BS in finance. He
could've had a higher starting salary when he graduated in Boston, but when
he moved to these mountains he could not find any job in finance. If he had
instead been a nurse, he could've found a nursing job immediately.
- Think of the lifestyle aspects of a career that become much more
important later in life than salary. For example, many first-year premed
majors change majors after their science teachers fully explain the
lifestyle advantages and disadvantages of being a lifetime medical doctor.
For example, if every day is the same old thing of reading radiology film,
fixing herniated discs, putting in lens implants, or replacing knees and
hips, life can be pretty boring over the next 40 years. Students should
consider the many aspects of a career other than expected earnings. And
there are many aspects to consider. Physicians generally get rewards of
improving or restoring the lives of their patients. But many also take on
heavy pressures of possibly ruining the lives of their patients.
- Think of the debt and such things as malpractice insurance. For example,
physicians who start out at relatively high salaries or billings often spend
years of paying off the tens of thousands or more dollars of debt
accumulated in medical school. Getting free of that debt may take a long
time. One of my granddaughters estimates she will be 50 years old before she
makes the last payment on student loans. Also, consider the costs of a
career. The malpractice insurance of my wife's spine surgeon is over
$500,000 per year plus he has to pay for his own office staff, his own
office nurses, his physician assistants, and even his own accountants and
computer specialists.
Lastly, when reading the charts and tables in the site below consider the
aggregation and other weaknesses of the data. For example, accounting is mixed
in with business studies. But the advantages and disadvantages of an accounting
career are much, much different than those of marketing, management, finance,
and other types of business careers. For example, I looked up the PhD starting
salary for a "business" major in one major university. It was stated as $90,000.
However, accounting PhD graduates at that particular university are more apt to
be $150,000 or more. Plus there are summer stipends that add up to 20% more to
starting salaries.
And while we're at it, consider the starting salary of an accounting PhD. The
highest salary offer may come from Harvard or Stanford, but the living costs in
Cambridge or Palo Alto are possibly twice as much or more than the living costs
in Ames, Iowa --- perhaps ten times as much in terms of house purchase and
rental prices. And the odds of getting tenure are low at Harvard or Stanford
such that considerations such as research opportunities should outweigh starting
salary considerations.
And now for the BS about a BS ---
http://www.collegemeasures.org/
"All About the Money: What if lawmakers and students used starting
salaries to evaluate colleges and their programs?" by Dan Berrett, Chronicle
of Higher Education, September 18, 2012 ---
http://chronicle.com/article/All-About-the-Money/134422/?cid=at&utm_source=at&utm_medium=en
What is your college degree truly worth?
That is the question that a new report seeks to
answer. And it does so by distilling college into a number, expressed in
dollars.
"The Earning Power of Graduates From Tennessee's
Colleges and Universities" is the latest effort to precisely quantify the
value of a degree. It identifies the payoff that individual programs at
specific colleges yield the first year after graduation. While limited to
Tennessee, it will be followed by similar analyses in other states, and it
marks the arrival of a new way of evaluating higher education that brings
conversations about college productivity and performance to the program
level.
Due out this week, the report—by College Measures,
a partnership of the American Institutes for Research and Matrix Knowledge,
a consulting firm—is bound to spark debate about what it counts and omits,
and to raise fears over how its findings will be used.
The report has been praised by some analysts for
merging data on education and employment in valuable ways and for producing
revealing insights. For instance, in Tennessee, attending the flagship, in
Knoxville, might not lead to a higher paycheck for new graduates than
completing a community-college program, depending on the major a student
chooses.
The report also exposes simmering arguments in
higher education: whether college is chiefly for personal economic gain or
for serving the public good, whether teaching potential students about the
costs and benefits of their college choices will further cement an already
widespread consumerist ethos, and whether data on disparate outcomes by
discipline will fuel more attacks on liberal-arts programs, whose graduates
may not earn large salaries right after college but fare better later.
Produced in collaboration with the Tennessee Higher
Education Commission, the report was preceded by a Web site, which became
public last month, with
data for
institutions in Arkansas. College Measures is also
producing analyses for Colorado, Nevada, Texas, and Virginia.
More states may follow suit. About half the states
have the ability to link postsecondary academic records with labor data,
according to a 2010 report by the State Higher Education Executive Officers.
Few states have done so, says Travis J. Reindl, a program director for the
National Governors Association, but interest is growing in the types of
analyses that College Measures performs.
"Governors care very much about job creation, and
they care very much about meeting work-force needs. Both of these things
rely on good information," says Mr. Reindl. "This is an issue that's clearly
starting to percolate because it all goes back to jobs, job, jobs."
Salary Matters
Previous
studies by the Georgetown University Center on Education and the Workforce,
among others, have analyzed wage differences by major.
The Tennessee report breaks new ground, says Jeff Strohl, director of
research at the Georgetown center, by marshaling data from disparate state
agencies to identify the average first-year wages of the state's college
graduates between 2006 and 2010, and linking those data to the majors they
pursued and institutions they attended.
Continued in article
From the Chronicle of Higher
Education
Look up salary data for your university ---
http://chronicle.com/article/faculty-salaries-data-2012/131431#id=144050
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
2012 Working Mother: 100 Best Companies ---
http://www.workingmother.com/best-company-list/129110
BDO Jumps Ahead
E&Y in Top 10 Once Again
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Question
Is this PhD Guide explicitly sexist?
Just kidding of course.
"The Illustrated Guide to a Ph.D.," Open Culture, September
26th, 2012 ---
http://www.openculture.com/2012/09/the_illustrated_guide_to_a_phd-redux.html
More serious question
How does this guide apply or not apply to alternatives for an
accounting Ph.D.?
Hint
Note that the question focuses on alternatives rather than the bounds of
accountics science?
My answer is that most academic disciplines have doctoral programs covering
nearly all areas of that discipline. For example, in psychology a student can
get an experimental science Ph.D. in psychology. But another student can get a
Ph.D. in the various branches of clinical psychology.
There are no branches of clinical accountancy (professional practice issues)
where a student can get a Ph.D. in a North American university ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
"Fraud Reports Climb Still Higher: Employee reports of fraud are steadily
increasing, both as a percentage of all compliance-reporting activity and in raw
numbers," by Caroline McDonald, CFO.com, September 26, 2012 ---
http://www3.cfo.com/article/2012/9/regulation_fraud-whistleblower-sec-jimmy-lin-jonny-frank
Reports of fraud by corporate employees have continued their ceaseless
rise so far this year, according to the Quarterly Corporate Fraud Index.
The current drivers are increasing awareness of fraud, mandated
whistle-blower protections, and changing company cultures.
The index measures reported frauds as a
percentage of all compliance-related reports. Most recently, for the
second quarter of 2012, that ratio climbed to 22.9%, up from 21.7% for
the same quarter in 2011.
“This index essentially has been going
up since the day we started tracking it [in 2005],” says Jimmy Lin, vice
president of product strategy and corporate development at The Network,
a provider of governance, risk, and compliance solutions that conducts
the quarterly analysis in conjunction with BDO Consulting. The index
looks at compliance-reporting activity at more than 1,400 clients of The
Network worldwide, including nearly half of the Fortune 500.
Corporate employees are simply becoming
more aware of organizational issues and more willing to report
compliance errors, especially fraud, Lin says. Fraud is more often
covered in the news media these days, he notes. Also, he claims, the
client companies have become more sophisticated in educating employees
on what fraud looks like (which is a service The Network provides). “We
see the index going up and up as a positive. Companies are getting more
interested in a holistic approach than a check-box approach to
compliance.”
Employers are highly motivated to hear
about alleged internal fraud before an employee instead makes an initial
report to the Securities and Exchange Commission. “Even if it doesn’t
turn into anything significant, they want to catch wind of it first,”
notes Lin. Companies know that “even a hint of potential fraud issues in
their organization, whether true or not,” puts their reputation at risk,
not only with the public but also internally: “Employees may begin to
wonder about the company’s ethics.”
The whistle-blower protections under the
Dodd-Frank Act, such as prohibiting retaliation against whistle-blowers,
also may be having an impact. Companies are “couching it as building a
better culture,” says Lin.
Jonny Frank, a partner at
forensic-accounting firm StoneTurn Group, points out that the SEC has
offered incentives to encourage employees to use company-compliance
hotlines. But another reason for the upward trend may be that the
government expects companies to make the hotlines accessible to such
third parties as customers and suppliers, as well as to employees.
And a growing number of companies
annually require employees to certify as to their knowledge of
wrongdoing. “It’s one thing to put the burden on employees to come
forward; it’s another to ask them to confirm they don’t know of any
wrongdoing,” Frank says. That trend “suggests a culture where employees
see that the company is serious and not just giving lip service to
fraud.”
Frank says compliance officers generally
are doing a good job of pushing that message. Unfortunately, he adds,
some companies’ finance teams are getting less involved as ethics and
compliance controls mature. “It becomes easier for the CFO to just hand
off that responsibility to compliance.”
Lin observes that organizations are
vulnerable if compliance enforcement is not a pervasive theme throughout
the company. If functional areas, departments, and divisions aren’t
working together to make sure fraud is addressed, “then everybody is
going to lose,” he says.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"The Bailout of AIG: Mission Accomplished?" by Francine McKenna,
re:TheAuditors, September 17, 2012 ---
http://retheauditors.com/2012/09/17/the-bailout-of-aig-mission-accomplished/
On Friday September 14, the US government announced
the completion of the sale of AIG stock taxpayers bought during the
financial crisis bailout of the insurer. The government took in $20.7
billion for the sale and is no longer the majority owner of the company. At
the peak of the crisis, taxpayers owned almost 80% of AIG.
Andrew Ross Sorkin, New York Times reporter, CNBC
host, and author of “Too Big To Fail” used his
DealBook column to ask
former Special Inspector General of TARP Neil Barofsky if he was
satisfied, finally. Sorkin says the US Treasury made a profit on the AIG
transaction.
As we approach the four-year anniversary of the
collapse of Lehman Brothers and the rescue of A.I.G. next week, sadly,
much of the public — and people like Mr. Barofsky, as well-intentioned
as he is — are still criticizing and debating the merits of the bailout.
It’s almost become a cottage industry.
In his book, Mr. Barofsky wrote, “Treasury’s
desperate attempt to bail out Wall Street was setting the country up for
potentially catastrophic losses.”
As distasteful as the rescue effort was, it
should be clear by now that without it, we faced an economic Armageddon.
And the results thus far of bailing out the big banks, and A.I.G.,
indicate a profit.
Treasury never uses the term “profit” to describe
what taxpayers would receive. The
GAO did in a report in May
when it estimated the proceeds that could be realized at various sale
prices.
I wrote in American Banker about Sorkin’s claim
that the bank bailouts prevented “financial system Armageddon” and his
debate with Barofsky. I think “profit” is not only the wrong term but an
answer to the wrong question.
It can never be proven that the crisis bailouts
saved us from financial Armageddon. That’s the logical fallacy of
asserting a claim with no way to disprove the opposite, so saying we
made a profit on the deal is the next best thing. The New
York Times’ Andrew Ross Sorkin claims,
if you combine Treasury actions and “positive returns” on Federal
Reserve activities, the Treasury is now “on a path to actually turn a
profit.” That’s where the debate starts.
Former Special Inspector General for the
Troubled Asset Relief Program Neil Barofsky says, “Not
so fast.” I
agree. If your intention is to try to prove
or disprove the government PR claims that the taxpayer has made an
accounting profit on any of the bailouts, or
even broken even, you must remember this: That’s not why the government
supposedly did what they did. And on the two counts of failing to
unfreeze credit and failing to help homeowners – how the bailouts were
justified to Congress – the government is guilty.
Treasury never uses the term “profit,” even in
press releases. The term it does use, “positive return,” is a
non-Generally Accepted Accounting Principles metric. Treasury has sunk
to the level of a social commerce IPO like Groupon, whose infamous Consolidated
Segment Operating Income (CSOI) – which was slammed
by the Securities and Exchange Commission –
glossed over losses to convince investors there was a gain instead.
“Yves Smith” at Naked Capitalism also points out
that AIG enjoyed a tax benefit that negates Treasury”s claim. Who reported
that deal? Andrew Ross Sorkin in February.
In a February article, “Bending
the Tax Code, and Lifting A.I.G.’s Profit,”
Sorkin described how AIG was allowed to retain $26.2 billion of net
operating losses that should have been wiped out as a part of the rescue
of the company as well as an additional $9 billion of “unrealized loss
on investments.” That increased AIG’s fourth quarter and hence fiscal
year earnings by a remarkable $17.7 billion, which dwarfs the mere $1.6
billion its operations produced that quarter. And the article includes
this juicy bit:
Analysts at Bank of
America and JPMorgan Chase last year estimated that the tax benefits
from the losses propped up A.I.G. stock by $5 to $6 a share. Its shares
closed at $28.66 on Monday, just shy of the $29 mark that the government
says
it needs to sell
its shares to break even.
General Motors, another bailout “success story” –
because saving GM supposedly averted jobs and economic disaster in Detroit –
also benefited from the IRS rule change regarding retention of net operating
loss carry forwards and “fresh start” accounting. I wrote about that in
Forbes in November of 2010.
Reporting profits means new GM doesn’t lose the
valuable deferred tax assets they carried over from old GM, thanks to a
last minute fix from the US Treasury in
September. The accountants can pull dollars from a cookie jar valuation
allowance to prop up earnings when needed.
The IPO would probably have never passed even a
minimal “smell test” by the SEC’s Division of Corporate Finance if
”fresh start accounting” hadn’t put millions
in goodwill on their balance sheet. That gave
GM a positive balance in shareholder’s equity. In a perverse example of
accounting chicanery, the better GM does the less valuable that asset
is.
Read the rest of my column about the AIG share sale
at
American Banker.
Iowa Sen. Charles Grassley suggested that AIG
executives should accept responsibility for the collapse of the insurance giant
by resigning or killing themselves. The Republican lawmaker's harsh comments
came during an interview Monday with Cedar Rapids, Iowa, radio station WMT . . .
Sen. Charles Grassley wants AIG executives to apologize for the collapse of the
insurance giant — but said Tuesday that "obviously" he didn't really mean that
they should kill themselves. The Iowa Republican raised eyebrows with his
comments Monday that the executives — under fire for passing out big bonuses
even as they were taking a taxpayer bailout — perhaps should "resign or go
commit suicide." But he backtracked Tuesday morning in a conference call with
reporters. He said he would like executives of failed businesses to make a more
formal public apology, as business leaders have done in Japan.
Noel Duara, "Grassley: AIG execs
should repent, not kill selves," Yahoo News, March 17, 2009 ---
http://news.yahoo.com/s/ap/20090317/ap_on_re_us/grassley_aig
"AIG, Surprise: Moneymaker Its profits for taxpayers cast doubt on the
notion that it behaved recklessly before the panic struck," by Holman W.
Jenkins, Jr., The Wall Street Journal, August 31, 2012 ---
http://professional.wsj.com/article/SB10000872396390443618604577623373568029572.html?mg=reno64-wsj#mod=djemEditorialPage_t
AIG's bailout is getting the revisionist
treatment. The rescue hasn't been the dismal federal experience that,
say, GM's has been. Taxpayers are showing a $5 billion profit on their
53% stake in the insurer, as of yesterday's closing price.
What's more, in the last few days, the New York
Fed liquidated the last of the complex mortgage derivatives it acquired
from AIG's counterparties as part of the bailout. Such transactions and
related fees have netted the government about $18 billion.
This is good news but requires some revising of
theories of the crisis itself. The "toxic" and "shaky" housing
derivatives that got AIG in trouble turn out, even amid the worst
housing slump in 70 years, not to have been the crud many assumed they
were.
A lot of renditions skip over this part,
dismissing AIG's pre-crash mortgage activities as "reckless," thereby
making a mystery of how the refinancing of AIG could be paying off so
handsomely for taxpayers. Taxpayers are making out because they bought
valuable assets on the cheap.
This is as it should be. But let's remember how
AIG got in trouble. It wrote insurance to guarantee the very senior
portions of securities derived from underlying mortgages—that is, the
portions already designed to withstand a sizeable increase in defaults.
AIG failed not because of the failure of these
securities to keep paying as expected, but because of its own promise to
fork up cash collateral if the market price of these securities fell or
if the rating agencies downgraded what they had previously rated
Triple-A.
In the systemic panic that climaxed with the
Lehman failure, both things happened in spades, even as AIG itself no
longer could raise the cash to make good on its commitments. Some now
claim AIG could have waved off the collateral calls, citing exceptional
circumstances. But even that wouldn't have changed the fact that,
because of the panic, AIG itself was no longer trusted despite being
chock-full of good assets.
We'll never know if the company might have
finessed its way out of its jam (quite possibly its counterparties,
including Goldman Sachs, would have acted to keep AIG afloat if the
alternative of a government bailout weren't available). Instead AIG
turned to taxpayers to finance the collateral calls it couldn't finance
itself, and taxpayers took advantage.
For all the desire to name villains and blame
bad incentives for the financial crisis, notice that panic itself was
the key player. Panic is a variable about which it's disconcertingly
hard for government to do anything useful in advance.
Panic is systemic—an uncertainty or loss of
trust in how the system will behave. Here's a simple but relevant
example: What happens to the market value of mortgages if investors lose
confidence in the legal system to permit them to foreclose on borrowers
who stop paying?
We don't need to retread the history. Letting
Lehman fail was a disaster because the rescue of Bear Stearns had
conditioned the market to believe Washington wouldn't permit major
institutional failures. The mixed signals sent about Fannie and Freddie
only undermined the effort to recruit fresh capital to other financial
institutions distressed by uncertainty over the value of mortgage
securities.
AIG is the most dramatic example of the general
case. A lot of things become good or bad collateral depending on what
the government is expected to do. It's not too strong to say Washington
had to bail out AIG because the market was uncertain whether Washington
would bail out AIG. (An additional complexity we won't go into is how
the Fed's QE exercises subsequently boosted the bailout's profits.)
Let us be careful here: A host of private and
public behaviors contributed to the housing bubble and meltdown, whose
losses were destined to be felt widely. Our system has no problem
accommodating the failure of individual institutions, even very big
ones. But systemic panic always comes to the door of government. It
can't be otherwise.
Governments can try to duck this burden, as
European governments have done, only by renouncing the ability to print
money and so soiling their own credit that substituting their own credit
for the financial system's is no longer an option. Make no mistake: This
would be a real cure for too-big-to-fail if the Europeans were inclined
to let the chips fall. They're not. Instead the self-disabling
governments want Germany to supply the bailout.
Continued in article
Outrageous Bonus Frenzy
AIG now says it paid out more than $454 million in
bonuses to its employees for work performed in 2008. That is nearly four times
more than the company revealed in late March when asked by POLITICO to detail
its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm
paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.
The figure Ashooh offered was, in turn, substantially higher than company CEO
Edward Liddy claimed days earlier in testimony before a House Financial Services
Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I
think it might have been in the range of $9 million.”
Emon Javers, "AIG bonuses four times
higher than reported," Politico, May 5, 2009 ---
http://www.politico.com/news/stories/0509/22134.html
Bob Jensen's threads on AIG are at
http://www.trinity.edu/rjensen/2008Bailout.htm
Search for the term "AIG"
"The Most Outrageous Tax of the Year," by Adam Levin, Huffington
Post, September 9, 2012 ---
http://www.huffingtonpost.com/adam-levin/the-most-outrageous-tax-o_b_1877166.html
. . .
It just may become the latest outrage during a year
of outrages. At the precise moment when the federal government finally
delivers a modicum of justice and some economic relief to millions
of homeowners victimized by the nation's largest banks, the government
threatens to beat those victims over the head with a punitive old favorite
revenue raiser -- a tax on forgiven debt.
Here's the backstory: After years of standing on
the sidelines and ignoring evidence that major banks were
using their mortgage servicing arms
to steal money from innocent consumers and illegally evict homeowners, the
federal government finally joined with 49 states to prosecute the banks. It
was a frustrating, agonizingly slow and painful process that led to an even
more frustrating, agonizingly slow and painful negotiation.
The result was the
National Mortgage Settlement, in which the five
largest loan servicers must pay $21.5 billion in reparations and restitution
to consumers victimized by their inappropriate conduct. Specifically, many
homeowners whose mortgages were serviced by the Big Five -- Citi, JPMorgan
Chase, Wells Fargo, Bank of America and Ally Financial -- may qualify for
significant reductions in their mortgage principal and interest rates. And
1.5 million people who lost their homes due to questionable foreclosure
practices can apply for a one-time payment of $2,000 (an insultingly low
figure considering how much pain is involved in losing one's house).
Altogether, that's not an inconsequential number
even in an imperfect world. More importantly, it's desperately needed right
now by millions of
underwater homeowners, who just might be able to
hang onto their homes if they can receive the lower payments that come from
interest and principal reductions. That helps individual homeowners, and it
also helps everyone else, since our economy needs more foreclosures and more
empty houses like it needs another global stock market crash.
But a grid-locked, polarized Congress is about to
screw it up (again). You see, unless Congress acts with uncharacteristic
speed and bipartisanship, anyone who might receive a principal reduction
from the mortgage settlement could face a hefty tax bill.
That's not supposed to be the way this all goes
down. In 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act,
which prevents homeowners from
paying taxes when their mortgage debt is forgiven
due to a decline in the owner's financial life or a drop in the home's
value. (We first covered the
debt cancellation tax, known as the 1099-C, early
last year, and gave tips on what to do if the
IRS taxes you on cancelled debt.)
The law applies to homeowners who participate in
the National Mortgage Settlement who receive up to $2 million in reduced
principal and interest charges. It is scheduled to expire at the end of 2012
along with all the other tax cuts we have heard about for years.
Whoops.
So, instead of getting the relief they need to save
their houses, victimized homeowners will be forced to pay a significant
portion of that savings to Uncle Sam. Since the average homeowner will
receive about $19,000 in settlement relief, and the average middle class
family pays about 25 percent in taxes, approximately one quarter of the
forgiven debt -- some $4,750 --
will have to be paid to the IRS and by those who
can least afford to pay it. For some families, that could be enough to tip
the scales, pushing them back to the brink of foreclosure and eviction.
This is fiscal insanity. And Congress knows it.
"Suddenly, just when they throw you a life ring,
they jerk it back," Rep.
Jim McDermott (D-Wash.),
told the Washington Post. "We cannot let this
happen. It's going to be a disaster."
Continued in article
Jensen Comment
Perhaps Adam Levin overstated the case a bit by not considering the high
proportion of low and middle class taxpayers who pay no income tax and,
therefore, are less adversely affected by the tax on forgiven debt:
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
See the chart at
http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/
Note the short paragraph on "Subjective Probability"
"A CFO’s Guide to Scenario-based Planning Using Econometrics." CFO
Journal, September 4, 2012 ---
http://deloitte.wsj.com/cfo/2012/09/04/a-cfos-guide-to-scenario-based-planning-using-econometrics/
Handling unexpected events, ranging from sudden
competitive shifts within an industry to economic and political volatility,
is never easy. But some companies seem better equipped to meet such
challenges than others. As CFOs have pushed deeper into broader strategic
roles for their organizations over the last decade, scenario-based planning
has become an important tool that can help organizations adapt quickly to
new threats and opportunities.
Going further than traditional forecasting,
scenario-based planning is not meant to predict the future, but to make
decisions today that take into account alternative ways the future could
turn out. At its best, scenario-based planning is a flexible tool that can
assist in the development of strategies for operating in any of several
contrasting business and economic environments that could lie ahead.
Scenarios can be used to develop a wide range of plans, from fundamental
changes in strategy caused by global paradigm shifts to tactical contingency
planning focused on possible near-term developments.
Business Uncertainties
The starting point is the premise that business
uncertainties should be highlighted rather than minimized when a company is
defining strategy. “At the corporate level, scenarios can help a company
establish an overall frame of reference for its strategic planning
processes,” says Dwight Allen, director, Strategy Development, Deloitte LLP.
“At the business-unit level, managers can use these scenarios to test and
refine their existing strategies. The corporate development group can use
the scenarios as input to make limited, expandable investments in assets
that would facilitate adaptation to developments that are different from
what business units are planning for but which are sufficiently plausible to
justify some advance preparation.”
. . .
Distinguishing between Shorter- and
Longer-term Initiatives
It can be helpful to group the different
applications of scenario-based planning into three tiers:
First Tier: Longer-term
macro-scenarios—These high level scenarios are developed to provide context
for corporate-level strategic planning. They are “broad brush” and
overarching scenarios. While these scenarios are at a higher level, they may
be the most important as their input sets the direction and tone for the
analysis and planning performed at the business-unit level. They also offer
guidance as to what developments the business units may be discounting as
they make their decisions on what market conditions to assume as they review
and refine their strategies.
Second Tier: Impact of
macro-scenarios on business units—After the longer-term scenarios have been
developed, the next step is to understand how each would impact the various
business segments (units/markets/industries/etc). Competitive strategy will
vary and should be tailored based on the intricacies of each business unit
and its market. Once the potential impacts of each scenario have been
identified and the appropriate strategic responses are defined, each
business unit determines what future market conditions it will assume and
what strategy it will adopt. In a company with many lines of business, the
array of strategies will be correspondingly diverse.
Third Tier: Ongoing, lower-level
analyses—Once business units have implemented their strategies, additional,
more tactical scenarios and analyses can be developed periodically as new
uncertainties emerge. These scenarios help to analyze the significance of
the new uncertainties and to experiment with different theories as to what
additional developments might be on the way. The idea is not to develop a
new strategy but to aid the business unit as it executes the strategy it has
adopted.
Leveraging Econometric Models Within
Scenario-based Planning
Econometric models can be used to flesh out
scenarios with financial data that make the descriptions of future worlds
less like science fiction and more grounded in the type of facts and figures
executives use when making business decisions. Rather than communicating the
characteristics of a scenario only through narrative descriptions,
econometric models make it possible to define the specifics of the business
environment—for example, stipulating GDP, inflation, IT investment, oil
prices and corporate profits. And there is the option of taking the next
step and modeling the impact of the scenario on a particular business,
showing how it would affect metrics such as revenues, expenses, pricing and
capital expenditures. For some management teams a scenario-based planning
exercise gains credibility only when the scenarios have been given this
quantitative dimension.
Econometric models can be used in a variety of
forward-thinking situations. “Models can be developed to illustrate how the
conditions prevailing within the longer-term, macro-scenarios used in
developing strategic plans would affect selected key market and business
indicators,” says Carl Steidtmann, chief economist at Deloitte Research and
a director with Deloitte Services LP. “This provides a more detailed,
quantitative understanding of a scenario’s impacts than is typically
possible when relying solely on a qualitative, narrative description,” he
adds. Models can also be developed for shorter-term scenarios when executing
the strategy a business has adopted.
Common Challenges When Using
Econometric Models
Statistical analysis is not immune to human
psychology. As with any process, there are places where error can be
introduced when creating and using econometric models using multiple
regression. While econometric modeling incorporates more quantitative
analysis into scenario-based planning, it is important that the underlying
risks being examined in a scenario-based planning model be both accurate and
relevant to the organization.
1. Misinterpreting Correlation
Multiple regression analysis is the cornerstone of
econometric modeling. One obstacle to using this technique is that it can be
difficult to interpret the relationship between each variable and the
resulting behavior. In a linear regression, the output is directly
correlated to a single input, but in a multiple regression, the correlation
of one input is dependent on all other inputs. For example, it would be
relatively easy to assess the direct relationship between, say, investment
in information technology (IT) services and a technology company’s revenue.
However, most real world econometric models and scenarios encompass multiple
leading economic and business indicators. In this more complex model, the
impact of IT investment may be very different depending upon the behavior of
the other variables, such as GDP or corporate profits. It is important to
assess the viability of each indicator within each modeling scenario.
2. Subjective Probability
When beginning the process of building a new model,
numerous variables should be considered to reach a best-fit design. The
challenge can lie in distinguishing between a model that looks sound
statistically, and a model that looks sound from a logical business
perspective. It helps to have a hypothesis about the variables in question.
Regardless of how strong the model appears to be using a given variable, the
model will not be reliable if there is not a strong business correlation.
Continuous Monitoring for Changes in
the Environment
Once an econometric model is built and the
financial impact of each scenario has been established, the business can
assess the strategic actions that can be taken. A robust scenario-based
planning effort using econometric analysis can enhance the competitive
advantage of a business by positioning it to be more nimble and able to
adapt to an ever-changing global environment.
Related Resource
Econometric Analysis for Scenario-based Planning
Bob Jensen's threads on managerial accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Some of the Worst Internal Controls in History
"Fraud Case Spurs Show-Horse Sale," by Mark Peters, The Wall Street
Journal, September 10, 2012 ---
http://professional.wsj.com/article/SB10000872396390444772804577623731324455136.html?mod=WSJ_hps_sections_news&mg=reno64-wsj
The show-horse set will descend on this small city
this month to bid on the crown jewel of what federal authorities allege to
be a massive fraud: Hundreds of top-ranked quarter horses amassed by the
former city comptroller accused of stealing tens of millions of dollars from
public coffers.
Rita Crundwell, 59 years old, was arrested by
federal authorities in April and accused of stealing more than $53 million
from this city of 15,700 whose finances she ran since the 1980s.
Federal authorities said the alleged theft took
place starting in 1990, and say that Ms. Crundwell, whose salary was around
$80,000, also used the allegedly pilfered funds to buy sports cars, a boat,
a home in Florida and a $2 million motor home.
Ms. Crundwell has pleaded not guilty to one charge
of wire fraud. After her arrest, she was released from federal custody and
is scheduled to appear in U.S. District Court in Rockford, Ill., in October.
She declined to comment through her lawyers.
Authorities say that Ms. Crundwell used the
allegedly stolen funds to furnish a horse ranch that housed nearly 400
quarter horses with names like Have Faith in Money, Jewels by Tiffany, and
Secure with Cash.
Ms. Crundwell worked for the city nearly all her
life, becoming comptroller in 1983. Over the years, she also became known as
a renowned breeder of horses that she bought and sold and showed. The
government also is auctioning other of her assets, including the motor home
and horse equipment.
Authorities say Ms. Crundwell no longer can afford
the $200,000 a month required to care for all the horses.
Ms. Crundwell agreed to the sale, authorities say,
which was ordered through a court process. Federal authorities believe that
horses were purchased and possibly maintained with funds from the alleged
fraud. Money from the auction eventually could go to Dixon as partial
restitution, but proceeds will be held in escrow until the case concludes.
Auctioneers said the size of the horse sale by a
single owner is rare. A spokesman for the American Quarter Horse Association
said the high caliber of the horses also makes it extraordinary.
"In all my years in the business, we've never done
anything quite like this," said Mike Jennings, a four-decade veteran of the
horse-auction business who the government hired to oversee the Crundwell
sale, scheduled to take place on Sept. 23 and 24, and online starting last
Friday, though no sales will take place until this week.
More than a thousand bidders, bargain hunters and
onlookers are expected to attend the auction. Hotels in Dixon are sold out
for the auction weekend, and city officials plan to run buses between
downtown and the Crundwell ranch about four miles away.
Ms. Crundwell built her empire on a horse farm here
known as the RC Ranch. Her initials are on the peak of the main barn and in
mosaic on the tile floor of her trophy room, where hundreds of ribbons and
horse statuettes are displayed.
On the walls are poster-size photographs of Ms.
Crundwell, often in a white cowboy hat, showing her horses. She excelled in
the beauty event known as halter, and holds more world championships than
any other amateur owner. Eight years in a row, she was crowned top owner at
the world championship show in Oklahoma City.
Ms. Crundwell also was popular with some on the
circuit. She sponsored events, rented stalls at shows, and hired trainers
and other staff. "For years, people felt they weren't able to compete
against Rita and stopped trying," said Amy Gumz, owner of Gumz Farms in
western Kentucky.
Ms. Crundwell's exit appears to be sparking new
interest in the events she once dominated. That could help fuel demand at
the upcoming auction where Mr. Jennings, the auctioneer, said the top horses
could fetch hundreds of thousands of dollars.
The quarter horse is the U.S.'s most popular breed,
used widely for trail riding, ranching and equestrian events. The breed is
also trained to race short distances—its name comes from the quarter-mile
that quarter horses typically run. The competitive show world ranges from
cowboys riding them to rope cattle, to muscular horses being paraded in a
ring and judged on their beauty.
In Dixon, Ms. Crundwell's hometown, many residents
remain baffled by her arrest, which came after a colleague filling in while
she was on vacation spotted alleged irregularities in the accounts. Dixon
Mayor Jim Burke said because of the size and success of her horse operations
Dixonites believed Ms. Crundwell's booming horse business financed her
lifestyle.
"She carefully cultivated this image of having a
successful horse operation," Mr. Burke said.
Dixon officials expect the auction to net several
million dollars, which they hope will eventually end up with the city. Mr.
Burke would like to use auction proceeds to pay off municipal debt and
possibly to give residents rebates on water or other municipal bills.
Continued in article
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 discovere 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 threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
More Clever than the Thumb of a Butcher
September 21, 2012 message from Dan Stone
One semester, I used the news story at the end of
this post in an accounting systems class. I thought it was a clever, funny
example of a failure of accounting controls. As was evident from my student
evaluations, many students were not amused. I have since learned that, at
least in Kentucky, anything related to sex or body functions -- even if
relevant to the class -- must not be spoken about.
Dan Stone
Title: Co-op apologises after shopper is
overcharged because store assistant's breasts were resting on the scales
A supermarket customer was over-charged by
around £5 while buying fruit and vegetables because the cashier's
breasts were resting on the weighing scales.
Bosses at a Jersey branch of Co-operative
explained that the mistake occurred because the shop assistant's seat
had been too low, causing her to lean on the counter.
Jim Hopley, chief executive of Channel Islands
Co-operative, said the money has now been refunded and admitted that he
has never seen anything like it in his 40 years of retail experience.
"Bank worker, 24, who stole £46,000 to fund boob job and party lifestyle
told police she earned the money working as an escort," by Emma Clark, Daily
Mail, September 21, 2012 --- Click Here
http://www.dailymail.co.uk/news/article-2206764/Bank-worker-24-stole-46-000-fund-boob-job-party-lifestyle-told-police-earned-money-working-escort.html?ITO=socialnet-twitter-mailonline
Rachael Martin, who has an eight-year-old son, told
police she could afford her lifestyle by working as a 'common prostitute'
but later admitted to thefts Underwent complete body overhaul in just weeks,
including £4,000 on breast surgery, £1,700 on dental surgery, and
liposuction She also spent £670 at exclusive jewellers Tiffany, and £506 on
a pair of Jimmy Choo shoes The law graduate was jailed for 52 weeks
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Detecting price artificiality and manipulation in futures markets: An
application to Amaranth," by Atanu Saha and Hans-Jürgen Petersen, Journal
of Derivatives & Hedge Funds (2012) 18, 254–271 ---
http://www.palgrave-journals.com/jdhf/journal/v18/n3/full/jdhf20127a.html
In this article we propose a general method to test
whether economic data support the claim of futures market manipulation. We
examine the question of whether or not Amaranth manipulated the market for
natural gas futures using three alternative methods. The first is our
contribution to the existing body of literature on the analysis of
manipulation claims. The subsequent two have previously been discussed in
the literature. All three methods yield the same result: economic data on
futures prices and Amaranth's trades do not support the claim that Amaranth
manipulated the natural gas futures market in 2006.
Continued in article
Bob Jensen's threads on how to value interest rate swaps ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
Bob Jensen's free tutorials on accounting for derivative financial
instruments and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm
Especially note the FAS 133 and IAS 39 Glossary at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
This is more than a glossary.
A Science/English/Logic Lesson for Caleb Newquist
"Anecdotal, Unverifiable Evidence Confirms That Broker-Dealer Audits Are as
Bad as You Thought They Were," by Caleb Newquist, Going Concern,
September 14, 2012 ---
http://goingconcern.com/post/anecdotal-unverifiable-evidence-confirms-broker-dealer-audits-are-bad-you-thought-they-were
,
Jensen Comment
Anecdotal, unverifiable evidence never confirms or proves anything. All
it takes is a simple wording change to "anecdotal, unverifiable evidence
indicates a possibility that . . . "
However, in the above illustration with respect to broker dealer audits we
cannot even "suggest that" for all broker-dealer audits.
A better title might read:
"Anecdotal, Unverifiable Evidence Indicates a Possibility That One
Broker-Dealer Audit Might Be as Bad as You Thought It Was,"
And even this headline is questionable since the incompetent auditor that
sent Caleb the message was only one auditor in a team of auditors where his
colleagues may have been much more competent that he was at auditing broker
dealers.
Anecdotal evidence at its best refutes absolutes. For example, suppose a CPA
review course made a claim that everybody who passes this course will also pass
the CPA exam. This absolute statement is open to anecdotal refutation of having
just one graduate of the course fail the CPA examination. That would be
confirming/refuting anecdotal evidence.
However, the criterion "as bad as you thought they were" is not an absolute
statement. Anecdotal evidence cannot confirm this statement.
By the way, absolutes can impossible to refute. For example, if nobody ever
passes the CPA review course mentioned above, this absolute becomes impossible
to refute.
"Detroit ex-mayor Kwame Kilpatrick turned City Hall into a den of bribes,
prosecutor says," by Ed White, Mercury News, September 21, 2012 ---
http://www.mercurynews.com/nation-world/ci_21601773/detroit-ex-mayor-kwame-kilpatrick-turned-city-hall
Former Detroit Mayor Kwame Kilpatrick conspired
with his father and best friend to turn City Hall into a den of bribes and
kickbacks, a prosecutor said Friday as jurors heard opening statements in
Kilpatrick's corruption trial.
Assistant U.S. Attorney Mark Chutkow gave jurors a
40-minute overview of what they'll see and hear in the months ahead. He said
Kilpatrick was an enthusiastic rising star in Michigan politics who moved
from the state Legislature, then enriched himself with hundreds of thousands
of dollars by muscling contractors, fooling political supporters and rigging
city business.
"This was not politics as usual," Chutkow said.
"This was extortion, bribery, fraud. ... They broke their oath to serve this
city. It was the citizens of the city of Detroit who were left holding the
short end of the stick."
Kilpatrick -- who quit office in 2008 in an
unrelated scandal and eventually served more than a year in prison for a
probation violation -- is charged with racketeering conspiracy, extortion,
bribery, fraud, false tax returns and tax evasion. His father, Bernard, also
is on trial, along with the ex-mayor's best friend, Bobby Ferguson, and
former Detroit water boss Victor Mercado.
Chutkow described how Kilpatrick deposited more
than $200,000 in cash in his bank account and paid his credit card bills
with another $280,000 in cash.
"He no longer lived like the citizens he governed,"
the prosecutor said, Advertisement noting luxurious travel and custom-made
suits.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Emory University to eliminate programs," by Laura Diamond, The
Atlanta Journal-Constitution, September 14, 2012 ---
http://www.ajc.com/news/news/local/emory-university-to-eliminate-programs/nSByn/
. . .
Emory will phase out the journalism program,
department of visual arts, division of educational studies and department of
physical education. Students enrolled in these programs will be able to
complete their degrees and tenured faculty will move to other departments.
The university will suspend admissions to
Spanish and economics graduate programs so leaders there can redefine the
missions, Forman said. Emory also will
suspend admissions to the Institute for Liberal Arts so it can be
restructured.
The changes will begin at the end of this academic
year and finish by the end of the 2016-17 academic year. About 20 staff
positions will be cut over the next five years, officials said.
Savings from the changes will be re-invested into
existing programs and growing areas, such as neurosciences, contemporary
China studies and digital and new media studies, Emory officials said.
Leaders of affected departments sent letters and
emails to students.
“These changes represent very difficult choices but
I am confident it will lead to a more exciting future for Emory College,”
Forman said. “These were fundamental decisions about the size and scope of
our mission and how we use our resources to realize our mission of providing
a world-class education for our students.”
President Jim Wagner endorsed the plan, saying
Forman and others had the “willingness to go back to first principles, look
at each department and program afresh, and begin the process of reallocating
resources for emerging needs and opportunities.”
The college has shuttered programs before. Emory
decided to close the dental school in 1990 and shut down the geology
department in 1986.
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Free Book Online ---
http://www.nap.edu/openbook.php?record_id=13396&page=1
Research Universities and the Future of America: Ten Breakthrough Actions Vital
to Our Nation's Prosperity and Security ---
http://www.nap.edu/catalog.php?record_id=13396
Summary from the Scout Report on September 7, 2012
What is the state of America's universities? That
is a vast question, and it was posed to the National Academies by the U.S.
Congress. Specifically, Congress asked the National Academies to assess the
competitive position of America's research universities over the coming
decades. The results of the Academies' findings are in this 227-page report
issued in 2012. Visitors to the site can download the entire report,
although those looking for something a bit more brief may wish to download
the 24-page executive summary. The summary offers some terse advice in the
"Ten Strategic Actions" area, including the suggestion that states may wish
to provide greater autonomy for public research universities so that these
institutions may "leverage local and regional strengths to compete
strategically and respond with agility to new opportunities." Some of the
other suggestions include improving university productivity and reducing
regulatory burdens. [KMG]
To find more high-quality online resources in math
and science, visit Scout's sister site: AMSER, the Applied Math and Science
Educational Repository at
http://amser.org
Rebooting the Academy (not a free book)
Chronicle of Higher Education
2012
https://www.chronicle-store.com/ProductDetails.aspx?ID=79485&WG=350&cid=rebootWC
Rebooting the Academy: 12 Tech Innovators Who Are
Transforming Campuses, tells the stories of a dozen key figures who are
changing research, teaching, and the management of colleges in this time of
technological change. The e-book features essays by each of the 12
innovators, explaining their visions in their own words and providing more
details on their projects, plus The Chronicle’s profiles of them.
Among the highlights: Salman Khan, founder of Khan
Academy, riffs on how video lectures can improve teaching; Dan Cohen, of
George Mason University’s Center for History and New Media, asks whether
Google is good for the study of history; and Jim Groom, an
instructional-technology specialist at the University of Mary Washington,
argues against the very premise of the collection, noting that the best
innovations come from groups, not individual leaders.
You will receive a confirmation email immediately
after your Digital Edition order is placed allowing you to download the
e-book to any of your preferred reading devices (includes formats for the
Kindle, Nook, and iPad).
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Teaching Case on Dividend Yield, Dividends, Financial Statement Analysis
From The Wall Street Journal Accounting Weekly Review on September 28,
2012
Payout Appreciation
by:
Matt Jarzemsky
Sep 18, 2012
Click here to view the full article on WSJ.com
TOPICS: Dividend Yield, Dividends, Financial Statement Analysis
SUMMARY: "Since 2006, Hasbro, maker of the Monopoly board game, has
tripled its dividend, increasing it annually except in 2009." Investors like
Mark Freeman, "chief investment officer of Westwood Holdings Group in
Dallas, are seeking companies that typically have rising earnings,
relatively low debt levels and large piles of cash. Mr. Freeman also looks
for companies whose dividends are low relative to their earnings, a sign
there is room for growth [at more than the rate of inflation]."
CLASSROOM APPLICATION: The article is useful to introduce the
financial ratios of dividend payout, dividend yield and free cash flow.
QUESTIONS:
1. (Introductory) Define dividend payout ratio and dividend yield.
2. (Advanced) Do these two ratios measure different things?
Explain.
3. (Advanced) According to Paul Stocking, co-manager of Columbia
Management's Dividend Opportunity fund, "we have seen the marketplace
chasing these high-dividend payers." What will that do to the dividend yield
and the dividend payout ratio? Explain your answer.
4. (Advanced) "Cisco Chief Financial Officer Frank Calderoni said
last month that the company will return more than half its annual free cash
flow to shareholders through dividends and share buybacks." Is the company's
dividend payout ratio therefore 50%? Explain your answer and include a
definition of free cash flow.
Reviewed By: Judy Beckman, University of Rhode Island
"Payout Appreciation," by Matt Jarzemsky, The Wall Street Journal, September
18, 2012 ---
http://professional.wsj.com/article/SB10000872396390443720204578002381992037280.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
Call them the new growth stocks.
After rushing into dividend stocks of all stripes
this year, some investors are homing in on a more select group: stocks of
companies that are likely to keep raising their dividends at a fast clip.
It is all part of the chase for better returns on
the heels of the Federal Reserve's announcement last week of another round
of bond buying aimed to keep interest rates at rock-bottom levels until the
economy improves. As yields on the 10-year Treasury wallow at near-record
lows and "junk"-bond yields also are sinking, investors are seeking anything
that offers some extra income. For months, that meant investors bought
shares of nearly any high-dividend-paying company, be it telecommunications
companies such as Verizon Communications Inc. VZ +0.37% and AT&T Inc., T
-0.24% energy producers such as Sempra Energy and tobacco company Altria
Group Inc. But now that has made many stocks too expensive, some
investors said.
Investors like Mark Freeman, chief investment
officer of Westwood Holdings Group in Dallas, are seeking companies that
typically have rising earnings, relatively low debt levels and large piles
of cash. Mr. Freeman also looks for companies whose dividends are low
relative to their earnings, a sign there is room for growth. Moreover, many
also said they target companies that appear to have a board that has shown a
willingness to keep increasing dividend payments.
"All I'm looking for is high-quality companies that
have some dividend yield and also the ability to grow that dividend at more
than the rate of inflation," said Mr. Freeman, who helps oversee $14 billion
across stocks and bonds. Mr. Freeman said he bought shares of PepsiCo Inc.,
which increased its payout 4.4% in May and 7.3% a year earlier, compared
with consumer-price inflation of about 1.7% annually.
A dividend yield measures how much cash an investor
gets for each dollar invested and is calculated by dividing the annual
dividend by the stock price. The higher the yield, the bigger the payout.
The lure of dividend-appreciation stocks is
reflected in indexes and exchange-traded funds. The Vanguard Dividend
Appreciation ETF is up 11% this year, compared with a gain of 8.5% for the
S&P High-Yield Dividend Aristocrats index.
"In the dividend-yield area, we're seeing
valuations that are looking pretty full to us," said Paul Stocking, who
co-manages Columbia Management's $4.5 billion Dividend Opportunity fund. "We
have been looking for more dividend growth, relative to stable,
high-dividend payouts, partly because of this move that we have seen in the
marketplace chasing these high-dividend payers."
To be sure, some strategists are cautioning clients
that focusing too much on dividends could mean missing out on larger
returns, said J.P. Morgan Funds global market strategist Joseph Tanious.
That is especially true if the Fed's bond-buying measures help drive up
prices of riskier assets such as growth stocks, some of which don't offer
dividends, he said.
Mr. Tanious is telling clients to balance their
portfolios with stocks tied to global growth.
Other investors keep piling into
dividend-appreciation stocks. Capital Advisors, a money-management firm in
Tulsa, Okla., with $1.1 billion under management, recently sold shares of
Verizon, which has a dividend yield of 4.6%. Instead, the firm bought shares
of Hasbro Inc. after the toy maker boosted its payout 20% this year. Hasbro,
which offers a 3.7% yield, has increased its dividend at a compound annual
rate of 15% for the past five years. Capital Advisors also added shares of
Gannett Co. in August after the newspaper publisher doubled its payout.
"It has become more of a stock picker's game, with
respect to finding good dividend plays," said Channing Smith, managing
director at Capital Advisors. He said opportunities to buy blue-chip stocks
with high dividends "have disappeared" over the past year as the valuation
of those shares has risen.
Through July, U.S. mutual funds focused on
dividend-paying stocks had drawn in $18.63 billion in net cash, while U.S.
stock funds have seen a net $29.42 billion in withdrawals, according to data
provider EPFR.
PNC Financial Services Group Inc.'s
asset-management group bought shares in Cisco Systems Inc. last year
partly because of the potential they saw for the company to raise its
dividend, said Bill Stone, chief investment strategist for the group, which
oversees $109 billion in assets.
The move paid off when the
telecommunications-equipment maker more than doubled the quarterly payout
last month, sparking a 9.6% jump in the company's stock price, the biggest
daily increase in a year.
Bob Jensen's threads on investment ratios ---
http://www.trinity.edu/rjensen/roi.htm
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 20, 2012
Trial Puts UBS in Spotlight
by:
Dana Cimilluca
Sep 15, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Internal Controls, Management Controls
SUMMARY: The trial against former UBS trader Kweku Adoboli began on
Monday. "The U.K. prosecutors opened their case...by casting the 32-year-old
as the lone perpetrator of an illegal scheme that shook the Swiss bank last
year." The related video comments on the reputational impact of the $2.3
billion trading loss generated by one "desk" being indicative of
insufficient internal controls. "Mr. Adoboli sat on a desk trading exchange
traded funds...his fraudulent activity began in 2008 when he suffered a
$400,000 loss on a legitimate trade and subsequently booked a false trade to
hide it."
CLASSROOM APPLICATION: The article may be used to discuss internal
control and material weaknesses, fraudulent accounting and reporting, and
ethics.
QUESTIONS:
1. (Introductory) For how long did Mr. Kweku Adoboli book false
trades to cover losses he did not want exposed? What was his apparent reason
for these actions?
2. (Introductory) How was Mr. Adoboli able to avoid detection of
his false accounting? In your answer, define the term "umbrella" account.
3. (Advanced) Identify one internal control that should catch false
entries such as those made by Mr. Adoboli.
4. (Advanced) What was the impact on the UBS AG stock price when
the scandal about Mr. Adoboli broke in 2011? Does this reaction merely
reflect the losses incurred by Mr. Adoboli or something more? Explain.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
UBS: Rogue Trader Hit Firm
by Deborah Ball, Paul Sonne and Carrick Mollenkamp
Sep 16, 2011
Page: A1
"Trial Puts UBS in Spotlight," by Dana Cimilluca, The Wall Street Journal,
September 15, 2012 ---
http://professional.wsj.com/article/SB10000872396390444023704577651410986775918.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
U.K. prosecutors opened their case in the trial of
Kweku Adoboli, the former UBS AG trader accused of a $2.3 billion fraud, by
casting the 32-year-old as the lone perpetrator of an illegal scheme that
shook the Swiss bank last year.
One year to the day after the scandal began to
erupt, Mr. Adoboli sat in a packed London courtroom as Sasha Wass of the
Crown Prosecution Service depicted him as a reckless and greedy fraudster
bent on boosting "his bonus, his status, his job prospects and his ego."
The defense didn't provide any indication of its
arguments in court, but Ms. Wass said Mr. Adoboli will claim that three of
his colleagues on his trading desk were aware of his illegal activity before
it surfaced.
Mr. Adoboli, who faces two counts each of false
accounting and fraud, has pleaded not guilty. If convicted, he faces up to
10 years in jail on each fraud charge and seven years on each accounting
charge. He is currently free on bail.
For UBS, the trial could shed an uncomfortable
light on how a relatively junior trader could have caused the largest
unauthorized trading loss in U.K. history, despite the giant bank's
sophisticated risk controls.
The case comes on the heels of a series of scandals
across the financial sector that have inflamed public opinion, particularly
in Europe.
Beginning in 2006, Mr. Adoboli sat on a desk at UBS
focused on trading exchange-traded funds, which are mutual-fund-like
investments, often tied to well-known indexes like the Standard & Poor's
500-share index, but which trade on exchanges throughout the day. According
to prosecutors, Mr. Adoboli's fraudulent activity began in 2008, when he
suffered a $400,000 loss on a legitimate trade, and subsequently booked a
false trade to hide it.
He was able to hide his unauthorized trades for
years, using hundreds or thousands of fake accounting entries and so-called
"umbrella" accounts where he stowed funds, until market turmoil last summer
caused his losses to balloon and ultimately tripped internal compliance
alarms, according to the picture painted by the prosecution.
The unauthorized trades eventually cost the bank
$2.3 billion.
The contours of the positions that the prosecution
and defense will likely stake out in the eight-week trial began to come into
focus on the first day of the proceedings. The prosecution will begin
calling witnesses on Monday, starting with an expert on bank trading.
Ms. Wass, the prosecutor, argued that Mr. Adoboli
acted alone, apparently trying to pre-empt an argument that others knew of
his illegal actions.
She repeatedly read from a lengthy email Mr.
Adoboli allegedly sent to colleagues on Sept. 14, 2011, the day before UBS
disclosed the unauthorized trading loss. In that email, he allegedly said:
"It is with great stress that I write this mail. First of all the ETF trades
that you see on the ledger are not trades that I have done with a
counterparty as I previously described."
The prosecution played recordings of conversations
between Mr. Adoboli and colleagues who quizzed him on his trades in August
and September of last year, in which the former trader attempts to explain
them.
Mr. Adoboli, dressed in a grey suit, white shirt
and maroon patterned tie, sat impassively as Ms. Wass laid out the
prosecution's case, at times playing with a pen and at others conferring
with his lawyer.
The prosecution depicted an ambitious young banker
who started out in UBS's so-called "back office" processing trades, and
later moved to the more lucrative and prestigious trading floor, using
knowledge he gained from his prior job to obfuscate his alleged illegal
activity. He went from earning £40,500 ($65,788) in salary and bonus in 2005
to £360,000 in 2010, which included a £250,000 bonus that prosecutors said
was boosted by his illegally inflated results.
"Like most gamblers, he believed he had the magic
touch. Like most gamblers, when he lost, he caused chaos and disaster to
himself and all of those around him," Ms. Wass said.
The trading loss proved devastating for UBS. The
bank was already under pressure because of a massive credit loss it suffered
at the height of the financial crisis that resulted in the need for
government aid as well as from persistently weak business conditions in the
securities industry since then.
The scandal initially knocked 10% off the bank's
already beleaguered stock, ate into its bonus pool and forced the
resignation of its chief executive, Oswald Grübel.
Continued in article
"Ex-UBS Trader Kweku Adoboli’s E-Mail to Accountant: Full Text," by
Edward Robinson, Bloomberg, September 14, 2012 ---
http://www.bloomberg.com/news/2012-09-14/ex-ubs-trader-kweku-adoboli-s-e-mail-to-accountant-full-text.html
Below is the text of an e-mail former UBS AG (UBSN)
trader Kweku Adoboli sent to bank accountant William Steward on Sept. 14,
2011, describing how he accrued trading losses.
The e-mail was read out by prosecutor Sasha Wass at
Adoboli’s fraud trial in London today.
The subject line for the e-mail, sent from
Adoboli’s home e-mail account, was: “An explanation of my trades.”
Dear Will,
It is with great stress that I write this mail.
First of all the ETF (Exchange Traded Funds) trades that you see on the
ledger are not trades that I have done with a counterparty as I
previously described.
I used the bookings as a way to suppress the
PnL losses that I have accrued through off-book trades that I made.
Those trades were previously profit making, became loss making as the
market sold off aggressively though the aggressive sell-off days of July
and early August.
Initially, I had been short futures through
June and those lost money when the first Greek confidence vote went
through in mid-June. In order to try and make the money back I flipped
the trade long through the rally.
Although I had a couple of opportunities to
unwind the long trade for a negligible loss, I did not move quickly
enough for the market weakness on the back of the first back macro data
and then an escalation Eurozone crisis cost me the losses you will see
when the ETF bookings are cancelled. The aim had been to try and make
the money back before the September expiry date came through but I
clearly failed.
These are still live trades on the book that
will need to be unwound. Namely a short position in DAX futures [which
had been rolled to December expiry] and a short position in S and P 500
futures that are due to expire on Friday.
I have now left the office for the sake of
discretion. I will need to come back in to discuss the positions and
explain face to face, but for reasons that are obvious, I did not think
it wise to stay on the desk this afternoon.
I will expect that questions will be asked as
to why nobody else was aware of these trades. The reality is that I have
always maintained that these were EFP trades to the member of my team,
BUC, trade support and John Di Bacco (Adoboli’s manager).
I take full responsibility for my actions and
the stilt storm that will now ensue. I am deeply sorry to have left this
mess for everyone and to have put my bank and my colleagues at risk.
Thanks,
Kweku.
Jensen Comment
Derivatives trading is not a St. Petersburg Paradox Game ---
http://en.wikipedia.org/wiki/St._Petersburg_paradox
Bob Jensen's Timeline on Derivative Financial Instruments Scandals ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
Teaching Case on Lean Accounting (accounting for lean manufacturing)
The only things fat on a new Harley are the riders
From The Wall Street Journal Accounting Weekly Review on September 28,
2012
Harley Goes Lean to Build Hogs
by:
James R. Hagerty
Sep 22, 2012
Click here to view the full article on WSJ.com
TOPICS: Cost Management, Cost-Volume-Profit Analysis, Fixed Costs,
Variable Costs
SUMMARY: Harley-Davidson Inc. has implemented lean and flexible
manufacturing procedures. According to the related video, the company can
now produce as many vehicles as it always has with half the workforce it
once employed. Manufacturing improvements came from automation but also from
better organization and improved flexibility of worker abilities.
CLASSROOM APPLICATION: The article is useful in a managerial or
cost accounting course to cover lean manufacturing, fixed and variable
costs, C-V-P or breakeven analysis, and operating leverage.
QUESTIONS:
1. (Advanced) Define the terms lean manufacturing, fixed costs,
variable costs, cost-volume-profit analysis, break-even analysis and
operating leverage.
2. (Advanced) By better organizing the Harley-Davidson operations
out of 41 buildings and into one location, do you think the company reduced
fixed costs, variable costs, or both? Explain.
3. (Introductory) Traditionally, companies requiring significant
investment in production costs, such as automobile and motorcycle
manufacturers, face deep plunges in profits when demand falls off, such as
it did during the 2009 recession. Why does this profit plunge occur?
Identify how the related graphic entitled "Higher on the Hog" shows this
phenomenon.
4. (Introductory) How have the improvements in production at Harley
made it more likely for the company "...to perform... and remain...
profitable no matter what the business environment is"?
5. (Advanced) Refer to your definitions in answer to question one.
How did the changes at Harley affect operating leverage and the company's
break-even point? Explain how operating leverage and cost-volume-profit
analysis can be used to assess the answers you gave to questions three and
four.
6. (Introductory) What is operating profit margin? How have the
company's improvements affected this measure?
Reviewed By: Judy Beckman, University of Rhode Island
"Harley Goes Lean to Build Hogs," by James R. Hagerty, The Wall
Street Journal, September 22, 2012 ---
http://professional.wsj.com/article/SB10000872396390443720204578004164199848452.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
If the global economy slips into a deep slump,
American manufacturers including motorcycle maker Harley-Davidson Inc. that
have embraced flexible production face less risk of veering into a ditch.
Until recently, the company's sprawling factory
here had a lack of automation that made it an industrial museum. Now,
production that once was scattered among 41 buildings is consolidated into
one brightly lighted facility where robots do more heavy lifting. The number
of hourly workers, about 1,000, is half the level of three years ago and
more than 100 of those workers are "casual" employees who come and go as
needed.
This revamping has allowed Harley to quickly
increase or cut production in response to shifting demand. "This is a big
bang transformation," said Ed Magee, a Louisiana-born ex-Marine officer who
runs the York plant, one of the Milwaukee-based company's three big U.S.
production facilities.
The efficiency gains mean Harley should be able to
raise its operating profit margin for the motorcycle business [excluding
financing operations] to nearly 16% this year from 12.5% in 2009, said Craig
Kennison, an analyst at Robert W. Baird & Co. in Chicago. Harley no longer
needs peak production levels to achieve strong profits, he said.
Overall, U.S. manufacturers generally are in better
shape after slimming down and rethinking sloppy practices during the brutal
2008-09 recession. Total profits at domestic manufacturing companies, which
were running at an annual rate of $363 billion in this year's first quarter,
are up from $290 billion, five years ago, before the recession, according to
government data.
Companies often say they learned the lessons of the
past, only to get blindsided by some unexpected twist in the economic cycle.
But companies generally are in much stronger financial shape than they were
a few years ago. "There is a focus on performance and remaining profitable
no matter what the business environment is," said Daniel Meckstroth, chief
economist at the Manufacturers Alliance for Productivity and Innovation, an
economic research group in Arlington, Va.
Like Harley and others, Caterpillar Inc., a maker
of construction machinery, now relies more on "flexible" workers, including
part-timers and people working for outside contractors. Caterpillar
generally doesn't have to pay severance costs when it lets such workers go
during slow periods. Flexible workers accounted for about 16% of its global
workforce as of June 30, up from 11% at the end of 2009, when many of those
workers were cut because of slumping orders.
Harley got more serious about cutting costs when
Keith Wandell became chief executive in 2009 amid a severe slump in
motorcycle sales. On his first visit to the York plant, Mr. Magee recalled,
Mr. Wandell declared the layout and working methods unsustainable. Harley
began scouting sites for new plant to replace York and settled on
Shelbyville, Ky. The company notified the International Association of
Machinists and Aerospace Workers, or IAM, which represents York workers,
that the plant would close and move to Kentucky unless they approved a new
contract giving Harley more control over costs. Union members voted
overwhelmingly to make concessions, and Harley stayed in York.
Instead of 62 job classifications, the plant now
has five, meaning workers have a wider variety of skills and can go where
needed. A 136-page labor contract has been replaced by a 58-page document.
Kim Avila, 49 years old, who has worked here for
more than 17 years, said she saw the concessions as the only chance to
preserve jobs. The pace of work is faster now, but she said managers and
workers have more mutual respect and work together more smoothly. In the
paint department, where she works, people used to do the same chore all day
but now rotate through several tasks to avoid body strain and boredom. They
are encouraged to fix some minor flaws in the finish themselves rather than
kicking them to another department.
Some items formerly made in York, such as brackets
and screws, come from outside suppliers. Production fluctuates depending on
day-to-day sales, so the company doesn't have to stock up well ahead of the
spring peak-selling period and guess which models and colors will be
popular.
Similar changes are in the works at Harley plants
in Kansas City, Mo., and near Milwaukee, Wis. In all, the restructuring will
cut costs of doing business this year by at least $275 million, Harley
estimates. "They've done a phenomenal job in reducing costs," said James
Hardiman, an analyst at Longbow Research in Cleveland, who nonetheless has a
neutral rating on the stock, due partly to uncertain demand.
The transformation has been trying at times.
Harley's Mr. Magee likened it to having "open-heart surgery as we were
running the marathon" in that Harley had to maintain production in York as
it rebuilt the plant. New software installed recently to guide production
temporarily left the plant "constipated," one manager confided.
Continued in article
Jensen Comment
I think many managerial accounting instructors have been too slow in upgrading
their syllabi to include lean accounting beyond just JIT modules. A good
reference for lean accounting is provided by our AECM friend Jim Martin ---
http://maaw.info/JITMain.htm
Teaching Case
From The Wall Street Journal Accounting Weekly Review on September 16, 2011
With New Technology, Start-Ups Go Lean
by:
Angus Loten
Sep 15, 2011
Click here to view the full article on WSJ.com
TOPICS: Accounting, Public Accounting
SUMMARY: So often it is said that, regardless of economic cycles,
accounting services are always needed. This article makes it clear that the
nature of those services may be changing: one small start up firm's founder,
Sam Rogoway of Near Networks, argues that "tasks that used to require extra
workers can now be done online. 'You don't need an IT person or an
accountant,' Mr. Rogoway says."
CLASSROOM APPLICATION: The questions focus students' thoughts on
the implications of the article for their professional development as
accountants if they want to work with small businesses or build a private
accounting practice.
QUESTIONS:
1. (Introductory) What proportion of new job creation comes from
start-up firms in the U.S. economy? What has happened to the number of those
new jobs since 2008?
2. (Introductory) According to the author and sources for this
article, what types of jobs do small businesses now do without?
3. (Advanced) What are the implications of this article for the
services you can provide if you are an accountant wanting to work with small
businesses or to build a private accounting practice?
4. (Advanced) What are the implications of this article for the
skills you must develop and continually improve as a professional
accountant?
Reviewed By: Judy Beckman, University of Rhode Island
"With New Technology, Start-Ups Go Lean," by: Angus Loten, The Wall Street
Journal, September 15, 2011 ---
http://online.wsj.com/article/SB10001424053111903927204576570622331620408.html?KEYWORDS=With+New+Technology+Start-Ups+Go+Lean
New businesses are getting off the ground with nearly half as many workers as they did a decade ago, as the spread of online tools and other resources enables start-ups to do more with less.
The change, which began before the recession, may be permanent, according to some analysts.
"There's something long-term
at work here," says Dane Stangler, research director at Ewing Marion
Kauffman Foundation, a Kansas City, Mo., research group.
Start-ups are now being
launched with an average of 4.9 employees, down from 7.5 in the 1990s,
according to a recent Kauffman Foundation study. In 2009, new independent
businesses created a total of 2.3 million jobs, more than 700,000 fewer jobs
than the annual average through 2008, the study found.
Meanwhile, the overall
number of start-ups has "held steady or even edged up since the recession,"
according to the study.
Led by start-ups, small
employers have generated 65% of net new jobs over the past 17 years, says
the Small Business Administration. As such, steady declines in start-up
size, which stretch back more than a decade, could explain the slow labor
market recovery following the previous recession in 2001, as well as today,
according to Brian Headd, an economist at the SBA's Office of Advocacy.
"This is a significant
change and not necessarily tied to business cycles," says Mr. Headd.
Rather than purchasing the
tools and manpower needed to run their companies, more small firms are
renting, sharing or outsourcing resources, typically through online
services, according to Steve King, a partner at Emergent Research, a
research and consulting firm for small businesses.
By tapping into Web-based
business tools, Sam Rogoway earlier this month launched Near Networks, a
nationwide video production firm, with only four employees. An entrepreneur
based in Santa Monica, Calif., Mr. Rogoway says tasks that used to require
extra workers can now be done online.
"You don't need an IT person
or an accountant. It's become so streamlined and user-friendly," Mr. Rogoway
says. "We all wore different hats and collaborated on everything."
Last year, Gil Harel
launched BiteHunter, a search engine for restaurant discounts, with just
three employees. Based in New York, the site used shared screens and other
communications tools to work with developers in Russia, Uruguay and Israel.
"Just to build the
infrastructure to get a business off the ground used to take a lot of money
and people. But things that you couldn't do in the past, you can no w do on
your own," Mr. Harel says.
Most small companies now buy
supplies, pay bills and manage payroll on Web-based services, according to
the National Small Business Association, a Washington, D.C.-based lobbying
group.
A recent survey of more than
500 small firms by Zoomerang, an online polling firm based in San Francisco,
found a small but growing number are using shared, network-based
applications—or so-called cloud computing—for everything from data storage
and email, to customer service, mobile commerce, and finance and
administration.
Evan Saks, the founder of
online mattress maker Create-a-Mattress, says manufacturing technology that
ties orders to production—known as just-in-time manufacturing—and Web-based
tools have done away with the need for inventory managers or warehouse
staff, among other workers.
Continued in article
Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Short-Term Memory (including chunking) ---
http://en.wikipedia.org/wiki/Short-term_memory
"The Science of “Chunking: Working Memory, and How Pattern
Recognition Fuels Creativity," by Maria Popova, Brain Pickings,
September 4, 2012 ---
Click Here
http://www.brainpickings.org/index.php/2012/09/04/the-ravenous-brain-daniel-bor/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+brainpickings%2Frss+%28Brain+Pickings%29&utm_content=Google+Reader
It seems to be the season for fascinating
meditations on consciousness, exploring such questions as
what happens while we sleep,
how complex cognition evolved, and
why the world exists. Joining them and prior
explorations of
what it means to be human is
The Ravenous Brain: How the New Science of Consciousness Explains Our
Insatiable Search for Meaning (public
library) by Cambridge neuroscientist
Daniel Bor in which, among other things, he sheds light on how our
species’ penchant for pattern-recognition is essential to consciousness and
our entire experience of life.
The process of combining more primitive pieces
of information to create something more meaningful is a crucial aspect
both of learning and of consciousness and is one of the defining
features of human experience. Once we have reached adulthood, we have
decades of intensive learning behind us, where the discovery of
thousands of useful combinations of features, as well as combinations of
combinations and so on, has collectively generated an amazingly rich,
hierarchical model of the world. Inside us is also written a multitude
of mini strategies about how to direct our attention in order to
maximize further learning. We can allow our attention to roam anywhere
around us and glean interesting new clues about any facet of our local
environment, to compare and potentially add to our extensive internal
model.
Much of this capacity relies on our working memory
— the temporary storage that holds these primitive pieces of information in
order to make them available for further processing — and yet what’s most
striking about our ability to build such an “amazingly rich” model of the
world is that the limit of our working memory is hardly different from that
of a monkey, even though the monkey’s brain is roughly one-fifteenth the
size of ours: Experiment after experiment has shown that, on average, the
human brain can hold 4 different items in its working memory, compared to 3
or 4 for the monkey.
What makes the difference, Bor argues, is a concept
called chunking, which allows us to hack the
limits of our working memory — a kind of cognitive compression mechanism
wherein we parse information into chunks that are more memorable and easier
to process than the seemingly random bits of which they’re composed. Bor
explains:
In terms of grand purpose, chunking can be seen
as a similar mechanism to attention: Both processes are concerned with
compressing an unwieldy dataset into those small nuggets of meaning that
are particularly salient. But while chunking is a marvelous complement
to attention, chunking diverges from its counterpart in focusing on the
compression of conscious data according to its inherent structure or the
way it relates to our preexisting memories.
To illustrate the power of chunking, Bor gives an
astounding example of how one man was able to use this mental mechanism in
greatly expanding the capacity of his working memory. The man, an
undergraduate volunteer in a psychology experiment with an average IQ and
memory capacity, took part in a simple experiment, in which the researchers
read to him a sequence of random digits and asked him to say the digits back
in the order he’d heard them. If he was correct, the next trial sequence
would be one digit longer; if incorrect, one digit shorter. This standard
test for verbal working memory had one twist — it took place over two years,
where the young man did this task for an hour a day four days a week.
Continued in article
Bob Jensen's threads on metacognition are at
http://www.trinity.edu/rjensen/265wp.htm
Metacognition in Learning
To my knowledge, Bob Jensen is the first author to discuss the importance of
metacognition in learning.
That paper focuses on the metacognitive advantages of
self-learning (with blood, sweat, and tears) over memorizing answers given out
by teachers.
"Metacognitive Concerns in Designs and Evaluations of Computer Aided
Education and Training: Are We Misleading Ourselves About Measures of Success?"
http://www.trinity.edu/rjensen/265wp.htm
Now we have a second paper on he importance of metacognition in learning
The paper below focuses on the metacognitive mindset
"Accounting Students' Metacognition: The Association of Performance,
Calibration Error, and Mindset," by Susan P. Ravenscroft, Tammy R. Waymire,
and Timothy D. West, Issues in Accounting Education, Vol. 27, No. 3, August
2012, pp. 707-732 (not free) ---
http://aaajournals.org/doi/full/10.2308/iace-50148
In recognition of the evolving body of knowledge in
the accounting profession, the American Institute of Certified Public
Accountants (AICPA 2010) highlights the importance of viewing learning as a
lifelong process that requires self-awareness and extends beyond the
academic setting. Metacognition, the assessment and regulation of one's own
learning, is a crucial element in lifelong learning. We draw upon judgment
of learning research and introduce mindset theory to explore the
relationship among (1) exam performance, (2) calibration error, measured as
expected minus actual exam scores, and (3) mindset, a person's basic beliefs
about learning and ability (Dweck 2000, 2006) in the accounting classroom.
We find strong evidence that exam performance is inversely related to
calibration error (Kruger and Dunning 1999). We also find modest evidence
that a growth mindset is associated with improved performance and decreased
calibration error. While the mindset results were not entirely consistent
with prior research in educational psychology, we explore possible reasons
and future directions for accounting education research.
. . .
DISCUSSION Limitations
Our sample consisted of students taught by a single
instructor at a single institution who took an elective governmental and
nonprofit accounting course during one of three semesters. This course is
typically viewed as difficult and as needed for the CPA examination. While
this could restrict the generalizability of the results, we do not believe
that it does so seriously. We are aware of no research findings indicating
that judgments of learning or mindsets differ across social demographics.
Instead, the findings on which we relied are found across broad categories
of groups. However, to establish generalizability, we hope to use multiple
institutions, instructors, and courses in future research.
Another limitation is the restriction of range that
we found in the independent variable of mindset. Dweck and Molden (2005)
note that when they assess children or adults, they find that about 40
percent endorse the fixed view of mindset, another 40 percent endorse the
growth view, and about 20 percent are undecided. Given that a majority of
the subjects were categorized as having a growth mindset, the likelihood of
seeing a significant relationship was decreased. Because we did not
manipulate this variable, we could not create a full range of mindsets for
our analysis. Moreover, we have a restricted range of performance. Students
taking the governmental and nonprofit accounting course have all succeeded
in a competitive accounting program, with average GPAs above that required
for remaining the program. Both of these restrictions bias against finding
statistically significant relationships, and we believe that the results
can, therefore, still be of benefit to a broad range of accounting
educators. Discussion of Results
The initial goal of this study was to better
understand why accounting students sometimes lack self-awareness about their
own abilities and skills, and to explore factors that may assist accounting
educators. The study's results point to three implications for accounting
educators. First, consistent with Kruger and Dunning (1999), we found that
students who overestimate their abilities likely do so because they lack the
technical knowledge to evaluate their own performance, as evidenced by lower
performance. We also found, in the first two exams, evidence of a magnitude
effect that suggests that high-performing students calibrate more accurately
than low-performing students do, expressed in absolute terms. This may
affirm observations by accounting faculty and help them in assisting
students with their self-regulated learning and self-insight.
Second, in exploring the average calibration errors
of high- and low-performing students, we found that low-performing students
tend to improve their calibration accuracy, while high-performing students
tend to become increasingly underconfident relative to their performance.
These results demonstrate the concerns that accounting educators may have
for both low performers and high performers. Low performers' lack the
self-awareness of their technical skills to accurately calibrate their own
performance, and this may cause them to continue to underperform. High
performers fail to recognize their strong technical skills and may become
overly critical of their own performance.
Third, in exploring the role of mindset regarding
an individual's approach to learning and response to failure, we predicted
that students with a growth mindset (i.e., those who were motivated by
learning, resilient, and focused on learning from feedback) would
demonstrate higher exam performance, improvement in performance, lower
calibration error, and improvement in their calibration. We find modest
evidence supporting these predictions. Mindset was significantly associated
with performance on only one of three exams, and improvement from Exam 1 to
Exam 2. Mindset was not associated with level of calibration error, but was
associated with improvement in calibration from Exam 1 to Exam 2 and from
Exam 1 to Exam 3. We expected growth mindset to be more consistently
associated with the level of, and improvements in, calibration error;
however, we believe that the short, one-semester timeline may make it more
difficult to capture the impact of mindset. Furthermore, we present evidence
that the final exam (Exam 3) may reflect unique resource allocation
decisions on the part of students that may affect both the performance and
calibration error results. Although inconsistent, the results provide some
modest evidence that encouraging a growth mindset may offer benefits to
students in improving their performance and calibration accuracy.
Mindset theory originated as a way to explain why
students have differing goals and reactions to failure (Dweck and Leggett
1988), but as the research in this area has continued, the significance and
implications of mindset have grown. For instance, more recent work implies
that mindsets—although malleable experimentally—represent a fundamental view
of the world, quoting Piaget to the effect that worldviews of children “can
be as important to their functioning as the logical reasoning he studied for
much of his career,” (Molden and Dweck 2006, 200). Molden and Dweck (2006)
survey research showing that mindset plays a role in many behaviors,
including goal setting, attributions, strategies, grades, perceptions of
others, responses to stereotypes, self-esteem, and self-regulatory
strategies.
In our setting, senior-level and graduate
accounting students who have met stringent admissions criteria and who are
very grade-conscious may hold strong achievement goals. The connection
between mindset and performance may be altered in the presence of strongly
held achievement goals (grade-based as opposed to learning-based). Dweck and
other researchers (e.g., Dweck and Leggett 1988; Shunk 1995) observe that
the positive effect of mindset on achievement can be overridden by the
effect of goals. Shunk (1995, 317) discusses the interaction of goals and
mindset, and notes that sometimes “success-oriented persons who perform
poorly on one occasion will work harder and improve their performance on
another.” The integration of the goals literature may, therefore, be helpful
in future exploration of the role of mindset in the accounting education
setting and extending the results presented in this study. Furthermore,
because research suggests that business students generally approach studying
in a more superficial way than non-business students (Arum and Roska 2011),
future research studies could be conducted across academic disciplines,
preferably including students in and outside the college of business to make
comparisons among groups.
In sum, our study presents evidence of an inverse
relationship between performance and calibration error in an accounting
education setting, and offers an initial step in understanding the role
mindset plays in metacognitive self-awareness of accounting students.
Although this research represents an early effort to introduce mindset
concepts within the accounting education literature, our results and the
underlying research suggest that faculty could introduce the concept of
mindset to students, which could be particularly useful for those students
with fixed mindsets. Introducing the concept of a growth mindset leads
naturally into a discussion of the effort that is necessary for deep
learning, and could motivate a discussion with student involvement about the
students' study approaches and preparation for tests. Finally, recent
research (Anseel et al. 2009) suggests that the beneficial effects of
faculty feedback to students can be amplified if students are appropriately
guided to reflect on their performance. Mindset, in conjunction with
feedback, offers promise as a way to encourage learning and self-awareness.
Bob Jensen's threads on asynchronous versus synchronous learning ---
http://www.trinity.edu/rjensen/255wp.htm
Debt ---
http://en.wikipedia.org/wiki/Debt
History of Money and Debt ---
http://en.wikipedia.org/wiki/History_of_money
Debt (booked by accountants) versus Entitlements (promises made that are not
yet booked) ---
http://en.wikipedia.org/wiki/Entitlement
"We've Always Been Deadbeats: Debt is not a new American way," by Scott
Reynolds Nelson, Chronicle of Higher Education, September 10, 2012 ---
http://chronicle.com/article/Borrowed-Dreams/134146/
My father was a repo man. He did not look the part,
which made him all the more effective. He alternately wore a long mustache
or a shaggy beard and owned bell-bottoms in black, blue, and cherry red. His
imitation-silk shirts were festooned with city maps, cartoon characters, or
sailing ships. Dad sang in the car, at the top of his lungs, mostly obscure
show tunes. His white Dodge Dart had Mach 1 racing stripes that he had
lifted from a souped-up Ford Mustang. The "deadbeats" saw him coming, that's
for sure, but they did not understand his profession until he walked into
their homes and took away their televisions.
Dad worked for Woolco, a company that lent
appliances on an installment plan. When borrowers failed to pay, ignored the
letters and phone calls, my father would come by. He often posed as a meter
reader or someone with a broken-down car. If he saw a random object lying
abandoned in the yard, he would pick it up and bring it to the door as if he
were returning it. He was warm and funny, charming, but pushy. He did not
carry a gun, but he was fearless under pressure and impervious to verbal
abuse. If the door opened, he was inside; if he was inside, he shortly had
his hands on the appliance; the rest was bookkeeping.
. . .
In each case, lenders had created complex financial
instruments to protect themselves from defaulters like the ones I watched
from the car. And in each case, the very complexity of the chain of
institutions linking borrowers and lenders made it impossible for those
lenders to distinguish good loans from bad.
In 1837, for example, banks in the north of England
discovered that the unpaid "cotton bills of exchange" in their vaults made
them the indirect owners of slaves in Mississippi. In 2007, shareholders in
DBS, the largest bank in Singapore, found themselves part owners of homes
facing foreclosure in California, Florida, and Nevada. In both cases,
efficient foreclosure proved impossible.
In those crashes in America's past, perhaps a repo
man in a Dodge Dart with a million gallons of gas could have visited every
debtor, edged his way in, and decided who was good for it. (My dad did
accept cash or money orders for Woolco's goods.) But big lenders have
neither the time nor the capacity to act with the diligence of a repo man.
Instead, such lenders (let's agree to call them all banks) try to unload
debts, hide from their own creditors, go into bankruptcy, and call on state
and federal institutions for relief. Banks have also routinely overestimated
the collateral—the underlying asset—for the loans they hold. When those
debts go unpaid or appear unpayable, banks quickly withdraw lending; the
teller's window slams shut. A crisis on Wall Street becomes a crisis on Main
Street. Money is tight. Loans are impossible: Crash.
***
Scholarship on these financial downturns has its
own long and checkered past.
From the 1880s to the 1950s, scholars told the
history of the nation's economic downturns as the history of banks. Such an
approach was not entirely wrong, but it tended to focus on big personalities
like J.P. Morgan or New York institutions; it tended to ignore the farmers,
artisans, slaveholders, and shopkeepers whose borrowing had fed the booms
and busts.
Then, in the 1960s and 1970s, the so-called new
economic historians (or cliometricians) came along with a different story.
Using state and federal data, they tried to build mathematical models of the
nation's financial health. Moving beyond banks, they emphasized what they
termed the "real economy," by which they meant measurable indices of growth
and profit. Taking the nation's health like a simple temperature reading,
they used gross domestic product, gross income, or collective return on
investment. Of course, none of those figures had been measured directly
before the 1930s, and so the prognoses tended to vary widely.
Such economic models of financial health, however
scientific they looked, tended to be abstract representations of an economy
that was, in fact, more complex and more interconnected than they pictured.
The models, for example, often assumed that old banks were like modern
banks, sharing common accounting principles, or that because banks first
issued credit cards in the 1960s, they offered no consumer credit before
then. Drilling into historical documents for seemingly relevant numbers,
then plugging those numbers into a model of a world they understood rather
than the economy they sought to describe, the cliometricians often produced
ahistorical work. Hence, one economic historian assumed that American
barrels of flour sent to New Orleans were consumed in the South, though most
were bound for re-export to the Caribbean. Another calculated that railroads
played little role in America's economic booms by modeling a scenario in
which canals could have (somehow) crossed the arid plains into the Sierra
Nevada mountains.
Bear in mind, that same kind of intellectual hubris
about models of economic behavior had awful effects in the recent past.
Around 2000, Barclays Bank borrowed a simple diffusion model from physics
(called the "Gaussian copula function") to suggest that foreclosures would
have a relatively small effect on nearby property values. Economists tested
it with two years of foreclosure and price data and agreed. Billions of
investment in real-estate followed, often in indirect markets like
real-estate derivatives and collateralized debt obligations. By 2008 the
model proved shockingly inaccurate.
If some historians focused on the temperature of
the "real economy," economists were becoming obsessed with the money supply
as the single factor explaining most American panics. Again, a certain kind
of blindness to the history of debt and deadbeats ensued. The most important
book here was Milton Friedman and Anna Jacobson Schwartz's seminal A
Monetary History of the United States, 1867-1960 (1963). It urged economists
to steer away from stories of speculation spun out by Keynesians like John
Kenneth Galbraith.
How, according to Friedman and Schwartz, can we
separate speculation and investment? All loans are risky. The riskier they
are, the higher the return. Some investments will fail. Markets need to
clear, and those buyers who come along to sweep up bargains are not ruthless
profiteers but simply maximizers who make markets work. Thus, the pair
steered economists away from problems of risk and toward the problems of
state intervention. They were the prophets of financial deregulation.
Their story about past financial panics had the
advantage of suggesting simple solutions: Use the Federal Reserve to inflate
or deflate the currency. For them, financial crises were mostly monetary.
Thus, the 1929 downturn started with a financial shock and then was
prolonged by an overly tight monetary policy. After A Monetary History
became gospel, economics textbooks dropped their numerous chapters on
financial panics because the policy solution became so clear; economists
trained after 1965 know little about financial downturns before the Great
Depression.
Yet a tripling of the money supply has still not
fully pulled the United States and the rest of the world out of our current
financial crisis—suggesting that our problems, and all the previous ones,
were not just monetary. My dad would have pointed out that economists have
misunderstood the problem. Crises are mostly about productive assets—the
promises in his trunk.
Social historians (and I count myself among them)
tell a very different story about financial panics, but we have our own
blind spots. Since the late 1960s, we have often discussed the American
economy as if farmers were coherent families of self-sufficient yeomen
surprised by the market economy. That story of a sudden revolution misses
the early and intimate relationship between Americans and credit. It
overlooks how American stores provided consumer credit to farmers,
plantations owners, and renters who settled the West.
Thus, American social historians have used the term
"market revolution" to describe the period after the 1819 panic. Accordingly
market forces rushed in as repo men like my dad became vanguards of a new
capitalist order. The financial jeremiads of Jacksonian Democrats of the
1820s and 30s against bankers and paper money became the natural outgrowth
of frontier farmers' anger at a capitalism they had never seen before. But
the store system of Andrew Jackson's day borrowed practices from the
colonial store system that goes back to the 17th century, if not earlier. It
was how the fur-trading and East and West India companies prospered. John
Jacob Astor and Andrew Jackson were cut from the same cloth. They made their
fortunes from their stores, and their store system made settlement possible.
Part of the reason we overlook the importance of
credit in American history is our continued attachment to Marx's divide
between precapitalist and capitalist forms of agriculture. That misses the
relationship between farming and credit for most of the people who settled
America. The more I study panics, the more I am persuaded that the pioneer
American institution of the 18th and early 19th centuries was not the
homestead or the trapper's shack but the store, an institution that sold
foreign goods to farmers on credit, taking payment in easily movable settler
products like furs, potash, barrel hoops, and butter.
Rather than imagining some golden age of
subsistence, scholars in the Marxist tradition should look more closely at
anticapitalist movements in the wake of panics. I include here not just the
utopian and religious communities like Quakers, Shakers, and Oneidans but
also the early Mormons, the Grangers, and the Populists. Those people
understood what it meant for banks, and then railroads, to extend credit
through stores. Often regarding capital as a collective inheritance, they
built their own associations to replace such institutions of credit (and the
railroad was an institution of credit) with locally managed cooperatives
that distributed agricultural benefits in a way that served the broader
community. The temple, the elevator, and the cooperative were attempts to
break the chain of debt without demonizing capital.
From the perspective of business history, Joseph A.
Schumpeter argued that business-cycle downturns came from periods of
"creative destruction" in which new technologies undermined old ones.
Outdated technologies, with millions invested in them, became instantly
obsolete, leading to financial failures that cascaded to other industries.
While Schumpeter, who died in 1950, once persuaded me, I think there is a
mechanistic fallacy in the argument. Railroads, for example, have taken the
blame for the 1857, 1873 and 1893 downturns. While there may be something
there, the whole account seems reductive and technologically determinist.
For example, canals, the Bessemer process, fractional distillation of oil,
and washing machines are all revolutionary technologies that flourished
during the American panics, not before them. They did sweep away older
technologies, but rather than causing panics those technologies benefited by
the uncertainty that panic created.
In a very different camp, neo-Marxists like
Giovanni Arrighi and David Harvey betray a similar kind of reductive
history, a latter-day Schumpeterianism. Their work posits a "spatial fix," a
center of capitalism that then organizes and draws tribute from the rest of
the world. For the late Arrighi, it was a kind of pump that sucked assets
from elsewhere as states were forming throughout the sweep of centuries. For
Harvey it is an investment in a capital city (Amsterdam, London, New York)
and a new communication technology (telegraph, telephone, the Internet) that
drew higher profits from everywhere else. Dutch and British hegemony became
American hegemony after World War II. That suggests that these scholars have
not really considered the tremendous influence of the U.S. Federal Reserve
in reorienting international trade between 1913 and the 1920s. Their story
seems more or less political to me: American empire comes when Americans
claim victory in World War II. The economic material seems to be used in the
service of a story about the rise and decline of empires.
If we follow the money, the American empire emerged
during World War I, when the international flow of debt changed drastically.
For Arrighi and Harvey, the International Monetary Fund and the World Bank
are the pathbreakers of financial empire. But it is worth remembering that
those institutions were explicitly designed to restrain the dirty tricks of
financial empires of the 1920s and 1930s: No more American banks using
gunboat diplomacy in Peru; no more Germans sending tanks into Poland to
collect unpaid debts.
***
As a historian, I have learned the most about
financial disasters from long-dead historians whose work blended primary,
secondary, and quantitative material. Rosa Luxemburg, William Graham Sumner,
Frank W. Taussig, and Charles Kindleberger would never have agreed about
anything. Luxemburg, a renegade Marxist who read in five languages,
described how the dangerous mix of a hierarchical production process with
the anarchy of international trade could lead manufacturers to block free
trade and embrace higher prices for their raw materials in the wake of a
panic. Sumner, a laissez-faire Social Darwinist who argued that income
inequality benefited society, carefully explained how drastic economic
changes could follow from tiny changes in international trade deals. Put in
a room together, each would have retreated to a corner to begin throwing
furniture. But they and the others were storytellers who used a mixture of
sources. Telling a story by looking through the trunk of assets and watching
the damage afterward makes more sense to me than simple models of financial
contagion, money supply, technological watersheds, or global fixes.
My father died before I started writing about
financial panics, but my thoughts have grown out of our 30-year-long
argument about financial downturns. Not surprisingly, he disliked
"deadbeats," seeing them as the people whose false promises weakened our
country. He probably had a point, and no doubt the executives of Woolco
would agree. But I find much in them to admire, for defaulters are often
dreamers. Viewing America's financial panics through the lens of numerous
unfulfilled and forgotten debts that even the oldest banker cannot possibly
remember can afford a perspective my dad would have appreciated: with my
view from the Dodge Dart, the minute he rang the doorbell, when both debtor
and creditor prepared their stories.
Scott Reynolds Nelson is a professor of history at the College of
William and Mary. His book A Nation of Deadbeats: An Uncommon History of
America's Financial Disasters has just been published by Alfred A. Knopf.
Video
"Debt: The First 5,000 Years," by Paul Kedrosky , Kedrosky.com, September
10, 2011 ---
Click Here
http://paul.kedrosky.com/archives/2011/09/debt-the-first-5000-years.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29
Debt versus Equity ---
http://www.trinity.edu/rjensen/Theory02.htm#FAS150
The booked National
Debt in August 2012 went over $16 trillion ---
U.S. National Debt Clock ---
http://www.usdebtclock.org/
Also see
http://www.brillig.com/debt_clock/
The unbooked entitlements have a present value between $80 and $100 trillion.
But who's counting?
Pending Collapse of the United States ---
http://www.trinity.edu/rjensen/Entitlements.htm
Should we never pay down (even partly) the U.S. National Debt or
Spending Deficit? ---
http://www.cs.trinity.edu/~rjensen/temp/NationalDeficit-Debt.htm
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Remember The New Yorker Cartoon
with the CEO saying to the Chief Accounting Officer:
"The only thing that can save us now Digby is an accounting miracle."
"CAN A NEW ACCOUNTING CHIEF SAVE GROUPON’S ACCOUNTING," by Anthony H.
Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, September 11,
2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/769
Monday September 10 Groupon named a new Chief Accounting Officer,
Brian Stevens, formerly a partner with KPMG. The
question, of course, is whether this move is enough to save face with the
investment community, after the many fiascos we have discussed, such as our
“Still
Accounting Challenged” and “First
10-K.”
So, in a move to provide some constructive advice,
we offer Mr. Stevens a few simple suggestions. First, do not merely mouth
“transparency” as some sort of mantra, but embrace financial reporting
transparency, believe it, live it, and report transactions and events as if
your economic life depended on it. That means no more gross/net revenue
games, no more peculiar or low quality gains, as investment gains can be,
and no more disclosures about inventory management systems when there is no
inventory account on the balance sheet.
Continued in article
Bob Jensen's threads on Groupon are at
http://www.trinity.edu/rjensen/Fraud001.htm
Search for the word "Groupon"
"DELOITTE’S INTANGIBLE ASSET CLIENTS REVISITED," by Anthony H. Catanach and
J. Edward Ketz, Grumpy Old Accountants Blog, September 24, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/763
Recently, we enjoyed a wonderful article titled
“Buyers Beware: The Goodwill Games,” by Scott Thurm who discussed an
interesting rubric by which to evaluate goodwill’s value: the ratio of a
company’s goodwill to the total entity’s market value. Thurm seems to
suggest that companies whose goodwill exceeds market capitalization may be
prime candidates for future write-downs. Very interesting indeed, especially
as goodwill is such a queer asset (see Goodwill Games).
Thurm’s article reminded us that it was time to
revisit the list of companies that we provided to Deloitte back in November
of 2011 to help them with their audits of intangible assets (in “Are Fourth
Quarter Write-Offs Looming for Deloitte’s Clients?” We wanted to know how
many firms in our suggested list of write-off candidates actually recorded
goodwill impairment.
As you may recall, we applied simple intuition and
financial analysis to create a list of 24 companies, based on their relative
level of intangible assets and anemic returns on equity (ROE), that we
asserted were at significant risk for some type of impairment charge in
2011. We found that, of the 24 companies we enumerated, 9 (37.5 percent)
reported some type of earnings charge for impairment of goodwill or other
intangibles during 2011. So, it appears that common sense and fundamental
financial statement analysis may have won out over auditing, yet again!
Maybe the FASB should add these two traits to their “qualitative criteria”
for evaluating goodwill impairment—and Thurm’s as well.
To assess impairment charges for our 24 company
listing, we again turned to the Wharton Research Data Services COMPUSTAT
North America (WRDS) data set to search for P&L charges for the following
variables: pre-tax goodwill impairments (GDWLIP) , pre-tax restructuring
costs (RCP), and pre-tax write-downs (WDP). And we were not disappointed!
The following nine companies reported intangible related earnings charges
(in millions of dollars).
Continued in article
Bob Jensen's threads on intangibles ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
"LSAT Scores at Top Schools Are Dropping Like Flies," by Vivia Chen,
The Careerist.com, September 7, 2012 ---
http://thecareerist.typepad.com/thecareerist/2012/09/law-school-applicants-dumbing-down.html
If you think you're a pretty smart cookie—but not
spectacularly so—this might be the year that you can squeeze into a better
law school than you thought possible.
The reason is simple: There are fewer applicants,
which results in more opportunities at more prestigious law schools. You've
probably heard about
that 25 percent drop in law school applications in
the past three years or so, but did you know that the top 14 law schools
will be forced to accept students who are below the top 2 percent of their
LSATs? (Sobs, please.)
Here's the
nitty gritty from Blueprint, an LSAT tutoring
company, based on statistics from the
Law School Admissions Council, Inc.:
We see that in
2010/2011, there were 3,430 students in the top 2 percent on the LSAT
(171+), which is at or near the median LSAT score for most elite (top 14 or
T14 as determined by U.S. News & World Report rankings) law
schools. That number drops to 2,600 in 2011/2012, resulting in nearly 1,000
fewer top percentile scores from which law schools can recruit.
So what does this all mean? Naturally, Blueprint is
telling people to go for it—since it's in the LSAT tutoring biz. Here's how
it explains the trickle-down effect of lowered law school admissions
standards:
With fewer applicants
at the top for the same number of slots, the entire admissions game is going
to undergo a large shift. Students traditionally just outside the T14 based
on their numbers will find themselves admitted, or on waitlists. As they
jump at the opportunity to mortgage their future for a top school . . .
their slots in T20 schools will open up for those below them, and so on.
LSAT scores more than any other aspect of the
application determines acceptance, notes Blueprint: "LSAT accounts for up to
60 percent of the admission decision."
Blueprint also says that applicants are too
pessimistic about the cost of law school tuition and their prospects for
getting into law schools. It conducted a poll of of nearly 600 prospective
law students, in conjunction with Above the Law. Their finding:
"The majority of prelaw students are actually overestimating the cost of
attending law school." It also finds that more than a quarter of the
students (27 percent) think it's harder to gain admission than it actually
is.
So is law school easier to get into now?
Perhaps. But is that a good enough reason to dedicate yourself to three
years of schooling for a profession you might not like (assuming you can get
a job that requires a legal degree)?
Uh, I don't think so.
Jensen Question
So where are those top prospects going who decide not to go to law school?
Answer
I really don't know, but if they were thinking about law school as
undergraduates not many of them probably did not earn enough undergraduate
credits for accounting, architecture, engineering, medical school, vet
school, and science. Some may be applying for government work. Others may be
applying for doctoral programs in humanities. Who knows?
A goodly number of them may instead be applying to MBA programs in
prestigious universities. I'll bet that's it!
"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
Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Audit Firm Rotation Every 25 Years?
Just about long enough to pay off the house mortgages and raise a couple kids
before starting over in a new town.
Should we do the same thing for tenured professors?
"EU lawmaker proposes ditching core parts of auditing shake up," by
Huw Jones, Reuters, September 6, 2012 ---
http://www.reuters.com/article/2012/09/06/us-eu-auditors-idUSBRE88512J20120906
Core elements of a proposed European Union shake up
of rules governing company auditors should be ditched, an influential member
of the bloc's parliament suggested, in a move that is likely to delight the
"Big Four" auditors and Britain.
The EU's executive, the European Commission,
authored the draft law to inject more competition into a market where
Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young check the books of
most top companies in the world.
It proposed requiring the EU's 8,000 listed
companies to switch auditor every six years and introduce caps on market
share that would force the Big Four to split up into separate "pure audit"
and advisory companies in some EU states.
Sajjad Karim, the British centre-right lawmaker who
is steering the reform through the parliament, said in his report published
on the assembly's website on Thursday that a company should be allowed to
keep the same auditor for up to 25 years.
Market share caps that would trigger splitting up
the big auditors should be scrapped outright, he said.
He proposes that auditors should be banned from
offering a much narrower range of services to a client being audited so
that, for example, tax consulting would be allowed.
Karim wants to scrap the proposal for the European
Securities and Markets Authority (ESMA) to develop a "Quality Certificate"
for auditors so that companies have fewer worries about using less known
auditors.
He will present his report to parliament's legal
affairs committee on September 18 and is likely to face stiff opposition
from Liberals and socialists.
The European Parliament and EU countries have the
final say and changes are expected as the approval process continues.
Some suspect Karim has taken an extreme stance to
open the door to a final deal that would probably still be a dilution
compared with the original text.
The reform has pitched smaller audit firms like
Grant Thornton, Mazars, RSM and BDO International against the Big Four, who
have campaigned hard to water down the measure.
The Big Four question why smaller firms should be
given a regulatory leg-up to build up market share. Smaller auditors say it
will not be worth investing in expanding networks unless there is a
realistic prospect of more work for them.
"The draft does not address investor concerns in
non audit services, long auditor tenure and the market structure," said Nick
Jeffrey, a director at Grant Thornton.
Separately, the EU is also waiting to see what
changes, if any, Britain's Competition Commission will make in its probe of
the UK audit market where the Big Four dominate.
The UK anti-trust watchdog will publish preliminary
findings in November.
Britain is skeptical about the EU measure,
believing market structure should be left to anti-trust bodies and that
mandatory rotation of auditors is not the answer to boosting competition. It
is also leery of giving EU regulator ESMA oversight powers.
Jensen Comment
When the Social Security age is raised to 75, both an auditor and a tenured
professor could have three tours of duty before retiring. Maybe they could even
wear combat tour ribbons on their chests like they do on military uniforms.
Bob Jensen's threads on audit firm professionalism and independence are at
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
What will be the major drawback of the Congressional proposal to ban
audit firm rotation mandates?
Answer
Many jobs will be lost because tens of tens of thousands of auditors
will not have to buy new motor homes for their families to live in.
Teaching case from The Wall Street Journal Accounting Weekly Review on March
30, 2012
Auditor 'Rotation' Debate Heats Up
by: Michael Rapoport
Mar 28, 2012
Click here to view the full article on WSJ.com
TOPICS: Auditing, Auditing Services, Auditor
Changes, Public Accounting
SUMMARY: "Congress is poised to wade into the
debate over 'term limits' for audit firms, in a move that has some
proponents worried that the business community may be throwing its
weight around to block a significant overhaul." The draft of a bill
will be discussed in a House subcommittee on Wednesday, March 28,
2012.
CLASSROOM APPLICATION: The article is useful to
discuss ethics and public accounting business management as well as
the Public Company Accounting Oversight Board (PCAOB), most likely
in an auditing class.
QUESTIONS:
1. (Advanced) What is the Public Company Accounting
Oversight Board (PCAOB)? What is its responsibility with respect to
the auditing profession?
2. (Advanced) What has the PCAOB proposed in regards to
auditor rotation?
3. (Introductory) As described in the article, what are the
arguments in favor of the PCAOB's proposal?
4. (Introductory) What are the arguments against this
proposal?
5. (Introductory) What course of action are some members of
Congress considering in relation to audit partner rotation?
Reviewed By: Judy Beckman, University of Rhode Island
"Auditor 'Rotation' Debate Heats Up," by: Michael Rapoport, The
Wall Street Journal, March 28, 2012 ---
https://mail.google.com/mail/?shva=1#inbox/13662348b23d75bf
Congress is poised to wade into the debate
over "term limits" for audit firms, in a move that has some
proponents worried that the business community may be throwing its
weight around to block a significant overhaul.
A draft bill expected to be discussed at a
House subcommittee hearing Wednesday would block regulators from
requiring that companies change their outside auditors regularly.
The move would be a pre-emptive strike against the Public Company
Accounting Oversight Board, the government's audit-industry
regulator, which is considering so-called rotation as a way of
ensuring auditors don't get too cozy with their clients.
Some supporters of rotation believe
prominent opponents, like the accounting industry and the U.S.
Chamber of Commerce, have enlisted Congress to come to their aid.
Some big accounting firms and the chamber have lobbied Congress on
the issue or are major campaign contributors to the congressmen
involved with the draft bill, according to trackers of campaign
finance and lobbying reports.
"The business community has enormous
resonance with this Congress," said former Securities and Exchange
Commission Chairman Arthur Levitt, who supports rotation and spoken
out in favor of it. Along with legislation easing
corporate-governance rules for new public firms, blocking auditor
rotation "would be a further erosion of investor protection," he
said.
PricewaterhouseCoopers LLP, one of the Big
Four accounting firms, says it hasn't asked Congress to weigh in
even though the firm opposes rotation. But "we recognize that others
may have different opinions about how best to engage the PCAOB,"
said Laura Cox Kaplan, the firm's leader for U.S. government and
regulatory affairs.
The chamber, the board and the other Big
Four firms—Ernst & Young LLP, KPMG LLP and Deloitte LLP—declined to
comment or didn't provide comment.
In testimony prepared for Wednesday's
hearing, however, chamber official Tom Quaadman supports a
congressional ban, contending that rotation is "a matter of
corporate governance outside of the PCAOB's realm."
A PCAOB spokeswoman said the Sarbanes-Oxley
corporate-overhaul law gives the board authority over
auditor-independence issues, subject to SEC approval.
The board is exploring whether companies
should have to change audit firms every several years and doesn't
expect to make a decision on the issue until next year. Last week it
held a two-day meeting to hear views on the issue.
If enacted, rotation would break up
auditor-client relationships that in some cases have lasted decades.
Supporters say rotation would improve auditor independence and lead
to more healthy skepticism among auditors in evaluating a company's
books. Critics say it would raise audit costs and deprive a company
of a long-tenured auditor's institutional knowledge.
The draft bill to be discussed Wednesday
would prohibit the board from requiring the use of "different
auditors on a rotating basis." The
bill, sponsored by Rep. Michael Fitzpatrick (R., Pa.), hasn't yet
been introduced. But a draft of the measure is featured on the web
page announcing Wednesday's hearing by the House Financial Services
Committee's capital-markets subcommittee, and the panel has invited
witnesses at the hearing to comment on it.
According to data from the Center for
Responsive Politics, which tracks campaign finance, Rep. Fitzpatrick
has gotten major contributions from PricewaterhouseCoopers and
Deloitte during the 2012 election cycle. PwC is his 10th-biggest
contributor throughout his career in Congress, and the accounting
industry has given him a total of $108,779 over his entire career.
Continued in article
"Big four auditors face breakup to restore trust," by Huw Jones,
Reuters, November 30, 2011 ---
http://in.reuters.com/article/2011/11/30/eu-auditors-idINDEE7AT0CQ20111130
Bob Jensen's threads on professionalism and independence within
auditing firms ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"IASB Previews New Hedge Accounting Rules," by Emily Chason, CFO
Report, September 7, 2012 ---
http://blogs.wsj.com/cfo/2012/09/07/iasb-previews-new-hedge-accounting-rules/?mod=wsjpro_hps_cforeport
The draft is available from the IASB ---
Click Here
http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Instruments-A-Replacement-of-IAS-39-Financial-Instruments-Recognitio/Phase-III-Hedge-accounting/Pages/Draft-of-IFRS-General-Hedge-Accounting.aspx
Jensen Comment
Today I must leave early in the morning to take Erika to Concord for a medical
treatment. I've not yet had time to read the above draft in detail. It appears,
however, that this draft for IFRS 9 retains changes in IAS 39 that are
objectionable to me relative to what I think is better in FAS 33 as amended.
Firstly, the thrust of the IFRS 9 changes will be to add more subjectivity
(relative to FAS 133), especially in the area of hedge effectiveness testing.
For example, if a farmer has hedges a growing crop of corn, he is likely to do
so on the basis of standardized corn quality of corn futures and options trading
on the CBOT or CME. It is unlikely that the corn that he ultimately takes to
market will have the identical quality moisture content. In addition he will
have trucking costs of getting his corn from say South Dakota to the trading
market in Chicago. As a result of all this, his hedging contract acquired in
June on the CBOT or CME exchange is not likely to be perfectly effective
relative to the corn he brings to market in October. Thus there will be
hedging ineffectiveness.
The original IAS 39, like FAS 133, had some bright line tests for the degree
to which hedge accounting was allowed when there is hedge ineffectiveness. See
the slide show illustrations at
www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/06effectiveness.ppt
There is greater likelihood that in a particular instance of hedge
ineffectiveness, the original IAS 39 would result in Client A having identical
accounting for the hedge ineffectiveness as Client B. Under the new IFRS 9 this
becomes less assured since clients are given considerable subjective judgment in
deciding how to deal with hedge ineffectiveness.
Also under FAS 133, embedded derivatives in financial contracts must be
evaluated and if the embedded derivative's underlying is not "clearly and
closely related" to the underlying in the host contract, the embedded
derivatives must be bifurcated and accounted for separately. This leads to a lot
of work finding and accounting for embedded derivatives. IFRS 9 will eliminate
all that work by not making clients look for embedded derivatives. Hence, the
risk that comes from having embedded derivative underlyings not clearly and
clossely associated with the underlyings of the host contract can simply be
ignored. I don't by into this IFRS 9 bad accounting for the sake of
simplification.
I think there are other areas of difference expected differences between IFRS
9 and FAS 133 as amended. Most of the differences lie in the subjectivity
allowed in accounting for hedging contracts under IFRS 9 that is not allowed in
FAS 133.
September 10, 2012 reply from Bob Jensen
This afternoon received a message from PwC about the IASB's proposed
changes to hedge accounting. The PwC reply is consistent with, albeit
somewhat more extensive, then my reply that I sent to the AECM early this
morning.
The PwC response is at ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=MSRA-8Y2HHH&SecNavCode=MSRA-84YH44&ContentType=Content
Note that the IASB is not really opening up these proposed hedge
accounting amendments to comments. Wonder why?
Also note that the proposed IASB's amendments diverge from rather than
converge toward U.S. GAAP under FAS 133 as amended. At this point in time I
don't think the IASB really cares about convergence of hedge accounting
rules.
My quick and dirty response is that the revised hedge accounting
standards under IFRS 9 is carte blanche for having two different clients and
their auditors account differently for identical hedge accounting
transactions because so much subjectivity will be allowed under IFRS 9. We
may even have subsidiaries of the same client accounting for identical
transactions differently.
Such is the myth of comparability one is supposed to get under
principles-based global standards.
Further more, it may challenge auditing Firm X that has one client
claiming a hedge is effective when another client would claim the hedge is
ineffective. Will auditing Firm X certify divergent accounting for the same
hedge. The answer is probably yes these days if both clients are too big to
lose.
Bob Jensen
So Much for the Myth That Accounting Standards Are Neutral in Terms of
Business Strategy (of course it did not take IFRS 9 to reveal this to us)
"Under New Accounting Standard, CFOs Could Change Hedging Strategies:
Will finance chiefs come under more pressure to adopt hedge accounting — even
though it remains entirely optional under the new standard?"
by Andrew Sawyers
CFO.com, September 12, 2012
http://www3.cfo.com/article/2012/9/gaap-ifrs_hedge-accounting-ias-39-iasb-ifrs-derivatives-80-125-test-hedge-effectiveness
A new international financial reporting standard (IFRS) on hedge
accounting could prompt finance chiefs to change their companies’
hedging strategies under a more accommodating, principles-based regime
that requires less testing.
The International Accounting Standards
Board (IASB) has been pondering hedge accounting for several years in an
effort to find a way to replace the unloved standard IAS 39: so unloved
that it’s not part of the package of accounting standards endorsed by
the European Commission for listed companies. The standard has made it
tough to employ hedge accounting, which can be favorable to companies in
certain circumstances.
In
a recent podcast, Kush Patel, director in
Deloitte’s U.K. IFRS Centre of Excellence, summarized the impact of the
new rules: “More hedge-accounting opportunities,
less profit and loss volatility — so as
you’d expect, this has been well received.”
Under IAS 39, he said, “we saw a lot of companies change the way they
manage risk: we saw them reduce the amount of complex, structured
derivatives that were being used to hedge and they went for more vanilla
instruments that could [qualify for] hedge accounting more easily. Now
that IFRS 9 will remove some of these restrictions, I think it’s fair to
say risk management could change.”
Andrew Vials, a technical-accounting partner at KPMG, said in a
statement, “A company will be able to reflect in its financial
statements an outcome that is
more consistent with how management assesses and mitigates risks
for key inputs into its core business.”
Will CFOs come under more pressure to adopt hedge accounting — even
though it remains entirely optional under the new standard? “If hedge
accounting becomes easier, there may be more emphasis on them to achieve
hedge accounting — so although it’s voluntary, there is an element that
they may feel more compelled to do hedge accounting” says Andrew
Spooner, lead global IFRS financial-instruments partner at Deloitte.
The
final draft of the new hedge-accounting rules
was published on September 7 and will be incorporated into the existing
IFRS 9 Financial Instruments at the end of the year. The IASB
says it’s not seeking comments on this final draft, but is making it
available “for information purposes” to allow people to familiarize
themselves with it. The new rules will take effect from January 1, 2015,
but companies will be allowed to adopt them sooner if they wish.
Spooner and Patel note three main areas in which the new rules are
different from the old:
Changes to the instruments that qualify. It’s now
easier, for example, to use option contracts without increasing
income-statement volatility.
Changes in hedged items. It may not be possible, for
example, for a company to hedge the particular type of coffee beans a
food company buys. But it could hedge a benchmark coffee price, because
it is closely related to the item it would like to hedge. Another change
for the better: companies in the euro zone that want to hedge dollar
purchases of oil can now more easily hedge the dollar price of the oil,
then later hedge the foreign-exchange exposure without the oil-price
hedge being deemed ineffective. There are also more favorable rules for
hedging against credit risk and inflation.
Changes to the hedge-effectiveness requirements.
Under IAS 39, a company could use hedge accounting only if a hedge is
“highly effective,” meaning it must be capable of offsetting the risk by
a range of 80%–125%. But the 80–125 test has been scrapped to be
replaced by a principle-based test that is based on economic
relationship: “You have to prove that there is a relationship between
the thing you are hedging and the thing you are using,” says Patel.
Having gotten rid of the quantitative threshold, there are “more
opportunities for companies to reduce the amount of testing they do,” he
says. “It’s a welcome change.”
Continued in article
"IASB Previews New Hedge Accounting Rules," by Emily Chason, CFO
Report, September 7, 2012 ---
http://blogs.wsj.com/cfo/2012/09/07/iasb-previews-new-hedge-accounting-rules/?mod=wsjpro_hps_cforeport
The PwC response is at ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=MSRA-8Y2HHH&SecNavCode=MSRA-84YH44&ContentType=Content
The draft is available from the IASB ---
Click Here
http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Instruments-A-Replacement-of-IAS-39-Financial-Instruments-Recognitio/Phase-III-Hedge-accounting/Pages/Draft-of-IFRS-General-Hedge-Accounting.aspx
Bob Jensen's free tutorials on accounting for derivative financial
instruments and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm
"Former Harvard Psychologist Fabricated and Falsified, Report Says,"
by Tom Bartlett, Chronicle of Higher Education, September 5, 2012 ---
http://chronicle.com/blogs/percolator/report-says-former-harvard-psychologist-fabricated-falsified/30748
Marc Hauser was once among the big, impressive
names in psychology, head of the Cognitive Evolution Laboratory at Harvard
University, author of popular books like Moral Minds. That
reputation unraveled when a university investigation found him responsible
for
eight counts of scientific misconduct, which led
to
his resignation last year.
Now the federal Office of Research Integrity has
released its report on Hauser’s actions,
determining that he fabricated and falsified results from experiments. Here
is a sampling:
- Hauser published “fabricated data” in a paper
on how cotton-top tamarin monkeys learn rules. In one of the graphs
“half of the data” was made up. That paper has since been retracted.
- Hauser falsified coding in two other
experiments with tamarins “making the results statistically significant
when the results coded by others showed them to be nonsignificant.”
Those experiments were not published after members of Hauser’s lab
objected that his coding was wrong.
- Again in an experiment involving tamarin
monkeys, Hauser “falsely described the methodology used to code the
results for experiments” that led to “a false proportion or number of
animals showing a favorable response.”
Hauser “neither admits nor denies” any research
misconduct but, according to the report, accepts the findings. He has agreed
to three years of extra scrutiny of any federally supported research he
conducts, though the requirement may be moot considering that Hauser is no
longer employed by a university. Hauser says in a written statement that he
is currently “focusing on at-risk youth”; his LinkedIn profile lists him as
a co-founder of Gamience, an e-learning company.
In the statement, Hauser calls the five years of
investigation into his research “a long and painful period.” He also
acknowledges making mistakes, but seems to blame his actions on being
stretched too thin. “I tried to do too much, teaching courses, running a
large lab of students, sitting on several editorial boards, directing the
Mind, Brain & Behavior Program at Harvard, conducting multiple research
collaborations, and writing for the general public,” he writes.
He also implies that some of the blame may actually
belong to others in his lab. Writes Hauser: “I let important details get
away from my control, and as head of the lab, I take responsibility for all
errors made within the lab, whether or not I was directly involved.”
But that take—the idea that the problems were
caused mainly by Hauser’s inattention—doesn’t square with the story told by
those in his laboratory. A former research assistant, who was among those
who blew the whistle on Hauser, writes in an e-mail that while the report
“does a pretty good job of summing up what is known,” it nevertheless
“leaves off how hard his co-authors, who were his at-will employees and
graduate students, had to fight to get him to agree not to publish the
tainted data.”
The former research assistant points out that the
report takes into account only the research that was flagged by
whistle-blowers. “He betrayed the trust of everyone that worked with him,
and especially those of us who were under him and who should have been able
to trust him,” the research assistant writes.
As
detailed in this Chronicle article,
several members of his laboratory double-checked Hauser’s coding of an
experiment and concluded he was falsifying the results so that those results
would support the hypothesis, turning a failed experiment into a success. In
2007 they brought that and other evidence to Harvard officials, who began an
investigation, raiding Hauser’s lab and seizing computers.
Gerry Altmann believes the report is significant
because it finds that Hauser falsified data—that is, investigators found
that Hauser didn’t just make up findings, but actually changed findings to
suit his purposes. Altmann is the editor of a journal, Cognition,
that published a 2002 paper by Hauser that has since been retracted. When
you falsify data, Altmann writes in an e-mail, “you are deliberately
reporting as true something that you know is not.”
Continued in article
Jensen Comment
To my knowledge cheating by accountics scientists has never once been reported
to the public. Perhaps this is partly due to lack of replication and lack of
importance of many findings to merit whistle blowing ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Corrupted/Biased Experimentation
It would be naive to assume blatant cheating has not taken place in accoutics
science, especially in areas where cheating often takes place in science. When
researchers collect their own experimental data rather than purchase the data,
temptations arise to take scientific shortcuts or to change findings to better
suit the hypotheses under investigation.. Behavioral accounting experiments just
as vulnerable as psychology experiments.
Fabricated Data
Another vulnerable area is survey research where the actual response rate is
disappointing. A researcher becomes tempted to fill out some added survey
instruments. In other instances for ANOVA designs it's tempting to fabricate
data to achieve better balance among the cells.
Plagiarism
It would seem that plagiarism risks among accounting researchers is not less
than plagiarism risk among other researchers. I do know of one instance that
I've mentioned previously. One of my favorite colleagues, Professor S, at
Trinity University (before he moved upward and onward) received his PhD in
management from one of the Big Ten universities. call it University N.
Professor S was notified that he must return immediately to University of N
concerning an investigation regarding whether his PhD diploma would be revoked.
The allegation was that portions of his doctoral thesis were plagiarized from an
article published by accounting professor D at University N. While Professor S
was on campus, it became evident that instead Professor D had instead
plagiarized from a draft of Professor S's dissertation.
The incident was then immediately hushed up by University N. Professor S
retained his diploma. There was never any publicity about the plagiarism of
Professor D. I only know about it because I was a close friend and colleague of
Professor S.
University N did not take action like Columbia University when it fired an
African American female professor of psychology for plagiarizing the some works
of her colleagues.
"Columbia U. Professor Denies Plagiarism, Saying Accusers Instead Stole Her
Work," by Thomas Bartlett, Chronicle of Higher Education, February
22, 2008 --
-
http://chronicle.com/daily/2008/02/1798n.htm
The investigation leading to the firing of
Madonna G. Constantine proved otherwise, and she was fired.
http://chronicle.com/daily/2008/06/3520n.htm?utm_source=at&utm_medium=en
It is strongly suspected that she secretly hung hanging noose outside her own
door to symbolize that she was being racially persecuted.
Professor D continued to teach at University N until some years later when he
retired at the customary retirement age. I never saw him again at an AAA Annual
Meeting. Perhaps there were some lesser punishments such as taking away his
travel budgets.
One of the dirtiest forms of plagiarism is when journal referees reject
submitted works and later publish those ideas under different wording. I
mentioned previously how a well known mathematician refereeing one of my papers
rejected my paper and later published my proof in his own book. All I ever got
was an apology from the editor of the journal that rejected by paper. For
details see
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
A more subtle, yet related, form of cheating is when a referee borrows a
research idea from a paper that he or she rejected. This is not as direct as
plagiarism of text or plagiarism of a mathematical proof, but it is cheating
even if the referee conducts a better experiment.
Ghost Writers in the Ivory Tower
In the Academy there are instances where professors simply hire a ghost writer
or a ghost researcher to secretly do nearly all the work, such as when a
well-paid professor hires a starving, albeit brilliant, student. These days it's
just as easy for a professor to hire a ghost written paper as it is for a
student to hire a ghost written paper. There are many ghost writing outfits on
the Internet who will write papers on virtually any topic (prices of course may
vary).
A related form of cheating is more common among professors who have difficulty
writing in English is to honestly conduct the research and then hire a good
writer to secretly write the paper. There are variations of this type of
cheating where the researcher and the writer are listed as co-authors of the
paper. It is wrong to give the writer credit for the research and wrong for the
researcher to get credit for a complete paper he/she never wrote.
I've encountered instances where Colleague A really wants to have Colleague B
get a promotion. For instance I know of one situation where Accounting
Department Chair B did did not have a good case for being promoted to full
professor. Professor A became very endeared to Professor B, his boss, by adding
Professor B to three papers as a co-author. After Professor B was promoted to
full professor and remained on as head of the department, Professor A always got
the highest pay raises in the department.
Of course there are many more games that accountics researchers play in the gray
zone of gaming for tenure and promotion ---
Gaming for Tenure as an
Accounting Professor ---
http://www.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
Conclusion
I think that blowing the whistle of cheating is likely to be more common in the
real sciences rather than in accountics science. Accountics scientists work less
with research hired employees in laboratories where such employees are more
likely to detect laboratory cheating and blow the whistle.
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 7, 2012
New York Probes Private-Equity Tax Practices
by:
Reed Albergotti, Mark Maremont and Gregory Zuckerman
Sep 04, 2012
Click here to view the full article on WSJ.com
TOPICS: Capital Gains, Individual Income Taxation, Tax Evasion,
Taxation
SUMMARY: New York Attorney General Eric Schneiderman is championing
an "...investigation into the tax practices of the private-equity
industry...looking for potential wrongdoing....In the main strategy in
question...private-equity firms or individuals at the firms voluntarily
waive management fees due to them from investors. Instead they ask the
investors to place that money in certain funds managed by the firms. The
change can turn management fees...into investments that could enjoy capital
gains treatment...."
CLASSROOM APPLICATION: The article may be used in a tax class to
discuss ordinary income versus capital gains, tax avoidance and tax evasion,
and the relationship of the regulatory review process to political
motivations.
QUESTIONS:
1. (Advanced) Define tax avoidance and tax evasion.
2. (Advanced) Do you think the concerns raised in the article
relate to tax avoidance as the author describes it? Support your answer.
3. (Introductory) Who is undertaking the review of private-equity
firms' tax practices? Why is this person the appropriate individual to do
so? Why might the motivation to make this review now be politically
motivated?
4. (Introductory) As described in the article, how does the
strategy known as fee-waiver conversion reduce taxes owed by principals
operating private equity firms?
Reviewed By: Judy Beckman, University of Rhode Island
"New York Probes Private-Equity Tax Practices," by Reed Albergotti,
Mark Maremont and Gregory Zuckerman, The Wall Street Journal, September
4, 2012 ---
http://professional.wsj.com/article/SB10000872396390443571904577629831800831466.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
A New York investigation into the tax practices of
the private-equity industry is looking for potential wrongdoing ranging from
delay of tax payments to avoidance of them entirely.
The main focus of the investigation, say people
familiar with it, is whether and how some firms convert certain management
fees into investments that are eligible for more-favorable tax treatment.
Partners at some of the nation's largest private equity firms have used the
practice for years, though it also is one that several firms have avoided,
some industry practitioners have called risky and some academics have called
potentially illegal.
The investigation, by the office of New York
Attorney General Eric Schneiderman, opens another front of attack on the
industry, which has been under a microscope during the presidential campaign
of Republican nominee Mitt Romney. Mr. Romney formerly led private-equity
firm Bain Capital . As previously reported, Mr. Romney's attorney said he
didn't participate in the fee-waiver program at Bain.
Some Republicans publicly and privately over the
weekend derided the review as politically motivated. Mr. Schneiderman is a
Democrat. A person familiar with his office's thinking said the concerns
over industry tax practices have long been discussed in academic papers, and
the review came out of the office's new taxpayer protection bureau.
The person added that subpoenas seeking information
from firms were sent in early July, before this particular issue came into
the public eye late last month.
A representative for the Internal Revenue Service
didn't comment.
In the main strategy in question, known as a
fee-waiver conversion, private-equity firms or individuals at the firms
voluntarily waive management fees due to them from the firm's investors.
Instead, they ask the investors to place that money in certain funds managed
by the firms. The change can turn management fees, taxed as ordinary income
at federal rates of 35%, into investments that could enjoy capital-gains
treatment, at 15% federal rates. The attorney general's office is concerned
such a conversion could be a form of tax avoidance.
The inquiry is somewhat unusual, because New York
State doesn't offer favorable tax treatment for capital gains. In that
respect, the distinction between a characterization of ordinary income or
capital gain wouldn't matter to the state's coffers.
One person familiar with the investigation said New
York still could lose out from such a strategy because it could allow for
payment of taxes to be delayed, perhaps for many years, until an investment
is sold.
The attorney general's office also is investigating
whether industry participants engaged in a strategy to avoid taxes
altogether on some management fees, according to the person. These people
might do this by claiming money received in this arrangement wasn't income,
but the return of capital, which isn't subject to taxes.
It isn't clear if such an approach is common, if
used at all. Some tax practitioners aware of the so-called fee-waiver
conversion approach said they were unfamiliar with this more-extreme version
of the idea.
Thirteen firms in July were sent subpoenas for
information, said the person. The investigation potentially could bring
allegations under false claims laws in addition to tax laws, this person
said.
The practice of converting management fees into
investments subject to capital-gains treatment has been the subject of
debate for many years within the private-equity industry.
Some of the largest firms in the business, such as
Bain and Apollo Global Management, APO +0.82% have taken advantage of this
strategy, according to filings and documents. KKR KKR +2.01% & Co. used the
strategy from 2007 until 2009, when it became a public company, according to
a person familiar with the matter. Still, others, such as Blackstone Group
LP, BX +3.95% Carlyle Group CG -0.53% and Madison Dearborn Partners LLC,
never employed the strategy, according to people familiar with the matter.
Defenders say the Internal Revenue Service for
years hasn't contested the approach, giving firms confidence to employ it.
They also say it gives employees a way to bet on their funds, as these fees
can replace money employees are expected to invest in the funds.
"Management fee waivers are legal, widely
recognized, and often part of negotiated agreements between the alternative
investment community and investors," says Steve Judge, president and chief
executive of the Private Equity Growth Capital Council.
Firms that have elected not to employ the strategy
view it as too complex to present to their investors, prefer to recognize
fee revenue when it is generated, or worry the practice could come under
scrutiny.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Teaching case from The Wall Street Journal Accounting Weekly Review on September 7,
2012
Facebook Plays Defense
by:
Geoffrey A. Fowler
Sep 05, 2012
Click here to view the full article on WSJ.com
TOPICS: Executive Compensation, Individual Taxation, Stock Price
Effects, Stockholders' Equity
SUMMARY: "In a regulatory [Form 8-K] filing Tuesday, Facebook said
Chief Executive Mark Zuckerberg won't sell any stock in the company for a
year, and that two of its directors...have no plans to sell their personal
holdings beyond the amount needed to cover their tax liabilities." The
discussion in the article emphasizes the company's plans to maintain a
relatively constant level of outstanding shares and also mentions tax
treatment of individuals receiving the restricted stock.
CLASSROOM APPLICATION: The article may be used in a tax class to
cover the topic of restricted stock and in a financial accounting class
covering authorized, issued, and outstanding shares. NOTE: INSTRUCTORS WILL
WANT TO REMOVE THE FOLLOWING STATEMENTS AS THEY CONTAIN ANSWERS TO THE
QUESTIONS ASKED IN THE REVIEW. Restricted stock is taxed similarly to
non-qualified stock options except that employees are taxed on the full fair
value of the stock at the vesting date, unless the employee makes an
election under section 83(b) to accelerate the date to the grant date. As
described in the article from review of an SEC Form 8-K filing, Facebook
intends to maintain a similar level of outstanding shares after the vesting
of the restricted stock as before the vesting date by repurchasing treasury
shares.
QUESTIONS:
1. (Introductory) What is restricted stock? What will happen in
October in relation to Facebook's employees' restricted stock units?
2. (Advanced) How are issuances of restricted stock units treated
for tax purposes? In your answer, explain why the two directors mentioned in
the article might sell shares because they face tax liabilities if they
otherwise do not plan to sell these shares of stock.
3. (Advanced) Define the terms authorized, issued, and outstanding
shares of stock. How will the issuance of the restricted stock affect each
of these categories of stock?
4. (Introductory) According to the article, what will Facebook do
to offset the impact of releases of restricted stock previously granted to
executives and employees? Again, explain the impact of this action on the
three types of stock identified above.
5. (Advanced) Why is Facebook's action important to shareholders
who bought the stock upon its initial public offering?
Reviewed By: Judy Beckman, University of Rhode Island
"Facebook Plays Defense," by Geoffrey A. Fowler, The Wall Street Journal,
September 5, 2012 ---
http://professional.wsj.com/article/SB10000872396390443759504577631854230025164.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
Facebook Inc. FB +2.00% took steps Tuesday to
reassure investors and employees worried about its plummeting stock price,
as the social network's shares hit new lows.
In a regulatory filing Tuesday, Facebook said Chief
Executive Mark Zuckerberg won't sell any stock in the company for a year,
and that two of its directors—Marc Andreessen and Donald Graham—have no
plans to sell their personal holdings beyond the amount needed to cover
their tax liabilities.
Facebook also detailed how it will essentially buy
back 101 million shares when it issues previously restricted stock units to
its staff in October. At recent prices, it would spend roughly $1.9 billion
to keep those shares off the market.
Together, the steps function like a kind of
defensive wall around the Facebook share price. They effectively reduce the
amount of Facebook stock in the public market and spread out the amount of
shares that could flood the market in November after a lockup period on the
stock expires.
Facebook spokesman Larry Yu said the details in the
filing were approved by the company's compensation committee on Aug. 30. "We
wanted to get the filing out as soon as we could after that meeting as a
measure of clarity and transparency," he said.
Mr. Yu declined to comment on the impact that the
moves might have on investors.
Facebook's stock has been in a tailspin since the
Menlo Park, Calif., company's initial public offering in May. After making
their market debut at $38 a share amid much hype that month, they have
plunged more than 50% over concerns about how much the company is really
worth.
On Tuesday, Facebook's shares dropped to a fresh
low of $17.73 in 4 p.m. trading after analysts at the two biggest
underwriters for the company's IPO—Morgan Stanley MS +3.51% and J.P. Morgan
Chase JPM +4.08% & Co.—cut their price targets on the stock.
In after-hours trading following the regulatory
filing, Facebook's shares ticked up 1.7% to $18.03.
Facebook's stock has continued to suffer as share
lockups began expiring last month, releasing 271 million shares—or nearly
13% of those outstanding—on the market. More lockup expirations in October,
November and December will allow insiders and others to sell more than 1.4
billion shares.
Enlarge Image image image Julie Jacobson/Associated
Press
Facebook said Mr. Zuckerberg won't sell any shares
in the social network for a year. Mr. Zuckerberg, above, in May.
Last month, director and early investor Peter Thiel
sold the majority of his Facebook holdings—some 20.1 million shares—after
restrictions on insider selling lifted.
Facebook has publicly said little about its stock
slide but internally is reassuring employees about their shares. In a
companywide meeting last month, Mr. Zuckerberg told them it may be "painful"
to watch the stock plunge, but that investments Facebook has made will soon
bear fruit.
In its filing, Facebook said Mr. Zuckerberg "has no
intention to conduct any sale transactions in our securities for at least 12
months." Mr. Zuckerberg sold Facebook stock in the IPO to cover his tax
liabilities, and now holds about 444 million shares of Class B common stock
and an option exercisable for an additional 60 million Class B shares.
A Facebook spokesman declined to make Mr.
Zuckerberg available to comment.
A spokeswoman declined to make Mr. Andreessen
available for comment. Mr. Graham declined to comment.
Facebook also said it plans to withhold 45% of
employees' restricted stock units to cover their tax liabilities, paying the
obligations, worth about $1.9 billion, in cash and from existing credit
facilities. In doing so, it would remove 101 million shares from the market
for accounting purposes, about 4% of the shares outstanding. Facebook also
said the lockup date for some employees' stock would be Oct. 29, after
previously suggesting it might fall on Nov. 14.
Continued in article
Bob Jensen's threads on employee stock option accounting ---
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
"When Is an Asset not an Asset? A new lease accounting proposal by
regulators is still getting pummeled by finance executives," by Kathleen
Hoffelder, CFO.com, September 14, 2012 ---
http://www3.cfo.com/article/2012/9/gaap-ifrs_lease-accounting-fasb-iasb-convergence-equipment-lease
When a corporation leases a building, is the
adjoining parking lot automatically included? Or should the lot be accounted
for separately? Does it make economic sense to count the lot as a separate
asset from the building, since in a typical suburban office complex one
generally doesn’t exist without the other?
Such questions are getting tougher and tougher to
answer for CFOs and other executives who account for lease expenses that
their companies incur – especially when you consider that the parties in the
debate can’t even agree on such a basic element as the definition of an
“asset.” In the example above, for instance, is the parking lot an asset
owned by the lessee, or is it simply a piece of rented property?
The confusion stems from a lease accounting
proposal jointly agreed upon by the Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board (IASB) in June that
requires lease expenses to be recorded on corporate balance sheets. The
boards decided that lessees should distinguish between equipment and
property leases, and that the distinction should be based on whether the
lessee acquires and/or uses up more than an “insignificant” portion of the
underlying asset. Along with other criteria, if a lessee buys or consumes
more than that amount, it would have to account for its cost on a
property-lease basis; if less, than the arrangement would be deemed an
equipment lease.
FASB and IASB further came to an agreement on
having property leases accounted for using a straight-line approach (in
which a single lease expense is recognized over the life of a lease) and
equipment leases accounted for in a front-loaded manner (in which larger
interest charges occur at the beginning of a lease than at the end).
Ralph Petta, chief operating officer at the
Equipment Leasing and Finance Association (ELFA), notes that the boards’
decision to make the equipment lease expense recognition front-loaded
creates a lot of problems. “It makes the accounting more complex than it
needs to be,” he says. Since equipment leases have not previously been
front-loaded, lessees would have to do a whole lot more calculating of asset
values if the plan goes through.
While ELFA supports having leases recorded on
lessees’ balance sheets and incorporating two types of leases for property
and equipment, the association’s leaders find fault with the way the boards
are addressing those issues now.
Critics of the proposal like Rod Hurd, CFO of
Bridgeway Capital Advisors and chair of ELFA’s financial committee, don’t
think the standard setters’ plan correctly addresses most lessees’
accounting needs.
For one thing, he notes the “economics” of the
FASB/IASB proposal don’t jibe with general accounting principles. In a
front-loaded lease on a balance sheet, as in the case of an equipment lease,
the asset appears to be worth less than its present economic value, notes
Hurd.
FASB and IASB’s front-loaded approach for equipment
leases considers all equipment leases as purchases, perhaps reasoning that,
in many cases, short-term lessees resemble owners more than renters. ELFA
and others, however, say that the concept doesn’t match reality.
Continued in article
"Diversity among Analysts Makes Objective of FASB-IASB Lease Accounting
Difficult to Achieve," BNA, July 31, 2012 ---
http://www.bna.com/diversity-among-analysts-b12884910914/
Jensen Comment
In my opinion, standard setters, corporations, and financial analysts are
avoiding the most important and the most troublesome aspect of lease accounting
--- how to account for lease renewals. As long as lessees and can simply look at
one lease term for accounting purposes, the leases will be written for shorter
terms and thereby defeat the purpose of getting OBSF debt on the balance sheet.
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
Bob Jensen's threads on lease accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Leases
A Guide through IFRS 2012 (Green Book in English, Red Book in Spanish) ---
http://shop.ifrs.org/ProductCatalog/Product.aspx?ID=1713
Copies are priced at £90 each, plus shipping. As an academic/student you
will be entitled to a 45%
discount
off
the normal price.
If you require further information on A Guide through IFRS 2012
(Green Book) (ISBN 978-1-907877-63-6; product ID: 1713), please visit our
Web Shop
and place your order. Alternatively, download the
order form
from the shop and return it to us by email, fax or post.
eIFRS and Comprehensive subscribers can access the electronic files of A
Guide through IFRS 2012 (Green Book)
here.
You
will be required to provide your login details. Comprehensive subscribers
will soon receive a copy by mail.
Jensen
Comment
This illustrates the frustration of hard copy. Getting a novel or even a fact
book in hard copy is often very satisfying. For example, looking up from a 2000
almanac of facts is not misleading as long as you know the book was published in
2000 and that for facts since 2000 you must search elsewhere.
But
accounting standards are being amended so frequently these days, the 2012 IFRS
Green and Red Books can be somewhat misleading in a matter of months. As long as
readers are diligent and highly aware that these books are in many ways obsolete
the moment they come off the printing presses, perhaps there is no big danger.
But lazy accountants and accounting teachers who grab a Green Book or Red Book
and consider the findings to be authoritative without further checking may be
revealing that they are in fact lazy.
September
20, 2012 reply from Pat Walters
Bob:
The difference between the Green book and the Red
(all issued standards regardless of effective dates) and Blue (standards
effective as of the beginning of the most recent year) are as follows:
Red and Blue are available in early January of the
relevant year and also available on-line as soon as issued. The Green book
is an annotated/cross referenced version of the Red book. It takes staff
considerable time to do this annotation, which is why it generally comes out
in September. The Green book is of course extremely useful, but essential to
understanding and applying the standard. In no way are the standards only
available until 9 months after the January 1..
The basic IFRSs are available for free on the IASB
website. One only needs a subscription to access the basis for conclusions
and other ancillary materials the IASB may publish.
Individuals and students can get full access to
eIFRS for $25 and $20 respectively by joining the IAAER. I'm not even sure
that one needs to be an academic to get an individual membership. That is
next to nothing for on-line access in the general scheme of things and one
can download and print any of the on-line documents.
Pat
New Global Code of Ethics for Accountants
"When Should Accountants Spill the Beans? A new code of ethics puts
finance chiefs on the hook to report suspected fraud to corporate boards,"
by Kathleen Hoffelder, CFO.com, September 6, 2012 ---
http://www3.cfo.com/article/2012/9/auditing_international-federation-of-accountants-iesba-code-of-ethics
Under proposed changes to a global ethics code for
accountants, while auditors must report a suspected fraud to outside
authorities, management accountants need only report their suspicions
internally. At the same time, if corporate accountants spill the beans to
CFOs, finance chiefs must report what they’ve learned to other senior
executives and the audit committee of the board.
As a matter of principle, corporate accountants
have always maintained a degree of confidentiality about companies’
finances. But there has never been any guidance concerning when that
confidentiality should be breached.
In the case of suspected fraud or other illegal
acts, however, the International Ethics Standards Board for Accountants (IESBA),
an independent standard-setting board, is finally suggesting new steps that
different accountants should take to disclose that information to
management, the board, or external sources. Last month the IESBA issued an
exposure draft on how professional accountants should disclose suspected
illegal acts committed by a client or employer. The draft adds changes to
the Code of Ethics for Professional Accountants, which was first revised in
2009.
The IESBA exposure draft distinguishes between
auditors and corporate and other professional accountants. If the suspected
illegal act affects financial reporting or is within the expertise of the
auditor, the auditor would be required to discuss the issue with management
and the audit committee. If the response within the company is, in the
auditor’s judgment, “not appropriate” and “of such consequence that
disclosure would be in the public interest,” the auditor must disclose the
suspected illegalities to “appropriate” external authorities, according to
the proposal.
For other professional accountants, including those
who work for corporations, the approach would be similar except for one
thing: while auditors are required to report to an appropriate authority,
staff and other accountants serving the company would be only obliged to
discuss it with management and the audit committee.
“For accountants, it is not a requirement to
disclose to an appropriate authority; it’s a right they are expected to
exercise,” explains an official at the IESBA. “We recognize the fact there
are accountants at all levels within the organization,” the official adds.
“For an accountant in business to have a requirement to always report out
might be going a little far, so that’s why we have that slightly different
test.”
All this added responsibility for accountants,
however, is not expected to lessen the role CFOs must play in ensuring their
company’s financial reporting runs as accurately as possible.
If a finance chief is told by his or her staff
accountant about a suspected illegal act, the CFO would be governed by the
same code of ethics, since he or she is in the accounting reporting chain.
“All professional accountants have a part to play here if they encounter a
suspected illegal act. A distinguishing mark of the accounting profession is
its responsibility of acting in the public interest,” says the IESBA
official.
CFO.com (http://s.tt/1mGcO)
Continued in article
Bob Jensen's threads on whistle blowing ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
"2012 tax software survey: Which products and features yielded
frustration or bliss?" by Paul Bonner, Journal of Accountancy,
September 2012 ---
http://www.journalofaccountancy.com/Issues/2012/Sep/20125667.htm
Bob Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
A new expected credit loss impairment model
"FASB takes new path in contentious financial instruments project," by
Ken Tysiac, Journal of Accountancy, August 31, 2012 ---
http://journalofaccountancy.com/News/20126359.htm
Bob Jensen's threads on impairment ---
http://www.trinity.edu/rjensen/Theory02.htm#Impairment
In the Store Point and Click: Another Example of Technology Replacing
Labor
"Walmart Is Testing A Scan-And-Go iPhone App That Could One Day Replace
Cashiers," by Alyson Shontell, Business Insider, September 1, 2012
---
http://www.businessinsider.com/walmart-is-testing-a-scan-and-go-iphone-app-that-could-replace-cashiers-2012-9
In Rogers Arkansas,
Walmart recently asked employees and their friends with iPhones to test out
a new self scan-and-go app. It's one of a few
mobile initiatives Walmart is working on that could one day replace or aid
its many cashiers.
The test was put together by Walmart
Labs. The app let employees scan items on their phones but not pay on the
devices. Instead the app transferred all scanned items to a self-checkout
kiosk.
But Walmart has said it's working on a
mobile payment network with other retailers that could rival current
solutions like
Google Wallet.
Walmart spokesman David Tovar tells
Reuters the company is "continually testing new
and innovative ways to serve customers and
enhance the shopping experience in our
stores."
Walmart's US stores spend about
$12 millions on cashier wages per second, so an
app like this could save the company a lot of money.
"Tax Court Rejects Geithner/Turbo Tax Defense,"
Bartlett v. Commissioner, T.C. Memo.
2012-254 (Sept. 4, 2012):
http://www.ustaxcourt.gov/InOpHistoric/BartlettMemo.TCM.WPD.pdf
Question
How nasty should the IRS get when trying to collect from its boss?
Warning: It never pays to get nasty with the IRS, even for the boss (who
I'm sure already coughted up without a real fight)
From Paul Caron
Prior TaxProf Blog coverage:
-
Geithner Blames Turbo Tax For His Tax Troubles (Jan. 22, 2009)
-
TurboTax, Geithner Edition (June 30, 2009)
-
Tax Court Rejects Taxpayer's Attempt to Use Geithner's TurboTax Defense
(Aug. 26, 2009)
-
Tax Court Rejects "Geithner Defense," Says Reliance on TurboTax Does Not
Excuse Taxpayer From Penalty for Errors on Tax Return (Apr. 20,
2010)
-
Tax Court Rejects Geithner/TurboTax Defense (June 23, 2010)
-
Tax Court Again Rejects Geithner/TurboTax Defense (Nov. 12, 2010)
-
For First Time, Tax Court Approves Use of Geithner/Turbo Tax Defense
(Nov. 25, 2011)
-
Taxpayers Should be Able to Use Geithner/TurboTax Defense (Apr. 16,
2012)
Bob Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
August 30, 2012
At its meeting yesterday, the United States Financial Accounting Standards
Board (FASB) reversed its position on a joint decision made recently with the
IASB on the measurement requirements for an investment company’s interest in
another investment company.
http://www.iasplus.com/en/news/2012/august/fasb-reverses-decision-on-accounting-for-interests-in-other-investment-companies
Student Assignment on Fraud: Compare the Stockton Versus Orange County
Bankruptcies
The Cause of Stockton's Bankruptcy: Lousy Risk Disclosures on Bond
Sales for Stockton's Pension Funds
"How Plan to Help City Pay Pensions Backfired," by Mary Williams
Walsh, The New York Times, September 3, 2012 ---
http://www.nytimes.com/2012/09/04/business/how-a-plan-to-help-stockton-calif-pay-pensions-backfired.html?_r=1
Jeffrey A. Michael, a finance professor in
Stockton, Calif., took a hard look at his city’s
bankruptcy this summer and thought he saw a
smoking gun: a dubious bond deal that bankers had pushed on Stockton just as
the local economy was starting to tank in the spring of 2007, he said.
Stockton sold the bonds, about $125 million worth,
to obtain cash to close a shortfall in its pension plans for current and
retired city workers. The strategy backfired, which is part of the reason
the city is now in Chapter 9 bankruptcy. Stockton is trying to walk away
from the so-called pension obligation bonds and to renegotiate other debts.
After reviewing an analysis of the bond deal,
underwritten by the ill-fated investment bank, Lehman Brothers, and watching
a recording of the Stockton City Council meeting where Lehman bankers
pitched the deal, Mr. Michael concluded that “Stockton is entitled to some
relief, due to deceptive and misleading sales practices that understated the
risk.”
“Lehman Brothers just didn’t disclose all the risks
of the transaction,” he said. “Their product didn’t work, in the same way as
if they had built a marina for the city and then the marina collapsed.”
Financial analysts and actuaries say essentially
the same pitch that swayed Stockton has been made thousands of times to
local governments all over the country — and that many of them were drawn
into deals that have since cost them dearly.
Since virtually all pension obligation bonds turn
on the same basic strategy that Stockton followed, Mr. Michael’s research
could be a road map for avoiding more such problems, or perhaps for seeking
redress. His analysis was part of his August economic forecast for the
region, which he prepares as director of the Business Forecasting Center at
the University of the Pacific.
There are about $64 billion in pension obligation
bonds outstanding, and even though issuance has slowed, more of the bonds
are coming to market, even now.
Officials in Fort Lauderdale, Fla., are scheduled
to vote on a $300 million pension obligation bond on Wednesday, for
instance. Hamden, Conn., has amended its charter to allow for the bonds to
rescue a city pension fund that is wasting away. Oakland, Calif., recently
issued about $211 million of the bonds, following the lead of several other
California cities and counties.
The basic premise of all pension obligation bonds
is that a municipality can borrow at a lower rate of interest than the rate
its pension fund assumes its assets will earn on average over the long term.
Critics contend that municipalities that try this are in essence borrowing
money and betting it on the stock market, through their pension funds. The
interest on pension obligation bonds is not tax-exempt for this reason.
Alicia H. Munnell, director of the Center for
Retirement Research at Boston College, looked at outcomes for nearly 3,000
pension obligation bonds issued from 1986 to 2009 and found that most were
in the red. “Only those bonds issued a very long time ago and those issued
during dramatic stock downturns have produced a positive return,” Ms.
Munnell wrote with colleagues Thad Calabrese, Ashby Monk and Jean-Pierre
Aubry. “All others are in the red.” Only one in five of the pension
obligation bonds issued since 1992 has matured, so the results could change
in the future.
Among the places where the strategy has failed
miserably is New Orleans, which sold about $170 million of such debt in 2000
to produce cash to finance the pensions of 820 retired firefighters. Until
then, New Orleans had never funded their benefits and simply paid them out
of pocket, leaving the retirees fearful that in a budget squeeze, the city
might renege.
City officials based the deal on the expectation
that the bond proceeds would be invested in assets that would pay 10.7
percent a year — an unusually aggressive assumption, but one that made the
numbers work. New Orleans’s credit was weak, and its borrowing rate was
expected to be 8.2 percent. To get the rate on the bonds down as much as
possible, New Orleans also issued variable-rate debt, combined with
derivatives in an attempt to hedge against rate increases.
But instead of earning 10.7 percent a year, the
bond proceeds the city set aside for the firefighters’ pensions lost value
over the years, first in the dot-com crash and then in the financial crisis.
And instead of hedging against interest rate increases, the derivatives
failed, leaving New Orleans paying 11.2 percent interest. The city also has
a $115 million balloon payment coming due on the debt in March.
Continued in article
Jensen Comment
An interesting assignment for students might be to compare the bad investment
causes of bankruptcy of Stockton, CA versus Orange County , CA,
Listen to Part of a Sixty Minutes video that I made available to my my
students learning how to account for derivative financial instruments ---
http://www.cs.trinity.edu/~rjensen/000overview/mp3/SIXTY01.mp3
Boo to Merrill Lynch
Listen to Part of a Sixty Minutes video that I made available to my my
students learning how to account for derivative financial instruments ---
http://www.cs.trinity.edu/~rjensen/000overview/mp3/SIXTY01.mp3
Merrill Lynch was a major player in the infamous Orange County fraud when
selling derivative financial instruments. You can read more about this at
http://www.trinity.edu/rjensen/FraudCongress.htm#DerivativesFrauds
It constantly amazes me how often the name Merrill Lynch crops up in news
accounts of both outright frauds and concerns over ethics. The latest account
is typical. A senior vic
They were an
admixture of old-fashioned and uncouth, a duo almost as unlikely as Neil Simon's
odd couple. The seventy-year-old had been married to the same woman for forty
years, in the same job for more than twenty, and in the same place--Orange
County, California--forever. The fifty-four-year-old had recently divorced and
remarried, switched jobs often and moved even more frequently, most recently to
a million-dollar home in swanky Moraga, east of Oakland, California. Despite
their obvious differences, they spoke on the phone virtually every day for many
years. They first met in 1975 and had traded billions of dollars of securities
with each other. The elder of the pair was the Orange County treasurer, Robert
Citron; the younger was a Merrill Lynch bond salesman, Mike Stamenson. Together
they created what many officials described as the biggest financial fiasco in
the United States: Orange County's $1.7 billion loss on derivative
Frank Partnoy, Page 157 of Chapter 8 entitled "The Odd Couple"
F.I.A.S.C.O. : The Inside Story of a Wall Street Trader
by Frank Partnoy
- 283 pages (February 1999) Penguin USA (Paper); ISBN: 0140278796
A longer passage from Chapter 8 appears at
http://www.trinity.edu/rjensen/fraud.htm#DerivativesFraud
A second passage beginning on Page 166
reads as follows:
Also
on December 5, Orange County filed the largest municipal bankruptcy petition
in history. Orange County's funds covered nearly two hundred schools,
cities, and special districts. The losses amounted to almost $1,000 for
every man, woman, and child in the county. The county's investments,
including structured notes, had dropped 27 percent in value, and the county
said it no longer could meet its obligations.
The
bankruptcy filing made the ratings agencies look like fools.
Just a few months before, in August 1994, Moody's Investors Service had
given Orange County's debt a rating of Aa1, the highest rating of any
California county. A cover memo to the rating letter stated, "Well done,
Orange County." Now, on December 7, an embarrassed Moody's declared Orange
County's bonds to be "junk"--and Moody's was regarded as the most
sophisticated ratings agency. The other major agencies, including S&P, also
had failed to anticipate the bankruptcy. Soon these agencies would face
lawsuits related to their practice of rating derivatives.
On
Tuesday, January 17, 1995, Robert Citron and Michael Stamenson delivered
prepared statements in an all-day hearing before the California Senate
Special Committee on Local Government Investments, which had subpoenaed them
to testify. It was a pitiful display. Citron left his wild clothes at
home, testifying in a dull gray suit and bifocals. He apologized and
pleaded ignorance. He said, "In retrospect, I wish I had more education and
training in complex government securities." Stuttering and subdued,
appearing to be the victim, Citron tried to excuse his whole life: He didn't
serve in the military because he had asthma; he didn't graduate from USC
because of financial troubles; he was an inexperienced investor who had
never even owned a share of stock. It was pathetic.
Stamenson also said he was sorry and cited the enormous personal pain the
calamity had produced. He pretended naivete. He said Citron was a highly
sophisticated investor and that he had "learned a lot" from him.
Stamenson's story was as absurd as Citron's was sad. When Stamenson
asserted that he had not acted as a financial adviser to the county, one
Orange County Republican, Senator William A. Craven, couldn't take it
anymore and called him a liar. Stamenson finally admitted that he had
spoken to Citron often--Citron had claimed every day--but he refused to
concede that he had been an adviser. At this point Craven exploded again,
asking, "Well, what the hell were you talking about to this man every day?
The weather?" Citron's lawyer, David W. Wiechert, was just as angry. He
said, "For Merrill Lynch to distance themselves from this crisis would be
akin to Exxon distancing themselves from the Valdez."
Bob Jensen's timeline of derivative financial instruments frauds ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
"WHAT IS PENSION EXPENSE, REALLY? THE CASE OF WEYERHAEUSER," by Anthony H.
Catanach and J. Edward Ketz, Grumpy Old Accountants Blog, September 17, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/759
As you may recall, we previously discussed problems
in government pension accounting (see “California
Budget Woes and Chimerical Pension Beliefs: GASB Could Help if it Had the
Will”). In this essay we turn our attention to
corporate pension accounting, pension expense specifically, using
Weyerhaeuser disclosures as an example.
Let’s begin with a brief review of the FASB’s
pension rules in ASR 715. The firm reports pension assets and liabilities
in the balance sheet, netted. The entity’s pension assets can include cash,
investments, and any other assets that are in the pension plan, and these
are valued at fair value. The firm also measures its liability, the
projected benefit obligation (PBO), which equals the present value of the
estimated pension cash outflows to retirees, which these former employees
have already earned. The pension assets and liabilities are then netted
against each other, yielding what we actually see on the balance sheet. If
assets exceed liabilities, the net amount is displayed in the asset section
of the balance sheet. If the liabilities are greater, the net amount is
shown in corporate liabilities.
In the income statement, the firm reports pension
expense, a complex amalgam quite different from pension contributions. GAAP
pension expense is defined as the period service cost (increase in PBO),
plus the period’s interest on the PBO, minus the expected (not actual)
return on the plan assets, less any amortization of prior service cost, and
finally, plus or minus any amortization of pension gains and losses. And as
we would expect from our accounting standard-setters, some items bypass the
income statement: prior service costs and pension gains and losses.
These two items are shown in the shareholders’ equity section of the balance
sheet, in accumulated other comprehensive income (loss). Given the
complexity of the FASB’s rules, the financial statements are supplemented
with an ever increasing myriad of footnote disclosures that describe various
details and assumptions so the reader can “better” assess the company’s
pension position.
While one can do a lot of analysis when it comes to
pension expense, our focus is on the interest cost and the expected
return on pension assets components. These two items warrant particular
scrutiny given management’s considerable discretion in their measurement,
and because changes in their measurements can have major effects on the
bottom line and on reported liabilities.
The following analysis relies in part on a very
good study written by Nick Gibbons, an analyst at
Gradient Analytics. The study is entitled
“Pension Issue Commentary #4,” and was published on June 21, 2012. Last
year’s report may be found at
http://www.earningsquality.com/commentary.do?action=View.
As stated before, the PBO is the present value of
estimated future retiree cash outflows discounted at some appropriate rate,
and the interest cost component of pension expense is that same assumed rate
multiplied by the beginning-of-the-year value of the PBO. Both items depend
on the assumed rate that is used. Not surprisingly, higher rates will lower
the PBO liability, but increase the interest charge, and related pension
expense.
From
Weyerhaeuser’s 2011 10-K footnote 8, one sees that
the firm applies a discount rate of 4.5% and obtains a PBO of $5,841 (all
dollar amounts in millions). (The 4.5% rate is for U.S. plans, while the
rate for Canadian plans is 4.9%). In his study, Gibbons created a sample of
354 companies, analyzed their 2011 pension disclosures, and found a median
discount rate of 4.75%. So, given the proximity of Weyerhaeuser’s discount
rate to the median rate, we are somewhat comfortable with Weyerhaeuser’s
choice.
However, if one is uncomfortable with a company’s
assumed rate, or if one desires to do a sensitivity analysis, there is an
easy tack to employ. Given that pension payouts already earned extend
several decades into the future, one can assume the debt is a perpetuity,
a stream of cash payments that continues forever. Since the present value
interest factors get pretty small 20 years out, and further, the error
should be relatively small. Then the value of an “adjusted” PBO would equal
the reported PBO times the reported rate divided by the “adjusted”
rate believed to be more realistic.
For example, let’s say we question the
reasonableness of Weyerhaeuser’s rate…let’s say we think it really should be
3.5%. What happens? Well, the PBO soars by almost 28.6% to $7,510:
(($5,841 X 4.5%) ÷
3.5%) = $7,510
Conversely, if we believe that the “adjusted” rate
should be 5.5%, the PBO liability drops 18.2% to $4,779.
(($5,841
X 4.5%) ÷ 5.5%) = $4,779
And if the “adjusted” rate is assumed to be 4.75%
(to standardize everybody’s rate and increase comparability given Gibbons’
study), the PBO value is $5,533. A change of merely one quarter of one
percent decreases the liability by $308, a change of 5.3%.
(($5,841
X 4.5%) ÷ 4.75%) = $5,533
These examples demonstrate the impact of the
discount rate on the projected benefit obligation and on the pension
expense. Given how easily managers can manipulate reported pension
liabilities, such a sensitivity analysis is an important aspect of pension
analysis.
The second big assumption that managers may not be
able to resist “tinkering” with is the expected rate of return on
the pension assets. Allegedly, the FASB employs the expected rate of return
(rather than the actual rate of return) to try to supply a long-term
perspective and smooth the pension costs.
Continued in article
Bob Jensen's threads on pension accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
"Global curbs loom on offshore corporate tax avoidance," by Chris
Vellacott, Reuters, August 30, 2012 ---
http://www.reuters.com/article/2012/08/30/us-offshoretax-curbs-idUSBRE87T0NT20120830
Cash-strapped governments keen to replenish their
coffers and international bodies such as the OECD are stepping up efforts to
claw back revenue lost when companies shift profit overseas to cut their tax
bills.
A legal and routine practice known as transfer
pricing, whereby subsidiaries of the same company in different countries
trade with each other, is sometimes used by companies to move cash to
jurisdictions with lower tax rates, such as tax havens.
But the process can be abused by inflating the
price of goods and services traded with overseas units in order to shift
more money offshore and evade corporate taxes, and authorities now want to
toughen up their policies and close loopholes.
"Tax base erosion and profit shifting are real
problems, they need to be dealt with," Joe Andrus, head of the transfer
pricing unit at the Organisation for Economic Co-operation and Development,
which sets the international guidelines on the practice, told Reuters.
Campaigners say economic damage caused by
aggressive use of transfer pricing extends far beyond depriving governments
of developed countries of revenue in fiscally straightened times.
The charity Christian Aid estimates the world's
poorest countries are deprived of $160 billion in tax revenues every year by
multinationals transferring profit beyond borders. The practice also
distorts the economies of tax havens into which multinationals shift the
profits.
Joao Pedro Martins, a Lisbon-based economist and
author of a book about the Portuguese autonomous region of Madeira, says the
"exports" of hundreds of multinational subsidiaries registered in the island
have distorted its GDP at the locals' expense.
Though unemployment runs at more than 14 percent,
the island's per capita GDP is 103 percent of the EU average, compared with
78 percent for the whole of Portugal, making it the second-richest part of
the country after the capital Lisbon.
This means Madeira loses out on millions of euros
of EU support it might otherwise get under a program of grants for regions
with per capita GDP of less than 75 percent of the European average, Martins
says.
The OECD champions a set of guidelines known as the
"arm's-length" method which permits transfer pricing only when transactions
between affiliates at are struck at market rates.
However, organizations can skirt this rule through
trade in intangible assets or services where pricing can be arbitrary and
much harder to benchmark against a global market rate.
"There is no such thing as an arms length price.
The idea of the arms length price is fundamentally flawed from the outset,"
says John Christensen, director at pressure group Tax Justice Network which
campaigns against aggressive tax avoidance.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Accounting Students Dropping Out of Accountics Science Doctoral Programs
September 5, 2012 message from Professor XXXXX
Hello Bob:
Thought you might find the
following interesting.
I had a student as an undergrad
that I encouraged to get a PhD. She went out and worked a few years and
came back to get a master’s degree. During the master’s degree she decided
what she really wanted was to be a professor and applied for a PhD degree at
Tennessee. Got accepted and went without finishing her masters. One year
later I found her in my master’s class. She was so fed up with the total
emphasis on what you have been calling accountics that she dropped out and
came back to finish her masters. I have been trying to convince her that it
was just Tennessee and she really did want to become a professor but it has
been an uphill battle and I would say at this point highly unlikely that she
will ever again consider being a professor.
XXXXX
September 5, reply from Bob Jensen
Dear Professor XXXXX,
It's not just Tennessee. Virtually all accounting doctoral programs in
AACSB accredited universities have literally been taken over by accountics
science researchers ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
This is one of the main reason the 2012 Pathways Commission Report
appeals for alternative tracks to be commenced in accountancy doctoral
programs.
I had a similar (actually brilliant) student who did complete his masters
degree in accounting at Trinity University. He was a joint accounting and
mathematics undergraduate major. He was admitted to the University of
Texas doctoral program and dropped out for the same reason you mention above
--- too much accountics and too little accounting even though he was doing
well in his accountics science courses. He just was more interested in
accounting than accountics.
Thanks,
Bob Jensen
September 5, 2012 reply from Professor YYYYY
We had a retired Marine who completed our BS and MS
program. He was an extremely good student, so much so that we hired him as a
lecturer when he completed his master's degree. After a few years he decided
at age 45 to go get his PhD. He looked at several programs (RRRRR SSSSS, and
TTTTT because they are all about 3-4 hours away and his family was not going
to move with him).
He finally decided on TTTTT. TTTTT is a good
school, but definitely not elite or one of the Top 10 accountics science
programs. I felt that he could get a decent doctoral program there. He hated
it despite doing well in the classes. He was frustrated at reading nothing
but mathematics and statistical papers that had nothing to do with what he
wanted to pursue; teaching and professional research. He mentioned this in
class on several occasions and was basically told that real accounting
professors were not interested in teaching. The PhD was a research degree
and as such you would not be learning how to teach, it was assumed that you
knew enough of that when admitted to the program and that your real goal
should be to get placed at a school where teaching would not interfere with
research. On several occasions the students took him aside and said to be
careful about being out spoken in class regarding teaching and professional
research. If he continued to mention those things the faculty would not be
amenable to working with him on research projects or help him get through. I
can remember back to my doctoral program in the late 90's and we did the
same thing. To get along with the faculty you never expressed a desire to
teach, it was all about research. Among your fellow students you could be
open about desires to teach, but not faculty. I can remember several faculty
members during my job search admonishing me for the schools where I was
interviewing because they were "teaching schools" and beneath their desires
for where grads of our schools should be applying. (this part of the message
was deleted by Jensen)
What's more, when the doctoral student in question
asked his adviser about application of the research to the profession the
adviser was flummoxed by what he meant. It was not his job to apply his
research to the profession but rather the profession to find what it needed
if they wanted to. He said that personally he didn't feel any need to try to
better the profession and that his profession was not accounting but
academia. Needless to say he was discouraged and left TTTTT before the end
of his first semester. He passed all four parts of his CPA exam (all >90)
and is now working at one of the larger local CPA firms doing quite well.
Thought you might like to her another anecdotal
report on what's going on in the ivory towers. I really enjoy having Steve
Kachelmeyer on the listserv and the debates that go on because of his
willingness to interact. I know he brings a very different perspective from
the majority of us on the list who are not big name researchers.
Hope all is going well with you and Erika. The
weather in Texas is miserably hot, not as abd as last year, but still hot.
Forecast is for 105 tomorrow, September 6th!
The Sad State of Accounting Doctoral Programs in North America
"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.
September 5, 2012 reply from Dan Stone
This is very sad and very true.
Tim Fogarthy talks about the "ghettoization" of
accounting education in some of his work and talks. The message that faculty
get, and give, is that if a project has no chance for publication in a top X
journal, then it is a waste of time. Not many schools are able to stand
their ground, and value accounting education, in the face of its absence in
any of the "top" accounting journals.
The paradox and irony is that accounting faculty
devalue and degrade the very thing that most of them spend the most time
doing. We seem to follow a variant of Woody Allen's maxim, "I would never
join a club that would have me as a member." Here, it is, "I would never
accept a paper for publication that concerns what I do with most of my
time."
As Pogo said, "we have met the enemy and they is
us."
Dan Stone
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 --- See Below!
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
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
The AAA's Pathways Commission Accounting Education Initiatives Make
National News
Accountics Scientists Should Especially Note the First Recommendation
"Accounting for Innovation," by Elise Young, Inside Higher Ed,
July 31, 2012 ---
http://www.insidehighered.com/news/2012/07/31/updating-accounting-curriculums-expanding-and-diversifying-field
Accounting programs should promote curricular
flexibility to capture a new generation of students who are more
technologically savvy, less patient with traditional teaching methods, and
more wary of the career opportunities in accounting, according to a report
released today by the
Pathways Commission, which studies the future of
higher education for accounting.
In 2008, the U.S. Treasury Department's Advisory
Committee on the Auditing Profession recommended that the American
Accounting Association and the American Institute of Certified Public
Accountants form a commission to study the future structure and content of
accounting education, and the Pathways Commission was formed to fulfill this
recommendation and establish a national higher education strategy for
accounting.
In the report, the commission acknowledges that
some sporadic changes have been adopted, but it seeks to put in place a
structure for much more regular and ambitious changes.
The report includes seven recommendations:
- Integrate accounting research, education
and practice for students, practitioners and educators by bringing
professionally oriented faculty more fully into education programs.
- Promote accessibility of doctoral
education by allowing for flexible content and structure in doctoral
programs and developing multiple pathways for degrees. The current path
to an accounting Ph.D. includes lengthy, full-time residential programs
and research training that is for the most part confined to quantitative
rather than qualitative methods. More flexible programs -- that might be
part-time, focus on applied research and emphasize training in teaching
methods and curriculum development -- would appeal to graduate students
with professional experience and candidates with families, according to
the report.
- Increase recognition and support for
high-quality teaching and connect faculty review, promotion and tenure
processes with teaching quality so that teaching is respected as a
critical component in achieving each institution's mission. According to
the report, accounting programs must balance recognition for work and
accomplishments -- fed by increasing competition among institutions and
programs -- along with recognition for teaching excellence.
- Develop curriculum models, engaging learning
resources and mechanisms to easily share them, as well as enhancing
faculty development opportunities to sustain a robust curriculum that
addresses a new generation of students who are more at home with
technology and less patient with traditional teaching methods.
- Improve the ability to attract high-potential,
diverse entrants into the profession.
- Create mechanisms for collecting, analyzing
and disseminating information about the market needs by establishing a
national committee on information needs, projecting future supply and
demand for accounting professionals and faculty, and enhancing the
benefits of a high school accounting education.
- Establish an implementation process to address
these and future recommendations by creating structures and mechanisms
to support a continuous, sustainable change process.
According to the report, its two sponsoring
organizations -- the American Accounting Association and the American
Institute of Certified Public Accountants -- will support the effort to
carry out the report's recommendations, and they are finalizing a strategy
for conducting this effort.
Hsihui Chang, a professor and head of Drexel
University’s accounting department, said colleges must prepare students for
the accounting field by encouraging three qualities: integrity, analytical
skills and a global viewpoint.
“You need to look at things in a global scope,” he
said. “One thing we’re always thinking about is how can we attract students
from diverse groups?” Chang said the department’s faculty comprises members
from several different countries, and the university also has four student
organizations dedicated to accounting -- including one for Asian students
and one for Hispanic students.
He said the university hosts guest speakers and
accounting career days to provide information to prospective accounting
students about career options: “They find out, ‘Hey, this seems to be quite
exciting.’ ”
Jimmy Ye, a professor and chair of the accounting
department at Baruch College of the City University of New York, wrote in an
email to Inside Higher Ed that his department is already fulfilling
some of the report’s recommendations by inviting professionals from
accounting firms into classrooms and bringing in research staff from
accounting firms to interact with faculty members and Ph.D. students.
Ye also said the AICPA should collect and analyze
supply and demand trends in the accounting profession -- but not just in the
short term. “Higher education does not just train students for getting their
first jobs,” he wrote. “I would like to see some study on the career tracks
of college accounting graduates.”
Mohamed Hussein, a professor and head of the
accounting department at the University of Connecticut, also offered ways
for the commission to expand its recommendations. He said the
recommendations can’t be fully put into practice with the current structure
of accounting education.
“There are two parts to this: one part is being
able to have an innovative curriculum that will include changes in
technology, changes in the economics of the firm, including risk,
international issues and regulation,” he said. “And the other part is making
sure that the students will take advantage of all this innovation.”
The university offers courses on some of these
issues as electives, but it can’t fit all of the information in those
courses into the major’s required courses, he said.
Continued in article
Jensen Comment
This is one of the most important initiatives to emerge from the AAA in recent
years.
I would like to be optimistic, but change will be very slow. President Wilson,
who was also an PhD professor, once remarked that it's easier to move a cemetery
than to change a university.
It is easier to move a
cemetery than to affect a change in curriculum.
Woodrow Wilson
President of Princeton University 1902-1910
President of the United States 1913-1921
And in the 21st Century you can imagine the lawsuits that would clog the courts
if a town tried to move a cemetery.
Bob Jensen's threads on Higher Education Controversies and Need for Change
---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
The sad state of accountancy doctoral programs ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
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
July 31, 2012 reply from Paul Williams
Bob, A good place to start is to jettison pretenses
of accounting being a science. As Anthony Hopwood noted in his presidential
address, accounting is a practice. The tools of science are certainly
useful, but using those tools to investigate accounting problems is quite a
different matter than claiming that accounting is a science. Teleology
doesn't enter the picture in the sciences -- nature is governed by laws, not
purposes. Accounting is nothing but a purposeful activity and must (as
Jagdish has eloquently noted here and in his Critical Perspectives on
Accounting article) deal with values, law and ethics. As Einstein said, "In
nature there are no rewards or punishments, only consequences." For a social
practice like accounting to pretend there are only consequences (as if
economics was a science that deals only with "natural kinds) has been a
major failing of the academy in fulfilling its responsibilities to a
discipline that also claims to be a profession. In spite of a "professional
economist's" claims made here that economics is a science, there is quite
some controversy over that even within the economic community. Ha-Joon
Chang, another professional economist at Cambridge U. had this to say about
the economics discipline: "Recognizing that the boundaries of the market are
ambiguous and cannot be determined in an objective way lets us realize that
economics is not a science like physics or chemistry, but a political
exercise. Free-market economists may want you to believe that the correct
boundaries of the market can be scientifically determined, but this is
incorrect. If the boundaries of what you are studying cannot be
scientifically determined what you are doing is not a science (23 Things
They Don't Tell You About Capitalism, p. 10)." The silly persistence of
professional accountants in asserting that accounting is apolitical and
aethical may be a rationalization they require, but for academics to harbor
the same beliefs seems to be a decidedly unscientific posture to take. In
one of Ed Arrington's articles published some time ago, he argued that
accounting's pretenses of being scientific are risible. As he said (as near
as I can recall): "Watching the positive accounting show, Einstein's gods
must be rolling in the aisles."
"For Spain's Jobless, Time Equals Money," by Matt Moffett, The Wall
Street Journal, August 27, 2012 ---
http://professional.wsj.com/article/SB10000872396390443404004577577352038273664.html?mg=reno-wsj
Even though she's one of millions of young,
unemployed Spaniards, 22-year-old Silvia Martín takes comfort in knowing
that her bank is still standing behind her. It's not a lending institution,
but rather a time bank whose nearly 400 members barter their services by the
hour.
Ms. Martín, who doesn't own a car and can't afford
taxis, has relied on other time-bank members to give her lifts around town
for her odd jobs and errands, as well as to help with house repairs. In
return, she has cared for members' elderly relatives, organized children's
parties and even hauled boxes for a member moving to a new house.
The time bank not only saves her cash, she says,
but also lifts her spirits by making her feel "part of a community that's
taking some positive action during hard times."
As Europe's leaders struggle with a five-year-old
economic crunch that has saddled Spain with the industrialized world's
highest jobless rate, young Spaniards are increasingly embracing such
bottom-up self-help initiatives to cope. The diverse measures—some commonly
associated with rural or disaster-zone economies—supplement a public safety
net that is fraying under government austerity programs.
Besides time banks, they include barter markets
springing up in barrios, local currencies designed to spur the flagging
retail economy, and charity networks that repurpose discarded goods. An
environmental group recently launched Huertos Compartidos, or Shared
Gardens, that links up owners of vacant land with those willing to plant
vegetables in them and share the harvest.
The growth of time banks revives a concept
pioneered by 19th-century anarchists and socialists in the U.S. and Europe,
who wanted to test their philosophy that prices of goods and services should
more closely reflect the labor involved in producing them.
The number of such banks in Spain—some run by
neighborhood associations, others by local governments—has nearly doubled to
291 over the past two years, according to a survey by Julio Gisbert, a
banker who runs a website called Vivir Sin Empleo, or Living Without Work,
that tracks mutual-aid initiatives. Some economists worry that the rise of
such informal systems of economic exchange is pushing more of Spain's
economy underground—out of the view of regulators and tax collectors, and
effectively sending the country back in time developmentally.
"It's a step backward not only for a euro country,
but also for a developed country," says José García Montalvo, an economics
professor at the University of Pompeu Fabra in Barcelona.
Banks and social currencies, he says, can backfire
on the broader economy since the income received from such arrangements
often goes undeclared, therefore depriving the government of tax revenue.
Social currencies and time banks also preclude taking on debt, adds Mr.
García Montalvo, which in moderate levels can help people start businesses
and access beneficial goods and services that they can't afford upfront.
Others, though, say the measures represent a
significant stabilizing force in society. For "people who can't find work,
these kinds of possibilities of exchanges and mutual help can help make
bearable a situation that otherwise would be unsustainable," says José Luis
Álvarez Arce, director of the economics department at the University of
Navarra.
Continued in article
How "employed" people in America evade taxes via the underground cash and
barter economy ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Can You Train Business School Students To Be Ethical?
The way we’re doing it now doesn’t work. We need a new way
Question
What is the main temptation of white collar criminals?
Answer from
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#01
Jane Bryant Quinn once said something to the effect that, when corporate
executives and bankers see billions of loose dollars swirling above there heads,
it's just too tempting to hold up both hands and pocket a few millions,
especially when colleagues around them have their hands in the air. I tell my
students that it's possible to buy an "A" grade in my courses but none of them
can possibly afford it. The point is that, being human, most of us are
vulnerable to some temptations in a weak moment. Fortunately, none of you
reading this have oak barrels of highly-aged whiskey in your cellars, the
world's most beautiful women/men lined up outside your bedroom door, and
billions of loose dollars swirling about like autumn leaves in a tornado.
Most corporate criminals that regret their actions later confess that the
temptations went beyond what they could resist. What amazes me in this era,
however, is how they want to steal more and more after they already have $100
million stashed. Why do they want more than they could possibly need?
"Can You Train Business School Students To Be Ethical? The way we’re doing
it now doesn’t work. We need a new way," by Ray Fisman and Adam Galinsky,
Slate, September 4, 2012 ---
http://www.slate.com/articles/business/the_dismal_science/2012/09/business_school_and_ethics_can_we_train_mbas_to_do_the_right_thing_.html
A few years ago,
Israeli game theorist
Ariel Rubinstein got the idea of examining how
the tools of economic science affected the judgment and empathy of his
undergraduate students at Tel Aviv University. He made each student the
CEO of a struggling hypothetical company, and tasked them with deciding
how many employees to lay off. Some students were given an algebraic
equation that expressed profits as a function of the number of employees
on the payroll. Others were given a table listing the number of
employees in one column and corresponding profits in the other. Simply
presenting the layoff/profits data in a different format had a
surprisingly strong effect on students’ choices—fewer than half of the
“table” students chose to fire as many workers as was necessary to
maximize profits, whereas three quarters of the “equation” students
chose the profit-maximizing level of pink slips. Why? The “equation”
group simply “solved” the company’s problem of profit maximization,
without thinking about the consequences for the employees they were
firing.
Rubinstein’s
classroom experiment serves as one lesson in the pitfalls of the
scientific method: It often seems to distract us from considering the
full implications of our calculations. The point isn’t that it’s
necessarily immoral to fire an employee—Milton Friedman famously
claimed that the
sole purpose of a company is indeed to maximize profits—but
rather that the students who were encouraged to think of the decision to
fire someone as an algebra problem didn’t seem to think about the
employees at all.
The experiment is
indicative of the challenge faced by business schools, which devote
themselves to teaching management as a science, without always
acknowledging that every business decision has societal repercussions. A
new generation of psychologists is now thinking about how to create
ethical leaders in business and in other professions, based on the
notion that good people often do bad things unconsciously. It may
transform not just education in the professions, but the way we think
about encouraging people to do the right thing in general.
At present, the
ethics curriculum at business schools can best be described as an
unsuccessful work-in-progress. It’s not that business schools are
turning Mother Teresas into
Jeffrey Skillings (Harvard Business School,
class of ’79),
despite some claims to that effect. It’s easy
to come up with examples of rogue MBA graduates who have lied, cheated,
and stolen their ways to fortunes (recently convicted
Raj Rajaratnam is a graduate of the University
of Pennsylvania’s Wharton School of Business; his partner in crime,
Rajat Gupta, is a
Harvard Business School alum). But a huge number of companies are run by
business school grads, and for every Gupta and Rajaratnam there are
scores of others who run their companies in perfectly legal anonymity.
And of course, there are the many ethical missteps by non-MBA business
leaders—Bernie Madoff was educated as a lawyer; Enron’s Ken Lay had a
Ph.D. in economics.
In actuality,
the picture suggested by the data is that
business schools have no impact whatsoever on the likelihood that
someone will cook the books or otherwise commit fraud. MBA programs are
thus damned by faint praise: “We do not turn our students into
criminals,” would hardly make for an effective recruiting slogan.
If it’s too much to expect
MBA programs to turn out Mother Teresas, is there anything that business
schools can do to make tomorrow’s business leaders more likely
to do the right thing? If so, it’s probably not by trying to teach them
right from wrong—moral epiphanies are a scarce commodity by age 25, when
most students start enrolling in MBA programs. Yet this is how business
schools have taught ethics for most of their histories. They’ve often
quarantined ethics into the beginning or end of the MBA education. When
Ray began his MBA classes at Harvard Business School in 1994, the ethics
course took place before the instruction in the “science of management”
in disciplines like statistics, accounting, and marketing. The idea was
to provide an ethical foundation that would allow students to integrate
the information and lessons from the practical courses with a broader
societal perspective. Students in these classes read philosophical
treatises, tackle moral dilemmas, and study moral exemplars such as
Johnson & Johnson CEO James Burke, who took responsibility for and
provided a quick response to the series of deaths from tampered Tylenol
pills in the 1980s.
It’s a mistake to assume
that MBA students only seek to maximize profits—there may be eye-rolling
at some of the content of ethics curricula, but not at the idea that
ethics has a place in business. Yet once the pre-term ethics instruction
is out of the way, it is forgotten, replaced by more tangible and easier
to grasp matters like balance sheets and factory design. Students get
too distracted by the numbers to think very much about the social
reverberations—and in some cases legal consequences—of employing
accounting conventions to minimize tax burden or firing workers in the
process of reorganizing the factory floor.
Business schools are
starting to recognize that ethics can’t be cordoned off from the rest of
a business student’s education. The most promising approach, in our
view, doesn’t even try to give students a deeper personal sense of
mission or social purpose – it’s likely that no amount of indoctrination
could have kept Jeff Skilling from blowing up Enron. Instead, it helps
students to appreciate the unconscious ethical lapses that we commit
every day without even realizing it and to think about how to minimize
them. If finance and marketing can be taught as a science, then perhaps
so too can ethics.
These ethical
failures don’t occur at random – countless experiments in psychology and
economics labs and out in the world have documented the circumstances
that make us most likely to ignore moral concerns – what social
psychologists Max Bazerman and Ann Tenbrusel call our moral
blind spots. These result from numerous
biases that exacerbate the sort of distraction from ethical consequences
illustrated by the Rubinstein experiment. A classic
sequence of studies illustrate how readily
these blind spots can occur in something as seemingly straightforward as
flipping a fair coin to determine rewards. Imagine that you are in
charge of splitting a pair of tasks between yourself and another person.
One job is fun and with a potential payoff of $30; the other tedious and
without financial reward. Presumably, you’d agree that flipping a coin
is a fair way of deciding—most subjects do. However, when sent off to
flip the coin in private, about 90 percent of subjects come back
claiming that their coin flip came up assigning them to the fun task,
rather than the 50 percent that one would expect with a fair coin. Some
people end up ignoring the coin; more interestingly, others respond to
an unfavorable first flip by seeing it as “just practice” or deciding to
make it two out of three. That is, they find a way of temporarily
adjusting their sense of fairness to obtain a favorable outcome.
Jensen Comment
I've always thought that the most important factors affecting ethics were early
home life (past) and behavior others in the work place (current). I'm a believer
in relative ethics where bad behavior is affected by need (such as being swamped
in debt) and opportunity (weak internal controls at work). I've never been
a believer in the effectiveness of teaching ethics in college, although this is
no reason not to teach ethics in college. It's just that the ethics mindset was
deeply affected before coming to college (e.g. being street smart in high
school) and after coming to college (where pressures and temptations to cheat
become realities).
An example of the follow-the-herd ethics mentality.
If Coach C of the New Orleans Saints NFL football team offered Player X serious
money to intentionally and permanently injure Quarterback Q of an opposing team,
Player X might've refused until he witnessed Players W, Y, and Z being paid to
do the same thing. I think this is exactly what happened when several
players on the defensive team of the New Orleans Saints intentionally injured
quarterbacks for money.
New Orleans Saints bounty scandal ---
http://en.wikipedia.org/wiki/New_Orleans_Saints_bounty_scandal
Question
What is the main temptation of white collar criminals?
Answer from
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#01
Jane Bryant Quinn once said something to the effect that, when corporate
executives and bankers see billions of loose dollars swirling above there heads,
it's just too tempting to hold up both hands and pocket a few millions,
especially when colleagues around them have their hands in the air. I tell my
students that it's possible to buy an "A" grade in my courses but none of them
can possibly afford it. The point is that, being human, most of us are
vulnerable to some temptations in a weak moment. Fortunately, none of you
reading this have oak barrels of highly-aged whiskey in your cellars, the
world's most beautiful women/men lined up outside your bedroom door, and
billions of loose dollars swirling about like autumn leaves in a tornado.
Most corporate criminals that regret their actions later confess that the
temptations went beyond what they could resist. What amazes me in this era,
however, is how they want to steal more and more after they already have $100
million stashed. Why do they want more than they could possibly need?
See Bob Jensen's "Rotten to the Core" document at
http://www.trinity.edu/rjensen/FraudRotten.htm
The exact quotation from Jane Bryant Quinn at
http://www.trinity.edu/rjensen/FraudRotten.htm#MutualFunds
Why white collar crime pays big time even if you know you will eventually
be caught ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
Bob Jensen's threads on professionalism and ethics ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm
September 5, 2012 reply from Paul Williams
Bob,
This is the wrong question because business schools
across all disciplines contained therein are trapped in the intellectual box
of "methodological individualism." In every business discipline we take as a
given that the "business" is not a construction of human law and, thus of
human foible, but is a construction of nature that can be reduced to the
actions of individual persons. Vivian Walsh (Rationality Allocation, and
Reproduction) critiques the neoclassical economic premise that agent =
person. Thus far we have failed in our reductionist enterprise to reduce the
corporation to the actions of other entities -- persons (in spite of
principal/agent theorists claims). Ontologically corporations don't exist --
the world is comprised only of individual human beings. But a classic study
of the corporation (Diane Rothbard Margolis, The Managers: Corporate Life in
America) shows the conflicted nature of people embedded in a corporate
environment where the values they must subscribe to in their jobs are at
variance with their values as independent persons. The corporate "being" has
values of its own. Business school faculty, particularly accountics
"scientists," commit the same error as the neoclassical economists, which
Walsh describes thusly:
"...if neo-classical theory is to invest its
concept of rational agent with the penumbra of moral seriousness derivable
from links to the Scottish moral philosophers and, beyond them, to the
concept of rationality which forms part of the conceptual scheme underlying
our ordinary language, then it must finally abandon its claim to be a
'value-free` science in the sense of logical empiricism (p. 15)." Business,
as an intellectual enterprise conducted within business schools, neglects
entirely "ethics" as a serious topic of study and as a problem of
institutional design. It is only a problem of unethical persons (which, at
sometime or another, includes every human being on earth). If one takes
seriously the Kantian proposition that, to be rationally ethical beings,
humans must conduct themselves so as to treat always other humans not merely
as means, but also always as ends in themselves, then business organization
is, by design, unethical. Thus, when the Israeli students had to confront
employees "face-to-face" rather than as variables in a profit equation, it
was much harder for them to treat those employees as simply disposable means
to an end for a being that is merely a legal fiction. One thing we simply do
not treat seriously enough as a worthy intellectual activity is the serious
scrutiny of the values that lay conveniently hidden beneath the equations we
produce. What thoughtful person could possibly subscribe to the notion that
the purpose of life is to relentlessly increase shareholder wealth?
Increasing shareholder value is a value judgment, pure and simple. And it
may not be a particularly good one. Why would we be surprised that some
individuals conclude that "stealing" from them (they, like the employees
without names in the employment experiment, are ciphers) is not something
that one need be wracked with guilt about. If the best we can do is prattle
endlessly on about the "tone at the top" (do people who take ethics
seriously get to the top?), then the intellectual seriousness which ethics
is afforded within business schools is extremely low. Until we start to
appreciate that the business narrative is essentially an ethical one, not a
technical one, then we will continue to rue the bad apples and ignore how we
might built a better barrel.
Paul
September 5, 2012 reply from Bob Jensen
Hi Paul,
Do you think the ethics in government is in better shape, especially given
the much longer and more widespread history of global government corruption
throughout time? I don't think ethics in government is better than ethics in
business from a historical perspective or a current perspective where
business manipulates government toward its own ends with bribes, campaign
contributions, and promises of windfall enormous job benefits for government
officials who retire and join industry?
Government corruption is the name of the game in nearly all nations,
beginning with Russia, China, Africa, South America, and down the list.
Political corruption in the U.S. is relatively low from a global
perspective.
See the attached graph from
http://en.wikipedia.org/wiki/Corruption_%28political%29
Respectfully,
Bob Jensen
Question
How does capitalism possibly reduce as well as increase corruption in
government?
Answer
I think it's because some of the more onerous types of governmental corruption,
particularly outright bribery and extortion, are enormous frictions on having
capitalism succeed.. If capitalism is to work at all, some of the most onerous
types of political corruption have to be greatly reduced. Russian never realized
this, and hence Russia remains one of the most violently corrupt and least
successful "capitalist" nations on the planet.
"Mohammed Ibrahim: The Philanthropist of Honest Government Africa's
cellphone billionaire, Mohammed Ibrahim, is offering a rich payoff for African
leaders who don't take payoffs. He says it'll do for development what foreign
aid never has," The Wall Street Journal, September 7, 2012 ---
http://professional.wsj.com/article/SB10000872396390444318104577587641175010510.html?mod=djemEditorialPage_t&mg=reno64-wsj
Jensen Comment
What struck me in the above how political corruption tends to be lower in many
nations that rely more on capitalism and market distributions. Note in
particular the tiny blue strip of Chile in that map. At one time Chile was one
of the most corrupt nations of the world. Then some students of the Chicago
School are given credit for making Chile literally the most capitalist nation in
South America as well as the world in general (of course not without lingering
inequality problems).- ---
http://en.wikipedia.org/wiki/Chicago_Boys
Chile has the best credit standing in Latin America.
Also note how non-capitalist nations that are wealthy in resources such as
Russia, Saudi Arabia, and Veneszuela are the most corrupt in the world.
The real test over the next 50 years will be China. China is a very corrupt
nation, especially at the local levels of government. It will be interesting to
see if the continued rise in capitalism can work a miracle somewhat like that in
Chile ---
http://en.wikipedia.org/wiki/Chile#Economic_policies
"Revenue Recognition Leading Cause of Restatements," by Emily Chason,
CFO Report, September 11, 2012 ---
http://blogs.wsj.com/cfo/2012/09/11/revenue-recognition-leading-cause-of-restatements/?mod=wsjpro_hps_cforeport
55: median number of days it has taken U.S. public
companies to file restatements of financial results in 2011 and 2012.
The U.S. public companies that have restated
financial results this year or last have taken a median 255 days—or roughly
eight and a half months—from the date of their original financial statements
to make their corrected filings, according to an analysis by Baseline
Insights. Baseline analyzed data from a total of 108 restatements in 2011
and 2012, using electronic filings made to the Securities and Exchange
Commission
The longest period from the original filing to
restatement was 1,184 days, while the quickest restatement took just 23
days. The longer intervals often involved restatements related to stock
compensation and income taxes, where a tax audit could trigger a
restatement. The shorter ones often stemmed from issues related to goodwill
and receivables.
The most-frequent explanations companies gave for
the restatements were problems with revenue-recognition accounting and
income taxes, such as the need to change an uncertain tax position. More
than a third of the time, however, companies didn’t offer a reason for their
restatements, particularly when they were triggered by small errors, such as
reversing credit and debit balances or assigning multiple values to an
electronic data tag.
“Often there is no reason given for the
restatement: It’s not something you brag about,” said Joe St. Denis,
managing director at Baseline Insights and former head of research at the
Public Company Accounting Oversight Board.
Among the companies that detailed the cause of
their restatement, 24 of them said management had identified the issue, 13
said the change resulted from comments by the SEC’s Division of Corporation
Finance, and 10 said their external auditor had uncovered the issue.
Bob Jensen's threads on revenue recognition are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
Another Area of Non-convergence Between the FASB and the IASB
"In brief: FASB reaches conclusion on impairment model for financial
assets measured at FV-OCI," PwC, September 11, 2012 ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=TQUN-8Y2LZP&SecNavCode=MSRA-84YH44&ContentType=Content
Questions
Is corporate budgeting is a time waster and a poor measure of performance?
Do ERP systems help or hinder operating without a budget (not answered in the
article below)
"Freed from the
Budget: Many companies see budgeting as a time-consuming exercise of limited
value. Some are resorting to a radical fix: getting rid of the budget," by
Russ Banham, CFO.com, September 1, 2012 ---
Click Here
http://www3.cfo.com/article/2012/9/budgeting_budgets-rolling-forecasts-continuous-planning-beyond-budgeting-round-table-statoil-elkay-group-health-holt-cat
In his book Winning, General Electric’s Jack Welch
famously griped: “It sucks the energy, time, fun, and big dreams out of an
organization. It hides opportunity and stunts growth. It brings out the most
unproductive behaviors in an organization, from sandbagging to settling for
mediocrity.”
“It” is the corporate budgeting process. This
much-hated annual exercise in setting targets, doling out resources, and
providing incentives for employees is the way nearly all companies run their
shops. Even organizations that have adopted monthly or quarterly rolling
forecasts as a more agile way of reacting to events still produce a budget,
for the most part.
Now, a few companies are doing what others
fantasize about: getting rid of the budget altogether, stomping out the
century-old process for good. Their guru is Steve Player, program director
at the Beyond Budgeting Round Table, a learning network with more than 50
corporate members. For years, Player has railed against budgeting, which he
excoriates as an expensive waste of time. A charismatic consultant and
speaker, Player has his converts. Among them is Statoil, the giant Norwegian
oil-and-gas company, with $90 billion in 2011 revenue and operations in 36
countries.
Statoil did away with traditional budgeting in
2005, and decided in 2010 to abolish the calendar year in its management
processes whenever possible. “Not only does a budget take too much time, it
is a bad yardstick for evaluating performance,” contends Bjarte Bogsnes,
Statoil vice president of performance management development.
He explains that a budget creates the opportunity
for “gaming” the system. “Managers are instructed to deliver on an
easy-to-achieve target, told what resources they have to get there, and then
are incentivized for hitting that number,” Bogsnes says. “It prevents
managers from seizing opportunities to create value.”
Statoil’s radical approach is shared by three other
companies profiled below: Elkay Manufacturing, Holt CAT, and Group Health
Cooperative. Kenneth Merchant, a professor of accounting at the University
of Southern California’s Marshall School of Business, has closely followed
the Beyond Budgeting phenomenon, and estimates that at least 100 companies
across the globe are on the same path. “A lot fall by the wayside or don’t
reach the end destination of no budget at all,” says Merchant, who is also
the school’s Deloitte & Touche LLP Chair of Accountancy. “Nevertheless,
there is definite value in doing away with the budget,” he adds. “Getting to
this point is the problem.”
Sensible but Unreliable Player doesn’t mince words
about his disdain for the “B” word. Budgets, he asserts, can foster
unethical behavior and conflicts of interest. “When companies tie incentive
compensation to reaching budget goals, they create a huge conflict of
interest,” he says. “Managers are incented to submit proposed budgets with
low goals. Instead of reaching for outstanding performance, the budget
process becomes a game of negotiating the lowest acceptable target, which is
often based on assumptions outside the managers’ control.” The process also
leads managers to hoard information, says Player, “since no one wants to
share information that can be used against them.”
Budgets are also based on assumptions that are
frequently wrong. They cost a ton of money, eat up platefuls of time, are
out of date by the time they’re produced, and tend to strip local managers
of their accountability, since their plans must be squeezed into the
company’s goals, Player says. As a method of cost control, budgets are
wanting, since managers tend to spend every cent they’ve been allocated,
fearing they won’t get the same allocation the following year.
“It’s a management process that can kill the
organization,” declares Player. “It’s part of the dumb stuff that finance
does and should stop doing.”
Continued in article
Jensen Comment
Operating without a budget sounds like a bad idea to me. Generally the budgeting
process is where the major decisions are made.
Bob Jensen's threads on managerial accounting
---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
The Origins of Double-Entry Bookkeeping
August 28, 2012 ,message from Richard Sansing
This new book on the origins of double-entry
accounting may be of interest to AECM members.
http://www.economist.com/node/21560846?fsrc=scn/fb/wl/ar/bythenumbers
Richard Sansing
Double Entry: How the Merchants of Venice
Created Modern Finance. By Jane Gleeson-White. Allen & Unwin; 294 pages;
£12.99. To be published in America in October by W.W. Norton.
WHEN Luca Pacioli wrote his encyclopedia of
mathematics at the end of the 15th century, the book contained pretty
much everything known about maths at the time. Euclid’s ideas were
gaining currency and the Arabic numbering system was spreading. The book
had a relatively wide readership, as Pacioli wrote it in the vernacular
and the recent invention of movable type meant that it was printed in an
edition of some 2,000. A lengthy entry in this book explains for the
first time a system of accounting called double-entry book-keeping. This
innovation is at the centre of an entertaining and informative new book
by Jane Gleeson-White. In this section
Venice
Double-entry book-keeping is “one of the
greatest advances in the history of business and commerce,” declares Ms
Gleeson-White. She argues that this process of recording profit and loss
helped spawn the empiricism of the Renaissance and enhanced the momentum
of capitalism.
The method of putting debits on one side of a
ledger and credits on the other enabled Venetian merchants to record
their capital, separate it from income and determine the dividends
intended for investors. The system had been developed in Venice 200
years before Pacioli—the “father” of book-keeping—first recorded it.
Pacioli was a student of Alberti, an Italian
humanist and polymath, before he took holy orders and became a professor
of mathematics at Perugia University. He grew interested in art,
inspired by the mathematical analyses of perspective by Piero della
Francesca, born like him in Sansepolcro in Tuscany. A friend of Leonardo
da Vinci, Pacioli went on to write a manual about chess.
Ms Gleeson-White resuscitates Pacioli’s
reputation as a fine specimen of Renaissance man. Near the end of the
book, the author begins to lose her way with a scarcely relevant
critique of the calculation of GNP. But she has already justified
Pacioli’s most significant contribution to economic history. As a neat,
transparent way of collecting information about a business and rewarding
capital investment, double-entry book-keeping offered a soaring new
sense of the bottom line
From Bob Jensen's "Accounting History in a Nutshell" ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Origins of Double Entry Accounting
are Unknown
- 1300s A.D. crusades opened the
Middle East and Mediterranean trade routes
- Venice and Genoa became
venture trading centers for commerce
- 1296 A.D. Fini Ledgers in
Florence
- 1340 A.D. City of Massri
Treasurers Accounts are in Double Entry form.
- 1458 A.D.Benedikt Kotruljevic (Croatian)
(Dubrovnik,1416-L’Aquila,1469) (His Italian name was Benedetto Cotrugli
Raguseo), wrote The Book on the Art of Trading which is now
acknowledged to be the first person to write a book describing
double-entry techniques (although the origins of double entry
bookkeeping in practice are unknown)
- 1494 Luca Pacioli's Summa
de Arithmetica Geometria Proportionalita (A Review of Arithmetic,
Geometry and Proportions) which is the best known early book on
double entry bookkeeping in algebraic form.
Recall that double entry bookkeeping supposedly
evolved in Italy long before it was put into algebraic form in the book
Summa by
Luca
Pacioli and into an earlier book by Benedikt Kotruljevic.
"A Brief History of Double Entry Book-keeping (10 Episodes) ," BBC
Radio ---
http://www.bbc.co.uk/programmes/b00r401p
Thanks to Len Steenkamp for the heads up
Jolyon Jenkins investigates how accountants
shaped the modern world. They sit in boardrooms, audit schools, make
government policy and pull the plug on failing companies. And most of us
have our performance measured. The history of accounting and
book-keeping is largely the history of civilisation.
Jolyon asks how this came about and traces the
religious roots of some accounting practices.
Eventually, educators might be able to get copies of these audio files.
October 3, 2009 message from Rick Dull
Benedikt Kotruljevic
(Croatian) (Dubrovnik,1416-L’Aquila,1469) (His Italian name was
Benedetto Cotrugli Raguseo), who in 1458, wrote "The Book on the Art of
Trading" which is now acknowledged to be the first person to write a
book describing double-entry techniques? See the American Mathematical
Society’s web-site:
http://www.ams.org/featurecolumn/archive/book1.html .
Rick Dull
"Lehman’s Detroit Escape Means 90% Loss on Properties: Mortgages," by
Oshrat Carmie, Bloomberg, September 5, 2012 ---
http://www.bloomberg.com/news/2012-09-05/lehman-s-detroit-escape-means-90-loss-on-properties-mortgages.html
Lehman Brothers Holdings Inc. has said it plans to
be patient in selling real estate holdings four years after filing the
largest U.S. bankruptcy in history. In Detroit, it’s willing to accept less
than 10 cents on the dollar to get out while it can.
Lehman is selling a 251,000-square-foot
(23,000-square- meter) office property in suburban Farmington Hills. In
June, the bank offered it at auction for $10 a square foot, which would have
recovered less than 10 percent of the $27.5 million mortgage it extended in
2007. It’s also selling 1 Woodward Ave., a tower overlooking the city’s
riverfront and border with Canada that’s 44 percent vacant.
Detroit’s metro office market is missing out on
Michigan’s revival three years after the government rescued General Motors
Co. (GM) and Chrysler Group LLC amid the worst financial crisis since the
1930s. Borrowers 30 days late or more on Detroit-area office loans packaged
into commercial mortgage-backed securities rose to 24 percent from 15
percent in August 2011, according to data compiled by Bloomberg, compared
with 9.9 percent nationally.
“This is probably not a market where you’re going
to see much growth and for that reason, it might make sense to just move
on,” said Shaw Lupton, a senior real estate economist at data provider
CoStar Group Inc. (CSGP) Archstone Sale
Lehman said in July it’s attempting to recover as
much as $12.9 billion for creditors by selling real estate holdings that
range from condos in Hawaii to Archstone Inc., the eighth- largest apartment
manager in the U.S. Lehman has said it plans to hold some assets as long as
2015, waiting for opportune times to dispose of properties as the commercial
and residential markets recover. It moved to take Archstone public last
month.
Kimberly Macleod, a Lehman spokeswoman, declined to
comment on the firm’s Detroit holdings.
Lehman had $260 million in outstanding senior loans
secured by Detroit-area property at the time of its September 2008 demise,
in addition to $13.2 million in mezzanine or junior loans, according to
court documents.
The bank had extended some of the loans as part of
a joint venture with affiliates of developer Kojaian Management Co. The
partnership, which had dated to 1995, was dissolved a year after the
bankruptcy and Lehman took title to 15 properties in lieu of foreclosure.
Michael Kojaian, executive vice president of
Kojaian Management, declined to comment. Farmington Hills
Lehman had provided $27.5 million of debt against
the three-story Farmington Hills property by 2007, an increase over the
original mortgage it made in 2001 for $19.5 million, according to records
filed with the assessor’s office.
The Farmington Hills site, about 30 miles (48
kilometers) northwest of Detroit, has an occupancy rate of 30 percent that
will fall below 6 percent when mortgage company Quicken Loans Inc. leaves,
according to Larry Emmons, a senior managing director at broker Newmark
Grubb Knight Frank in Southfield, Michigan.
“It’s a good time to sell,” Emmons said. “The peak
tenancy has kind of run its course and it’s going to take some major
repositioning, some marketing and a general increase in market velocity for
Class-B buildings before this one fills up again,” said Emmons, who isn’t
involved in the deal.
Detroit’s decline isn’t uniform. Quicken’s founder
Dan Gilbert has moved employees to the city’s Campus Martius Park area, the
center of its tech industry. That’s less than three blocks from One Woodward
Ave., the downtown Detroit office building with 333,000 square feet,
according to CoStar. ‘General Upgrading’
“There’s been a general upgrading of space,” Emmons
said. “A lot of the A and B buildings have been at 10-year lows so people
will consolidate and upgrade their digs.”
There were 3,037 Class-B buildings totaling more
than 100 million square feet in the Detroit area at the end of the second
quarter, according to CoStar. The vacancy rate for Class-B buildings in the
region was 21.2 percent.
Asking rent for office space in the Detroit region
was $17.81 per square foot in the second quarter, the lowest on record,
according to data from CoStar going back to 2000. The national average was
$22.70 in the period. Vacancies were 18.4 percent in Detroit, compared with
12.7 percent nationally.
Michigan’s economic health ranked second in
improvement among U.S. states in the first quarter, according to data
compiled by Bloomberg. Unemployment that was the worst in the U.S. at 14.2
percent in August 2009, shortly after GM and Chrysler emerged from a
U.S.-backed rescue, has since declined to 9 percent, compared with the 8.3
percent national average. Auto Sales
U.S. auto sales in August smashed through estimates
and are on pace to exceed 14 million vehicles for the best year since 2007.
Chrysler’s sales last month increased 14 percent, the Auburn Hills,
Michigan-based company said yesterday in a statement.
While that’s spurred hiring in the state, the
jobless rate in the metropolitan region that includes Detroit was 13.4
percent in July, according to the Bureau of Labor Statistics.
Detroit is reeling from a decades-long decline that
since 2000 has shrunk its population by 25 percent. In April, it narrowly
averted state takeover because of its budget deficit and $12 billion in
long-term debt. The city is now under watch of an advisory board as part of
an agreement with the state to prevent it from seeking bankruptcy.
Continued in article
Bob Jensen's threads on the bailout or lack thereof in the case of Lehman
Bros. ---
http://www.trinity.edu/rjensen/2008Bailout.htm
How could this be if the Matching Principle is dead?
September 1, 2012 message from Scott Bonacker
If you need an example for a class, here is
one about how third party developers and the way they offer products through
Intuit is being changed -
At a high level, the
current changes are the result of revenue recognition requirements as
determined by the Intuit auditors. The short story is that if Intuit
sells the QuickBooks desktop product, they are required to recognize the
revenue over the time period that the customer receives services related
to that product. For example, if a customer is using QuickBooks 2010,
and Intuit is providing support for the sync manage for that product,
then (in theory) the time period for the revenue recognition is not when
the software was sold. The revenue should be allocated over the time
period that Intuit is incurring costs for that product. In this case, if
they provide support for the Sync Manager until the product is sunsetted,
then the time period could be 3 plus years as compared to recognizing
the revenue in the year of purchase.
More in the article
http://www.sleeter.com/blog/2012/08/intuit-app-center-changes-and-how-they-affect-you/
"Global Financial Reporting: Implications for U.S.," by Mary Barth, The
Accounting Review, Vol. 83, No. 5, September 2008 ---
Not free at
http://www.atypon-link.com/AAA/doi/pdfplus/10.2308/accr.2008.83.5.1159
This paper identifies challenges and opportunities
created by global financial reporting for the education and research
activities of U.S. academics. Relating to education, after overviewing the
relation between global financial reporting and U.S. GAAP, it offers
suggestions for topics to be covered in global financial reporting curricula
and clarifies common misunderstandings about the concepts underlying
financial reporting. Relating to research, it explains how and why research
can provide meaningful input into standard-setting, and identifies questions
that can motivate research related Go topics on the International Accounting
Standards Board’s technical agenda and to the globalization of financial
reporting.
. . .
Globalization of financial reporting is becoming a
reality. However, many challenges remain. There are many around the world
unfamiliar with independent standard-setting and an investor focus for
financial reporting. They are struggling with the changes but are learning.
No change is universally popular, and revolutionary
“big bang” change is very
difficult. Evolutionary change is somewhat
easier to implement and absorb, although changing multiple times is costly.
We also have not yet fully resolved the issue of individual country
modifications to standards, which stand in the way of truly global financial
reporting. Outside of the U.S., there is a concern that the U.S. will
dominate. This concern relates not only to our thinking about issues, but
also to the way the standards are written. In particular, there is a concern
that the U.S. tendency to provide considerable detailed guidance will
manifest itself in global standards. Inside the U.S., there is a concern
that IFRS lack rigor and, thus, are not high quality. There also is a
concern that the standards are not specific enough and enforcement around
the world is not strict enough to ensure consistent application. Clearly,
there is a tension. However, progress in the last five years toward global
financial reporting has been breathtaking, and it continues apace. The SEC
permitting use of IFRS in the U.S. would be a major step forward.
The implications for U.S. academics are profound.
The U.S. is deeply involved in and will be affected by global financial
reporting. U.S. academics need to educate first themselves and then their
students to be able to participate in a global world. There also is a myriad
of open questions for research that U.S. academics can address. The capital
markets are demanding a single language of business. They are demanding that
the single language of business be developed internationally, not solely in
the U.S. This demand for a single global language of business will be met.
The market forces are too great to stop. The question is how, not whether,
it will happen, and how, not whether, U.S. academics will participate.
On Page 1166 Mary flatly asserts:
First, there is no “matching principle.” That is,
matching is not an end in itself and matching is not an acceptable
justification for asset or liability recognition or measurement. The
conceptual framework explains that matching involves the simultaneous or
combined recognition of revenues and expenses that result directly and
jointly from the same transactions or other events (FASB 1985, para. 146;
IASB 2001, para. 95). Matching will be an outcome of applying standards if
the standards require accounting information that meets the qualitative
characteristics and other criteria in the conceptual framework. Matched
economic positions will naturally result in matched accounting outcomes.
However, the application of a matching concept in the conceptual framework
does not allow the recognition of items in the statement of financial
position that do not meet the definition of assets or liabilities (IASB
2001, para. 95). Thus, there would be no justification for deferring expense
recognition for an expenditure that provides no future economic benefit or
for deferring income recognition for a cash inflow that will not result in a
future economic sacrifice.
But matching still seems to prevail even though there is no more "matching
principle according to the IASB and the FASB. The answer is that revenue can be
deferred when there will be "future economic sacrifice." Sounds like matching to
me. Neither domestic nor international standards allow early
realization of revenue before it is legally earned. The standards just do not
allow automobile inventories to be written up to expected sales prices until
those sales are finalized. Carrying the inventories at something other than
sales value is part and parcel to the "matching principle" eloquently laid out
years ago by Paton and Littleton. Both international and domestic standards
still require cost amortization, depreciation, and creation of warranty
reserves. These are all rooted in the "matching principle" which has not yet
died when defining assets and liabilities in the conceptual framework. In most
instances the historical cost is still being booked and spread over the expected
life of future economic benefits. Even if a company adopted a replacement cost
(current cost) adjustment of historical cost of a depreciable asset, those
replacement costs still have to be depreciated since old equipment cannot simply
be adjusted upward to new, un-depreciated replacement cost.
Paton and Littleton never argued that the "matching principle" for expense
deferral applies to assets that have "no future economic benefits." In that case
there would be no benefits against which to match the deferred expense.
Hence there's no deferral in such instances. I do not buy Barth's contention
that there is no longer any "matching principle." If there are potential future
benefits, the matching principle still is king except in certain instances where
assets are carried at exit values such is the case for precious metals actively
traded in commodity markets and financial assets not classified as
"held-to-maturity."
The Matching Principle lives on when there are expected "future economic
sacrifices."
September 1, 2012 message from Scott Bonacker
If you need an example for a class, here is
one about how third party developers and the way they offer products through
Intuit is being changed -
At a high level, the
current changes are the result of revenue recognition requirements as
determined by the Intuit auditors. The short story is that if Intuit
sells the QuickBooks desktop product, they are required to recognize the
revenue over the time period that the customer receives services related
to that product. For example, if a customer is using QuickBooks 2010,
and Intuit is providing support for the sync manage for that product,
then (in theory) the time period for the revenue recognition is not when
the software was sold. The revenue should be allocated over the time
period that Intuit is incurring costs for that product. In this case, if
they provide support for the Sync Manager until the product is sunsetted,
then the time period could be 3 plus years as compared to recognizing
the revenue in the year of purchase.
More in the article
http://www.sleeter.com/blog/2012/08/intuit-app-center-changes-and-how-they-affect-you/
September 2, 2012 message from Bob Jensen
Hi Pat,
What you've stated is merely the cause-effect argument of the Matching
Principle.
Matching Principle
Accounting: A fundamental concept of accrual
basis accounting that offsets revenue against expenses on the basis of
their cause-and-effect relationship. It states that, in measuring net
income for an accounting period, the costs incurred in that period
should be matched against the revenue generated in the same period.
http://www.businessdictionary.com/definition/matching-principle.html
The principle that requires a company to match
expenses with related revenues in order to report a company's
profitability during a specified time interval. Ideally, the matching is
based on a cause and effect relationship: sales causes the cost of goods
sold expense and the sales commissions expense. If no cause and effect
relationship exists, accountants will show an expense in the accounting
period when a cost is used up or has expired. Lastly, if a cost cannot
be linked to revenues or to an accounting period, the expense will be
recorded immediately. An example of this is Advertising Expense and
Research and Development Expense.
http://www.accountingcoach.com/terms/M/matching-principle.html
I think the Matching Principle still dominates standards mostly because most
inventories are carried at cost (not spot prices) until revenues are
recognized from sales (with some LCM frictions that are due to obsolescence,
spoilage, etc.). To me that's the cause-effect Matching Principle ala Paton
and Littleton (1940).
For example, a speculating company that elects to carry harvested corn in
granary rather than deliver it to market in October carries the inventory at
cost rather than the current spot prices. If the corn was marked to spot
prices daily this would would be a violation of the Matching Principle. One
inconsistency in the accounting standards is that we do mark precious metals
to spot in violation of the Matching Principle. But we carry most
commodities at historical cost with supplemental disclosures of fair values.
This begs the question of why there's an accounting difference between corn
versus gold. One basis for this difference is that corn stored in a
company's granary is more likely to vary from the exacting standardized
standards of corn defining the spot prices on the CBOT, CME, CBOE, etc.
Significant error might arise, for example, by marking this granary corn to
CBOT spot prices for corn not exactly alike the corn traded on the CBOT.
Corn stored in a granary tends to lose moisture content, and not all
granaries are alike. Corn in a Minnesota granary in December has a different
moisture loss than corn stored in a Mississippi granary in December.
However, gold stored in a Minnesota vault stays the same as gold stored in a
Mississippi vault. Hence, there is some basis for marking gold inventories
to CBOT spot prices while not marking corn inventories to CBOT spot prices.
In the case of sales of goods under long-term warranties such as a five-year
warranty of the sale of a vehicle, we recognize the full revenue in
the year of the sale and then estimate the warranty costs to be deducted
from that full revenue.
In the case of Quickbooks we defer some of the revenue because of future
services paid in advance. Hence, full revenue is not recognized when
collected. We recognize the deferred revenue over time via the Matching
Principle.
This begs the question on why there's a difference between deferring a
portion of revenues for Quickbooks and not deferring revenues for long-term
warranties. I think the key difference is the proportion of customers who
will need future services.
In the case of Quickbooks, all customers receive future services with
a portion of "revenues" collected in advance. Hence some revenue collected
in advance is deferred, thereby deferring a high proportion of profit
recognition for all customers. This is the Matching Principle whether you
want to admit it or not.
In the case of warranties, only a small proportion proportion of the sales
revenue will be lost in future years to warranties since most customers will
not demand warranty services. Hence, no revenue is deferred, although
warranty costs are estimated for matching purposes. This is the Matching
Principle whether you want to admit it or not.
The Matching Principle lives on irrespective of whether a
portion of revenue is deferred or future estimated expenses are deducted
from realized revenues.
Respectfully,
Bob Jensen
Schedule UTP ---
http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/depbcl9&div=18&id=&page=
Side-Step the Work-Product Doctrine. (United States v. Deloitte LLP, 610
F.3d 129, 2010)
TaxProf Blog, September 2, 2012
http://taxprof.typepad.com/
Schedule UTP Impinges on the Work-Product Privilege
Brandon
Keim (J.D. 2011, Arizona State), Comment,
Schedule UTP: An Attempt to Side-Step the Work-Product Doctrine. (United
States v. Deloitte LLP, 610 F.3d 129, 2010), 44 Ariz. St. L.J. 343
(2012):
This Comment
argues that the recent decision in Deloitte prohibits
nationwide implementation of Schedule UTP because the IRS's rulemaking
authority is subject to the work-product doctrine, and the Deloitte
decision provides work-product protection for the information sought on
Schedule UTP. Part II of this Comment provides a summary of the
work-product doctrine by briefly discussing Hickman v. Taylor,
in which the Supreme Court first recognized the work-product doctrine
and discussed its underlying purposes. Part II also discusses Rule
26(b)(3) of the Federal Rules of Civil Procedure, which codifies the
work-product doctrine and protects most documents “prepared in
anticipation of litigation.” Although it is well established that a
taxpayer may assert this privilege in response to an administrative
summons, including one issued by the IRS, whether the privilege applies
to tax returns remains an open question.
Part III argues
that the work-product doctrine applies to tax returns, including
Schedule UTP. It shows that the schedule purports to obtain protected
work-product under the test most commonly used by courts (the “because
of” test) when construing the “prepared in anticipation of litigation”
standard. The First Circuit's opinion in Textron seemed to give
the IRS considerable authority to obtain tax accrual work papers through
Schedule UTP because the court concluded that the work-product doctrine
did not protect those work papers from disclosure. But the District of
Columbia Circuit's recent decision in Deloitte correctly shows
that the work-product privilege protects some of the information that
Schedule UTP seeks. Thus, the IRS should consider revising Schedule UTP
to take into account the principles espoused in Deloitte.
The IRS should
withdraw Schedule UTP because it improperly requires a taxpayer to
disclose information protected by the work-product privilege. If the IRS
refuses to do so, it should revise its policy of restraint to prohibit
claims of waiver based on information supplied on Schedule UTP.
Unfortunately, however, the IRS has shown little interest in responding
to privilege concerns regarding Schedule UTP, and Congressional
involvement may be necessary to protect taxpayers. Part IV thus proposes
statutory language that would support the policies underlying the
work-product doctrine but that would also enhance the IRS's enforcement
efforts.
"Countdown to a Tax Hike," The Wall Street Journal, August 31,
2012 ---
http://professional.wsj.com/article/SB10000872396390444772804577619583044242606.html?mod=WSJ_Taxes_Taxes_2&mg=reno64-wsj
The best advice, experts say: make a few important
moves now, and be ready to react quickly in the months ahead.
To recap: At year's end, rates on ordinary income,
interest, capital gains, dividends, gifts and estates are set to jump—in
some cases sharply. Other tax benefits will lapse as well, affecting all
levels of taxpayers. (Please see the tables below and on Page B10.)
Few observers expect any major tax legislation
before the Nov. 6 election. After that, there won't be much time. The House
of Representatives has scheduled only 16 working days before its adjournment
on Dec. 14. While the Senate has more days in session, "they don't have much
incentive to act if the House isn't there," notes Clint Stretch, a lawyer
and former executive at Deloitte Tax LLP in Washington.
Experts foresee two possible outcomes. One is that
after the election both houses of Congress agree to extend the current rules
for up to a year, buying time to make fundamental changes to the tax code
while avoiding the economic consequences of huge tax increases.
The other possibility is that the election changes
the political equation so much that one party blocks a tax-rate extension,
allowing the current rules to expire and pushing tough decisions into 2013.
Lawmakers return in early January, but Mr. Stretch
and others believe it could take them several months to reach an agreement
and make changes retroactive to the beginning of the year.
In that scenario, most Americans would be affected.
Employees could see their take-home pay fall as higher tax rates kick in,
for example, while the heirs of people who die will face a much harsher
estate-tax regime.
Lawrence Carlton, an accountant in Bedford, Mass.,
says he is getting more than a dozen calls a week asking what tax rates will
be next year: "My clients don't believe me when I say, 'I'm sorry, I just
can't tell you.'"
So how should you prepare for the uncertain months
ahead? Tax experts surveyed by the Wall Street Journal offered several dos
and don'ts:
Continued in article
Jensen Comment
Summary of Dos and Don'ts
- Do consider the effect of higher taxes on
investment returns next year
- Don't rush to take all of your capital gains
- Do consider whether to accelerate Roth IRA
conversions
- Don't count on an extension of this year's Social
Security tax cut
- Do expect an AMT "patch" for 2012
- Don't take money from your IRA if you are 70½ or
older and want to donate money from it
- Do prepare for the possibility of less-generous
gift- and estate-tax rates and exemptions after 2012
AMT ---
http://en.wikipedia.org/wiki/Alternative_Minimum_Tax
"Political Ads: Issue Advocacy or Campaign Activity Under the Tax Code?"
by Erika K. Lunder, BNA, August 29, 2012 ---
Click Here
http://op.bna.com/dt.nsf/id/emcy-8xnkup/$File/Political%20Ads%20-%20Issue%20Advocacy%20or%20Campaign%20Activity%20Under%20the%20Tax%20Code%20%282%29.pdf
Accounting History Journals
September 1, 2012 message from Jim McKinney
Accounting History
Review was formerly titled
Accounting, Business & Financial History is based out of Cardiff
University. Accounting History is a journal published by Sage as a
journal of the Accounting History Special Interest Group of the Accounting
and Finance Association of Australia and New Zealand. The Accounting
Historians Journal a publication of the Academy of Accounting Historians
is independently published (and as a result far cheaper in price) than the
other two. The Accounting Historians Journal is much older than the
other two having entered its 39th year of publication. Older
editions of the AHJ are available on JSTOR and other databases, with older
back issues available for free at the University of Mississippi Libraries
website that also maintains the AICPA libraries. I know editors at all three
journals and all are quite capable and respected individuals. There is a
considerable debate which of the journals are considered better than the
other with arguments made for each of the three.
Jim McKinney, Ph.D.,
C.P.A.
Accounting and
Information Assurance
Robert H. Smith School of Business
4333G Van Munching Hall
University of Maryland
College Park, MD 20742-1815
http://www.rhsmith.umd.edu
Bob Jensen's "Accounting History in a Nutshell" ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
"Electrical and cloud outages: Is it time to bring both on premise?"
IS Assurance Blog by Jerry Trites
July 8, 2012
Amazon
experienced an outage that affected a number of companies that
rely on their cloud service. The company informed its users that its service
went down due to the power outage stating:
"On
June 29, 2012 at about 8:33 PM PDT, one of the Availability Zones (AZ) in
our US-EAST-1 Region experienced a power issue. While we were able to
restore access to a vast majority of RDS DB Instances that were impacted by
this event, some Single-AZ DB Instances in the affected AZ experienced
storage inconsistency issues and access could not be restored despite our
recovery efforts. These affected DB Instances have been moved into the
“failed ” state."
This
notice was actually taken from
CodeGuard (a
start-up that takes snapshots of websites enabling owners to undo unwanted
changes) who was one of the companies affected by the outage.
Continued in article
"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
Bob Jensen's threads on computing and networking security ---
http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection
Another state should withdraw from the Dollar Zone so it can print its own
currency
"A Downgrade for Illinois The worst credit rating aside from California,"
The Wall Street Journal, August 29, 2012 ---
|http://professional.wsj.com/article/SB10000872396390443409904577619800234602824.html?mg=reno64-wsj#mod=djemEditorialPage_t
"Illinois Debt Cut by S&P After No Action on Pension Funding," by
Michelle Kaske, Bloomberg News, August 29, 2012 ---
http://www.bloomberg.com/news/2012-08-29/illinois-debt-cut-by-s-p-after-lack-of-action-on-pension-funding.html
Illinois, the U.S. state with the worst-funded
pension system, had the rating on its general- obligation debt cut one level
by Standard & Poor’s and may face more downgrades.
The change to an A rating followed state lawmakers’
failure to agree to reduce retirement costs during a special session Aug.
17. The outlook for the state’s debt, which now has S&P’s sixth-highest
grade, is negative. California, with an A-ranking, one level below Illinois,
remains S&P’s lowest-rated state.
Illinois has an unfunded pension liability of at
least $83 billion, according to state figures. It had 45 percent of what it
needed to pay future retiree obligations as of 2010, the lowest among U.S.
states, data compiled by Bloomberg show.
“The downgrade reflects the state’s weak pension
funding levels and lack of action on reform measures intended to improve
funding levels and diminish cost pressures associated with annual
contributions,” said Robin Prunty, an S&P analyst, in a report today.
Governor Pat Quinn said today he is inviting
legislative leaders to meet in early September to work on pension changes.
Lawmakers have considered boosting employee contributions, passing some
costs to local school districts and forcing workers to choose between the
current system and receiving free retirement health care. No Surprise
Quinn, a Democrat, said the rating cut wasn’t a
surprise.
Erasing the fifth-most populous state’s unfunded
pension liability “is vital to getting our financial house in order,” Quinn
said in a statement. “Today’s action by Standard & Poor’ is more evidence
that we must act.”
Illinois had about $28 billion of
general-obligation debt as of May 8, according to bond documents. The state
of about 13 million people plans to sell $50 million of debt next month for
technology projects, John Sinsheimer, the state’s director of capital
markets, said in an interview.
Taxpayers will pay more to issue debt because of
the lower rating, state Treasurer Dan Rutherford said in a statement.
“I urge the legislature to act decisively towards
comprehensive, constitutional and fair pension reforms that will reverse
this situation,” he said.
Jensen Comment
Unlike California, Illinois significantly increased corporate tax rates to deal
with its deficit. But this turned into a sham when Gov. Quinn commenced to grant
tax waivers to business firms (like Caterpillar) that threatened to relocate in
other states.
In my opinion, however, Illinois stands a much better chance than California
--- which by most accounts is a basket case.
"Pension Accounting for Dummies New government reporting rules are no
better than the old ones," The Wall Street Journal, July 9, 2012 ---
http://professional.wsj.com/article/SB10001424052702304782404577488933765069576.html?mg=reno64-wsj#mod=djemEditorialPage_t
The Government Accounting Standards Board has
issued new rules that aim to crystallize government pension liabilities. It
failed on that count, but it did succeed, albeit inadvertently, in making
the case for defined-contribution plans.
GASB, as it's known in the trade, sets accounting
guidelines for local governments. Since the board is run mainly by former
public officials, its standards are often low. The board also usually takes
several years to finalize rules, so it's often behind the times. Their new
rules concerning how governments discount their pension liabilities are a
case in point.
Financial economists have recommended for decades
that governments calculate pension liabilities using so-called "risk-free"
rates pegged to high-grade municipal bonds or long-term Treasurys. The
argument goes that since pensioners are de facto secured creditors—even
bankruptcy judges have been reluctant to slash retirement benefits—pensions
are riskless and therefore the liabilities should be discounted at risk-free
rates.
GASB's private cousin, the Financial Accounting
Standards Board (FASB), began requiring corporations to discount their
pension liabilities with high-quality fixed income assets in the 1980s.
However, GASB let governments stick with their desired, er, expected rate of
return, which is typically about 8%. Public pension funds have returned 5.7%
on average since 2000. Achieving much higher returns over the long run would
require markets to perform as well as they did in the 1980s and '90s. Would
that be true.
Governments have resisted climbing down from
Fantasyland because using lower discount rates would explode their
liabilities. When the Financial Accounting Standards Board introduced its
risk-free rate guidelines, many companies shifted workers to 401(k)s because
they didn't want to report larger liabilities. Such defined-contribution
plans are by definition 100% pre-funded.
Prodded by economists and investors, GASB began
considering modifying its discount rate rules a few years ago. Public
pension funds, lawmakers and unions, however, pushed back hard against
suggestions that governments use risk-free rates, which could more than
double their liabilities. No surprise, the government troika won.
GASB's new rules allow governments to continue
discounting their liabilities at their anticipated rate of return so long as
they project enough future assets to cover their obligations. At the time
they forecast they'll run out of assets, they must begin discounting their
liabilities with a high-grade municipal bond rate. The idea is that
governments would have to issue bonds to pay retirees when their pension
funds go broke.
But few pension funds project that they'll run dry
since they're hooked up to a taxpayer IV. Those in really bad shape like
Chicago's will likely rig their investment and actuarial assumptions to
circumvent the new rules. FASB rejected similar guidelines in the 1980s
because they were too easy to dodge. The point here is that it's impossible
to get governments to come clean about their pension debt, and not just
because the union allies controlling pension funds have a vested interest in
obfuscating the liabilities.
In reality, nobody knows how much taxpayers will
owe because so much depends on inscrutable actuarial and economic factors
like interest rates 30 years from now (not even the Federal Reserve purports
to be that omniscient). Slight discrepancies in assumptions can yield huge
variations in estimated liabilities. One advantage of defined-contribution
plans is that they don't require governments to calculate their liabilities.
There are none.
GASB Statement No. 68
Accounting and Financial Reporting for Pensions—an amendment of GASB Statement
No. 27 ---
Click Here
http://www.gasb.org/cs/ContentServer?site=GASB&c=Page&pagename=GASB%2FPage%2FGASBSectionPage&cid=1176160042391
Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Bob Jensen's threads on pension accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
"Four Years After Madoff, Audits and Auditors of Broker-Dealers Still
Lousy," by Francine McKenna, re:TheAuditors, August 30, 2012 ---
http://retheauditors.com/2012/08/30/four-years-after-madoff-audits-and-auditors-of-broker-dealers-still-lousy/
Jensen Comment
Note that Madoff had a sham auditor who was not even licensed to do audits.
Apparently, the many friends of Madoff really didn't care that he did not have a
deep pockets auditor. The "lousy auditing" by deep pocket large auditing firms
is more of a mystery to me.
September 1, 2012 reply from XXXXX
Bob, I am responding to you because I can’t respond
publicly under our Firm's rules. You might have an opportunity to repeat
some of my comments (but don’t forward my email).
First, why is there a presumption the PCAOB is
correct? When they do an inspection, they strong arm firms into not
disagreeing with them. I am not asserting that they are wrong, since none of
us have an opportunity to see the inspection files, but they are probably no
more right than any prosecutor is (or taxing authority) when they bring a
case. As we all know, a lot of cases are lost or settled. When an inspection
results in a restatement, we can all judge the issue. When an inspection
results in a Part I comment, generally the inspection team believes there
was insufficient auditing performed. No one independent has had the
opportunity to hear both sides and determine if the work was sufficient or
not.
There is a sensationalism with Francine’s headline.
Too compare a PCAOB inspection of an audit with the Madoff “auditor” is at
best sensationalism. We all know that not only wasn’t an audit performed,
but that the “auditor” was not qualified to perform audits. We also know
that a relatively unsophisticated auditor (maybe even college senior taking
an auditing class) could have turned up the Madoff fraud by merely
confirming securities with a custodian. No one had to get into difficult
issues like fair value or how much work to do (assuming any is more than
none). This was a case where if any investor had done due diligence, they
would not have been a Madoff investor (and I know a number of them who
invested out of unadulterated greed).
There seems to be a presumption that an inspection
finding implies a problem. The vast majority of inspection comments do not
result in any change to the registrant’s financial statement. More often,
the issue is an accusation of insufficient work. The PCAOB says your sample
was not large enough but don’t tell you what is should be. They disagree
with professional judgment without having bright line guidelines for what
the auditor should have done. It is kind of like the definition of
pornography. I am sure in a number of cases the auditors did not do enough
work, but believing the PCAOB findings are correct because they say they are
is the opposite of the presumption of innocence. In addition, the PCAOB has
the benefit of hindsight when determining which engagements to inspect and
which issues to review.
The commentators also don’t seem to relate to how
engagements are picked for inspection. The PCAOB clearly says that the
engagements selected are not representative of a Firm’s audit practice.
Engagements are picked by risk and complexity. The PCAOB picks the higher
risk, more difficult engagements. This is not a random sample of a Firm’s
clients.
My comments are not meant to imply that the PCAOB
is wrong and the auditors are correct, but are merely meant to provoke a
thoughtful discussion of understanding and interpreting inspection results.
Remember, a prosecutor has always said he could indict a ham sandwich in
front of a grand jury (since the defense doesn’t get a chance to observe,
question or comment).
Bob Jensen's threads on professionalism in auditing or lack thereof ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"AIG, Surprise: Moneymaker Its profits for taxpayers cast doubt on
the notion that it behaved recklessly before the panic struck," by Holman W.
Jenkins, Jr., The Wall Street Journal, August 31, 2012 ---
http://professional.wsj.com/article/SB10000872396390443618604577623373568029572.html?mg=reno64-wsj#mod=djemEditorialPage_t
AIG's bailout is getting the revisionist treatment.
The rescue hasn't been the dismal federal experience that, say, GM's has
been. Taxpayers are showing a $5 billion profit on their 53% stake in the
insurer, as of yesterday's closing price.
What's more, in the last few days, the New York Fed
liquidated the last of the complex mortgage derivatives it acquired from
AIG's counterparties as part of the bailout. Such transactions and related
fees have netted the government about $18 billion.
This is good news but requires some revising of
theories of the crisis itself. The "toxic" and "shaky" housing derivatives
that got AIG in trouble turn out, even amid the worst housing slump in 70
years, not to have been the crud many assumed they were.
A lot of renditions skip over this part, dismissing
AIG's pre-crash mortgage activities as "reckless," thereby making a mystery
of how the refinancing of AIG could be paying off so handsomely for
taxpayers. Taxpayers are making out because they bought valuable assets on
the cheap.
This is as it should be. But let's remember how AIG
got in trouble. It wrote insurance to guarantee the very senior portions of
securities derived from underlying mortgages—that is, the portions already
designed to withstand a sizeable increase in defaults.
AIG failed not because of the failure of these
securities to keep paying as expected, but because of its own promise to
fork up cash collateral if the market price of these securities fell or if
the rating agencies downgraded what they had previously rated Triple-A.
In the systemic panic that climaxed with the Lehman
failure, both things happened in spades, even as AIG itself no longer could
raise the cash to make good on its commitments. Some now claim AIG could
have waved off the collateral calls, citing exceptional circumstances. But
even that wouldn't have changed the fact that, because of the panic, AIG
itself was no longer trusted despite being chock-full of good assets.
We'll never know if the company might have finessed
its way out of its jam (quite possibly its counterparties, including Goldman
Sachs, would have acted to keep AIG afloat if the alternative of a
government bailout weren't available). Instead AIG turned to taxpayers to
finance the collateral calls it couldn't finance itself, and taxpayers took
advantage.
For all the desire to name villains and blame bad
incentives for the financial crisis, notice that panic itself was the key
player. Panic is a variable about which it's disconcertingly hard for
government to do anything useful in advance.
Panic is systemic—an uncertainty or loss of trust
in how the system will behave. Here's a simple but relevant example: What
happens to the market value of mortgages if investors lose confidence in the
legal system to permit them to foreclose on borrowers who stop paying?
We don't need to retread the history. Letting
Lehman fail was a disaster because the rescue of Bear Stearns had
conditioned the market to believe Washington wouldn't permit major
institutional failures. The mixed signals sent about Fannie and Freddie only
undermined the effort to recruit fresh capital to other financial
institutions distressed by uncertainty over the value of mortgage
securities.
AIG is the most dramatic example of the general
case. A lot of things become good or bad collateral depending on what the
government is expected to do. It's not too strong to say Washington had to
bail out AIG because the market was uncertain whether Washington would bail
out AIG. (An additional complexity we won't go into is how the Fed's QE
exercises subsequently boosted the bailout's profits.)
Let us be careful here: A host of private and
public behaviors contributed to the housing bubble and meltdown, whose
losses were destined to be felt widely. Our system has no problem
accommodating the failure of individual institutions, even very big ones.
But systemic panic always comes to the door of government. It can't be
otherwise.
Governments can try to duck this burden, as
European governments have done, only by renouncing the ability to print
money and so soiling their own credit that substituting their own credit for
the financial system's is no longer an option. Make no mistake: This would
be a real cure for too-big-to-fail if the Europeans were inclined to let the
chips fall. They're not. Instead the self-disabling governments want Germany
to supply the bailout.
Continued in article
Lesson One: What Really Lies Behind the Financial Crisis?
According to Siegel: Financial firms bought, held and
insured large quantities of risky, mortgage-related assets on borrowed money.
The irony is that these financial giants had little need to hold these
securities; they were already making enormous profits simply from creating,
bundling and selling them. 'During dot-com IPOs of the early 1990s, the firms
that underwrote the stock offerings did not hold on to those stocks,' Siegel
says. 'They flipped them. But in the case of mortgage-backed securities, the
financial firms decided these were good assets to hold. That was their fatal
flaw.'
"Lesson One: What Really Lies Behind the Financial Crisis?" Knowledge@Wharton,
January 21, 2009 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2148
Jensen Comment
Lesson Two of what lies behind the financial crisis is that investment banks and
others like AIG wrote credit derivatives on the on the CDO collateralized debt
obligations that used mortgage backed securities as collateral. The companies
that wrote these derivatives did not have the insurance reserves to cover the
melt down of those CDOs. To avoid bankruptcy of giants such as AIG, the U.S.
treasury gave billions in bailout funds to cover the credit derivatives.
See Appendix E ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
I think there was a hidden agenda with respect to why Hank Paulson's first
billions in bailout funds went to cover the credit derivative obligations.
See Appendix Y ---
http://www.trinity.edu/rjensen/2008Bailout.htm#HiddenAgendaDetails
Bob Jensen's threads on the bailout ---
http://www.trinity.edu/rjensen/2008Bailout.htm
This does not tell college graduates something that they don't already know:
Temporary and Low Wages
"Majority of New Jobs Pay Low Wages, Study Finds," by Catherine Rampell,
The New York Times, August 30, 2012 ---
http://www.nytimes.com/2012/08/31/business/majority-of-new-jobs-pay-low-wages-study-finds.html?_r=1
While a majority of jobs lost during the downturn
were in the middle range of wages, a majority of those added during the
recovery have been low paying, according to a new report from the National
Employment Law Project.
The disappearance of midwage, midskill jobs is part
of a longer-term trend that some refer to as a hollowing out of the work
force, though it has probably been accelerated by government layoffs.
“The overarching message here is we don’t just have
a jobs deficit; we have a ‘good jobs’ deficit,” said Annette Bernhardt, the
report’s author and a policy co-director at the National Employment Law
Project, a liberal research and advocacy group.
The report looked at 366 occupations tracked by the
Labor Department and clumped them into three equal groups by wage, with each
representing a third of American employment in 2008. The middle third —
occupations in fields like construction, manufacturing and information, with
median hourly wages of $13.84 to $21.13 — accounted for 60 percent of job
losses from the beginning of 2008 to early 2010.
The job market has turned around since then, but
those fields have represented only 22 percent of total job growth.
Higher-wage occupations — those with a median wage of $21.14 to $54.55 —
represented 19 percent of job losses when employment was falling, and 20
percent of job gains when employment began growing again.
Lower-wage occupations, with median hourly wages of
$7.69 to $13.83, accounted for 21 percent of job losses during the
retraction.
Continued in article
Bob Jensen's threads on the stalled recovery ---
http://www.trinity.edu/rjensen/2008Bailout.htm
"U.S. Firms Move Abroad to Cut Taxes: Despite '04 Law, Companies
Reincorporate Overseas, Saving Big Sums on Taxes," by John D. Mckinnon and
Scott Thurm, The Wall Street Journal, August 28, 2012 ---
http://professional.wsj.com/article/SB10000872396390444230504577615232602107536.html?mod=WSJPRO_hpp_LEFTTopStories
More big U.S. companies are reincorporating abroad
despite a 2004 federal law that sought to curb the practice. One big reason:
Taxes.
Companies cite various reasons for moving,
including expanding their operations and their geographic reach. But tax
bills remain a primary concern. A few cite worries that U.S. taxes will rise
in the future, especially if Washington revamps the tax code next year to
shrink the federal budget deficit.
"We want to be closer to where our clients are,"
says David Prosperi, a spokesman for risk manager Aon AON +0.19% plc, which
relocated to the U.K. in April.
Aon has told analysts it expects to reduce its tax
rate, which averaged 28% over the past five years, by five percentage points
over time, which could boost profits by about $100 million annually.
Since 2009, at least 10 U.S. public companies have
moved their incorporation address abroad or announced plans to do so,
including six in the last year or so, according to a Wall Street Journal
analysis of company filings and statements. That's up from just a handful
from 2004 through 2008.
The companies that have moved recently include
manufacturer Eaton Corp., ETN -0.37% oil firms Ensco International Inc. ESV
-2.04% and Rowan Cos., RDC +0.47% as well as a spinoff of Sara Lee Corp.
called D.E. Master Blenders 1753.
Eaton, a 101-year-old Cleveland-based maker of
components and electrical equipment, announced in May that it would acquire
Cooper Industries PLC, another electrical-equipment maker that had moved to
Bermuda in 2002 and then to Ireland in 2009. It plans to maintain factories,
offices and other operations in the U.S. while moving its place of
incorporation—for now—to the office of an Irish law firm in downtown Dublin.
When Eaton announced the deal, it emphasized the
synergies the two companies would generate. It also told analysts that the
tax benefits would save the company about $160 million a year, beginning
next year.
Eaton's chief executive, Alexander Cutler, has been
a vocal critic of the corporate tax code. "We have too high a domestic rate
and we have a thoroughly uncompetitive international tax regime," Mr. Cutler
said on CNBC in January. "Let's not wait for the next presidential election"
to change the rules.
The moves by Ensco and Rowan, which operate
offshore oil rigs, show how one company's effort to lower its tax rate can
spur other shifts.
In moving from Dallas to the U.K. in 2009, Ensco
followed rivals such as Transocean Ltd., RIG -1.47% Noble Corp. and
Weatherford International Ltd. WFT -2.10% that had relocated outside the
U.S. The company said the move would help it achieve "a tax rate comparable
to that of some of Ensco's global competitors."
In fact, Ensco's tax rate has declined. In the
second quarter, the company said its "effective tax rate" was 10.5%, down
from 19% in 2009. The savings: more than $100 million a year.
Around the time of Ensco's move, Rowan executives
fielded questions from investors and analysts about their own tax rate. In
February, Rowan answered the questions, announcing plans to move to the U.K.
from Houston. "We're able to be competitive, with a low effective rate,"
says Suzanne Spera, the firm's director of investor relations.
Fear of such moves is what prompted Congress to
pass the 2004 law, which was backed by Democrats and some Republicans and
included exceptions that some firms and advisers have sought to exploit.
In June, the Internal Revenue Service tightened an
exception that had allowed companies to move to countries in which they have
substantial business activities. It will not prevent moves through a merger,
such as Eaton's.
Lawmakers of both parties have said the U.S.
corporate tax code needs a rewrite and they are aiming to try next year. One
shared source of concern is the top corporate tax rate of 35%—the highest
among developed economies. By comparison, Ireland's rate is 12.5%.
The Obama administration has proposed lowering the
rate to 28%, while Republican rival Mitt Romney has proposed 25%.
Continued in article
Jensen Comment
Only one of the Big Four accounting firms (Deloitte) is headquartered in the
United States. Accenture has a sham headquarters in Bermuda.
Teaching case from The Wall Street Journal Accounting Weekly Review on September 1,
2012
Industry Seeks Tax Fix
by:
James R. Hagerty
Aug 28, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting, Corporate Taxes, Manufacturing, Tax Accounting,
Tax Law, Taxes
SUMMARY: Manufacturing is back in vogue as part of the solution to
America's job shortage. After years of decline, factory employment has been
edging up for the past two years, and some production has trickled back to
the U.S. from Asia. So look for political candidates this fall to talk about
how to spur investment in factories. Manufacturing jobs aren't the whole
answer to the job shortage, of course. They account for about 9% of all
non-farm jobs, but each factory position created tends to support several
more in support services. While politicians have offered ideas, ranging from
more federal support for research to creation of a national manufacturing
strategy, many manufacturers wish Washington would concentrate on what they
see as the fundamentals: lower and simpler taxes, improved roads and other
infrastructure, and better education.
CLASSROOM APPLICATION: This article is a nice example of potential
ripple effects of tax law. We can use this article to show students how to
be better accountants and business professionals by knowing the laws, but
also seeing the impact the laws have on business strategy. It can help our
students to see the difference between being a tax return preparer and a tax
planner - looking at the details, as well as strategizing.
QUESTIONS:
1. (Introductory) The article is entitled "Manufacturers Seek Tax
Overhaul." What reasons does the reporter give for manufacturers requesting
tax changes? What changes are they requesting?
2. (Advanced) How has manufacturing been hampered by tax law in the
past? What factors, other than tax law, have negatively impacted
manufacturing?
3. (Advanced) How would the requested changes impact manufacturing
and other types of business? How is tax law used to encourage some behaviors
and discourage other behaviors? Please give some answers mentioned in the
article, as well as others not mentioned.
4. (Advanced) How do the tax laws in other countries affect these
types of issues faced by American manufacturers? Should the U.S. consider
foreign tax rates and other factors when enacting tax law and regulations in
the U.S.? Why or why not? How might the laws in other countries impact U.S.
businesses?
5. (Advanced) What steps, other than tax law changes, could be
taken to decrease factors hampering manufacturing in the U.S.?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Industry Seeks Tax Fix," by: James R. Hagerty, The Wall Street Journal,
August 28, 2012 ---
http://professional.wsj.com/article/SB10000872396390443324404577593050498878564.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Manufacturing is back in vogue as part of the
solution to America's job shortage. After years of decline, factory
employment has been edging up for the past two years, and some production
has trickled back to the U.S. from Asia. So look for political candidates
this fall to talk about how to spur investment in factories.
Manufacturing jobs aren't the whole answer to the
job shortage, of course. They account for about 9% of all nonfarm jobs, but
each factory position created tends to support several more in support
services.
While politicians have offered ideas, ranging from
more federal support for research to creation of a national manufacturing
strategy, many manufacturers wish Washington would concentrate on what they
see as the fundamentals: lower and simpler taxes, improved roads and other
infrastructure, and better education.
Enlarge Image image image Bloomberg
In his most recent State of the Union address,
President Barack Obama mentioned manufacturing 15 times. Among other things,
the president is pushing for tax incentives for making products, especially
high-tech ones, in the U.S. He also wants more focused federal research
programs, including funds for new privately run institutes to study advanced
manufacturing techniques.
Mitt Romney, the likely Republican candidate for
president, has promised to spark "a revival in American manufacturing." His
program includes repealing "excessive" regulation in such areas as
environmental protection. He also wants to require secret ballots for
union-certification votes, which might make it harder for organized labor to
win.
Sen. Debbie Stabenow (D., Mich.) has offered
legislation that would give tax breaks to help companies cover the cost of
moving production back to the U.S. and ban tax deductions for the expenses
of moving operations abroad. Rep. David Cicilline (D., R.I.) favors federal
grants to help companies upgrade equipment and retrain workers.
All those ideas have their supporters in the
business world, but manufacturers tend to see overhauling the tax code as a
far bigger priority. "It all sort of starts and stops right there," with
corporate tax rates, says Keith Wandell, chief executive of Harley Davidson
Inc., HOG -1.08% a Milwaukee-based maker of motorcycles. "We need to be more
competitive [with other nations] in that respect."
Stephen Gold, CEO of the Manufacturers Alliance for
Productivity and Innovation, an Arlington, Va., research organization funded
by industrial firms, says lower corporate tax rates could at least partly be
paid for through eliminating many credits and deductions. For instance, he
says, some members of his alliance would be willing to give up energy tax
credits if they could get a lower corporate tax rate.
A recent ranking by the University of Calgary's
School of Public Policy found the U.S. had the highest effective corporate
tax rate of the 34 countries belonging to the Organization for Economic
Cooperation and Development. The typical marginal effective tax rate for
U.S. manufacturers in 2012 was 33.9%, the study found. That includes income
and several other types of taxes faced by corporations at the federal and
state level but excludes property taxes and temporary or narrowly targeted
tax breaks.
Many business leaders want the U.S. to adopt a
so-called territorial tax regime, in which companies would pay U.S. taxes
only on their domestic, rather than world-wide, income. That would bring the
U.S. in line with most other rich countries. While Mr. Romney favors such a
shift, the Obama administration has argued that a territorial system would
encourage more U.S. companies to shift operations abroad. But Martin
Regalia, chief economist at the U.S. Chamber of Commerce, says it would make
U.S.-based companies more competitive globally. "To the extent that U.S.
firms are more competitive in world markets, they will likely create more
jobs in total, both here and abroad," he says.
Continued in article
"Theory Of Spain's Political Class," by Cesar Molinas, The Browser,
September 12, 2012 ---
Click Here
http://thebrowser.com/articles/theory-spains-political-class?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BestOfTheMoment+%28The+Browser%29&utm_content=Google+Reader
Direct Link ---
http://elpais.com/elpais/2012/09/12/inenglish/1347449744_053124.html
In this article I propose a theory of Spain's
political class to make a case for the urgent, imperious need to change our
voting system and adopt a majority system. A good theory of Spain's
political class should at least explain the following issues:
1. How is it possible that five years after the
crisis began, no political party has a coherent diagnosis of what is going
on in Spain?
2. How is it possible that no political party has a
credible long-term plan or strategy to pull Spain out of the crisis? How is
it possible that Spain's political class seems genetically incapable of
planning?
3. How is it possible that Spain's political class
is incapable of setting an example? How is it possible that nobody - except
the king and for personal motives at that - has ever apologized for
anything?
4. How is it possible the most obvious strategy for
a better future - improving education, encouraging innovation, development
and entrepreneurship, and supporting research - is not just being ignored,
but downright massacred with spending cuts by the majority parties?
In the following lines I posit that over the last
few decades, Spain's political class has developed its own particular
interest above the general interest of the nation, which it sustains through
a system of rent-seeking. In this sense it is an extractive elite, to use
the term popularized by Acemoglu and Robinson. Spanish politicians are the
main culprits of the real estate bubble, of the savings banks collapse, of
the renewable energy bubble and of the unnecessary infrastructure bubble.
These processes have put Spain in the position of requiring European
bailouts, a move which our political class has resisted to the bitter end
because it forces them to implement reforms that erode their own particular
sphere of interest. A legal reform that enforced a majority voting system
would make elected officials accountable to their voters instead of to their
party leaders; it would mark a very positive turn for Spanish democracy and
it would make the structural reforms easier. THE HISTORY
The politicians who participated in the transition
process from Franco's regime to democracy came from very diverse
backgrounds: some had worked for Franco, others had been in exile and yet
others were part of the illegal opposition within national borders. They had
neither a collective spirit nor a particular group interest. These
individuals made two major decisions that shaped the political class that
followed them. The first was to adopt a proportional representation voting
system with closed, blocked lists. The goal was to consolidate the party
system by strengthening the internal power of their leaders, which sounded
reasonable in a fledgling democracy. The second decision was to strongly
decentralize the state with many devolved powers for regional governments.
The evident dangers of excessive decentralization were to be conjured by the
cohesive role of the great national parties and their strong leaderships. It
seemed like a sensible plan.
But four imponderables resulted in the young
Spanish democracy acquiring a professional political class that quickly grew
dysfunctional and monstrous. The first was the proportional system with its
closed lists. For a long time now, members of party youth groups get
themselves on the voting lists on the sole merit of loyalty to their
leaders. This system has turned parties into closed rooms full of people
where nobody dares open the windows despite the stifling atmosphere. The air
does not flow, ideas do not flow, and almost nobody in the room has personal
direct knowledge of civil society or the real economy. Politics has become a
way of life that alternates official positions with arbitrarily awarded jobs
at corporations, foundations and public agencies, as well as sinecures at
private regulated companies that depend on the government to prosper.
Secondly, the decentralization of the state, which
began in the early 1980s, went much further than was imaginable when the
Constitution was approved. As Enric Juliana notes in his recent book Modesta
España (or, Modest Spain), the controlled top-down decentralization was
quicky overtaken by a bottom-up movement led by local elites to the cry of
"We want no less!" As a result, there emerged 17 regional governments, 17
regional parliaments and literally thousands of new regional companies and
agencies whose ultimate goal in many cases was simply to extend paychecks
and bonuses. In the absence of established procedures for selecting staff,
politicians simply appointed friends and relatives, which led to a
politicized patronage system. The new political class had created a
rent-seeking system - that is to say, a system that does not create new
wealth but appropriates existing wealth - whose sewers were a channel for
party financing.
Thirdly, political parties' internal power was
decentralized even faster than the public administration. The notion that
the Spain of the Regions could be managed by the two majority parties (the
conservative Popular Party and the Socialists) fell apart when the regional
"barons" accumulated power and, like the Earl of Warwick, became kingmakers
within their own parties. This accelerated the decentralization and loss of
control over the regional savings banks. Regional governments quickly passed
laws to take over the cajas de ahorros, then filled the boards with
politicians, unionists, friends and cronies. Under their leadership, the
savings banks financed or created yet more businesses, agencies and
affiliated foundations with no clear goal other than to provide yet more
jobs for people with the right connections.
Additionally, Spain's political class has colonized
areas that are not the preserve of politics, such as the Constitutional
Court, the General Council of the Judiciary (the legal watchdog), the Bank
of Spain and the CNMV (the market watchdog). Their politicized nature has
strangled their independence and deeply delegitimized them, severely
deteriorating our political system. But there's more. While it invaded new
terrain, the Spanish political class abandoned its natural environment:
parliament. Congress is not just the place where laws are made; it is also
the institution that must demand accountability. This essential role
completely disappeared in Spain many years ago. The downfall of Bankia,
played out grotesquely in last July's parliamentary appearances, is just the
latest in a long series of cases that Congress has decided to treat as
though they were natural disasters, like an earthquake, which has victims
but no culprits. THE BUBBLES
These processes created a political system in which
institutions are excessively politicized and where nobody feels responsible
for their actions because nobody is held accountable. Nobody within the
system questions the rent-seeking that conforms the particular interest of
Spain's political class. This is the background for the real estate bubble
and the failure of most savings banks, as well as other "natural disasters"
and "acts of God" that our politicians are so good at creating. And they do
so not so much out of ignorance or incompetence but because all these acts
generate rent.
The Spanish real estate bubble was, in relative
terms, the largest of the three that are at the origin of today's global
crisis, the US bubble and the Irish bubble being the other two. There is no
doubt that, like the others, it fed on low interest rates and macroeconomic
imbalances on a global scale. But unlike the US, in Spain decisions
regarding what gets built where are taken at the political level. In Spain,
the political class inflated the real estate bubble through direct action,
not omission or oversight. City planning is born out of complex, opaque
negotiations which, besides creating new buildings, also give rise to party
financing and many personal fortunes, both among the owners of rezoned land
and those doing the rezoning. As if this power were not enough, by
transferring control of the savings banks to regional governments the
politicians also had power of decision over who received money to build.
This represented a quantum leap in the Spanish political class' capacity for
rent-seeking. Five years on, the situation could not be more bleak. The
Spanish economy will not grow for many years to come. The savings banks have
disappeared, mostly due to bankruptcy.
The other two bubbles I will mention are a result
of the peculiar symbiosis between our political class and Spanish
capitalists who live off government favors. At a recent meeting, a
well-known foreign investor called it "an incestuous relationship" while a
Spanish investor talked about "a collusion against consumers and taxpayers."
Be that as it may, let us first discuss the renewable energy bubble. Spain
represents two percent of world GDP yet it is paying 15 percent of the
global total of renewable energy subsidies. This absurd situation, which was
sold to the public as a move that would put Spain on the forefront of the
fight against climate change, creates lots of fraud and corruption, and
naturally captured rent, too. In order to finance these subsidies, Spanish
households and businesses pay the highest electricity rates in all of
Europe, which seriously undermines the competitiveness of our economy.
Despite these exaggerated prices, the Spanish power system debt is several
million euros a year, with an accumulated debt of over 24 billion euros that
nobody knows how to pay.
The last bubble I will discuss concerns the
countless unnecessary infrastructure projects built in the last two decades
at an astronomical cost, benefiting the builders and hurting the taxpayers.
One of the most scandalous cases is the spoke highways into and out of
Madrid. Meant to improve traffic flows into the capital, the radiales were
built with no thought given to important principles of prudence and good
management. First, rash forecasts were made regarding the potential traffic
on these roads (currently it is 30 percent of expectations and not because
of the crisis; there was no traffic in boom times, either.) The government
allowed the builders and the concessionaires to be essentially the same
people. This is madness, because when builders disguised themselves as
license holders through companies with very little capital and huge debt,
builders basically got money from the concessionaires to build the highways,
and when there was no traffic, they threatened to let the latter go broke.
The main creditors were - surprise! - the savings banks. So nobody knows how
to pay the more than three billion euros in debt, which will ultimately fall
on the taxpayers' shoulders. THE THEORY
The principle is very simple. Spain's political
class has not only turned itself into a special interest group, like air
traffic controllers for example; it has taken a step further and formed an
extractive elite in the sense given to this term by Acemoglu and Robinson in
their recent and already famous book Why Nations Fail. An extractive elite
is defined by:
"Having a rent-seeking system which allows, without
creating new wealth, for the extraction of rent from a majority of the
population for one's own benefit."
"Having enough power to prevent an inclusive
institutional system - in other words, a system that distributes political
and economic power broadly, that respects the rule of law and free market
rules."
Abominating the 'creative destruction' that
characterizes the most dynamic forms of capitalism. In Schumpeter's words,
"creative destruction is the process of industrial mutation that incessantly
revolutionizes the economic structure from within, incessantly destroying
the old one, incessantly creating a new one." Innovation tends to create new
centers of power, and that's why it is detested.
What does this simple theory have to say about the
four questions set forth at the beginning of this article? Let us see:
1. Spain's political class, as an extractive elite,
cannot effect a reasonable diagnosis of the crisis. It was their
rent-seeking mechanisms that provoked it, but obviously they cannot say
that. The Spanish political class needs to defend, as it is indeed doing to
a man, that the crisis is an act of God, something that comes from the
outside, unpredictable by nature, and in the face of which we can only show
resignation.
2. Spain's political class, as an extractive elite,
cannot have any exit strategy other than waiting for the storm to pass. Any
credible long-term plan must include the dismantling of the rent-seeking
mechanisms that the political class benefits from. And this is not an
option.
3. Nobody apologizes for defending their particular
interests. Air traffic controllers didn't, and neither will our politicians.
4. Just as the theory of extractive elites states,
Spanish political parties share a great contempt for education, innovation
and entrepreneurship, and a deep-seated hostility towards science and
research. The loud arguments over the civics education course Educación para
la Ciudadanía are in stark contrast with the thick silence regarding the
truly relevant problems of our education system. Meanwhile, innovation and
entrepreneurship languish in the midst of regulatory deterrents and punitive
fiscal measures. And spending on scientific research is viewed as a luxury
that politicians cut back savagely on, given half a chance.
Continued in article
Teaching Case for CVP Analysis (Especially for middle tier restaurants where demand
is highly price elastic)
From The Wall Street Journal Accounting Weekly Review on September 1,
2012
Soaring Food Prices Put Restaurants in a Bind
by:
Julie Jargon
Aug 29, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting, Business Segments, Managerial Accounting,
Profit Margin, Segmented Income Statements
SUMMARY: Restaurant chains are in a pickle, caught between soaring
ingredient costs and fears that raising prices will turn off their
budget-conscious customers, who generally remain pessimistic about the
economy. Companies like McDonald's Corp., Buffalo Wild Wings Inc. and
Chipotle Mexican Grill Inc. are taking different approaches to the dilemma.
Some are trying to pass on rising costs to customers to avoid squeezing
their profit margins. Others are holding the line on prices or emphasizing
their existing low-cost menu items to keep consumers coming through the
door. Research has shown that diners are ordering more "value" items and
fewer premium-priced entrees and appetizers, indicating they are trying to
manage the size of their restaurant bills more than we've seen in a while.
CLASSROOM APPLICATION: This article offers a nice bridge between
managerial and financial accounting. We can use this article to discuss how
management is using segmented income statements to manage profit margins in
this tight economy. The companies are also carefully managing fixed and
variable costs as raw material prices of food increase in the face of low
consumer confidence. This is a great opportunity to show how the information
and tools we teach in class directly relate to management decisions,
strategy, and profitability.
QUESTIONS:
1. (Introductory) What challenges are restaurants facing? How are
they impacted both on the expense side and sales side?
2. (Advanced) How are fast food restaurants analyzing the situation
using segmented income statements to address these challenging times? How
does segmenting the business's product lines and customers help with the
company's overall profit margins?
3. (Advanced) What segment of the fast food business is most
successful? How is McDonald's management approaching each segment to make it
more profitable? How does a segmented income statement and budgeting aid in
this analysis?
4. (Advanced) In the restaurant business, which types of costs are
easiest to control? Which are more difficult? Are these costs more likely to
be fixed, variable, or mixed costs? How can management work with each of
these types of costs to survive and perhaps thrive in these kinds of
economic times?
5. (Advanced) How are different types of restaurants (fast food,
mid-range, fine dining) being affected differently under these conditions?
How can each type of restaurant use managerial accounting concepts to
improve profitability?
6. (Advanced) How would a contribution format income statement help
management to make these decisions?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Soaring Food Prices Put Restaurants in a Bind," by: Julie Jargon,
The Wall Street Journal, August 29, 2012 ---
http://professional.wsj.com/article/SB10000872396390444082904577606983275066266.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Restaurant chains are in a pickle, caught between
soaring ingredient costs and fears that raising prices will turn off their
budget-conscious customers, who generally remain pessimistic about the
economy.
Companies like McDonald's Corp., MCD +0.89% Buffalo
Wild Wings Inc. BWLD -1.94% and Chipotle Mexican Grill Inc. CMG -0.48% are
taking different approaches to the dilemma. Some are trying to pass on
rising costs to customers to avoid squeezing their profit margins. Others
are holding the line on prices or emphasizing their existing low-cost menu
items to keep consumers coming through the door.
The worst drought in decades has driven up prices
for foods including corn, chicken and beef this summer. Further complicating
matters for restaurants and other retailers, consumer confidence in August
fell to its lowest level since November 2011, the Conference Board said
Tuesday.
Earlier this month McDonald's attributed flat
global same-store sales in July to waning consumer sentiment, and
market-research firm NPD Group predicted that restaurant traffic would be
flat for the next two years, dialing back its previous forecast of a 1%
gain.
"Restaurant operators are in a position where they
don't have much of a choice but to raise prices because they operate on such
thin margins," said Darren Tristano, executive vice president of restaurant
consulting firm Technomic Inc.
The pressure is greater on some chains than others.
Fine and causal-dining restaurants can better stomach commodity-cost
increases because of their higher-priced menus and ability to adjust portion
sizes. "But when you're McDonald's, a lot of your products are priced to be
'value' offerings, so there's not a lot of room to absorb cost increases,"
Mr. Tristano added.
"I'd probably order more from the value menu if
prices go up," said 33-year-old Norma Rangel-Aponte, who was eating a
snack-size McFlurry ice-cream dessert at a Chicago McDonald's recently. To
save money, she said, she sometimes orders a side salad and tops it with the
chicken from a snack wrap, rather than ordering a more-expensive chicken
salad.
Restaurant chains were in similar straits a few
years ago. Food costs were high during parts of the recession because of
rising global protein demand. Some chains reacted by heavily discounting
their dishes to keep customers coming back, but their profit margins
suffered.
Others boosted prices modestly on inexpensive menu
items, hoping that consumers would swallow the increases without much
resistance. In January 2009 McDonald's raised the price of a double
cheeseburger, a fixture of its Dollar Menu, to $1.19 to help defray higher
beef and cheese costs. A spokeswoman said Tuesday that the double
cheeseburger remains on the regular McDonald's menu at a suggested retail
price of $1.19 to $1.29, depending on location.
RBC Capital Markets analyst Larry Miller said his
research has shown that diners are ordering more "value" items and fewer
premium-priced entrees and appetizers, indicating they are trying to manage
the size of their restaurant bills more "than we've seen in a while." The
potential for weak or flat sales growth combined with rising costs is
"downright scary to us," he added.
Some chains are once again stressing cheaper menu
items, offering promotions to help bring customers back more often and
testing the water with small price increases. McDonald's recently created an
"Extra Value Menu" featuring such items as a 20-piece Chicken McNuggets for
$4.99. Starbucks Corp. SBUX -0.20% reintroduced "treat receipts" that give
morning customers a discount if they return in the afternoon.
Continued in article
Jensen Comment
Meanwhile increases in food and fuel do not affect inflation indices since the
government now deceives us about the inflationary spiral for food and fuel
prices by ignoring prices increases in food and fuel when adjusting for
inflation.
Government accounting is all done with smoke and mirrors ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Bob Jensen's threads on managerial and cost accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Joseph Hémard ---
http://en.wikipedia.org/wiki/Joseph_H%C3%A9mard
Joseph Hémard,
a popular French book illustrator, was born in
Les Mureaux, France, a small town on the
Seine, northwest of Paris, on August 2, 1880, and died on August 9, 1961, in
Paris.[He
was a prolific artist. During the early years of the 20th century he
published cartoons and comics in illustrated newspapers like Le Pêle-mêle
or Le Bon Vivant. He also designed costumes and sets for several
operas, patterns for printed textiles, bookbindings, posters and even a
facade for a bar in the 1925
Paris Exposition of Decorative Art. His
lasting fame, however, lies in his book illustrations — always distinctly
French in character and often erotic — which he produced for a great number
of titles including many classics of French literature such as
Le Malade Imaginaire (1920),
Gargantua et Pantagruel (1922),
Jacques Le Fataliste (1923),
Cyrano de Bergerac (1927), and
Aucassin et Nicolette (1936).
Hémard also provided illustrations — typically
humorous cartoon-like drawings — for many unlikely non-fiction works
including a variety of technical and reference books. These included
drawings for Le Formulaire Magistral, a technical pharmacological
manual with formulas for preparing medications, as well as a French grammar
and an arithmetic textbook, both of which he also authored, all published in
1927. The following year he published books he wrote and illustrated on
French history and geography.
Hémard also published a number of humorously
illustrated law codes, including the family law provisions of Le Code
Civil, published in 1925, the Code Pénal published in about 1929,
and, in 1944, he published a lengthy, illustrated tax code of France, the
Code Général des Impôts Directs et Taxes Assimilées, all published in
Paris.
The illustrations in these three works, along
with many others of Hémard's, were printed in color using the "pochoir"
(French for stencil) method in which stencils for
each color to be printed are hand cut, typically out of celluloid or
plastic, and the colors painted on using special brushes. Pochoir produces
intensely colored prints with a distinct fresh look and is best known for
its use in French
Art Nouveau and
Art Deco prints in the early 20th Century.
Hémard wrote a brief autobiographical essay,
published by Babou and
Kahane in French in 1928 and in English
translation in 1929, which is largely devoid of factual detail. For example,
after a random history of several "Hémards", purportedly his ancestors,
ending with his birth and two paragraphs on his childhood, he states, "And
then I drew for books." Hémard said that he spent four and a half years as a
prisoner of war in Germany during World War I, and must have been captured
shortly after the war began. Hémard had his most prolific period of book
illustrations in the 1920s and 1930s. Although he remained in Paris and
continued to work as an illustrator during the War, his anti-Nazi sentiments
were expressed in illustrations and stories he contributed to a collection
of humorous stories about the Occupation.
Hémard continued his work at a reduced level after the War. In 1947, for
example, he illustrated an edition of
Brillat-Savarin's classic work on gastronomy,
Physiologie du Goût ("Physiology of Taste")
Continued in article
Yale Law Library - Rare Books Blog (I don't think this can be viewed online)
http://blogs.law.yale.edu/blogs/rarebooks/default.aspx
New exhibit: "The Comic Art of Joseph Hémard"
Posted Monday, September 17, 2012 4:59 PM by Mike Widener
http://blogs.law.yale.edu/blogs/rarebooks/archive/2012/09/17/new-exhibit-quot-the-comic-art-of-joseph-h-233-mard-quot.aspx
Thank you Paul Caron for the heads up
It would take a genius to illustrate one of
the most boring books imaginable, a code of tax laws, and create a comic
tour-de-force. That genius was Joseph Hémard (1880-1961), who in his
lifetime was probably France's most prolific book illustrator. His
illustrations are the focus of the latest exhibit in the Yale Law Library,
"'And then I drew for books': The Comic Art of Joseph Hémard."
The exhibit, on display until December 15, is
curated by Farley P. Katz and Michael Widener. Katz, a tax attorney from San
Antonio, has built one of the world's finest collections of Hémard's works.
Widener is the Rare Book Librarian at the Lillian Goldman Law Library.
Hémard's illustrations have a distinctly
French character, usually comic, and often mildly erotic. Many of his
illustrations were executed in pochoir, a hand stenciling process producing
intense, gorgeous colors still vibrant after three-quarters of a century.
The exhibit showcases eight of the 183
illustrations in Hémard's Tax Code, donated to the Yale Law Library by Katz,
along with two of the other three law books on display from the library's
Rare Book Collection.
The other 19 titles on view are all from
Katz's personal collection. They include children's books and some of the
many classics of French literature that Hémard illustrated, such as works by
Balzac and Anatole France. Items on war include Hémard's own pictorial
account of his time as a German prisoner in World War I, and a set of
anti-Hitler postcards. Hémard even illustrated a pharmacy manual and a
pamphlet on the prostate.
The exhibition's title comes from Hémard's
tongue-in-cheek autobiography. Following a long, rambling description of
supposed ancestors, he devotes two paragraphs to his early life, and
finishes with: "And then I drew for books."
The exhibit is open to the public, 9am-10pm
daily, September 15 - December 15, 2012 in the Lillian Goldman Law Library,
Yale Law School. It will also go online here in the Yale Law Library Rare
Books Blog.
On October 5, Katz will give an exhibit talk
at 1:00 p.m. in Room 128 of the Yale Law School. The talk is also open to
the public.
MIKE WIDENER
Rare Book Librarian
When government internal controls are a sick joke
"Wisconsin: 3 relatives suspected of cashing dead mother's Social Security
checks for 30 years," by Dinesh Ramde, TwinCities.com, September 25, 2012
---
http://www.twincities.com/wisconsin/ci_21627111/wisconsin-checks-still-cashed-dead-mom
Three Portage County residents are accused of
cashing Social Security checks of a relative who has been missing for 30
years and is presumed dead, and authorities are investigating to see whether
her remains are buried on her wooded property.
If Marie Jost is still alive she'd be 100 years
old. But authorities now suspect she died in about 1982, and they're
accusing her son, daughter and son-in-law of continuing to cash her
government checks in her absence.
Investigators believe Jost might be buried on her
Amherst property. Sheriff's Capt. Dale O'Kray said Tuesday that cadaver dogs
have hit upon the scent of human remains, and authorities are using heavy
machinery to explore the property and dig for evidence.
"There's no indication she's been seen in the last
25 years and we have to have a starting point for where she might be,"
O'Kray said.
Charles T. Jost, 66; Delores M. Disher, 69; and
Ronald Disher, 71, each face four felony charges including being party to
the crimes of theft and mail fraud. The charges carry a maximum combined
penalty of 68 years in prison and a $310,000 fine.
The Social Security Administration had sent three
letters to Jost's home to verify she was still alive. After the third letter
was sent, a man who identified himself as her son called to say Jost wasn't
available.
The agency then contacted Portage County
authorities last month asking that deputies check on her. Deputies went to
her property where Charles Jost allegedly told them Marie Jost and his
74-year-old brother Theodore "were riding in a vehicle someplace," according
to the criminal complaint.
When a deputy asked for permission to search the
property, Charles Jost allegedly grew agitated and asked them to leave. The
deputy then asked whether Marie Jost was still alive, and Charles Jost said
he would talk to his lawyer and ended the conversation, the complaint said.
Authorities obtained a search warrant and gathered
evidence, but they haven't found anything to indicate whether Marie Jost is
alive or dead, O'Kray said.
There's not a real house on the 3-acre property.
Charles Jost lives in a tarp-covered shack there, and four to five sheds are
filled with years' worth of garbage, O'Kray said.
"It's basically a 'Hoarders' episode gone bad," he
said. "We have about 400 garbage bags of junk we had to remove to search the
living areas."
During an initial court appearance Monday a judge
ordered that Charles Jost undergo a competency evaluation. A message left
for Jost's defense attorney Tuesday was not immediately returned.
Neighbors told authorities they had never seen an
elderly woman at Charles Jost's home.
A Social Security agent said Marie Jost had not
used her Medicare benefits since 1980 when she had a stroke. The agent said
Jost had been sent Social Security payments of more than $175,000 since she
had made a Medicaid claim.
Prosecutors say the Social Security checks were
endorsed with an X, along with the printed names of Charles and Theodore
Jost.
Continued in article
Jensen Comment
I wonder if she also voted over the past 30 years?
The Sad State of Governmental Accounting and Accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 20, 2012
Carbon Trading Heating Up
by:
Katy Burne and Cassandra Sweet
Sep 15, 2012
Click here to view the full article on WSJ.com
TOPICS: Derivatives, emissions trading schemes, Intangible Assets
SUMMARY: Carbon-emission credit markets in California are becoming
active after failure of a lawsuit and a referendum vote designed to block
the cap-and-trade system that is becoming effective on January 1, 2013.
Energy companies operating in California such as Constellation, a unit of
Exelon, and NRG Energy, Inc., are trading in the market.
CLASSROOM APPLICATION: The article may be used in any financial or
managerial accounting class to introduce the topic of carbon credits and
their trading. Question 4 asks students to consider accounting practices;
they might conclude that the expenditure for an emission allowances
purchases an asset that is either an intangible or a derivative. There are
no financial reporting standards on this topic in U.S. GAAP and the FASB has
idled a project it once began on the subject. Issues faced in Europe on this
subject are well summarized in the following article Jan Bebbington & Carlos
Larrinaga-González (2008): Carbon Trading: Accounting and Reporting Issues,
European Accounting Review, 17:4, 697-717 (available online at
http://dx.doi.org/10.1080/09638180802489162)
QUESTIONS:
1. (Advanced) How do carbon emissions allowances work? In your
answer, explain the statement in the article that "California's cap on
statewide emissions drops every year, likely raising demand for allowances."
2. (Advanced) What is a carbon emissions allowances trading market?
3. (Introductory) Why have carbon markets in California seen
renewed interest in 2012?
4. (Advanced) Suppose you are an accountant for a California based
power plant, which has recently purchased carbon credits to meet its
required limit on total carbon emissions. How would you account for the
purchase of these credits? When would the benefit of these allowances be
used up?
Reviewed By: Judy Beckman, University of Rhode Island
"Carbon Trading Heating Up," by Katy Burne and Cassandra Sweet, The Wall
Street Journal, September 15, 2012 ---
http://professional.wsj.com/article/SB10000872396390443779404577643592149738280.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
After a series of false starts, the market for
trading carbon-emission credits is showing new signs of life in California.
Trading volumes for these carbon credits—which
allow holders to emit as many greenhouse-gas emissions as they want,
provided they acquire enough of them—are at a nine-month high. Prices are up
1% since the start of this year, even as prices on carbon allowances
elsewhere in the world are plumbing lows.
While federal efforts to regulate carbon-dioxide
pollution collapsed in 2010—and other carbon markets have run into
trouble—California is now on track to implement its own laws capping
heat-trapping gases that scientists believe contribute to climate change. As
the Jan. 1, 2013, start date for the new rules approaches and as opponents
of the rules run out of time to mount new legal challenges, operators of
power plants, oil refineries and other facilities are wading in to purchase
credits.
The spurt of activity has been a score for a small
group of traders and other investors who had wagered that California
officials would prevail in a lawsuit and a referendum that sought to block
the cap on carbon-dioxide emissions. They say they see more opportunity to
stock up on credits, ahead of an expected spike in demand next year.
Enlarge Image image image
"What's changed is we are really at a phase now
where [California is] in implementation mode," said Greg Arnold, president
at CE2 Carbon Capital, a fund backed by private-equity firm Energy Capital
Partners that owns carbon contracts, expecting prices to rise.
California's cap on statewide emissions drops every
year, likely raising demand for allowances.
It is mostly power producers and other companies
that will need credits in the market today. But that could change as volume
picks up, traders say, as investors come in to speculate on the direction of
prices.
"Once we get going, the hedge funds will be there,"
said Randall Lack, founder of Element Markets in Houston, an asset manager
that helps clients hedge in carbon markets.
A state appeals court in June upheld California's
cap-and-trade program and dismissed a lawsuit filed by some community groups
that had argued the program wouldn't reduce emissions.
Trading picked up in carbon credits, or allowances,
soon after. More than 1,000 contracts traded on the IntercontinentalExchange
in August, up from 246 in May, the month before the lawsuit was dismissed.
Prices for contracts promising the delivery of 1,000 California carbon
allowances in December 2013 hit an 11-month high of $20.10 a metric ton on
July 24 on the ICE.
But the market turned again in August, after
regulators said they would reconsider the way they plan to enforce a ban on
shuffling out-of-state energy purchases to claim an emissions reduction. Any
changes made to the rules might affect the number of credits California
power producers need to buy. Credits settled at $15.65 a ton on Friday.
Some still think the carbon market is too risky.
"We are supposed to be getting off the starting blocks soon, but California
has made it clear if there are any issues, possible further delays are not
off the table," said Francisco Padua, manager of environmental commodities
at brokerage firm Amerex Brokers LLC.
The cap-and-trade program is proceeding on schedule
and there are no proposed rule changes pending, said Air Resources Board
spokesman Dave Clegern.
Continued in article
Accounting for Carbon
Credits, by Rob Derivaux and Dave Nichols, AAA Commons, May 2, 2009 ---
http://commons.aaahq.org/posts/78699eceed?commentId=18146#18146
The thesis concerns the search for a converged
International Financial Reporting Standard (IFRS) and U. S. GAAP standard to
account for carbon credit trading schemes. Many nations, including those in
the European Union, have adopted carbon credit trading schemes in order to
reduce carbon emissions. Carbon emissions trading schemes present many
accounting challenges, including the exact nature of the credits and how to
measure the obligation to which credits will be applied. However, there is
not a standard to address these accounting issues. The short-lived former
standard was withdrawn because of extensive shortcomings. Currently,
participating companies use a variety of approaches to account for carbon
credits, and this creates comparability issues in the financial statements.
A survey was conducted of graduate accounting students and accounting
professionals to solicit input on the possible ways to account for carbon
credits. The survey contained a scenario of a company’s carbon activity for
the year. Five distinct approaches were gathered from the surveys and were
scrutinized using existing accounting standards and frameworks promulgated
by IFRS and US GAAP. The conclusion was reached that carbon credits granted
by the government are not actually a government grant; they should be netted
out by an allowance for granted credits. It was also concluded that a
liability should be measured as the estimated excess of carbon emissions
over held credits both at interim and year-end reporting dates. It was also
concluded that the research was limited by the lack of a converged IFRS/US
GAAP framework, the small size of the survey, and the lack of development of
carbon credit trading schemes to date.
Bob Jensen's accounting theory tutorials are at the following two sites:
Part 1 ---
http://www.trinity.edu/rjensen/Theory01.htm
Part 2 ---
http://www.trinity.edu/rjensen/Theory02.htm
"Three Weeks Down," by
Joe Hoyle, Teaching Blog, September 23, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/09/three-weeks-down.html
Forwarded by Gene and Joan
Mayonnaise Jar & Two Beers
When things in your life seem almost too much to handle, when 24 hours in
a day are not enough, remember the mayonnaise jar and the 2 Beers.
A professor stood before his philosophy class and had some items in front
of him.
When the class began, he wordlessly picked up a very large and empty
mayonnaise jar and proceeded to fill it with golf balls.
He then asked the students if the jar was full.
They agreed that it was.
The professor then picked up a box of pebbles and poured them into the
jar. He shook the jar lightly.
The pebbles rolled into the open areas between the golf balls.
He then asked the students again if the jar was full.
They agreed it was.
The professor next picked up a box of sand and poured it into the jar.
Of course, the sand filled up everything else.
He asked once more if the jar was full..
The students responded with a unanimous 'yes.'
The professor then produced two Beers from under the table and poured the
entire contents into the jar effectively filling the empty space between the
sand.
The students laughed..
'Now,' said the professor as the laughter subsided, 'I want you to
recognize that this jar represents your life.
The golf balls are the important things - your family, your children,
your health, your friends and your favorite passions - and if everything
else was lost and only they remained, your life would still be full.
The pebbles are the other things that matter like your job, your house
and your car..
The sand is everything else - the small stuff.
'If you put the sand into the jar first,' he continued, 'there is no room
for the pebbles or the golf balls.
The same goes for life.
If you spend all your time and energy on the small stuff you will never
have room for the things that are important to you.
Pay attention to the things that are critical to your happiness.
Spend time with your children.
Spend time with your parents.
Visit with grandparents. Visit with your Aunts.
Take your spouse out to dinner.
Play another 18.
There will always be time to clean the house and fix the disposal.
Take care of the golf balls first - the things that really matter.
Set your priorities.
The rest is just sand.
One of the students raised her hand and inquired what the Beer
represented.
The professor smiled and said, 'I'm glad you asked.'
The Beer just shows you that no matter how full your life may seem,
there's always room for a couple of Beers with a friend.
Humor September 1-30, 2012
Seinfeld, Louis C.K., Chris Rock, and Ricky Gervais Dissect the Craft of Comedy
(NSFW) ---
Click Here
http://www.openculture.com/2012/09/seinfeld_louis_ck_chris_rock_and_ricky_gervais_dissect_the_craft_of_comedy_nsfw.html
2012 Ig Nobel Prizes ---
http://www.improbable.com/ig/winners/
The Darwin Awards ---
http://www.darwinawards.com/
You may remember Steve Bridges as the guy who imitated George Bush so well on
the Jay Leno Show. He has now started imitating Obama and REALLY does it really
well ---
http://www.youtube.com/watch_popup?feature=player_embedded&v=WH_a0cGVRmI
Husband and Wife Comedy Team (The Jovers, 1980) ---
http://biggeekdad.com/2012/05/the-jovers/
Why did I walk into this room (Toon)? ---
http://link.brightcove.com/services/player/bcpid67524056001?bckey=AQ~~%2cAAAAAjHM3KE~%2cue6IyhgccnQfCR9niUq7SpiGuvtClfZX&bclid=0&bctid=1799012627001
CFO = Chief Finalizing Officer
"CFO Accused of Murder-for-Hire on His Employer's Dime," by Teresa Ambord,
AccountingWeb, September 18, 2012 ---
http://www.accountingweb.com/article/cfo-accused-murder-hire-his-employers-dime/219868?source=education
Forwarded by Auntie Bev
GETTING OLDER
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...."
(I LOVE IT!)
~~~~~~~~~~~~~~~~~
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.
-------------------------------
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 aroundWal-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 old guy says,"Doesn't matter,
--- let's look for yours."
(ADORABLE)
*********************
(And this final one especially for me,)
"Lord,
keep Your arm around my shoulder
and Your hand over my mouth!"
Forwarded by Auntie Bev
If God wanted us to vote, he would have given us
candidates. ~ Jay Leno
The problem with political jokes is they get
elected. ~ Henry Cate, VII
We hang the petty thieves and appoint the great
ones to public office. ~ Aesop
If we got one-tenth of what was promised to us in
these State of the Union speeches, there wouldn't be any inducement to go to
heaven. ~ Will Rogers
One of the penalties of not participating in
politics is that you will be governed by your inferiors. ~ Plato
Politicians are the same all over. They promise
to build a bridge even where there is no river. ~ Nikita Khrushchev
When I was a boy I was told that anybody could
become President; I'm beginning to believe it. ~ Clarence Darrow
Why pay money to have your family tree traced; go
into politics and your opponents will do it for you. ~ Author unknown
Politicians are people who, when they see light
at the end of the tunnel, go out and buy some more tunnel. ~ John Quinton
Politics is the gentle art of getting votes from
the poor and campaign funds from the rich, by promising to protect each from
the other. ~ Oscar Ameringer
The Democrats are the party that try to make you
believe more government involvement will make you smarter, taller, richer, and
remove the crabgrass on your lawn. The Republicans are the party that say
government doesn't work and then, they get elected and prove it. ~ P.J.
O'Rourke
I offer my opponents a bargain: if they will stop
telling lies about us, I will stop telling the truth about them. ~ Adlai
Stevenson, campaign speech, 1952
A politician is a fellow who will lay down your
life for his country. ~ Tex Guinan
Any American who is prepared to run for president
should automatically, by definition, be disqualified from ever doing so. ~ Gore
Vidal
I have come to the conclusion that politics is
too serious a matter to be left to the politicians. ~ Charles de Gaulle
Instead of giving a politician the keys to the
city, it might be better to change the locks. ~ Doug Larson
Don't vote; it only encourages them. ~ Author
unknown
There ought to be one day -- just one -- when
there is open season on senators. ~ Will Rogers
Autie Bev forwarded the findings
of a sex position survey.
It has been determined that the most used sexual position for married couples
is as follows:
The husband sits up and begs.
The wife rolls over and plays dead!
Forwarded by Auntie Bev
2012 Democratic National Convention Schedule -- Charlotte , N.C.
4:00 PM – Opening Flag Burning Ceremony – sponsored by CNN
4:05 PM – Singing of "God Damn America " led by Rev. Jeremiah
Wright
4:10 PM – Pledge of Allegiance to Obama
4:15 PM – Ceremonial 'I hate America' led by Michelle Obama
4:30 PM – Tips on “How to keep your man trustworthy & true to you while
you travel the world” – Hillary Clinton
4:45 PM –Al Sharpton / Jesse Jackson seminar “How to have a
successful career without having a job.”
5:00 PM – “Great Vacations I’ve Taken on the Taxpayer’s Dime Travel Log”
-Michelle Obama
5:30 PM – Eliot Spitzer Speaks on "Family Values" via Satellite
5:45 PM – Tribute to All 57 States – Nancy Pelosi
6:00 PM – Sen. Harry Reid - 90-minute speech expressing the
Democrat’s appreciation of the Occupy Wall Street movement, and George Soros
for sparing no expense, for all that they have accomplished to unify the
country, improve employment and to boost the economy.
8:30 PM – Airing of Grievances by the Clintons
9:00 PM – “Bias in Media – How we can make it work for you”
Tutorial – sponsored by CBS, NBC, ABC, CNN, the Washington Post and the New
York Times
9:15 PM – Tribute Film to Brave Freedom Fighters incarcerated at GITMO –Michael
Moore
9:45 PM – Personal Finance Seminar - Charlie Rangle
10:00 PM – Denunciation of Bitter Gun Owners and Bible readers
,
10:30 PM – Ceremonial Waving of White Flag for IRAQ , & Afghanistan
11:00 PM – Obama Energy Plan Symposium / Tire Gauge Demonstration / You too
can get rich with Green Investment bankruptcies
11:15 PM – Free Gov. Blagovich rally
11:30 PM – Obama Accepts Oscar, Tony and Latin Grammy Awards
11:45 PM – Feeding of the Delegates with 5 Loaves and 2 Fish – Obama
Presiding
12:00 AM – Official Nomination of Obama by Bill Maher and Chris “He
sends a thrill up my leg” Matthews
12:01 AM – Obama Accepts Nomination as Lord and Savior
12:05 AM – Celestial Choirs Sing
3:00 AM – Biden Delivers Acceptance Speech
Forwarded by David Fordham
Compiled from various sources and embellished a little:
"As a tenured faculty member, you are long overdue for retirement if you can
check off more than five of the following:"
You have to refer to the campus map to find the new library they built in 2002.
While trying to figure out how to get the ceiling projector to work, you long
for your overhead on the cart -- the one with the rolled mylar, where all you
did was flip the switch and it came on.
Your research papers never cite any works since 2004, because you can't figure
out how to use the library's new on-line database search software.
You haven't taught a junior or senior level class in more than five years. The
department chair relegates you to small graduate seminars where he only has to
listen to five or ten students complain per semester, or 150-seat freshman
introductory classes where no one pays any attention anyway.
Your office still has a complete shelf taken up with back issues of a hardcopy
periodical.
Your email signature still contains a caustic quote from someone who has been
dead more than 100 years.
You go to the library, and are amazed to discover that, of the eight floors in
the building, only one actually still holds books.
You write letters to the editor of the campus newspaper criticizing the
Administration, and sign your OWN name.
Everyone who signed your diploma has been dead ... more than 10 years.
You can name more than three Greek philosophers, even though your field is not
Greek philosophy.
You even know what one of those Greek philosophers was famous for.
Although you learned a long time ago what the AAUP really is, you still go to
their meetings anyway.
Your alma mater is now naming buildings after your classmates.
You are invited to sit on the stand at convocation even though you aren't a
dean.
You used to go to university-wide faculty meetings to see your old friends from
the other side of campus. Now you go to the hospital to see them.
You still have a hand-held calculator... one that is just a calculator, and
ISN'T also a phone, a camera, a GPS device, etc.
You use words like "ergo", "vis-a-vis", and "et cetera" in your ORAL
communication.
You tell the accreditation team that you've "integrated critical thinking into
the curriculum", because you find it easier to write "B-... needs more
supporting details" on the cover sheet of a student's paper than to make -- and
then grade -- a real exam.
You still believe that bright students come to a university to "become
enlightened citizens" rather than to "get a decent job".
You can remember when psychedelic colors applied to clothing rather than hair.
And when the boys had all the tattoo's and the girls had all the piercings.
You've never experienced the thrill of REALLY, SERIOUSLY cursing a recent
computer software upgrade ... during your classroom presentation.
You are no longer sure what your department's tenure requirements are.
You still have a box under your desk containing your dissertation data. And
while you threw out the punched cards years ago, you still have the reports
printed on green-bar fan-fold paper.
Your file cabinet has folders containing mylar transparencies, even though your
institution has not had an overhead projector in a classroom for over a decade.
You think you are using "modern classroom presentation technology" because you
own a laser pointer and know how to work it.
You still have a bottle of White-Out in your desk.
You can remember the clickety-clickety-clickety sound of a running 16mm film
projector.
You still believe the faculty should be in control of curriculum matters.
You still believe the faculty ARE in control of curriculum matters.
In class one day, you are startled to discover that the young lady in the second
row with the perennial zit has actually been wearing a pearl nose stud all this
time.
You now complain more about the administration than you do about the campus
parking situation.
You still believe faculty should spend more time in a classroom than they spend
in committee meetings arguing with each other about “vision statements”,
“assessment rubrics”, and “outcome-based learning objectives”.
You tell junior faculty, "back when I was on the Faculty Senate, we were a
positive force on the academy", and your memory is so bad you actually believe
it.
You attend your discipline’s annual national meeting, even though you aren’t
presenting a paper.
You are a male, and: (1) have a ponytail even though your hair is gray; (2) your
sportscoats all have elbow patches; (3) wear sandals (with or without socks)
and/or (4) own more than one bow-tie.
You are a female and: (1) have never worn pants to class; (2) wear nylons that
don't go higher than your knees; (3) don't see a need for "Women's Studies" as a
major degree program; and/or (4) aren’t sure what a “glass ceiling” is.
No student has ever bothered asking you to put a pro-LGBT sticker on your door.
You aren't even sure what LGBT means.
One of your former students is the main commencement speaker.
The library moved the textbook that you authored from the general stacks to
"compact shelving".
You have never given an on-line exam. And don't even know how to make one.
You've never made a Camtasia video. Or used Centra Symposium. Or performed a
Captivate screen capture. And aren't even sure what these things are.
You actually remember seeing, at least once in your lifetime, and smelling, a
quiz that was "run off" on a "purple plague" spirit duplicator.
It surprises you to learn that there are more than three times as many "support"
buildings on campus as there are academic buildings.
Your syllabus does not contain any rules addressing the use of laptops, iPads,
or smartphones in class.
You still believe that holding a Ph.D. is a status symbol in the eyes of the
general public.
You do not have a Facebook account. Or a Twitter account. Or a MySpace
account. Or a Blog. And you aren't sure how to go about getting one.
You still have floppy disks in your office. Somewhere.
Regardless of the dozens and dozens of mandatory faculty seminars and training
sessions you've been forced to sit through addressing the Cleary Act, FERPA, and
the ADA's reasonable accommodations requirements, you still aren't sure what all
these things are.
While calling roll on the first day of class, you get to “Quentin Merriwether
Calabrisi, Jr.,” and the name seems familiar, except for the “junior” part.
You can remember when faculty could find a place to park within five minutes of
arriving on campus, regardless of the time of day.
You know what a “chalk chuck” is. In fact, you actually HAVE a chalk chuck in
your desk drawer.
You know what the word “Duotang” refers to. And you have actually seen a
filmstrip projector. With or without the record player.
You actually owned a dot-matrix printer. And still have it. Somewhere.
You know the origin of the term “Carriage Return”.
You know how to change the ribbon in a typewriter. And remember owning a
typewriter once. At least you think you did... perhaps... maybe....
Forwarded by Jim Kirk
WHY MEN ARE NEVER DEPRESSED:
Men Are Just Happier People --
What do you expect from such simple creatures?
Your last name stays put.
The garage is all yours.
Wedding plans take care of themselves.
Chocolate is just another snack...
You can be President.
You can never be pregnant.
You can wear a white T-shirt to a water park.
You can wear NO shirt to a water park.
Car mechanics tell you the truth.
The world is your urinal.
You never have to drive to another gas station restroom because this one is
just too icky.
You don't have to stop and think of which way to turn a nut on a bolt.
Same work, more pay.
Wrinkles add character.
Wedding dress $5000. Tux rental-$100.
People never stare at your chest when you're talking to them.
New shoes don't cut, blister, or mangle your feet.
One mood all the time.
Phone conversations are over in 30 seconds flat.
You know stuff about tanks.
A five-day vacation requires only one suitcase.
You can open all your own jars.
You get extra credit for the slightest act of thoughtfulness.
If someone forgets to invite you,
He or she can still be your friend.
Your underwear is $8.95 for a three-pack.
Three pairs of shoes are more than enough..
You almost never have strap problems in public.
You are unable to see wrinkles in your clothes..
Everything on your face stays its original color.
The same hairstyle lasts for years, even decades.
You only have to shave your face and neck.
You can play with toys all your life.
One wallet and one pair of shoes -- one color for all seasons.
You can wear shorts no matter how your legs look.
You can 'do' your nails with a pocket knife.
You have freedom of choice concerning growing a mustache.
You can do Christmas shopping for 25 relatives
On December 24 in 25 minutes.
Forwarded by Auntie Bev
One day, a local rancher driving down a country road noticed a man using his
hand to drink water from the rancher's stock pond.
The rancher rolled down the window and shouted: "Sehr angenehm! Trink das
Wasser nicht. Die kuehe haben darein geschissen."
(Which means: "Glad to meet you! Don't drink the water. The cows have shit in
it.")
The man shouted back: "I'm from New York and just down here campaigning for
Obama. I can't understand you. Please speak in English."
The rancher replied: "I said you need to use both hands."
Forwarded by Gene and Joan
Annie, 6 years old, gets home from school. She had her first family planning
lesson at school. Her mother, very interested, asks;" How did it go?"
"I died of shame!" She answers! “Why?” Her Mother asked.
Annie said, “Kristi from down the road, says that the stork brings babies.
Sally next door said you can buy babies at the orphanage. Pete in my class says
you can buy babies at the hospital.”
Her mother answers laughingly “But that’s no reason to be ashamed?”
“It is too!!! I can’t tell them that we were so poor that you and daddy had
to make me yourselves!”
Forwarded by Paula
Please excuse the four-letter words toward the end of the following story.
I would have deleted them, but the story wouldn't be the same.
THE JEWISH NEWLYWEDS
A young Jewish couple got married and went on their honeymoon.
When they got back, the bride immediately called her mother.
"Well", said her mother, "so how was the honeymoon?"
"Oh mama", she replied, "the honeymoon was wonderful!
So romantic"... Suddenly she burst out crying.
"But, mama, as soon as we returned,
Sam started using the most horrible language -- things
I'd never heard before!
I mean, all these awful four-letter words!
You've got to take me home!!
PLEASE MAMA"
"Sarah, Sarah", her mother said, "calm down!
You need to stay with your husband and work this out.
Now, tell me, what could be so awful?
WHAT four-letter words?"
"Please don't make me tell you, mama," wept the daughter.
"I'm so embarrassed, they're just too awful!
COME GET ME, PLEASE"
"Darling, baby, you must tell me what has you so upset.
Tell your mother these horrible four-letter words"
Sobbing, the bride said,
"Oh, Mama..., he used words like:
"DUST, WASH , IRON, and COOK ...
"I'll pick you up in twenty minutes," said her mother.
Forwarded by Auntie Bev
After the eighty-three year old lady finished her annual physical
examination, the doctor said, "You are in fine shape for your age, Maxine, but
tell me, do you still have intercourse?"
"Just a minute, I'll have to ask my husband," she said.
She stepped out into the crowded reception room and yelled out loud: "Henry,
do we still have intercourse?"
And there was a hush...You could hear a pin drop.
He answered impatiently, "If I told you once, Maxine, I told you a hundred
times... What we have is... Blue Cross!
Humor Between October 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor103112
Humor Between September 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor093012
Humor Between August 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor083112
Humor Between July 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor073112
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 September 30, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
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Bob
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Bob
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http://www.trinity.edu/rjensen/Resume.htm
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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/
August
31, 2012
Bob
Jensen's New Bookmarks August 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
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
Message from Barry Rice on July 17, 2012
There are
some great flash mob videos of accounting practitioners (including the Maryland
Association of CPAs) and accounting students at
https://www.google.com/search?sourceid=navclient&aq=f&oq=%22flash+mob%22+accountants&ie=UTF-8&rlz=1T4LENP_en___US481&q=%22flash+mob%22+accountants&gs_upl=0l0l0l27342lllllllllll0#q=%22flash+mob%22+accountants&hl=en&safe=off&rlz=1T4LENP_en___US481&prmd=imvns&source=univ&tbm=vid&tbo=u&sa=X&ei=rZgFUKLFCY-KrQGt_4jICA&ved=0CGAQqwQ&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=960fd2c1c95a1532&biw=1013&bih=459.
I Goggled “’flash mob’ accountants” to find them.
If practicing accountants can have a “flash mob,”
surely ACADEMIC accountants can do so.
IFRS in Your Pocket (contact a Deloitte Office for a Copy)
IAS Plus, August 22, 2012
http://www.iasplus.com/en/news/2012/august/ifrss-in-your-pocket-2012
We have published the
eleventh edition of our popular guide to IFRSs — 'IFRSs In Your Pocket
2012'. This publication provides an update of developments in IFRSs through
the second quarter of 2012.
This 136-page guide includes information
about:
- The IASB organisation — its
structure, membership, due process, contact information, and a
chronology
- Use of IFRSs around the world,
including updates on Europe, United States, Canada and elsewhere in
the Americas, and Asia-Pacific
- Recent pronouncements — those
which are effective and those which can be early adopted
- Summaries of current Standards
and related Interpretations, as well as the Conceptual Framework for
Financial Reporting and the Preface to IFRSs
- IASB agenda projects and active
research topics
- IFRS Interpretations Committee
current agenda topics
- Other useful IASB-related
information
Please contact your local
Deloitte practice office to request a printed copy.
Jensen Comment
I don't know of any FASB ACS in Your Pocket counterpart for domestic standards.
It would be great if Wild West Accountants of 2012 could have a two-holster
belt for fast drawing each In-Your-Pocket Guide.
Bob Jensen's threads on controversies in accounting standard setting ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
American Accounting Association Past
Presidents are listed at
http://www.cs.trinity.edu/~rjensen/temp/PastPresidentsAAA.htm
August 19, 2012 message from David Albrecht
Marsha Huber, a close friend to me and many on this
list, has just heard of this terrific good news.
David Albrecht
August 17, 2013
Dr. Marsha Huber
Youngtown State University
Dear Dr.Huber:
Congratulations! You have been selected as the winner for the George
Krull/Grant Thornton 2012 Teaching Innovation Award for your submission
of “Out of the Box Learning for Tax Class: Students Create Models,
Pamphlets, and a Shoebox Case.” This award recognizes successful
innovative practices in the teaching of junior and senior-level
accounting courses transferable to other institutions in terms of
resources and instructor skills and connections, which enhances leaning
of traditionally difficult topics and effectively filters students who
should enter the CPA profession. An AICPA Task Force has selected the
winner for the award from the accepted submissions to the Effective
Learning Strategies Forums at the AAA (American Accounting Association)
Annual Meeting.
We hope you will present your work at a breakout session at the CTLA
(Conference on Teaching and Learning in Accounting) and AAA Annual
Meeting in Anaheim, CA, August 3-7, 2013. Grant Thornton will provide
you with a stipend of up to $2,500 that will cover all expenses,
including the registration fee for the conference. The award will be
presented at CTLA Conference luncheon (tentative date August 3rd
).
We will also invite anyone who receives honorable mention to represent
their work at a session at the 2013 CTLA.
If you have any questions contact me by email or by phone at
512.245.2566. The
Task Force looks forward to your presentation at the 2013 CTLA.
Sincerely,
AICPA Teaching Award Task Force
Roselyn E. Morris, Chair
The AAA's Pathways Commission Accounting Education Initiatives Make
National News
Accountics Scientists Should Especially Note the First Recommendation
"Accounting for Innovation," by Elise Young, Inside Higher Ed,
July 31, 2012 ---
http://www.insidehighered.com/news/2012/07/31/updating-accounting-curriculums-expanding-and-diversifying-field
Accounting programs should promote curricular
flexibility to capture a new generation of students who are more
technologically savvy, less patient with traditional teaching methods, and
more wary of the career opportunities in accounting, according to a report
released today by the
Pathways Commission, which studies the future of
higher education for accounting.
In 2008, the U.S. Treasury Department's Advisory
Committee on the Auditing Profession recommended that the American
Accounting Association and the American Institute of Certified Public
Accountants form a commission to study the future structure and content of
accounting education, and the Pathways Commission was formed to fulfill this
recommendation and establish a national higher education strategy for
accounting.
In the report, the commission acknowledges that
some sporadic changes have been adopted, but it seeks to put in place a
structure for much more regular and ambitious changes.
The report includes seven recommendations:
- Integrate accounting research, education
and practice for students, practitioners and educators by bringing
professionally oriented faculty more fully into education programs.
- Promote accessibility of doctoral
education by allowing for flexible content and structure in doctoral
programs and developing multiple pathways for degrees. The current path
to an accounting Ph.D. includes lengthy, full-time residential programs
and research training that is for the most part confined to quantitative
rather than qualitative methods. More flexible programs -- that might be
part-time, focus on applied research and emphasize training in teaching
methods and curriculum development -- would appeal to graduate students
with professional experience and candidates with families, according to
the report.
- Increase recognition and support for
high-quality teaching and connect faculty review, promotion and tenure
processes with teaching quality so that teaching is respected as a
critical component in achieving each institution's mission. According to
the report, accounting programs must balance recognition for work and
accomplishments -- fed by increasing competition among institutions and
programs -- along with recognition for teaching excellence.
- Develop curriculum models, engaging learning
resources and mechanisms to easily share them, as well as enhancing
faculty development opportunities to sustain a robust curriculum that
addresses a new generation of students who are more at home with
technology and less patient with traditional teaching methods.
- Improve the ability to attract high-potential,
diverse entrants into the profession.
- Create mechanisms for collecting, analyzing
and disseminating information about the market needs by establishing a
national committee on information needs, projecting future supply and
demand for accounting professionals and faculty, and enhancing the
benefits of a high school accounting education.
- Establish an implementation process to address
these and future recommendations by creating structures and mechanisms
to support a continuous, sustainable change process.
According to the report, its two sponsoring
organizations -- the American Accounting Association and the American
Institute of Certified Public Accountants -- will support the effort to
carry out the report's recommendations, and they are finalizing a strategy
for conducting this effort.
Hsihui Chang, a professor and head of Drexel
University’s accounting department, said colleges must prepare students for
the accounting field by encouraging three qualities: integrity, analytical
skills and a global viewpoint.
“You need to look at things in a global scope,” he
said. “One thing we’re always thinking about is how can we attract students
from diverse groups?” Chang said the department’s faculty comprises members
from several different countries, and the university also has four student
organizations dedicated to accounting -- including one for Asian students
and one for Hispanic students.
He said the university hosts guest speakers and
accounting career days to provide information to prospective accounting
students about career options: “They find out, ‘Hey, this seems to be quite
exciting.’ ”
Jimmy Ye, a professor and chair of the accounting
department at Baruch College of the City University of New York, wrote in an
email to Inside Higher Ed that his department is already fulfilling
some of the report’s recommendations by inviting professionals from
accounting firms into classrooms and bringing in research staff from
accounting firms to interact with faculty members and Ph.D. students.
Ye also said the AICPA should collect and analyze
supply and demand trends in the accounting profession -- but not just in the
short term. “Higher education does not just train students for getting their
first jobs,” he wrote. “I would like to see some study on the career tracks
of college accounting graduates.”
Mohamed Hussein, a professor and head of the
accounting department at the University of Connecticut, also offered ways
for the commission to expand its recommendations. He said the
recommendations can’t be fully put into practice with the current structure
of accounting education.
“There are two parts to this: one part is being
able to have an innovative curriculum that will include changes in
technology, changes in the economics of the firm, including risk,
international issues and regulation,” he said. “And the other part is making
sure that the students will take advantage of all this innovation.”
The university offers courses on some of these
issues as electives, but it can’t fit all of the information in those
courses into the major’s required courses, he said.
Continued in article
Jensen Comment
This is one of the most important initiatives to emerge from the AAA in recent
years.
I would like to be optimistic, but change will be very slow. President Wilson,
who was also an PhD professor, once remarked that it's easier to move a cemetery
than to change a university.
It is easier to move a
cemetery than to affect a change in curriculum.
Woodrow Wilson
President of Princeton University 1902-1910
President of the United States 1913-1921
And in the 21st Century you can imagine the lawsuits that would clog the courts
if a town tried to move a cemetery.
Bob Jensen's threads on Higher Education Controversies and Need for Change
---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
The sad state of accountancy doctoral programs ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
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
July 31, 2012 reply from Paul Williams
Bob, A good place to start is to jettison pretenses
of accounting being a science. As Anthony Hopwood noted in his presidential
address, accounting is a practice. The tools of science are certainly
useful, but using those tools to investigate accounting problems is quite a
different matter than claiming that accounting is a science. Teleology
doesn't enter the picture in the sciences -- nature is governed by laws, not
purposes. Accounting is nothing but a purposeful activity and must (as
Jagdish has eloquently noted here and in his Critical Perspectives on
Accounting article) deal with values, law and ethics. As Einstein said, "In
nature there are no rewards or punishments, only consequences." For a social
practice like accounting to pretend there are only consequences (as if
economics was a science that deals only with "natural kinds) has been a
major failing of the academy in fulfilling its responsibilities to a
discipline that also claims to be a profession. In spite of a "professional
economist's" claims made here that economics is a science, there is quite
some controversy over that even within the economic community. Ha-Joon
Chang, another professional economist at Cambridge U. had this to say about
the economics discipline: "Recognizing that the boundaries of the market are
ambiguous and cannot be determined in an objective way lets us realize that
economics is not a science like physics or chemistry, but a political
exercise. Free-market economists may want you to believe that the correct
boundaries of the market can be scientifically determined, but this is
incorrect. If the boundaries of what you are studying cannot be
scientifically determined what you are doing is not a science (23 Things
They Don't Tell You About Capitalism, p. 10)." The silly persistence of
professional accountants in asserting that accounting is apolitical and
aethical may be a rationalization they require, but for academics to harbor
the same beliefs seems to be a decidedly unscientific posture to take. In
one of Ed Arrington's articles published some time ago, he argued that
accounting's pretenses of being scientific are risible. As he said (as near
as I can recall): "Watching the positive accounting show, Einstein's gods
must be rolling in the aisles."
August 23, 2012 message from Bob Jensen
Hi Steve,
No I cannot take up your challenge, because you've defined research relevant
to practitioners in such a way that that does not create a subset of
"developmental research" that sets it aside from accountics basic and
applied research in general. Accountics research is accounting research
containing mathematical equations and/or statistical inference tables (and
contains the word accounting).
Your definitional criterion is of "accounting research relevant to
practitioners" reads as follows"
"Any accounting research that "helps
those who rely on the producers of accounting information to gain a
better understanding of the nature and consequences of that reliance."
In the eyes of accountics researchers, all of their findings help producers
of accounting information to gain a better understanding" such that it
would be impossible to find any accountics research publication that does
not meet your definition.
If you want me to to take up your challenge, you will have to be more
specific along the lines of accounting research that separates developmental
research from basic and applied research. .
The Frascati Manual ---
http://en.wikipedia.org/wiki/Frascati_Manual
This Frascati Manual outlines three forms of research. These are basic
research, applied research and experimental development:
- Basic research is experimental or theoretical work undertaken
primarily to acquire new knowledge of the underlying foundation of
phenomena and observable facts, without any particular application or
use in view.
- Applied research is also original investigation undertaken in
order to acquire new knowledge. It is, however, directed primarily
towards a specific practical aim or objective.
- Experimental development is systematic work, drawing on
existing knowledge gained from research and/or practical experience,
which is directed to producing new materials, products or devices, to
installing new processes, systems and services, or to improving
substantially those already produced or installed.
I think the "allied research" definition above is too vague for academic
accounting research except possibly in the realm of AIS and related research
such as in XBRL.
If you allow me to define the accounting research intended to be relevant to
practitioners as being "experimental development" (where experimental can be
a sample of one, two, or a few) as defined above in actual companies, then I
can take up your challenge.
I would rather, however, that you list five accountics research studies that
meet the "experimental development" definition above as applied in actual
companies.
One non-accountics illustration that at one time was in the "experimental
development" stage was the Balanced Score Card model. Since this model is
now used by over half the large corporations in the U.S. (according to Tom
Klammer), I think this model moved beyond the experimental stage. Other
examples, include the various early experiments with ABC costing in
companies, many of which were written up in practitioner journals.
On the accountics side, we might include the various models that are
employed in industry to value financial instruments and derivative financial
instruments. For example, even though it is often unsuited for option
valuing applications, the Black-Scholes model met the test of actually being
experimented with at the company level ---
http://www.cpa-connecticut.com/sfas123r.html
This summary is written by a practitioner.
I think a better practical model is as follows:
"How to “Excel” at Options Valuation," by Charles P. Baril, Luis
Betancourt, and John W. Briggs, Journal of Accountancy, December 2005
---
http://www.aicpa.org/pubs/jofa/dec2005/baril.htm
This is one of the best articles for accounting
educators on issues of option valuation!
Conclusion
I await your list five other accountics research studies that meet the
"experimental development" definition above. I know you have one in mind
that is an actual application of branstorming in a real-world accounting
firm. How about four others?
Then I will follow up by listing five accounting research studies that do
not meet the "experimental development" definition above.
Respectfully,
Bob Jensen
August 23, 2012 message from David Johnstone
Dear all, I feel that Steve is right
that practitioners in accounting are naturally ambivalent,
if not tacitly defensive or even hostile, to research.
Accounting practitioners make a lot of money for their firms
and clients by producing answers that someone holding the
purse strings likes. The Chicago economist George Stigler
who won a Nobel prize described economists as having a role
as hired guns. Their fee attracting ability is to reason
backwards to assumptions upon which the desired conclusion
stands up. Accountants have more of this in their role. If
you are an engineer and you want to please the boss by
designing a more efficient structure, you really want
sophisticated engineering research. But if you are an
accountant and you want to produce a certain valuation of a
firm or a certain income number, ignorance of restrictive
research findings can often be of great assistance.
Positivist research that casts the profession in a poor
light (e.g. by predicting certain self-interested
professional behaviours) will definitely not be welcome
reading.
If “true income” existed in a physical
sense in the way that relevant variables in say engineering
or medicine exist (e.g. true weight or true existence of
infection) then there would have to be more interest from
the profession into research. But when notions like “income”
and “value” are so indefinite and non-existent in anything
resembling a physical sense, it is little wonder that the
profession enjoys its ability to work freely and often quite
mechanically.
The dependence of so many accounting
tasks, such as valuation, on forecasts of future events
(sales, costs, economy, asset prices, etc.) would seem to
make forecasting models and research of real interest to
accountants. But again, these might produce results that
don’t suit the desired conclusion, and then there is the
underlying issue that forecasts of such events are not in
general anywhere near the sophistication or accuracy of
weather forecasts (i.e. forecasts in a physical rather than
social domain. And then there are some who would say that
forecasting is “not accounting” (as if any discipline has
defined borders).
David
Hi David,
So should we just ignore the Pathways Commission initiatives and have more
parades for the accountics science researchers who publish articles in TAR, JAR,
and JAE? Or should we try to conduct developmental research that might interest
the practicing profession in our research? I think accountics researchers are so
enjoying their high salaries and status that they see no need to take up the
Pathways Commission initiatives. This is sad!
We only have to look at the entire program of plenary sessions at the 2012
AAA Annual Meetings to see that accountics researchers have little interest in
developmental research for the profession. Not one plenary session was
devoted to developmental research or the accounting profession in general.
Your conclusion, David, in a way defies the history of the American
Accounting Association. For the first 40 or so years of its life there were more
practitioner members than accounting professor members in the AAA. Practitioners
published frequently in The Accounting Review and had very, very close ties with
accounting professors on developmental research issues. Normative research was
king of the hill --- “An Analysis of the Evolution of Research Contributions by
The Accounting Review: 1926-2005,” by Jean Heck and Robert E. Jensen, Accounting
Historians Journal,, Volume 34, No. 2, December 2007, pp. 109-142
In the 1960s, accountics scientists took over the AAA and commenced calling
normative research bullshit. More importantly, prestigious accountics
researchers no longer associated much with practitioners. Accordingly
practitioner membership in the AAA plummeted. The Accounting Review and the
emerging JAR and JAE would not publish developmental research. Accountics
researhers literally took over all accounting doctoral programs. To have
any prestige at all, accounting research publications had to have equations
and/or statistical inference tables even when the samples really were not random
samples.
At the 2012 AAA Annual Meetings the large accounting firms did have
concurrent session presentations on developmental research that they would like
to see academic accounting researchers address.
I was told that accountics researchers showed very little interest in those
developmental research idea sessions, although I have to admit that I also had
conflicts that prevented me from attending. I had to return a day early and did
not attend any of the Wednesday sessions. If the TAR, JAR, and JAE had
sections in their journals for experimental developmental research, I
suspect there would've been more interest in those AAA sessions sponsored by the
large firms.
I do think that, if accounting researchers commenced communications with the
firms about developmental research and if the accounting doctoral programs had
developmental research tracks (including Case Method tracks), interest in
experimental development research in corporations and accounting firms might
pick up.
Accounting firms themselves will probably be cooperative, especially if some
of this research was coordinated in some way through the AAA. The AICPA funded
the AAA Notable Contributions to the Accounting Literature Award in part to
stimulate developmental research but, unfortunately, did not make developmental
research a condition for granting the award. Sadly, nearly all the awards then
went to accountics researchers who did not do developmental research in
companies and CPA firms.
One of the more successful initiatives linking professors with practitioners
over the years are the Trueblood Case Seminars funded by Deloitte where
accounting professors meet (usually in Scottsdale) in teams with practitioners
to develop cases drawn from accounting practice. These cases, however, were
mostly teaching cases that would not qualify under the heading developmental
research.
Another effort was the AICPA's case competitions where at least one author
had to be a professor and one author had to be a practitioner. I and my partners
(Bruce Sidlinger and John Howland) were winners of the 1998 AICPA's
Academic/Practitioner Case Competition. On the first round the case was
one of 12 in the nation accepted for Publication by the AICPA. It was then
selected as one of six to be presented at the AICPA's Accounting Educators
Conference in McLean, Virginia, November 7, 1998.
But TAR, JAR, or JAE most likely would've refused to even send those AICPA
Case Competition winners out for review. As a result, our AICPA publication
counted much less in my performance reviews at Trinity University (not that I'm
complaining about how well Trinity overpaid me during 24 years).
I was a part of the accountics science takeover from get go in the 1960s.
Every article I ever published in TAR or JAR had equations. Years and years
later I was a late comer in realizing how separated accountics researchers
became from the practitioner world and how limited our research findings were
for developmental progress in the accounting profession.
Granof and Zeff state the history better than me.
"Research
on Accounting Should Learn From the Past"
by Michael H.
Granof
and Stephen A.
Zeff
Chronicle of Higher Education, March 21, 2008 |
Starting in the 1960s, academic research on accounting became
methodologically supercharged — far more quantitative and analytical
than in previous decades. The results, however, have been
paradoxical. The new paradigms have greatly increased our
understanding of how financial information affects the decisions of
investors as well as managers. At the same time, those models have
crowded out other forms of investigation. The result is that
professors of accounting have contributed little to the
establishment of new practices and standards, have failed to perform
a needed role as a watchdog of the profession, and have created a
disconnect between their teaching and their research.
Before the 1960s, accounting research was primarily descriptive.
Researchers described existing standards and practices and suggested
ways in which they could be improved. Their findings were taken
seriously by standard-setting boards,
CPA's,
and corporate officers.
A
confluence of developments in the 1960s
markedly changed the nature of research — and, as a
consequence, its impact on practice. First, computers emerged as a
means of collecting and analyzing vast amounts of information,
especially stock prices and data drawn from corporate financial
statements. Second, academic accountants themselves recognized the
limitations of their methodologies. Argument, they realized, was no
substitute for empirical evidence. Third, owing to criticism that
their research was decidedly second rate because it was
insufficiently analytical, business faculties sought academic
respectability by employing the methods of disciplines like
econometrics, psychology, statistics, and mathematics.
In response to those developments, professors of accounting not only
established new journals that were restricted to metric-based
research, but they limited existing academic publications to that
type of inquiry. The most influential of the new journals was the
Journal of Accounting Research, first published in 1963 and
sponsored by the University of Chicago Graduate School of Business.
Acknowledging the primacy of the journals, business-school chairmen
and deans increasingly confined the rewards of publication
exclusively to those publications' contributors. That policy was
applied initially at the business schools at private colleges that
had the strongest M.B.A. programs. Then ambitious business schools
at public institutions followed the lead of the private schools,
even when the public schools had strong undergraduate and master's
programs in accounting with successful traditions of
practice-oriented research.
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.
The research is hamstrung by restrictive and sometimes artificial
assumptions. For example, researchers may construct mathematical
models of optimum compensation contracts between an owner and a
manager. But contrary to all that we know about human behavior, the
models typically posit each of the parties to the arrangement as a
"rational" economic being — one devoid of motivations other than to
maximize pecuniary returns.
Moreover, research is limited to the homogenized content of
electronic databases, which tell us, for example, the prices at
which shares were traded but give no insight into the decision
processes of either the buyers or the sellers. The research is thus
unable to capture the essence of the human behavior that is of
interest to accountants and standard setters.
Further, accounting researchers usually look backward rather than
forward. They examine the impact of a standard only after it has
been issued. And once a rule-making authority issues a standard,
that authority seldom modifies it. Accounting is probably the only
profession in which academic journals will publish empirical studies
only if they have statistical validity. Medical journals, for
example, routinely report on promising new procedures that have not
yet withstood rigorous statistical scrutiny.
Floyd Norris, the chief financial correspondent of The New York
Times, titled a 2006 speech to the American Accounting Association
"Where Is the Next Abe
Briloff?"
Abe Briloff
is a rare academic accountant. He has devoted his career to
examining the financial statements of publicly traded companies and
censuring firms that he believes have engaged in abusive accounting
practices. Most of his work has been published in Barron's and in
several books — almost none in academic journals. An accounting
gadfly in the mold of Ralph Nader, he has criticized existing
accounting practices in a way that has not only embarrassed the
miscreants but has caused the rule-making authorities to issue new
and more-rigorous standards. As Norris correctly suggested in his
talk, if the academic community had produced more Abe
Briloffs,
there would have been fewer corporate accounting meltdowns.
The narrow focus of today's research has also resulted in a
disconnect between research and teaching. Because of the difficulty
of conducting publishable research in certain areas — such as
taxation, managerial accounting, government accounting, and auditing
— Ph.D.
candidates avoid choosing them as specialties. Thus, even though
those areas are central to any degree program in accounting, there
is a shortage of faculty members sufficiently knowledgeable to teach
them.
To be sure, some accounting research, particularly that pertaining
to the efficiency of capital markets, has found its way into both
the classroom and textbooks — but mainly in select M.B.A. programs
and the textbooks used in those courses. There is little evidence
that the research has had more than a marginal influence on what is
taught in mainstream accounting courses.
What needs to be done? First, and most significantly, journal
editors, department chairs, business-school deans, and
promotion-and-tenure committees need to rethink the criteria for
what constitutes appropriate accounting research. That is not to
suggest that they should diminish the importance of the currently
accepted modes or that they should lower their standards. But they
need to expand the set of research methods to encompass those that,
in other disciplines, are respected for their scientific standing.
The methods include historical and field studies, policy analysis,
surveys, and international comparisons when, as with empirical and
analytical research, they otherwise meet the tests of sound
scholarship.
Second, chairmen, deans, and promotion and merit-review committees
must expand the criteria they use in assessing the research
component of faculty performance.
They must have the courage to establish criteria for what
constitutes meritorious research that are consistent with their own
institutions' unique characters and comparative advantages, rather
than imitating the norms believed to be used in schools ranked
higher in magazine and newspaper polls. In this regard, they must
acknowledge that accounting departments, unlike other business
disciplines such as finance and marketing, are associated with a
well-defined and recognized profession. Accounting faculties,
therefore, have a special obligation to conduct research that is of
interest and relevance to the profession. The current accounting
model was designed mainly for the industrial era, when property,
plant, and equipment were companies' major assets. Today,
intangibles such as brand values and intellectual capital are of
overwhelming importance as assets, yet they are largely absent from
company balance sheets. Academics must play a role in reforming the
accounting model to fit the new postindustrial environment.
Third, Ph.D.
programs must ensure that young accounting researchers are
conversant with the fundamental issues that have arisen in the
accounting discipline and with a broad range of research
methodologies. The accounting literature did not begin in the second
half of the 1960s. The books and articles written by accounting
scholars from the 1920s through the 1960s can help to frame and put
into perspective the questions that researchers are now studying.
For example, W.A. Paton and A.C.
Littleton's
1940 monograph, An Introduction to Corporate Accounting Standards,
profoundly shaped the debates of the day and greatly influenced how
accounting was taught at universities. Today, however, many, if not
most, accounting academics are ignorant of that literature. What
they know of it is mainly from textbooks, which themselves evince
little knowledge of the path-breaking work of earlier years. All of
that leads to superficiality in teaching and to research without a
connection to the past.
We fervently hope that the research pendulum will soon swing back
from the narrow lines of inquiry that dominate today's leading
journals to a rediscovery of the richness of what accounting
research can be. For that to occur, deans and the current generation
of academic accountants must give it a push.
Michael H.
Granof is a professor of accounting at the
McCombs
School of Business at the University of Texas at Austin. Stephen A.
Zeff
is a professor of accounting at the Jesse H. Jones Graduate School
of Management at Rice University.
March 18, 2008 reply from Paul Williams
[Paul_Williams@NCSU.EDU]
Steve
Zeff
has been saying this since his stint as editor of The
Accounting Review (TAR); nobody has listened.
Zeff
famously wrote at least two editorials published in TAR over 30
years ago that lamented the colonization of the accounting
academy by the intellectually unwashed. He and Bill Cooper wrote
a comment on Kinney's tutorial on how to do accounting research
and it was rudely rejected by TAR. It gained a new life only
when Tony Tinker published it as part of an issue of Critical
Perspectives in Accounting devoted to the problem of dogma
in accounting research.
It has only been since less subdued
voices have been raised (outright rudeness has been the hallmark
of those who transformed accounting into the empirical
sub-discipline of a sub-discipline for which empirical work is
irrelevant) that any movement has occurred. Judy Rayburn's
diversity initiative and her invitation for Anthony
Hopwood
to give the Presidential address at the D.C. AAA meeting came
only after many years of persistent unsubdued pointing out of
things that were uncomfortable for the comfortable to confront.
Paul Williams
paul_williams@ncsu.edu
(919)515-4436
|
Jensen Comment
I predict that once again efforts motivate top accountics scientists to leave
campus to collect data in companies and focus on developmental issues will fail
big time. It's not that accountics science is a bad thing. Many of the papers
published in TAR, JAR, and JAE are outstanding. But these are basic and applied
research findings that have little or nothing to do with developmental research
in the accounting profession.
Accountics scientists just don't care about developmental research ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
And the accounting profession just does not care about accountics science
research.
Efforts to bridge the gap are still failing.
In 16 years as a professor of accounting at the University of Georgia, Denny
Beresford was invited one time to speak to an audience of accountics science
faculty and doctoral students. He was probably not invited at any other time
because he would probably talk about accounting. Talking about accounting in an
accountics research seminar is about the same thing as talking in Swahili.
We only have to look at the entire program of plenary sessions at the 2012 AAA
Annual Meetings to see this. Not one plenary session was devoted to
developmental research or the accounting profession in general.
Respectfully,
Bob Jensen
Reflections on the 2012 AAA
Annual Meetings: Diversity
I did not make a recent study of AAA Membership, but the last time I did
study the membership the practitioner membership declined dramatically from the
1950s when there were more practitioner members than academic members. The few
practitioner members who remain in the AAA are mostly recruiters for large CPA
firms and PR personnel.
My anecdotal experience from the 2012 AAA Annual Meetings suggests that the
international membership is continuing to explode. This is a very good thing
suggesting that perhaps we should even have a name change similar to the name
change of the AACSB.
My anecdotal experience in the past few AAA Annual Meetings that I've attended
is that the number of Asian-background registrants keeps rising dramatically.
This is most certainly a good thing from a globalization and diversity
standpoint, but the increased number of Asians relative to blacks and Hispanics
seems to be very dramatic and makes me pause to reflect on the 2012 Pathways
Report..
This also begs the question in terms of how many Asian-background registrants
were from Asian universities versus how many are now affiliated with North
American Universities.
Here's my quick and dirty non-random sampling this morning from the 2012 "List
of Participants" at the 2012 Annual Meetings:
16 Registrants named Smith
10 Registrants named Jones
37 Registrants named Chen
Among the 37 registrants named Chen, 18 are affiliated with North American
Universities, and most of those universities are R1 research universities. This
seems to also be the case for other Asian names such as Chang, Cheng, Chiu, Cho,
Choi, Chou, Chua, Chui, Chung, Dong, Dow, etc. in the 2012 List of Participants.
The increasing proportion of Asians affiliated with North American Universities,
in my viewpoint, is largely due to the emphasis of mathematics and statistics in
our accountics-science-only accounting doctoral programs in North America.
Knowledge of mathematics and statistics is much more of a prerequisite for our
doctoral programs than knowledge of accounting, auditing, and tax ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
I wonder how many African Americans and Hispanics who run the formidable
gauntlet to become CPAs are later discouraged by the maximal mathematics focus
of accounting doctoral programs and minimal focus on accountancy? This has to
be, in my viewpoint, an enormous reason why we do not have a dramatic rise in
African Americans and Hispanics to accompany the dramatic rise in Asians in
North American accounting education programs.
This in turn leads me to support the proposed initiatives in the 2012 Pathways
Report.
The AAA's Pathways Commission Accounting Education Initiatives Make
National News
Accountics Scientists Should Especially Note the First Recommendation
"Accounting for Innovation," by Elise Young, Inside Higher Ed,
July 31, 2012 ---
http://www.insidehighered.com/news/2012/07/31/updating-accounting-curriculums-expanding-and-diversifying-field
Accounting programs should promote curricular
flexibility to capture a new generation of students who are more
technologically savvy, less patient with traditional teaching methods, and
more wary of the career opportunities in accounting, according to a report
released today by the
Pathways Commission, which studies the future of
higher education for accounting.
In 2008, the U.S. Treasury Department's Advisory
Committee on the Auditing Profession recommended that the American
Accounting Association and the American Institute of Certified Public
Accountants form a commission to study the future structure and content of
accounting education, and the Pathways Commission was formed to fulfill this
recommendation and establish a national higher education strategy for
accounting.
In the report, the commission acknowledges that
some sporadic changes have been adopted, but it seeks to put in place a
structure for much more regular and ambitious changes.
The report includes seven recommendations:
- Integrate accounting research, education
and practice for students, practitioners and educators by bringing
professionally oriented faculty more fully into education programs.
- Promote accessibility of doctoral
education by allowing for flexible content and structure in doctoral
programs and developing multiple pathways for degrees. The current path
to an accounting Ph.D. includes lengthy, full-time residential programs
and research training that is for the most part confined to quantitative
rather than qualitative methods. More flexible programs -- that might be
part-time, focus on applied research and emphasize training in teaching
methods and curriculum development -- would appeal to graduate students
with professional experience and candidates with families, according to
the report.
- Increase recognition and support for
high-quality teaching and connect faculty review, promotion and tenure
processes with teaching quality so that teaching is respected as a
critical component in achieving each institution's mission. According to
the report, accounting programs must balance recognition for work and
accomplishments -- fed by increasing competition among institutions and
programs -- along with recognition for teaching excellence.
- Develop curriculum models, engaging learning
resources and mechanisms to easily share them, as well as enhancing
faculty development opportunities to sustain a robust curriculum that
addresses a new generation of students who are more at home with
technology and less patient with traditional teaching methods.
- Improve the ability to attract high-potential,
diverse entrants into the profession.
- Create mechanisms for collecting, analyzing
and disseminating information about the market needs by establishing a
national committee on information needs, projecting future supply and
demand for accounting professionals and faculty, and enhancing the
benefits of a high school accounting educatio
- Establish an implementation process to address
these and future recommendations by creating structures and mechanisms
to support a continuous, sustainable change process.
According to the report, its two sponsoring
organizations -- the American Accounting Association and the American
Institute of Certified Public Accountants -- will support the effort to
carry out the report's recommendations, and they are finalizing a strategy
for conducting this effort.
Hsihui Chang, a professor and head of Drexel
University’s accounting department, said colleges must prepare students for
the accounting field by encouraging three qualities: integrity, analytical
skills and a global viewpoint.
“You need to look at things in a global scope,” he
said. “One thing we’re always thinking about is how can we attract students
from diverse groups?” Chang said the department’s faculty comprises members
from several different countries, and the university also has four student
organizations dedicated to accounting -- including one for Asian students
and one for Hispanic students.
He said the university hosts guest speakers and
accounting career days to provide information to prospective accounting
students about career options: “They find out, ‘Hey, this seems to be quite
exciting.’ ”
Jimmy Ye, a professor and chair of the accounting
department at Baruch College of the City University of New York, wrote in an
email to Inside Higher Ed that his department is already fulfilling
some of the report’s recommendations by inviting professionals from
accounting firms into classrooms and bringing in research staff from
accounting firms to interact with faculty members and Ph.D. students.
Ye also said the AICPA should collect and analyze
supply and demand trends in the accounting profession -- but not just in the
short term. “Higher education does not just train students for getting their
first jobs,” he wrote. “I would like to see some study on the career tracks
of college accounting graduates.”
Mohamed Hussein, a professor and head of the
accounting department at the University of Connecticut, also offered ways
for the commission to expand its recommendations. He said the
recommendations can’t be fully put into practice with the current structure
of accounting education.
“There are two parts to this: one part is being
able to have an innovative curriculum that will include changes in
technology, changes in the economics of the firm, including risk,
international issues and regulation,” he said. “And the other part is making
sure that the students will take advantage of all this innovation.”
The university offers courses on some of these
issues as electives, but it can’t fit all of the information in those
courses into the major’s required courses, he said.
Continued in article
Jensen Conclusion
The last thing I want to recommend is slowing down the flow of Asians into the
accountics science tracks of our North American accounting doctoral programs.
But I do recommend that we stop making accountics science the only track in our
doctoral programs. Therefore, I strongly support the Pathways Commission's
recommendations to create more diversity in terms of research methods and
curricula in our doctoral programs.
August 11, 2012 reply from Chuck Pier
Hi Bob.
I didn't get the chance to attend the AAA meeting
this year, but what you noticed corresponds to something that I noticed just
last week.
I ordered a new edition of Hasselback's Accounting
Faculty Directory. When it came last week I spent the better part of an
evening "browsing" through it. (An aside: For those of you old enough and
nerdish enough to relate, when the new Hasselback comes out I become
somewhat giddy and excited to look through it. Everytime I do it reminds me
of how excited I was as a kid when the new telephone books came out. The
loss of excitement of the new phone book is another thing the digital age
has robbed me of since we rarely get new phone books anymore.)
As I was browsing, (flipping the pages from the
back), page 416 jumped out at me. On that page were the alphabetical
listings for "Zhang" among others. What struck me however, was not the name,
but the "Rank" column. Almost all of the Zhang's are listed as "Asst" which
would indicate younger and newer faculty. Not that this is surprising given
the growth of the international, particularly Asian, students in doctoral
programs. I looked further and found the same occurrence(a greater
preponderance of Asst), sometimes to a greater and sometimes to a lesser
extent with the following names:
Chen (page 245) Huang (page 296) Li (pages 321-322)
Liu (page 324) Wang (pages 403-404) Xie and Xi (page 413) Yu (page 415)
I did not notice the same preponderance of Asst in
the following large groups of Asian names: Kim (page 309) Lee (page 319) Lin
(page 323) Park (page 352) Wong (page 411)
This preponderance of Asst was also not noted in
the groupings of the more common traditional American surnames: Anderson
(page 220) Brown (page 236) Jones (pages 303-304) Smith (pages 382-383)
Thomas/Thompson (page 394) Williams (pages 408-409)
What I notice in the difference between the two
Asian groups is that the one where there are more Asst's listed is that the
names are more generally Chinese; while the other Asian group has Korean
names. I can only surmise this is because there is a more recent influx of
Chinese students in recent years.
There is obviously some kind of paper in this
information waiting to be written. If I could only find what it is!
Chuck Pier, Ph.D.
Associate Professor
Department of Accounting, Economics and Finance
Angelo State University
ASU Station #10908
San Angelo, Texas 76909
Accounting Doctoral Programs: The Only Thing Missing is Accounting
August 18, 2012 message from Dennis Beresford
During the AAA annual conference I mentioned to
someone that I enjoyed going to the research workshops held at my University
even though I don't have the background to evaluate all of the formulas,
etc. However, I've found that more and more of the papers presented by
visitors seem to be far from what I would consider "accounting related." The
person I was talking to at the time challenged me and suggested my
background in public accounting and at the FASB narrowed my thinking on this
too much. But I said that I had developed a personal policy of attending
only workshops that I felt had something to do with accounting, however I
might interpret that.
Our first School of Accounting research workshop
for the fall semester is in two weeks. The paper being presented is titled,
"Voice Pitch Predicts Labor Market Success Among Male Chief Executive
Officers." I do not plan to attend.
Denny Beresford
(Narrow minded accounting lecturer)
August 18, 2012 reply from Bob Jensen
Hi Denny,
I really miss the Golden Fleece Awards that used to
be given out by Senator Proxmire ---
http://en.wikipedia.org/wiki/Golden_Fleece_Award
Many of these awards were for laughable research studies funded by
government.
Of course we now have the Journal of Irrelevant
Research ---
http://journalofirrelevantresearch.blogspot.com/
But this journal misses a whole lot of irrelevant
findings
Jagdish Gangolly reminded me of the Journal of Irreproducible
Results ---
http://www.jir.com/
I may have to seek out a term to replace
"accountics" if we get further and further away from accounting-based
research in accounting programs. Maybe we should have a contest on the AECM,
The condition is that the last three letters have to be "tics."
Bob Jensen
"How a design project bred a blueprint for innovation," by Harvey
Schachter, Globe and Mail, August 298, 2012 ---
http://www.theglobeandmail.com/report-on-business/careers/management/how-a-design-project-bred-a-blueprint-for-innovation/article4505420/
In 2005, Procter & Gamble, eager to accelerate its
innovation, decided to try to institutionalize throughout the company the
new, fuzzy notion of design thinking. It turned to Roger Martin, dean of the
University of Toronto’s Rotman School of Management, one of the leading
exponents of integrative and design thinking. He in turn gathered help from
colleagues at Stanford University and the Illinois Institute of Technology.
Their efforts proved so successful that it led to
the creation of a DesignWorks studio at Rotman, led by executive director
Heather Fraser, where they refined their methodology while working with
companies such as Nestlé, Pfizer, Medtronic and Frito-Lay, as well as public
institutions and government teams.
Ms. Fraser now shares those ideas in Design Works,
which argues that business design brings out the creative side of
individuals in a workplace without compromising the rigour needed to have a
meaningful impact on the market.
“This approach has proven to get to bigger ideas
faster, by engaging more minds in a common ambition, with the buy-in and
traction required to make important things happen in a strategic and
productive manner,” she writes.
The approach revolves around three gears to get
your innovation motor running:
Gear 1: Empathy and understanding
To understand the opportunity that might exist, you
must start with empathy for others and an understanding of what matters to
people. Usually, we rely on market reports and surveys to get a handle on
potential customers. But she says that while that gives you a good measure
of the customer characteristics, habits, and values that you believe to be
important, it often does not contribute to a deeper understanding of their
underlying motivations and unmet needs.
“Understanding them more holistically entails
understanding them more completely as individuals apart from the direct
consumption or use of your current product or service,” she points out.
“Considering the wider activity surrounding your products and services
expands your perspective on opportunities to create value in new ways.”
Gear 2: Concept visualization
With that understanding, the hunt can begin in
earnest for the breakthrough idea. You now have licence and ambition to
explore new possibilities, including some that would have been considered
beyond your operating scope, rather than limiting yourself to the familiar
and obviously doable.
You will pick from a variety of tools to generate
ideas, design new and ideal experiences, develop multiple prototypes to test
your ideas, and create with your potential customers the best possible
offering.
It will be vital, however, to stay focused on the
user rather than becoming diverted at this stage by the organizational
impact.
Gear 3: Strategic business design
Now you can move on to consider the organizational
side of things, developing a strategy to deliver the vision. Ms. Fraser
warns that this will take the same rigour and ingenuity required to develop
your new breakthrough proposal. Often things can fall apart here, as
organizations find themselves with lots of promising ideas but don’t know
how to fit them with other ideas and programs into a formidable strategy.
“Gear 3 … calls for a healthy dose of both
creativity and analysis at appropriate points,” she notes. You’ll require
solid collaboration from your team, detailed prototyping, and a plan that
maps out some quick wins to keep enthusiasm high. She warns that this step
is often the missing link in many innovation projects and why the
initiatives fail to provide a solid return of investment.
Prototyping is increasingly important to
understanding whether ideas have possibilities. She urges you to keep the
first efforts low-cost, and reveals that the DesignWorks studio generally
limits itself in the early stages to $20, using cardboard, markers and
Popsicle sticks. The idea is to communicate intent, not to resemble the
final product. You’ll be less invested in it if you put the prototype
together quickly with little money; and the people who test it will be able
to give you more advice if they can use their imagination to fill in missing
pieces.
The first half of the book, about the three-gears
process, is somewhat stilted despite the case studies woven in; it’s
certainly not as absorbing as Designing for Growth, by Jeanne Liedtka and
Tim Ogilvie. (And the horrendous choice of typeface – pretty, but sans-serif
and very thin – added to my reading struggle, as it was physically hard to
focus on the words. The irony of poor design choices in a book about design
was not lost on me.)
But the book’s second half – essentially a series
of fast-paced, practical tips for implementing the ideas – was more
enjoyable, and would be valuable to anyone interested in the business design
path.
Continued in article
Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Hi Tom,
Yes I think measuring earnings should be of primary index for all companies,
because a good measure of earnings with realistic bad debt estimates may be a
more important indicator of failures to come. Much of the S&L crisis was caused
by phony real estate fair value estimates and speculation coupled with phony bad
debt estimates. . I think the S&L crisis is a very poor basis for promoting
fair value accounting --- it's the phony real estate fair value measurements
that got us into trouble.
Recall that I'm also recommending a side-by-side dual column model for
presenting fair values. Analysts have a choice, which is why I like the
Harold Shroeder comment letter that I actually find commendable ---
Click Here
http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175821399483&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs
I liked this letter and thank you for pointing it out to me. I could've really
used this letter in my accounting theory course.
The importance of net income is illustrated somewhat in the Roaring 1990s tech
bubble where companies with big losses were trying to inflate stock prices in
every which way when reported losses were among the best predictors of their
ultimate demise.
In any case I am not talking about choosing one optimal reporting model. The
fair value model should be shown alongside the traditional model along with
information model on the degree of attestation. It's not like we must choose one
model and hide the other model. What's important is how reliable the numbers are
in all of the presentation models.
Respectfully,
Bob Jensen
Bisk CPA Examination Review
http://www.cpaexam.com/cpa-review-courses
Bisk Awards for Accounting Resources in 2012 ---
http://www.cpaexam.com/top-accounting-resources-2012
cfo-coach.com -
Helping CFO's Repackage, Position, and Land!
Dr.DavidKass - Commentary on Warren Buffett and Berkshire Hathaway.
360taxes.org
-360 Degrees of Taxes is a public service site, designed by Certified Public
Accountants and sponsored by the AICPA, offering tips and checklists to help
you during tax season and with year-round tax planning.
accountingcoach.com - Changing the way people learn accounting.
BobJensenatrinity.edu - Daily entries, fraud updates, and insightful
conclusions (
http://www.trinity.edu/rjensen/ )
financial-market-commentary.com - Financial commentary you can trust.
"Highly scrutinised SEC conflict mineral regs. include new audit
requirement," by Ken Tysiac, CGMA Magazine, August 23, 2012 ---
http://www.cgma.org/Magazine/News/Pages/20126307.aspx
The US Securities and Exchange Commission (SEC) on
Wednesday approved disclosure rules designed to increase transparency around
companies’ use of so-called “conflict minerals” and payments to governments
for access to natural resources.
The rules, advocated by certain human rights
groups, will implement two sections of the US Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, P.L. 111-203.
But they contain disclosure provisions that divided
the SEC commissioners’ votes and have been criticised by some business
groups as being unworkable, in the case of conflict minerals, and likely to
put US companies at a competitive disadvantage, in the case of the natural
resource payment reporting requirements.
Section 1502 of the Dodd-Frank Act requires yearly
reporting on whether US public companies use conflict minerals originating
in the Democratic Republic of the Congo (DRC) or neighbouring countries.
Section 1504 requires US public companies that extract resources to disclose
in an annual report how much they pay the US and foreign governments around
the world for access to oil, natural gas and minerals.
The conflict minerals statute was included in the
Dodd-Frank Act with the intent of cutting off funding for warlords in the
DRC. Armed groups there are accused of atrocities against local populations
and funding their activities by using forced labour to mine for gold and
other minerals used in products ranging from jewellery to cell phones.
By requiring companies that use conflict minerals
to document their chain of custody, the statute aims to choke off the market
for raw materials produced in mines using forced labour. The regulation
intends to use transparency to prompt companies to shun conflict minerals.
Human rights groups had encouraged the regulation.
In a comment letter, seven human rights groups said the rule has “enormous
potential” to transform the conflict.
“While the DRC government must take up its
responsibilities to protect civilians and establish governance and
infrastructure, U.S.-based companies and consumers also have a crucial
role,” the groups wrote. “We are all connected to the conflict through the
minerals we use in so many everyday items.”
Business groups disappointed
But some business groups say requiring companies to
audit their supply chains and monitor those of their vendors is unreasonable
because of the complexity of the supply chains. In an opinion piece for The
Hill, Tom Quaadman, vice president of the Center for Capital Markets
Competitiveness at the US Chamber of Commerce, said the rule will create an
unworkable regulatory regime that will be exploited by bad actors and
difficult for honest market participants to implement.
The rule passed on a 3–2 vote. Dissenting
commissioners Troy Paredes and Daniel Gallagher said the implementation of
the rule did not fit the SEC’s mission of protecting investors. Gallagher
said it was unclear whether the rule would have the unintended consequence
of harming the populations it aimed to protect because it could create what
amounts to an economic embargo of the DRC and other nations as US issuers
pull their business from the region altogether in an abundance of caution.
Businesses will be required to determine if the
products they manufacture or contract to manufacture contain conflict
minerals. If they use such minerals, they will need to determine whether
they financed armed groups in the DRC or its adjoining countries.
Continued in argument
"WHAT IS ZYNGA’S “REAL” GROWTH RATE?" by Anthony H. Catanach and J. Edward
Ketz, Grumpy Old Accountants Blog, August 27, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/746
"Groupon, Zynga and Krugman's Frothy Valuations," by Jeff Carter,
Townhall, September 2011 ---
http://finance.townhall.com/columnists/jeffcarter/2011/09/13/groupon,_zynga_and_krugmans_frothy_valuations
Jensen Comment
In the 1990s, high tech companies resorted to various accounting gimmicks to
increase the price and demand for their equity shares ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
Bob Jensen's threads about cooking the books ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
"U.S. Firms Move Abroad to Cut Taxes: Despite '04 Law, Companies
Reincorporate Overseas, Saving Big Sums on Taxes," by John D. Mckinnon and
Scott Thurm, The Wall Street Journal, August 28, 2012 ---
http://professional.wsj.com/article/SB10000872396390444230504577615232602107536.html?mod=WSJPRO_hpp_LEFTTopStories
More big U.S. companies are reincorporating abroad
despite a 2004 federal law that sought to curb the practice. One big reason:
Taxes.
Companies cite various reasons for moving,
including expanding their operations and their geographic reach. But tax
bills remain a primary concern. A few cite worries that U.S. taxes will rise
in the future, especially if Washington revamps the tax code next year to
shrink the federal budget deficit.
"We want to be closer to where our clients are,"
says David Prosperi, a spokesman for risk manager Aon AON +0.19% plc, which
relocated to the U.K. in April.
Aon has told analysts it expects to reduce its tax
rate, which averaged 28% over the past five years, by five percentage points
over time, which could boost profits by about $100 million annually.
Since 2009, at least 10 U.S. public companies have
moved their incorporation address abroad or announced plans to do so,
including six in the last year or so, according to a Wall Street Journal
analysis of company filings and statements. That's up from just a handful
from 2004 through 2008.
The companies that have moved recently include
manufacturer Eaton Corp., ETN -0.37% oil firms Ensco International Inc. ESV
-2.04% and Rowan Cos., RDC +0.47% as well as a spinoff of Sara Lee Corp.
called D.E. Master Blenders 1753.
Eaton, a 101-year-old Cleveland-based maker of
components and electrical equipment, announced in May that it would acquire
Cooper Industries PLC, another electrical-equipment maker that had moved to
Bermuda in 2002 and then to Ireland in 2009. It plans to maintain factories,
offices and other operations in the U.S. while moving its place of
incorporation—for now—to the office of an Irish law firm in downtown Dublin.
When Eaton announced the deal, it emphasized the
synergies the two companies would generate. It also told analysts that the
tax benefits would save the company about $160 million a year, beginning
next year.
Eaton's chief executive, Alexander Cutler, has been
a vocal critic of the corporate tax code. "We have too high a domestic rate
and we have a thoroughly uncompetitive international tax regime," Mr. Cutler
said on CNBC in January. "Let's not wait for the next presidential election"
to change the rules.
The moves by Ensco and Rowan, which operate
offshore oil rigs, show how one company's effort to lower its tax rate can
spur other shifts.
In moving from Dallas to the U.K. in 2009, Ensco
followed rivals such as Transocean Ltd., RIG -1.47% Noble Corp. and
Weatherford International Ltd. WFT -2.10% that had relocated outside the
U.S. The company said the move would help it achieve "a tax rate comparable
to that of some of Ensco's global competitors."
In fact, Ensco's tax rate has declined. In the
second quarter, the company said its "effective tax rate" was 10.5%, down
from 19% in 2009. The savings: more than $100 million a year.
Around the time of Ensco's move, Rowan executives
fielded questions from investors and analysts about their own tax rate. In
February, Rowan answered the questions, announcing plans to move to the U.K.
from Houston. "We're able to be competitive, with a low effective rate,"
says Suzanne Spera, the firm's director of investor relations.
Fear of such moves is what prompted Congress to
pass the 2004 law, which was backed by Democrats and some Republicans and
included exceptions that some firms and advisers have sought to exploit.
In June, the Internal Revenue Service tightened an
exception that had allowed companies to move to countries in which they have
substantial business activities. It will not prevent moves through a merger,
such as Eaton's.
Lawmakers of both parties have said the U.S.
corporate tax code needs a rewrite and they are aiming to try next year. One
shared source of concern is the top corporate tax rate of 35%—the highest
among developed economies. By comparison, Ireland's rate is 12.5%.
The Obama administration has proposed lowering the
rate to 28%, while Republican rival Mitt Romney has proposed 25%.
Continued in article
Jensen Comment
Only one of the Big Four accounting firms (Deloitte) is headquartered in the
United States. Accenture has a sham headquarters in Bermuda.
From The Wall Street Journal Accounting Weekly Review on September 1,
2012
Industry Seeks Tax Fix
by:
James R. Hagerty
Aug 28, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting, Corporate Taxes, Manufacturing, Tax Accounting,
Tax Law, Taxes
SUMMARY: Manufacturing is back in vogue as part of the solution to
America's job shortage. After years of decline, factory employment has been
edging up for the past two years, and some production has trickled back to
the U.S. from Asia. So look for political candidates this fall to talk about
how to spur investment in factories. Manufacturing jobs aren't the whole
answer to the job shortage, of course. They account for about 9% of all
non-farm jobs, but each factory position created tends to support several
more in support services. While politicians have offered ideas, ranging from
more federal support for research to creation of a national manufacturing
strategy, many manufacturers wish Washington would concentrate on what they
see as the fundamentals: lower and simpler taxes, improved roads and other
infrastructure, and better education.
CLASSROOM APPLICATION: This article is a nice example of potential
ripple effects of tax law. We can use this article to show students how to
be better accountants and business professionals by knowing the laws, but
also seeing the impact the laws have on business strategy. It can help our
students to see the difference between being a tax return preparer and a tax
planner - looking at the details, as well as strategizing.
QUESTIONS:
1. (Introductory) The article is entitled "Manufacturers Seek Tax
Overhaul." What reasons does the reporter give for manufacturers requesting
tax changes? What changes are they requesting?
2. (Advanced) How has manufacturing been hampered by tax law in the
past? What factors, other than tax law, have negatively impacted
manufacturing?
3. (Advanced) How would the requested changes impact manufacturing
and other types of business? How is tax law used to encourage some behaviors
and discourage other behaviors? Please give some answers mentioned in the
article, as well as others not mentioned.
4. (Advanced) How do the tax laws in other countries affect these
types of issues faced by American manufacturers? Should the U.S. consider
foreign tax rates and other factors when enacting tax law and regulations in
the U.S.? Why or why not? How might the laws in other countries impact U.S.
businesses?
5. (Advanced) What steps, other than tax law changes, could be
taken to decrease factors hampering manufacturing in the U.S.?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Industry Seeks Tax Fix," by: James R. Hagerty, The Wall Street Journal,
August 28, 2012 ---
http://professional.wsj.com/article/SB10000872396390443324404577593050498878564.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Manufacturing is back in vogue as part of the
solution to America's job shortage. After years of decline, factory
employment has been edging up for the past two years, and some production
has trickled back to the U.S. from Asia. So look for political candidates
this fall to talk about how to spur investment in factories.
Manufacturing jobs aren't the whole answer to the
job shortage, of course. They account for about 9% of all nonfarm jobs, but
each factory position created tends to support several more in support
services.
While politicians have offered ideas, ranging from
more federal support for research to creation of a national manufacturing
strategy, many manufacturers wish Washington would concentrate on what they
see as the fundamentals: lower and simpler taxes, improved roads and other
infrastructure, and better education.
Enlarge Image image image Bloomberg
In his most recent State of the Union address,
President Barack Obama mentioned manufacturing 15 times. Among other things,
the president is pushing for tax incentives for making products, especially
high-tech ones, in the U.S. He also wants more focused federal research
programs, including funds for new privately run institutes to study advanced
manufacturing techniques.
Mitt Romney, the likely Republican candidate for
president, has promised to spark "a revival in American manufacturing." His
program includes repealing "excessive" regulation in such areas as
environmental protection. He also wants to require secret ballots for
union-certification votes, which might make it harder for organized labor to
win.
Sen. Debbie Stabenow (D., Mich.) has offered
legislation that would give tax breaks to help companies cover the cost of
moving production back to the U.S. and ban tax deductions for the expenses
of moving operations abroad. Rep. David Cicilline (D., R.I.) favors federal
grants to help companies upgrade equipment and retrain workers.
All those ideas have their supporters in the
business world, but manufacturers tend to see overhauling the tax code as a
far bigger priority. "It all sort of starts and stops right there," with
corporate tax rates, says Keith Wandell, chief executive of Harley Davidson
Inc., HOG -1.08% a Milwaukee-based maker of motorcycles. "We need to be more
competitive [with other nations] in that respect."
Stephen Gold, CEO of the Manufacturers Alliance for
Productivity and Innovation, an Arlington, Va., research organization funded
by industrial firms, says lower corporate tax rates could at least partly be
paid for through eliminating many credits and deductions. For instance, he
says, some members of his alliance would be willing to give up energy tax
credits if they could get a lower corporate tax rate.
A recent ranking by the University of Calgary's
School of Public Policy found the U.S. had the highest effective corporate
tax rate of the 34 countries belonging to the Organization for Economic
Cooperation and Development. The typical marginal effective tax rate for
U.S. manufacturers in 2012 was 33.9%, the study found. That includes income
and several other types of taxes faced by corporations at the federal and
state level but excludes property taxes and temporary or narrowly targeted
tax breaks.
Many business leaders want the U.S. to adopt a
so-called territorial tax regime, in which companies would pay U.S. taxes
only on their domestic, rather than world-wide, income. That would bring the
U.S. in line with most other rich countries. While Mr. Romney favors such a
shift, the Obama administration has argued that a territorial system would
encourage more U.S. companies to shift operations abroad. But Martin
Regalia, chief economist at the U.S. Chamber of Commerce, says it would make
U.S.-based companies more competitive globally. "To the extent that U.S.
firms are more competitive in world markets, they will likely create more
jobs in total, both here and abroad," he says.
Continued in article
Yet another example of a professional athlete who cannot handle money.
Would it have helped to have take a required financial literacy course in
college?
"Bills QB Young owes loan company $1.7 million," by John Wawrow, Yahoo
News, August 16, 2012 ---
http://sports.yahoo.com/news/bills-qb-young-owes-loan-201322354--nfl.html
Quarterback Vince Young has been ordered to pay a
loan company nearly $1.7 million after missing a payment in late May,
shortly after signing with the Buffalo Bills.
The ruling against Young was made in New York State
Supreme Court in Manhattan on July 2, according to court documents.
Young took out a high-risk loan from Pro Player
Funding for $1.877 million during the NFL lockout in May 2011, while he was
still under contract with the Tennessee Titans. The loan - plus $619,000 in
interest - was due to be paid back in January 2013 at an annual interest
rate of 20 percent. That rate jumped another 10 percent if Young missed a
payment.
A ruling in the lending company's favor was made
because Young agreed he understood the terms by signing what's called an
affidavit of confession of judgment upon taking out the loan. The affidavit
is regarded as proof and could be used at any time by the lender in the
event a client defaults on the loan.
TMZ.com first reported the ruling against Young
last week.
Young was unavailable for comment Thursday because
he was traveling with the Bills to Minnesota for their preseason game on
Friday. Messages left seeking comment from both the player's agent and
publicist were not returned.
Continued in article
Ray Williams ---
http://en.wikipedia.org/wiki/Ray_Williams_(basketball)
"Nobody wnats you when you're down and out" ---
http://www.youtube.com/watch?v=MsrA2fMn0sk&feature=fvst
A Sad, Sad Case That Might Be Used
When Teaching Personal Finance: Another Joe Lewis Example
"Desperate times: Ex-Celtic Williams, once a top scorer, is now looking for an
assist," by Bob Hohler, Boston Globe, July 2, 2010 ---
http://www.boston.com/sports/basketball/celtics/articles/2010/07/02/desperate_times/
Every night at
bedtime, former Celtic Ray Williams locks the doors of his home: a
broken-down 1992 Buick, rusting on a back street where he ran out of
everything.
The 10-year NBA
veteran formerly known as “Sugar Ray’’ leans back in the driver’s seat,
drapes his legs over the center console, and rests his head on a pillow of
tattered towels. He tunes his boom box to gospel music, closes his eyes, and
wonders.
Williams, a
generation removed from staying in first-class hotels with Larry Bird and
Co. in their drive to the 1985 NBA Finals, mostly wonders how much more he
can bear. He is not new to poverty, illness, homelessness. Or quiet
desperation.
In recent weeks, he
has lived on bread and water.
“They say God won’t
give you more than you can handle,’’ Williams said in his roadside sedan.
“But this is wearing me out.’’
A former top-10 NBA
draft pick who once scored 52 points in a game, Williams is a face of
big-time basketball’s underclass. As the NBA employs players whose average
annual salaries top $5 million, Williams is among scores of retired players
for whom the good life vanished not long after the final whistle.
Dozens of NBA
retirees, including Williams and his brother, Gus, a two-time All-Star, have
sought bankruptcy protection.
“Ray is like many
players who invested so much of their lives in basketball,’’ said Mike
Glenn, who played 10 years in the NBA, including three with Williams and the
New York Knicks. “When the dividends stopped coming, the problems started
escalating. It’s a cold reality.’’
Williams, 55 and
diabetic, wants the titans of today’s NBA to help take care of him and other
retirees who have plenty of time to watch games but no televisions to do so.
He needs food, shelter, cash for car repairs, and a job, and he believes the
multibillion-dollar league and its players should treat him as if he were a
teammate in distress.
One thing Williams
especially wants them to know: Unlike many troubled ex-players, he has never
fallen prey to drugs, alcohol, or gambling.
“When I played the
game, they always talked about loyalty to the team,’’ Williams said. “Well,
where’s the loyalty and compassion for ex-players who are hurting? We opened
the door for these guys whose salaries are through the roof.’’
Unfortunately for
Williams, the NBA-related organizations best suited to help him have closed
their checkbooks to him. The NBA Legends Foundation, which awarded him
grants totaling more than $10,000 in 1996 and 2004, denied his recent
request for help. So did the NBA Retired Players Association, which in the
past year gave him two grants totaling $2,000.
Continued in article
Another sports hero who does not understand personal finance.
Rule Number 1 --- Don't mess with the IRS unless you're in hiding offshore.
Will the IRS settle for $179,435.07?
"IRS Stabs OJ Simpson in The Wallet: You Owe us!" by Jose Lambiet, Gossip Extra,
August 24, 2012 ---
http://gossipextra.com/2012/08/24/oj-simpson-irs-taxes-1759/
Jensen Comment
I'll just bet that the IRS will settle for $179,435.
Wharton Professor
Olivia Mitchell on Worldwide Financial Literacy
http://www.ssga.com/definedcontribution/docs/Olivia_Mitchell_GlobalFinancialLiteracy_SSgADC_The
Participant02.pdf
Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
Victor Lustig ---
http://en.wikipedia.org/wiki/Victor_Lustig
"The Smoothest Con Man That Ever Lived," by Gilbert King, The
Browser, August 22, 2012 ---
http://thebrowser.com/articles/smoothest-con-man-ever-lived
Performance Management Systems
August 17, 2012 message from Jim Martin
I am developing a new section on the MAAW web site
for Performance Management Systems. This topic provides a broader, more
holistic view, or extended framework of management control systems than
previously presented in the literature. Although some of the books and
articles with Performance Management in the title are focused on the human
resource function, the main focus of MAAW's new section is on the broader
view of performance management systems as a framework that can be used to
describe the overall management features of an organization. For example,
performance management systems include features such as mission, strategy,
organizational structure, performance measures, feedback systems, and
rewards.
A number of books and papers have been published on
this topic over the last ten years. From a research perspective, the best
paper I have found so far is as follows: Ferreira, A. and D. Otley. 2009.
The design and use of performance management systems: An extended framework
for analysis. Management Accounting Research (December): 263-282. For a
summary of that paper see
http://maaw.info/ArticleSummaries/ArtSumFerreiraOtley2009.htm
There are many papers and books that examine the
topic from a practice perspective. For example, the following author has
written a series of papers that have appeared in Strategic Finance: Paladino,
B. 2007. 5 key principles of corporate performance management: How do
Balanced Scorecard Hall of Fame, Malcolm Baldrige, Sterling, Fortune 100,
APQC, and Forbes award winners drive value? Strategic Finance (June): 39-45.
For a note about this paper see
http://maaw.info/ArticleSummaries/ArtSumPaladino2007a.htm
To view the bibliography for Performance management
systems see
http://maaw.info/PerformanceManagementSystemsBibliography.htm
Many related papers are in the Control bibliography
at
http://maaw.info/ControllershipArticles.htm
"CLEAN UP THE BALANCE SHEET: GET RID OF DEFERRED TAXES," by Anthony H.
Catanach and J. Edward Ketz, Grumpy Old Accountants, August 13, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/714
Jensen Comment
I don't always agree with the the Grumps, especially on lease accounting where
they never really address really, really big issue of operating leases --- the
issue of lease renewals. In the case of deferred taxes I'm inclined to agree but
for a different reason. Deferred taxes constitute Reason 1,638,211 on how the
accounting standard setters relegated the concept of earnings to a black hole in
the universe.
LIBOR ---
http://en.wikipedia.org/wiki/Libor
"Understanding Libor," by FT reporters, Financial Times, July
20, 2012 ---
http://www.ft.com/intl/cms/s/0/d686dfb0-d27a-11e1-8700-00144feabdc0.html#axzz23iWx03Nh
Jensen Comment
A recent article in The Economist predicts that it will be really
difficult for plaintiffs in the thousands of LIBOR lawsuits to get serious
settlements. I can't recall the citation (late in August 2012), but one of the
main arguments is that use of LIBOR was volunary and not required. Also damages
are very difficult to assess since playing "what if games are very difficult
when it comes to "hypothetical impacts" of different interest rates.
Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
August 14, 2012 message from Jagdish Gangolly
Here are two very recent interesting papers that might be
of interest to
AECMers:
1.
The network of global corporate control
Stefania Vitali, James B. Glattfelder, and Stefano
Battiston
2.
`Too Interconnected To Fail' Financial Network of
US
CDS Market: Topological Fragility and Systemic
Risk
Sheri Markose, Simone Giansante, Ali Rais
Shagaghi
3.
"Multi-Agent Financial Network (MAFN) Model of US
Collateralized Debt Obligations (CDO): Regulatory Capital Arbitrage,
Negative CDS Carry Trade and Systemic Risk Analysis"
Sheri Markose , Bewaji Olewasegun and Simone Giansante
http://www.essex.ac.uk/economics/discussion-papers/Papers-text/dp714.pdf
Economics Department Discussion Paper, No. 714, May 2012
"N.Y. Fed says municipal bond defaults higher than ratings agency counts,"
by Danielle Douglas, The Washington Post, August 15, 2012 ---
Click Here
http://www.washingtonpost.com/business/economy/ny-fed-says-municipal-bond-defaults-higher-than-ratings-agency-counts/2012/08/15/233bb780-e6f4-11e1-8741-940e3f6dbf48_story.html
Defaults on municipal bonds for decades have been
far higher than reported by rating agencies, bringing into question the true
risk of a common investment widely considered to be safe, according to a
study released Wednesday by the Federal Reserve Bank of New York.
Economists at the agency counted 2,521 muni bond
defaults since 1970, whereas ratings agency Moody’s Investors Service, for
instance, reported 71.
Muni bonds often act as an investment haven for
ordinary Americans, and the new findings reveal they may be more risky than
previously thought. That has been the subject of debate among lawmakers and
others in the wake of a series of bankruptcy filings in California and
elsewhere, as well as the collapse of several municipal projects.
Supporters of muni bonds say that despite a few
high-profile cases, government securities rarely default. Data from the New
York Fed, however, suggests otherwise.
Ratings agencies only track the behavior of the
bonds they rate, presenting a fragmented picture of the entire muni bond
universe. For a more comprehensive look, the New York Fed merged defaults
tracked by the three major rating agencies with unrated bonds reported by
Mergent and S&P Capital IQ.
Researchers found no pattern of spikes in defaults
during recessions, rather defaults appeared to be a “function of
idiosyncratic factors associated with individual projects,” according to the
study.
Muni bonds are a primary way states, towns and even
hospitals and ballparks finance projects. They have become popular partly
because holders of these bonds don’t have to pay state taxes on any gains.
Individual investors, according to the Securities and Exchange Commission,
hold 75 percent of the outstanding bonds in the $3.7 trillion muni market
through mutual funds and exchange-traded funds.
General-obligation bonds, issued by municipalities,
rarely fail because they are backed by tax revenue. But the Fed found bonds
that finance hospitals, stadiums and nursing homes default at much higher
rates because they have a narrower income stream. A sports stadium, for
instance, needs to sell tickets, otherwise it may not generate enough to
meet its debt obligations.
The worst-performing bonds were “industrial
development” bonds that finance projects such as alternative energy plants
or pollution control facilities. These bonds, which comprise nearly
two-thirds of municipal issuance, fail at a 28 percent rate.
Some analysts contend that the study is overstating
the number of defaults since these debts are repaid by corporations rather
than cities or towns.
“There’s an apples-and-oranges comparison that
makes it hard to take their findings and draw any inference into the broader
risks in the muni market,” said Bart Mosley, co-president Trident Municipal
Research, which tracks the bond market.
Continued in article
Bob Jensen's threads on the slow recovery of the economy are at
http://www.trinity.edu/rjensen/2008Bailout.htm
"Let's Talk about Academic Integrity, Part I: BI (Before the Internet),"
by Tracy Mitrano, Inside Higher Ed, August 16, 2012 ---
http://www.insidehighered.com/blogs/law-policy-and-it/lets-talk-about-academic-integrity-part-i-bi-internet
"Let's Talk About Academic Integrity: Part II AI (After the Internet),"
by Tracy Mitrano, Inside Higher Ed, August 21, 2012 ---
http://www.insidehighered.com/blogs/law-policy-and-it/lets-talk-about-academic-integrity-part-ii-ai-after-internet-0
That the Internet is a game changer is well-known
phenomenon. In fact, the word most usually associated with this phenomenon
is "disruptive," and it is a good one because more times than not it is
truly a neutral, descriptive term. Depending on what side of the fence you
are on at the time of the disruption, you might think it either a good or
bad thing. Think content industry: bad. Think people without money who want
access to content: good. Of course, life, law and technology are infinitely
more complicated than those Manichaeism terms, but you get the idea. Let's
see how it applies to academic integrity.
But first let's be sure we have a foundational understanding of the concept.
Academic Integrity is larger than plagiarism, but taking other people's
work without attribution and with a notion that it is your own is the lion's
share. How is it to be distinguished from copyright? Copyright is law;
academic integrity is policy. You won't go to jail or pay a fine if you
violate it, but within the community of scholars -- academic or public --
depending on a number of factors, you may lose your job or some degree of
credibility. If you are a student, also depending on a number of factors,
you may have to rewrite a paper, get a failing grade in the assignment, fail
the course, or even be suspended or expelled from the institution.
Copyright is not cured by attribution; in most cases, plagiarism is. Why
is it important? Because it goes straight to the heart of academia: a
community of scholars, stretched throughout all of human history, whose
central dynamic is developing original work while standing on the shoulders
of those who have come before us, irrespective of whether it was 10,000
years or 10 minutes ago. It is to newcomers, i.e. students, a special
community with special rules, hence the difference between law and policy.
It is an invitation to be part of the life of the mind, so long as you play
by the rules.
Now, to be sure, the exact nature and shape of the rules can change given
any number of factors, some obviously larger than others. Technology is a
big one. Cutting and pasting having become so easy suddenly makes wholesale
"copying" a facile process; how that function leads a tired, insecure or
intentionally violative student down the road of perdition is a factor that
educators must take into account no matter whether they like or don't like
the fact of the technology that allows a student to do it. Here is why:
because the best, well intentioned students are anxious that they make a
mistake. That we do not want to cause our students undue anxiety. It is
not warranted, if we pay attention to the world in which they live and help
them clarify the rules to the practices, and nor is it wise for us to allow
undue measure of anxiety to get in the way genuine learning. An overly
cautious student may ultimately learn as little as the too liberal student
when it comes to plagiarism. If learning is the name of the game, it
behooves educators to get it right.
So much has been written about remix that I need not go into detail here
about it (Lessig's books is good start, although more focused on law than
academic integrity). Suffice it to say that remix now constitutes a very
significant approach, trope and motif of contemporary culture that if we do
not think hard about how we want academia to be of but not in this world, we
will not serve either ourselves or our students. Technology has made it
possible, yes, but technology in this instance once again demonstrates its
transfigurative powers. That is, we see the academic dynamic -- something
borrowed, something new -- more clearly than we might have seen it without
technology. We should use that insight to bridge generations of learners
and the tools and methods by which they learn.
For anyone who does not believe there is anything new under the sun worth
talking about, allow me to share some personal experience. In creating a
site on digital literacy, I spent some time talking to students about
academic integrity. <http://digitalliteracy.cornell.edu/>
I also brought Harry Lewis, former Dean of Harvard
College and a good and wise man, to talk with the Cornell community about
any number of related issues. I learned probably more than anyone. Did you
know that you can find whole instructors' manuals on the campus intranet?
That means if at two in the morning you still have not gotten to that
chemical engineering assignment (or name your subject), you can find the
answer with a few keystrokes. Know how we know? Because students who
plagiarize the manual turn in the same mistakes as the manual. Even better,
when anywhere from one to two thirds of class of 200+ students turn in the
same assignment with the same mistake, Houston, we have a problem! I
exaggerate not. But I have not even gotten to the most upsetting part of
this story. Do you know why you don't hear about as often as it occurs?
Because untenured professors who tend to be the ones who teach these large
classes are sufficiently concerned about their teaching evaluations as to
minimize the issue. Having talked to young professors in this situation, I
can report that they are very torn about it, but make their choices in the
calculous of their lives and careers. Have they worked sufficiently with
chairmen, deans and provosts on this matter? The answer to that question
belongs to every institution to address, and not once but continuously. Do
young professors have the understanding of academic leadership at their
institutions? That question should be a part of the conversation.
Continued in article
"Let's Talk About Academic Integrity: Part III After the Internet and With
the Roof Blown Open," by Tracy Mitrano, Inside Higher Ed, August 22,
2012 ---
http://www.insidehighered.com/blogs/law-policy-and-it/lets-talk-about-academic-integrity-part-iii-after-internet-and-roof-blown
Jensen Comment
Bob Jensen's threads on plagiarism and cheating ---
http://www.trinity.edu/rjensen/Plagiarism.htm
Bob Jensen's threads on plagiarism and cheating by professors ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiari
From The Wall Street Journal Accounting Weekly Review
Lifting the Veil on Tax Risk
by Jesse Drucker
The Wall Street Journal
May 25, 2007
Page: C1
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB118005869184314270.html?mod=djem_jiewr_ac
TOPICS: Accounting, Accounting Theory, Advanced
Financial Accounting, Disclosure Requirements, Financial Accounting
Standards Board, Financial Analysis, Financial Statement Analysis, Income
Taxes
SUMMARY: FIN 48, entitled Accounting for Uncertainty in
Income Taxes--An Interpretation of FASB Statement No. 109, was issued in
June 2006 with an effective date of fiscal years beginning after December
15, 2006. As stated on the FASB's web site, "This Interpretation prescribes
a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition." See the summary of this interpretation
at
http://www.fasb.org/st/summary/finsum48.shtml As noted in this article,
"in the past, companies had to reveal little information about transactions
that could face some risk in an audit by the IRS or other government
entities." Further, some concern about use of deferred tax liability
accounts to create so-called "cookie jar reserves" useful in smoothing
income contributed to development of this interpretation's recognition,
timing and disclosure requirements. The article highlights an analysis of
361 companies by Credit Suisse Group to identify those with the largest
recorded liabilities as an indicator of risk of future settlement with the
IRS over disputed amounts. One example given in this article is Merck's $2.3
billion settlement with the IRS in February 2007 over a Bermuda tax shelter;
another is the same company's current dispute with Canadian taxing
authorities over transfer pricing. Financial statement analysis procedures
to compare the size of the uncertain tax liability to other financial
statement components and follow up discussions with the companies showing
the highest uncertain tax positions also is described.
QUESTIONS:
1.) Summarize the requirements of Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes--An Interpretation of FASB
Statement No. 109 (FIN 48).
2.) In describing the FIN 48 requirements, the author of this article states
that "until now, there was generally no way to know about" the accounting
for reserves for uncertain tax positions. Why is that the case?
3.) Some firms may develop "FIN 48 opinions" every time a tax position is
taken that could be questioned by the IRS or other tax governing authority.
Why might companies naturally want to avoid having to document these
positions very clearly in their own records?
4.) Credit Suisse analysts note that the new FIN 48 disclosures about
unrecognized tax benefits provide investors with information about risks
companies are undertaking. Explain how this information can be used for this
purpose.
5.) How are the absolute amounts of unrecognized tax benefits compared to
other financial statement categories to provide a better frame of reference
for analysis? In your answer, propose a financial statement ratio you feel
is useful in assessing the risk described in answer to question 4, and
support your reasons for calculating this amount.
6.) The amount of reserves recorded by Merck for unrecognized tax benefits,
tops the list from the analysis done by Credit Suisse and the one done by
Professors Blouin, Gleason, Mills and Sikes. Based only on the descriptions
given in the article, how did the two analyses differ in their measurements?
What do you infer from the fact that Merck is at the top of both lists?
7.) Why are transfer prices among international operations likely to develop
into uncertain tax positions?
Reviewed By: Judy Beckman, University of Rhode Island
From The Wall Street Journal Accounting Weekly Review on May 27,
2011
Sony Expects Hefty Loss
by: Juro Osawa
May 24, 2011
Click here to view the full article on WSJ.com
TOPICS: Earning
Announcements, Earnings Forecasts, Income Taxes, Supply Chains, Tax
Deferrals
SUMMARY: "Sony
Corp. warned it expects to post an annual loss of $3.2 billion, reversing a
previous prediction of a return to profitability as the Japanese electronics
giant struggles to recover from the March 11 earthquake and tsunami. Sony
said it would take a $4.4 billion write-off on a certain portion of deferred
tax assets in Japan, in what would be the company's third straight year of
red ink....Sony said that under U.S. accounting standards, a third straight
year of losses from the part of the company's operations based in Japan-due
partly to the yen's strength-raised questions over the validity of its
deferred tax assets in Japan."
CLASSROOM APPLICATION: The
article is excellent for class use to cover deferred tax asset valuation
allowances but it also touches on supply chain issues. The article is as
well useful to discuss management forecasts (guidance), interim and annual
reporting practices in Japan, foreign private issuers' filings on Form 20-F,
and Sony's use of U.S. GAAP. One question also asks the students to consider
whether the effects of the Great East Japan Earthquake and tsunami should be
expected to be treated as extraordinary under U.S. GAAP. By the time
students answer this last question, the company should have made its filing
on Form 20-F which will allow for verification of the assessment.
QUESTIONS:
1. (Introductory) Summarize your understanding of the announcement
that Sony has made and that is reported in this article. For what time
period is the company reporting? In your answer, comment on the usual fiscal
year-end date for Japanese companies.
2. (Introductory) What is a deferred tax asset? What is a deferred
tax asset valuation allowance?
3. (Introductory) For what reasons did Sony Corp. record deferred
tax assets? Why must the company now write them down by establishing
valuation allowances? In what reporting period will the company show the
charge for this write down as a deduction in determining net income?
4. (Advanced) Why does this deferred tax asset write-down become an
"admission that the March disaster has shattered its [Sony's] expectations
for a robust current fiscal year"?
5. (Advanced) Access the Filing on Form 6-K which describes the
investor briefing regarding the revision of management's forecast of
consolidated results that is reported on in thie article. The filing is
available at
http://www.sec.gov/Archives/edgar/data/313838/000115752311003320/a6733820.htm
Explain your understanding of the importance of the taxable income shown by
"Sony Corporation as an unconsolidated unit and its consolidated tax filing
group companies in Japan" to the loss that will be reported by Sony.
6. (Advanced) Why does Sony focus on the impact of the Japanese
taxable income on accounting under U.S. GAAP? In your answer, comment on the
financial reporting requirements for companies traded on U.S. stock
exchanges.
7. (Introductory) What was the impact of the "Great East Japan
Earthquake" on sales and operating profits in the last fiscal year? In the
current year?
8. (Advanced) Do you think that the impact of the earthquake and
tsunami described above will be give extraordinary item treatment under U.S.
GAAP? Support your answer.
Reviewed By: Judy Beckman, University of Rhode Island
"Sony Expects Hefty Loss," by: Juro Osawa, The Wall Street Journal,
May 24, 2011 ---
http://online.wsj.com/article/SB10001424052702304520804576340750302051690.html?mod=djem_jiewr_AC_domainid
Sony Corp. on Monday said it expects to post
a $3.2 billion net loss for the just-ended fiscal year, blaming a $4.4
billion write-off on a certain portion of deferred tax assets in Japan, in
what would be the company's third straight year of red ink.
The write-off is an admission from the
entertainment and electronics conglomerate that the March 11 earthquake and
tsunami has shattered its expectations for a robust current fiscal year.
While the disaster's direct impact on the company's operating profit wasn't
large, the post-quake outlook put Sony in a position where it had to set
aside reserves of 360 billion yen on certain deferred tax assets in its
fiscal fourth quarter.
Sony lowered its net outlook for the fiscal
year that ended in March to a loss of 260 billion yen from the profit of 70
billion yen it forecast in February. In the previous fiscal year, the
company racked up a loss of 40.8 billion yen.
The company, however, said it predicts a
return to profitability for the current business year through March 2012.
Sony said that under U.S. accounting
standards, a third straight year of losses from the part of the company's
operations based in Japan—due partly to the yen's strength—raised questions
over the validity of its deferred tax assets in Japan. But until March, Sony
saw no need to write off the assets.
"Until the quake hit, we had been counting
on a considerable recovery in earnings," in the current fiscal year, Sony
Chief Financial Office Masaru Kato said at a news briefing.
But conditions have changed drastically
since the earthquake and tsunami. In the wake of the disaster, Sony
temporarily shut 10 plants in and around the quake-hit region. All but one
of those plants have since resumed operations, at least partially.
Sony said the disaster siphoned off 22
billion yen from the company's sales and 17 billion yen from its operating
profit in the just-ended business year.
The company left its forecast for operating
profit unchanged at 200 billion yen, but lowered its revenue outlook to 7.18
trillion yen from 7.2 trillion yen.
Sony didn't disclose what it expects for the
fiscal fourth quarter, but according to a Dow Jones Newswires calculation,
it is estimated to have posted a net loss of 389.2 billion yen for the
January-March quarter. That compares with a loss of 56.57 billion yen a year
earlier.
Like other Japanese auto and electronics
makers, Sony continues to face uncertainties because its recovery prospects
are partially dependent on parts and materials suppliers, many of which have
also been affected by the quake.
"The supply-chain situation should recover
significantly in the second half of this fiscal year," Mr. Kato said.
In the current fiscal year, Sony estimates
that the quake is likely to have a negative impact of about 440 billion yen
on sales and 150 billion yen on operating profit, mainly through
supply-chain disruptions.
Despite the quake's expected impact, Sony
said it expects that its revenue will increase this fiscal year, and that
its operating profit will be about the same as the previous fiscal year.
Continued in article
Bob Jensen's threads on FIN 48 are at
http://www.trinity.edu/rjensen/Theory02.htm#FIN48
"IMPROVING TRANSPARENCY IN NOTE DISCLOSURES: CAN FASB MAKE THE “HARD”
DECISIONS?" by Anthony H. Catanach and J. Edward Ketz, Grumpy Old Accountants
Blog, August 6, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/719
The Financial Accounting Standards Board (FASB) is
getting around to addressing the disclosure catastrophe that has befallen
our beloved financial statements. Yes, in case you haven’t noticed, the
financial statement notes (the report content that really matters) have
disintegrated into a series of disorganized, generic, boilerplate text
references that can at best be called tedious, and at worst uninformative
and misleading. Since the financial report implosion of 2002, today’s
financial reports have doubled in size but supply only half the
information. So, FASB’s recent invitation to comment on its
Disclosure Framework is a Christmas gift in July.
But what took so long? Maybe, the FASB schedule
has opened up a bit now that IFRS adoption is dead, and financial reporting
transparency can get the attention it really deserves. Still, we aren’t
going to get too excited as the FASB likely won’t pass anything for years
and years.
We also wonder if the FASB is really qualified for
rehabilitating financial statement note disclosures. Why you ask? Just
read the invitation to comment. The FASB takes an introduction and four
chapters (50 pages total) to actually get to the substantive issues in
Chapter 5 – Format and Organization. Wow! Who really cares enough about
note disclosure reform and transparency to wade through this verbose
narrative that describes topics such as the board’s decision process and
some general comments about flexibility and relevance? The Grumpy Old
Accountants of course…and we definitely have some ideas to share!
Our very simple (and easy to implement)
recommendations address issues raised in two sections of Chapter 5 in FASB’s
invitation to comment: Organization (page 55) and Enhancing the
Understandability of Notes (page 53).
Organization
We tend to generally favor the ordering suggestions
outlined in paragraph 5.22, except that we see no need for “disclosures
about transactions or events that have had or will have a broad impact on
the financial statements.” These are much too judgmental and subjective,
and hence not worthy of the printed space.
First and foremost, each financial statement line
item in both the balance sheet and income statement should be supported by
its own individual note disclosure. The numbering sequence of the notes
would be driven by the ordering of assets, liabilities, and stockholders’
equity in a company’s balance sheet, followed by the sequencing of specific
income statement line items. The accounting policy note would not be
numbered but would precede the numbered notes under a caption titled
“General Reporting Considerations”. More details to follow below.
Additionally, each balance sheet and income
statement amount reported should exactly match the related note disclosure
and any supporting schedule provided. For example, impairment losses and
restructuring costs reported in the income statement should be supported by
a schedule in the related note disclosure.
Finally, we propose elimination of the accounting
policy note that we currently see “abused” in today’s financial statements.
We propose including any accounting policies for specific balance sheet and
income statement components together with the specific note disclosures
outlined above. For example, as one analyzes the accounts receivable
reported by an entity, the accounting policy for the item would be read
first, then any detailed asset disclosures. Why do companies make readers
flip back and forth between balance sheet, policy note, and a detailed
note? Worse, why do companies make readers peruse a variety of notes on the
same account? Are companies trying to confuse or mislead?
As to the issues raised by the FASB in paragraphs
5.27 through 5.30, our organization proposals are logical, easy to
implement, meet the needs of most users, and are less subject to management
manipulation.
Enhancing the Understandability of Notes
Not surprisingly we have some
very strong opinions on how to improve the content of financial statement
notes, thus their understandability and transparency. First, as noted
above, we recommend scrapping the accounting policy note as discussed
above. It would be replaced by a general (and unnumbered) section
immediately following the last financial statement presented. It would be
labeled “General Reporting Considerations” and would include
only the following items:
- General business description including the
reporting entity’s fiscal year end and reporting period.
- Basis of presentation (i.e., US GAAP, IFRS,
liquidation, etc.)
- Principles of consolidation and a detailed
schedule of consolidated entities (ownership percentage, reason for
consolidation, total assets and revenues of consolidated entity, etc.)
- Reclassifications and restatements both of
which would be supported by detailed schedules and related discussions
(reasons, impact, etc.)
More specifically, this new note would
exclude the following items which would either be eliminated
in entirety, or relocated to a specific financial statement note:
Continued in article
Bob Jensen's threads on accounting standard setting controversies are at
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Inforgraphic: Where Malware Comes From ---
http://www.readwriteweb.com/archives/infographic-where-malware-comes-from.php
Bob Jensen's threads on malware ---
http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection
August 3, 2012 message from Jim McKinney
Hi Bob,
FYI
The link for the Academy of Accounting Historians is now
aahhq.org (think aaahq but
with aah not aaa)
The material from Rutgers has been removed
You should probably add a link to the
http://www.sechistorical.org/
Which has many historical documents related to the SEC. The site just added
a 10 year retrospective interview with both Sarbanes and Oxley conducted
last week (under programs). For those interested, we are doing a
presentation on the site at the AAA on Monday at 4:00pm (session 3.05)
Cheers,
Jim McKinney, Ph.D., C.P.A.
Accounting and Information Assurance
Robert H. Smith School of Business
4333G Van Munching Hall
University of Maryland
College Park, MD 20742-1815
http://www.rhsmith.umd.edu
Archive of the History of Financial Regulation ---
http://www.sechistorical.org/
Some Accounting History Sites
Accounting History Libraries at the University of
Mississippi (Ole Miss) ---
http://www.olemiss.edu/depts/accountancy/libraries.html
The above libraries include international accounting history.
The above libraries include film and video historical collections.
MAAW Knowledge Portal for Management and Accounting ---
http://maaw.info/
Academy of Accounting Historians and the Accounting Historians Journal ---
http://www.accounting.rutgers.edu/raw/aah/
Sage Accounting History ---
http://ach.sagepub.com/cgi/pdf_extract/11/3/269
A nice timeline on the
development of U.S. standards and the evolution of thinking about the income
statement versus the balance sheet is provided at:
"The Evolution of U.S. GAAP: The Political Forces Behind Professional
Standards (1930-1973)," by Stephen A. Zeff, CPA Journal, January
2005 ---
http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
Part II covering years 1974-2003 published in February 2005 ---
http://www.nysscpa.org/cpajournal/2005/205/index.htm
A nice timeline of accounting history
---
http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING
From Texas A&M University
Accounting History Outline ---
http://acct.tamu.edu/giroux/history.html
Canadian Printer and Publisher (history of various trades and
industries) ---
http://link.library.utoronto.ca/cpp/
You can search for various industry terms such as accounting, cost,
bookkeeping, etc.
Bob Jensen's timeline of derivative
financial instruments and hedge accounting ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
History of Fraud in America ---
http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm
Also see
http://www.trinity.edu/rjensen/Fraud.htm
Archive of the History of Financial Regulation ---
http://www.sechistorical.org/
"A Brief History of the Corporation: 1600 to 2100," by Venkat,
RibbonFarm, June 8, 2011 ---
http://www.ribbonfarm.com/2011/06/08/a-brief-history-of-the-corporation-1600-to-2100/
June 23, 2011 reply from Rick Lilly
Hi Bob,
I am reading an
interesting book titled Life Inc., How Corporatism Conquered the
World, and How We Can Take It Back, by Douglas Ruskhoff
(ISBN-13: 978-0812978506). Below
is the URL link to the Amazon.com web page.
Link:
http://www.amazon.com/Life-Inc-Corporatism-Conquered-World/dp/0812978501/ref=sr_1_3?s=books&ie=UTF8&qid=1308848737&sr=1-3
Rick Lillie, MAS, Ed.D., CPA
Assistant Professor of Accounting
Coordinator, Master of Science in Accountancy
CSUSB, CBPA, Department of Accounting & Finance
5500 University Parkway, JB-547
San Bernardino, CA. 92407-2397
-
June 23, 2011 reply from Bob Jensen
A History of Entrepreneurship
"Who Are The Entrepreneurs: The Elite or the Everyday Man? A History of
Entrepreneurship," by Heather A. Haveman, Jacob Habinek, and Leo A
Googman, UC Berkeley, 2011 ---
http://www.escholarship.org/uc/item/392635v2;jsessionid=00ECE18AD2472F4956AAF2D00CC2132E#page-2
Who
Are The Entrepreneurs: The Elite or the Everyday Man? A History of
Entrepreneurship
June 23, 2011 reply from Jagdish Gangolly
Bob,
The years 1770-72 were also infamous for
another reason. The East India Company which had earlier used the grant
given to it by the Mughal emperor Akbar to the city of Calcutta had
established its control over Bengal. Its disastrous tax and other
policies, compounded by drought, led to the death by starvation of 10
million people.
Warren Hastings, who was the Governor General,
was later impeached (for corruption) and later acquitted by the British
Parliament. He was later made a Privy Councillor, a rather strange
honour for one who stood like a Greek hero, counting the British tax
revenues (which multiplied), while 10 million human beings died of
starvation.
Venkat's lament about Alexander Fordyce's
absconding for half a million pounds debt is a petty matter relative to
the death of 10 million people caused by Hastings and his cohorts at the
same British East India Company.
Sen asks a profound rhetorical question why
there have been no famines in India since the British left. Democracy
does not permit it.
Edmund Burke's speech in the British Parliament
in the impeachment proceedings is, in my opinion, one of the finest
pieces of writing in the English language. Here is a snippet:
_________________________________________________
My Lords, the East India Company have not
arbitrary power to give him; the King has no arbitrary power to give
him; your Lordships have not; nor the Commons, nor the whole
Legislature. We have no arbitrary power to give, because arbitrary power
is a thing which neither any man can hold nor any man can give. No man
can lawfully govern himself according to his own will; much less can one
person be governed by the will of another. We are all born in subjection
-- all born equally, high and low, governors and governed, in subjection
to one great, immutable, pre-existent law, prior to all our devices and
prior to all our contrivances, paramount to all our ideas and all our
sensations, antecedent to our very existence, by which we are knit and
connected in the eternal frame of the universe, out of which we cannot
stir.
This great law does not arise from our
conventions or compacts; on the contrary, it gives to our conventions
and compacts all the force and sanction they can have. It does not arise
from our vain institutions. Every good gift is of God; all power is of
God; and He who has given the power, and from Whom alone it originates,
will never suffer the exercise of it to be practised upon any less solid
foundation than the power itself. If, then, all dominion of man over man
is the effect of the Divine disposition, it is bound by the eternal laws
of Him that give it, with which no human authority can dispense neither
he that exercises it, nor even those who are subject to it; and if they
were mad enough to make an express compact that should release their
magistrate from his duty, and should declare their lives, liberties, and
properties dependent upon, not rules and laws, but his mere capricious
will, that covenant would be void. The acceptor of it has not his
authority increased, but he has his crime doubled. Therefore can it be
imagined, if this be true, that He will suffer this great gift of
government, the great, the best, that was ever given by God to mankind,
to be the plaything and the sport of the feeble will of a man, who, by a
blasphemous, absurd, and petulant usurpation, would place his own
feeble, comtemptible, ridiculous will in the place of the Divine wisdom
and justice?
The title of conquest makes no difference at
all. No conquest can give such a right; for conquest, that is force,
cannot convert its own injustice into a just title by which it may rule
others at its pleasure. By conquest, which is a more immediate
designation of the hand of God, the conqueror succeeds to all the
painful duties and subordination to the power of God which belonged to
the sovereign whom he has displaced, just as if he had come in by the
positive law of some descent or some election. To this at least he is
strictly bound: he ought to govern them as he governs his own subjects.
But every wise conqueror has gone much further than he was bound to go.
It has been his ambition and his policy to reconcile the vanquished to
his fortune, to show that they had gained by the change, to convert
their momentary suffering into a long benefit, and to draw from the
humiliation of his enemies an accession to his own glory. This has been
so constant a practice, that it is to repeat the histories of all
politic conquerors in all nations and in all times; and I will not so
much distrust your Lordships' enlightened and discriminating studies and
correct memories as to allude to any one of them. I will only show you
that the Court of Directors, under whom he served, has adopted that idea
that they constantly inculcated it to him, and to all the servants that
they run a parallel between their own and the native government, and,
supposing it to be very evil, did not hold it up as an example to be
followed, but as an abuse to be corrected that they never made it a
question, whether India is to be improved by English law and liberty, or
English law and liberty vitiated by Indian corruption. ... ...
Source:
http://www.ourcivilisation.com/smartboard/shop/burkee/extracts/chap12.htm
________________________________________________________________________
How profound and timely, in the context of all
recent corruption scandals.
Jagdish -- Jagdish S. Gangolly, (j.gangolly@albany.edu)
Vincent O'Leary Professor Emeritus of Informatics, Director, PhD Program
in Information Science, Department of Informatics, College of Computing
& Information 7A Harriman Campus Road, Suite 220 State University of New
York at Albany, Albany, NY 12206. Phone: (518) 956-8251, Fax: (518)
956-8247 URL: http://www.albany.edu/acc/gangolly
History of Fraud in America ---
http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm
"Harvard Grad Starts Math Museum Helped by Google, Hedge Funder,"
by Patrick Cole, Bloomberg Business Week, November 1, 2011 ---
http://www.businessweek.com/news/2011-11-01/harvard-grad-starts-math-museum-helped-by-google-hedge-funder.html
Bob Jensen's links to mathematics history, tutorials, videos, and free
online education and research materials ---
http://www.trinity.edu/rjensen/Bookbob2.htm#050421Mathematics
Bob Jensen's links to history, tutorials, videos, and free online
education and research materials in other disciplines---
http://www.trinity.edu/rjensen/Bookbob2.htm
Also see
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
August 3, 2012 message from Jim McKinney
Hi Bob,
FYI
The link for the Academy of Accounting Historians is now
aahhq.org (think aaahq
but with aah not aaa)
The material from Rutgers has been removed
You should probably add a link to the
http://www.sechistorical.org/
Which has many historical documents related to the SEC. The site just
added a 10 year retrospective interview with both Sarbanes and Oxley
conducted last week (under programs). For those interested, we are doing
a presentation on the site at the AAA on Monday at 4:00pm (session 3.05)
Cheers,
Jim McKinney, Ph.D., C.P.A.
Accounting and Information Assurance
Robert H. Smith School of Business
4333G Van Munching Hall
University of Maryland
College Park, MD 20742-1815
http://www.rhsmith.umd.edu
September 29, 2011 message from Barbara
Scofield
One of the 2011
MacArthur Fellows is a historian, one of whose specialties is the
history of accounting:
Barbara W. Scofield,
PhD, CPA
Chair of Graduate Business Studies
Professor of Accounting
The University of Texas of the Permian Basin
4901 E. University Dr.
Odessa, TX 79762
Jacob Soll, European Historian ---
http://www.macfound.org/site/c.lkLXJ8MQKrH/b.7731011/k.1A2A/Jacob_Soll.htm
Jacob Soll is a
historian whose meticulously researched studies of early modern Europe
are shedding new light on the origins of the modern state. Drawing on
intellectual, political, cultural, and institutional history, Soll
explores the development of political thought and criticism in relation
to governance from the sixteenth to the eighteenth centuries in Western
Europe. Soll's first book, Publishing "The Prince" (2005),
examines the role of commentaries, editions, and translations of
Machiavelli produced by the previously little-studied figure Amelot de
La Houssaye (1634-1706), who became the most influential writer on
secular politics during the reign of Louis XIV. Grounded in extensive
analysis of archival, manuscript, and early printed sources, Soll shows
how Amelot and his publishers arranged prefaces, columns, and footnotes
in a manner that transformed established works, imbuing books previously
considered as supporting royal power with an alternate, even
revolutionary, political message. In The Information Master
(2009), he investigates the formation of a state-information gathering
and classifying network by Louis XIV's chief minister, Jean-Baptiste
Colbert (1619-1683), revealing that Colbert's passion for information
was both a means of control and a medium for his own political
advancement: his systematic and encyclopedic information collection
served to strengthen and uphold Louis XIV's absolute rule. With these
and other projects in progress — including an intellectual and practical
history of accounting and its role in governance in the modern world and
a study of the composition of library catalogues during the
Enlightenment — Soll is opening up new fields of inquiry and elucidating
how modern governments came into being.
Jacob Soll received a
B.A. (1991) from the University of Iowa, a D.E.A. (1993) from the École
des Hautes Études en Sciences Sociales, and a Ph.D. (1998) from
Magdalene College, Cambridge University. He has been affiliated with
Rutgers University, Camden, since 1999, where he is currently a
professor in the Department of History.
Also see
The
information master: Jean-Baptiste Colbert's secret state intelligence system
- By Jacob Soll ---
http://ideas.repec.org/a/bla/ehsrev/v63y2010i1p261-262.html
Or go directly to
The Economic History Review
Volume 63, Issue 1, pages 261–262, February 2010
http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0289.2009.00511_20.x/full
From Encylopedia Britannica ---
http://www.britannica.com/EBchecked/topic/124928/Jean-Baptiste-Colbert
(which in part provides early history of clawback return of gains to
government, something the SEC is avoiding in the early 21st Century fraud
convictions)
Also note the stress on manufacturing regulation and quality controls.
Colbert was born of a merchant family. After
holding various administrative posts, his great opportunity came in
1651, when Cardinal
Mazarin, the dominant political figure in
France, was forced to leave Paris and take refuge in a provincial
city—an episode in the Fronde, a period (1648–53) of struggle between
the crown and the French parlement. Colbert became Mazarin’s
agent in Paris, keeping him abreast of the news and looking after his
personal affairs. When Mazarin returned to power, he made Colbert his
personal assistant and helped him purchase profitable appointments for
both himself and his family. Colbert became wealthy; he also acquired
the barony of Seignelay. On his deathbed, Mazarin recommended him to
Louis XIV, who soon gave Colbert his
confidence. Thenceforth Colbert dedicated his enormous capacity for work
to serving the King both in his private affairs and in the
general administration of the kingdom.
The struggle with Fouquet.
For 25 years Colbert was to be concerned with
the economic reconstruction of France. The first necessity was to bring
order into the chaotic methods of financial administration that were
then under the direction of
Nicolas Fouquet, the immensely powerful
surintendant des finances. Colbert destroyed Fouquet’s reputation
with the King, revealing irregularities in his accounts and denouncing
the financial operations by which Fouquet had enriched himself. The
latter’s fate was sealed when he made the mistake of receiving the King
at his magnificent chateau at Vaux-le-Vicomte; the Lucullan festivities,
displaying how much wealth Fouquet had amassed at the expense of the
state, infuriated Louis. The King subsequently had him arrested. The
criminal proceedings against him lasted three years and excited great
public interest. Colbert, without any rightful standing in the case,
interfered in the trial and made it his personal affair because he
wanted to succeed Fouquet as finance minister. The trial itself was a
parody of justice. Fouquet was sent to prison, where he spent the
remaining 15 years of his life. The surintendance was replaced
by a council of finance, of which Colbert became the dominant member
with the title of intendant until, in 1665, he became controller
general.
Financiers and
tax farmers had made enormous profits from
loansand advances to the state treasury, and Colbert established
tribunals to make them give back (clawbacks)
some of their gains. This was well received
by
public opinion, which held the financiers
responsible for all difficulties; it also lightened the
public debt,
which was further reduced by the repudiation of some
government bonds and the repayment of others
without interest. Private fortunes suffered, but no disturbances ensued,
and the King’s credit was restored.
Financial and economic affairs.
Colbert’s next efforts were directed to
reforming the chaotic system of taxation, a heritage of medieval times.
The King derived the major part of his revenue from a tax called the
taille, levied in some districts on
individuals and in other districts on land and businesses. In some
districts the taille was apportioned and collected by royal officials;
in others it was voted by the representatives of the province. Many
persons, including clergy and nobles, were exempt from it altogether.
Colbert undertook to levy the taille on all who were properly liable for
it and so initiated a review of titles of nobility in order to expose
those who were claiming
exemption falsely; he also tried
to make the tax less oppressive by a fairer distribution. He reduced the
total amount of it but insisted on payment in full over a reasonable
period of time. He took care to suppress many abuses of collection
(confiscation of defaulters’ property, seizure of peasants’ livestock or
bedding, imprisonment of collectors who had not been able to produce the
due sums in time). These reforms and the close supervision of the
officials concerned brought large sums into the treasury. Other taxes
were increased, and the tariff system was revised in 1664 as part of a
system of protection. The special dues that existed in the various
provinces could not be swept away, but a measure of uniformity was
obtained in central France.
Colbert devoted endless energy to the
reorganization of industry and commerce. He believed that in order to
increase French power it would be essential to increase France’s share
of
international trade and in particular to
reduce the commercial hegemony of the Dutch. This necessitated not only
the production of high-quality goods that could compete with foreign
products abroad but also the building up of a merchant fleet to carry
them. Colbert encouraged foreign workers to bring their trade skills to
France. He gave privileges to a number of private industries and
foundedstate manufactures. To guarantee the standard of workmanship, he
made regulations for every sort of manufacture and imposed severe
punishments (fines and the pillory) for counterfeiting and shortcomings.
He encouraged the formation of companies to build ships and tried to
obtain monopolies for French commerce abroad through the formation of
trading companies. The French East India and West India companies,
founded in 1664, were followed by others for trade with the eastern
Mediterranean and with northern Europe; but Colbert’s propaganda for
them, though cleverly conducted, failed to attract sufficient capital,
and their existence was precarious. The protection of national industry
demanded tariffs against foreign produce, and other countries replied
with tariffs against French goods. This tariff warfare was one of the
chief causes of the
Dutch War of
1672–78.
Colbert’s system of control was resented by
traders and contractors, who wanted to preserve their freedom of action
and to be responsible to themselves alone. Cautious and thrifty people,
moreover, still preferred the old outlets for
their money (land, annuities,
moneylending) to investing in industry. The period, too, was one of
generally falling prices throughout the world. Colbert’s success,
therefore, fell short of his expectation, but what he did achieve seems
all the greater in view of the obstacles in his way: he raised the
output of manufactures, expanded trade, set up new permanent industries,
and developed communications by road and water across France (Canal
du Midi, 1666–81).
Continued in article
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Legg Mason Global Asset Management ---
http://www.leggmason.com/
From Simoleon Sense, August 19, 2012
Michael Mauboussin is the CEO of Legg Mason Global Asset Management
Michael Mauboussin’s Behavioral
Economics Reading List:
Recommended Books:
1. Thinking,
Fast and Slow by Daniel Kahneman (Farrar, Straus and Giroux,
2011).
Comment: A
sweeping review of the work of the greatest psychologist of the past
half century.
2. Judgment
in Managerial Decision Making — Seventh Edition by Max H.
Bazerman and Don Moore (John Wiley & Sons, 2008)
Comment:
A great source for heuristics and biases
3. Expert
Political Judgment by Philip Tetlock (Princeton University
Press, 2005)
Comment:
Are you still listening to expert prognosticators? A devastating,
empirical study of how bad expert predictions are in complex realms.
4. The
Halo Effect by Phil Rosenzweig (Free Press, 2006)
Comment:
Lots of lessons in 175 pages–you’ll never look at the world the same
way after reading this one.
5. The
Winner’s Curse by Richard Thaler (Princeton University Press,
1992)
Comment:
The contents are the foundation of what we call behavioral finance.
Recommended Articles:
1. “On the
Psychology of Prediction” by Daniel Kahneman and Amos Tversky (Psychological
Review, Vol. 80, No. 4, July 1973, 237-251)
Comment:
Kahneman said this was his favorite paper. This explains the
inside-outside view.
2.
“Prospect Theory: An Analysis of Decision Under Risk” by Daniel
Kahneman and Amos Tversky (Econometrica, Vol. 72, No.
2, March 1979, 263-292)
Comment:
A clear and compelling discussion of how behavior varies from
what utility theory predicts.
3. “A
Survey of Behavioral Finance” by Nicholas C. Barberis and
Richard H. Thaler (in George Constantinides, Milton Harris, and
Rene Stulz, eds.Handbook of Economics of Finance: Volume 1B,
Financial Markets and Asset Pricing, Elsevier North
Holland, Chapter 18, 1053-1128)
Comment:
Exactly as advertised–what you need to know about behavioral
finance in one place.
4.
“Conditions for Intuitive Expertise: A Failure to Disagree” by
Daniel Kahneman and Gary Klein (American Psychologist,
Vol. 64, No. 6, September 2009, 515-536)
Comment:
We overestimate the abilities of experts. But they do work in
certain settings. This explains when you can trust an expert.
5.
“Hindsight ≠ Foresight: The Effect of Outcome Knowledge on
Judgment Under Uncertainty” by Baruch Fischhoff (Journal of
Experimental Psychology: Human Perception and Performance,
Vol. 1, No. 3, August 1975, 288-299)
Comment:
Hindsight bias and creeping determinism. Big problems.
Bob Jensen's threads on Behavioral and Cultural Economics in Finance
---
http://www.trinity.edu/rjensen/Theory01.htm#Behavioral
Mortgage Rate Calculation Tools ---
http://www.mortgagerates.net/additional-resources/calculation-tools/
Bob Jensen's threads on online calculators ---
http://www.trinity.edu/rjensen/Bookbob3.htm#080512Calculators
August 15, 2012 message from Ernst & Young
It was great seeing you in Maryland.
We at Ernst & Young hope you had a productive and
enjoyable time at this year's AAA Annual Meeting Our Ernst & Young leaders
participated in several panel discussions, and our University Relations and
Foundation Team had the opportunity to connect with many of you while
attending sessions. If you have not already done so, please take a moment to
log onto the Ernst & Young Academic Resource Center (ARC) to review new and
interesting curriculum that you will be able to incorporate into your
classrooms. Access the EYARC at
www.ey.com/us/arc. If you do not currently have an
account, contact
Catherine Banks for
access.
We are grateful for all that you do for the profession and are proud to
support your efforts.
Regards,
"What You Need to Know About MOOC's," Chronicle of Higher Education,
August 20, 2012 ---
http://chronicle.com/article/What-You-Need-to-Know-About/133475/
. . .
Who are the major players?
Several start-up companies are working with
universities and professors to offer MOOC's. Meanwhile, some colleges are
starting their own efforts, and some individual professors are offering
their courses to the world. Right now four names are the ones to know:
edX
A nonprofit effort run jointly by
MIT, Harvard, and Berkeley.
Leaders of the group say they intend to slowly add
other university partners over time. edX plans to freely give away the
software platform it is building to offer the free courses, so that anyone
can use it to run MOOC’s.
Coursera
A for-profit company founded by two computer-science
professors from Stanford.
The company’s model is to sign contracts with colleges that agree to use
the platform to offer free courses and to get a percentage of any revenue.
More than a dozen high-profile institutions, including Princeton and the U.
of Virginia, have joined.
Udacity
Another for-profit company founded
by a Stanford computer-science professor.
The company, which works with individual professors
rather than institutions, has attracted a range of well-known scholars.
Unlike other providers of MOOC’s, it has said it will focus all of its
courses on computer science and related fields.
Udemy
A for-profit platform that lets
anyone set up a course.
The company encourages its instructors to charge a
small fee, with the revenue split between instructor and company. Authors
themselves, more than a few of them with no academic affiliation, teach many
of the courses.
"The Future Is Now?" by Joe Hoyle, Teaching Blog, August 13,
2012 ---
http://joehoyle-teaching.blogspot.com/2012/08/the-future-is-now.html
Bob Jensen's threads on MOOCs, MITx, and Courses from Prestigious
Universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's threads on distance education and training alternatives in
general ---
http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
Note that PwC does Romney's tax returns and most likely is his main source
regarding global tax planning.
"In Superrich, Clues to What Might Be in Romney’s Returns," by James B.
Steward, The New York Times, August 10. 2012 ---
http://www.nytimes.com/2012/08/11/business/in-the-superrich-clues-to-romneys-tax-returns-common-sense.html?_r=3&ref=business
On the face of it, Senator Harry Reid’s explosive
but flimsily sourced claim that Mitt Romney paid no income tax seems
preposterous. Mr. Romney has denied it, and without his returns no one can
say for sure. But for someone who makes millions of dollars a year, would it
even be possible?
Evidently it is.
It so happens that this summer the Internal Revenue
Service released data from the 400 individual income tax returns reporting
the highest adjusted gross income. This elite ultrarich group earned on
average $202 million in 2009, the latest year available. And buried in the
data is the startling disclosure that six of the 400 paid no federal income
tax.
The I.R.S. has never before disclosed that last
fact.
Not even Mr. Romney, with reported 2010 income of
$21.7 million, qualifies for membership in this select group of 400. But the
data provides a window into the financial lives and tax rates of the
superrich. Since the I.R.S. doesn’t release data for the tiny percentage of
Americans at Mr. Romney’s income level, the 400 are the closest proxy.
And that data demonstrates that many of the
ultrarich can and do reduce their tax liability to very low levels, even
zero. Besides the six who paid no federal income tax, the I.R.S. reported
that 27 paid from zero to 10 percent of their adjusted gross incomes and
another 89 paid between 10 and 15 percent, which is close to the 13.9
percent rate that Mr. Romney disclosed that he paid in 2010. (At the other
end of the spectrum, 82 paid 30 to 35 percent. None paid more than 35
percent.) So more than a quarter of the people earning an average of over
$200 million in 2009 paid less than 15 percent of their adjusted gross
income in taxes.
How do they do it?
The data show that the ultrarich typically pay low
tax rates every year, but 2009 was a special case. In 2008, people with
large stock portfolios and other less liquid assets were disproportionately
hit with large losses on paper. One of the oddities of the tax code is that
capital gains taxes are discretionary, since they must be paid only when
gains are realized. And they can be offset by losses. The silver lining in a
bad year like 2008 for wealthy people is that they can “harvest” losses by
selling assets, then use those losses to offset any gains. They can also
carry forward the losses to offset gains in future years.
There’s ample evidence that happened in 2009 among
the richest taxpayers. Their average income, $202 million, dropped from $270
million in 2008 and was the lowest since 2004. Like Mr. Romney in 2010, for
the richest taxpayers most income comes from capital gains and other
investment income. Their net capital gains (the data doesn’t include gross
gains and losses) dropped by nearly 40 percent, from an average of $154
million in 2008 to $93 million in 2009, which accounts for nearly all of
their drop in total income. Even with these lower gains, these 400
taxpayers, a minuscule fraction of the population at large, still managed to
account for 16 percent of all capital gains. That is the highest percentage
since the data was first released for 1992, when that percentage was less
than 6 percent.
Tax experts I consulted said these results almost
certainly reflected aggressive use of tax-loss carry-forwards from 2008,
since the stock market bottomed in March 2009 and rallied strongly during
the rest of the year.
The superrich also accounted for a disproportionate
amount of dividend income, which averaged over $26 million for the top 400,
or over 6 percent of total dividend income, also a record. Capital gains and
dividends are both taxed at a maximum rate of 15 percent, as opposed to the
maximum rate on earned income of 35 percent, which helps explain why so many
of the superrich pay a relatively low rate. Still, that preferential rate
doesn’t get them anywhere near zero, or even 10 percent.
Edward Kleinbard, professor of law at the Gould
School of Law at the University of Southern California, explained it this
way, “You start with income dominated by tax-preferred income — capital
gains and qualified dividends. That gets you to 15 percent. Then you use
charitable contributions of appreciated securities to reduce ordinary
income. But the charitable contribution deduction is capped at 50 percent of
adjusted gross income. Now you’re way down, but you’re not at zero.”
Continued in article
Jensen Comment
Note that in many instances what we call a "tax savings" is not a net savings.
For example, when a taxpayer has millions of dollars invested in tax-exempt
bonds of towns, cities, counties, states, and schools (the so-called muni-bonds),
those government entities are getting a lower cost of capital (adjusted for
financial risk) than if the federal government took away those tax-exempt
options in tax reforms. For example, the cost of capital for municipalities
would soar much higher if their bonds were suddenly to become taxable on federal
tax returns and, thereby, had to compete with lower risk corporate bonds.
One could argue that it would be better for the government to eliminate tax
exemptions for municipal bonds and then subsidize all of the towns, cities,
counties, states, and school districts, but the trillions in subsidies required
would clobber Federal deficits now over a trillion dollars. And shrewd
high-income taxpayers would simply find other ways avoid taxation.
Even if Congress should enact a flat tax, I'm not in favor of eliminating tax
exemption for bonds of towns, cities, counties, states, and school districts.
That elimination would be too much of a shock to all the Main Streets of
America.
Having said this, I think there are many things that need to be accomplished
in major tax reforms for all levels of AGI.
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Teaching Case from The Wall Street Journal Weekly Accounting Review on
August 17, 2012
Digging Into Online Coupon Firms' Dealings
by:
Rolfe Winkler
Aug 12, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Revenue Recognition
SUMMARY: Groupon, Inc reported its second quarter earnings after
the close of the market on Monday, August 13, 2012. This article, written in
advance of that earnings announcement, cautions investors "to dig deeply
into the results....Last fall, Groupon started...to sell discounted
products, in addition to its core daily deals for restaurants, spas, and
[other] such [services]....Notable is how the accounting treatment of this
business inflates net revenue growth...[When] Groupon takes the products
into inventory [as in 75% of the first-quarter Groupon Goods deals, the
company] accounts for sales on a gross basis, not a net basis....As Groupon
Goods accounts for more net revenue growth, it could be masking weakness in
the core daily deals business." The related article discusses the actual
quarterly results that were reported and the video also was prepared after
the quarterly filing.
CLASSROOM APPLICATION: The article may be used to introduce topics
in revenue recognition, particularly between sales of goods as a principal
and offering services as an agent.
QUESTIONS:
1. (Introductory) From your own knowledge and use of the service or
from another source, describe Groupon's business model. Cite any sources you
use other than your own knowledge of the business.
2. (Introductory) What new business has Groupon recently launched?
3. (Introductory) As described in the article, compare the
accounting treatment for Groupon's newly launched business with its original
one.
4. (Advanced) In your opinion, should this difference in accounting
treatment exist? Support your answer.
5. (Advanced) Why does the author conclude that "Groupon is making
it tough [for investors and other financial statement users] to understand
its business"?
6. (Introductory) Refer to the related article. What results shown
in the actual financial statement filing are related to the issues discussed
in the main article?
7. (Introductory) Refer to the related video prepared after the
quarterly financial statement filing. According to the interviewee--Mr.
George Stahl, Dow Jones Newswires Deputy Managing Editor--what is
"confusing" about the company's revenue?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The New Deal at Groupon Isn't Enough
by Rolfe Winkler
Aug 14, 2012
Page: C8
"Digging Into Online Coupon Firms' Dealings," by: Rolfe Winkler,
The Wall Street Journal, August 12, 2012 ---
http://professional.wsj.com/article/SB10000872396390444900304577581660314854018.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
Not every dollar of Groupon's GRPN -6.40% revenue
is created equal anymore. Will investors get a full explanation when the
Internet coupon company reports second-quarter earnings Monday?
Groupon reported a surprising acceleration in its
North American business in the first quarter, with net revenue rising 33%
from the previous quarter. That was up from the fourth quarter's 11%
increase. That improvement, said Chief Executive Andrew Mason, was due to
technology that targets customers with coupons they are more likely to buy.
That may give investors comfort, because it suggests Groupon isn't relying
just on a huge marketing budget to drive growth. Trouble is, it doesn't
appear to be the whole story. Related Reading
Groupon Staff Feel the Heat Ahead of Groupon
Earnings, Investors Bet on a Big Move
Investors will want to dig deeply into the results,
which are expected to show net revenue increased 2% quarter over quarter to
$573 million and earnings stayed flat at minus two cents a share. Last fall,
Groupon started a business called Groupon Goods to sell discounted products,
in addition to its core daily deals for restaurants, spas and such. That
business took off in the first quarter, driving roughly 10% of North
American gross billings, data provider Yipit says. Notable is how the
accounting treatment of this business inflates net revenue growth overall.
About 75% of first-quarter Groupon Goods deals were so-called first party
deals, Yipit estimates. For these, Groupon takes the products into inventory
and accounts for sales on a gross basis, not a net basis.
That contrasts with regular Internet coupons in
which net revenue reflects only Groupon's share of what a customer pays,
typically about 40%. Analyst Ken Sena of Evercore Partners estimates that
Groupon Goods accounted for a bit more than half of first-quarter net
revenue growth. As Groupon Goods accounts for more net revenue growth, it
could be masking weakness in the core daily deals business. Yipit data
suggest Groupon's North American gross billings declined 2% in the second
quarter from the first. Considering Europe's slowdown, Groupon's
international business—about 60% of the total— may have slowed even more.
Continued in article
"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
Multiple Teaching Cases About
Accounting at Groupon
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
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/
Bob Jensen's threads on Groupon are under Pricewaterhouse Coopers at
http://www.trinity.edu/rjensen/Fraud001.htm
"Is Modern Portfolio Theory Dead? Come On," by Paul Pfleiderer,
TechCrunch, August 11, 2012 ---
http://techcrunch.com/2012/08/11/is-modern-portfolio-theory-dead-come-on/
A few weeks ago, TechCrunch published a piece
arguing software is better at investing than 99% of human investment
advisors. That post, titled
Thankfully, Software Is Eating The Personal Investing World,
pointed out the advantages of engineering-driven
software solutions versus emotionally driven human judgment. Perhaps not
surprisingly, some commenters (including some financial advisors) seized the
moment to call into question one of the foundations of software-based
investing, Modern Portfolio Theory.
Given the doubts raised by a small but vocal
chorus, it’s worth spending some time to ask if we need a new investing
paradigm and if so, what it should be. Answering that question helps show
why MPT still is the best investment methodology out there; it enables the
automated, low-cost investment management offered by a new wave of Internet
startups including
Wealthfront
(which I advise),
Personal Capital,
Future Advisor
and SigFig.
The basic questions being raised about MPT run
something like this:
- Hasn’t recent experience – i.e., the financial
crisis — shown that diversification doesn’t work?
- Shouldn’t we primarily worry about “Black
Swan” events and unforeseen risk?
- Don’t these unknown unknowns mean we must
develop a new approach to investing?
Let’s begin by briefly laying out the key insights
of MPT.
MPT is based in part on the assumption that most
investors don’t like risk and need to be compensated for bearing it. That
compensation comes in the form of higher average returns. Historical data
strongly supports this assumption. For example, from 1926 to 2011 the
average (geometric) return on U.S. Treasury Bills was 3.6%. Over the same
period the average return on large company stocks was 9.8%; that on small
company stocks was 11.2% ( See 2012 Ibbotson Stocks, Bonds, Bills and
Inflation (SBBI) Valuation Yearbook, Morningstar, Inc., page 23. ). Stocks,
of course, are much riskier than Treasuries, so we expect them to have
higher average returns — and they do.
One of MPT’s key insights is that while investors
need to be compensated to bear risk, not all risks are rewarded. The market
does not reward risks that can be “diversified away” by holding a bundle of
investments, instead of a single investment. By recognizing that not all
risks are rewarded, MPT helped establish the idea that a diversified
portfolio can help investors earn a higher return for the same amount of
risk.
To understand which risks can be diversified away,
and why, consider Zynga. Zynga hit $14.69 in March and has since dropped to
less than $2 per share. Based on what’s happened over the past few months,
the major risks associated with Zynga’s stock are things such as delays in
new game development, the fickle taste of consumers and changes on Facebook
that affect users’ engagement with Zynga’s games.
For company insiders, who have much of their wealth
tied up in the company, Zynga is clearly a risky investment. Although those
insiders are exposed to huge risks, they aren’t the investors who determine
the “risk premium” for Zynga. (A stock’s risk premium is the extra return
the stock is expected to earn that compensates for the stock’s risk.)
Rather, institutional funds and other large
investors establish the risk premium by deciding what price they’re willing
to pay to hold Zynga in their diversified portfolios. If a Zynga game is
delayed, and Zynga’s stock price drops, that decline has a miniscule effect
on a diversified shareholder’s portfolio returns. Because of this, the
market does not price in that particular risk. Even the overall turbulence
in many Internet stocks won’t be problematic for investors who are well
diversified in their portfolios.
Modern Portfolio Theory focuses on constructing
portfolios that avoid exposing the investor to those kinds of unrewarded
risks. The main lesson is that investors should choose portfolios that lie
on the Efficient Frontier, the mathematically defined curve that describes
the relationship between risk and reward. To be on the frontier, a portfolio
must provide the highest expected return (largest reward) among all
portfolios having the same level of risk. The Internet startups construct
well-diversified portfolios designed to be efficient with the right
combination of risk and return for their clients.
Now let’s ask if anything in the past five years
casts doubt on these basic tenets of Modern Portfolio Theory. The answer is
clearly, “No.” First and foremost, nothing has changed the fact that there
are many unrewarded risks, and that investors should avoid these risks. The
major risks of Zynga stock remain diversifiable risks, and unless you’re
willing to trade illegally on inside information about, say, upcoming
changes to Facebook’s gaming policies, you should avoid holding a
concentrated position in Zynga.
The efficient frontier is still the desirable place
to be, and it makes no sense to follow a policy that puts you in a position
well below that frontier.
Most of the people who say that “diversification
failed” in the financial crisis have in mind not the diversification gains
associated with avoiding concentrated investments in companies like Zynga,
but the diversification gains that come from investing across many different
asset classes, such as domestic stocks, foreign stocks, real estate and
bonds. Those critics aren’t challenging the idea of diversification in
general – probably because such an effort would be nonsensical.
True, diversification across asset classes didn’t
shelter investors from 2008’s turmoil. In that year, the S&P 500 index fell
37%, the MSCI EAFE index (the index of developed markets outside North
America) fell by 43%, the MSCI Emerging Market index fell by 53%, the Dow
Jones Commodities Index fell by 35%, and the Lehman High Yield Bond Index
fell by 26%. The historical record shows that in times of economic distress,
asset class returns tend to move in the same direction and be more highly
correlated. These increased correlations are no doubt due to the increased
importance of macro factors driving corporate cash flows. The increased
correlations limit, but do not eliminate, diversification’s value. It would
be foolish to conclude from this that you should be undiversified. If a seat
belt doesn’t provide perfect protection, it still makes sense to wear one.
Statistics show it’s better to wear a seatbelt than to not wear one.
Similarly, statistics show diversification reduces risk, and that you are
better off diversifying than not.
Timing the market
The obvious question to ask anyone who insists
diversification across asset classes is not effective is: What is the
alternative? Some say “Time the market.” Make sure you hold an asset class
when it is earning good returns, but sell as soon as things are about to go
south. Even better, take short positions when the outlook is negative. With
a trustworthy crystal ball, this is a winning strategy. The potential gains
are huge. If you had perfect foresight and could time the S&P 500
on a daily basis, you could have turned $1,000 on Jan. 1, 2000, into
$120,975,000 on Dec. 31, 2009, just by going in and out of the market. If
you could also short the market when appropriate, the gains would have been
even more spectacular!
Sometimes, it seems someone may have a fairly
reliable crystal ball. Consider John Paulson, who in 2007 and 2008 seemed so
prescient in profiting from the subprime market’s collapse. It appears,
however, that Mr. Paulson’s crystal ball became less reliable after his
stunning success in 2007. His Advantage Plus fund experienced more than a
50% loss in 2011. Separating luck from skill is often difficult.
Some people try to come up with a way to time the
market based on historical data. In fact a large number of strategies will
work well “in the back test.” The question is whether any system is reliable
enough to use for future investing.
There are at least three reasons to be cautious
about substituting a timing system for diversification.
- First, a timing system that does not work can
impose significant transaction costs (including avoidable adverse tax
consequences) on the investor for no gain.
- Second, an ill-founded timing strategy
generally exposes the investor to risk that is unrewarded. In other
words, it puts the investor below the frontier, which is not a good
place to be.
- Third, a timing system’s success may create
the seeds of its own destruction. If too many investors blindly follow
the strategy, prices will be driven to erase any putative gains that
might have been there, turning the strategy into a losing proposition.
Also, a timing strategy designed to “beat the market” must involve
trading into “good” positions and away from “bad” ones. That means there
must be a sucker (or several suckers) available to take on the other
(losing) sides. (No doubt in most cases each party to the trade thinks
the sucker is on the other side.)
Black Swans
What about those Black Swans? Doesn’t MPT ignore
the possibility that we can be surprised by the unexpected? Isn’t it
impossible to measure risk when there are unknown unknowns?
Most people recognize that financial markets are
not like simple games of chance where risk can be quantified precisely. As
we’ve seen (e.g., the “Black Monday” stock market crash of 1987 and the
“flash crash” of 2010), the markets can produce extreme events that hardly
anyone contemplated as a possibility. As opposed to poker, where we always
draw from the same 52-card deck, in financial markets, asset returns are
drawn from changing distributions as the world economy and financial
relationships change.
Some Black Swan events turned out to have limited
effects on investors over the long term. Although the market dropped
precipitously in October 1987, it was close to fully recovered in June 1988.
The flash crash was confined to a single day.
This is not to say that all “surprise” events are transitory. The Great
Depression followed the stock market crash of 1929, and the effects of the
financial crisis in 2007 and 2008 linger on five years later.
The question is, how should we respond to
uncertainties and Black Swans? One sensible way is to be more diligent in
quantifying the risks we can see. For example, since extreme events don’t
happen often, we’re likely to be misled if we base our risk assessment on
what has occurred over short time periods. We shouldn’t conclude that just
because housing prices haven’t gone down over 20 years that a housing
decline is not a meaningful risk. In the case of natural disasters like
earthquakes, tsunamis, asteroid strikes and solar storms, the long run could
be very long indeed. While we can’t capture all risks by looking far back in
time, taking into account long-term data means we’re less likely to be
surprised.
Some people suggest you should respond to the risk
of unknown unknowns by investing very conservatively. This means allocating
most of the portfolio to “safe assets” and significantly reducing exposure
to risky assets, which are likely to be affected by Black Swan surprises.
This response is consistent with MPT. If you worry about Black Swans, you
are, for all intents and purposes, a very risk-averse investor. The MPT
portfolio position for very risk-averse investors is a position on the
efficient frontier that has little risk.
The cost of investing in a low-risk position is a
lower expected return (recall that historically the average return on stocks
was about three times that on U.S. Treasuries), but maybe you think that’s a
price worth paying. Can everyone take extremely conservative positions to
avoid Black Swan risk? This clearly won’t work, because some investors must
hold risky assets. If all investors try to avoid Black Swan events, the
prices of those risky assets will fall to a point where the forecasted
returns become too large to ignore.
Continued in article
Jensen Comment
All quant theories and strategies in finance are based upon some foundational
assumptions that in rare instances turn into the
Achilles'
heel of the entire superstructure. The classic example is the wonderful
theory and arbitrage strategy of Long Term Capital Management (LTCM) formed by
the best quants in finance (two with Nobel Prizes in economics). After
remarkable successes one nickel at a time in a secret global arbitrage strategy
based heavily on the Black-Scholes Model, LTCM placed a trillion dollar bet that
failed dramatically and became the only hedge fund that nearly imploded all of
Wall Street. At a heavy cost, Wall Street investment bankers pooled billions of
dollars to quietly shut down LTCM ---
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
So what was the Achilles heal of the arbitrage strategy of LTCM? It was an
assumption that a huge portion of the global financial market would not collapse
all at once. Low and behold, the Asian financial markets collapsed all at once
and left LTCM naked and dangling from a speculative cliff.
There is a tremendous (one of the best
videos I've ever seen on the Black-Scholes Model) PBS Nova video called
"Trillion Dollar Bet" explaining why LTCM
collapsed. Go to
http://www.pbs.org/wgbh/nova/stockmarket/
This video is in the media libraries on most college campuses. I highly
recommend showing this video to students. It is extremely well done and
exciting to watch.
One of the more interesting summaries is the Report of The President’s
Working Group on Financial Markets, April 1999 ---
http://www.ustreas.gov/press/releases/reports/hedgfund.pdf
The principal
policy issue arising out of the events surrounding the near collapse of LTCM
is how to constrain excessive leverage. By increasing the chance that
problems at one financial institution could be transmitted to other
institutions, excessive leverage can increase the likelihood of a general
breakdown in the functioning of financial markets. This issue is not limited
to hedge funds; other financial institutions are often larger and more
highly leveraged than most hedge funds.
What went wrong at Long Term Capital
Management? ---
http://www.killer-essays.com/Economics/euz220.shtml
The video and above reports, however, do not delve into the tax shelter
pushed by Myron Scholes and his other LTCM partners. A nice summary of the tax
shelter case with links to other documents can be found at
http://www.cambridgefinance.com/CFP-LTCM.pdf
The above August 27,
2004 ruling by Judge Janet Bond Arterton rounds out the "Trillion Dollar Bet."
The classic and enormous scandal was
Long Term Capital led by Nobel Prize winning Merton and Scholes (actually the
blame is shared with their devoted doctoral students). There is a tremendous
(one of the best videos I've ever seen on the Black-Scholes Model) PBS Nova
video ("Trillion Dollar Bet") explaining why LTC collapsed. Go to
http://www.pbs.org/wgbh/nova/stockmarket/
Another illustration of the Achilles' heel of a popular mathematical theory
and strategy is the 2008 collapse mortgage-backed CDO financial risk bonds based
upon David Li's Gaussian copula function of risk diversification in portfolios.
The Achilles' heel was the assumption that the real estate bubble would not
burst to a point where millions of subprime mortgages would all go into default
at roughly the same time.
Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster: The Formula That Killed Wall Street ---
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html
Some highlights:
"For five years, Li's formula, known as a
Gaussian copula function, looked like an unambiguously positive
breakthrough, a piece of financial technology that allowed hugely
complex risks to be modeled with more ease and accuracy than ever
before. With his brilliant spark of mathematical legerdemain, Li made it
possible for traders to sell vast quantities of new securities,
expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond
investors and Wall Street banks to ratings agencies and regulators. And
it became so deeply entrenched—and was making people so much money—that
warnings about its limitations were largely ignored.
Then the model fell apart." The article goes on to show that correlations
are at the heart of the problem.
"The reason that ratings agencies and investors
felt so safe with the triple-A tranches was that they believed there was
no way hundreds of homeowners would all default on their loans at the
same time. One person might lose his job, another might fall ill. But
those are individual calamities that don't affect the mortgage pool much
as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and
tranching still hadn't solved all the problems of mortgage-pool risk.
Some things, like falling house prices, affect a large number of people
at once. If home values in your neighborhood decline and you lose some
of your equity, there's a good chance your neighbors will lose theirs as
well. If, as a result, you default on your mortgage, there's a higher
probability they will default, too. That's called correlation—the degree
to which one variable moves in line with another—and measuring it is an
important part of determining how risky mortgage bonds are."
I would highly recommend reading the entire thing that gets much more
involved with the
actual formula etc.
The
“math error” might truly be have been an error or it might have simply been a
gamble with what was perceived as miniscule odds of total market failure.
Something similar happened in the case of the trillion-dollar disastrous 1993
collapse of Long Term Capital Management formed by Nobel Prize winning
economists and their doctoral students who took similar gambles that ignored the
“miniscule odds” of world market collapse -- -
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
The rhetorical question is whether the failure is ignorance in model building or
risk taking using the model?
"In Plato's Cave:
Mathematical models are a powerful way of predicting financial markets. But they
are fallible" The Economist, January 24, 2009, pp. 10-14 ---
http://www.economist.com/specialreports/displaystory.cfm?story_id=12957753
ROBERT RUBIN was Bill Clinton’s treasury
secretary. He has worked at the top of Goldman Sachs and Citigroup. But he
made arguably the single most influential decision of his long career in
1983, when as head of risk arbitrage at Goldman he went to the MIT Sloan
School of Management in Cambridge, Massachusetts, to hire an economist
called Fischer Black.
A decade earlier Myron Scholes, Robert
Merton and Black had explained how to use share prices to calculate the
value of derivatives. The Black-Scholes options-pricing model was more than
a piece of geeky mathematics. It was a manifesto, part of a revolution that
put an end to the anti-intellectualism of American finance and transformed
financial markets from bull rings into today’s quantitative powerhouses.
Yet, in a roundabout way, Black’s approach also led to some of the late
boom’s most disastrous lapses.
Derivatives markets are not new, nor are
they an exclusively Western phenomenon. Mr Merton has described how Osaka’s
Dojima rice market offered forward contracts in the 17th century and
organised futures trading by the 18th century. However, the growth of
derivatives in the 36 years since Black’s formula was published has taken
them from the periphery of financial services to the core.
In “The Partnership”, a history of Goldman
Sachs, Charles Ellis records how the derivatives markets took off. The
International Monetary Market opened in 1972; Congress allowed trade in
commodity options in 1976; S&P 500 futures launched in 1982, and options on
those futures a year later. The Chicago Board Options Exchange traded 911
contracts on April 26th 1973, its first day (and only one month before
Black-Scholes appeared in print). In 2007 the CBOE’s volume of contracts
reached almost 1 trillion.
Trading has exploded partly because
derivatives are useful. After America came off the gold standard in 1971,
businesses wanted a way of protecting themselves against the movements in
exchange rates, just as they sought protection against swings in interest
rates after Paul Volcker, Mr Greenspan’s predecessor as chairman of the Fed,
tackled inflation in the 1980s. Equity options enabled investors to lay off
general risk so that they could concentrate on the specific types of
corporate risk they wanted to trade.
The other force behind the explosion in
derivatives trading was the combination of mathematics and computing. Before
Black-Scholes, option prices had been little more than educated guesses. The
new model showed how to work out an option price from the known price-behaviour
of a share and a bond. It is as if you had a formula for working out the
price of a fruit salad from the prices of the apples and oranges that went
into it, explains Emanuel Derman, a physicist who later took Black’s job at
Goldman. Confidence in pricing gave buyers and sellers the courage to pile
into derivatives. The better that real prices correlate with the unknown
option price, the more confidently you can take on any level of risk. “In a
thirsty world filled with hydrogen and oxygen,” Mr Derman has written,
“someone had finally worked out how to synthesise H2O.”
Poetry in Brownian motion Black-Scholes is
just a model, not a complete description of the world. Every model makes
simplifications, but some of the simplifications in Black-Scholes looked as
if they would matter. For instance, the maths it uses to describe how share
prices move comes from the equations in physics that describe the diffusion
of heat. The idea is that share prices follow some gentle random walk away
from an equilibrium, rather like motes of dust jiggling around in Brownian
motion. In fact, share-price movements are more violent than that.
Over the years the “quants” have found
ways to cope with this—better ways to deal with, as it were, quirks in the
prices of fruit and fruit salad. For a start, you can concentrate on the
short-run volatility of prices, which in some ways tends to behave more like
the Brownian motion that Black imagined. The quants can introduce sudden
jumps or tweak their models to match actual share-price movements more
closely. Mr Derman, who is now a professor at New York’s Columbia University
and a partner at Prisma Capital Partners, a fund of hedge funds, did some of
his best-known work modelling what is called the “volatility smile”—an
anomaly in options markets that first appeared after the 1987 stockmarket
crash when investors would pay extra for protection against another imminent
fall in share prices.
The fixes can make models complex and
unwieldy, confusing traders or deterring them from taking up new ideas.
There is a constant danger that behaviour in the market changes, as it did
after the 1987 crash, or that liquidity suddenly dries up, as it has done in
this crisis. But the quants are usually pragmatic enough to cope. They are
not seeking truth or elegance, just a way of capturing the behaviour of a
market and of linking an unobservable or illiquid price to prices in traded
markets. The limit to the quants’ tinkering has been not mathematics but the
speed, power and cost of computers. Nobody has any use for a model which
takes so long to compute that the markets leave it behind.
The idea behind quantitative finance is to
manage risk. You make money by taking known risks and hedging the rest. And
in this crash foreign-exchange, interest-rate and equity derivatives models
have so far behaved roughly as they should.
A muddle of mortgages Yet the idea behind
modelling got garbled when pools of mortgages were bundled up into
collateralised-debt obligations (CDOs). The principle is simple enough.
Imagine a waterfall of mortgage payments: the AAA investors at the top catch
their share, the next in line take their share from what remains, and so on.
At the bottom are the “equity investors” who get nothing if people default
on their mortgage payments and the money runs out.
Despite the theory, CDOs were hopeless, at
least with hindsight (doesn’t that phrase come easily?). The cash flowing
from mortgage payments into a single CDO had to filter up through several
layers. Assets were bundled into a pool, securitised, stuffed into a CDO,
bits of that plugged into the next CDO and so on and on. Each source of a
CDO had interminable pages of its own documentation and conditions, and a
typical CDO might receive income from several hundred sources. It was a
lawyer’s paradise.
This baffling complexity could hardly be
more different from an equity or an interest rate. It made CDOs impossible
to model in anything but the most rudimentary way—all the more so because
each one contained a unique combination of underlying assets. Each CDO would
be sold on the basis of its own scenario, using central assumptions about
the future of interest rates and defaults to “demonstrate” the payouts over,
say, the next 30 years. This central scenario would then be “stress-tested”
to show that the CDO was robust—though oddly the tests did not include a 20%
fall in house prices.
This was modelling at its most feeble.
Derivatives model an unknown price from today’s known market prices. By
contrast, modelling from history is dangerous. There was no guarantee that
the future would be like the past, if only because the American housing
market had never before been buoyed up by a frenzy of CDOs. In any case,
there are not enough past housing data to form a rich statistical picture of
the market—especially if you decide not to include the 1930s nationwide fall
in house prices in your sample.
Neither could the models take account of
falling mortgage-underwriting standards. Mr Rajan of the University of
Chicago says academic research suggests mortgage originators, keen to
automate their procedures, stopped giving potential borrowers lengthy
interviews because they could not easily quantify the firmness of someone’s
handshake or the fixity of their gaze. Such things turned out to be better
predictors of default than credit scores or loan-to-value ratios, but the
investors at the end of a long chain of securities could not monitor lending
decisions.
The issuers of CDOs asked rating agencies
to assess their quality. Although the agencies insist that they did a
thorough job, a senior quant at a large bank says that the agencies’ models
were even less sophisticated than the issuers’. For instance, a BBB tranche
in a CDO might pay out in full if the defaults remained below 6%, and not at
all once they went above 6.5%. That is an all-or-nothing sort of return,
quite different from a BBB corporate bond, say. And yet, because both shared
the same BBB rating, they would be modelled in the same way.
Issuers like to have an edge over the
rating agencies. By paying one for rating the CDOs, some may have laid
themselves open to a conflict of interest. With help from companies like
Codefarm, an outfit from Brighton in Britain that knew the agencies’ models
for corporate CDOs, issuers could build securities with any risk profile
they chose, including those made up from lower-quality ingredients that
would nevertheless win AAA ratings. Codefarm has recently applied for
administration.
There is a saying on Wall Street that the
test of a product is whether clients will buy it. Would they have bought
into CDOs had it not been for the dazzling performance of the quants in
foreign-exchange, interest-rate and equity derivatives? There is every sign
that the issuing banks believed their own sales patter. The banks so liked
CDOs that they held on to a lot of their own issues, even when the idea
behind the business had been to sell them on. They also lent buyers much of
the money to bid for CDOs, certain that the securities were a sound
investment. With CDOs in deep trouble, the lenders are now suffering.
Modern finance is supposed to be all about
measuring risks, yet corporate and mortgage-backed CDOs were a leap in the
dark. According to Mr Derman, with Black-Scholes “you know what you are
assuming when you use the model, and you know exactly what has been swept
out of view, and hence you can think clearly about what you may have
overlooked.” By contrast, with CDOs “you don’t quite know what you are
ignoring, so you don’t know how to adjust for its inadequacies.”
Now that the world has moved far beyond
any of the scenarios that the CDO issuers modelled, investors’ quantitative
grasp of the payouts has fizzled into blank uncertainty. That makes it hard
to put any value on them, driving away possible buyers. The trillion-dollar
bet on mortgages has gone disastrously wrong. The hope is that the
trillion-dollar bet on companies does not end up that way too.
Continued in article
Accountics Worshippers Please Take Note
"A Nobel Lesson: Economics is Getting Messier," by Justin Fox, Harvard
Business Review Blog, October 11, 2010 ---
Click Here
http://blogs.hbr.org/fox/2010/10/nobel-lesson-economics-messier.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Closing Jensen Comment
So is portfolio diversification theory dead? I hardly think so. But if any
lesson is to be learned is that we should question those critical underlying
assumptions in Plato's Cave before worldwide strategies are implemented that
overlook the Achilles' heel of those critical underlying assumptions.
Teaching Case from The Wall Street Journal Accounting Weekly Review on
August 24, 2012
New Tactics Boost Bank Profits
by:
Sara Schaefer Muñoz and Partricia Kowsmann
Aug 13, 2012
Click here to view the full article on WSJ.com
TOPICS: Banking, Debt, Early Retirement of Debt
SUMMARY: "European banks are buying back debt to boost their
capital ratios....With the European crisis knocking down the value of banks'
longer-term debt, some are taking advantage by buying back their debt from
investors at a discount from the original value. Banks can book the
difference in price as an accounting gain..." Analysts react to the long
term implications of these maneuvers by saying that banks may be forced to
go to the European Central Bank when they need funding in the future because
they will have difficulty doing so from other sources. The banks quoted in
the article, on the other hand, argue that "the moves haven't harmed their
ability to get more funds and that they have plenty of liquidity regardless
of the repurchases."
CLASSROOM APPLICATION: The article is useful to cover debt
extinguishments by banks or any type of entity.
QUESTIONS:
1. (Advanced) Summarize the accounting for the transactions that
are described in this article--early extinguishments of debt, also called
debt buybacks or debt repurchases. You may use a journal entry format to
provide this answer.
2. (Introductory) According to the author of the article, what are
the European banks' motives for undertaking these transactions?
3. (Introductory) According to the author, how do the banks
describe the business reasons for these debt repurchase transactions?
4. (Advanced) Review the graphic entitled "Quick Fix." How large
are the gains experienced by European banks on their repurchases of their
own debt? Answer the question in a way that allows a relative assessment of
these gains, not just in terms of absolute euro or pounds sterling amounts.
5. (Advanced) What are the economic factors in Europe that lead to
the possibility for the banks to earn gains on repurchasing their debt?
6. (Advanced) According to the article, what are analysts' concerns
about the future for these banks after making these debt repurchases?
Reviewed By: Judy Beckman, University of Rhode Island
"New Tactics Boost Bank Profits," by: Sara Schaefer Muñoz and Partricia
Kowsmann, The Wall Street Journal, August 13, 2012 ---
http://professional.wsj.com/article/SB10000872396390443537404577579273246425432.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
A handful of European banks have figured out a way
to boost their profit and capital ahead of new regulations: grab back their
bonds.
With the European crisis knocking down the value of
banks' longer-term debt, some are taking advantage by buying back their debt
from investors at a discount from the original value. Banks can book the
difference in price as an accounting gain, adding to their bottom line—and
their ability to withstand losses.
Banks including Société Générale SA, GLE.FR +2.86%
Commerzbank AG, CBK -1.67% Intesa Sanpaolo SpA, Banco Santander SA SAN.MC
+1.94% and Banco Comercial Português SA BCP.LB +1.06% recently have taken
the moves, in part because traditional ways of boosting capital, such as
selling businesses or raising equity in the market, are proving difficult.
Europe's debt crisis has virtually cut off many European banks from private
funding because investors are wary of lending to them.
But some analysts say that by using the maneuver,
banks are killing off avenues of low-cost, long-term funding that are needed
to fund loans and operations. That, in turn, could make banks more dependent
on the low-cost funding lifeline from the European Central Bank.
The wave of debt buybacks, the analysts say, is the
latest illustration of European banks' quick-fix solution to capital
problems, in exchange for potential funding problems down the road.
"If you have poor access to the private markets,
these [buybacks] will tend to beget further central bank usage," said
Alastair Ryan, an analyst with UBS in London. "And the more central bank
funding you have, the less likely you are to get private money in the
future."
The ability of banks to borrow at long-term
maturities from investors appears to be getting more difficult. The total
issuance of European bank debt so far this year, in durations ranging from
1½ years to more than 10 years, has been $400 billion, compared with $645
billion in the same period a year ago, according to Dealogic, a data
provider.
To be sure, as a normal course of business, banks
frequently buy back and reissue debt in order to manage their funding and
ensure they have a mix of short-term and long-term borrowings.
However, European banks recently have been
employing the move specifically to help infuse profits and, subsequently,
capital measures. The repurchases are helping banks boost their core Tier 1
capital ratios—a key measure of a bank's loss-absorbing buffer—ahead of
Basel III banking rules.
In its half-year results reported Aug. 1, French
bank Société Générale pointed to the buyback of €1.7 billion ($2.09 billion)
in bonds of various maturities, some due as far out as 2025, for helping it
post a pretax gain of €305 million and boosting the bank's key capital ratio
by 0.06 percentage point.
In July, the U.K. subsidiary of Banco Santander
repurchased £1.87 billion of debt, some of it long term, also to boost
capital. Banco Bilbao Vizcaya Argentaria SA, BBVA.MC +1.34% along with
Portugal's Banco BPI SA BPI.LB +4.55% and Banco Comercial Português SA, have
made similar moves.
In some of the more-complicated transactions, banks
have been able to book multiple gains. In March, Commerzbank bought back
€965 million of debt securities and other capital instruments at a discount
for new Commerzbank shares. The bank booked gains from the discounted price
of the debt, the elimination of interest payments and the new equity issued
to the buyers. Altogether, the move will provide the bank an extra €1.2
billion by 2017, said a spokesman.
It was "an opportunistic measure and allowed
Commerzbank to strengthen its core Tier 1 capital, given current market
conditions," the spokesman said.
Santander, BBVA and Société Générale said the moves
haven't harmed their ability to get more funds and that they have plenty of
liquidity regardless of the repurchases. A spokesman for Intesa declined to
comment but pointed to a recent presentation in the bank's results that said
the bank has ample funding and liquidity resources.
Portugal's BPI said that when market conditions
improve, the bank will reissue debt.
"From a financial point of view, it makes sense for
banks to buy back their bonds," said Andre Rodrigues, an analyst at
Portugal's Caixa Banco de Investimento. "Of course, it is true that the
banks are losing source of private funding."
Continued in article
"Why Do Women Still Earn Less Than Men? Analyzing the Search for
High-paying Jobs," Knowledge@Wharton, August 1, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3058
This is a summary of research by Wharton professors Matthew Bidwell and
Roxana Barbulescu
Why do women continue to earn less money than
men -- approximately 20% less, according to some estimates -- and what
can be done about it?
At least half the pay gap reflects the fact
that women tend to work in different kinds of occupations and industries
than men, a phenomenon known as "gender segregation." Understanding the
causes of that gender segregation is a key part of any attempt to
address the pay differential.
Wharton management professor
Matthew Bidwell and Roxana Barbulescu, a
management professor at McGill University in Montreal, set out to
understand the causes of gender segregation by taking a different
approach than studies that typically look at variances in the kinds of
jobs that men and women choose, or at the decisions made by employers
during the job application process.
Bidwell and Barbulescu opted instead to look at
job applicants themselves to determine whether the decisions they make
during their job search process have a significant impact on which offer
they accept. Their results are presented in a paper titled, "Do
Women Choose Different Jobs from Men? Mechanisms of Application
Segregation in the Market for Managerial Workers,"
forthcoming in the journal Organization Science.
"Much of the debate over earnings has focused
on the idea that there are barriers to women getting certain kinds of
jobs, and that a big part of this is due to subtle and not so subtle
discrimination on the part of employers," says Bidwell. "But most of the
available data looks at the jobs women end up in, which reflects a
series of decisions by both the employee and employer." The challenge
was to separate out data that deal primarily with how women view the
employment landscape even before starting the job application process.
Do those views, for example, lead women to systematically choose
different, and lower-paying, occupations than their male counterparts?
The two researchers analyzed data on 1,255 men
and women entering the job market as they were graduating from a large,
elite, one-year international MBA program. Such a group is far from
representative of the population at large. However, "studying MBA
students is particularly valuable for exploring segregation into some of
the best-paid and most influential jobs in society, which are the kinds
of jobs in which women have traditionally been under-represented," the
authors note in the paper.
Barbulescu surveyed the students about their
job interests at the beginning of the MBA program, and then again at the
end in order to find out what kinds of jobs they applied for, where they
got offers and what jobs they ultimately accepted.
The researchers' main finding was that women
were significantly less likely to apply to Wall Street-type finance
jobs, somewhat less likely to apply to consulting jobs, and more likely
to apply to jobs in general management, most notably internal finance
and marketing. Not coincidentally, the finance and consulting jobs that
women avoided were also the ones that were most highly paid.
No surprises there, but the researchers dug
deeper to see what might explain these results. To start, they broke
down the different influences on job search decisions into three
different factors: applicants' preferences for specific rewards from
their jobs, such as money or flexibility; the ability of applicants to
identify with particular kinds of jobs, which often reflects how
compatible those jobs are with other ways the applicants see themselves;
and the applicants' expectations that an application could succeed.
The researchers argue that each of those
factors might be influenced by gender role socialization, which shapes
our basic beliefs about the behaviors that are most appropriate for men
versus women, and about the kinds of skills that accompany those
behaviors. For example, if women are expected to play different roles in
the workplace and at home than men, then they may also look for
different rewards from their work, such as pay, intellectual challenge,
flexibility, work/life balance and so forth.
Four Nights in a Hotel
Specifically, the researchers looked at
expected work/life satisfaction with regard to 19 different job types,
and found that women were significantly less likely than men to apply
for jobs where work/life satisfaction ranked low. "This explained why
women weren't applying for consulting jobs," says Bidwell. "The hours
are not that much worse than investment banking jobs, but the
expectation is that you will be staying in a hotel four nights a week.
And that doesn't change. With investment banking, you might work very
hard, but you usually sleep in your own bed, and the hours tend to trail
off as you get more seniority."
The second decision factor shaping applications
is how people identify with different jobs. Bidwell and Barbulescu found
that women identified the least with stereotypically masculine jobs, and
they tended to apply to industries that usually employ a higher
proportion of women. The third decision factor is whether individuals
believe their applications for certain jobs will be successful: It may
not make sense for applicants to pour a lot of time and effort into
applications for jobs they do not expect to get.
Bidwell and Barbulescu found that at the
beginning of the MBA program, men and women showed the same level of
confidence that they would get an offer for a specific job in most of
the fields they might apply to -- except investment banking. There are
good reasons that women might have lower expectations of job offer
success in stereotypically masculine jobs, says Bidwell, and no industry
has more of a macho image than investment banking. "Women just didn't
think they would get jobs there, so they didn't apply," he notes.
Equally interesting, says Bidwell, is that when
women did apply to investment banking jobs, they were just as likely to
get them as the men who applied.
"Our research shows how hard it is to bring
about change," Bidwell adds." If you tell employers to stop
discriminating, it doesn't mean you will end up with greater access for
women to better, higher-paying jobs. Instead, it's about changing
perceptions of culture. You can imagine that if you have a job that is
seen as highly macho and aggressive, and you recruit those kinds of
people -- mainly men -- then these perceptions and stereotypes become
self-fulfilling. It's a much more insidious way in which jobs become
gendered."
The researchers emphasize in their paper that
"even when there are no gender differences in the likelihood of
receiving a job offer, this does not imply that employers do not
influence gender segregation." Indeed, employer decisions may affect
applicant behavior "in ways that we could not detect." For example, they
cite the climate and recent litigation history of some of the sectors
they studied, primarily finance, which may have increased the pressure
on employers to hire more women, but doesn't necessarily mean they will
promote them into the same senior level positions as men.
The behavior of employers -- and the control
they often exert over the workplace -- can clearly affect whether women
apply for jobs with their companies. For example, the researchers write,
"practices that reduce conflicts between work and family demands could
reduce" segregation, and "interventions in the way that jobs are
structured and role behaviors enacted to emphasize either masculine or
feminine stereotypical attributes could also" lessen segregation. But
that is not an easy sell. For instance, as the researchers note,
"workplaces with fewer women face less pressure to adapt their working
styles to accommodate family demands" -- an example of how segregation
becomes self-perpetuating.
At the same time, "addressing these deep-seated
organization issues, alongside the more common question of how hiring
decisions are made, could be critical for increasing female
participation in some of the best-paid jobs in society," the researchers
add.
Token Gestures
According to Bidwell, this research paper is
one of the first demonstrations that much of the segregation in the job
application and hiring processes "happens because of how people apply
for jobs rather than because of employer behavior further down the line.
And that, in turn, reflects what jobs women are able to identify with,
and where they think they will be hired."
Continued in article
Jensen Comment
Some of the findings are controversial, such as the question over which
spouse tends to take the most advantage of having the other spouse be the
primary bread winner (thereby taking advantage of having more career options
such as one woman accounting professor I know whose Mr. Mom husband could
then find time to write a best-selling Confederate War book). Statistically,
women may take advantage of these options more frequently than their
husbands, but increasingly my anecdotal experience is that women accounting
professors are the primary bread winners on joint tax returns. And husbands
tend to follow these women who have opportunities to relocate at higher
salaries and their husbands then search for lower paying jobs after the
move.
Hypothesized reasons female doctors earn less than male physicians ---
http://thegrindstone.com/career-management/study-female-doctors-paid-much-less-than-their-male-counterparts-991/
What I would like to see is whether there is a significantly higher ratio of
males to females in the highest paying medical careers. For example, do
women tend to avoid those specialties taking the longest time to complete
slave-driving residencies (such as neurosurgery)? Do women tend to avoid
those specialties requiring more strength and endurance such as orthopedics?
A friend who is a physician tells me this is the case, but I've not
investigated the data.
Bob Jensen's threads on gender controversies in higher education ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#GenderSalaryDifferences
GASB Statement No. 68
Accounting and Financial Reporting for Pensions—an amendment of GASB Statement
No. 27 ---
Click Here
http://www.gasb.org/cs/ContentServer?site=GASB&c=Page&pagename=GASB%2FPage%2FGASBSectionPage&cid=1176160042391
"Pension Accounting for Dummies New government reporting rules are no
better than the old ones," The Wall Street Journal, July 9, 2012 ---
http://professional.wsj.com/article/SB10001424052702304782404577488933765069576.html?mg=reno64-wsj#mod=djemEditorialPage_t
The Government Accounting Standards Board has
issued new rules that aim to crystallize government pension liabilities. It
failed on that count, but it did succeed, albeit inadvertently, in making
the case for defined-contribution plans.
GASB, as it's known in the trade, sets accounting
guidelines for local governments. Since the board is run mainly by former
public officials, its standards are often low. The board also usually takes
several years to finalize rules, so it's often behind the times. Their new
rules concerning how governments discount their pension liabilities are a
case in point.
Financial economists have recommended for decades
that governments calculate pension liabilities using so-called "risk-free"
rates pegged to high-grade municipal bonds or long-term Treasurys. The
argument goes that since pensioners are de facto secured creditors—even
bankruptcy judges have been reluctant to slash retirement benefits—pensions
are riskless and therefore the liabilities should be discounted at risk-free
rates.
GASB's private cousin, the Financial Accounting
Standards Board (FASB), began requiring corporations to discount their
pension liabilities with high-quality fixed income assets in the 1980s.
However, GASB let governments stick with their desired, er, expected rate of
return, which is typically about 8%. Public pension funds have returned 5.7%
on average since 2000. Achieving much higher returns over the long run would
require markets to perform as well as they did in the 1980s and '90s. Would
that be true.
Governments have resisted climbing down from
Fantasyland because using lower discount rates would explode their
liabilities. When the Financial Accounting Standards Board introduced its
risk-free rate guidelines, many companies shifted workers to 401(k)s because
they didn't want to report larger liabilities. Such defined-contribution
plans are by definition 100% pre-funded.
Prodded by economists and investors, GASB began
considering modifying its discount rate rules a few years ago. Public
pension funds, lawmakers and unions, however, pushed back hard against
suggestions that governments use risk-free rates, which could more than
double their liabilities. No surprise, the government troika won.
GASB's new rules allow governments to continue
discounting their liabilities at their anticipated rate of return so long as
they project enough future assets to cover their obligations. At the time
they forecast they'll run out of assets, they must begin discounting their
liabilities with a high-grade municipal bond rate. The idea is that
governments would have to issue bonds to pay retirees when their pension
funds go broke.
But few pension funds project that they'll run dry
since they're hooked up to a taxpayer IV. Those in really bad shape like
Chicago's will likely rig their investment and actuarial assumptions to
circumvent the new rules. FASB rejected similar guidelines in the 1980s
because they were too easy to dodge. The point here is that it's impossible
to get governments to come clean about their pension debt, and not just
because the union allies controlling pension funds have a vested interest in
obfuscating the liabilities.
In reality, nobody knows how much taxpayers will
owe because so much depends on inscrutable actuarial and economic factors
like interest rates 30 years from now (not even the Federal Reserve purports
to be that omniscient). Slight discrepancies in assumptions can yield huge
variations in estimated liabilities. One advantage of defined-contribution
plans is that they don't require governments to calculate their liabilities.
There are none.
Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Bob Jensen's threads on pension accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Question
Do (or should) accounting standard setters consider "consequentialism
philosophy?"
I would argue that they do, although they probably overlook a lot of
externalities. For example, do they overlook how investors are using bottom line
earnings in a way that is really no longer intended by standard setters who
cannot and probably never will define the bottom line "net inome" that just
emerges mysteriously from accounting for the balance sheet?
"Crank Philosophy," by Scott McLemee, Inside Higher Ed,
August 1, 2012 ---
http://www.insidehighered.com/views/2012/08/01/review-david-r-koepsell-and-robert-arp-breaking-bad-and-philosophy-badder-living
n a memorable scene from the first
season of "Breaking Bad" (AMC), the protagonist sits down to do some moral
bookkeeping of a fairly literal variety. He is a 50-year-old high-school
chemistry teacher named Walter White. A recent trip to the doctor to check
on a nagging cough has left with a diagnosis of advanced lung cancer, giving
him, at most, a couple of years to live. If you’ve seen the show (and maybe
even if you haven’t, since it has received extremely good press and won more
awards than I feel like counting) you know that Walter has decided on a
hazardous way to provide for his family after his death. He applies his lab
skills to the production of crystal methamphetamine.
The stuff he “cooks” (as the term of art goes) is
exceptionally pure and powerful. The connoisseurs love it. If he can turn a
profit of $737,000 in the time he has left, Walt will leave a nest egg for
his wife and children and die in peace. As a middle-class family man, Walt
lacks any direct knowledge of the marketing side of the meth business, and
would prefer to keep it that way. His connection to the underworld is a
former student named Jesse Pinkman, memorable chiefly for his bad grades.
But Jesse is a gangsta wannabe, as well as a meth head, and nowhere near as
street-savvy as he thinks or the job requires.
And so it comes to pass that Walter find himself
facing an unforeseen problem involving a well-connected figure from the meth
supply chain – a fellow who goes by the street name of Krazy-8. It's a long
story how he got there, but Krazy-8 ends up shackled by the neck to a pole
in Jesse’s basement, and he is understandably, even homicidally, unhappy.
Walt must now decide between two options: let Krazy-8 live or kill him.
Being the rational sort, Walt tabulates the
arguments on each side.The column headed “Let him live” fills up quickly, if
redundantly: “It’s the moral thing to do. Judeo-Christian principles. You
are not a murderer. He may listen to reason. Post-traumatic stress. Won’t be
able to live with yourself. Murder is wrong!”
Under “Kill him,” the camera reveals just one
entry: “He’ll kill your entire family if you let him go.” So much for
weighing the alternatives.
In his method -- and ultimately in
his actions -- Walt proves to be a consequentialist, as J.C. Donhauser
points out in “If Walt’s Breaking Bad, Maybe We Are Too,” one of the essays
in Breaking Bad and Philosophy: Badder Living Through Chemistry (Open
Court). Most viewers will have surmised as
much, even if they don’t have a name for it. But there is more than one
metric for judging costs and benefits, and so more than one species of
consequentialist. Donhauser -- an assistant instructor of philosophy at the
State University of New York at Buffalo and a lecturer at Buffalo State
University – uses examples from other episodes to consider the options.
There’s act consequentialism, for one (the realized effect of an
act determine whether it is good or bad, even if the consequences are
unintended or unforeseeable), which is distinct from rule
consequentialism (“actions are better or worse, not in relation to
their actual consequences, but in proportion to how far afield they fall
from a rule that would be best for most people if everyone followed it”).
As for Walt, he belongs in the ranks of the
agent-centered consequentialists, who “judge actions based on their
consequences” but “also argue that the most important consequences are
for the person carrying out the actions that produce those
consequences.”
Each stance has its limitation – quite as much as
deontology does. Deontology insists that consequences are irrelevant, since
an act can be judged moral if and only if it could be universalized. Murder
is immoral, then, because “if everyone did it, there’d be no one around for
you to murder then! The same goes for stealing, as there’d be nothing left
to steal.” So Jeffrey E. Stephenson put it, with tongue in cheek, in “Walter
White’s American Vice.” Ditto for lying, since a society in which everyone
lied constantly would be even more irrational than the one we live in.
Walt's list of argument for letting Krazy-8 live is
not deontological by any means -- although “He may listen to reason” rests
on a similar conviction that clarity and rationality are not just worthy
aspirations but realizable possibilities as well. Despite his nickname and
his criminal vocation, Krazy-8 is a well-spoken and seemingly pragmatic
individual, with strong family ties of a sort that Walt can respect. And
Walt very nearly reaches a decision on that basis.
On the other hand, not every consequence can be put
in brackets while you seek the universally right thing to do. And “He’ll
kill your entire family if you let him go” is a pretty good example of that.
Under the circumstances, even a deontologist would probably find a way to
think of murder as obligatory.
Breaking Bad and Philosophy,
edited by David R. Koepsell and Robert Arp, is much
like any other collection of essays in the Open Court series
Popular Culture and Philosophy,
of which it is volume 67. By the way, the publisher has registered “Popular
Culture and Philosophy” as a trademark. Don't confuse it with
The Blackwell Philosophy and Pop Culture Series
(37 volumes at last report) or the University of Kentucky’s line called
The Philosophy of Popular Culture (23 titles, not
counting updated editions).
By now, it seems as if every genre, blockbuster,
videogame, superhero, hit program, or teen trend has been covered by at
least one book in this niche, or will be in the foreseeable future. I
picture them being produced in something akin to Walt’s methamphetamine
superlab – with the important exception that Walt’s product is of famously
consistent in quality. The popcult philosophy collections that I’ve sampled
over the years tend to be pretty uneven, even within the same volume. The
one constant is that most of the essays are clearly didactic. The implied
reader for these books almost always seems to be an undergraduate, with
popular culture as the candy coating on the philosophical vitamins otherwise
missing from the educational diet. There is jocularity aplenty. In this
volume, for example, a comparison of Breaking Bad and Augustine’s
Confessions includes the information that the saint-to-be “had a
rep for hooking up with the MILFs of Carthage” -- not unlike Peter Abelard,
“a famous playa before his lover’s father and brother… cut off his junk and
sent him packin.’”
Continued in article
Bob Jensen's summary of accounting theory is at
http://www.trinity.edu/rjensen/Theory01.htm
"True Lies Scam artists claim they work for the government. Not all of
them do," by James Taranto, The Wall Street Journal, August 2, 2012
---
http://professional.wsj.com/article/SB10000872396390443866404577565173591702542.html?mod=djemEditorialPage_t&mg=reno-wsj
"The latest scam designed to separate Missouri
residents from their money involves phony letters from the State Attorney
General's office, the IRS and other government agencies," St. Louis Public
Radio reports.
Attorney General Chris Koster explains how the
fraud works: "I have in my hand a letter from 'the FBI.' [It] claims that,
'you have won $3.5 million, but you owe $2,600 in a winner's fee, and you
need to submit it' to this address, which so far we have traced to Florida."
We know how that is. Not long ago we received a
similar letter. It purported to be from the Social Security Administration.
The gist of it was that the government was promising to pay for our
retirement, but only if we cough up more money now: "Without changes, by
2037 the Social Security Trust Fund will be exhausted and there will be
enough money to pay only about 76 cents for each dollar of scheduled
benefits. We need to resolve these issues soon."
The letter bore the signature "Michael J. Astrue,
Commissioner." We laughed and put it aside, digging it out of our files when
we read about the similar letters from Missouri. We've now traced it to an
address near Washington, D.C. In an unlikely twist,
Michael Astrue actually is the
commissioner of the Social Security Administration. Even so, we're glad we
didn't send any money.
The federal government has been making such
too-good-to-be-true offers for decades--the "Social Security" game dates all
the way back to 1935--but such scams seem to be multiplying of late. An
example appears on the
White House website under the heading "Did You Get
a Check?"
Continued in article
Bob Jensen's threads on Fraud Reporting ---
http://www.trinity.edu/rjensen/FraudReporting.htm
European-Styled Avoidance of Fair Value Earnings Hits for Loan Loss
Impairments
European banks circumvented earnings hits for anticipated billions in loan
losses by a number of ploys, including arguments regarding transitory price
movements, "dynamic provisioning" cookie jar accounting, and spinning debt into
assets with fair value adjustments "accounting alchemy."
European banks resorted to a number of misleading ploys to avoid taking fair
value adjustment hits to prevent earnings hits due to required fair value
adjustments of investments that crashed such a investments in the bonds of
Greece, Ireland, Spain, and Portugal.
The Market Transitory Movements Argument
Fair value adjustments can be avoided if they are viewed as temporary transitory
market fluctuations expected to recover rather quickly. This argument was used
inappropriately by European banks hold billions in the Greece, Ireland,
Spain, and Portugal after the price declines could hardly be viewed as
transitory. The head of the IASB at the time, David Tweedie, strongly objected
to the failure to write down financial instruments to fair value. The banks, in
turn, threatened to pressure the EU lawmakers to override the IFRS 9 requirement
to adjust such value declines to market.
One of the major concerns of the is that
some nations at some points in time will simply not enforce the IASB standards
that these nations adopted. The biggest problem that the IASB was having with
European Banks is that the IASB felt many of many (actually most) EU banks were
not conforming to standards for marking financial instruments to market (fair
value). But the IASB was really helpless in appealing to IFRS enforcement in
this regard.
When the realities of European bank political powers, the IASB quickly caved
in as follows with a ploy that allowed European banks to lie about intent to
hold to maturity. The banks would probably love to unload those loser bonds as
quickly as possible before default, but they could instead claim that these
investments were intended to be held to maturity --- a game of make pretend that
the IASB went along with under the political circumstances.
"
New
accounting rule would ease Greek pain: IASB,"
By Silke Koltrowitz and Huw Jones, Reuters, July 5, 2011 ---
http://www.reuters.com/article/2011/07/05/us-accounting-idUSTRE7643WU20110705
European Union banks would
have more breathing space from losses on Greek bonds if the bloc adopted a
new international accounting rule, a top standard setter said on Tuesday.
The International Accounting
Standards Board (IASB) agreed under intense pressure during the financial
crisis to soften a rule that requires banks to price traded assets at fair
value or the going market rate.
This led to huge writedowns,
sparking fire sales to plug holes in regulatory capital.
The new IFRS 9 rule would
allow banks to price assets at cost if they are being held over time.
The European Commission has
yet to sign off on the new rule for it to be effective in the 27-nation
bloc, saying it wants to see remaining parts of the rule finalized first.
Continued in article
Dynamic Provisioning: The Cookie Jar Argument If Banks Had Cookies
in the Jar
European Union officials knew this and let Spain
proceed with its own brand of accounting anyway.
"The EU Smiled While Spain’s Banks Cooked the Books," by Jonathan Weil,
Bloomberg, June 14, 2012 ---
http://www.bloomberg.com/news/2012-06-14/the-eu-smiled-while-spain-s-banks-cooked-the-books.html
Only a few years ago,
Spain’s
banks were seen in some policy-making circles as a
model for the rest of the world. This may be hard to fathom now, considering
that Spain is seeking $125 billion to bail out its ailing lenders.
But back in 2008 and early 2009, Spanish regulators
were
riding high after their country’s banks seemed to
have dodged the financial crisis with minimal losses. A big reason for their
success, the regulators said, was an accounting technique called dynamic
provisioning.
By this, they meant that Spain’s banks had set
aside rainy- day loan-loss reserves on their books during boom years. The
purpose, they said, was to build up a buffer in good times for use in bad
times.
This isn’t the way accounting standards usually
work. Normally the rules say companies can record losses, or provisions,
only when bad loans are specifically identified. Spanish regulators said
they were trying to be countercyclical, so that any declines in lending and
the broader economy would be less severe.
What’s now obvious is that Spain’s banks weren’t
reporting all of their losses when they should have, dynamically or
otherwise. One of the catalysts for last weekend’s bailout request was the
decision last month by the
Bankia (BKIA) group, Spain’s third-largest lender,
to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss
rather than a 40.9 million-euro profit. Looking back, we probably
should have known Spain’s banks would end up this
way, and that their reported financial results bore no relation to reality.
Name Calling
Dynamic provisioning is a euphemism for an old
balance- sheet trick called
cookie-jar accounting. The point of the technique
is to understate past profits and shift them into later periods, so that
companies can mask volatility and bury future losses. Spain’s banks began
using the method in 2000 because their regulator, the
Bank of Spain,
required them to.
“Dynamic loan loss provisions can help deal with
procyclicality in banking,” Bank of Spain’s director of financial stability,
Jesus Saurina, wrote in a July 2009
paper published by the
World
Bank. “Their anticyclical nature enhances the
resilience of both individual banks and the banking system as a whole. While
there is no guarantee that they will be enough to cope with all the credit
losses of a downturn, dynamic provisions have proved useful in Spain during
the current financial crisis.”
The danger with the technique is it can make
companies look healthy when they are actually quite ill, sometimes for
years, until they finally deplete their
excess reserves and crash. The practice also
clashed with International Financial Reporting Standards, which Spain
adopted several years ago along with the rest of
Europe. European Union officials knew this and
let Spain proceed with its own brand of accounting anyway.
One of the more candid advocates of Spain’s
approach was Charlie McCreevy, the EU’s commissioner for financial services
from 2004 to 2010, who previously had been Ireland’s finance minister.
During an April 2009 meeting of the
monitoring board that oversees the
International Accounting Standards Board’s
trustees, McCreevy said he knew Spain’s banks were violating the board’s
rules. This was fine with him, he said.
“They didn’t implement IFRS, and our regulations
said from the 1st January 2005 all publicly listed companies had to
implement IFRS,” McCreevy said, according to a
transcript of the meeting on the monitoring
board’s website. “The Spanish regulator did not do that, and he survived
this. His banks have survived this crisis better than anybody else to date.”
Ignoring Rules
McCreevy, who at the time was the chief enforcer of
EU laws affecting banking and markets, went on: “The rules did not allow the
dynamic provisioning that the Spanish banks did, and the Spanish banking
regulator insisted that they still have the dynamic provisioning. And they
did so, but I strictly speaking should have taken action against them.”
Why didn’t he take action? McCreevy said he was a
fan of dynamic provisioning. “Why am I like that? Well, I’m old enough to
remember when I was a young student that in my country that I know best,
banks weren’t allowed to publish their results in detail,” he said. “Why?
Because we felt if everybody saw the reserves, etc., it would create maybe a
run on the banks.”
So to
sum up this way of thinking: The best system is
one that lets banks hide their financial condition from the public. Barring
that, it’s perfectly acceptable for banks to violate accounting standards,
if that’s what it takes to navigate a crisis. The proof is that Spain’s
banks survived the financial meltdown of 2008 better than most others.
Continued in article
"Accounting Board Criticizes European Banks on Greek Debt," REUTERS,
August 30, 2011 ---
http://www.nytimes.com/2011/08/31/business/global/accounting-board-criticizes-european-banks-on-greek-debt.html
Some European financial institutions should have
booked bigger losses on their Greek government bond holdings in recent
results announcements, the International Accounting Standards Board said in
a letter to market regulators.
The criticism comes as Europe’s lenders face calls
to shore up their balance sheets and restore confidence to investors
unnerved by the euro zone debt crisis, funding market jitters and a slowing
economy.
In a letter addressed to the European Securities
and Markets Authority, the I.A.S.B. — which aims to become the global
benchmark for financial reporting — criticized inconsistencies in the way
banks and insurers wrote down the value of their Greek sovereign debt in
second-quarter earnings.
It said “some companies” were not using market
prices to calculate the fair value of their Greek bond holdings, relying
instead on internal models. While some claimed this was because the market
for Greek debt had become illiquid, the I.A.S.B. disagreed.
“Although the level of trading activity in Greek
government bonds has decreased, transactions are still taking place,” the
board chairman Hans Hoogervorst wrote.
The E.S.M.A. was not immediately available for
comment.
The letter, which was posted on the I.A.S.B.’s
website Tuesday after being leaked to the press, did not single out
particular countries or banks.
European banks taking a €3 billion, or $4.2
billion, hit on their Greek bond holdings earlier this month employed
markedly different approaches to valuing the debt.
The writedowns disclosed in their quarterly results
varied from 21 to 50 percent, showing a wide range of views on what they
expect to get back from their holdings.
A 21 percent hit refers to the “haircut” on banking
sector involvement in a planned second bailout of Greece now being
finalized. A 50 percent loss represented the discount markets were expecting
at the end of June, the cut-off period for second-quarter results.
Two French financial companies, the bank BNP
Paribas and insurer CNP Assurances, on Tuesday defended their decision to
use their own valuation models rather than market prices.
“BNP took provisions against its Greece exposure in
full agreement with its auditors and the relevant authorities, in accordance
with the plan decided upon by the European Union on July 21,” a bank
spokeswoman said.
A CNP spokeswoman said the group’s Greek debt
provisions had been calculated in accordance with the E.U. plan and in
agreement with its auditors.
Some investors see the issue as serious, however,
even if the STOXX Europe 600 bank index was trading higher on Tuesday.
“The Greek debt issue has been treated very
lightly,” said Jacques Chahine, head of Luxembourg-based J. Chahine Capital,
which manages €320 billion in assets. “And it’s not just Greek debt — all of
it needs to be written down, Spain, Italy.”
The E.S.M.A. was unable to impose a uniform Greek
“haircut” across the E.U. and its guidance published at the end of July
simply stressed the need for banks to tell investors clearly how they
reflect Greek debt values.
The I.A.S.B. also has no powers of enforcement in
how banks book impairments but is keen to show the United States, which
decides this year whether to adopt I.A.S.B. standards, that its rules are
consistent and properly represent what’s happening in markets.
Auditors warned at the time against a patchwork
approach that will confuse investors and concerns over Greek haircut
reporting will fuel calls for a pan-Europe auditor regulator.
“The impact is more likely to be to further reduce
investors’ confidence in buying bank debt, rather than sovereign debt,” said
Tamara Burnell, head of financial institutions/sovereign research at M&G.
Using the most aggressive markdown approach —
namely marking to market all Greek sovereign holdings — would saddle 19 of
the most exposed European banks with another €6.6 billion in potential
writedowns, according to Citi analysts.
BNP would take the biggest hit with €2.1 billion in
remaining writedowns, followed by Dexia in Belgium with €1.9 billion and
Commerzbank in Germany with €959 million, Citi said.
The European Commission said on Monday that there
was no need to recapitalize the banks over and above what had been agreed
after a recent annual stress test .
Spinning Debt Into Earnings With the Wave of a Fair Value Accounting Wand
"Euro banks' £169bn in accounting alchemy," by: Lindsey White, Financial
Times Advisor, January 19, 2009 --- Click Here
European banks conjured more than £169bn of debt
into profit on their balance sheets in the third quarter of 2008, a leaked
report shows.
Money Managementhas gained exclusive access to a
report from JP Morgan, surveying 43 western European banks.
It shows an exact breakdown of which banks
increased their asset values simply by reclassifying their holdings.
Germany is Europe's largest economy, and was the
first European nation to announce that it was in recession in 2008. Based on
an exchange rate of 1 Euro to £0.89, its two largest banks, Deutsche Bank
and Commerzbank, reclassified £22.2bn and £39bn respectively.
At the same exchange rate, several major UK banks
also made the switch. RBS reclassified £27.1bn of assets, HBOS reclassified
£13.7bn, HSBC reclassified £7.6bn and Lloyds TSB changed £3.2bn. A number of
Nordic and Italian banks also switched debts to become profits.
Banks are allowed to rearrange these staggering
debts thanks to an October 2008 amendment to an International Accounting
Standards law, IAS 39. Speaking to MM, IAS board member Philippe Danjou said
that the amendment was passed in "record time".
The board received special permission to bypass
traditional due process, ushering through the amendment in a matter of days,
in order to allow banks to apply the changes to their third quarter reports.
However, it is unclear how much choice the board
actually had in the matter.
IASB chairman Sir David Tweedie was outspoken in
his opposition to the change, publicly admitting that he nearly resigned as
a result of pressure from European politicians to change the rules.
Danjou also admitted that he had mixed views on the
change, telling MM, "This is not the best way to proceed. We had to do it.
It's a one off event. I'd prefer to go back to normal due process."
While he was reluctant to point fingers at specific
politicians, Danjou admitted that Europe's "largest economies" were the most
insistent on passing the change.
As at December 2008, no major French, Portuguese,
Spanish, Swiss or Irish banks had used the amendment.
BNP Paribas, Credit Agricole, Danske Bank, Natixis
and Societe Generale were expected to reclassify their assets in the fourth
quarter of 2008.
The amendment was passed to shore up bank balance
sheets and restore confidence in the midst of the current credit crunch. But
it remains to be seen whether reclassifying major debts is an effective
tactic.
"Because the market situation was unique, events
from the outside world forced us to react quickly," said Danjou. "We do not
wish to do it too often. It's risky, and things can get missed."
Jensen Comment
European banks thus circumvented earnings hits for anticipated billions in loan
losses by a number of ploys, including arguments regarding transitory price
movements, "dynamic provisioning" cookie jar accounting, and spinning debt into
assets with fair value adjustments "accounting alchemy."
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/theory01.htm#FairValue
Teaching case from The Wall Street Journal Accounting Weekly Review on
July 27, 2012
Microsoft Posts Rare Loss
by:
Shira Ovide
Jul 20, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Goodwill, Impairment
SUMMARY: "Microsoft posted a rare loss due to a charge for its
Internet business, but still showed signs of strength in selling software to
corporations." According to the related video, the $6.2 billion charge
amounts to almost the entire $6.3 billion purchase price of aQuantive in a
2007 business combination. The video also includes discussion of the
interpretation of a goodwill impairment charge in layman's terms.
CLASSROOM APPLICATION: The article is useful to introduce the
reporting implications of goodwill impairment charges. NOTE TO INSTRUCTORS:
YOU SHOULD DELETE THIS SECTION OF THE SUMMARY BEFORE DISTRIBUTING TO
STUDENTS AS IT CONTAINS ANSWERS TO QUESTIONS BELOW. ASC references: ASC
350-20-35-1 through 35-19 provides the overall requirements for goodwill
impairment assessment (under the subsequent measurement category). ASC
350-20-35-3c (subsequent measurement related to Goodwill) covers the events
and circumstances that should be used in evaluating whether it is more
likely that not that the fair value of a reporting unit is less than its
carrying amount.
QUESTIONS:
1. (Introductory) Based on the description in the article,
summarize the results reported by Microsoft for the quarter ended June 30,
2012? What is your sense of the overall implications of these results for
the company's business?
2. (Introductory) Have you used the Microsoft Bing search engine?
How does it compare to other search engines you use?
3. (Advanced) Access the Microsoft filing on Form 8-K for the
announcement of their operating results for the quarter ended June 30, 2012
made on July 19, 2012 and available on the SEC web site at
http://www.sec.gov/Archives/edgar/data/789019/000119312512307447/d379850dex991.htm
How large was the goodwill impairment charge relative to their overall
operations? Clearly state how you assess the size of this charge.
4. (Advanced) Scroll down the report to review the Fourth Quarter
Financial Highlights. What operating segments does MicroSoft report?
5. (Introductory) In which operating segment was the goodwill
impairment charge recorded? How large was the charge relative to this
operating segment? As in question 1 above, clearly state how you assess the
size of this charge.
6. (Introductory) Summarize the accounting process for determining
a goodwill impairment charge. In your answer, include a reference to the
required assessment of events and circumstances frequently leading to asset
impairment charges. Also include a reference the FASB Accounting Standards
Codification (ASC) sections supporting your answer.
7. (Advanced) What particular factors led Micrsoft to report this
impairment charge? How do those factors compare to the requirements under
the FASB ASC?
8. (Introductory) Refer to the related video. What is the meaning
of the term non-cash charge? How do these journalists interpret this write
down?
Reviewed By: Judy Beckman, University of Rhode Island
"Microsoft Posts Rare Loss," by Shira Ovide, The Wall Street Journal,
July 20, 2012 ---
http://professional.wsj.com/article/SB10000872396390444330904577537262279070778.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Microsoft Corp.posted a rare quarterly loss because
of a previously announced charge for its money-losing Internet business, but
the software giant continued to show signs of strength in selling software
to corporations.
The $492 million loss reflected a $6.19 billion
charge for Microsoft's online division, which includes the Bing search
engine business and MSN Web portal. The unit hasn't met the company's
expectations for advertising sales and the company opted to write down the
value of a major acquisition.
Microsoft's total revenue rose nearly 4%, while
revenue in the unit that sells software for server systems and related
products rose nearly 13%. The division posted a 24% jump in operating
income.
"I feel very good about the enterprise demand for
our products," said Peter Klein, Microsoft's chief financial officer, in an
interview.
Revenue for the company's Windows division declined
by nearly 13%, after subtracting about $540 million in deferred revenue—tied
to an offer to give buyers of personal computers the option to upgrade their
machines to Windows 8, the next version of Microsoft's computer operating
system.
The loss for the fiscal period ended June 30 came
to six cents a share. In the year-earlier period, Microsoft posted net
income of $5.9 billion, or 69 cents a share. Revenue rose to $18.1 billion
from $17.4 billion.
For Microsoft and Chief Executive Steve Ballmer,
the fourth quarter is a transition period ahead of several milestone product
launches. Starting this fall, Microsoft is rolling out new versions of two
of its biggest cash cows, Windows and the Office bundle of email and
document software, along with an overhaul of programs for computer servers
and for Microsoft's fledgling Windows Phone software.
The stakes are high for Microsoft to prove it can
catch up to rivals such as Apple Inc. AAPL +2.58% that have a head start in
fast-growing computing areas such as tablets.
By contrast, Microsoft said the market for personal
computers was roughly flat in the fourth quarter, with sales of business PCs
up 1% and consumer PCs down 2%. Its comments echo what third-party research
firms and some other computing companies have been saying in recent weeks.
Operating income in the division that includes the
Windows operating system fell 17.5%. Some analysts believe consumers and
businesses may be holding off on buying new PCs ahead of this October's
launch of Windows 8, Microsoft's first operating software designed with
touch-screen computing devices in mind.
In the division anchored by the Office line of
email and document software, operating income rose 9%. Microsoft's Internet
division, and the business that includes the Xbox videogame console, again
were money-losers during the fiscal fourth quarter.
Microsoft said it kept a tight lid on expenses,
helping boost profit growth higher than revenue growth.
For the fiscal year ending next summer, Microsoft
said it expects Windows revenue to essentially match the overall PC market.
The company said its estimate excludes deferred revenue for a Windows 8
upgrade, and excludes sales of the recently announced Surface tablet
computer, Microsoft's first foray into making a computer on its own.
Continued in article
August 1, 2012 reply from Glen Gray
An “accounting” story has some interest, but maybe it should be assigned
with the “management” story in August Vanity Fair, which can be accessed for
free at
http://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer
. The comments also provide some interesting reading.
Jensen Comment
One problem with reports focusing on profits or losses is that the IASB and the
FASB accounting standard setters adopted a balance sheet focus that turned the
income statement into a black hole. The IASB and FASB can no longer even define
profits and losses.
This led Bob Herz, when he was Chairman of the FASB, to suggest that
perhaps we should use disaggregated reporting without reporting bottom line
profits and losses. Perhaps this applies to the way IBM income statements should
be presented ---
http://www.trinity.edu/rjensen/theory01.htm#ChangesOnTheWay
No Bottom Line
Question
Is a major overhaul of accounting standards on the way?
Hint
There may no longer be the tried and untrusted earnings per share number to
report!
Comment
It would be interesting to see a documentation of the academic research, if any,
that the FASB relied upon to commence this blockbuster initiative. I recommend
that some astute researcher commence to probe into the thinking behind this
proposal.
"Profit as We Know It Could Be Lost With New Accounting
Statements," by David Reilly, The Wall Street Journal, May 12, 2007; Page
A1 ---
http://online.wsj.com/article/SB117893520139500814.html?mod=DAT
Pretty soon the bottom line may not be, well, the
bottom line.
In coming months, accounting-rule makers are
planning to unveil a draft plan to rework financial statements, the bedrock
data that millions of investors use every day when deciding whether to buy
or sell stocks, bonds and other financial instruments. One possible result:
the elimination of what today is known as net income or net profit, the
bottom-line figure showing what is left after expenses have been met and
taxes paid.
It is the item many investors look to as a key
gauge of corporate performance and one measure used to determine executive
compensation. In its place, investors might find a number of profit figures
that correspond to different corporate activities such as business
operations, financing and investing.
Another possible radical change in the works:
assets and liabilities may no longer be separate categories on the balance
sheet, or fall to the left and right side in the classic format taught in
introductory accounting classes.
ACCOUNTING OVERHAUL
Get a glimpse of what new financial statements
could look like, according to an early draft recently provided by the
Financial Accounting Standards Board to one of its advisory groups. The
overhaul could mark one of the most drastic changes to accounting and
financial reporting since the start of the Industrial Revolution in the 19th
century, when companies began publishing financial information as they
sought outside capital. The move is being undertaken by accounting-rule
makers in the U.S. and internationally, and ultimately could affect
companies and investors around the world.
The project is aimed at providing investors with
more telling information and has come about as rule makers work to one day
come up with a common, global set of accounting standards. If adopted, the
changes will likely force every accounting textbook to be rewritten and
anyone who uses accounting -- from clerks to chief executives -- to relearn
how to compile and analyze information that shows what is happening in a
business.
This is likely to come as a shock, even if many
investors and executives acknowledge that net income has flaws. "If there
was no bottom line, I'd want to have a sense of what other indicators I
ought to be looking at to get a sense of the comprehensive health of the
company," says Katrina Presti, a part-time independent health-care
contractor and stay-at-home mom who is part of a 12-woman investment club in
Pueblo, Colo. "Net income might be a false indicator, but what would I look
at if it goes away?"
The effort to redo financial statements reflects
changes in who uses them and for what purposes. Financial statements were
originally crafted with bankers and lenders in mind. Their biggest question:
Is the business solvent and what's left if it fails? Stock investors care
more about a business's current and future profits, so the net-income line
takes on added significance for them.
Indeed, that single profit number, particularly
when it is divided by the number of shares outstanding, provides the most
popular measure of a company's valuation: the price-to-earnings ratio. A
company that trades at $10 a share, and which has net profit of $1 a share,
has a P/E of 10.
But giving that much power to one number has long
been a recipe for fraud and stock-market excesses. Many major accounting
scandals earlier this decade centered on manipulation of net income. The
stock-market bubble of the 1990s was largely based on investors' assumption
that net profit for stocks would grow rapidly for years to come. And the
game of beating a quarterly earnings number became a distraction or worse
for companies' managers and investors. Obviously it isn't known whether the
new format would cut down on attempts to game the numbers, but companies
would have to give a more detailed breakdown of what is going on.
The goal of the accounting-rule makers is to better
reflect how businesses are actually run and divert attention from the one
number. "I know the world likes single bottom-line numbers and all of that,
but complicated businesses are hard to translate into just one number," says
Robert Herz, chairman of the Financial Accounting Standards Board, the U.S.
rule-making body that is one of several groups working on the changes.
At the same time, public companies today are more
global than local, and as likely to be involved in services or lines of
business that involve intellectual property such as software rather than the
plants and equipment that defined the manufacturing age. "The income
statement today looks a lot like it did when I started out in this
profession," says William Parrett, the retiring CEO of accounting firm
Deloitte Touche Tohmatsu, who started as a junior accountant in 1967. "But
the kind of information that goes into it is completely different."
Along the way, figures such as net income have
become muddied. That is in part because more and more of the items used to
calculate net profit are based on management estimates, such as the value of
items that don't trade in active markets and the direction of interest
rates. Also, over the years rule makers agreed to corporate demands to
account for some things, such as day-to-day changes in the value of pension
plans or financial instruments used to protect against changes in interest
rates, in ways that keep them from causing swings in net income.
Rule makers hope reformatting financial statements
will address some of these issues, while giving investors more information
about what is happening in different parts of a business to better assess
its value. The project is being managed jointly by the FASB in the U.S. and
the London-based International Accounting Standards Board, and involves
accounting bodies in Japan, other parts of Asia and individual European
nations.
The entire process of adopting the revised approach
could take a few years to play out, so much could yet change. Plus, once
rule makers adopt the changes, they would have to be ratified by regulatory
authorities, such as the Securities and Exchange Commission in the U.S. and
the European Commission in Europe, before public companies would be required
to follow them.
As a first step, rule makers expect later this year
to publish a document outlining their preliminary views on what new form
financial statements might take. But already they have given hints of what's
in store. In March, the FASB provided draft, new financial statements at the
end of a 32-page handout for members of an advisory group. (See an example.)
Although likely to change, this preview showed an
income statement that has separate segments for the company's operating
business, its financing activities, investing activities and tax payments.
Each area has an income subtotal for that particular segment.
There is also a "total comprehensive income"
category that is wider ranging than net profit as it is known today, and so
wouldn't be directly comparable. That is because this total would likely
include gains and losses now kept in other parts of the financial
statements. These include some currency fluctuations and changes in the
value of financial instruments used to hedge against other items.
Comprehensive income could also eventually include
short-term changes in the value of corporate pension plans, which currently
are smoothed out over a number of years. As a result, comprehensive income
could be a lot more difficult to predict and could be volatile from quarter
to quarter or year to year.
As for the balance sheet, the new version would
group assets and liabilities together according to similar categories of
operating, investing and financing activities, although it does provide a
section for shareholders equity. Currently, a balance sheet is broken down
between assets and liabilities, rather than by operating categories.
Such drastic change isn't likely to happen without
a fight. Efforts to bring now-excluded figures into the income statement
could prompt battles with companies that fear their profit will be subject
to big swings. Companies may also balk at the expense involved.
"The cost of this change could be monumental," says
Gary John Previts, an accounting professor at Case Western Reserve
University in Cleveland. "All the textbooks are going to have to change,
every contract and every bank arrangement will have to change." Investors in
Europe and Asia, meanwhile, have opposed the idea of dropping net profit as
it appears today, David Tweedie, the IASB's chairman, said in an interview
earlier this year.
Analysts in the London office of UBS AG recently
published a report arguing this very point -- that even if net income is a
"simplistic measure," that doesn't mean it isn't a valid "starting point in
valuation" and that "its widespread use is justification enough for its
retention."
Such opposition doesn't surprise many accounting
experts. Net income is "the basis for bonuses and judgments about what a
company's stock is worth," says Stephen A. Zeff, an accounting professor at
Rice University. "I just don't know what the markets would do if companies
stopped reporting a bottom line somewhere." In the U.S., professional
investors and analysts have taken a more nuanced view, perhaps because the
manipulation of numbers was more pronounced in U.S. markets.
That said, net profit has been around for some
time. The income statement in use today, along with the balance sheet,
generally dates to the 1940s when the SEC laid out regulations on financial
disclosure. But many companies have included net profit in one form or
another since the 1800s.
In its fourth annual report, General Electric Co.
provided investors with a consolidated balance sheet and consolidated
profit-and-loss account for the year ended Jan. 31, 1896. The company, whose
board at the time included Thomas Edison, generated "profit of the year" --
what today would be called net income or net profit -- of $1,388,967.46.
For the moment, net profit will probably exist in
some form, although its days are likely numbered. "We've decided in the
interim to keep a net-income subtotal, but that's all up for discussion,"
the FASB's Mr. Herz says.
Bob Jensen's summary of accounting theory is at
http://www.trinity.edu/rjensen/Theory01.htm
Question
What do CFO's think of Robert Herz's (Chairman of the FASB) radical proposed
format for financial statements that have more disaggregated financial
information and no aggregated bottom line?
As we moved to fair value accounting for
derivative financial instruments (FAS 133) and financial instruments (FAS 157
and 159) coupled with the expected new thrust for fair value reporting on the
international scene, we have filled the income statement and the retained
earnings statement with more and more instability due to fluctuating unrealized
gains and losses.
I have reservations about fair value reporting
---
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
But if we must live with more and more fair
value reporting, the bottom line has to go. But CFOs are reluctant to give up
the bottom line even if it may distort investing decisions and compensation
contracts tied to bottom-line reporting.
Before reading the article below you may want to first read about radical
new changes on the way ---
http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay
- "A New Vision for
Accounting: Robert Herz and FASB are preparing a
radical new format for financial, CFO Magazine,
by Alix Stuart, February 2008, pp. 49-53 ---
http://www.cfo.com/article.cfm/10597001/c_10711055?f=home_todayinfinance
Last summer, McCormick & Co. controller Ken Kelly sliced
and diced his financial statements in ways he had never
before imagined. For starters, he split the income
statement for the $2.7 billion international
spice-and-food company into the three categories of the
cash-flow statement: operating, financing, and
investing. He extracted discontinued operations and
income taxes and placed them in separate categories,
instead of peppering them throughout the other results.
He created a new form to distinguish which changes in
income were due to fair value and which to cash. One
traditional ingredient, meanwhile, was conspicuous by
its absence: net income.
Kelly wasn't just indulging a whim. Ahead of a public
release of a draft of the Financial Accounting Standards
Board's new format for financial statements in the
second quarter of 2008, the McCormick controller was
trying out the financial statements of the future, a
radical departure from current conventions. FASB's
so-called financial statement presentation project is
ostensibly concerned only with the form, or the "face,"
of financial statements, but it's quickly becoming clear
that it will change and expand their content as well.
"This is a complete redefinition of the financial
statements as we know them," says John Hepp, a former
FASB project manager and now senior manager at Grant
Thornton.
Some of the major changes under discussion:
reconfiguring the balance sheet and the income statement
to follow the three categories of the cash-flow
statement, requiring companies to report cash flows with
the little-used direct method; and introducing a new
reconciliation schedule that would highlight fair-value
changes. Companies will also likely have to report more
about their segments, possibly down to the same level of
detail as they currently report for the consolidated
statements. Meanwhile, net income is slated to disappear
completely from GAAP financial statements, with no
obvious replacement for such commonly used metrics as
earnings per share.
FASB, working with the International Accounting
Standards Board (IASB) and accounting standards boards
in the United Kingdom and Japan, continues to work out
the precise details of the new financial statements. "We
are trying to set the stage for what financial
statements will look like across the globe for decades
to come," says FASB chairman Robert Herz. (Examples of
the proposed new financial statements can be viewed at
FASB's Website.) If the standard-setters stay their
course, CFOs and controllers at every publicly traded
company in the world could be following Kelly's lead as
soon as 2010.
It's too early to predict with confidence which changes
will ultimately stick. But the mock-up exercise has made
Kelly wary. He considers the direct cash-flow statement
and reconciliation schedule among the "worst aspects" of
the forthcoming proposal, and expects they would require
"draconian exercises" from his finance staff, he says.
And he questions what would result from the additional
details: "If all of a sudden your income statement has
125 lines instead of 25, is that presentation more
clarifying, or more confusing?"
Other financial executives share Kelly's skepticism. In
a December CFO survey of more than 200 finance
executives, only 17 percent said the changes would offer
any benefits to their companies or investors (see "Keep
the Bottom Line" at the end of this article). Even some
who endorsed the basic aim of the project and like the
idea of standardizing categories across the three major
financial statements were only cautiously optimistic.
"It may be OK, or it may be excessive." says David
Rickard, CFO of CVS/Caremark. "The devil will be in the
details."
Net Loss From the outset, corporate financial officers
have been ambivalent about FASB's seven year-old
project, which was originally launched to address
concerns that net income was losing relevance amid a
proliferation of pro forma numbers. Back in 2001,
Financial Executives International "strongly opposed"
it, while executives at Philip Morris, Exxon Mobil,
Sears Roebuck, and Microsoft protested to FASB as well.
(Critics then and now point out that FASB will have
little control over pro forma reporting no matter what
it does. Indeed, nearly 60 percent of respondents to
CFO's survey said they would continue to report pro
forma numbers after the new format is introduced.)
Given the project's starting point, it's not surprising
that current drafts of the future income statement omit
net income. Right now that's by default, since income
taxes are recorded in a separate section. But there is a
big push among some board members to make a more
fundamental change to eliminate net income by design,
and promote business income (income from operations) as
the preferred basis for investment metrics.
"If net income stays, it would be a sign that we
failed," says Don Young, a FASB board member. In his
mind, the project is not merely about getting rid of net
income, but rather about capturing all income-related
information in a single line (including such volatile
items as gains and losses on cash-flow hedges,
available-for-sale securities, and foreign-exchange
translations) rather than footnoting them in other
comprehensive income (OCI) as they are now. "All changes
in net assets and liabilities should be included," says
Young. "Why should the income statement be incomplete?"
He predicts that the new subtotals, namely business
income, will present "a much clearer picture of what's
going on."
Board member Thomas Linsmeier agrees. "The rationale for
segregating those items [in OCI] is not necessarily
obvious, other than the fact that management doesn't
want to be held accountable for them in the current
period," he says.
Whether for self-serving or practical reasons, finance
chiefs are rallying behind net income. Nearly 70 percent
of those polled by CFO in December said it should stay.
"I understand their theories that it's not the be-all
and end-all measure that it's put up to be, but it is a
measure everyone is familiar with, and sophisticated
users can adjust from there," says Kelly. Adds Rickard:
"They're treating [net income] as if it's the scourge of
the earth, which to me is silly. I think the logical
conclusion is to make other things available, rather
than hiding the one thing people find most useful."
. . .
Bob Jensen's threads on this
proposed "radical change" in financial reporting are at
http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay
Jensen Comment
As we moved to fair value accounting for derivative
financial instruments (FAS 133) and financial instruments (FAS
157 and 159) coupled with the expected new thrust for fair
value reporting on the international scene, we have filled
the income statement and the retained earnings statement
with more and more instability due to fluctuating unrealized
gains and losses.
I have reservations about
fair value reporting ---
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
But if we must live with
more and more fair value reporting, the bottom line has to
go. But CFOs are reluctant to give up the bottom line even
if it may distort investing decisions and compensation
contracts tied to bottom-line reporting.
Bob Jensen's threads on the radical new changes on the
way ---
http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
A Curious Case of Negative Goodwill
"NEED PROFIT? BUY SOMETHING!" by Anthony H. Catanach Jr. and J. Edward Ketz,
Grumpy Old Accountants Blog, July 30, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/733
We first voiced our concern about an obscure accounting rule that allows
companies to “create” profits when purchasing other businesses in the
“Curious Case of Miller Energy’s 10-K and Its Huge Bargain Purchase.” The
offending tenet relates to the treatment of something called “negative
goodwill” which purportedly is created when a company makes an acquisition,
and pays less than what the assets are worth. This fantastic “bargain
purchase” creates a negative goodwill anomaly because the acquirer
supposedly gets more assets than it pays for, as in this example:
Continued in article
Jensen Comment
Yet another illustration of how the FASB and IASB made a black hole out of
bottom-line earnings.
Crowe Horwath May Have the Worst Audit Inspection Report in the History of
the PCAOB
It will frustrate Francine that Deloitte's record has been broken
"Crowe Horwath Sees Spike in Audit Inspection Findings," by Tammy Whitehouse,
Compliance Week, July 31, 2012---
http://www.complianceweek.com/crowe-horwath-sees-spike-in-audit-inspection-findings/article/252603/
Crowe Horwath, the last of the top eight accounting
firms to have its 2010 audit inspection report published, took the same
lashing as its counterparts with a significant increase in the number of
audits criticized by inspectors.
Two years after 2010 inspections were performed,
the Public Company Accounting Oversight Board published its report on
Crowe's audit work finding fault with eight of the 13 audits selected for
inspection. By comparison, inspectors criticized only two of the 13 Crowe
Horwath audits that they inspected in 2009, and only one audit in 2008. The
PCAOB had no comment on why it took two years to publish the report.
Crowe's 2010 report outlines the same
audit-by-audit summary of inspectors' concerns found in other reports,
focusing on many of the same issues that cropped up across all firms in
2010. Among the eight audits criticized, most comments revolve around
allowances for loan losses, impairments, and over-reliance on third-party
pricing services for establishing fair values.
The PCAOB report says deficiencies included
failures to identify or properly address financial statement misstatements,
including failures to comply with disclosure requirements, as well as
failures to perform certain audit procedures. Inspectors noted that in some
cases, the failure stems from inadequate documentation. The report says
Crowe issued a revised opinion on one audit report after inspectors
unearthed problems with the audit of internal control over financial
reporting.
The firm says in its response to the inspection
findings that it is committed to quality auditing and has designed its
quality control and monitoring systems to drive improvement. Crowe says it
took actions to address each matter raised in the inspection report,
including providing more documentation in audit files to more completely
describe procedures, evidence, and conclusions. “We remain committed to
continual improvement in our audit practice and making responsive changes in
areas identified by the PCAOB for improvement, and look forward to further
dialogue towards the shared goal of audit quality,” the firm wrote.
Among the top eight audit firms that are inspected
annually by the PCAOB, inspection findings jumped dramatically from 2009 to
2010. The ratio of failed audits to the total number of audits inspected
more than doubled at some firms, like Crowe. The eight major firms that are
inspected annually include Ernst & Young, KPMG, PwC, Deloitte & Touche,
Grant Thornton, BDO USA, McGladrey & Pullen, and Crowe.
Continued in article
Bob Jensen's threads on the woes of auditing firms ---
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on auditing professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"Regulator Says Broker Audits Fail to Include Required Work," by Floyd
Norris, The New York Times, August 20, 2012 ---
http://www.nytimes.com/2012/08/21/business/accounting-board-faults-audits-of-brokerage-firms.html?_r=1
The many auditors who inspect the financial
statements of brokerage firms appear to be cutting corners and not doing all
the work they should do, a worrisome sign after the collapse of the
Peregrine Financial Group, a leading commodities brokerage firm, where a
fraud had gone undetected for many years.
Having completed the first review of such brokerage
firm audits, the Public Company Accounting Oversight Board said on Monday
that it had found deficiencies in every audit its inspectors reviewed.
“The auditors,” said Jeanette M. Franzel, a member
of the board, “were not properly fulfilling their responsibilities to
provide an independent check on brokers’ and dealers’ financial reporting
and compliance with S.E.C. rules.”
That does not mean that any of the statements
misrepresented the financial conditions of the 23 brokerage firms whose
audits were reviewed by inspectors from the board. In most cases, the
accounting board concluded that the audit firm had failed to do the
necessary work to ensure that the financial statements were accurate or that
the firms had sufficient capital.
“In 13 of the 23 audits,” the board reported,
auditors “did not perform sufficient procedures to identify, assess and
respond to the risks of material misstatement of the financial statements
due to fraud.”
Lynn Turner, a former chief accountant of the
Securities and Exchange Commission, called the report “mind-boggling” and
said it indicated that audit firms had failed to respond to the disclosure
of Bernard Madoff’s Ponzi scheme. It was that fraud that led Congress to
authorize the oversight board to review audits of brokerage firms.
The Peregrine fraud was uncovered after the
National Futures Association, a self-regulator, stopped relying on paper
copies of bank records in its own inspections. Peregrine had forged such
records for years. Its independent auditor, a one-person firm, did not
discover the fraud even though bank accounts are supposed to be confirmed.
A significant question for auditors of brokerage
firms to evaluate is whether the brokers are subject to consumer protection
rules specifying what can be done with customer money, and, if so, whether
they are in compliance with the rules. Generally, brokers who do not handle
customer cash are not covered by the rule, and auditors of those smaller
firms have been pushing to be exempted from inspections by the accounting
oversight board when final rules are established.
Of the 23 firms, 14 claimed to be exempt from the
rule, but the board said none of the auditors of those 14 smaller firms had
gone to the trouble of establishing whether that was actually the case. It
added that auditors for two of the nine bigger brokerage firms had failed to
verify that the firms maintained special reserve bank accounts that “were
designated for the exclusive benefit of customers and that the account
agreements contained the required restrictive provisions.”
The accounting oversight board, which was
established by the Sarbanes-Oxley Act a decade ago, initially was authorized
only to review audits of companies that issue securities in the public
market. Audit firms that audited only broker dealers were not subject to
inspection by the board.
That was changed in 2010 by the Dodd-Frank law, as
lawmakers reacted to the Madoff scandal, which was carried out through his
brokerage firm. The Madoff enterprise was audited by a tiny firm that was
not subject to board inspection. The audit firm’s principal, David G.
Friehling, has since pleaded guilty to nine criminal charges, admitting he
did not perform adequate audits.
The new report covers work conducted by 10 audit
firms, seven of which were previously exempt from board review because they
did not review the financial statements of any public companies.
The board said that about 800 accounting firms
perform audits of brokerage firms, and that about 500 of those were
previously exempt from board inspection. Most of them could continue to
escape board oversight if the board decides against reviewing audits of
smaller brokerage firms, as many auditors have urged.
One issue with such audits that emerged in the
board report was compliance with independence rules. Auditors of nonpublic
companies often essentially prepare the books that they then audit, and that
is allowed under the rules of the American Institute of Certified Public
Accountants. S.E.C. rules prohibit such practices at public companies or at
brokerage firms.
Continued in article
Bob Jensen's threads on professionalism and independence in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Repo Scandals When Sales 100% Certain to Be Returned Were Booked as Sales
Revenues to Paint a Misleading Picture of Lighter Leverage Risk ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo
"FASB Agrees to Tighten Sale Accounting Criteria," by Tammy
Whitehouse, Compliance Week, August 10, 2012 ---
http://www.complianceweek.com/fasb-agrees-to-tightens-sale-accounting-criteria/article/254156/
In its continuing
quest to sort out when a financial asset transaction is a
sale vs. a repurchase agreement or a secured borrowing,
the Financial Accounting Standards Board tentatively agreed to a
slightly narrower definition of when a transaction qualifies for sale
treatment, which enables an asset to be removed from the balance sheet.
During a
recent meeting, FASB tentatively decided it
will extend an exception to the rules for financial asset sale
accounting for certain sale and repurchase agreements. It will require
secured borrowings accounting for transactions that involve the sale and
purchase of not only identical financial assets, but also financial
assets that are substantially similar. The board also decided it will
clarify the criteria for determining whether the financial assets to be
repurchased are substantially similar to the assets initially
transferred. Ultimately, that will have the effect of requiring more
transactions to be treated as secured borrowings, which keeps more of
them on the balance sheet.
It's a touchy
subject in the financial services sector particularly as FASB continues
to work through an accounting solution that will prevent another
Lehman-like accounting headache. Before it collapsed, Lehman Brothers
used repurchase transactions to shuttle some $50 billion in assets on
and off the balance sheet around period closing dates to mask the true
measure of its debt,
according to the firm's bankruptcy examiner.
FASB has decided a
secured borrowing transaction can be distinguished by six critical
criteria. In addition to the transfer of identical or similar assets, it
involves a transfer of existing financial asset at its inception, and
the agreement involves both a right and an obligation to repurchase the
financial assets. The initial transfer and forward repurchase agreement
involves the same counterparty, and the repurchase agreement is linked
to the initial transfer.
In addition, the
repurchase price is fixed and easily determined, and the financial
assets specified under the agreement are identical to the financial
assets initially transferred, or at least substantially similar. As for
what to do when a given transaction fits most but not all the criteria
for a secured borrowing, the board decided it will rely on existing
guidance to determine when transactions should be described as secured
borrowings vs. sales with forward repurchase agreements.
And, of course,
there will be disclosure requirements. The board decided all repurchase
agreements and similar transactions should be described in the notes to
financial statements with three specific disclosures: the reasons for
concluding whether a transaction is a secured borrowing or a sale with a
forward repurchase commitment, and the accounting reasoning behind a
transaction involving substantially similar but not identical financial
assets.
Teaching Case: AIS Smokestacks Remaining in an ERP World
ERP ---
http://en.wikipedia.org/wiki/Enterprise_resource_planning
ERP in AIS Curricula ---
http://www.trinity.edu/rjensen/245glosap.htm
From The Wall Street Journal Accounting Review on July 27, 2012
The Financial-Data Dilemma
by:
Emily Chasan
Jul 24, 2012
Click here to view the full article on WSJ.com
TOPICS: Accounting Information Systems, business combinations,
Consolidations, Internal Controls
SUMMARY: Recent economic turmoil has led companies to strive for
timely and consistently uniform financial information for decision making.
However, "finance chiefs [face] a tough choice: either spend serious time
and money to unify their financial systems in one fell swoop...or take a
piecemeal approach that will address specific needs but may not bring major
benefits." The problems arise because financial systems are often a tangle
of hundreds of general ledgers, processes and legal entities, particularly
following business combinations. "But increasingly...companies are taking
action to get better financial data. Businesses world-wide spent $15.7
billion in 2001 on financial accounting applications, up 9.9% from a year
earlier and about double the 2010 growth rate."
CLASSROOM APPLICATION: The article is useful to discuss the
management of financial reporting systems in either a financial or
managerial accounting class or in an advanced accounting class covering
consolidations which are mentioned in the article.
QUESTIONS:
1. (Introductory) According to Linda Imonti of KPMG LLP, as quoted
in the article, on what issues were companies trying to focus during the
recession? What problems did companies face in that effort?
2. (Advanced) What factors lead to insufficient investment in
accounting systems and these resulting problems in providing data for rapid
decision making?
3. (Advanced) What is a "material-weakness disclosure"? Why does
that event spur big investment in accounting systems?
4. (Introductory) What business activities particularly lead to
disjointed accounting systems? Why does it take time to integrate these
systems?
5. (Advanced) What accounting process is done when companies own
many entities with separate legal status? Why does this process not produce
information sufficient for rapid decision-making?
Reviewed By: Judy Beckman, University of Rhode Island
"The Financial-Data Dilemma," by: Emily Chasan, The Wall Street Journal,
July 24, 2012 ---
http://professional.wsj.com/article/SB10000872396390443295404577544962868707738.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
The economic volatility of the past few years has
left businesses hungering for more timely and uniform financial information
to help them react quickly to fast-changing conditions. But that unsteady
environment has also made it risky for companies to interrupt their
operations to get new systems up to speed.
That has left finance chiefs with a tough choice:
Either spend serious time and money to unify their financial systems in one
fell swoop, which can entail consolidating hundreds of general ledgers,
processes and legal entities, or take a piecemeal approach that will address
specific needs but may not bring major benefits. Still others opt to do
nothing, possibly waiting for an acquisition or restructuring to force them
to take action.
But increasingly, experts say, companies are taking
action to get better financial data. Businesses world-wide spent $15.7
billion in 2011 on financial-accounting applications, up 9.9% from a year
earlier and about double the 2010 growth rate, International Data Corp.
says.
"If you are making a change, you cannot go big
enough," says Fried Muenstermann, North American chief financial officer of
BASF BAS +6.10% . The German chemical company made a number of upgrades and
changes in one "big bang" in the wake of the financial crisis, he says,
going live with the changes in 2010.
A series of acquisitions since 2006 had left BASF
with some disjointed systems, so it aligned its accounting, payroll and
benefit systems; upgraded its enterprise resource planning system; moved as
many financial processes as possible to a shared service center; and
streamlined legal entities.
"From a CFO perspective, legal entities drive you
nuts," says Mr. Muenstermann. Each one comes with a "fully blown reporting
package."
BASF's finance department can now produce more
comparable data and spend more time on activities that support the company's
growth strategy, he says.
Companies that make a big-bang switch often have to
delay billing and face the risk of internal fraud as they switch systems,
says Therese Tucker, founder of the account-reconciliation software company
BlackLine Systems. Regulatory changes are also preventing big overhauls as
companies worry they could create compliance risks.
Still, the benefits can be vast—eliminating costly
ledger-consolidation processes, using shared-service centers to process
data, and getting more real-time business information that can help identify
areas of stress.
"During the recession, companies had an extreme
focus on trying to reduce costs and plan for the future better, but a lot of
them discovered during that time that they didn't have the information they
needed and they didn't have an ability to get that information," says Linda
Imonti, leader of the business intelligence team at KPMG LLP, which advises
companies on collecting business data.
Investment in financial and accounting systems has
long been considered a cost center, and that has led some companies to
budget for upgrades and maintenance each year rather than tackling major
overhauls.
"There are absolute essential cornerstones of any
accounting process, and if we do those things really well then we take care
of so much of the risk," says Mathew Watson, senior director of external
reporting and corporate accounting at Best Buy Co. BBY -0.11% The retailer
standardizes as many of its systems as possible and has been "steadily"
upgrading accounting systems over the past decade, he says.
Acquisitions, depending on the size and location,
can wreak havoc on reporting systems. Best Buy is choosy about when to
standardize systems for companies it acquires, but it has sometimes had to
implement new systems after international deals.
Continued in article
Teaching Case on Credit Derivatives and Fair Value Accounting
Credit Derivative ---
http://en.wikipedia.org/wiki/Credit_derivative
From The Wall Street Journal Accounting Weekly Review on August 10,
2012
J.P. Morgan 'Whale' Was Prodded
by:
Gregory Zuckerman and Dan Fitzpatrick
Aug 03, 2012
Click here to view the full article on WSJ.com
TOPICS: Derivatives, Fair Value Accounting, Fair-Value Accounting
Rules, Internal Controls
SUMMARY: "After reviewing emails and voice-mail messages, [J.P.
Morgan Chase & Co.] has concluded that Bruno Iksil, the J.P. Morgan trader
nicknamed for the large positions he took in the credit markets, was urged
by his boss to put higher values on some positions than they might have
fetched in the open market at the time....The bank believes they show the
executive, Javier Martin-Artajo, pushing Mr. Iksil to adjust trade prices
higher, according to people close to the bank's investigation."
CLASSROOM APPLICATION: The article may be used to identify the
purpose of fair value reporting under IFRS and U.S. GAAP. Questions then
lead to helping the students understand that valuations are not exact and
may "fall within a broad range set by the oversight group" responsible for
monitoring valuation practices in bank control groups. A final question asks
students to glean an understanding of the internal controls described in the
article.
QUESTIONS:
1. (Introductory) What investigation has J.P. Morgan undertaken
into its own operations within its Chief Investment Office (CIO)? What
specific operations and activities did the company investigate?
2. (Advanced) What is the definition of fair value under U.S.
generally accepted accounting principles (U.S. GAAP) and International
Financial Reporting Standards (IFRS)? How is this definition the focus of
accounting for financial assets and liabilities?
3. (Advanced) According to the introductory paragraph, how did the
executive known as the "London Whale" allegedly violate this definition? In
your answer, state how and why internal corporate valuations are used to
arrive at fair value estimates under U.S. GAAP and IFRS requirements.
4. (Advanced) Does it seem from the description in the article that
the alleged intent of the parties involved was to violate accepted
accounting practices? Explain your answer.
5. (Advanced) How can it be that fair values "fall within a broad
range set by the oversight group" responsible for valuation practices at
banks--aren't fair value amounts one number than can be specifically
determined? Explain.
6. (Introductory) Based on the description in the article, explain
your understanding of the internal controls used at banks to ensure that
fair values are appropriately determined.
Reviewed By: Judy Beckman, University of Rhode Island
"J.P. Morgan 'Whale' Was Prodded," by: Gregory Zuckerman and Dan Fitzpatrick,
The Wall Street Journal, August 3, 2012 ---
http://professional.wsj.com/article/SB10000872396390443545504577565062684880158.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
A J.P. Morgan Chase JPM -0.65% & Co. executive
encouraged the trader known as the "London whale" to boost valuations on
some trades, said a person who reviewed communications emerging from the
bank's internal probe of recent trading losses.
After reviewing emails and voice-mail messages, the
bank has concluded that Bruno Iksil, the J.P. Morgan trader nicknamed for
the large positions he took in the credit markets, was urged by his boss to
put higher values on some positions than they might have fetched in the open
market at the time, people familiar with the probe said.
The bank's conclusion is based on a series of
emails and voice communications in late March and April, as losses on his
bullish credit-market bet mounted, the people said. The bank believes they
show the executive, Javier Martin-Artajo, pushing Mr. Iksil to adjust trade
prices higher, according to people close to the bank's investigation. At the
time, Mr. Martin-Artajo was credit-trading chief for the company's Chief
Investment Office, or CIO.
Mr. Iksil agreed on repeated occasions to adjust
the values, the people said. Those discoveries led the bank to determine
last month that an earnings restatement was necessary. The prices he chose
were within broad market ranges, but high enough to later raise concerns
among the bank's investigators, the people said.
Among the communications uncovered by the bank's
investigation are two that the bank believes show Mr. Martin-Artajo prodding
Mr. Iksil toward higher prices, the people familiar with the probe said.
"We should not be showing" a certain amount of
losses from the trades "until we see where the market is going," Mr. Martin-Artajo
told the trader in one communication, according to people who have reviewed
the communications from the probe, which is continuing.
"I'd prefer" that a higher price be put on certain
positions, Mr. Martin-Artajo told Mr. Iksil in another communication, said a
person close to the investigation
Last month, J.P. Morgan said both men had left the
largest U.S. bank in assets and will be forced to relinquish compensation as
part of the fallout from $5.8 billion in trading losses.
Greg Campbell, a lawyer for Mr. Martin-Artajo, said
his client "unequivocally denies any wrongdoing on his part and is confident
that he will be completely exonerated when the investigations into these
events have been completed." Mr. Iksil's lawyer, Raymond Silverstein,
couldn't be reached but has previously denied any wrongdoing by Mr. Iksil.
It isn't clear why Mr. Iksil decided to use the
higher values. Accounting rules dictate that such investments be valued at
the best estimate of where they might be sold.
Some people at J.P. Morgan concluded, based in part
on references in communications to accumulating losses, that the favorable
valuations might have been aimed at giving the losing trades time to recover
and avoid setting off potential alarms at the bank, according to the people
familiar with the probe.
At the same time, some people on the trading team
say they had begun to doubt market prices and were convinced rivals were
manipulating markets to the detriment of J.P. Morgan, the people said.
The details of the probe, which haven't been
disclosed publicly, are the latest sign of how risk-management breakdowns
mushroomed into a trading loss that might exceed $7 billion, according to
the bank's latest estimate. The mess has tarnished the reputation of J.P.
Morgan Chief Executive James Dimon, who initially played down worries about
the London whale as "a tempest in a teapot" but then said he was wrong.
J.P. Morgan said July 13 that its review of roughly
one million internal emails and tens of thousands of voice tapes suggested
that some traders "may have been seeking to avoid showing the full amount of
losses." The discovery prompted the New York company to declare a "material
weakness" in its financial controls and restate earnings for the first
quarter.
Determining accurate prices for infrequently traded
investments such as the bets made by Mr. Iksil can be difficult, and J.P.
Morgan routinely reviewed the valuations made by traders. The oversight
process by the bank's so-called valuation control group includes input from
outside pricing companies and brokers, which the group uses to set what it
considers an appropriate range for various investment positions. The
arrangement is a common risk-management practice among large banks.
Continued in article
Megabanks Backing Away From Mark-to-Market Accounting
"Change In Loan-Tallying Method," by Liz Rappaport, The Wall Street Journal,
February 17, 2012 ---
http://online.wsj.com/article/SB10001424052970204059804577227602059483034.html?mod=dist_smartbrief
Goldman Sachs Group Inc. and Morgan Stanley have
reduced their use of "mark-to-market" accounting, shielding them from swings
in the value of some loans made to companies.
After several months of internal discussion, the
two companies are making an accounting change affecting a portion of
corporate loans that have a combined value of more than $100 billion. The
change will value that portion using so-called historical-cost accounting,
according to financial filings and people familiar with the matter.
Under that accounting method, assets generally are
held at their original value or purchase price. Goldman and Morgan Stanley
could set aside reserves against possible losses on the loans and hedge them
in other ways.
The banks are making the change in part because, as
a result of regulators' rules, securities firms using historical-cost
accounting won't have to hold much-larger amounts of capital against the
assets if their values go down. There also will be less fluctuation in
Goldman and Morgan Stanley's earnings, because marking the loans to market
creates immediate gains or losses for the companies as the values of the
loans fluctuate.
Goldman reported a loss of $450 million in the
fourth quarter on the New York company's overall portfolio of corporate
loans, including losses or gains on hedges. At the end of the third quarter,
its portfolio of loan commitments was $34 billion. Goldman hasn't disclosed
the size of its portfolio in the fourth quarter. It also hasn't disclosed
how much of its loan portfolio it plans change the accounting for.
Morgan Stanley is likely to change over a portion
of its $82 billion loan portfolio, said a person familiar with the matter.
As of the end of the year, Morgan Stanley had already moved $9.7 billion of
its loan portfolio to historical-cost accounting. The firms may use this
accounting method for new loans and commitments.
Morgan Stanley didn't disclose a gain or loss on
its loan portfolio in the fourth quarter of 2011. In the third quarter, it
took a loss of about $400 million on its portfolio of corporate loans.
Goldman and Morgan Stanley became bank-holding
companies in 2008, giving them access to emergency funds from the Federal
Reserve's discount window. But both companies now are subject to Fed
stress-test guidelines, which include weighing the financial impact of
economic and market shocks.
Under the stress tests and international capital
rules, Goldman and Morgan Stanley would be required to set aside more than
twice as much capital against the loans if they were marked down in value.
Using the new accounting treatment, Goldman and
Morgan Stanley must hold no capital against those loans. Instead, they set
aside reserves to cushion against possible losses.
"The focus on capital by the Fed and global
regulators is driving Goldman and other dealers to re-evaluate their
businesses and even accounting methodologies to improve their capital
metrics," said Roger Freeman, an analyst at Barclays Capital.
Goldman's Chief Financial Officer David Viniar said
in a conference call in January that Goldman's contemplating the change was
"driven by the more-onerous capital treatment."
Goldman executives including its Chairman and Chief
Executive Lloyd C. Blankfein have defended mark-to-market accounting, saying
wider use of the method might have forced financial firms to reckon with
their problems sooner during the crisis.
Continued in article
Bob Jensen's threads on credit derivatives are under the C-Terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
The Controversy Over Fair Value (Mark-to-Market) Financial Reporting ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue
From The Wall Street Journal Accounting Weekly Review August 24,
2012
Getting a Reprieve from Capital Punishment
by: Justin Lahart
Aug 20, 2012
Click here to view the full article on WSJ.com
TOPICS: Capital Spending
SUMMARY: "To look at the woeful earnings season that's
wrapping up, the days of capital expenditure bolstering the U.S. economy
seem numbered. But don't count it out yet....Spending on new equipment
and software is usually a function of demand: whatever direction
earnings growth is going is where capital spending will head within the
next quarter or so."
CLASSROOM APPLICATION: The article is useful to
introduce economic reasoning behind fixed asset purchases and the
related use of such financial statement measures in predicting future
economic activity. Since the discussion includes computer software, it
provides an up-to-date description of what is considered capital
spending. Another topic in the article is Pepsi's foreign investment and
sales generation which may be used to explain the concept of functional
currency. INSTRUCTORS SHOULD REMOVE THE FOLLOWING ANSWER TO QUESTIONS 5
AND 6: In the discussion of Pepsi's foreign sales, if the Indian
operations are organized as a corporation that is consolidated, then the
functional currency of those operations is most likely the Indian rupee.
Students should draw that conclusion from the fact that the operations
are invested in India and the sales are generated there as well. For
consolidation, translation at current rates should be done for purposes
of consolidating international operations when a subsidiary's functional
currency is its local currency.
QUESTIONS:
1. (Advanced) What are capital expenditures? What items are
included in the category of capital expenditures in this article?
2. (Advanced) How are capital expenditures accounted for in
U.S. company's books and records?
3. (Introductory) According to the article, what was the growth
rate in the second quarter of calendar 2012 in capital expenditures?
From where do you think the U.S. Commerce Department obtains the
information reported in the article?
4. (Introductory) How does the survey of U.S. chief financial
officers (CFOs) add to the understanding of the overall growth rate
discussed in question 3 above?
5. (Advanced) In the article, the author states "...The bulk of
foreign sales by U.S. companies come from the operations they have in
place overseas," and then describes Pepsi's operations in India. If
these operations are organized as a corporate subsidiary, what currency
do you think is likely to be considered the functional currency of this
entity? Explain your answer.
6. (Advanced) What is the implication of the functional
currency for consolidation of Pepsi's Indian operations?
Reviewed By: Judy Beckman, University of Rhode Island
"Getting a Reprieve from Capital Punishment," by: Justin Lahart, The
Wall Street Journal, August 20, 2012 ---
http://professional.wsj.com/article/SB10000872396390444233104577595760843342058.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
To look at the woeful earnings season that's
wrapping up, the days of capital expenditure bolstering the U.S. economy
seem numbered. But don't count it out yet.
S&P 500 earnings likely increased by just 0.9%
in the second quarter versus a year earlier, according to S&P Capital
IQ's latest estimates. For the third quarter, analysts are forecasting
the first outright decline in profits since 2009.
Spending on new equipment and software is
usually a function of demand: Whatever direction earnings growth is
going is where capital spending will head within the next quarter or so.
Profits began to seriously weaken in mid-2007, for example, and by early
2008 capital spending had begun to shrink. So even though spending on
equipment and software grew at a healthy 7.2% inflation-adjusted annual
rate in the second quarter, according to the Commerce Department, its
future pace is in doubt.
But Europe's downturn and Asia's slowdown
explain much of the weak growth in U.S. company earnings. So the dynamic
isn't quite the same as it was in the last recession.
In the second-quarter survey of chief financial
officers he conducted with CFO Magazine, Duke Fuqua School of Business
economist John Graham found stark differences in the capital-spending
plans of U.S. firms booking most of their sales overseas and those with
more domestic exposure.
CFOs at companies booking more than half their
sales in Europe, for example, expected spending to fall by about 5% over
the next year. Companies with less than half their sales in Europe
expected spending to increase by about 10%.
U.S. exports are substantial, but the bulk of
foreign sales by U.S. companies come from the operations they have in
place overseas. For example, the Pepsi sold in India is made in India.
U.S. Trust chief market strategist Joseph Quinlan estimates that such
sales came to more than $6 trillion last year. That compares with U.S.
exports of just over $2 trillion.
That matters because just as overall profits
dictate how much money companies spend, they tend to spend it in places
where they are doing well. The fact that General Motors' GM -0.63%
European operations are struggling, for instance, didn't stop it from
renovating and restarting production at its former Saturn assembly plant
in Spring Hill, Tenn.
The better picture for capital spending in the
U.S. doesn't shield big U.S. makers of equipment and software from the
global malaise. Almost to a company they, too, have substantial
operations overseas. But it does make things a little easier. And since
many companies have underinvested in the years since the recession,
there is potential for the U.S. to do some heavier lifting.
Continued in article
Caveat: I'm an independent voter who places high priority upon
increased tax rate for all income brackets in the U.S. from the lowest to the
highest workers who receive active or passive income.
Gallop Poll: Even Most Democratic
Voters Place a Low Priority on Taxing the Wealthy
Gallop Politics, July 30, 2012 ---
http://www.gallup.com/poll/156347/Americans-Next-President-Prioritize-Jobs-Corruption.aspx
Americans Want Next President
to Prioritize Jobs, Corruption
Lowest priorities are taxing
wealthy and environmental problems
by Jeffrey M. Jones
PRINCETON, NJ -- Creating good jobs,
reducing corruption in the federal government, and reducing the
federal budget deficit score highest when Americans rate 12 issues
as priorities for the next president to address. Americans assign
much less importance to increasing taxes on wealthy Americans and
dealing with environmental concerns.
The results are based on a
July 19-22 USA Today/Gallup poll. Job creation's position
at the top of the list is consistent with various measures of issue
salience or
importance
Gallup has asked this year. Corruption in government usually ranks
as an
important issue when it is asked about
specifically, though it is not as
top-of-mind as jobs or the economy.
Continued in article
Update on Portable Scanning
August 22, 2012 message from Scott Bonacker
I deleted the extraneous
material from this marketing email - it describes a scanner that could
be useful for onsite work like I do - and maybe someone else as well –
scan student papers at your desk at the front of the room?
Scott Bonacker CPA - McCullough and Associates LLC - Springfield, MO
1. A SCANNER THAT GIVES DUPLEX A WHOLE NEW MEANING
The secret to success in the technology world is to solve a problem.
Here's one. Mobile scanners can handle documents, but not bound
materials. Wand scanners can handle bound materials but not documents.
You can "scan" anything by snapping a photo with your smartphone, but
positioning your smartphone perfectly wastes time, the lower quality
makes optical character recognition more challenging, and you risk
looking dorky. A new scanner attempts to solve this problem.
MobileScan Pro 100 ... in One Sentence
Shipping in September, Ambir's MobileScan Pro 100 is a portable scanner
with document and wand functionality.
http://www.technolawyer.com/r.asp?L29119&M59355
The Killer Feature
The MobileScan Pro 100 consist of two components -- a dock and a wand
scanner with an LCD display. When the scanner is docked, it functions
like a typical sheet-fed simplex scanner with speeds of up to 10 pages
per minute in black and white (it can also scan in color).
However, you can detach the scanner from the dock, thus transforming it
into a wand scanner for bound materials not to mention fabric and other
items that you cannot feed.
Other Notable Features
The entire docked unit measures 12.4 x 2 x 1.7 inches and weighs 12.6
ounces. You can power it with the included USB cable or a battery (the
battery resides inside the scanner component). The LCD screen enables
you to adjust settings without the need for a computer.
The MobileScan Pro 100 scans at 300, 600, or 900 dpi, and saves your
documents in JPEG or PDF format via the bundled PageManager 9 software.
You can save scans to an attached computer or to the included 4 GB
microUSB card that resides inside the scanner. The scanner can encrypt
your scans on the microUSB card for security in the event of loss or
theft.
What Else Should You Know?
The MobileScan Pro 100 costs $149.95. It works with Windows PCs and
Macs. Learn more about MobileScan Pro 100.
http://www.ambir.com/MobileScan-Pro-100
Bob Jensen's threads on gadgets ---
http://www.trinity.edu/rjensen/Bookbob4.htm#Technology
July 31, 2012 message from David Albrecht
I'm sharing the link to my cost accounting syllabus
for a couple of reasons.
http://profalbrecht.wordpress.com/2012/07/31/my-cost-accounting-syllabus/
First, it shows what leading educators say should be
in a syllabus. Second, I've spent a lot of time making it pleasing to the
eyes.
Dave Albrecht
Hi David,
This is a good start, and I commend you for the effort.
You should add a link to MAAW's great cost accounting modules ---
http://maaw.info/JITMain.htm
For example, one module you might want to add in such a syllabus is "Lean
Accounting" ---
http://maaw.info/JITMain.htm
Personally, I would probably play down 80% learning curves since the early
work on learning curves in airplane manufacturing really don't extrapolate
well to most other industries ---
http://www.trinity.edu/rjensen/theorylearningcurves.htm
You can, however, bring in more recent evidence on learning curves.
"Ethanol learning Curve—the Brazilian experience," by José Goldemberga,
Suani Teixeira Coelhob, Plinio Mário Nastaric, Oswaldo Lucond, Biomass and
Bioenergy, Volume 26, Issue 3, March 2004, Pages 301–304
Abstract
Economic competitiveness is a very frequent
argument against renewable energy (RE). This paper demonstrates, through the
Brazilian experience with ethanol, that economies of scale and technological
advances lead to increased competitiveness of this renewable alternative,
reducing the gap with conventional fossil fuels.
Jensen Comment
Unlike corn ethanol, sugar cane ethanol is a viable renewable energy
alternative. Corn ethanol, however, just does not get enough energy out for the
energy going into its refining. Corn ethanol can only survive on the basis of
government subsidies and tariff. If we want ethanol in our fuel, we should shift
to cane sugar ethanol production and importing rather than raise tariff barriers
against cane sugar ethanol imports.
There is quite a lot of learning curve literature in the energy field. For
example, look at
http://www.sciencedirect.com/science/article/pii/S0301421505001795
Abstract
The extent and timing of cost-reducing improvements
in low-carbon energy systems are important sources of uncertainty in future
levels of greenhouse-gas emissions. Models that assess the costs of climate
change mitigation policy, and energy policy in general, rely heavily on
learningcurves to include technology dynamics. Historically, no energy
technology has changed more dramatically than photovoltaics (PV), the cost
of which has declined by a factor of nearly 100 since the 1950s. Which
changes were most important in accounting for the cost reductions that have
occurred over the past three decades? Are these results consistent with the
notion that learning from experience drove technical change? In this paper,
empirical data are assembled to populate a simple model identifying the most
important factors affecting the cost of PV. The results indicate that
learning from experience, the theoretical mechanism used to explain learning
curves, only weakly explains change in the most important factors—plant
size, module efficiency, and the cost of silicon. Ways in which the
consideration of a broader set of influences, such as technical barriers,
industry structure, and characteristics of demand, might be used to inform
energy technology policy are discussed.
Bob Jensen's threads on learning curves ---
http://www.trinity.edu/rjensen/theorylearningcurves.htm
Richard Sansing's syllabus at Dartmouth ---
http://commons.aaahq.org/files/2b5f104a81/SyllabusMASPRING11.pdf
How many times can GM get away with screwing shareholders?
"General Motors Is Headed For Bankruptcy -- Again," by Louis Goodhill,
Forbes, August 15, 2012 ---
http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again/
. . .
Right now, the federal government owns 500,000,000
shares of GM, or about 26% of the company. It would need to get about
$53.00/share for these to break even on the bailout, but the stock closed at
only $20.21/share on Tuesday. This left the government holding $10.1 billion
worth of stock, and sitting on an unrealized loss of $16.4 billion.
Right now, the government’s GM stock is worth about
39% less than it was on November 17, 2010, when the company went public at
$33.00/share. However, during the intervening time, the Dow Jones Industrial
Average has risen by almost 20%, so GM shares have lost 49% of their value
relative to the Dow.
It’s doubtful that the Obama administration would
attempt to sell off the government’s massive position in GM while the stock
price is falling. It would be too embarrassing politically. Accordingly, if
GM shares continue to decline, it is likely that Obama would ride the stock
down to zero.
GM is unlikely to hit the wall before the election,
but, given current trends, the company could easily do so again before the
end of a second Obama term.
In the 1960s, GM averaged a 48.3% share of the U.S.
car and truck market. For the first 7 months of 2012, their market share was
18.0%, down from 20.0% for the same period in 2011. With a loss of market
share comes a loss of relative cost-competitiveness. There is only so much
market share that GM can lose before it would no longer have the resources
to attempt to recover.
To help understand why GM keeps losing market
share, let’s look at the saga of the Chevy Malibu.
The Malibu is GM’s entry in the automobile market’s
“D-Segment”. The D-Segment comprises mid-size, popularly priced, family
sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted
for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the
first 7 months of 2012.
Because the D-Segment is the highest volume single
vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult
to imagine how GM could survive long term unless it can profitably develop,
manufacture, and market a vehicle that can hold its own in the D-Segment.
This is true not only because of the revenue potential of the D-Segment, but
also because of what an also-ran Malibu would say about GM’s ability to
execute at this time in its history.
GM is in the process of introducing a totally
redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among
others, the following: the Ford Fusion (totally redesigned for 2013); the
Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally
redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the
Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally
redesigned for 2012).
Automobile technology is progressing so fast that
the best vehicle in a given segment is usually just the newest design in
that segment. Accordingly, if a car company comes out with a new, completely
redesigned vehicle, it had better be superior to the older models being
offered by its competitors. If it is not, the company will spend the next
five years (the usual time between major redesigns in this segment) losing
market share and/or offering costly “incentives” to “move the metal”.
Continued in article
The Foreign Corrupt Practices Act is Not Yet Dead
From The Wall Street Journal Accounting Weekly Review on August 24,
2012
Oracle Pays $2 Million in Settlement with SEC
by: Steven D. Jones and Ben Fox Rubin
Aug 17, 2012
Click here to view the full article on WSJ.com
TOPICS: Auditing, Foreign Corrupt Practices Act, Fraud,
Internal Controls
SUMMARY: "Oracle Corp. paid $2 million to settle
Securities and Exchange Commission accusations that an Indian subsidiary
of the company violated U.S. laws designed to prevent bribery overseas
[the Foreign Corrupt Practices Act (FCPA)]....The SEC said the
...company failed to prevent [its subsidiary] from secretly setting
aside money that eventually was used to make unauthorized payments to
vendors in India....The complaint didn't allege Oracle bribed officials
but said the funds created a risk the cash could be used for bribery."
CLASSROOM APPLICATION: The article may be used in an
auditing or accounting systems course to cover the Foreign Corrupt
Practices Act, appropriate internal controls in support of the FCPA, and
audit procedures to detect weaknesses in internal controls and
violations of the FCPA.
QUESTIONS:
1. (Advanced) What is the Foreign Corrupt Practices Act (FCPA)?
When was it established?
2. (Introductory) If the SEC "...complaint didn't allege Oracle
bribed officials," then why did Oracle pay a fine for the SEC complaint
under the FCPA?
3. (Advanced) Define the phrases "misappropriation of assets"
and "fraudulent financial reporting." Based on the description in the
article, state which of these two events occurred at Oracle's Indian
subsidiary. Support your answer.
4. (Advanced) What is a cycle approach to auditing? For the May
2006 example in the article, identify the audit cycle in which the
inappropriate transactions occurred.
5. (Advanced) For the transaction cycle described above,
identify an audit procedure that might have uncovered the inappropriate
transactions. Describe the results of the test procedure that might
indicate potential violations of internal controls and potential
fraudulent transactions.
6. (Advanced) What is an approved vendor list? How does such a
list help to implement controls over the type of transaction that
occurred in May 2006?
Reviewed By: Judy Beckman, University of Rhode Island
"Oracle Pays $2 Million in Settlement with SEC," by Steven D. Jones
and Ben Fox Rubin, The Wall Street Journal, August 17, 2012 ---
http://professional.wsj.com/article/SB10000872396390443324404577593593748265390.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Oracle Corp. ORCL +0.77% paid $2 million to
settle Securities and Exchange Commission accusations that an Indian
subsidiary of the company violated U.S. laws designed to prevent bribery
overseas.
The SEC said the business-software company
failed to prevent Oracle India Private Ltd. from secretly setting aside
money that eventually was used to make unauthorized payments to vendors
in India. The unauthorized funds, which existed from 2005 to 2007,
amounted to about $2.2 million, the SEC said Thursday.
The agency said the existence of the account,
which was separate from the subsidiary's books, constituted a violation
of the Foreign Corrupt Practices Act. The complaint didn't allege Oracle
bribed officials but said the funds created a risk the cash could be
used for bribery.
Oracle in its settlement didn't admit to or
deny the allegations.
"We will continue to maintain a high standard
of compliance and accountability for our business around the world,"
Oracle spokeswoman Deborah Hellinger said.
Oracle, which is based in Redwood Shores,
Calif., discovered the funds in 2007, notified U.S. authorities and has
cooperated with the SEC investigation, the company said.
A sales manager linked to the plan resigned,
the jobs of four employees were terminated and the company has put in
place controls and training to prevent similar situations from occurring
again, Oracle said.
The settlement came amid a flurry of
investigations under the Foreign Corrupt Practices Act, a 1977 law that
bars payments to foreign officials to secure business. Pfizer Inc. PFE
+1.10% this month agreed to pay $60.2 million to settle an overseas
bribery investigation that began in 2004. Teva Pharmaceutical Industries
Ltd. TEVA +0.00% disclosed that the SEC subpoenaed documents about the
company's Latin American operations, and beauty company Avon Products
Inc. AVP +0.58% said it entered talks to end a long-running bribery
investigation involving some of the company's foreign operations.
Enforcing the act is an continuing effort, "not
a new focus," said Jina Choi, assistant regional director of the SEC in
San Francisco. The agency wants U.S. businesses to remain vigilant about
regional corruption as companies seek to increase sales world-wide, she
said.
The SEC in its seven-page complaint alleged
that Oracle India employees inflated the amounts on bills connected with
eight government contracts and then directed distributors to hold the
excess cash in so-called side funds. The complaint alleged that the
employees inflated bills approximately 14 times over two years and "made
these margins large enough to ensure a side fund existed to pay third
parties," the complaint said.
Payments from the side funds were made to
third-party businesses that "did not exist" or were "merely
storefronts," it said.
The SEC said the practice created the risk that
the funds could be used for illegal purposes, such as bribery or
embezzlement. The complaint didn't indicate whether any of the money was
recovered.
Oracle didn't respond to questions about who
received the cash.
In one example, Oracle India in May 2006
secured a $3.9 million deal with India's Ministry of Information
Technology and Communications, according to the SEC complaint. As
instructed by Oracle India's then-sales director, only $2.1 million was
sent to Oracle as revenue on the transaction. Other Oracle India
employees then instructed the distributor to park $1.7 million for
"marketing development purposes," the SEC alleged. The distributor kept
$151,000 for services rendered.
Continued in article
Jensen Comment
The question is whether a $2 million settlement, like most SEC settlements
these days, is a mere chicken feed cost of doing business.
Teaching Case: Bribery by Avon in China?
From The Wall Street Journal Accounting Weekly Review on
February 17, 2012
Foreign Bribe Case at Avon Presented
to Grand Jury
by: Joe Palazzolo and Emily Glazer
Feb 13, 2012
Click here to view the full article on WSJ.com
TOPICS: Foreign Corrupt Practices Act, Foreign
Subsidiaries, Internal Auditing, Internal Controls
SUMMARY: "Federal prosecutors investigating whether
U.S. executives at Avon Products, Inc., broke foreign-bribery laws have
presented evidence in the probe to a grand jury...Authorities are
focused on a 2005 internal audit report by the company that concluded
Avon employees in China may have been bribing officials in violation of
the Foreign Corrupt Practices Act [FCPA]...."
CLASSROOM APPLICATION: Questions ask students to
consider what audit steps they would undertake to investigate the issues
identified in the article. The article is useful in an auditing class to
discuss internal audit functions.
QUESTIONS:
1. (Introductory) Describe how Avon sells its products.
2. (Advanced) What is the Foreign Corrupt Practices Act (FCPA)?
How do the law's requirement, and general ethics, make it imperative to
prevent illegal payments or other corrupt acts?
3. (Advanced) How might Avon's business model make it difficult
to establish internal controls over items such as possible illegal
payments to foreign officials?
4. (Advanced) Define the internal audit function and compare it
to the audits done by external auditors.
5. (Introductory) How was the Avon Products, Inc. internal
audit function used in connection with the company's Chinese operations?
What evidence did the internal auditors apparently find in 2005?
6. (Advanced) Suppose you are a member of the Avon internal
audit team asked to investigate payments made out of Chinese operations.
What steps would you plan to investigate the propriety of the payments?
Reviewed By: Judy Beckman, University of Rhode Island
"Foreign Bribe Case at Avon Presented to Grand Jury," by: Joe Palazzolo
and Emily Glazer, The Wall Street Journal, February 13, 2012 ---
http://online.wsj.com/article/SB10001424052970203315804577209443264460570.html?mod=djem_jiewr_AC_domainid
Federal prosecutors investigating
whether U.S. executives at Avon Products Inc. broke foreign-bribery laws
have presented evidence in the probe to a grand jury, people familiar
with the matter said.
Authorities are focused on a 2005
internal audit report by the company that concluded Avon employees in
China may have been bribing officials in violation of the Foreign
Corrupt Practices Act, according to three people familiar with the
matter. Avon had earlier said it first learned of bribery allegations in
2008.
The audit found several hundred thousand
dollars in questionable payments to Chinese officials and third-party
consultants in 2005, one of these people said. It came as Avon was
pursuing a license to conduct door-to-door sales in China. Some of the
payments were recorded on invoices as gifts for government officials,
the person said. Avon secured China's first such license to a foreign
company in 2006.
The Federal Bureau of Investigation and
U.S. prosecutors in New York and Washington are trying to determine
whether current or former executives ignored the audit's findings or
actively took steps to conceal the problems, both potential offenses,
two people familiar with the matter said.
Executives at Avon headquarters in New
York who saw the audit report at the time didn't disclose its findings
to the board's audit committee, finance committee or the full board,
according to people familiar with the investigation. Board members
didn't learn of the audit report until after Avon launched its own
internal investigation of overseas bribery allegations in 2008, say the
people familiar with the situation.
Legal experts say executives can be
liable in overseas bribery cases even if they didn't authorize illegal
payments or try to hide evidence of bribes. Under a legal concept known
as willful blindness, a person can also be found guilty of taking steps
to avoid learning of wrongdoing, they said, but prosecutors face a
higher legal bar.
"We're not aware that a federal grand
jury is investigating this," said an Avon spokeswoman. She declined to
confirm whether there had been an audit in 2005 and declined to discuss
how executives handled any such audit. She said Avon is fully
cooperating with the investigation.
While grand juries gather information to
determine whether there is enough evidence to bring criminal charges,
they also can decline any action.
The investigation of Avon's headquarters
comes as members of Congress pressure the Justice Department to hold
more high-level executives accountable for corruption overseas. In
December, the government unveiled charges against a group of former
executives of German conglomerate Siemens AG. Siemens has said it is
cooperating.
Avon opened an internal investigation
into possible bribery in China in 2008, more than two years after the
purported audit report. The company's internal review was later expanded
to other regions of the world. The door-to-door cosmetics company has
said the internal probe was triggered by an employee who sent a letter
in 2008 to Chief Executive Andrea Jung alleging improper spending on
travel for Chinese government officials.
The investigation put a cloud over the
12-year tenure of Ms. Jung, who won plaudits for securing the
direct-sales license in China. She said in December she would step down
once the company finds a replacement CEO; her announcement came amid
pressure from investors concerned about Avon's financial performance.
Avon has said questions about the company's activities in China kicked
off probes by the Justice Department and Securities and Exchange
Commission, as well as the audit committee of Avon's board.
Ms. Jung declined to comment. She has
said little about the investigations in the past, except that the
company is cooperating with the government.
Some high-ranking Avon executives have
lost their jobs in the probe. The company said it fired Vice Chairman
Charles Cramb on Jan. 29 in connection with the overseas corruption
probe and another investigation into allegedly improper disclosure of
financial information to analysts. Mr. Cramb couldn't be reached for
comment.
Continued in article
February 17, 2012 reply from Bob Jensen to Jagdish Gangolly
Hi Jagdish,
I never suggested profiling when it comes to things like policies on
investigating and prevention of plagiarism or cheating in general. The
policies must apply to all national origins, and rule enforcement must
apply to every student and faculty member. And this is not a racial
thing since many of our Asian, Irish, Norwegian, and Latin students were
born and educated in the U.S.
What is sad, however, in the United States is when being "street smart"
is synonymous knowing how to get away with cheating relative to people
who are more trusting and are not "street smart."
I do, however, believe that there is relativism of many things in
different nations, including their heritages for bribery customs and
norms for cheating/corruption ---
Corruption Perceptions Index 2009 | Transparency International
http://wbpllc.wordpress.com/2009/11/19/corruption-perceptions-index-2009-transparency-international/
The interactive map is at
http://media.transparency.org/imaps/cpi2009/
As a footnote when viewing the graphic at the above site, I notice how
greatly some nations vary from their neighbors. For example, Argentina
is perceived as being over twice as corrupt than Chile. Italy and France
are more more corrupt than Germany even though all three nations have
similar religious (Catholic) heritages. Religion is probably not the
dominant factor in controlling corruption.
Law and tax rule enforcement, however, can be very powerful. The
least-corrupt nations seem to rise above the other nations in terms of
vigorous law enforcement and tax collections.
However, law enforcement is not synonymous with brutality. Russia, for
example, has a brutal police and prison system that has not quelled
widespread corruption. The same is true for Viet Nam.
Respectfully,
Bob Jensen
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Security Analysts and Investors Versus the IASB and FASB on Lease
Accounting: Dual Model Unanimously opposed
"Diversity among Analysts Makes Objective of FASB-IASB Lease Accounting
Difficult to Achieved," Bloomberg BNA Accounting Blog, July 31, 2012
---
http://www.bna.com/diversity-among-analysts-b12884910914/
The diversity in how analysts and investors look at
leases in practice appears to be making it much harder for the Financial
Accounting Standards Board and the International Accounting Standards Board
to achieve their objectives for the joint lease accounting project.
The boards have said that one of the key reasons
for addressing lease accounting was that current lease accounting standards
under both generally accepted accounting principles (GAAP) and international
financial reporting standards (IFRSs) have been criticized as failing to
meet the needs of financial statement users and presents structuring
opportunities. The standards-setters have been redeliberating towards
issuing an exposure draft in the fourth quarter this year-their second
proposal.
In June the FASB and IASB decided upon an approach
in which some lease contracts would be accounted for using an approach
similar to that proposed in the 2010 leases Exposure Draft and some leases
would be accounted for using an approach that results in a straight-line
lease expense.
If financial statement users were unified in the
manner in which they looked at leases it would be much easier for the boards
to tailor the outcome to meet investors' needs. However, during a July 24
discussion with the FASB, members of its Investors Technical Advisory
Committee made it clear that given the divergent views among analysts, the
boards' solution is a compromise that misses the mark.
ITAC members held diverse views on how--in their
analysis--it is most useful to present leases, said Gary Buesser, Director
of Lazard Asset Management, LLC. ITAC's views fell among three categories:
- all leases should be off the balance sheet as
rent expense
- all leases should be on the balance sheet with
an amortization and interest approach
- it is a derivative, that is, a series of
forwards on the entity's ability to extend its right to use the asset
(minority view).
Form of Financing.
The crux of the whole issue may be stemming from
the broad based belief among investors, financial statement users and
analysts that leases are a form of financing. A significant number of
analysts and investors who are using financial statements will make
adjustments to put an item back on the balance sheet for leases, according
to the ITAC discussion.
Some ITAC members said the boards may be in better
position if they left the accounting guidance as it is currently with some
minor improvements, including enhancements to disclosures that will further
improve the ability of analysts and financial statement users and investors
to make the adjustments they want to make to get to the numbers that they
want to look at.
"Though current lease accounting rules are not
ideal, the accounting today allows analysts to adjust in the way they want
to adjust," said Mark LaMonte, Managing Director, Chief Credit Officer of
Moody's Investors Service Financial Institutions Group.
"I think it's easier for me to adjust and get the
lease number I want on the balance sheet from the current accounting, than
it is to unwind a kind of half way there number and then have to adjust,"
said LaMonte.
"In our shop we believe leases belong on the
balance sheet, so if they're already on as capital leases we accept it, if
they're off balance sheet as operating leases, we're going to put them on,"
he said.
The Project.
Leasing is an important source of finance for many
companies who lease assets. A FASB summary states that it is therefore
important "that lease accounting provides users of financial statements with
a complete and understandable picture of an entity's leasing activities."
FASB member Lawrence Smith told the ITAC that
current GAAP has two different types of leases, but it is based upon the
approach that an entity would follow a whole asset approach, that is, that
it is either leasing an asset or effectively it is like it is buying the
asset.
"[This is] why we get the difference between
operating leases and capital leases," he explained. "In general does ITAC
have a view that perhaps the way we're accounting for it now, following the
whole asset is the appropriate way of doing it?" asked Smith.
With the level of diversity among analysts, even
among ITAC, it would be difficult to come up with a one sized fixed all
solution, the analysts said. "Maybe the best thing to do is to make sure
that the information is there so that people can adjust to what they want,"
LaMonte said. "Keep it as simple as possible and give information so that
people can make the adjustments they want to make," he said.
Dual Model Unanimously opposed.
One of the reasons the board decided to go down the
route of having a dual model is because the board became convinced during
outreach with constituents that there is more than one kind of lease
economically, and to properly reflect that a dual model was needed.
But ITAC members, who unanimously opposed the duel
model income statement approach, said they found it complex and confusing.
"We thought that if I leave real estate, I continue with today's current
accounting, if I moved toward leasing equipments, I go to a financing
arrangement and I have amortization plus interest expense, this could
require many adjustments in particular for companies that have both real
estate leases and equipment leases," said Buesser. "So we felt that there
was something about that--that supply," he said.
Continued in article
Bob Jensen's Document on How to Avoid Booking Leases Under FAS 13 and the
New 2012 Dual Model ---
http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm
Bob Jensen's threads on lease accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases
Unfunded Pension Woes: Shows the Danger of Pay-as-You-Go Plans
No Worry: The Government Will Just Print Whatever Money is Needed (like
Zimbabwe)
That's what happens every time you hear (like on CBS News last night) that the
Fed is going to buy U.S. Treasuries
Most viewers do not understand what "buying U.S. Treasuries means)
"As Default Looms, Postal Service Sees Deeper Woes," by Ron Nixon,
The New York Times, July 31, 2012 ---
http://www.nytimes.com/2012/08/01/us/politics/postal-service-default-may-be-followed-by-deeper-woes.html?_r=1
The Postal Service, on the verge of its first
default on Wednesday, faces a cash shortage of $100 million this October
stemming from declining mail volume that could balloon to $1.2 billion next
year, newly available documents show.
¶ Confronting $11.1 billion in payments over the
next two months for future benefits, the service said it would fail to pay
about half that amount, which is due Wednesday, and does not foresee making
the other half, which is due in September. An additional $5.6 billion
payment due next year is also in question.
¶ The service is struggling for ways to cut costs,
but it cannot eliminate Saturday delivery, as it wants to, without
Congressional approval, nor can it slow delivery of the mail without
regulatory approval.
¶ The Postal Service had hoped that Congress would
help stanch the losses, as it did last year when it deferred the payment
that is due again on Wednesday. But the House has taken no action. The
Senate passed a measure that provided incentives to retire about 100,000
postal workers, or 18 percent of its employees, and allowed the post office
to recoup more than $11 billion it overpaid into an employee pension fund.
The Senate declined to act to stop Saturday deliveries.
¶ For now, the agency said its operations would not
be affected by the defaults. Mail and packages will continue to be
delivered, and employees and vendors will be paid.
¶ The post office wants to reduce operating hours
or close more than 13,000 post offices. It has also announced plans to close
half of its processing centers. It wants Congress to give it more
flexibility in setting prices. And it also wants to lower service standards
to largely eliminate next-day delivery for first-class mail.
¶ But even if the post office were to get these
changes from Congress, including eliminating Saturday delivery and the
multibillion-dollar payments on future retiree programs, the agency would
still be losing money, it said. Since 2007, it has lost $25 billion — $20
billion of which is attributable to the payments for future benefits,
required by law since 2006.
¶ “We are continuing to monitor our liquidly
situation as we go into the new fiscal year and looking at all of our
options,” said David Partenheimer, a spokesman for the Postal Service.
¶ The Postal Service inspector general, David C.
Williams, reviewed the post office’s financial statements and confirmed its
projected cash shortages last week in a memorandum to the postmaster
general, Patrick A. Donahoe. It noted that if the service does not receive
an anticipated $300 million windfall from political mailings before the
elections on Nov. 6, the cash crisis could grow.
¶ “The impact of this default may not be seen by
the public, but it will be felt by the business community,” said Arthur B.
Sackler, co-coordinator of the Coalition for a 21st Century Postal Service,
a trade group representing larger mailers like FedEx.
¶ “This default couldn’t come at a worse time, as
many major and midsized mailers are preparing their budgets for next year,”
he said. “With Congress delaying action on a postal bill, mailers will be
increasingly wary about the stability of the Postal Service and will likely
divert more mail out of the system. It would be the perfect storm of
negatives for the Postal Service.”
¶Continued in article
Bob Jensen's threads on government bailouts for everybody ---
http://www.trinity.edu/rjensen/2008Bailout.htm
"Execs battle skills gap (including accounting) in hiring despite high
unemployment: Execs battle skills gap in hiring despite high unemployment,"
by Ken Tyscic, CGMA Magazine, July 26, 2012 ---
Click Here
http://www.cgma.org/Magazine/News/Pages/20125850.aspx?cm_mmc=smartbrief-_-30Jul12-_-CPALD-_-skillsgap&utm_source=smartbrief&utm_medium=30Jul12&utm_term=CPALD&utm_content=
For the past six years, VASCO Data Security has
dealt with a chronic problem: It hasn’t been able to easily recruit
qualified workers for its software and internet security operations in
Europe. And the plight hasn’t gotten easier – even as a global economic
crisis has led to high unemployment throughout the continent.
“It seems like in Brussels and in Zurich, both, we
have a hard time when a spot opens up, filling it,” VASCO CFO Gary Robisch
said. “A lot of times we have to settle for somebody that doesn’t exactly
match the qualifications that we want.”
The economics don’t seem to make sense. High
unemployment, one would presume, would make it easier to fill jobs. The
17-country euro currency bloc hit a record in May when unemployment rose to
11.1%, while the rate across the EU was 10.1%, according to Eurostat, the
EU’s statistics office. US unemployment has hovered between 8.1% and 8.3%
for the past six months.
Yet employers worldwide are still struggling to
find workers with the skills to fill a wide variety of jobs. The situation
is fuelling a human resources conundrum as employers ponder whether they
should hold out and pony up for candidates with key skills or look to
on-the-job training for promising candidates.
Companies report difficulty locating IT
professionals, engineers, accountants
and specialised workers such as tugboat captains and MRI technicians. The
conundrum is particularly glaring in pockets of relative prosperity, as
VASCO is learning; the unemployment rates in Belgium and Switzerland are
lower than European averages. A similar scenario has emerged in the United
States, where companies have been clamouring to grow after years of cuts.
“It just astounds me,” said Tom Kennedy, vice
president and CFO of marine construction and environmental remediation
company J.F. Brennan, which is having trouble recruiting a safety director,
tugboat pilots and project manager-level engineers who are willing to travel
for a company that does business in 18 US states.
“After doing this for 35 years, I’ve never seen it
like this,” Kennedy said. “You could run an ad any place [in years past] and
get 30 or 40 applicants. Now you get five to 10.”
The American Institute of CPAs’ Business and
Industry Economic Outlook Survey for the second quarter of 2012 demonstrated
the recruitment difficulties that management accountants are facing. Half of
the 1,250 respondents said they have had difficulty filling open positions
because their organisations haven’t been able to find individuals with the
appropriate qualifications.
Worldwide problem
Other reports indicate a similar problem worldwide.
In the PwC Global CEO survey for 2012, 43% of global respondents said that,
in general, it has become more difficult to hire workers in their industry.
Just 12% said it has become easier to hire. In addition, 29% of CEOs said
they were unable to pursue a market opportunity because of talent
constraints.
Continued in article
Question
What does saying the words "I do" also do to your taxes?
"10 Ways Getting Married Affects Your Taxes," by Linsey Buckholz, H&R Block,
June 10, 2012 ---
http://blogs.hrblock.com/2012/06/11/10-ways-getting-married-affects-your-taxes?otpPartnerID=8921&campaignId=em_mcm_8921_0001
Jensen Comment
Some of this is subject to change in the 2012 or 2012 tax reform legislation,
but that seems miles and miles away. Using tax law as an excuse not to get
married still may be a pretty good idea for some couples --- at least for a
while.
Of course there are more serious reasons for not getting married ---
http://blogs.hrblock.com/2012/06/11/10-ways-getting-married-affects-your-taxes?otpPartnerID=8921&campaignId=em_mcm_8921_0001
Issues of Auditor Independence
Never underestimate the government’s capacity for incompetence.
"Saying ‘You’re Fired’ (to PwC) Is the Only Answer Here," by Jonathan
Weil, Bloomberg News, July 26, 2012 ---
http://www.bloomberg.com/news/2012-07-26/saying-you-re-fired-is-the-only-answer-here.html
Never underestimate the government’s capacity for
incompetence when it comes to overseeing large financial institutions. The
latest example: an ill-advised consulting contract between Freddie Mac’s
outside auditor and the federal agency in charge of running the company.
Freddie Mac, the housing financier with a $2.1
trillion balance sheet that was seized by regulators in 2008, remains under
the control of its conservator, the Federal Housing Finance Agency. Yet its
shares and bonds are still publicly traded. And it continues to file reports
with the Securities and Exchange Commission, which means it must follow the
SEC’s rules.
Some of those regulations seem to have been ignored
when the FHFA hired Freddie Mac’s auditor, PricewaterhouseCoopers LLP, in
May to provide advice on managing the company. The firm’s work includes
consulting services that are barred under the SEC’s auditor-independence
rules, as far as I can tell. The agency and the accounting firm say they are
following the rules. Their explanations aren’t convincing.
The contract came to light this week after the
housing- finance agency released a copy to Vern McKinley, a consultant
working with the Washington-based advocacy group Judicial Watch, in response
to a Freedom of Information Act request. The agency hired Pricewaterhouse to
create contingency plans that would be used if the government someday
decides that Freddie Mac, Fannie Mae or any of the Federal Home Loan Banks
should be taken into receivership and liquidated.
(Pricewaterhouse audits the 12 Federal Home Loan
Banks, none of which is in conservatorship. Fannie Mae’s auditor is Deloitte
& Touche LLP.) Promoting Confidence
The reason for having auditor-independence rules is
to promote confidence in the integrity of companies’ financial statements.
Auditors are supposed to be watchdogs for the public, not beholden to their
clients. To be sure, the system is a bit of a charade. The client pays the
firm for its audit, so there always are conflicts of interest.
The independence problem in this instance arises
from the FHFA’s connection to Freddie Mac. In substance, the agency is
Freddie Mac. (FMCC) Here’s how the company explained the relationship in its
latest annual report:
“As our conservator, FHFA succeeded to all rights,
titles, powers and privileges of Freddie Mac, and of any stockholder,
officer or director thereof, with respect to the company and its assets,”
the company said. “FHFA has delegated certain authority to our board of
directors to oversee, and to management to conduct, day-to-day operations.
The directors serve on behalf of, and exercise authority as directed by, the
conservator.”
With that in mind, the auditor-independence
problems become obvious. There are three main principles underlying the
SEC’s rules: An auditor can’t function in the role of management. It can’t
audit its own work. And it can’t serve in any advocacy role for an audit
client.
The contract, under which Pricewaterhouse will
receive about $757,000, calls for “providing general advice on receivership
preparation, assisting the FHFA in developing pre- and post-receivership
procedures, implementing those procedures,” and “assisting the FHFA in the
operation and administration of a receivership.”
That means Pricewaterhouse is giving advice on how
to run Freddie Mac, and even could be called upon to help operate the
company at some point. The contract says the firm’s work includes making
recommendations regarding “valuation services” and “human resources.” The
SEC’s rules list those as services that auditors are prohibited from
providing to audit clients. PR Work
Additionally, the contract calls for
Pricewaterhouse to offer advice on “public relations,” which is an advocacy
role. Other services include making recommendations on risk management,
claims management, asset management, and securities management.
A Pricewaterhouse spokesman, Chris Atkins, released
this statement: “PwC takes its auditor independence requirements very
seriously. Our acceptance of the FHFA engagement was in consideration of the
SEC’s auditor independence rules. The scope of services being performed for
FHFA is consistent with those rules.” Asked to explain how, he declined to
comment.
The housing-finance agency released a statement
from its general counsel, Alfred Pollard. “This is not a contract for PwC to
perform work for Freddie Mac or any other entity regulated by FHFA,” he
said. Additionally, Pollard said “measures are in place to ensure against
conflicts of interest and to maintain independence, including a process that
prevents PwC employees working on this FHFA contract from working on
contracts for a regulated entity.”
Nothing in his statement addressed the point that
the agency, as Freddie Mac’s conservator, is standing in the company’s
shoes, or that Pricewaterhouse is providing advice on how to manage the
company’s affairs. A Freddie Mac spokeswoman, Sharon McHale, declined to
comment.
The independence issues here were easily avoidable.
There are plenty of firms the agency could have hired instead. Plus,
Pricewaterhouse was the auditor for Freddie Mac when it was seized in 2008.
The company has never acknowledged anything wrong with its books, even
though its asset values obviously were overstated before it collapsed.
There’s no good reason to hire Pricewaterhouse for this work.
Continued in article
Bob Jensen's threads on PwC's woes are at
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on auditor professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"TOP TEN MYTHS OF MEDICARE," by Richard L. Kaplan, The Elder Law Journal,
Vol. 20, No.1, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2111535
In the context of changing demographics, the
increasing cost of health care services, and continuing federal budgetary
pressures, Medicare has become one of the most controversial federal
programs. To facilitate an informed debate about the future of this
important public initiative, this article examines and debunks the following
ten myths surrounding Medicare: (1) there is one Medicare program, (2)
Medicare is going bankrupt, (3) Medicare is government health care, (4)
Medicare covers all medical cost for its beneficiaries, (5) Medicare pays
for long-term care expenses, (6) the program is immune to budgetary
reduction, (7) it wastes much of its money on futile care, (8) Medicare is
less efficient than private health insurance, (9) Medicare is not
means-tested, and (10) increased longevity will sink Medicare.
Jensen Comment
I don't agree with every conclusion in this paper, but it is one of the best
summaries of Medicare that I can recommend.
Waste, Fraud, and Abuse: The gap between
payments and payees in Medicare makes it a criminal's piñata
It should be emphasized at the outset that this
contention is not about the ever-present specter of “waste, fraud, and
abuse” that haunts governmental programs generally. That Medicare is
targeted by scammers and schemers of all sorts is both indisputable and
hardly surprising. As the famed bank robber, Willie Sutton, reportedly
replied when asked why he robbed banks: “That’s where the money is.”101
Indeed, Medicare is where the money is—specifically $509 billion in fiscal
year 2010 alone.102 Any program that pays out this amount of money to a wide
variety of service providers in literally every county in America will be
very difficult to police. That reality notwithstanding, such violations of
the public trust as are encapsulated in the phrase “waste, fraud, and abuse”
should be ferreted out whenever possible and eliminated. No one excuses
these leakages, just as no one has a sure-fire solution to stem them once
and for all.
Kaplan, Page 19
One thing to think about is why
Medicare may be losing hundreds of billions of dollars relative to the national
health care plans of Canada, Europe, etc. The obvious thing to pick on is that
Medicare is a third party payment system where medical services, medications,
equipment such as battery-powered scooters and home hospital beds, and medical
care centers are not directly managed by the government. This opens the
door to millions of fraudulent claims, often by extremely clever criminals,
unscrupulous physicians, etc. The gap between payments and payees in Medicare
makes it more vulnerable to abuse and waste.
This and other articles make a
big deal about how administrative costs of Medicare are significantly less that
the administrative costs of private insurance carriers like Blue Cross. However,
what this article and related articles almost always fail to mention is that the
major component of administrative cost to companies like Blue Cross lies in
operating controls to prevent waste, fraud, and abuse.
National plans like those in
Canada have both lower administrative costs and less waste, fraud, and abuse
because the government provides most of the services directly without the moral
hazards that arise from the gap between funding and delivery of services.
Personally, I favor national plans. Of course, in some nations like Germany
there are premium alternatives where people that can afford it can pay for
premium services not covered in the national plans.
http://www.trinity.edu/rjensen/Health.htm
Futile Care Waste: My
former University of Maine colleague was given thirty days to live (because of
Stage Four bone cancer) received two new hips but never walked again and died in
less than two weeks
But the issue of “futile care” is very different
from “waste, fraud, and abuse.” The claim that Medicare should not pay for
pointless medical interventions presumes that funds were indeed spent on
actual medical procedures. The issue is whether those procedures should not
have been done for reasons of inefficacy or insufficient “bang for the
buck.” It is certainly true that Medicare spends a disproportionate amount
of its budget on treatments in the final months of its beneficiaries’ lives.
Some twenty-eight percent of the entire Medicare budget is spent on medical
care in enrollees’ final year of life,103 and nearly forty percent of that
amount is spent during a patient’s last month. The critical issue, of
course, is whether these expenditures are pointless.
In one respect, it is not surprising that the cost
of a person’s final medical episode is unusually expensive. That person’s
presenting condition must have been especially severe because he or she did
in fact die during or shortly after treatment. Moreover, when circumstances
are particularly bleak, more intensive and often much more expensive
procedures, tests, and interventions seem appropriate. After all, the
patient was literally fighting off death at that point, so medical personnel
try everything in their armamentarium to win what was ultimately the
patient’s final battle. Only after the fact does one know that the battle in
question was indeed the patient’s last episode. Does that mean that the
effort expended, and the attendant costs, were wasted?
This question is more difficult than some might
suspect. A recent study of Medicare claims data examined the association
between inpatient spending and the likelihood of death within thirty days of
a patient’s being admitted to a hospital.It found that for most of the
medical conditions examined, including surgery, congestive heart failure,
stroke, and gastrointestinal bleeding, a ten percent increase in inpatient
spending was associated with a decrease in mortality within thirty days of
3.1 to 11.3%, depending upon the specific medical condition in question.
Only for patients who presented with acute myocardial infarction was there
no association of increased inpatient spending and improved outcomes. Thus,
the authors concluded, “the amount [of waste] may not be as large as
commonly believed, at least for hospitalized Medicare patients.” To be sure,
the results might not be as encouraging in non-hospital settings, but
Medicare does not cover the cost of nursing home patients who are lingering
at death’s door while receiving “custodial care.”In any case, hospital costs
represent the single largest component of Medicare’s expenditures— fully
twenty-seven percent in the most recent year for which such data are
available.
That is not to say that some of Medicare’s
expenditures near the end of beneficiaries’ lives provide insufficient
benefit to justify their cost. But the tough questions are how to determine
those wasteful expenditures in advance and who should make that
determination. Such considerations are beyond the scope of this Article,but
suffice it to note that end-of-life care discussions are extraordinarily
contentious and easily demagogued. After all, former Vice Presidential
candidate Sarah Palin effectively scuttled a rather benign effort to include
payment for end-of-life counseling in Medicare’s newly provided “annual
wellness visit[s]” by contending that such counseling was a first step to
rationing health care by “death panels” run by government bureaucrats. Thus,
while patients can individually indicate in advance how much treatment they
want at the end of their lives, any comprehensive effort to root out
Medicare’s wasteful expenditures on “futile care” might face serious
political opposition.
In any case, an authoritative analysis published in
The New England Journal of Medicine concluded that “the hope of
cutting the amount of money spent on life-sustaining interventions for the
dying in order to reduce overall health care costs is probably vain.” The
authors noted that “there are no reliable ways to identify the patients who
will die” and that “it is not possible to say accurately months, weeks, or
even days before death which patients will benefit from intensive
interventions and which ones will receive ‘wasted’ care.” That leaves
age-based rationing of care or more precisely, denial of medical services on
the basis of chronological age, as the only easily implemented pathway to
eliminate what some might regard as inefficacious expenditures of medical
resources. Such age-based rationing of health care is practiced in other
national health care systems, even though studies of prognostic models have
demonstrated that “age alone is not a good predictor of whether treatment
will be success ful.” In any case, polls of Americans have shown little
support and significant opposition to the concept. One survey undertaken in
late 1989 sought agreement with the following statement: “Lifeextending
medical care should be withheld from older patients to save money to help
pay for the medical care of younger patients.” Only 5.7% of respondents
under age sixty-five strongly agreed with this statement while 38.3% of that
group strongly disagreed with it.120 Interestingly, among respondents who
were themselves age sixty-five and older, the gap between these opposing
viewpoints was narrower: 8.8% strongly agreed with the statement in question
while 35.4% strongly disagreed.
Whether results would be substantially different
today when the range of medical interventions has increased significantly
and when the nation’s budgetary situation has worsened considerably is an
open question. Yet, when the 2010 health care reform legislation created an
Independent Payment Advisory Board to reduce Medicare’s expenses, the
enabling statute was explicit that this Board may not make proposals that
would “ration health care.” Clearly, the prospect of eliminating Medicare
expenditures that are medically futile will not be an easy task to
accomplish.
Kaplan, pp. 19-22
Jensen Comment
My former University of Maine
colleague on Medicare was given thirty days to live (because of Stage Four bone
cancer) received two new hips but never walked again and died in less than two
weeks. I don't think he would've received those two useless and very expensive
hips on any of the national plans of Canada or Europe.
Where Did Medicare Go So Wrong?
Medicare is a much larger and much more complicated entitlement burden relative
to Social Security by a ratio of about six to one or even more. The Medicare
Medical Insurance Fund was established under President Johnson in1965.
Note that Medicare, like Social Security in general, was intended to be
insurance funded by workers over their careers. If premiums paid by workers and
employers was properly invested and then paid out after workers reached
retirement age most of the trillions of unfunded debt would not be precariously
threatening the future of the United States. The funds greatly benefit when
workers die before retirement because all that was paid in by these workers and
their employers are added to the fund benefits paid out to living retirees.
The first huge threat to sustainability arose beginning in 1968 when medical
coverage payments payments to surge way above the Medicare premiums collected
from workers and employers. Costs of medical care exploded relative to most
other living expenses. Worker and employer premiums were not sufficiently
increased for rapid growth in health care costs as hospital stays surged from
less than $100 per day to over $1,000 per day.
A second threat to the sustainability comes from families no longer concerned
about paying up to $25,000 per day to keep dying loved ones hopelessly alive in
intensive care units (ICUs) when it is 100% certain that they will not leave
those ICUs alive. Families do not make economic choices in such hopeless cases
where the government is footing the bill. In other nations these families are
not given such choices to hopelessly prolong life at such high costs. I had a
close friend in Maine who became a quadriplegic in a high school football game.
Four decades later Medicare paid millions of dollars to keep him alive in an ICU
unit when there was zero chance he would ever leave that ICU alive.
On November 22, 2009 CBS Sixty Minutes aired a video featuring experts
(including physicians) explaining how the single largest drain on the Medicare
insurance fund is keeping dying people hopelessly alive who could otherwise be
allowed to die quicker and painlessly without artificially prolonging life on
ICU machines.
"The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009
---
http://www.cbsnews.com/stories/2009/11/19/60minutes/main5711689.shtml?tag=mncol;lst;1
What is really sad is the way Republicans are standing in the way of making
rational cost-benefit decisions about dying by exploiting the "Kill Granny"
political strategy aimed at killing a government option in health care reform.
See the "Kill Granny" strategy at ---
www.defendyourhealthcare.us
The third huge threat to the economy commenced in when disabled persons
(including newborns) tapped into the Social Security and Medicare insurance
funds. Disabled persons should receive monthly benefits and medical coverage
in this great land. But Congress should've found a better way to fund disabled
persons with something other than the Social Security and Medicare insurance
funds. But politics being what it is, Congress slipped this gigantic
entitlement through without having to debate and legislate separate funding for
disabled persons. And hence we are now at a crossroads where the Social Security
and Medicare Insurance Funds are virtually broke for all practical persons.
Most of the problem lies is Congressional failure to sufficiently increase
Social Security deductions (for the big hit in monthly payments to disabled
persons of all ages) and the accompanying Medicare coverage (to disabled people
of all ages). The disability coverage also suffers from widespread fraud.
Other program costs were also added to the Social Security and Medicare
insurance funds such as the education costs of children of veterans who are
killed in wartime. Once again this is a worthy cause that should be funded. But
it should've been separately funded rather than simply added into the Social
Security and Medicare insurance funds that had not factored such added costs
into premiums collected from workers and employers.
The fourth problem is that most military retirees are afforded full lifetime
medical coverage for themselves and their spouses. Although they can use
Veterans Administration doctors and hospitals, most of these retirees opted for
the underfunded
TRICARE plan the pushed most of the hospital and physician costs onto the
Medicare Fund. The VA manages to push most of its disabled veterans onto the
Medicare Fund without having paid nearly enough into the fund to cover the
disability medical costs. Military personnel do have Medicare deductions from
their pay while they are on full-time duty, but those deductions fall way short
of the cost of disability and retiree medical coverage.
The fifth threat to sustainability came when actuaries failed to factor in
the impact of advances in medicine for extending lives. This coupled with the
what became the biggest cost of Medicare, the cost of dying, clobbered the
insurance funds. Surpluses in premiums paid by workers and employers disappeared
much quicker than expected.
A sixth threat to Medicare especially has been widespread and usually
undetected fraud such as providing equipment like motorized wheel chairs to
people who really don't need them or charging Medicare for equipment not even
delivered. There are also widespread charges for unneeded medical tests or for
tests that were never really administered. Medicare became a cash cow for
crooks. Many doctors and hospitals overbill Medicare and only a small proportion
of the theft is detected and punished.
The seventh threat to sustainability commenced in 2007 when the costly
Medicare drug benefit entitlement entitlement was added by President George W.
Bush. This was a costly addition, because it added enormous drains on the fund
by retired people like me and my wife who did not have the cost of the drug
benefits factored into our payments into the Medicare Fund while we were still
working. It thus became and unfunded benefit that we're now collecting big time.
In any case we are at a crossroads in the history of funding medical care in
the United States that now pays a lot more than any other nation per capita and
is getting less per dollar spent than many nations with nationalized health care
plans. I'm really not against Obamacare legislation. I'm only against the lies
and deceits being thrown about by both sides in the abomination of the current
proposed legislation.
Democrats are missing the boat here when they truly have the power, for now
at least, in the House and Senate to pass a relatively efficient nationalized
health plan. But instead they're giving birth to entitlements legislation that
threatens the sustainability of the United States as a nation.
In any case, The New York Times presents a nice history of other
events that I left out above ---
http://www.nytimes.com/interactive/2009/07/19/us/politics/20090717_HEALTH_TIMELINE.html
"THE HEALTH CARE DEBATE: What Went Wrong? How the Health Care Campaign
Collapsed --
A special report.; For Health Care, Times Was A Killer," by Adam Clymer, Robert
Pear and Robin Toner, The New York Times, August 29,
1994 ---
Click Here
http://www.nytimes.com/1994/08/29/us/health-care-debate-what-went-wrong-health-care-campaign-collapsed-special-report.html
November 22, 2009 reply from Richard.Sansing
[Richard.C.Sansing@TUCK.DARTMOUTH.EDU]
The electorate's inability to debate trade-offs in
a sensible manner is the biggest problem, in my view. See
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/19/AR2009111904053.html?referrer=emailarticle
Richard Sansing
The New York Times Timeline History of Health Care Reform in the
United States ---
http://www.nytimes.com/interactive/2009/07/19/us/politics/20090717_HEALTH_TIMELINE.html
Click the arrow button on the right side of the page. The biggest problem with
"reform" is that it added entitlements benefits without current funding such
that with each reform piece of legislation the burdens upon future generations
has hit a point of probably not being sustainable.
Call it the fatal arithmetic of imperial decline.
Without radical fiscal reform, it could apply to America next.
Niall Ferguson, "An Empire at Risk: How Great Powers Fail," Newsweek
Magazine Cover Story, November 26, 2009 ---
http://www.newsweek.com/id/224694/page/1
. . .
In other words, there is no end in sight to the
borrowing binge. Unless entitlements are cut or taxes are raised, there will
never be another balanced budget. Let's assume I live another 30 years and
follow my grandfathers to the grave at about 75. By 2039, when I shuffle off
this mortal coil, the federal debt held by the public will have reached 91
percent of GDP, according to the CBO's extended baseline projections.
Nothing to worry about, retort -deficit-loving economists like Paul Krugman.
. . .
Another way of doing this kind of exercise is to
calculate the net present value of the unfunded liabilities of the Social
Security and Medicare systems. One recent estimate puts them at about
$104 trillion, 10
times the stated federal debt.
Continued in article
This is now President Obama's problem with or without new Obamacare
entitlements that are a mere drop in the bucket compared to the entitlement
obligations that President Obama inherited from every President of the United
States since FDR in the 1930s. The problem has been compounded under both
Democrat and Republican regimes, both of which have burdened future generations
with entitlements not originally of their doing.
Professor Niall Ferguson and David Walker are now warning us that by year
2050 the American Dream will become an American Nightmare in which Americans
seek every which way to leave this fallen nation for a BRIC nation offering some
hope of a job, health care, education, and the BRIC Dream.
Bob Jensen's threads on health care ---
http://www.trinity.edu/rjensen/Health.htm
Bob Jensen's threads on entitlements ---
http://www.trinity.edu/rjensen/entitlements.htm
U.S. National Debt
Clock ---
http://www.usdebtclock.org/
Also see
http://www.brillig.com/debt_clock/
Question
Should we keep increasing the government spending deficit and the national debt
every year ad infinitum?
Answers
Although in these down economic times, the liberal's Keynesian hero and Nobel
Prize economist, Paul Krugman, thinks recovery is stalled because the government
is not massively increasing spending deficits. But he's not willing to commit
himself to never reducing deficits or never paying down some of the national
debt. Hence, he really does not answer the above question ---
http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html
So let's turn to a respected law professor who advocates increasing the
government spending deficit and the national debt every year ad infinitum?
"Why We Should Never Pay Down the National Debt (even partly)," by
Neil H. Buchanan George Washington University Law School), SSRN, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101811
Abstract:
Calls either to balance the federal budget on an annual basis, or to pay
down all or part of the national debt, are based on little more than
uninformed intuitions that there is something inherently bad about borrowing
money. We should not only ignore calls to balance the budget or to pay down
the national debt, but we should engage in a responsible plan to increase
the national debt each year. Only by issuing debt to lubricate the financial
system, and to support the economy’s healthy growth, can we guarantee a
prosperous future for current and future citizens of the United States.
Student Assignment
Since many of the most liberal economists are not quite
willing to assert that "we should never pay down the national debt," what
questionable and unmentioned assumptions have been made by Neil H. Buchanan
that need to be addressed?
Are some of these assumptions unrealistic in any world
other than a utopian world?
Bob Jensen's Answers ---
http://www.cs.trinity.edu/~rjensen/temp/NationalDeficit-Debt.htm
"College Too Easy? UCLA Makes It Tougher," by Dan Barrett,
Chronicle of Higher Education, July 30, 2012 ---
http://chronicle.com/article/College-Too-Easy-UCLA-Makes/133187/?cid=wb&utm_source=wb&utm_medium=en
During a review of undergraduate programs at the
University of California at Los Angeles, Judith L. Smith was struck by an
uncomfortable realization: Too many majors demanded too little from
students.
Some students could graduate without ever taking a
senior seminar or completing a substantial research project. The result,
says Ms. Smith, vice provost for undergraduate education, is that students
could "be pedestrians and walk through the major."
Just as UCLA had done when it revised its
general-education requirements, the university saw that it needed to reboot
its upper-level undergraduate courses. The institution coalesced around the
idea of capstones, which are cumulative projects that students complete near
the end of college.
Capstones, an increasingly common feature of the
curricular landscape, can mean different things on different campuses. They
might demand that students take an advanced laboratory-science course,
enroll in a seminar that requires a major research paper, design a product,
create a work of art, or complete an independent study or honors thesis.
At UCLA, one of the first institutions of its size
to encourage capstones for all undergraduates, each department can define
what form such projects take as long as they meet common standards. Students
must complete a project that requires them to use the methodological
training of their discipline and integrate what they have learned across
topics and fields. The projects can be done individually or in a group,
culminate in a tangible product that can be archived, and should be shared,
typically through a presentation.
"Since we are commanding some of the brightest
minds in California," Ms. Smith says, "we really ought to demand more."
Capstones have been hailed by both pundits and
academics who see them as an answer to questions about rigor that have
dogged higher education. Capstones, their advocates say, can help ensure
that students are engaging in substantive intellectual work and that their
major adds up to something coherent.
About two-thirds of college seniors have done or
plan to complete some sort of culminating academic experience, according to
the 2011 National Survey of Student Engagement. That is about 10 percentage
points higher than in 2004, the first year the survey's responses were
comparable with the current one. These culminating projects tend to be
mainstays at small liberal-arts and baccalaureate-focused colleges instead
of at research behemoths like Los Angeles where, if such requirements do
exist, they are more likely to be found in professional programs like
engineering.
Ms. Smith hopes that by 2019 the vast majority of
programs will offer these culminating projects. Of the university's 127
majors, 58 require capstones of some or all of their students. While some
public universities, such as Southern Illinois University at Edwardsville,
have long required capstones, UCLA is seeking to bring them to an
institution of vast size and complexity.
"It's a real exemplar of a major national research
university creating this combined lower-division general education and a
real summative experience in the major," says Ralph A. Wolff, president of
the Western Association of Schools and Colleges, the umbrella group of
UCLA's accreditor. What the university has devised, he adds, "is a powerful
framework for student engagement and learning."
But UCLA's experience also suggests that trade-offs
arise when large, complex institutions seek to be flexible while applying a
consistent set of standards across departments. Lopsided student-to-faculty
ratios don't enable frequent contact with professors, and the sheer variety
of disciplines can mean an equally wide array of cumulative experiences, all
of which may be called a capstone, but which have few similarities.
Creation, Not Consumption
Several departments at UCLA that have adopted
capstones have taken advantage of what is often seen as an obstacle to
high-quality undergraduate education—the university's robust research
activity. Undergraduates in many physical- and natural-science programs work
in faculty labs, which gives students firsthand experience in how scientific
research is truly conducted, with its false starts, dead ends, and
ambiguities.
Their experiences vary across fields, but, students
and faculty say, the lab-based capstones tend to share a central virtue:
They allow students to create knowledge instead of simply consume it.
Liane O. Dallalzadeh, an undergraduate neuroscience
major whose research on the synaptic plasticity of mouse neurons resulted in
a paper and presentations, found that creating knowledge takes a lot of time
and effort. "You study for courses, obviously, but not for four to five
hours" a day, she says. In the lab, she was the lone undergraduate among
graduate students and postdoctoral researchers.
Continued in article
Bob Jensen's threads on grade inflation ---
http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor
In 2002 the average grade average at UCLA was 3.28 up from 2067 in 1964.
Wealthy Italians Take Tax Lesson From Senator John Kerry (and 2004
Presidential Candidate)
"Italian Yacht Owners Weigh Anchor To Dodge Taxes," by Sylvia Poggioli,
NPR, August 18, 2012 ---
http://www.npr.org/2012/08/18/158573973/italian-yacht-owners-weigh-anchor-to-dodge-taxes?sc=17&f=1001
Thanks to Paul Caron for the heads up!
Italy has a public debt of nearly 2 trillion euros,
and it's cracking down on its notoriously wily tax evaders. Owners of luxury
yachts are a prime target, with tax police launching dockside raids to see
how individual tax files line up with owning and maintaining an expensive
boat.
But yachts are mobile assets. In response, many
boat owners are simply weighing anchor and setting course for more
tax-friendly Mediterranean marinas.
On-the-spot tax inspections began last winter in
Cortina d'Ampezzo, the trendy ski resort where many owners of Ferraris,
Maseratis and Lamborghinis declared incomes of less than $30,000 a year.
It's summer now, and time to hunt down yacht
owners. Tax police arrive dockside unannounced, board boats and check
owners' details against their tax files. The raids have sent shock waves
through the yachting community.
Cala Galera is a large private marina on the Tuscan
coast with close to 1,000 berths.
"Clearly and definitely we at the moment are down
with respect to other years," says marina director Pietro Capitani.
He points to the vast expanse of empty berths, and
then makes a shooting gesture to his temple.
"We are at moment almost 40 percent less than last
year. So, we are close to the [bang] for sure, for sure," he says.
A Huge Exodus
Since the tax crackdown was announced in March,
around 30,000 boats have fled Italy, seeking safer havens. They include
Slovenia, Croatia and Montenegro to the east, France and Spain to the west,
and Tunisia and Malta to the south.
The Italian association of marinas says the yacht
exodus has cost the Italian economy some $350 million this year in lost
revenues from marina fees and services, and fuel sales.
Tax authorities are unrepentant, saying it's
important to strike fear in the hears of tax dodgers. Italy has a long
history of tax evasion and it is estimated to cost the government some $160
billion a year in lost revenue.
A few miles from Cala Galera, Porto Santo Stefano
was once a favorite stop for luxury yachts cruising the clear turquoise
waters of the Tuscan marine sanctuary.
Fashion designer Valentino's yacht was once a
constant presence, as were the megaboats of Italian jet-setters. Today, it's
as empty as the Cala Galera marina.
A Blow To Local Businesses
At a waterfront sail-repair shop, Paola Valenti has
little to do.
"There are less than half the boats there were last
year," he says. "Boats used to have to drop anchor and wait off shore for a
berth to open up. This year, nothing, nothing, nothing."
One of the first boat tax raids took place in April
in the southern port of Bari. There, tax inspectors found yachts owned by
people who declared almost no income.
One of the most brazen cases was a yacht worth $1.5
million whose owner had never filed a tax return.
Despite her diminished income, Valenti has little
sympathy for tax-dodging yacht owners. "If you own a boat," she says, "you
have to have a certain declared income. You can't earn less than the sailor
who works for you."
Continued in article
John Kerry ---
http://en.wikipedia.org/wiki/John_Kerry
"Sen. John Kerry skips town on sails tax," by Gayle Fee and Laura
Raposa, Boston Herald, July 23, 2010 ---
http://www.bostonherald.com/track/inside_track/view.bg?articleid=1269698&srvc=home&position=also
Sen. John Kerry, who has repeatedly voted to raise
taxes while in Congress, dodged a whopping six-figure state tax bill on his
new multimillion-dollar yacht by mooring her in Newport, R.I.
Isabel - Kerry’s luxe, 76-foot New Zealand-built
Friendship sloop with an Edwardian-style, glossy varnished teak interior,
two VIP main cabins and a pilothouse fitted with a wet bar and cold wine
storage - was designed by Rhode Island boat designer Ted Fontaine.
But instead of berthing the vessel in Nantucket,
where the senator summers with the missus, Teresa Heinz, Isabel’s hailing
port is listed as “Newport” on her stern.
Could the reason be that the Ocean State repealed
its Boat Sales and Use Tax back in 1993, making the tiny state to the south
a haven - like the Cayman Islands, Bermuda and Nassau - for tax-skirting
luxury yacht owners?
Cash-strapped Massachusetts still collects a 6.25
percent sales tax and an annual excise tax on yachts. Sources say Isabel
sold for something in the neighborhood of $7 million, meaning Kerry saved
approximately $437,500 in sales tax and an annual excise tax of about
$70,000.
The senior senator’s chief of staff David Wade
denied the old salt was berthing his boat out of state to avoid ponying up
to the commonwealth.
“The boat was designed by and purchased from a
company in Rhode Island, and it’s based in Newport at the Newport Shipyard
for long-term maintenance, upkeep and charter purposes, not tax reasons,”
Wade told the Track.
And state Department of Revenue spokesguy Bob Bliss
confirmed the senator “is under no obligation to pay the commonwealth sales
tax.”
But back in 2006, then-gubernatorial candidate
Christy Mihos took some flack for avoiding some $23,000 in Bay State sales
tax and $1,320 in local excise taxes by berthing his motor yacht in Rhode
Island. But Mihos paid just $475,000 for his 36-foot vessel Ashley and
readily admitted that he used the boat at his West Yarmouth summer home.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Forwarded by Paula
A man died and went to heaven. As he stood in front of St. Peter at the
Pearly Gates, he saw a huge wall of clocks behind him. He asked, what are all
those clocks? St. Peter answered, those are Lie-Clocks. Everyone on earth has a
Lie-Clock. Every time you lie the hands on your clock will move.
Oh, said the man, whose clock is that? That's Mother Teresa's. The hands have
never moved, indicating that she never told a lie.
Incredible, said the man. And whose clock is that one?
St. Peter responded, That's Abraham Lincoln's clock. The hands have moved
twice, telling us that Abe told only two lies in his entire life'
Where's are the 2012 U.S. presidential candidates' clocks? asked the man.
"Their in Jesus’s office. He's using them both as ceiling fans.
Humor
August 1-31, 2012
A Not-So-Great Video Commercial
Automation Gone Bad (for all dog lovers)
http://www.youtube.com/embed/xWMkOwq2qIU?rel=0
Government Video ---
http://www.youtube.com/watch_popup?v=5u03KAcEbEo
Forwarded by Auntie Bev
I was working out at the gym when I spotted a sweet young thing walking
in....
I asked the trainer standing next to me, "What machine should I use to
impress that lady over there?"
The trainer looked me over and said; "I would recommend the ATM in the
lobby."
Forwarded by Paula
A New Zealander just started his own business in Afghanistan.
He's making land mines that look like prayer mats.
It's doing well. He says prophets are going through the roof.
Who's On First? (Abbott and Costello) ---
http://www.youtube.com/watch?v=c6ogFYWUlgA
Abbott and Costello Explain the Unemployment Rate
COSTELLO: I want to talk about the
unemployment rate in America.
ABBOTT: Good Subject. Terrible Times.
It's
8%.
COSTELLO: That many people are out of
work?
ABBOTT: No, that's
15%.
COSTELLO: You just said 8%.
ABBOTT: 8% Unemployed.
COSTELLO: Right 8% out of work.
ABBOTT: No, that's 15%.
COSTELLO: Okay, so it's 15%
unemployed.
ABBOTT: No, that's 8%...
COSTELLO: WAIT A MINUTE. Is it 8% or
15%?
ABBOTT: 8% are unemployed. 15% are
out of work.
COSTELLO: IF you are out of work you
are unemployed.
ABBOTT: No, you can't count the "Out
of Work" as the unemployed. You have to look for work to be unemployed.
COSTELLO: BUT THEY ARE OUT OF WORK!!!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn't look for
work, can't be counted with those who look for work. It wouldn't be fair.
COSTELLO: To whom?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of
work.
ABBOTT: No, the unemployed are
actively looking for work. Those who are out of work stopped looking. They gave
up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you're off the
unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down.
Absolutely!
COSTELLO: The unemployment just goes
down because you don't look for work?
ABBOTT: Absolutely it goes down.
That's how you get to 8%. Otherwise it would be 15%. You don't want to read
about 15% unemployment, do ya?
COSTELLO: That would be frightening..
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for
you. That means there are two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down
if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also
go down if you stop looking for a job?
ABBOTT: Bingo.
COSTELLO: So there are two ways to
bring unemployment down, and the easier of the two is to just stop looking for
work.
ABBOTT: Now you're thinking like an
economist.
COSTELLO: I don't even know what the
hell I just said!
ABBOTT: Now you're thinking like a
politician.
Forwarded by Paula
On a golf tour in Ireland, Tiger Woods drives his Mercedes into a petrol
station in a remote part of the Irish countryside.
The pump attendant, who obviously knows nothing about golf, greets him in
a typical Irish manner completely unaware of who the golfing pro is.
"Top of the mornin' to yer, sir" says the attendant. Tiger nods a quick
"hello" and bends forward to pick up the nozzle. As he does so, two tees
fall out of his shirt pocket onto the ground.
"What are those?" asks the attendant.
"They're called tees," replies Tiger.
"Well, what on the god's earth are dey for?"? inquires the Irishman.
"They're for resting my balls on when I'm driving," says Tiger.
"Fookin Jaysus", says the Irishman, "Mercedes thinks of everything!"
Forwarded by Auntie Bev
These great
questions and answers are from the days when Hollywood Squares' game show
responses were
spontaneous, not scripted, as they are now!
Even if you've seen these before,
enjoy again and have a good laugh!
Q. Paul,
what is a good reason for pounding meat?
A. Paul Lynde: Loneliness!
(The audience laughed so long and so hard it took up almost 15 minutes of
the show!)
Q. Do female frogs croak?
A. Paul Lynde: If you hold their little heads under water long enough.
Q. If you're going to make a parachute jump, at least how high should you be
A. Charley Weaver: Three days of steady drinking should do it.
Q. True or False, a pea can last as long as 5,000 years...
A. George Gobel: Boy, it sure seems that way sometimes.
Q. You've been having trouble going to sleep. Are you probably a man or a
woman?
A.. Don Knotts: That's what's been keeping me awake.
Q. According to Cosmopolitan, if you meet a stranger at a party and youthink
that he is attractive, is it okay to come out and ask him if he's married?
A.. Rose Marie: No wait until morning.
Q. Which of your five senses tends to diminish as you get older?
A. Charley Weaver: My sense of decency..
Q. What are 'Do It,' 'I Can Help,' and 'I Can't Get Enough'?
A. George Gobel: I don't know, but it's coming from the next apartment.
Q. As you grow older, do you tend to gesture more or less with your hands
while talking?
A. Rose Marie: You ask me one more growing old question Peter, and I'll give
you a gesture you'll never forget.
Q. Paul, why do Hell's Angels wear leather?
A. Paul Lynde: Because chiffon wrinkles too easily.
Q.. Charley, you've just decided to grow strawberries. Are you going to get
any during the first year?
A.. Charley Weaver: Of course not, I'm too busy growing strawberries.
Q. In bowling, what's a perfect score?
A. Rose Marie: Ralph, the pin boy.
Q. During a tornado, are you safer in the bedroom or in the closet?
A. Rose Marie: Unfortunately Peter, I'm always safe in the bedroom.
Q. Can boys join the Camp Fire Girls?
A.. Marty Allen: Only after lights out.
Q. When you pat a dog on its head he will wag his tail. What will a goose
do?
A. Paul Lynde: Make him bark?
Q. If you were pregnant for two years, what would you give birth to?
A. Paul Lynde: Whatever it is, it would never be afraid of the dark..
Q. According to Ann Landers, is there anything wrong with getting into the
habit of kissing a lot of people?
A. Charley Weaver: It got me out of the army.
Q. Back in the old days, when Great Grandpa put horseradish on his head,
what was he trying to do?
A. George Gobel: Get it in his mouth.
Q. Who stays pregnant for a longer period of time, your wife or your
elephant?
A. Paul Lynde: Who told you about my elephant?
Q. Jackie Gleason recently revealed that he firmly believes in them and has
actually seen them on at least two occasions. What are they?
A. Charley Weaver: His feet.
Q. According to Ann Landers, what are two things you should never do in bed?
A. Paul Lynde: Point and laugh
WE DON'T STOP LAUGHING BECAUSE WE GROW OLD,
WE GROW OLD BECAUSE WE STOP LAUGHING
Forwarded by Paula
A modern Orthodox Jewish couple, preparing for a religious wedding meets
with their rabbi for counseling....
The rabbi asks if they have any last questions before they leave.
The man asks,"Rabbi, we realize it's tradition for men to dance with
men,and women to dance with women at the reception. But, we'd like your
permission to dance together, like the rest of the world."
"Absolutely not," says the rabbi. "It's immodest. Men and women always
dance separately."
"So after the ceremony I can't even dance with my own wife?"
"No," answered the rabbi."It's forbidden."
"Well, okay," says the man,"What about sex? Can we finally have sex?"
"Of course!" replies the rabbi. "Sex is a mitzvah a good thing within
marriage, to have children!"
"What about different positions?" asks the man
"No problem," says the rabbi. "It's a mitzvah!"
"Woman on top?" the man asks.
"Sure," says the rabbi. "Go for it! It's a mitzvah!"
"Doggy style?"
"Sure! Another mitzvah!"
"On the kitchen table?"
"Yes, yes! A mitzvah!"
"Can we do it on rubber sheets with a bottle of hot oil,a couple of
vibrators, a leather harness,a bucket of honey and a porno video?"
"You may indeed. It's all a mitzvah!"
"Can we do it standing up?"
"No." says the rabbi."
"Why not?" asks the man.
"C
Forwarded by Auntie Bev
Well, A Girl Potato and Boy Potato had eyes for each other, and finally
they got married, and had a little sweet potato, which they called 'Yam'.
Of course, they wanted the best for Yam.
When it was time, they told her about the facts of life.
They warned her about going out and getting half-baked, so she wouldn't
get accidentally mashed, and get a bad name for herself like 'Hot Potato,'
and end up with a bunch of Tater Tots.
Yam said not to worry, no Spud would get her into the sack and make a
rotten potato out of her!
But on the other hand she wouldn't stay home and become a Couch Potato
either.
She would get plenty of exercise so as not to be skinny like her
Shoestring Cousins.
When she went off to Europe, Mr. and Mrs. Potato told Yam to watch out
for the hard-boiled guys from Ireland .
And the greasy guys from France called the French Fries.
And when she went out West, to watch out for the Indians so she wouldn't
get scalloped.
Yam said she would stay on the straight and narrow and wouldn't associate
with those high class Yukon Golds, or the ones from the other side of the
tracks who advertise their trade on all the trucks that say, 'Frito Lay.'
Mr. and Mrs. Potato sent Yam to Idaho P.U. (that's Potato University ) so
that when she graduated she'd really be in the Chips.
But in spite of all they did for her, one-day Yam came home and announced
she was going to marry Tom Brokaw.
Tom Brokaw!
Mr. and Mrs. Potato were very upset.
They told Yam she couldn't possibly marry Tom Brokaw
Because he's just.......
Are you ready for this?
Are you sure?
* *
OK! Here it is!
* * * *
A COMMONTATER
Forwarded by Auntie Bev
THIS WAS HARDER THAN I THOUGHT.....THE ANSWERS WERE ON THE TIP OF MY
TONGUE....I REMEMBERED, BUT ............
DON'T LOOK BELOW FOR THE ANSWERS UNTIL YOU HAVE TRIED IT OUT A TEST FOR
'OLDER' KIDS I was picky who I sent this to. It had to be those who might
actually remember. So have some fun my sharp-witted friends. This is a test for
us 'older kids'! The answers are printed below, (after the questions) but don't
cheat! answer them first.....
01. After the Lone Ranger saved the day and rode off into the sunset, the
grateful citizens would ask, Who was that masked man? Invariably, someone would
answer, I don't know, but he left this behind. What did he leave
behind?________________.
02. When the Beatles first came to the U.S. .In early 1964, we all watched
them on The _______________ Show.
03. 'Get your kicks, __________________.'
04. 'The story you are about to see is true. The names have been changed to
___________________.'
05. 'In the jungle, the mighty jungle, ________________.'
06. After the Twist, The Mashed Potato, and the Watusi, we 'danced' under a
stick that was lowered as low as we could go in a dance called the
'_____________.'
07. Nestle's makes the very best . .. . . _______________.'
08. Satchmo was America 's 'Ambassador of Goodwill.' Our parents shared this
great jazz trumpet player with us. His name was _________________.
09. What takes a licking and keeps on ticking? _______________.
10. Red Skeleton's hobo character was named __________________ and Red always
ended his television show by saying, 'Good Night, and '_______ _________.. '
11. Some Americans who protested the Vietnam War did so by burning
their______________.
12. The cute little car with the engine in the back and the trunk in the
front was called the VW. What other names did it go by? ____________
&_______________.
13.In 1971, singer Don MacLean sang a song about, 'the day the music died.'
This was a tribute to ___________________.
14. We can remember the first satellite placed into orbit. The Russians did
it. It was called ___________________.
15. One of the big fads of the late 50's and 60's was a large plastic ring
that we twirled around our waist. It was called the ________________.
ANSWERS : 01..The Lone Ranger left behind a silver bullet. 02.The Ed Sullivan
Show 03..On Route 66 04..To protect the innocent. 05.The Lion Sleeps Tonight
06.The limbo 07.Chocolate 08..Louis Armstrong 09.The Timex watch 10..Freddy, The
Freeloader and 'Good Night and God Bless.' 11.Draft cards (Bras were also
burned. Not flags, as some have guessed) 12.Beetle or Bug 13.Buddy Holly
14.Sputnik 15.Hoola-hoop
Forwarded by Paula
Mt. Vernon Times Headline:
MT. VERNON , TEXAS WHOREHOUSE SUES LOCAL CHURCH OVER LIGHTNING STRIKE!
Diamond D's brothel began construction on an expansion of their building to
increase their ever-growing business. In response, the local Baptist Church
started a campaign to block the business from expanding with morning, afternoon
and evening prayer sessions at their church. Work on Diamond D's progressed
right up until the week before the grand reopening when lightning struck the
whorehouse and burned it to the ground!
After the cathouse was burned to the ground by the lightning strike, the
church folks were rather smug in their outlook, bragging about "the power of
prayer."
But late last week 'Big Jugs' Jill Diamond, the owner/madame, sued the
church, the preacher and the entire congregation on the grounds that the church
... "was ultimately responsible for the demise of her building and her business
either through direct or indirect divine actions or means."
In its reply to the court, the church vehemently and voraciously denied any
and all responsibility or any connection to the building's demise.
The crusty old judge read through the plaintiff's complaint and the
defendant's reply, and at the opening hearing he commented, "I don't know how
the hell I'm going to decide this damn case, but it appears from the paperwork
that we now have a whorehouse owner who staunchly believes in the power of
prayer, and an entire church congregation that thinks it's all bullshit!"
Autie Bev forwarded the findings
of a sex position survey.
It has been determined that the most used sexual position for married couples
is as follows:
The husband sits up and begs.
The wife rolls over and plays dead!
Forwarded by Auntie Bev
2012 Democratic National Convention Schedule -- Charlotte , N.C.
4:00 PM – Opening Flag Burning Ceremony – sponsored by CNN
4:05 PM – Singing of "God Damn America " led by Rev. Jeremiah
Wright
4:10 PM – Pledge of Allegiance to Obama
4:15 PM – Ceremonial 'I hate America' led by Michelle Obama
4:30 PM – Tips on “How to keep your man trustworthy & true to you while
you travel the world” – Hillary Clinton
4:45 PM –Al Sharpton / Jesse Jackson seminar “How to have a
successful career without having a job.”
5:00 PM – “Great Vacations I’ve Taken on the Taxpayer’s Dime Travel Log”
-Michelle Obama
5:30 PM – Eliot Spitzer Speaks on "Family Values" via Satellite
5:45 PM – Tribute to All 57 States – Nancy Pelosi
6:00 PM – Sen. Harry Reid - 90-minute speech expressing the
Democrat’s appreciation of the Occupy Wall Street movement, and George Soros
for sparing no expense, for all that they have accomplished to unify the
country, improve employment and to boost the economy.
8:30 PM – Airing of Grievances by the Clintons
9:00 PM – “Bias in Media – How we can make it work for you”
Tutorial – sponsored by CBS, NBC, ABC, CNN, the Washington Post and the New
York Times
9:15 PM – Tribute Film to Brave Freedom Fighters incarcerated at GITMO –Michael
Moore
9:45 PM – Personal Finance Seminar - Charlie Rangle
10:00 PM – Denunciation of Bitter Gun Owners and Bible readers
,
10:30 PM – Ceremonial Waving of White Flag for IRAQ , & Afghanistan
11:00 PM – Obama Energy Plan Symposium / Tire Gauge Demonstration / You too
can get rich with Green Investment bankruptcies
11:15 PM – Free Gov. Blagovich rally
11:30 PM – Obama Accepts Oscar, Tony and Latin Grammy Awards
11:45 PM – Feeding of the Delegates with 5 Loaves and 2 Fish – Obama
Presiding
12:00 AM – Official Nomination of Obama by Bill Maher and Chris “He
sends a thrill up my leg” Matthews
12:01 AM – Obama Accepts Nomination as Lord and Savior
12:05 AM – Celestial Choirs Sing
3:00 AM – Biden Delivers Acceptance Speech
Humor Between August 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor083112
Humor Between July 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor073112
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 August 31, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
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Bob
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http://www.trinity.edu/rjensen/Resume.htm
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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
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Yahoo (Practitioners)
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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
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resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
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Concerns
That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the twin
dangers of fossilization and scholasticism (of three types: tedium,
high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
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Accounting
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Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
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(updated) Basic Accounting Textbook --- search for Hoyle at
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http://www.trinity.edu/rjensen/
July 31, 2012
Bob
Jensen's New Bookmarks July 31, 2012
Bob Jensen at
Trinity University
For
earlier editions of Fraud Updates go to
http://www.trinity.edu/rjensen/FraudUpdates.htm
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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
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All
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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
Message from Barry Rice on July 17, 2012
There are
some great flash mob videos of accounting practitioners (including the Maryland
Association of CPAs) and accounting students at
https://www.google.com/search?sourceid=navclient&aq=f&oq=%22flash+mob%22+accountants&ie=UTF-8&rlz=1T4LENP_en___US481&q=%22flash+mob%22+accountants&gs_upl=0l0l0l27342lllllllllll0#q=%22flash+mob%22+accountants&hl=en&safe=off&rlz=1T4LENP_en___US481&prmd=imvns&source=univ&tbm=vid&tbo=u&sa=X&ei=rZgFUKLFCY-KrQGt_4jICA&ved=0CGAQqwQ&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=960fd2c1c95a1532&biw=1013&bih=459.
I Goggled “’flash mob’ accountants” to find them.
If practicing accountants can have a “flash mob,”
surely ACADEMIC accountants can do so.
A Pissing Contest Between Bob and Jagdish: An Illustration of How to
Lie With Statistics ---
http://www.cs.trinity.edu/~rjensen/temp/LieWithStatistics01.htm
Council on Undergraduate Research: Learning Through Research ---
http://www.cur.org/
Undergraduate Research at Conference at Trinity University ---
http://www.trinity.edu/departments/research/students_index.html
Where are the accounting student researchers?
Undergraduate research is central to the goals and
priorities of the academic program at Trinity University. During the 10-week
summer program, students work on research projects full-time under the close
mentorship of Trinity faculty. These research experiences allow students to
develop a more complete picture of careers in research and academia.
In 2010, 115 students from Trinity and institutions
across the country participated in the Summer Research Program. In most
cases, students receive a stipend and free housing. Some students also
receive one tuition credit free of charge. Students are supported by
individual faculty grants or by one of Trinity's
Research Programs.
The summer research program culminates in a
day-long
conference where students present their research
results in oral or poster presentations.
2012 Undergraduate Research Program
The 2012 Summer Research Program will begin on
Monday, May 21. Students residing on campus may move into the
residence hall between noon and 5 on May 20.
The program will end on Friday, July 27. Dormitories will close on
Saturday, July 28. All events and deadlines will be posted to the
tuResearch
calendar.
Council on Undergraduate Research
Trinity is an enhanced institutional member of
the Council on
Undergraduate Research (CUR), allowing Trinity
faculty to
join CUR
as individual members at no cost.
Jensen Comment
In 1992 Trinity University also Hosted the Annual NCUR Conference
At that time conference organizers Peter French, Bob Jensen, and Kim Robertson
noted the dearth of business undergraduate students participating in the
conference, including zero participation by accounting undergraduates around the
nation. Perhaps our obsession with courses training students to pass the CPA
examination is dysfunctional for educating students undergraduate students about
how to conduct research in accountancy.
"Undergraduate Student Research Programs: Are They as Viable for Accounting
as They are in Science, Humanities, and Other Business Disciplines?"(With
Professors Peter A. French and Kim R. Robertson of Trinity University),
Critical Perspectives on Accounting , Volume
3, 1992, 337-357.
I think our article fell on deaf ears!
I realize that there is some undergraduate accounting research going on where
there is funding and/or sizeable prizes, especially XBRL research. But none of
this ever seems to find its way to the CUR/NCUR conferences.
Accountant's Future Salary Estimation Guide, MAAW Blog, by James Martin
---
http://maaw.blogspot.com/2012/06/salary-estimate-based-on-2011-salary.html
Jensen Comment
Behind the scenes I suspect this is somewhat of a promotional for earning a CMA
Certificate. I certainly am not opposed to recommending the CMA, especially
since it is not especially costly in terms of requiring additional higher
education courses and/or expensive CPE courses that sometimes are promoted for
such things as forensic accounting credentials.
But I'm deeply suspicious of attributing "success" and "salary increments" to
any advanced credentials (beyond the CPA Certificate) when in fact the
underlying causes may be more basic. Accountants who seek advanced credentials
like the CMA Certificate are highly likely to be more motivated, more skilled,
and have a higher work ethic than the blokes in nearby cubicles who goof off a
little more on the job, spend their nights watching NetFlix movies, and make
virtually no effort to better themselves professionally except to sleep through
some manditory CPE programs.
The go-getters on the job who who study at night and genuinely seek to obtain
greater skills (such as computer, networking, and AIS skills) might do just as
well or better in terms (in terms of performance raises and promotions) as their
CMA counterparts.
In other words, the added increments to future salary correlated with CMA
Certificates may have more to do with underlying factors embodied in earning the
CMA Perhaps those particular go-getters will do as well or better without
a CMA Certificate because of their drive and intelligence. Furthermore the
worker who is just particularly adept at taking skills examinations but has the
work ethic of a lifetime associate professor will not necessarily see his or her
salary increase without the underlying work ethic that is really more important
than the CMA itself.
My point is that the CMA mainly representative of underlying motivation,
skill, and work ethic factors embodied in passing the CMA examination or other
efforts to obtain more professional certificates. In some instances the CMA
effort may be wasted time that takes away from obtaining more important skills
in software applications, networking, and AIS knowledge.
Hence, although I have supreme respect for Jim, I suspect that the above link
could be an illustration about how to possibly lie with statistics.
It might be interesting to hear from Jagdish, Richard Sansing, Dan Stone, and
others on the AECM about whether or not there is a bit of deception going on
here --- deception that I'm absolutely certain that is not intentional on the
part of Jim Martin.
Question
Ethics:
Why are accountics science journal articles cited in other accountics science
research papers so often?
Answer
It works like this. A prestigious accountics science research journal "suggests"
that you cite some of its previously-published articles before making a decision
to accept your submission. Scroll down deep to find out how it works.
"Journals Inflate Their Prestige by
Coercing Authors to Cite Them," Chronicle of Higher Education,
February 3, 2012 ---
http://chronicle.com/blogs/ticker/journals-inflate-rankings-by-coercing-authors-to-cite-them/40233?sid=wc&utm_source=wc&utm_medium=en
A
survey published today in Science shows
that journal editors often ask prospective authors to add
superfluous citations of the journal to articles, and authors feel
they can’t refuse. (The Science paper is for subscribers only, but
you can read a summary here.) The extra citations artificially
inflate a journal’s impact and prestige. About 6,600 academics
responded to the survey, and about 20 percent said they had been
asked to add such citations even though no editor or reviewer had
said their article was deficient without them. About 60 percent of
those surveyed said they would comply with such a request, which was
most often aimed at junior faculty members.
|
Commercial Scholarly and Academic Journals and Oligopoly Textbook
Publishers Are Ripping Off Libraries, Scholars, and Students ---
http://www.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals
From Jim Martin on July 26, 2012 regarding a Conceptual Framework for
Management Accounting
A link to the exposure draft is:
http://www.imanet.org/PDFs/Public/Research/CFMC Draft for Review.pdf
The draft is open for comment until August 31, 2012.
Question
How do you compute the cost of capital when lenders pay you interest to
borrow their money?
Alan Blinder recommends that the Fed commence to pay FDIC banks to borrow money
from the Federal Reserve. This in turn means that banks my profit from paying
AAA creditors to borrow money from the bank.
"Cost of Capital Measure Sees Distortions," by Emily Chason, CFO
Report via The Wall Street Journal, July 25, 2012 ---
http://blogs.wsj.com/cfo/2012/07/25/cost-of-capital-measure-sees-distortions/?mod=wsjpro_hps_cforeport
The standard weighted average cost of capital
calculation, long-used by finance departments for budgeting analysis, has
been a bit distorted lately as low interest rates, record-low corporate
borrowing costs and a volatile stock market have changed many of the basic
inputs companies put into the measure.
WACC, which is based on a company’s cost of equity
and debt, corporate tax rate and market value of equity and debt, is used as
a hurdle rate to value corporate investments. The consequence of using a
distorted measure can be expensive, and some analysts say companies may want
to start thinking more broadly about revising their expected return
assumptions in the WACC number.
Continued in article
Bob Jensen's threads on ROI and Cost of Capital ---
http://www.trinity.edu/rjensen/roi.htm
Bridging the Gap Between Academic Accounting Research and Audit Practice
"Highlights of audit research: Studies examine auditors' industry
specialization, auditor-client negotiations, and executive confidence regarding
earnings management,". By Cynthia E. Bolt-Lee and D. Scott Showalter,
Journal of Accountancy, August 2012 ---
http://www.journalofaccountancy.com/Issues/2012/Jul/20125104.htm
Jensen Comment
This is a nice service of the AICPA in attempting to find accountics science
articles most relevant to the practitioner world and to translate (in summary
form) these articles for a practitioner readership.
Sadly, the service does not stress that research is of only limited relevance
until it is validated in some way at a minimum by encouraging critical
commentaries and at a maximum by multiple and independent replications by
scientific standards for replications ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Avoiding applied research for practitioners and failure to attract
practitioner interest in academic research journals ---
"Why business ignores the business schools," by Michael Skapinker
Some ideas for applied research ---
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession
"Is a fair value of fixed assets relevant?" by Asish K Bhattacharyya,
Business Standard, July 23, 2012 ---
http://www.business-standard.com/india/news/isfair-valuefixed-assets-relevant/481131/
Companies provide financial information to
shareholders and creditors through financial statements. Shareholders use
the same to value the equity of the company and to evaluate the management
in its stewardship function. Creditors, including lenders, use the same for
evaluating credit risk. The objective is to provide financial information
that is relevant in predicting the stream of cash flows, which the
enterprise will generate in future. Information is relevant if it improves
the estimate of amount, timing and risk of future cash flows. Accounting
standard setters always balance relevance and reliability.
Earlier the emphasis was on reliability.
Now, it is shifted to relevance.
International financial Reporting Standards (IFRS) uses fair value more
extensively than the use of fair value in Indian accounting standards (AS)
on the presumption that for certain assets and liabilities, the fair value
attribute is more relevant than the historical cost. It might be interesting
to examine whether those presumptions are logical. Let us examine the
relevance of the information on the fair value of fixed asset.
Enterprises use fixed assets to produce and sell
products and services. They do not intend to realise cash by selling them.
Items of fixed assets are initially measured at
acquisition cost. As per AS, enterprises use the cost model to measure fixed
assets for the purpose of presentation in the balance sheet. The initial
acquisition cost is reduced by the accumulated depreciation and accumulated
impairment loss. Impairment loss is recognised and the carrying amount of an
item of fixed asset is reduced when the management estimates that the asset
will not be able to recover its carrying amount either through use or sale.
IFRS allows companies to choose either the cost
model or the fair value model to measure items fixed assets. Fair value
model can be used for measuring intangible assets only if an active market
exists and it is expected that the same will continue to exist at the end of
the useful life of the asset or some party has committed to buy the asset at
the end of its useful life. Those conditions can be met rarely. IFRS does
not allow cherry picking. A company has to decide once for all that whether
it will use the fair value model for a particular class of asset (e.g.
land). US GAAP mandates the use of the cost model and does not allow
revaluation. AS mandates use of the cost model but allows revaluation of
tangible assets. It does not allow cherry picking. Both the IFRS and AS
require the company to recognise the revaluation gain outside the net
profit.
Analysts value enterprises based on the estimated
free cash flow (FCF) stream that the enterprise will generate in future. FCF
is the operating cash flow available for distribution to all the investors,
including debt holders, after meeting internal demand for incremental
investment in fixed assets and working capital. The market value of
non-operating assets is added to the present value of FCF to estimate the
enterprise value. Fair value of the operating assets is not relevant in
valuing an enterprise.
It may be argued that the fair value of fixed
assets might be useful in evaluating the management in its stewardship
function. For example, if the price of the land on which the factory is
situated has gone up manifold and it benefits shareholders if the management
unlocks the value of the land by shifting the factory to another site where
the price of the land is much cheaper. Disclosure of the market value of
land might trigger discussion among analysts and shareholders and they might
solicit the management’s response. This argument might be valid. But if the
market value is readily available every one shall have ready access to it.
If market inputs are not available, the fair value will be much less
reliable and shareholders and analysts will not attach any value to that
information. Therefore, use of fair value in measuring fixed assets does not
enhance relevance of the financial information even from this perspective.
Continued in article
Jensen Comment
There are a number of issues for intense debate here.
- Booking versus Disclosure?
There's a huge difference between booking fair values of operating assets
versus merely disclosing them in a second column --- as was done in
the 1987 Days Inn annual report where only historical cost book values of
300+ hotels were audited by Price Waterhouse.
- Individual Items versus Subsets
Secondly. what is an operating asset? Is it a single machine such as a
farmer's tractor or is it the set of all the equipment on that farmer's
farm.
- Exit Value Versus Value in Use
If a going concern is not even remotely considering selling off fixed assets
piecemeal at exit values, then this is hardly a very useful type of
accounting for except when such disposals are seriously being contemplated
(such as in bankruptcy). Much more relevant is value-in-use that considers
how those assets are being put to use in generating future profits. Here the
analysis must shift from individual assets to subsets, because some
operating assets individually may have almost no exit value even though they
are crucial to the total operations of a company.
- The Inherent Problem of Unrealized Changes in Fair Value
Consider a huge cattle spread in drought-ridden West Texas in August of
2012. Because he did not have sufficient water for hay and corn, the rancher
has sold off his 4,000 herd of cows for 60 cents on the dollar. Real estate
vultures will offer him 10 cents for every dollar of value that he paid for
this land. The 40 cent loss of every dollar on his cows is a realized loss.
But the 90 cents of every dollar fair value change in his land is
unrealized. Should he mix the realized loss with the unrealized eps loss
when reporting to investors and bankers?
The other night I watched such a rancher being interviewed on ABC News. He
had sold off his entire herd, but over the years he socked away millions to
ride out droughts. He proudly proclaimed that he did not have to be plucked
by vultures unless there is zero hope that West Texas will once again be
viable for cattle ranching. In the latter case, even the vultures will not
make him an offer since the chances for profits on a West Texas desert are
virtually nil.
Personally, I think eps and P/E ratios are nonsense if the don't break out
the realized from the unrealized portions of earnings.
Fortunately, I don't think there's a snowball's chance in hell that CPA
auditors will commence attesting to fair value appraisals of operating assets,
especially when 100 different "licensed" (ha ha) appraisers give 100 widely
ranging estimates of fair value and another 100 ranging estimates of the fair
values of subsets of those operating assets.
It will be a sad day for annual
financial reporting if and when we give companies big boxes of fair value
crayons for their creative accounting coloring books.
If and when the rancher should sell out to vultures is yet another matter
that we, as armchair advisors, have not business recommending to the rancher. If
his ranch, as he says, is more of a way of life to him than a business, this old
guy's health will probably crash when he sells his beloved ranch to vultures.
The Controversy Over Fair Value (Mark-to-Market) Financial Reporting
Go to
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Underlying Bases of Balance Sheet
Valuation
Go to
http://www.trinity.edu/rjensen/theory02.htm#BasesAccounting
"An Architect and Scholar Weighs the Value of the Physical Campus," by
Scott Carlson, Chronicle of Higher Education, July 23, 2012 ---
http://chronicle.com/article/Why-We-Need-the-Physical/133041/?cid=wb&utm_source=wb&utm_medium=en
Jensen Comment
I don't think it comes as a surprise to parents and anybody connected with
higher education that a whole lot is gained by having students, especially
students recently graduated from high school, learn and live on campus while
enrolled as full-time students. Parents like this cushion between having their
children live at home and live on the mean streets. Young students, especially
male students, are still immature for their age when they graduate from high
school. Many are not yet prepared for living and learning completely on their
own. And then there's the on-campus social and sexual interactions. How many
marriages emerge from campus living versus living in the virtual world of
education?
And I still think students learn as much or more from each other as they
learn from their instructors. This is possible in online communications, but
online interactions are somewhat more formalized by taking a class together.
Online campus interactions are more serendipitous in dorm lounges, libraries,
student commons, dining halls, sports events, sports team participation, music
group participation, chapel participation, etc.
Having said this there can also be some advantages gained from online
learning such as in an online tax accounting course at the University of
Connecticut where students in the course are mostly full time professionals,
many working for insurance companies, who share their career experiences with
other students. This is less likely to happen in onsite courses where students
tend to be not working full time as professionals and are often not as street
smart as the older online working stiffs.
The Dark Side of the 21st Century: Concerns
About Technologies in Education ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Are Universities Becoming EMOs (Educational
Maintenance Organizations)? ---
http://www.trinity.edu/rjensen/000aaa/theworry.htm#EMOs
Small and midsize businesses are foregoing millions
of dollars in targeted tax breaks because they decided the incentives aren't
enough to justify the time, effort and expense to qualify for them. The Internal
Revenue Service estimated that only about 20,000 of 1.78 million corporate-tax
returns filed in the U.S. claim any of three dozen credits available.
"Firms Pass Up Tax Breaks, Citing Hassles, Complexity," by John McKinnon,
The Wall Street Journal, July 22, 2012 ---
http://professional.wsj.com/article/SB10000872396390444025204577543060812237798.html?mod=dist_smartbrief&mg=reno-wsj
Jensen Comments
Corporate tax breaks have something in common those elaborate cameras and
expensive network video recorders given by their children. Jay Leno once
commented that he gave a new VCR years ago and set it all up for his parents.
When he came back a year later he found it back in a box in the basement. They
never could figure out how to use the complicated thing.
I've taken over 10,000 pictures on my old and reliable Sony camera without
learning to use more than a couple of the many functions of my camera. And there
are all the great features of my newer Dell laptop. Forget them! Life is just
too short for learning all those.
"A READING LIST FOR ACCOUNTING CSI’S," by Anthony H. Catanach Jr. and
J. Edward Ketz, Grumpy Old Accountants Blog, July 23, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/711
Jensen Comment
This is not a long list of titles, but some of the recommendations are very long
and technical books. Like who sits down to read a thousand page intermediate
accounting text unless one is taking or teaching an intermediate accounting
course? But then this and some of the other listed books probably serve better
as reference books or sleep aids relative to the latest John Grisham novel that
I'm now reading while waiting for Erika in doctor's offices. Actually John
Grisham is not my favorite author by a long ways, but he does have some clever
plots relative to James Patterson.
There is a somewhat long list of book-cooking references.
The above reading list is more significant in terms of what it leaves out
rather than what in includes. For openers, I direct readers to the reading list
that perhaps only Steve Zeff could compile over the past few years of The
Accounting Review book reviews and commentaries. This is a better place to
begin than with the Catanach and Ketz list --- with the exception of the C&K
book-cooking references.
Professionally, I'm now plowing my way through Bourgeois Dignity:
Why Economics Can't Explain the Modern World by Deirdre N. McCloskey. My two
word description of that book is dull and tedious to a fault. But I'm doing my
best since I have to critique her Plenary Session speech at the 2012 AAA Annual
Meetings. I hope the focus of her talk is more on the following book that I
loved:
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
My critique of her speech may be a little like my PhD oral examination at
Stanford Universities. The answers that I gave were almost completely
disconnected with the questions that were asked. I had prepared for questions
that these examiners commonly asked in oral examinations according to students
who had gone before me. They decided to redo their question list for me.
Personally, I'm still plowing my way through William Trevor's 80+ outstanding
short stories. Next I think I will take up some Mark Twain books. PBS in Maine
has been running Ken Burn's outstanding modules on the life of Mark Twain (Samuel
Langhorne Clemens, November 30, 1835 – April 21, 1910) ---
http://en.wikipedia.org/wiki/Mark_Twain
What an exceptional writer --- perhaps the best American writer of all time.
He often started manuscripts and then let them sit on a back burner for years
and years. He also was a very close family man who endured tragedies --- both
personal and financial. He is not a role model for managing personal finances.
He could've accumulated a mass fortune if it was not his obsession for building
the most grand house in Hartford and possibly almost all of New England with the
exception of estates built by the super, super rich like John D. Rockefeller who
could better afford luxurious estates.
I indicated previously that one of economist friends (from Trinity days) was
anti-trust expert and mystery novel writer Bill Breit. Bill liked to spring the
following question on people he met for the first time. It was a great
conversation starter.
"What person living or dead would you most like dine with for a long evening?"
(Bill actually worded it somewhat differently at times)
My answer to this unequivocally would be Samuel Langhorne Clemens. What a
delightful evening of story telling that would become with stories that have a
message and side-splitting humor. Actually Clemens loved to delight his dinner
guests with clever stories, many of which were never put into his books or short
stories.
Sadly, I don't think Clemens told many stories about accountants, but I could
probably lead him into accounting with questions such as how to account for a
paddle-wheeler on the Mississippi or a Nevada newspaper or why he went broke
given the financial successes of his books and stories?
Trivia Question
What's the major reason that Huckleberry Finn became the most banned book in
public schools and libraries?
Answer
If you answer a racist theme you are wrong according to Ken Burns. The major
reason according to Burns is the foul language in the book, which by today's
standards is probably tame indeed since it does not contain those tiresome
F-words, C-word, and S-words.
I can assure you that none of the books recommended by Catanach and Ketz
contain foul language unless you consider the P-word for Ponzi or the K-word for
Kiting horribly objectionable.
The most criminal class in America according to Mark Twain
But Zafar will probably counter by saying that only Republican families of
lawmakers may trade on inside information. Democrats would never do something
that unethical..
"CNN exclusive: Congressional insider trading ban might not apply to
families," by Deirdre Walsh and Dana Bash, CNN, July 19, 2012 ---
http://www.cnn.com/2012/07/19/politics/stock-act-loophole/index.html
The Underground Economy at All Levels of Wealth
The other day I mentioned once again that poverty and wealth statistics are
probably understated because of the the huge and viable underground economy that
greatly distorts statistical data on wealth and income in the United States and
probably most other parts of the world.
My threads on the underground economy are at
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm#Poor
Today, on July 24, I had yet another illustration of the underground economy.
In June, 2012 Erika had some periodontal surgery from a doctor in Laconia.
Her surgeon recommended that she have some added and somewhat complicated dental
work done and recommended what he said was the best dentist in New Hampshire for
this type of work. This dentist, Dr. XXXXX, has an office in a beautiful old
mansion about 80 miles south in Concord, our New Hampshire State Capitol City.
His home is elsewhere in Concord, and when we discussed property taxes he
mentioned that Concord has the highest property tax rates in the state. His
personal residence property taxes he said were over $24,000 per year.
Erika had to wait until her gum healed for this dental work .Today we went
down for a second opinion from Dr. XXXXX since our local dentist, Dr. Gouge,
wanted $18,000 for the job. Dr. Gouge also operates out a an old Victorian
mansion in Littleton, but his mansion needs over $100,000 in repairs. I think he
saw us coming.
Dr. XXXXX in Concord, who has a better reputation as a skilled dentist, gave
us two prices:
- $6,760 if we pay in greenback cash from my pocket to his pocket
- $7,640 if we pay by check (which can be cashed immediately in Concord)
There's no option to pay by credit card or debit card with Dr. XXXXX
I don't think it will take AECMers long to figure out this pricing strategy.
How to Game the Tax System ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
This is Especially Important When Teaching from Cases
"Why MBAs, and B-Schools, Need to Embrace Failure," by Matt Symonds,
Business Week, July 2, 2012 ---
http://www.businessweek.com/articles/2012-07-02/why-mbas-and-b-schools-need-to-embrace-failure
From the MIT Media Lab
Venture Classes With Cases in Successful and Unsuccessful Ventures ---
http://www.media.mit.edu/about/academics/venture-classes
You can contact the instructors for more details.
"Why
Companies Fail--and How Their Founders Can Bounce Back," by Carmen Nobel,
Harvard Business School, March 11, 2011 ---
http://hbswk.hbs.edu/item/6591.html
"PATHWAYS TO FAILURE OF NEW VENTURES: A STUDY OF FAILED AND NON-FAILED INTERNET
NEW VENTURES," by Radha Chaganti, Rider University Rajeswararao (Raj) Chaganti,
Temple University ---
http://sbaer.uca.edu/research/sbi/2009/St. Petersburg, Florida/14.pdf
"McDonald’s failed venture in hotels,"
by Stefan Michel, Thunderbird Professor, Knowledge Network ---
http://knowledgenetwork.thunderbird.edu/research/2008/07/11/anatomy-of-mcdonald%E2%80%99s-failed-venture-in-hotels/
Between November 1999 and February 2000, McDonald’s
stock declined from $48 to $32 per share. The financial analysts surmised
that McDonald’s in the United States had reached market saturation.
Martin Huber, CFO of McDonald’s Switzerland,
concluded that every opening of a new McDonald’s restaurant intruded upon
the revenue of other restaurants already in operation. As a result,
McDonald’s decided to pursue a “diversification” strategy.
McDonald’s Switzerland, headed by CEO Urs Hammer,
chose to pursue ventures in the hotel business and in 1999 received the
green light from McDonald’s headquarters.
They soon began construction on two hotels. The
crucial factor in deciding to pursue the hotel strategy was that CEO Hammer
came from a hotelier background. Hammer hoped the hotels would continue “the
spirit of McDonald’s hospitality philosophy.” Hammer also was a frequent
traveler and knew exactly what customers wanted in a hotel.
“Our restaurants serve 74 million customers in a
country with a population of 7 million,” Hammer argued. “If only one in
1,000 of those guests choose the Golden Arch Hotel, the project will be a
success.”
Should the Swiss managers succeed, there was the
chance that they could manage operations of this strategic business unit for
the entire corporation from Switzerland. Jack Greenberg, CEO of the
McDonald’s Corporation, viewed Hammer’s concept as a way forward for the
company. Since McDonald’s competed in many saturated markets with its
restaurant business, diversification was a promising way for future growth.
In March 2001, McDonald’s Corporation opened its
first hotel in the Swiss town of Rümlang. The 211-bed, four-star Golden Arch
Hotel was situated close to Airport Zürich-Kloten and was built at a cost of
about $26 million. A few weeks later the second hotel in Lully was opened.
The five-story Rümlang hotel sat next to a 170-seat
drive-through McDonald’s restaurant open 24 hours a day, which is unusual in
Switzerland. The restaurant was separated from the hotel so that only hotel
guests had access to the hotel building.
Two types of rooms were offered: one offered an
oversized king-sized bed and the other two oversized single beds. The price
range was set from $120 to $160 per night.
To ensure efficient luggage handling, McDonald’s
developed a custom-made trolley for both hotels. In accordance with the
McDonald’s restaurant philosophy, the hotel crew would consist of a similar,
permanent, employee pool that could implement the consistent service
standards for every task in order to better serve the guests.
The motivational job rotation principle would
therefore replace the traditional hotel-industry applied job specialization
and hierarchy system. Because of the different peak-period demands for
restaurants and hotels, the synergy effect was used to assign employees
different positions and tasks.
In order to bypass the rush of the check-in and
check-out process, guests had the ability to check in and out of the hotel
at the airport terminal.
In total, there were nine small meeting rooms,
which were able to be transformed, due to a foldable-wall technology, into a
larger 30-person conference room.
To provide optimal comfort for guests, management
decided against saving on beds and mattresses and outfitted the rooms with
the same beds and mattresses as a five-star hotel. The room’s beds had three
built-in motors for a variety of positions.
What made the room layout unique was a curved wall
that gave the room a special atmosphere and design. It was a one-piece,
ready-to-use design that would be patent protected by McDonald’s
Switzerland. One feature of the hotel room design was a futuristic shower
that projected into the bedroom. The rooms had Internet and computer
facilities, with the TV screen serving as a computer screen, and a
cable-free keyboard.
Rümlang, a small town on the fringe of Zürich, was
chosen as the first location because Zürich was on the upswing. Occupancy
rates were high, and there was much population diversity. Young people
considered Zürich trendy, while older people enjoyed its culture and
businesses. Guests were coming and paying the prices.
Even more promising was the airport area. The
national airline Swissair used the Airport Zürich-Kloten as a hub. The hub,
in turn, generated more demand for hotel beds by tourists, business
travelers, and airline crews. A major expansion of the airport was likely to
increase its capacity by 50 percent in the first decade of the new
millennium.
The nearest hotel was a family-owned hotel with 34
rooms, three stars and no airport shuttle. The room rates were $96 to $137.
A more significant competitor was in Kloten since it competed in the same
price range, but it was closer to the airport , had more rooms, fewer but
larger meeting rooms, and a fine-dining restaurant. Very close to Golden
Arch’s property was a hotel, part of a chain that operates more than 50
hotels around the world, with three restaurants and large meeting rooms. It
offered a frequent-guest rewards program.
Another direct competitor was located between the
airport and downtown, close to several major business centers and corporate
offices.
In spite of the surprising number of new hotels,
business was still excellent for all the hotel operators. In Zürich, hotel
occupancy rates in 1999 were 73 percent, and in the previous year 71
percent. The region around the airport was averaging 80 percent capacity.
The two McDonald’s hotels opened to great fanfare
due to the uniqueness of the venture and the celebrity of the Swiss CEO, Urs
Hammer. In spite of the media attention, and the attention paid by the
visitors of the McDonald’s restaurants adjacent to the hotels, activity at
the hotels was limited.
Occupancy during the first year of operation
rarely, if ever, met industry average. Management negotiated to get some of
the bus tour business, which is a large segment of Swiss tourism. While this
caused occupancy to rise somewhat, the negotiated rate was far lower than
the typical rate charged (closer to a two-star range).
Because of the high cost of construction, the debt
service on the construction costs could only be recovered at a three-star
price range and above.
During the first year, the hotels also experienced
an unusually high rate of turnover among the staff. Finding qualified chefs
and hotel staff was extremely difficult, and those who were valued tended to
jump to other hotels for higher wages.
Consumers also found it difficult to believe that a
McDonald’s Hotel could offer four-star accommodations, which is where the
hotels were priced. Consumers expected that the hotels would be more in line
with the restaurants, which, if not the best, were clean and affordable.
Consumers also found it hard to believe that a four-star hotel would be
connected to a McDonald’s restaurant.
In the end, a confluence of events hurt tourism in
Switzerland and, therefore, the prospects of the McDonald’s Hotels. The
outbreak of SARS, the terrorist attacks in the United States on Sept. 11,
2001, and the grounding and bankruptcy of Swissair combined to lower tourism
numbers soon after the hotels opened.
Occupancy was also hurt by the increasing
competition from new properties, which were brought on line at the same time
as the McDonald’s properties.
Continued in article
Jensen Comment
I'm reminded of situations where a great reputation can be dysfunctional,
especially if it is a reputation for bargain pricing. For example, years ago
Burger King elected to dedicate a portion of some of it's restaurants to candle
light and white table cloth dining and an upscaled menu.. Can you imagine trying
to impress your spouse on a 25th wedding anniversary candle light dinner at
Burger King?
Among other things it would be uncomfortable to be having a bourgeoisie dinner
on one side of the restaurant with the proletariat chomping down Whoppers on the
other side of the restaurant.
I
can see where it might be difficult for McDonalds or Burger King to start chains
of upscale hotels. Sometimes a great reputation in one market does not carry
over into another market. See the above article.
And
sometimes an upscale bourgeoisie reputation can be tarnished by trying to trade
on a bourgeoisie name in a proletariat market. I often wondered if this would
happen if PwC bought out H&R Block and then tried to market strip mall tax
return offices and bookkeeping services under the name "PwC Lite."
"ABRAHAM BRILOFF: AN ACCOUNTING HERO FOR THE AGES," by Anthony H. Catanach
and J. Edward Ketz, Grumpy Old Accountants Blog, July 16, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/649#more-649
For more of the details on Abe's tremendous contributions to accountancy see
http://www.trinity.edu/rjensen/Theory01.htm#Briloff
Jensen Comment
The shame is that he's not yet been inducted into the Accounting Hall of Fame.
This happens when you create powerful enemies as well as friends in your
professional life.
"Penn State president orders Paterno statue removal," Yahoo News,
July 22, 2012 ---
http://news.yahoo.com/penn-state-president-orders-paterno-statue-removal-111940000--spt.html
Jensen Comment
Without encouraging a debate on whether this statue removal is or is not
appropriate, it does make me wonder if there's a full statue or even a mere
marble bust of any accounting professor anywhere in the world? There may be some
portraits of accounting professors who became Presidents of universities. There
also is a portrait of Luca Pacioli ---
http://en.wikipedia.org/wiki/Portrait_of_Luca_Pacioli
A don't know of any statues of this Renaissance mathematician.
It's pretty easy to historically rank football coaches in terms of number of
wins or win-loss percentages over 30 or more years, but it's difficult to rank
accounting professors on explicit criteria. But such rankings differ from
rankings on other criteria such as the percentage of varsity players who
received diplomas in less than six years.
Some analysts, including me, have done so on the basis of publication records
in selected accounting research journals. This, however, falls way short of a
"win-loss" record as an accounting professor as a teacher or as a
teacher/researcher.
The AAA has had an Outstanding Educator Award for many years, and I'm told
that this award is heavily based upon a research record. I'm also told that it's
very difficult to win the award without ever having advised doctoral students,
although teaching testimonials of students at all levels of coursework are also
factored into the granting of this award ---
http://aaahq.org/awards/nominat4.htm
. . .
Award Criteria
The Outstanding Accounting Educator Award recognizes contributions to
accounting education from scholarly endeavors in research and teaching over
a sustained period of time through:
- Educational innovation,
- Excellence in teaching,
- Publications,
- Research guidance to graduate students, and
- Significant involvement in professional and
academic societies and activities.
- A nominee need not excel in each of these
general criteria to merit consideration for the award.
Continued in article
But it's a pretty safe bet that no campus in North America has a statue of an
AAA Outstanding Educator.
Richard Sansing found a link to a statue of Luca Pacioli in his hometown ---
http://renaissanceaccountant.blogspot.com/2007/10/statue-of-pucioli-in-his-hometown.html
"Should airlines hedge their bets on fuel?" by: Martin Rivers London,
Flight Global, July 2012 ---
http://www.flightglobal.com/news/articles/analysis-should-airlines-hedge-their-bets-on-fuel-374733/
Volatile oil prices bring into focus airline
strategies for protecting themselves from spiralling fuel costs and whether
they can avoid taking too much of a gamble
When Delta Air Lines announced its intention to
acquire an oil refinery earlier this year, the unusual move drew a mixed
response from analysts. Some praised its innovation, arguing that its daily
consumption of 210,000 barrels of jet fuel justified cutting out the middle
man. Others questioned whether airlines should be in the business of
refining crude oil.
But one thing no one disputed was the urgent need
to offset fuel price volatility. According to IATA's latest forecast, Brent
crude, the main European benchmark, is likely to average $110 a barrel this
year - but in just six months spot prices have ricocheted wildly between
$128 and $88.
For airlines that rely on stable ticket pricing to
deliver profitability, such swings have brought fuel hedging firmly back
into vogue during the post-2008 recovery. In its simplest form, hedging
allows fuel prices to be fixed or capped for future expenditure, smoothing
out unforeseen spikes in the oil price and bringing some certainty to
margins.
But as Delta has experienced, this can be a
double-edged sword. The airline wrote down fuel hedging losses of $155
million in the second quarter of 2012, alongside mark-to-market paper losses
of $800 million for future hedges. It took the hit after West Texas
Intermediate (WTI) crude, the main US benchmark, slumped from $110 a barrel
in February to $78 in June, making spot prices much cheaper than the futures
contracts Delta was locked into.
The spread between WTI and Brent reflects differing
stockpiles on either side of the Atlantic, as well as variations in demand
and transportation costs. Both benchmarks feed into secondary jet fuel
prices - which, as of 6 July, have fallen by 10.9% year on year to an
average of $117.40 a barrel, according to Platts.
Delta will not be the only carrier to record
hedging losses in Q2 2012, but its results are the first worrying sign that
the industry has repeated the mistakes of 2008, when airlines locked in
sky-high hedges only to see Brent crash from $147 a barrel in July to $36 in
December.
"There was a fear that oil prices were going to go
to $200 or $300 a barrel," says Mike Corley, president of hedging
consultancy Mercatus Energy Advisors. "The fear of being exposed to $200 a
barrel was so great that a lot of people convinced themselves prices could
not decline. Prices were rising so fast that many airlines started hedging
without even really thinking about it."
Heavy toll
When oil then collapsed along with most other asset
classes, the opportunity cost of hedging above $100 a barrel took a heavy
toll. In the 2008/09 fiscal year, Cathay Pacific recorded mark-to-market
hedging losses of HK$7.6 billion ($974 million); Air China booked 6.8
billion yuan ($994 million) in losses; and Emirates lost 1.57 billion dirham
($428 million). Even Southwest, once the pin-up for fuel hedging, lost $117
million on its Q4 positions.
These losses prompted a seismic shift in attitudes
to hedging. Stalwart practitioners such as Air France-KLM, British Airways
and EasyJet all scaled back their programmes, while China's risk-averse
government took the extraordinary step of banning airlines from buying oil
futures.
Memories of 2008 will be keenest in Asia because of
the widely held perception that western banks had mis-sold hedging
instruments. Little wonder, then, that Japan Airlines, All Nippon Airways,
Cathay Pacific and Singapore Airlines have all moved to reduce fuel
surcharges in recent weeks - no doubt relishing their higher exposure to
spot prices.
Helane Becke, analyst at Dahlman Rose and Company,
says: "We expect airlines that do not hedge jet fuel to say they are
managing their businesses better, because they will not report hedge losses
in this declining jet fuel environment."
However, although sceptics are now singing the
praises of risk aversion, out-performance in a bear market is just one side
of the coin. Macroeconomic fundamentals continue to exert upward pressure on
oil, which makes heavy exposure to spot prices just as risky as light
exposure. "If you are not hedging, you are speculating," says Mercatus's
Corley.
Fuel-consuming companies that choose not to hedge
generally believe one or both of the following: that they have the ability
to pass on fuel-driven inflation to customers, and/or they are confident
that oil prices will fall.
Continued in article
Teaching Cases: Hedge Accounting Scenario 1 versus Scenario 2
Two Teaching Cases Involving Southwest Airlines, Hedging, and Hedge
Accounting Controversies ---
http://www.trinity.edu/rjensen/caseans/SouthwestAirlinesQuestions.htm
"The California Dream is fizzling out," By John D. Sutter, CNN, June
27, 2011 ---
http://www.cnn.com/2011/US/06/27/california.dream.census.slump/index.html?hpt=hp_c1
PBS News Hour
California Community Colleges Face Dilemmas Amid Tighter Budgets ---
http://www.pbs.org/newshour/bb/education/jan-june12/commcolleges_04-10.html
Tax and Spend," by Kevin Kiley and Paul Fain, Inside Higher Ed, May
15, 2012 ---
http://www.insidehighered.com/news/2012/05/15/californias-public-colleges-face-more-budget-cuts-if-tax-hike-fails
"Further trigger cuts in January could be the
breaking point financially for some colleges," said Jack Scott, the system's
chancellor, in a written statement,"
"An Economist Finds Herself in the Political Cross Hairs," by Tom
Bartlett, Chronicle of Higher Education, June 18, 2012 ---
http://chronicle.com/blogs/percolator/an-economist-finds-herself-in-the-political-crosshairs/30119
On Monday, President Obama
made fun of Mitt Romney’s
jobs plan, citing
a commentary by an economist who estimated that
his proposal to shift to a so-called territorial corporate-tax system—that
is, to exempt American corporations from taxes on their foreign income—would
cause them to move their operations overseas, creating 800,000 jobs in other
countries.
The commentary was by Kimberly A. Clausing, a
professor of economics at Reed College, and published in Tax Notes.
She doesn’t mention Mitt Romney by name, writing that “others” are pushing
for such a system, but it’s clear who she’s talking about, and it’s obvious
that she thinks it’s a bad idea.
“U.S. tax payments for the income from foreign
operations of U.S. multinational corporations would not simply be deferred;
they would be completely erased,” she writes. “That would eliminate
constraints on shifting income abroad.”
Clausing counters the claim that moving to a
territorial system would put the United States on the same footing as many
of its trading partners. Their systems, she writes, have built-in safeguards
that prevent companies from moving their operations elsewhere to avoid
taxes. “[T]he hybrid systems used by our largest trading partners have more
in common with the reforms suggested by the Obama administration,” Clausing
writes.
Continued in article
Jensen Comment
This is a tough issue that Professor Clausing treats all too superficially.
Firstly, she does not acknowledge that U.S. corporations, large and small,
are now paying little or no corporate income taxes because of loopholes already
existing in the tax code. The corporate income tax collections as a percentage
of GDP have been declining steadily since 1955 and now stand at less than 1% of
GDP ---
http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States
Secondly, she does not consider the impact of either the Obama or Romney
sides of the argument on the reactive tax codes of other nations.
Presently, other nations are enjoying the higher employment revenues, local bank
liquidities, and corporate tax revenues of U.S. corporation profits and
property value taxes in their nations. If the U.S. acts in such a way to
jeopardize their jobs, savings, and tax revenues these nations may provide even
more incentives to operate internationally. This is not entirely a zero-sum
game, but there are aspects of a zero-sum game involved in global taxation that
Professor Clausing ignores entirely. The worst-case scenario is where the U.S.
makes it so unprofitable to be an American Corporation that the corporations
become Bermuda Corporations --- which is what many of "our" giant corporations
like Accenture have already done ostensibly for tax reasons.
Thirdly, she does not consider the opposite side of the coin that perhaps
millions of jobs are being lost because corporations are already keeping and
investing their foreign profits in foreign countries. There's no incentive to
bring those profits home because the U.S. corporate tax rates are the highest in
the world, and the only incentive to bring the cash home is when lawyers and
accountants find some loophole that will prevent foreign from being taxed if
they are sent back to the U.S.
Fourthly, she does not consider more efficient and effective alternatives to
corporate taxation in general. Personally, I favor the VAT tax, although I doubt
that this is a tax that Romney would advocate.
The simple answer to the political position Romney is taking is to force him
to demonstrate how he plans to make up for the revenue lost if the corporate
income tax is dropped entirely.
I think Professor Clausing's essay is weak in terms of academic rigor. But we
can certainly rely upon political debate over this issue to be even more
superficial. Her essay will, however, be praised ad ad nauseam on MSNBC
criticized ad ad nauseam on Fox News.
Her weak essay is at
http://www.taxanalysts.com/www/website.nsf/Web/HomePage/$file/clausing.pdf
Research at the University of Rochester ---
https://urresearch.rochester.edu/home.action
Jensen Comment
Note that this site includes a long listing of research in accounting, finance,
and economics, much of it based on positivism and financial markets.
From Ernst & Young
Joint Project Watch FASB/IASB joint projects from a US GAAP perspective June
2012
http://www.ey.com/Publication/vwLUAssetsAL/JointProjectWatch_BB2371_June2012/$FILE/JointProjectWatch_BB2371_June2012.pdf
Bob Jensen's threads on controversies in
the setting of accounting standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Qualitative impairment test added for indefinite-lived intangibles ---
Click Here
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2383_IntangiblesImpairment_27July2012/$FILE/TothePoint_BB2383_IntangiblesImpairment_27July2012.pdf
What you need to know
• The FASB is giving companies the option to
perform a qualitative impairment assessment for their indefinite-lived
intangible assets that may allow them to skip the annual fair value
calculation.
• The qualitative assessment is similar to the
screen companies can use to determine whether they must perform the two-step
goodwill impairment test.
• To perform a qualitative assessment, a company
must identify and evaluate changes in economic, industry and
company-specific events and circumstances that could affect the significant
inputs used to determine the fair value of an indefinite-lived intangible
asset.
• The guidance is effective for annual and interim
impairment tests performed for fiscal years beginning after 15 September
2012. Early adoption is permitted.
Overview
The Financial Accounting Standards Board (FASB or
Board) issued final guidance adding an optional qualitative assessment for
determining whether an indefinite-lived intangible asset is impaired. The
guidance in Accounting Standards Update (ASU) 2012-02
1
is similar to
last year’s goodwill guidance,2
which allows companies to perform a qualitative
assessment to test goodwill for impairment.
Until now, companies have had to calculate the fair
value of their indefinite-lived intangible assets annually. If the carrying
amount of an indefinite-lived intangible asset exceeds its fair value, an
impairment charge must be recorded.
Bob Jensen's threads on contingencies and intangibles ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Question
When and how should a company and it's auditors truly abandon the Matching
Principle in practice?
Answer
The IASB has no answer to this in terms of when or how. I guess his is another
ambiguous "principles based" thing.
The FASB is coming out with new guidance as to when to shift from going concern
accounting to liquidation accounting.
"In brief: FASB proposes guidance for applying liquidation basis of
accounting," PwC, July 9, 2012 ---
Click Here
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=THUG-8W2KA5&SecNavCode=MSRA-84YH44&ContentType=Content
Investigation: Mitt Romney’s Offshore Accounts, Tax Loopholes, and Mysterious
I.R.A.
"Where the Money Lives," by Nicholas Shaxson, Vanity Fair, August
2012 ---
http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts
Finance Professor Jim Mahar says Barclays really should be removing these
advertisements as soon as possible.
Barclays ---
http://en.wikipedia.org/wiki/Barclays#Rate-fixing_scandal
Rate-fixing scandal
In June 2012, as a result of an international investigation, Barclays
Bank was fined a total of £290 million (US$450 million) for attempting to
manipulate the daily settings of London Interbank Offered Rate (Libor)
and the Euro Interbank Offered Rate (Euribor).
The United States Department of Justice and Barclays officially agreed that
"the manipulation of the submissions affected the fixed rates on some
occasions".[94]
The bank was found to have made 'inappropriate submissions' of rates which
formed part of the Libor and Euribor setting processes, sometimes to make a
profit, and other times to make the bank look more secure during the
financial crisis.[95]
This happened between 2005 and 2009, as often as daily.[96]
The BBC said
revelations concerning the fraud were "greeted with almost universal
astonishment in the banking industry."[97]
The UK's
Financial Services Authority (FSA), which levied a fine of £59.5 million
($92.7 million), gave Barclays the biggest fine it had ever imposed in its
history.[96]
The FSA's director of enforcement described Barclays' behaviour as
"completely unacceptable", adding "Libor is an incredibly important
benchmark reference rate, and it is relied on for many, many hundreds of
thousands of contracts all over the world."[95]
The bank's chief executive
Bob Diamond decided to give up his bonus as a result of the fine.[98]
Liberal Democrat politician
Lord Oakeshott criticised Diamond, saying: "If he had any shame he would
go. If the Barclays board has any backbone, they'll sack him."[95]
The U.S. Department of Justice has also been involved, with "other financial
institutions and individuals" under investigation.[95]
On 2 July 2012, Marcus Agius resigned from the chairman position following
the interest rate rigging scandal.[99]
On 3 July 2012, Bob Diamond resigned with immediate effect, leaving Marcus
Agius to fill his post until a replacement is found.[100]
LIBOR ---
http://en.wikipedia.org/wiki/Libor
"How Barclays Rigged the Machine," by Rana Foroohar, Time Magazine,
July 23, 2012 ---
http://www.time.com/time/subscriber/article/0,33009,2119318,00.html
Ever wonder why surveys about very personal topics
(think sex and money) are done anonymously? Of course you don't, because
it's obvious that people wouldn't tell the truth if they were identified on
the record. That's a key point in understanding the latest scandal to hit
the banking industry, which comes, as ever, with much hand-wringing,
assorted apologies and a crazy-sounding acronym--this time, LIBOR. That's
short for the London interbank offered rate, the interest rate that banks
charge one another to borrow money. On June 27, Britain's Barclays bank
admitted that it had deliberately understated that rate for years.
LIBOR is a measure of banks' trust in their
solvency. And around the time of the financial crisis of 2008, Barclays'
rate was rising. If a bank revealed publicly that it could borrow only at
elevated rates, it would essentially be admitting that it--and perhaps the
financial system as a whole--was vulnerable. So Barclays gamed the system to
make the financial picture prettier than it was. The charade was possible
because LIBOR is calculated not on the basis of documented lending
transactions but on the banks' own estimates, which can be whatever bankers
decree. This Kafkaesque system is overseen for bizarre historical reasons by
an association of British bankers rather than any government body.
The LIBOR scandal has already claimed Barclays'
brash American CEO, Bob Diamond, a man infamous for taking huge bonuses
while his company's share price and profit were declining. Diamond resigned,
but his head may not be the only one to roll. As many as 20 of the world's
largest banks are being sued or investigated for manipulating over the
course of many years the interest rate to which $350 trillion worth of
derivatives contracts are pegged. Bank of England and former
British-government officials accused of colluding with Barclays to stem a
financial panic may also be caught up in the mess.
What's surprising is that individual consumers may
actually have benefited, at least financially, from the collusion. Not only
the central reference point for derivatives markets, LIBOR is also the rate
to which all sorts of loans--variable mortgage rates, student loans, even
car payments--may be pegged. To the extent that banks kept LIBOR
artificially low, all those other loan rates were marked down too. Unlike
the JPMorgan trading fiasco of a few weeks ago, which has resulted in a
multibillion-dollar loss, the only apparent red ink so far in the LIBOR
scandal is the $450 million in fines that Barclays will pay to the U.K. and
U.S. governments for rigging rates (though pension funds and insurance
companies on the short end of LIBOR-pegged financial transactions may have
lost a lot of money).
Either way, the truth is that LIBOR is a much, much
bigger deal than what happened at JPMorgan. Rather than one screwed-up trade
that was--whether you like it or not (and I don't)--most likely legal, it
represents a financial system that is still, four years after the crisis
began, opaque, insular and dangerously underregulated. "This is a very, very
significant event," says Gary Gensler, chairman of the U.S. Commodity
Futures Trading Commission (CFTC), which is one of the regulators
investigating the scandal. "LIBOR is the mother of all financial indices,
and it's at the heart of the consumer-lending markets. There have been
winners and losers on both sides [of the LIBOR deals], but collectively we
all lose if the market isn't perceived to be honest."
Continued in article
"Sandy Weill Still Doesn't Have the Answer The banker-government
consortium re-exposed in the Libor scandal won't be unwound from the top,"
by Holman W. Jenkins, Jr., The Wall Street Journal, July 27, 2012 ---
http://professional.wsj.com/article/SB10000872396390443931404577552913658228058.html?mg=reno64-wsj#mod=djemEditorialPage_t
Sandy Weill was impressive as a scrambler, a
dealmaker, a man who could catch a wave. He's come out of retirement now, a
decade after creating the Citigroup oligopolist, to catch a new wave,
declaring on CNBC that investment banking and commercial banking should be
re-separated.
He explains that bank bailouts and too big to fail
would no longer be necessary, without explaining how, since both bank
bailouts and too big to fail predated the repeal of Glass-Steagall.
Mr. Weill finds himself suddenly welcome in the
company of editorialists who, since the Libor scandal, have been renewing
their clamor for bankers to be imprisoned, if not executed. He's become
their new hero.
The inherent Stalinism of those who crave to put
bankers in jail for things that aren't crimes is not unlike that of the
original Stalinist—who understood that nothing of substance has to change if
you've got enough scapegoats. Likewise, Mr. Weill's proposal to restore
Glass-Steagall would also change nothing.
Even too big to fail is too small a phrase. Do not
interpret the following conspiratorially: The total coalescence of the
financial elite with the governing elite in our and other countries is a
natural pattern. It may be corrupting. It may be counterproductive. But it's
the natural outcome of the giant, almost inconceivable amounts of debt the
U.S. and other governments ask the financial system to market and hold on
their behalf.
If you owe the bank $1 million, the bank owns you.
If you owe $1 billion, you own the bank. If you owe several trillion, you
are the financial system. Libor is called a key underpinning of global
finance. But that's far more true of IOUs issued by the U.S. government and
its major counterparts. The global financial system is built on a mountain
of government debt, and in turn banks and their governments are bedfellows
of a highly incestuous order.
That's why, in every transcript and phone
memorandum that has come to light, in talking about Libor, regulators and
bankers talk to each other as if they were all just bankers talking amongst
themselves.
That's why, when a high British official suggested
that Barclays lowball its Libor submission during the financial crisis,
Barclays didn't hesitate because, as one banker testified to the British
Parliament, these were government instructions "at a time when governments
were tangibly calling the shots."
It's ironic to think that some who championed the
euro saw it as way to break free of rule by bankers. Europe's new monetary
authority would be focused on a producing a stable currency; Europe's
national governments would have no choice but to live within their means.
This experiment failed because the European Central
Bank quickly adopted policies designed to induce banks not to distinguish
between the debts of disciplined and undisciplined governments. That is, the
euro was immediately corrupted by the need to help governments keep
financing themselves.
Now the world is Europe. Under the current regime
of financial repression, banks and states are even more annexes of each
other. Notice Japan's central bank explicitly stating plans to erode the
value of the government's debt in the hands of Japanese savers. Notice the
European Central Bank again hinting at readiness to buy the debt of
countries no longer able to find voluntary buyers in the market. In the
U.S., how long before the Treasury issues a perpetual bond yielding zero
percent for direct sale to the Fed?
The banker-government consortium re-exposed in the
Libor scandal won't be unwound from the top, not when governments are more
dependent than ever on a captive financial system to give their debt the
illusion of viability. And yet there's still a possibility of unwinding it
from the bottom, by giving large numbers of bankers an incentive to get out
of the government-insured sector and go back to a world in which they live
by their own profits and losses.
The solution begins with deposit-insurance reform.
The FDIC would stop insuring deposits that are invested in anything other
than U.S. Treasury paper. The FDIC would be charged solely with seizing
these assets when a bank gets in trouble so the claims of insured depositors
can be satisfied. There'd be no call to bail out other creditors or
shareholders to minimize the cost to the deposit insurance fund.
Yes, the threat might be only semi-credible. But
such a law could be got through Congress and risk-averse lenders would
become less interested in holding uninsured credit against banks that are
too big to manage and too opaque to be viable without a government backstop.
Continued in article
Bob Jensen's threads on banking frauds---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
Bob Jensen's timeline of derivative financial instrument frauds ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
View from the Left
"Barclays and the Limits of Financial Reform," by Alexander Cockburn,
The Nation, July 30, 2012 ---
http://www.thenation.com/article/168834/barclays-and-limits-financial-reform
"Execs to Cash In Despite Market Woes: Even companies whose
investors received a negative return this year expect to fund at least
100% of formula-based annual bonus plans," David McCann, CFO.com,
December 9, 2011 ---
http://www3.cfo.com/article/2011/12/compensation_executive-bonus-larre-towers-watson-
Are companies in denial when it comes to
executives' annual bonuses for 2011? Judge for yourself.
Among 265 companies that participated in a
newly released Towers Watson survey, 42% said their shareholders'
total returns were lower this year than in 2010. No surprise there,
given the stock markets' flat performance in 2011.
Yet among those that reported declining
shareholder value, a majority (54%) said they expected their bonus
plan to be at least 100% funded, based on the plan's funding
formula. That wasn't much behind the 58% of all companies that
expected full or greater funding (see chart).
"It boggles the mind. How do you articulate
that to your investors?" asks Eric Larre, consulting director and
senior executive pay consultant at Towers Watson. Noting that stocks
performed excellently in 2010 while corporate earnings stagnated —
the opposite of what has happened this year — he adds, "How are you
going to say to them, 'We made more money than we did last year, but
you didn't'?"
In particular, companies would have to
convincingly explain that annual bonus plans are intended to
motivate executives to achieve targets for short-term, internal
financial metrics such as EBITDA, operating margin, or earnings per
share, and that long-term incentive programs — which generally rest
on stock-option or restricted-stock awards, giving executives, like
investors, an ownership stake in the company — are more germane to
investors.
But such arguments may hold little sway
with the average investor, who "doesn't bifurcate compensation that
discretely," says Larre. Rather, investors simply look at the pay
packages as displayed in the proxy statement to see how much top
executives were paid overall, and at how the stock performed.
Larre attributes much of the current,
seeming generosity to executives to complacence within corporate
boards. This year, the first in which public companies were required
to give shareholders an advisory ("say on pay") vote on
executive-compensation plans, 89% received a thumbs-up. But that
came on the heels of 2010, when the S&P 500 gained some 13% and
investors were relatively content with their returns. "They may not
be as content now," Larre observes. "I think the number of 'no'
say-on-pay votes will be larger during the 2012 proxy season."
Continued in article
Compounding the Felony
"Libor problems haven't been fixed, regulators say," by Ben Protess and
Mark Scott, The New York Times, July 17, 2012 ---
http://dealbook.nytimes.com/2012/07/17/after-barclays-scandal-regulators-say-rates-remain-flawed/?ref=business
Federal authorities cast further doubt on Tuesday
about the integrity of a key interest rate that is the subject of a growing
investigation into wrongdoing at big banks around the globe.
In Congressional testimony, the chairman of the
Federal Reserve and the head of the Commodity Futures Trading Commission
expressed concern that banks had manipulated interest rates for their own
gain. They also indicated that flaws in the system — which were highlighted
in a recent enforcement case against Barclays — persist.
“If these key benchmarks are not based on honest
submissions, we all lose,” Gary Gensler, head of the trading commission,
which led the investigation into Barclays, said in testimony before the
Senate Agriculture Committee.
In separate testimony before the Senate Banking
Committee, Ben S. Bernanke, the Federal Reserve chairman, said he lacked
“full confidence” in the accuracy of the rate-setting process.
The Fed faces questions itself over whether it
should have reined in the rate-manipulation scheme, which took place from at
least 2005 to 2010.
Documents released last week show that the New York
Fed was well aware of potential problems at Barclays in 2008. At a hearing
in London on Tuesday, British authorities said the New York Fed never told
them Barclays was breaking the law.
Continued in article
Bob Jensen's threads on interest rate swaps and LIBOR ---
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Search for LIBOR or swap.
Timeline of Financial Scandals, Auditing Failures, and the Evolution of
International Accounting Standards ----
http://www.trinity.edu/rjensen/FraudCongress.htm#DerivativesFrauds
(to view on a new page)
Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/fraud001.htm#Governance
Must we blame Republicans for
this as well?
The Congressional Budget Office today released
The Distribution of Household Income and Federal Taxes, 2008 and 2009 (July
2012):
For most income
groups, the 2009 average federal tax rate was the lowest observed in the
1979–2009 period. ... For the lowest income group, the average rate fell
from 7.5% in 1979 to 1.0% in 2009. ... Households in the middle three income
quintiles saw their average tax rate fall by 7.1 percentage points over 30
years, from 19.1% in 1979 to 12.0% in 2009. ... The average tax rate for
households in the 81st to 99th percentiles of the income distribution also
reached a low point in 2009, about 4 percentage points below its 1979 level.
... In contrast, in 2009 the average tax rate for households in the top 1%
of the before-tax income distribution was above its low point, reached in
the early 1980s. ... The tax rate ... rose somewhat from 2007 to 2009, as
sharp declines in capital gains income caused a larger portion of the income
of that group to be subject to the ordinary income tax rates. The decline in
after-tax income between 2007 and 2009 was much larger at the top of the
income distribution than further down the distribution.
How to avoid income taxes:
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
Francine is Probably Dancing in the Streets of Chicago
"Deloitte Achieves Another Unflattering Milestone in Audit Quality," by
Caleb Newquist, Going Concern, July 16, 2012 ---
http://goingconcern.com/post/deloitte-achieves-another-unflattering-milestone-audit-quality
PCAOB "Time Bomb" says Bloomberg's Jonathon Weil
"Bigger, Stronger, Faster: The PCAOB After The Supreme Court Ruling," by
Francine McKenna, re:TheAuditors, June 26, 2012 ---
http://retheauditors.com/2010/06/26/bigger-stronger-faster-the-pcaob-after-the-supreme-court-ruling/
Francine wishing that the courts would
bring Deloitte to its knees (litigation, Bear Sterns, JP Morgan, audit,
auditing, Deloitte, lawsuits, Independence, Litigation, PCAOB)
Francine is Probably Dancing in the Streets of Chicago
"Deloitte Achieves Another Unflattering Milestone in Audit Quality," by
Caleb Newquist, Going Concern, July 16, 2012 ---
http://goingconcern.com/post/deloitte-achieves-another-unflattering-milestone-audit-quality
Bob Jensen's threads on auditing professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
As the Sarbanes-Oxley Act of 2002 approaches its
10th anniversary, a U.S. House of Representatives subcommittee debates its
merits -- and a bill that would decrease the scope of the corporate governance
law.
"SOX’s anniversary marked with congressional debate on benefits and costs,"
by Ken Tysiac, Journal of Accountancy, July 26, 2012 ---
Click Here
http://journalofaccountancy.com/News/20126125.htm?cm_mmc=smartbrief-_-27Jul12-_-CPALD-_-SOXHouse&utm_source=smartbrief&utm_medium=12Jul12&utm_term=CPALD&utm_content=SOXHouse&utm_campaign=smartbrief
Jensen Comment
The public accounting industry in the United States could have a lot riding on
these Congressional debates. In some ways SOX saved the auditing services. In
the 1990s auditing was becoming an unprofitable service that was becoming more
and more of a loss leader for obtaining more profitable advisory services. For
example, for $25 million per year Andersen probably would've lost millions if it
had performed the Enron audit professionally. On the other hand, auditing led to
another $25 million in advisory services that were highly profitable for for
Andersen even though some of these advisory services led to conflicts of
interest with auditing services (e.g., Andersen helped design those 3,000+ Enron
SPEs and helped design those incorrect accounting procedures for derivative
financial instruments) ---
http://www.trinity.edu/rjensen/FraudEnron.htm
SOX was passed primarily to make it less likely that auditors would
compromise their independence due to lucrative advisory services. Three of the
Big Four firms even sold or spun off their consulting divisions. But at the same
time, SOX restored profitability and more oversight (e.g., the PCAOB) to
auditing services. Of course most corporations are not pleased with the greatly
increased cost of obtaining CPA firm audits. And so we now have yet another
Congressional subcommittee looking into perhaps reducing audit fees and quality
such as quality of detail testing that is one of the most costly part of an
independent audit.
SOX was also controversial in that it greatly increased the responsibility of
top managers of clients to design and implement effective internal controls to
prevent accounting error and fraud. This part of SOX is greatly despised by
corporations even though I think that audit firms are happy about this part of
SOX. I also think there is a lot of anecdotal evidence that internal controls
became much more effective as a result of SOX requirements.
Hence, I'm not a fan of pulling the teeth out of SOX. I'm also not a fan of
once again forcing auditors to offer cut-rate services.
Bob Jensen's threads on auditing professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
FASB issues guidance for continuing care retirement communities ---
http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160191233
Jensen Question
The above guidance mainly applies when to recognized advance payments as
deferred revenue.
But this brings to mind a question that I have about assurance services. Bob
Elliott and others in the AICPA commenced initiatives for assurance services
such as SysTrust and Elder Care. Actually in the 1990s Elder Care services took
off where public accounting firms were engaged to vouch for the quality of
contractual services in an elder care facilities. For example, children in NYC
could be assured that a parent in a Florida was not be neglected by a nursing
home. This type of assurance service was much more than just financial
assurance.
My question is whether Elder Care is still a viable money maker for public
accounting firms? I think SysTrust fell through the cracks, which comes as no
surprise. But Elder Care actually seemed to have some growth potential for
assurance services.
"Are You Ready For New Assurance Services?"
by Robert K. Elliott and Don M. Pallais, Journal of Accountancy, June
1997 ---
http://www.journalofaccountancy.com/Issues/1997/Jun/assur
What's not different from the pre-Enron days,
though, is that public companies still appear to structure transactions for no
other reason than to reach strained accounting results, and auditors are
pressured to sign off on those accounts. Those pressures can destroy an
auditor's objectivity.
"The Importance of Oversight," by James R. Doty (Chairman of
the Public Company Accounting Oversight Board), .The New York Times, July
24, 2012 ---
http://www.nytimes.com/roomfordebate/2012/07/24/has-sarbanes-oxley-failed/sarbanes-oxley-and-the-importance-of-independent-audit-oversight
I took my job at the Public Company Accounting
Oversight Board because I wanted to serve an organization that is responding
vigorously to the risks to the investing public that were exposed by the
recent financial crisis.
The board has replaced the auditing profession's
self-regulation, which had been based on peer reviews of standards written
by the firms themselves. In 25 years of operation, the profession's
self-regulatory system never issued an adverse or qualified report on a
major accounting firm. Yet board inspections have identified scores of
problems in audits by firms in each of the large accounting firm networks
and other firms that audit public company financial statements. The
inspection process doesn't stop there; it focuses firms on the need to do
something to correct deficient audits. The board does not oversee or
interact with public companies themselves, but in numerous instances, the
audit-firm response to these deficiencies has led to restatements or other
corrections to financial statements. These are big differences from the
pre-Enron days.
What's not different from the pre-Enron days,
though, is that public companies still appear to structure transactions for
no other reason than to reach strained accounting results, and auditors are
pressured to sign off on those accounts. Those pressures can destroy an
auditor's objectivity.
Through rigorous and skillful inspections and
enforcement, the board aims to maintain auditing as the attest function it
is intended to be. Many things went wrong in the recent financial crisis,
but the investing public would have been worse off without independent audit
oversight. We are again at a point where new reforms are needed to
strengthen investor protection. In a nutshell, the global audit firm is not
too big to fail, and it is too important to leave unregulated.
Our federal securities laws were not premised on
the government’s making business judgments for enterprise, but on a vision
that investor protection would further our national interest in capital
formation and build investor confidence in our markets. That has worked for
us, and we need to hold fast to that vision.
Bob Jensen's threads about professionalism and independence in auditing
---
http://www.trinity.edu/rjensen/Fraud001c.htm
Let's soak'em for 100% so we can live off the fat of the land
"CBO: The wealthly pay 70 percent of taxes," by Stephen Dinan, The
Washington Times, July 10, 2012 ---
http://www.washingtontimes.com/news/2012/jul/10/cbo-rich-pay-outsized-share-taxes/
Wealthy Americans earn about 50 percent of all
income but pay nearly 70 percent of the federal tax burden, according to the
latest analysis Tuesday by the Congressional Budget Office — though the
agency said the very richest have seen their share of taxes fall the last
few years.
CBO looked at 2007 through 2009 and found the
bottom 20 percent of American earners paid just three-tenths of a percent of
the total tax burden, while the richest 20 percent paid 67.9 percent of
taxes.
The top 1 percent, who President Obama has made a
target during the presidential campaign, earns 13.4 percent of all pre-tax
income, but paid 22.3 percent of taxes in 2009, CBO said. But that share was
down 4.4 percentage points from 2007, CBO said in a finding likely to
bolster Mr. Obama’s calls for them to pay more by letting the Bush-era tax
cuts expire.
The big losers over the last few years were the
rest of the well-off, especially those in the top fifth, who saw their tax
burdens go up.
“Specifically, between 2007 and 2009, the share of
taxes paid fell for the bottom three income quintiles, was close to flat for
the fourth quintile, but rose for the highest quintile,” CBO said. “Within
the top quintile, however, the shift was uneven; the share paid by the top
percentile fell, and the share paid by the rest of the top quintile rose.”
The tax fight has risen to the top of this year’s
presidential campaign, with Mr. Obama calling for the wealthy to pay more
money both to lower the deficit and fund his new spending promises. He wants
households making $250,000 or more a year to see their rates return to
Clinton-era levels, though he has proposed a one-year extension of the rest
of the Bush-era rates.
Republicans have countered that they want a
one-year extension of all current rates in order to have breathing space to
tackle a broader overhaul of the tax code.
CBO, the nonpartisan agency that serves as
Congress’ official scorekeeper, said the current tax code is progressive
chiefly because of the income-tax structure. On average, the lowest 40
percent of earners actually get money back through the income-tax code
because of refundable tax credits.
Overall, the federal tax rates in 2008 and 2009 —
at 18 percent and 17.4 percent — were the lowest in the last three decades,
suggesting at least part of the reason the federal government has run record
deficits in recent years.
In terms of actual earnings, the top 1 percent
suffered the most in the recession, with their average earnings dropping
from $1.9 million to $1.2 million. The lowest 20 percent saw their incomes
drop from $23,900 to $23,500 during that time.
If more people remembered this, there would not be
as debacles based on models that failed.
Jim Mahar ---
https://www.facebook.com/FinanceProfessorBlog/posts/330370297050076
The greatest enemy of knowledge is not
ignorance.
It's the illusion of knowledge.
Stephen Hawking
"What Robert Dittmar Knows: Questions on Finance, Economics, and
Taxing the Rich," by John Warner, Inside Higher Ed, July 2, 2012 ---
http://www.insidehighered.com/blogs/education-oronte-churm/what-robert-dittmar-knows-questions-finance-economics-and-taxing-rich
Robert Dittmar is a friend of mine from college who
also happens to be an Associate Professor in the Finance Area at the Stephen
M. Ross School of Business at the University of Michigan. I wanted to talk
to him because he knows all kinds of things about finance and economics, an
area where I think we’re often victims of simplistic thinking. I wanted to
know why we shouldn’t just go ahead and tax the rich. Bob had some
interesting answers.
. . .
JW: Sounds to me like maybe we should just
go ahead and tax the rich.
RD: I don’t think that is really a solution. Or,
perhaps, if it is a solution, the solution needs to be more nuanced. I make
absolutely no claim to be an expert on tax policy. I think that the
evidence suggests that merely increasing taxes on the very wealthy would do
little to close structural gaps in our government’s fiscal condition. But I
am also unsure that current tax policy is optimally suited to promote
incentives and growth.
Mitt Romney’s disclosure of his tax returns
provides an interesting case in point. Most of his income derives from
dividends and capital gains rather than wage income, and his marginal tax
rate is approximately that of the lowest tier of earners in the U.S. The
argument in favor of his low tax rate is that lower capital gains and
dividend taxes provide incentive to investment, which in turn spurs job
creation and economic growth. To some extent I think this is true, but in
his specific case, and in a broader context, I don’t buy the argument. I’ll
try to explain why.
Suppose that I’ve got $10,000,000 that I want to
invest in some startup technology. There is a huge probability (maybe
90-95%) that my business will fail. So I am taking on a huge risk. If I
succeed, I will create jobs and shock the economy in a way that results in
improved economic growth. I’ve taken a huge risk in the name of economic
growth, and perhaps I deserve to be rewarded. If my company IPO’s at
$500,000,000, I will earn capital gains if I sell out of $490,000,000. If I
were taxed on that at the top marginal tax rate, my tax bill would be
$171,500,000. However, because this is a long term capital gain, I am only
taxed $98,000,000. One might argue that this is reasonable because I have
created more than the difference of $73,500,000 in value to the overall
economy. So the lower tax rate spurs innovation and economic growth.
Now suppose that it is June, 2003. I invest my
$10,000,000 in Apple stock. At the end of May, 2012, I would have
approximately $542,250,000. If I sell out, I have long term capital gains of
$532,000,000, which are taxed at 20%, or approximately $106,450,000. If my
marginal tax rate were 35%, I would have been taxed $186,270,000. The
question is, have I added nearly $80,000,000 in value to the economy? You
would have to believe that, had I not bought already outstanding Apple
stock, Apple would not be able to innovate in the way that it has to benefit
the economy. I guess I think that is a bit of a stretch.
In Mr. Romney’s case, it is even more complicated.
He was involved in a business that sought to improve efficiency through
cutting costs and is realizing the capital gains from those efficiency
improvements. If this is really efficiency-improving, it is beneficial to
the economy; it is allocating resources to the correct place. My concern is
that it is not. Labor productivity has increased in the United States
dramatically, and as I mentioned, wage and salary income has stagnated.
This implies an inefficient resource allocation to me; workers are not being
paid what they are worth. If true, that means that the capital gains are in
part a transfer of what workers should be earning due to increased
productivity to people like Mr. Romney.
I don’t know how much tax reforms would affect
economic welfare. I bring up these examples just to emphasize that it is
difficult to tease out the potential costs, benefits, and effects. So a
simple answer like “tax the rich” won’t solve the problem.
Betting Against the U.S. Dollar
"Where the (Mitt Romney's) Money Lives," by Nicholas Shaxson,
Vanity Fair, August 2012 ---
http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts
Question
How can a capital gains tax lower than ordinary income tax rates be justified?
Jensen Comment
It appears that after factoring out nonsense about stimulating investments there
is only one weak and one strong justification. The weak one is the argument of
double taxation. The strong one is that when investments held for years over
long-term periods of inflation, taxing capital gains is totally unfair unless
the investments made in dear dollars having higher purchasing power are
price-level adjusted to sales amounts in cheap dollars having lower purchasing
power.
Often those debating capital gains taxation ignore the fair solution of
having no special capital gains tax rates while adjusting the gains for
fictitious gains due to inflation:
http://www.cbpp.org/cms/index.cfm?fa=view&id=3798
http://www.washingtonpost.com/blogs/ezra-klein/post/do-low-taxes-on-capital-gains-spur-growth-not-necessarily/2012/01/19/gIQAJZ4yAQ_blog.html
http://articles.businessinsider.com/2012-01-23/home/30654496_1_ordinary-income-corporate-income-tax-tax-rate
Eurozone ---
http://en.wikipedia.org/wiki/Euro_zone
Notably absent are the U.K., Sweden, Norway,
PIGS in the Eurozone ---
http://en.wikipedia.org/wiki/PIGS_%28economics%29
Greece Wants to Say, Finland Wants to Leave (maybe)
"Finland Would Rather Exit Euro Than Pay for Others," The Wall Street
Journal, July 6, 2012 ---
http://professional.wsj.com/article/SB10001424052702303962304577510232449188446.html?mg=reno64-wsj
Finland would rather leave the euro zone than pay
down the debt of other countries in the currency bloc, Finnish Finance
Minister Jutta Urpilainen said in a newspaper interview Friday.
"Finland is committed to being a member of the euro
zone, and we think that the euro is useful for Finland," Urpilainen told
financial daily Kauppalehti, adding though that "Finland will not hang
itself to the euro at any cost and we are prepared for all scenarios."
"Collective responsibility for other countries'
debt, economics and risks; this is not what we should be prepared for," she
added.
Urpilainen's spokesman Matti Hirvola stressed to
AFP that the minister's comments did not mean Finland was planning to exit
the euro zone.
"All claims that Finland would leave the euro are
simply false," he said.
In her interview with Kauppalehti, the finance
minister meanwhile insisted that Finland, one of only a few EU countries to
still enjoy a triple-A credit rating, would not agree to an integration
model in which countries are collectively responsible for member states'
debts and risks.
She also insisted that a proposed banking union
would not work if it was based on joint liability.
Urpilainen also acknowledged in an interview with
the Helsingin Sanomat daily Thursday that Finland "represents a tough line"
when it comes to the euro-zone bailouts.
"We are constructive and want to solve the crisis,
but not on any terms," she said.
As part of its tough stance, Finland has said it
will begin negotiations with Spain next week in order to obtain collateral
in exchange for taking part in a bailout for ailing Spanish banks.
And last year, Finland created a significant
stumbling block for the euro zone's second rescue package for Greece, only
agreeing to take part after striking a collateral deal with Athens in
October 2011.
Jensen Question
What can the desperate PIGS put up as collateral? (I haven't a clue)
Will PIGS really work for food? (Probably)
More importantly will the PIGS enforce tax laws (I doubt it)
Universities Approaching a Financial Cliff
"One-Third of Colleges Are on Financially 'Unsustainable' Path, Bain Study
Finds," by Goldie Blumenstyk, The Chronicle of Higher Education, July
23, 2012 ---
http://chronicle.com/article/One-Third-of-Colleges-Are-on/133095/
An analysis of nearly 1,700 public and private
nonprofit colleges being unveiled this week by Bain & Company finds that
one-third of the institutions have been on an "unsustainable financial path"
in recent years, and an additional 28 percent are "at risk of slipping into
an unsustainable condition."
At a surprising number of colleges, "operating
expenses are getting higher" and "they're running out of cash to cover it,"
says Jeff Denneen, a Bain partner who heads the consulting firm's American
higher-education practice.
Bain and Sterling Partners, a private-equity firm,
collaborated on the project. They have published their findings on a
publicly available
interactive Web site that allows users to type in
the name of a college and see where it falls on the analysts' nine-part
matrix.
The methodology is based on just two financial
ratios, and they produce some findings that may seem incongruous with
conventional views on colleges' financial standing. The tool classifies
wealthy institutions such as Cornell, Harvard, and Princeton Universities as
being on an "unsustainable path" alongside tuition-dependent institutions
like Central Bible College, in Missouri. But the very public nature of the
findings is sure to bring some attention to the analysis. Bain and Sterling
provided advance copies of the analysis and the tool to The Wall Street
Journal and The Chronicle.
Overly Alarmist?
Mr. Denneen allows that the analysis may be skewed,
particularly for the wealthiest institutions, because the period studied,
2005 through 2010, concludes with a fiscal year in which endowments were hit
with record losses. One of the two ratios used in the analysis, called the
"equity ratio," is based on the change in value of an institution's assets,
including its endowment, relative to its liabilities. Since 2010 the value
of many endowments has rebounded. The other, the "expense ratio," looks at
changes in expenses as a percentage of revenue.
Still, Bain and Sterling maintain the analysis
sends a sobering signal, even if some might see the findings as overly
alarmist and self-serving. "Financial statements have gotten significantly
weaker in a very short period of time," says Tom Dretler, an executive in
residence at Sterling, a firm that is a major investor in Laureate Education
Inc. and other educational companies.
Besides the credit ratings and reports produced by
bond-rating agencies and the Education Department's controversial annual
listing of colleges'
financial-responsibility scores, there are few
public sources of information on colleges' financial health.
The new analytic tool classifies colleges based on
whether their expense ratios increased or their equity ratios decreased,
giving the harshest rankings to those with changes of more than 5 percent,
moderate rankings to those with changes of 0 to 5 percent, and good rankings
to those where expense ratios didn't increase and equity ratios didn't
decrease.
For example, it lists Bennington and Rollins
Colleges along with California State University-Channel Islands and Georgia
Southwestern State University as being on an unsustainable financial path
for several years because their ratios of expenses relative to revenues
spiked up while their equity ratios fell. (For all four, the expense ratio
increased by 25 percent or more.) Hundreds of other colleges were classified
with that same designation if only one of the ratios changed by more than 5
percent.Higher-education leaders who say the Education Department's scores
can be a flawed way of measuring a college's health say the Bain-Sterling
analysis may suffer the same weaknesses.
"Places that are viewed by some as having an
unsustainable way of operating may not be," says Richard H. Ekman, president
of the Council of Independent Colleges. Analyses like this, which rely on
data from a particular period of time, he says, "may not tell the full
story."
Susan M. Menditto, an expert on accounting matters
at the National Association of College and University Business Officers,
notes that even the way colleges account for their endowments—in some cases
counting restricted gifts, in other cases not—might not be reflected in the
analysis.
Mr. Denneen says the simple tool serves a different
purpose than does a report on the creditworthiness of an institution from
Moody's Investors Service, which uses 36 criteria to formulate its ratings.
"This does provide a useful lens," he says. "This is really a guidepost for
how hard you ought to be thinking about pushing on your financial model."
Disconcerting
Trends
Along with the tool, Bain and Sterling are
publishing a paper, "The Financially Sustainable University." It is their
take on what they view as several disconcerting trends in spending, and it
puts the two firms among an ever-growing list of analysts, pundits, and
policy makers who have been calling on higher-education leaders to rethink
how colleges are administered. (Jeffrey J. Selingo, The Chronicle's
vice president and editorial director, contributed to the paper.)
The paper covers familiar ground, although some of
the fresher recommendations and findings could resonate with the college
administrators, campus leaders, and trustees who are its intended audience.
Most notably, it suggests that colleges tap into their real estate, energy
plants, and other capital assets more creatively to generate revenue for new
academic investments, and it concludes that colleges have too many middle
managers.
While it fails to make distinctions between
different kinds of colleges, as do other respected analyses such as those of
the Delta Project on College Costs, the Bain-Sterling paper shows that, over
all, the growth in colleges' debt and the rate of spending on interest
payments and on plant, property, and equipment rose far faster than did
spending on instruction from 2002 to 2008 for the colleges studied.
It says long-term debt increased by 11.7 percent,
interest expenses by 9.2 percent, and property, plant, and equipment
expenses by 6.6 percent. Meanwhile, instruction expenses increased by just
4.8 percent.
Continued in article
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
LIBOR ---
http://en.wikipedia.org/wiki/Libor
Barclays ---
http://en.wikipedia.org/wiki/Barclays
Questions
Why are US. towns & states, labor unions, and other investors suing U.K.'s
Barclays and other U.K. banks for LIBOR manipulation?
Why do PwC auditors need more caffeine?
Answer
Many of their returns on investments in things like pension funds were
diminished by U.K. bank conspiracies to manipulate LIBOR. And millions of
interest rate swaps based upon LIBOR underlyings (notionals in the trillions)
did not have fair and just settlements. What a huge mess going on while PwC and
other Big Four auditing firms slept!!!
"Barclays Manipulates LIBOR While Auditor PwC Snoozes," by Francine
McKenna, Forbes, July 2, 2012 ---
http://www.forbes.com/sites/francinemckenna/2012/07/02/barclays-manipulates-libor-while-auditor-pwc-snoozes/
Bob Jensen's threads on banks and traders that are rotten to the core ---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
Bob Jensen's threads on the woes of PwC are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Ernst & Young 'covered up judge bribe case’," by Jonathan Russell,
London Telegraph, June 30, 2012 ---
http://www.telegraph.co.uk/finance/financial-crime/9367075/Ernst-and-Young-covered-up-judge-bribe-case.html
A senior partner closed an investigation into a
£100,000 “bribe” despite colleagues suspecting the money had been paid to a
judge overseeing a multi-million-pound tax case the company was fighting.
The allegations were disclosed by former E&Y
partner and whistle-blower Cathal Lyons, who is suing the accountant for $6m
for breach of contract.
He claims medical insurance he was relying on to
treat injuries sustained in a car accident was withdrawn after he raised the
issue of the alleged bribe with the accountant’s global head office in
London.
Mr Lyons was a partner with E&Y’s Russian practice
when the alleged wrongdoing came to light. It was originally investigated by
James Mandel, E&Y’s general counsel in Moscow. In a witness statement
supplied in support of Mr Lyons’s case, Mr Mandel said he suspected the
payment may have been corrupt and wrote a report to that effect.
“I had the suspicion that this payment was not a
proper payment for legal fees, but was an illegal payment possibly made to
facilitate a positive outcome of a tax case,” he claimed in his witness
statement.
He suspected that the €120,000 payment via a
Russian law firm was made to influence a 390m rouble (£8.4m) court case
brought by Russian tax authorities investigating a tax avoidance scheme E&Y
was using to pay its Russian partners. E&Y was later cleared of liability in
the case.
The accountant has admitted there was an
investigation into allegations of bribery, but said the case was closed by
Herve Labaude, a senior partner, in January 2010.
Mr Lyons claims that after he reported his concerns
about the case to E&Y’s global head office, his medical insurance was
withdrawn and he was dismissed.
In his writ he says the dismissal flowed from
“personal animosity against him rising from a discussion in late 2010
between the claimant and Maz Krupski [E&Y’s director of global tax and
statutory] regarding alleged corruption by the practice.”
Mr Lyons relied on his medical insurance to cover
the cost of treatment flowing from a serious car accident he suffered in
2006. The accident left him with permanent disabilities and partial
amputation. It is estimated medical cover in his current condition would
cost $300,000 per year. He is suing for 20 years’ cover, or $6m.
Continued in article
Bob Jensen's threads on Ernst & Young woes are at
http://www.trinity.edu/rjensen/Fraud001.htm
July 17, 2012 message from Scott Bonacker
BKD Introduces Forensics Web Site
New site provides tips on how to minimize fraud risk and mitigate damage
Springfield, Mo. (July 16, 2012)
By Tamika Cody
Top 100 Firm BKD LLP has officially launched a multimedia Web site,
BKDForensics.com, to help clients keep up with the ever-changing tactics of
fraud, financial investigations, litigation support and computer forensics.
http://www.bkdforensics.com/
"With decades of experience in investigating fraud
schemes, we hope this site will provide additional value to those who are
fighting fraud on a daily basis in organizations around the country," Jim
Snyder, managing partner of BKD's Forensics & Valuation Services Division,
which created the
site, said in a statement.
Visitors to the site will be able to access articles, post questions or
comments, and track updates via Twitter or RSS feeds. Podcasts, videos and
webinars will also be available on the site.
Link to story with tracking:
http://www.accountingtoday.com/news/bdk-new-web-site-forensics-minimize-frau
d-risk-mitigate-damage-63308-1.html?ET=webcpa:e2716:136583a:&st=email&utm_so
urce=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_071712
Link to story without tracking:
http://www.accountingtoday.com/news/bdk-new-web-site-forensics-minimize-frau
d-risk-mitigate-damage-63308-1.html
We're kinda proud of them here.
Scott Bonacker CPA
McCullough and Associates LLC
Springfield, MO
H&R Block Corrects Its Mistake on Batman's Tax Return ---
http://blogs.hrblock.com/2012/07/05/superhero-economics-bruce-wayne-vs-peter-parker-infographic/
"I-Team Update: Accountant accused of stealing $1.1 million found dead,"
by Berkeley Brean, WHEC TV, June 27, 2012 ---
http://www.whec.com/iteam/stories/S2670787.shtml?cat=572
An accountant accused of stealing more than a
million dollars from his company was found dead in his Irondequoit home on
Saturday.
Gary Yakawiak was suppose to be in court earlier
this month to be arraigned on a grand larceny charge, but when he didn’t
show up, the judge issued a warrant for his arrest.
When police showed up to search his house Saturday,
they found him dead inside. Police are not sure the cause of death at this
time.
This afternoon we spoke to the prosecutor in the
case.
Assistant District Attorney Mark Monaghan said. "I
don't know the nature or the circumstances of how he passed, but I'm sure
there are people who loved him and cared about him and it's unfortunate for
them that they're going to have to go through this period of loss."
Monaghan said either the court, the DA's office or
Yakawiak's attorney will make a motion to dismiss the indictment.
Yakawiak was accused of bilking $1.1 million
dollars from Cascades Recovery, a recycling company. He was the company’s
accounting manager. Police and the courts say that between August 2007 and
February 2011, he took chunks of cash from the company and tried to cover it
up by changing the bank statements.
Monaghan says there is now no recourse for Cascades
in state court. He said because there will be no conviction, there can be no
legal claim for restitution. If Cascades wants to get the money back that
Yakawiak was accused of stealing, it will have to do that through civil
court.
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Jensen Comment
The phrase "survival of the fittest" is rooted in Darwin's Theory of Evolution
and biologist Herbert Spencer ---
http://en.wikipedia.org/wiki/Survival_of_the_fittest
Accounting Survival of Historical Cost
The phrase "survival of the fittest" is now used in many other contexts. For
example, among all the accounting systems available to business firms and
accounting standard setters, one defense of "Historical Cost Accounting" is that
it survived for over six centuries of double entry bookkeeping amidst all the
would-be pretenders to the throne. Of course many of the pretenders to the
throne (notably economic, entry, and exit values) are valuation alternatives
whereas historical cost really is not a "valuation" alternative that pretends to
generate balance sheet "values.". Instead historical cost is more focused on the
income statement than the balance sheet according to the "Matching
Principle" that attempts to allocate historical costs (possibly price-level
adjusted) to the revenues that they helped to generate ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Search for "Paton and Littleton".
Of course AC Littleton turned over in his grave countless times as accounting
standard setters corrupted parts (but certainly not all) of his pure historical
cost accounting that admittedly required some arbitrary measures such as
depreciation allocations and inventory cost flow assumptions and (shudder)
conservatism adjustments to historical costs. But the subjectivity and arbitrary
nature of historical cost computations are minor relative to measuring the
economic-value's future cash flows of 300+ Days Inn Hotels, the appraised yard
sale (exit) values of 300+ Days Inns Hotels, or the depreciation-adjusted
current replacement (entry) values of 300+ Days Inn Hotels ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue
A Book Review of "Darwin's Ghosts: The Secret History of Evolution"
by Rebecca Scott
"How the Fittest Theory Survived: In "Darwin's Ghosts,' Rebecca Stott
traces the work of the many scholars, philosophers and scientists whose insights
into nature and its laws culminated in 'Origin of Species.',"by Laura J.
Snyder, The Wall Street Journal, July 4, 2012 ---
http://professional.wsj.com/article/SB10001424052702303703004577476800626591224.html?mod=djemEditorialPage_t&mg=reno64-wsj
In December 1859, a month after he published
"Origin of Species," Charles Darwin was eagerly awaiting the verdict of its
reviewers. He feared his book would meet the fate of an earlier anonymous
work promoting evolution, "Vestiges of the Natural History of Creation,"
which had received the geologist Adam Sedgwick's most damning insult: It
seemed to have been written with "the science gleaned at a lady's
boarding-school."
Darwin had not anticipated another type of
criticism. In an otherwise complimentary letter, the Rev. Baden Powell, a
mathematician and the father of the founder of the Scouting movement, Robert
Baden-Powell, chastised Darwin for not giving sufficient credit to those who
had proposed evolutionary theories before him.
As Rebecca Stott recounts in "Darwin's Ghosts:
The Secret History of Evolution," Darwin reacted by drawing up a brief
discussion of those who had preceded him. This "Historical Sketch"
ultimately included 36 names and was added as a preface to later editions of
"Origin." The conceit of Ms. Stott's project is that men she considers
Darwin's predecessors—including a number not included in his "Historical
Sketch"—were his "ghosts."
Ms. Stott describes the lives and work of these
ghosts of Darwin: the Greek philosopher Aristotle, the ninth-century Arab
scholar Al-Jahiz, the 15th-century artist-scientist Leonardo da Vinci, the
16th-century potter Bernard Palissy and, in the 18th century, the
microscopist Abraham Trembley, the French natural historian Benoît de
Maillet and the philosophe Denis Diderot. These chapters—focusing on men not
part of the standard histories of evolutionary theory—are followed by
chapters discussing evolution's "usual suspects": Erasmus Darwin, Jean-Baptiste
Lamarck, Robert Grant, Robert Chambers and Alfred Russel Wallace.
In telling the stories of these men, Ms. Stott—who
is also a novelist—writes with a novelist's flair. Here we are with
Aristotle peering at the fish in the waters around the island of Lesbos and
with Al-Jahiz lighting fires on riverbanks, in courtyards and in forests,
watching the variety of insects that approach the fire at each location. We
listen in on Leonardo's musings about the "petrifications" brought to him by
peasants: "rocks with strange markings and shapes, flecked with oyster
shells and corals." We watch Palissy making his own "fossils" by entombing
live creatures in plaster, which he used in grotto he was building for
Catherine de' Médici; Trembley discovering that the sea polyp regenerates
its amputated body parts; and Grant dissecting sea sponges at water's edge.
Ms. Stott brings Darwin himself to life in a way
consistent with what we know about him through his letters and notebooks: He
comes off as an inquisitive, thoughtful and conscience-haunted man. Yet one
sometimes wonders how Ms. Stott can be certain about what is going on in the
mind of her subjects. "Conversations with Powell opened up in Darwin's head
again and again, sometimes angry, sometimes defensive or apologetic.
Christmas was no time to be defending one's reputation, he told himself."
The case is more troubling when we are dealing with
figures about whom less is known, like Aristotle. Although in his "History
of Animals" he writes that "around Lesbos the fish of the outer sea or of
the lagoon bring forth their eggs or young in the lagoon," we do not know
exactly in what manner Aristotle made the piscine observations that Ms.
Stott describes in so much detail.
More egregious for the book's conceit is that, as
Ms. Stott notes, Aristotle rejected the idea of evolution; he
believed species are fixed, eternally unchanging. Ms. Stott points out that
Darwin added Aristotle to his "Historical Sketch" in error, being led astray
by an admirer of the Greek philosopher who had misread a passage in his
works. Others whom Ms. Stott considers Darwin's ghosts—including Al-Jahiz,
Leonardo and Trembley—were also strongly opposed to species evolution. Ms.
Stott justifies their inclusion by explaining that these men were interested
in issues that would later attract Darwin's attention, such as
"adaptation"—the fact that species appear to be so well suited to their
environments, like the duck, an aquatic bird, which has webbed feet that
help it swim.
That organisms are fitted to their environments,
however, has long been used as evidence against evolution as well as for it.
In Darwin's time, opponents of evolution saw instances of adaptation as
signs of God's divine plan. At Cambridge University, Darwin read the works
of William Paley, who argued that the physical world was like a watch: Both
are so complex and well-ordered that they could not have come to be randomly
but only through the work of an intelligent designer. Some of Ms. Stott's
subjects are ghosts of Paley as much as ghosts of Darwin.
The real story that Ms. Stott tells here is not the
"secret" history of evolution but a larger, more fundamental history: the
rise of an empirical, evidence-based approach to studying nature. As Ms.
Stott notes of Leonardo: "In all his descriptions, he repeated the phrase 'I
myself have seen it' again and again, invoking the Aristotelian imperative
he lived by: never trust a fact unless you have seen it with your own eyes."
Ms. Stott's "ghosts" spent their lives collecting facts about
nature—"mountains of facts," as she says of French natural historian Benoît
de Maillet—in order to gain insight into nature's laws.
From Aristotle to the great inductive philosopher
Francis Bacon in the 17th century and on to William Whewell and John
Herschel, the 19th-century writers who were such great influences on Darwin,
a vision of science arose that privileged observation and experiment over
axiomatic deduction or wild speculation. Darwin spent more than 20 years
collecting his own mountain of facts, worrying up to the eve of publication
that "Origin of Species" would be seen as insufficiently supported by
empirical evidence. Darwin and the "ghosts" so richly described in Ms.
Stott's enjoyable book are the descendants of Aristotle and Bacon and the
ancestors of today's scientists.
Ms. Snyder is the author, most recently, of "The Philosophical
Breakfast Club."
Accounting History in a Nutshell ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Underlying Bases of Balance Sheet Valuation ---
http://www.trinity.edu/rjensen/theory02.htm#BasesAccounting
Question
What is the huge difference between auditing 300+ derivative financial
instruments versus 300+ Appraised Values of Days Inns HotelsHi Pat,
Thank you for the elaboration, and I agree with your dislike for the mess we are
now in with respect to revaluation practices. It certainly would complicate
matters if Days Inns should revalue all its hotels versus having Holiday Inn
decide to keep future earnings higher by not revaluing its hotels.
I've not had a whole lot to say about revaluation of investment properties since
these are sort of in the gray zone between operating items and financial
instruments.
I do get worried about auditors attesting to valuations of non-fungible items
where they really do not have an expertise. The enormous problem with
non-fungible items is the Peoria versus Tallahassee problem described below.
In 1990 audit firms did not have an expertise when it came to valuing
derivatives such as interest rate swaps. In the earlier years of FAS 133 they
outsourced to banks for valuation of these contracts, but in time I suspect that
auditors increasingly came to question those outsourced valuations and/or had
difficulty certifying outsourced numbers that the auditors themselves could not
verify.
As a result by the turn of the Century, big audit firms commenced to have an
internal expertise in valuing derivative financial instruments. For example, for
interest rate swaps they all subscribed to Bloomberg Terminals and now derive
their own swaps curves and other yield curves ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
But gaining an expertise in valuing financial instruments is a whole lot easier
for audit firms than gaining an expertise in appraising real estate and other
non-fungible assets and liabilities. For example, in 1985 each of Days Inns 300+
hotels was a highly unique asset for which it takes local expertise to appraise
the value of a Peoria Days Inn on one Interstate exit versus Tallahassee Days in
on another Interstate exit.
There's no Bloomberg Terminal for hotel yield curves to cover all geographic
locations in the U.S. or the world. To appraise real estate in Tallahassee at a
minimum you have to really, really understand the local Tallahassee real estate
market. The same goes for Peoria where factors affecting real estate value may
be significantly different than in Tallahassee.
Thus, I think that when it comes to certifying exit values of hundreds of
hotels, audit firms are totally dependent upon outsourcing to a profession (real
estate appraisers) with a lousy reputation for professionalism.
Respectfully,
Bob Jensen
Hi David,
Being in Wikipedia has little to do with fame or fortune. All it takes is a
friend to put you there (you cannot put yourself into Wikipedia).
Having said this, most friends will not place other friends in Wikipedia without
having something noteworthy to say about those friends.
From a Wikipedia standpoint, accounting educators and researchers have very few
friends. I don't know of any "actives" on the AECM that are in Wikipedia, and
perhaps we've been remiss in not submitting some submissions.
There is a small percentage of current and former accounting educators and
researchers in Wikipedia.. Most of them are also in the Accounting Hall of Fame.
However, most people in the Accounting Hall of Fame are not in Wikipedia.
The administrators of The Accounting Hall of Fame should take on a project of
adding the entire membership of the Hall to Wikipedia. All that has to be done
is to submit the name, birth date, title, and a link to the Hall of Fame ---
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/
Actually the Wikipedia entry for the Accounting Hall of Fame has a line reading:
Inductees
Members of the Accounting Hall of Fame are:
But none of the members are listed (as of yet at least on July 6, 2012)
http://en.wikipedia.org/wiki/Accounting_Hall_of_Fame
The following is what I suspect a small subset of Accounting Hall of Fame
members who are also in Wikipedia. However, I did not really check for all
members of the Accounting Hall of Fame. Some entries like the entry for Nick
Dupuch simply redirect to the Accounting Hall of Fame.
Ray Ball ---
http://en.wikipedia.org/wiki/Ray_J._Ball
Bill Beaver ---
http://en.wikipedia.org/wiki/William_Beaver
Joel Demski ---
http://en.wikipedia.org/wiki/Joel_Demski
Nick Dopuch ---
http://en.wikipedia.org/wiki/Nicholas_Dopuch
Jerry Feltham ---
http://en.wikipedia.org/wiki/Gerald_A._Feltham
Yuji Ijiri ---
http://en.wikipedia.org/wiki/Yuji_Ijiri
Bob Kaplan ---
http://en.wikipedia.org/wiki/Robert_S._Kaplan
Bill Paton ---
http://en.wikipedia.org/wiki/William_Andrew_Paton
Katherine Schipper ---
http://en.wikipedia.org/wiki/Katherine_Schipper
David Walker (not an educator, but definitely a researcher in the Hall of Fame)
---
http://en.wikipedia.org/wiki/David_M._Walker_%28U.S._Comptroller_General%29
What's New from GASB?
"Combinations: Coming Soon to a Government Near You?
SmartPros
2012, No. 2
http://accounting.smartpros.com/standard/Download/CPARGOV/q212.html
Governmental: As public sector consolidations
increase, the Governmental Accounting Standards Board recently proposed that
state and local governments report the nature - as well as the financial
effects - of combinations. Warren Ruppel, a partner in the firm of Marks
Paneth & Shron LLP, contrasts GASB's proposal with comparable guidance for
commercial M&A and distinguishes the criteria for mergers, acquisitions, and
transfers of operations.
Other Governmental Accounting News
http://accounting.smartpros.com/standard/Download/CPARGOV/q212.html
"Pension Accounting for Dummies New government reporting rules are no
better than the old ones," The Wall Street Journal, July 9, 2012 ---
http://professional.wsj.com/article/SB10001424052702304782404577488933765069576.html?mg=reno64-wsj#mod=djemEditorialPage_t
The Government Accounting Standards Board has
issued new rules that aim to crystallize government pension liabilities. It
failed on that count, but it did succeed, albeit inadvertently, in making
the case for defined-contribution plans.
GASB, as it's known in the trade, sets accounting
guidelines for local governments. Since the board is run mainly by former
public officials, its standards are often low. The board also usually takes
several years to finalize rules, so it's often behind the times. Their new
rules concerning how governments discount their pension liabilities are a
case in point.
Financial economists have recommended for decades
that governments calculate pension liabilities using so-called "risk-free"
rates pegged to high-grade municipal bonds or long-term Treasurys. The
argument goes that since pensioners are de facto secured creditors—even
bankruptcy judges have been reluctant to slash retirement benefits—pensions
are riskless and therefore the liabilities should be discounted at risk-free
rates.
GASB's private cousin, the Financial Accounting
Standards Board (FASB), began requiring corporations to discount their
pension liabilities with high-quality fixed income assets in the 1980s.
However, GASB let governments stick with their desired, er, expected rate of
return, which is typically about 8%. Public pension funds have returned 5.7%
on average since 2000. Achieving much higher returns over the long run would
require markets to perform as well as they did in the 1980s and '90s. Would
that be true.
Governments have resisted climbing down from
Fantasyland because using lower discount rates would explode their
liabilities. When the Financial Accounting Standards Board introduced its
risk-free rate guidelines, many companies shifted workers to 401(k)s because
they didn't want to report larger liabilities. Such defined-contribution
plans are by definition 100% pre-funded.
Prodded by economists and investors, GASB began
considering modifying its discount rate rules a few years ago. Public
pension funds, lawmakers and unions, however, pushed back hard against
suggestions that governments use risk-free rates, which could more than
double their liabilities. No surprise, the government troika won.
GASB's new rules allow governments to continue
discounting their liabilities at their anticipated rate of return so long as
they project enough future assets to cover their obligations. At the time
they forecast they'll run out of assets, they must begin discounting their
liabilities with a high-grade municipal bond rate. The idea is that
governments would have to issue bonds to pay retirees when their pension
funds go broke.
But few pension funds project that they'll run dry
since they're hooked up to a taxpayer IV. Those in really bad shape like
Chicago's will likely rig their investment and actuarial assumptions to
circumvent the new rules. FASB rejected similar guidelines in the 1980s
because they were too easy to dodge. The point here is that it's impossible
to get governments to come clean about their pension debt, and not just
because the union allies controlling pension funds have a vested interest in
obfuscating the liabilities.
In reality, nobody knows how much taxpayers will
owe because so much depends on inscrutable actuarial and economic factors
like interest rates 30 years from now (not even the Federal Reserve purports
to be that omniscient). Slight discrepancies in assumptions can yield huge
variations in estimated liabilities. One advantage of defined-contribution
plans is that they don't require governments to calculate their liabilities.
There are none.
Bob Jensen's threads on pension accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"Curse of Arthur Andersen Lives On (in Huron Consulting)," by Jonathan
Weil, Bloomberg, July 19, 2012 ---
http://www.bloomberg.com/news/2012-07-19/curse-of-arthur-andersen-lives-on.html
Huron Consulting Group Inc., a Chicago-based
consulting company founded by a group of former Arthur Andersen LLP partners
after the accounting firm's 2002 demise, has agreed to pay $1 million to
settle Securities and Exchange Commission allegations that it cooked its
books.
The deal caps a remarkable act of corporate
self-immolation. One of Huron's main businesses had been providing
forensic-accounting advice to other companies, including those under SEC
investigation for accounting fraud. Then in 2009 Huron restated more than
three years of its financial reports to correct accounting violations, which
reduced its earnings by $56 million. The company sold part of its
disputes-and-investigations practice in 2010 and shuttered the rest.
The SEC, which disclosed the accord in a press
release late Thursday, also reached settlement deals with Huron's former
chief financial officer, Gary Burge, and its former chief accounting
officer, Wayne Lipski. They agreed to pay almost $300,000 to resolve the
SEC's claims against them.
Per the usual formalities, the defendants neither
admitted nor denied anything. Unlike the conviction against Arthur Andersen
for obstructing the government's investigation of Enron Corp., the SEC's
order against Huron in this case won't be overturned.
PS
This is an illustration of an Audit Committee doing an excellent job. Huron's
Audit Committee sniffed out the book cooking.
Bob Jensen's threads on the Huron Consulting Group's book cooking scandals
---
http://www.trinity.edu/rjensen/Fraud001.htm#Cooking
Bob Jensen's threads on book cooking ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
LIBOR ---
http://en.wikipedia.org/wiki/LIBOR
Note that LIBOR is a global index used in hundreds of millions of contracts
around the world as an underlying for interest rate movements. Nobody ever
argued that LIBOR was as risk free as the U.S. Treasury Rate, but globally the
U.S. Treasury rate paled relative to LIBOR as a market index for interest rates,
especially hundreds of trillions of dollars in interest rate swaps.
Hence when LIBOR becomes manipulated by traders it affects worldwide
settlements. This is why pension funds of small U.S. towns, labor unions, and
banks of all sizes are now suing Barclays and the other U.K banks that allegedly
manipulated the LIBOR market rates for their own personal agenda.
Bigger Than Enron
"Lies, Damn Lies and Libor: Call it one more improvisation in 'too big
to fail' crisis management," by Holman W. Jenkins Jr., The Wall Street
Journal, July 6, 2012 ---
http://professional.wsj.com/article/SB10001424052702304141204577510490732163260.html?mod=djemEditorialPage_t&mg=reno64-wsj
Ignore the man behind the curtain, said the Wizard
of Oz. That advice doesn't pay in the latest scandal of the century, over
manipulation of Libor, or the London Interbank Offered Rate. The mess is one
more proof of the failing wizardry of the First World's monetary-cum-banking
arrangements.
Libor is a reference point for interest rates on
everything from auto loans and mortgages to commercial credit and complex
derivatives. Major world banks are accused of artificially suppressing their
claimed Libor rates during the 2007-08 financial crisis to hide an erosion
of trust in each other.
Did the Bank of England or other regulators
encourage and abet this manipulation of a global financial indicator?
We are talking about TBTF banks—too big to fail
banks. Banks that, by definition, become suspect only when creditors begin
to wonder if regulators might seize them and impose losses selectively on
creditors. Their overseers could not have failed to notice that interbank
liquidity was drying up and the banks nevertheless were reporting Libor
rates that suggested all was well. The now-famous nudging phone call from
the Bank of England's Paul Tucker to Barclays's Bob Diamond came many months
after Libor manipulation had already been aired in the press and in meetings
on both sides of the Atlantic. That call was meant to convey the British
establishment's concern about Barclays's too-high Libor submissions.
Let's not kid ourselves about something else:
Central banks everywhere at the time were fighting collapsing confidence by
cutting rates to stimulate retail lending. Their efforts would have been
thwarted if Libor flew up on panic about the solvency of the major banks.
Of all the questionably legal improvisations
regulators resorted to during the crisis, then, the Libor fudge appears to
be just one more. Regulators everywhere gamed their own capital standards to
keep banks afloat. The Fed's bailout of AIG, an insurance company, hardly
bears close examination. And who can forget J.P. Morgan's last-minute
decision to pay Bear Stearns shareholders $10 a share, rather than the $2
mandated by Treasury Secretary Hank Paulson, to avoid a legal test of the
Fed-orchestrated takeover? Even today, the European Central Bank continues
to extend its mandate in dubious ways to fight the euro crisis.
There has been little legal blowback from any of
this, but apparently there will be a great deal of blowback from the Libor
fudge. Barclays has paid $453 million in fines. Half its top management has
resigned. A dozen banks—including Credit Suisse, Deutsche Bank, Citigroup
and J.P. Morgan Chase—remain under investigation. Private litigants are
lining up even as officialdom seemingly intends to wash its hands of its own
role.
Yet the larger lesson isn't that bankers are moral
scum, badder than the rest of us. The Libor scandal is another testimony (as
if more were needed) of just how lacking in rational design most human
institutions inevitably are.
Libor was flawed by the assumption that the banks
setting it would always be seen as top-drawer credit risks. The Basel
capital-adequacy rules were flawed because they incentivized banks to
overproduce "safe" assets, like Greek bonds and U.S. mortgages. The ratings
process was flawed eight ways from Sunday, including the fact that many
fiduciaries, under law, were required to invest in securities blessed by the
rating agencies.
Some Barclays emails imply that traders, even
before the crisis, sought to influence the bank's Libor submissions for
profit-seeking reasons. This is puzzling and may amount to empty chest
thumping. Barclays's "submitters" wouldn't seem in a position to move Libor
in ways of great use to traders. Sixteen banks are polled to set Libor and
any outlying results are thrown out. Plus each bank's name and submission
are published daily. But let's ask: Instead of trying to manipulate Libor in
a crisis, what would have been a more straightforward way of dealing with
its exposed flaws, considering the many trillions in outstanding credit tied
to Libor?
Continued in article
Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on interest rate swaps and LIBOR ---
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Search for LIBOR or swap.
Timeline of Financial Scandals, Auditing
Failures, and the Evolution of International Accounting Standards ----
http://www.trinity.edu/rjensen/FraudCongress.htm#DerivativesFrauds
Why Dividends Are Important
"Summertime is dividend time, research shows," by Mark Jewell,
Associated Press via the
Star-Telegram, June 28, 2012 ---
http://www.star-telegram.com/2012/06/28/4066244/summertime-is-dividend-time-research.html
. . .
This dividend fan has plenty of company. Mutual
funds specializing in dividend-paying stocks have consistently attracted new
cash, while money has been pulled out of other stock fund categories.
Investors deposited a net $26 billion into dividend-stock funds - usually
labeled 'equity income' funds - over the 12 month period through May,
according to industry consultant Strategic Insight. During that period, a
net total of $174 billion was withdrawn from all other stock fund
categories, reflecting investors' continuing anxiety.
One current appeal is that most dividend paying
stocks offer higher yields than Treasury bonds. Consider that investors
committing to lock up their money for a full decade have been paid just 1.6
percent recently for buying U.S. Treasurys. In contrast, the average yield
of dividend-paying stocks in the Standard & Poor's 500 is around 2.7
percent.
However, investors shouldn't forget that dividend
stocks are substantially riskier than Treasurys, no matter how shaky
government finances may seem. Companies such as Bank of America and General
Electric had reliably increased their dividends for decades, but suddenly
cut them in 2009 to conserve cash when the market hit bottom. Many companies
have since restored dividends to pre-financial crisis levels. But the cuts
were especially painful because they came after declining stock prices had
already slashed investors' savings.
Whether stocks are rising or falling, the value of
dividends is hard to dispute. The income they generate has represented 42
percent of stocks' total return dating to 1926, according to Standard &
Poor's.
"They tend to outperform, and do it with lower
volatility," says Buckingham. "And for most investors, that's where you want
to focus attention."
Continued in article
Khan Academy ---
http://en.wikipedia.org/wiki/Khan_Academy
The Trouble With Derek Muller
The trouble with Robert Talbot is that he relies on Derek Muller's superficial
experiments on undergraduates and then extrapolates the findings to the entire
world. He's Exhibit A about what we warn doctoral students about when they are
learning how to conduct research and write up results of research.
In my viewpoint learning efficiency and effectiveness of any pedagogy 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:
It all boils down to how badly a student wants to learn something like how to
take the derivative of a polynomial. Chances are that if a student is totally
motivated and intent on learning this process, he or she can keep studying and
re-studying Khan Academy videos for mastery learning far beyond what most any
other pedagogy on this subject can offer.
The writings of Derek Muller are too superficial for my liking. Of course,
learning from the Khan Academy can be superficial if the students are not
intently focused on really, really wanting to learn. So what does that prove
about the students who are intently focused on really, really wanting to learn?
The Kahn Academy is really intended for students who
really, really want to learn. Don't knock it just because it doesn't work as
well for unmotivated students used in superficial experiments.
A Really, 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
A Really Misleading Article
"The trouble with Khan Academy," by Robert Talbert, Chronicle of Higher
Education, July 3, 2012
http://chronicle.com/blognetwork/castingoutnines/2012/07/03/the-trouble-with-khan-academy/?cid=wc&utm_source=wc&utm_medium=en
Competency-Based Programs (where instructors do not assign the grades) Can
Work Well But Do Not Always Work Well
A Research Report
"Competency-Based Degree Programs in the U.S. Postsecondary Credentials for
Measurable Student Learning and Performance," Council on Adult and Experiential
Learning," 2012 ---
http://www.cael.org/pdfs/2012_CompetencyBasedPrograms
"I Won't Hire People Who Use Poor Grammar. Here's Why," by Kyle Wiens,
Harvard Business Review Blog, July 20, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/07/i_wont_hire_people_who_use_poo.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
One exception my be applicants for whom English is the second or third language.
Having said this, employers must use caution when bad English gets in the way
of job performance. For example, a chronic complaint of students and their
parents is that their "child" in college is taking a course where the instructor
is so difficult to understand that this gets in the way of learning. It would
seem that doctoral programs in North America should add more requirements for
communication skills in English (except in Quebec where courses are taught in
French).
"Do Gold ETFs Really Move on Inflation Expectations?" by John Spence,
ETF Trends, Junw 15, 2012 ---
http://www.etftrends.com/2012/06/do-gold-etfs-really-move-on-inflation-expectations/
Thank you Jim Mahar for the heads up.
Gold ETFs are often described as an inflation hedge
but recent academic research suggests the precious metal is more dependent
on emerging market demand, particularly from central banks that hold less
gold than their counterparts in developed countries.
“Assuming that gold moved in lockstep with the CPI,
the implied price would be about $780 an ounce, according to Duke University
Professor Campbell R. Harvey and his collaborator, Claude B. Erb,”
Bloomberg News reports.
Gold is trading back above $1,600 an ounce as
traders speculate on the odds of further monetary easing before next week’s
Federal Reserve meeting.
[Gold ETFs Eye Fed, Europe]
Since the gold bull market started in about 2001,
prices have risen more than sevenfold.
“If gold is an inflation hedge, then on average its
real return should be zero,” Erb and Harvey wrote, according to the
Bloomberg report. Instead, returns from 2000 through March of this year
averaged 13% a year on an inflation-adjusted basis.
Gold ETFs such as
SPDR Gold Shares (NYSEArca:
GLD), iShares Gold Trust (NYSEArca:
IAU) and
ETFS Physical Swiss Gold Shares (NYSEArca:
SGOL)
have likely fueled the metal’s rise since they have made it easier for more
investors to buy gold.
“Global ETF investor positions have continued to
trend up in both gold and silver, reflecting the fact that long term price
supports such as negative real interest rates, currency debasement and
sovereign/financial sector default risk, and rising emerging market/central
bank demand remain embedded in the 2012 outlook,” ETF Securities said in a
report earlier this year.
[Measuring the Impact of Gold ETFs]
Harvey and Erb wrote that emerging markets can
support gold because the precious metal represents a smaller part of central
bank reserves than developed nations.
Foreign central banks are “one of the more
intriguing sources of incremental demand for gold,” says ConvergEx Group
strategist Nicholas Colas.
[Strategist: Why Gold ETFs Still Make Sense]
“Among emerging economies, for example, central
banks are actively buying gold to add to their reserves. The trend is most
noticeable in Russia and India, but increasingly in China as well. Press
accounts placed China’s net gold purchases in 2011 at over 200 tons,
doubling its position in one year,” he said in a recent report.
“And gold is clearly playing a role at the central
bank level in these countries’ efforts to hedge such price increases,” Colas
noted. “There is a popular saying on Wall Street – ‘Don’t fight the Fed.’
Why fight the Chinese, Russian and Indian central banks on gold? Like the
Fed, they have much deeper pockets than you.”
See Chart
Continued in article
Bob Jensen's investment helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
From The Wall Street Journal Accounting Weekly Review on July 19, 2012
Lobster Glut Slams Prices
by:
Jerry DiColo and Nicole Friedman
Jul 16, 2012
Click here to view the full article on WSJ.com
TOPICS: Contribution Margin, Cost Accounting, Fixed Costs,
Managerial Accounting, Variable Costs
SUMMARY: "Lobsters are a $300-million-a-year industry in
Maine....Maine's thousand of independent lobstermen supply the vast majority
of the world's clawed lobsters....[However, h]arbors up and down the coast
of Maine are filled with idle fishing boats, as lobster haulers decide that
pulling in their lobster pots has become a fruitless pursuit. Prices at the
dock have fallen to as low as $1.25 a pound in some areas-roughly 70% below
normal and nearly a 30-year-low for this time of year, according to
fishermen, researchers and officials." The article describes the economic
and fisheries reasons for this current debacle.
CLASSROOM APPLICATION: The article may be used in a managerial
accounting class to identify fixed and variable costs considered in
decision-making for lobstermen to go out collecting a catch. It emphasizes
economic factors beyond the lobstermen's control in facing these decisions.
QUESTIONS:
1. (Introductory) Summarize the market conditions facing Maine
lobstermen that led to a recent decision by a group of them not to go out on
their boats to catch lobsters.
2. (Advanced) Describe the costs you think are incurred to catch
lobster. In your answer, identify which costs are variable costs and which
are fixed costs.
3. (Advanced) According to the head of the Massachusetts
Lobstermen's Association, at prices below $4/lb, lobstermen cannot make a
profit on their catch. Describe how you think profitability is measured to
make this assessment, identifying the costs you gave in your answer to
question 2 above.
4. (Advanced) Is the $4 price per pound discussed above a wholesale
price or a retail price? Support your answer.
5. (Advanced) If prices offered to lobstermen are low, will you see
a low price when you order lobster at a restaurant? Explain your answer
based on information in the article.
Reviewed By: Judy Beckman, University of Rhode Island"
Lobster boats sitting idle on the Island of Vinalhaven in July 2012 ---
http://en.wikipedia.org/wiki/Vinalhaven,_Maine
"Lobster Glut Slams Prices Some Fishermen Keep Boats in Port; Outside Maine,
No Drop for Consumers," by: Jerry DiColo and Nicole Friedman, The Wall Street
Journal, July 16, 2012 ---
http://professional.wsj.com/article/SB10001424052702304388004577529080951019546.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Before sunrise last Monday, in a parking lot by the
water in Winter Harbor, Maine, a gathering of lobstermen came to a rare
consensus: prices were too low to go fishing.
"I've never seen them tie up [their boats] as a
group like this before," said Randy Johnson, manager of the Winter Harbor
Lobster Co-op. The 30 vessels in his co-operative have remained in port for
a week straight.
"I'm looking at all their boats as we speak," he
said Friday when reached at the co-op, which sits across the bay from Bar
Harbor "They all have a cut-off point [in price] where they can and can't
fish," he said. "It's an impossible situation."
Harbors up and down the coast of Maine are filled
with idle fishing boats, as lobster haulers decide that pulling in their
lobster pots has become a fruitless pursuit.
Prices at the dock have fallen to as low as $1.25 a
pound in some areas—roughly 70% below normal and a nearly 30-year-low for
this time of year, according to fishermen, researchers and officials. The
reason: an unseasonably warm winter created a supply glut throughout the
Atlantic lobster fishery.
Those prices have officials and lobstermen
concerned about the fate of one of the state's most vital industries. "For
some people it will be disaster, they are going to go bankrupt," said Bob
Bayer, director of the Lobster Institute at the University of Maine.
Retail lobster prices in Maine have started to fall
along with the glut, and Mr. Bayer said that some fishermen have begun
selling lobsters out of their trucks for as low as $4 a pound. But consumers
elsewhere in the U.S. aren't likely to see bargains. The Maine lobsters that
currently are in season can't be shipped long distances due to their soft
shells, and retailers have other fixed costs that limit big price drops.
"There could be a small effect, but I wouldn't
expect much," Mr. Bayer said.
Lobsters are a $300-million-a-year industry in
Maine, according to Halifax, Canada, consulting firm Gardner Pinfold. Along
with Canada, Maine's thousands of independent lobstermen supply the vast
majority of the world's clawed lobsters, which have seen a population boom
over the past three decades due to rising water temperatures and overfishing
of cod and haddock, their main predators.
Profit margins are low even in good years, but this
summer the problem has intensified. The wholesalers that buy directly from
lobstermen are paying less than it costs for many boats to turn a profit.
"Anything under $4 [a pound], lobstermen can't make
any money," said Bill Adler, head of the Massachusetts Lobstermen's
Association, which publishes a weekly report on lobster prices in the U.S.
and Canada.
Mr. Adler, a former lobsterman, said the warm
winter had two effects. It allowed Canadian lobstermen, who typically fish
in the early spring, to bring in large catches due to the mild temperatures.
And the lobsters that Maine fishermen catch in the summer months—the ones
that can't be shipped live due to their softer shells—arrived six weeks
earlier than normal.
"The month of June might have been a record in the
state of Maine for catch," said Peter Miller, a veteran lobsterman from
Tenants Harbor. His business is struggling despite traps that have brought
in hauls four times larger than normal.
Enlarge Image image image Matthew Healey for The
Wall Street Journal
Lobsterman Joe Hutchinson stacks traps.
The price slump has led some lobstermen to take
drastic action. Patrick Keliher, the Commissioner of the Maine Department of
Marine Resources, said his agency has investigated reports of lobstermen
coercing others not to go out fishing in an effort to lower supplies and
raise prices back to more normal levels.
"Frankly, there were some fisherman that were
trying to bully some people into not fishing. Most of it was veiled threats,
and as soon as we started hearing about it, I made sure patrol was aware,"
said Mr. Keliher.
On Monday, Mr. Keliher issued a statement warning
that threats to cut lobster traps loose or force lobstermen to stay in port
"will be met with targeted and swift enforcement." He added that any
attempts to impose a broader fishing halt "may be in violation of federal
antitrust laws."
A shutdown is already taking place though,
according to some Maine residents. In Knox County, which has several hundred
licensed lobstermen, boats have stayed tied to their moorings for over a
week, said Diane Cowan, executive director of the Lobster Conservancy in
Friendship, Maine.
"I don't know how they came to agree on this," said
Ms. Cowan. "The boats are all at their moorings and all the lobster traps
are all in the water."
Ms. Cowan has lived in Friendship for 14 years. The
town of about 1,200 residents has two churches and two lobster co-ops. Its
harbor, which typically is filled with the sound of diesel engines as
roughly 200 lobster boats motor in and out of the bay with their catches,
has gone silent.
Continued in article
Jensen Comment
Every summer in August we have Christmas in August with our Maine family and old
friends (I taught at the University of Maine for ten years). We meet on
Lincolnville Beach where the State of Maine Ferry departs for the Island of
Vinalhaven. Actually the Wikipedia entry is misleading by recommending the ferry
from Rockland when the ferry north of Camden at Lincolnville Beach gets you and
your vehicle to Vinalhaven much faster.
On Lincolnville Beach we stay at the Spouter Inn. In New England a "spouter"
is a flowing spring of fresh water. This is the only source of water at the
Spouter Inn. From the front deck we can look down at the best seafood restaurant
in New England. The restaurant is simply called the Lobster Pound. Although I'd
think I died and was in heaven with this restaurant's rich lobster stew and
fried clams, while I still on earth I generally order a more healthy dinner of
broiled Halibut. Actually, I lie. At least once on each trip I have lobster stew
teaming with butter and on another day a huge platter of fried clams.
We call our event Christmas in August because Erika and I got tired of
getting caught in mountain blizzards when driving to and from Maine in December.
It's a much safer drive when we celebrate Christmas in August on the coast of
Maine. Camden by the way is a beautiful shore town favored by many executives
(those 1% folks) who elected to retire on the coast of Maine ---
http://en.wikipedia.org/wiki/Camden,_Maine
Real estate is very expensive in the Camden Highlands.--- most certainly out of
my price bracket.
I have pictures of the Spouter Inn at
http://www.trinity.edu/rjensen/Tidbits/Ocean/Set01/OceanSet01.htm
You have to scroll down a bit to find those pictures.
Would you rather have an original share of Apple or Coca Cola?
From The Wall Street Journal Accounting Weekly Review on July 19, 2012
Coca-Cola's Currency Is Its Resilience
by:
Spencer Jakab
Jul 17, 2012
Click here to view the full article on WSJ.com
TOPICS: Earning Announcements, Earnings Forecasts, Earnings Per
Share, Foreign Currency Exchange Rates
SUMMARY: "One of the original $40 [Coca-Cola] shares would be
valued at $10.3 million today [if the company had not split its stock 11
times in its history including the last split that was approved by the
shareholders on July 11, 2012]. Analysts expect a rare, year-on-year decline
in earnings per share to $1.18 versus $1.20 a year earlier [when Coke
unveils its second-quarter results on Tuesday, July 17, 2012]. Revenue,
though not necessarily volume, is expected to come under pressure in many
markets outside North America...[and] currency effects [might] have a mildly
negative impact on annual operating income."
CLASSROOM APPLICATION: The article covers a plethora of financial
accounting and reporting topics, from Coke's recent stock split to currency
influences on revenues even with increasing sales volume, to earnings
forecast changes.
QUESTIONS:
1. (Advanced) What is a stock split?
2. (Advanced) How does a stock split impact the market value of an
individual share of stock? Why does the fact that Coca-Cola has undertaken
11 stock splits lead its author to discuss the value that a holder of one
original Coca-Cola share would hold today?
3. (Introductory) What issues have analysts been discussing in
advance of Coca-Cola's announcement of second quarter 2012 operating
results?
4. (Advanced) How do foreign currency exchange rates affect
Coca-Cola's operations if, as the author states, the company has "local
operations" in each of the worldwide locations in which it sells?
5. (Introductory) How did analysts covering Coca-Cola stock react
to the growing strength of the U.S. dollar and the foreign currency
implications you discussed in answer two?
6. (Advanced) What were the Coca-Cola results for the fourth
quarter of 2012? Perform a search to find your answer and cite the source
you use.
Reviewed By: Judy Beckman, University of Rhode Island
"Coca-Cola's Currency Is Its Resilience," by: Spencer Jakab, The Wall
Street Journal, July 17, 2012 ---
http://professional.wsj.com/article/SB10001424052702303612804577531162674945928.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
The fact the Coca-Cola Co. split its stock last
week for the 11th time in its history is a testament to how huge the
beverage company has become.
One of the original $40 shares would be valued at
$10.3 million today. In its expansion, the iconic American brand has
increasingly looked abroad, selling just a fifth of its 1.8 billion daily
servings at home today.
Given that, the surprising weakness of some
international markets and the strength of the dollar will be a focus Tuesday
when Coke unveils second-quarter results. Analysts expect a rare,
year-on-year decline in earnings per share to $1.18 versus $1.20 a year
earlier. Revenue, though not necessarily volume, is expected to come under
pressure in many markets outside North America.
In April, management suggested that currency
effects would have a mildly negative impact on annual operating income. But
in markets such as the euro zone, Brazil and India, moves were especially
sharp during the second quarter. That is one reason earnings forecasts have
edged six cents lower since the end of 2011. Since the spring of 2011, the
U.S. dollar index has risen from a low of 73.03 to a little over 83 today.
But currency moves must be viewed in context.
Unlike a manufacturer that might become less competitive, Coke can thrive in
almost any sort of currency environment in the long run because of its local
operations. Even if Spaniards had to buy Cokes in pesetas again, they still
would buy them as readily as a local competitor's beverage, although an
economic shock might make it tough for volumes in Spain to remain 50% higher
per capita than in richer Germany.
Coke's resiliency lies in it being a true
multinational, one that still is aiming to double sales this decade for
itself and its bottlers. Despite straitened economic times, it looks
feasible. Consider that a third of Coke's billion-dollar-plus brands were
conceived abroad and that, with its recent re-entry into Myanmar, there are
only two countries in which it is unavailable, North Korea and Cuba.
Continued in article
"Financial Reporting Model," SEC's Division of Corporate Finance, 2012
---
http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.pdf
Summary
Sections of the Financial Reporting Manual have been updated as of March 31,
2012. These sections have been marked with the date tag, “Last updated:
3/31/2012,” to identify the changes. Previous updates are marked using the
same convention and represent the last revision to that section. We include
a date tag when the change is significant. Changes that are administrative
in nature (for example, section reference updates or grammatical
improvements) are not marked with a date tag. Below is a summary of changes
included in this update and a brief description of the change. Clicking the
linked section number will direct you to the location of the change in the
document. You may click on the embedded link in the document to return to
this
Section Comment
2045.15
Age of interim financial statements
included in Form 8-K; to conform with sections
2045.13 and 2045.14
9220.8 NOTE Use of pro forma
information in MD&A
12220.1 b Age of financial statements
required in Form 8-K for smaller reporting companies
16210.1 Periods required for financial statements
filed by Canadian issuers on Form 40-F
A Teaching Case on How Regulators Are Targeting Financial Statement
"Window Dressing"
From The Wall Street Accounting Weekly Review on September 24,
2010
Regulators to Target 'Window Dressing'
by:
Michael Rapoport
Sep 16, 2010
Click here to view the full article on WSJ.com
TOPICS: Banking,
Debt, Disclosure, Disclosure Requirements, SEC, Securities and Exchange
Commission
SUMMARY: Federal
regulators are poised to propose new disclosure rules targeting "window
dressing...." The SEC "...is expected to issue proposal for public
comment. The action follows a Wall Street Journal investigation...of
financial data fro 18 large banks...[which] showed that, as a group,
they have consistently lowered debt at the end of each of the past six
quarters, reducing it on average by 42% from quarterly peaks."
CLASSROOM APPLICATION: The
article can be used to discuss window dressing beyond the banking
sector, to discuss current reactions to the financial crisis, and to
discuss leverage and debt levels.
QUESTIONS:
1. (Advanced)
Define window dressing, going beyond what is offered in this article. Is
this issue found in other industries beyond banking?
2. (Advanced)
What has been the nature of the window dressing issue in the banking
industry? Include in your answer an explanation of the chart "Masking
Risk" associated with the article.
3. (Introductory)
According to the article, what prompted banks to undertake these window
dressing activities?
4. (Introductory)
How have banks reacted to this WSJ report on window dressing?
5. (Introductory)
What is the SEC proposing to do to improve financial reporting in order
to address this issue?
6. (Advanced)
Do you think the SEC's plan is adequate to address this issue? In your
answer, comment on the nature of items included on the face of the
balance sheet versus those disclosed in the financial statement
footnotes.
7. (Advanced)
Describe a transaction that will help "window dress" financial
statements for quarter end or year end reporting.
Reviewed By: Judy Beckman, University of Rhode Island
"Regulators to Target 'Window Dressing'," by: Michael Rapoport. The Wall
Street Journal, September 16, 2010 ---
http://online.wsj.com/article/SB10001424052748703743504575494144270313302.html?mod=djem_jiewr_AC_domainid
Federal regulators are poised to propose new
disclosure rules targeting "window dressing," a practice undertaken by
some large banks to temporarily lower their debt levels before reporting
finances to the public.
The Securities and Exchange Commission is
scheduled to take up the matter at a meeting Friday and is expected to
issue proposals for public comment. The action follows a Wall Street
Journal investigation into the practice, which isn't illegal but masks
banks' true levels of borrowing and risk-taking.
A Journal analysis of financial data from 18
large banks known as primary dealers showed that as a group, they have
consistently lowered debt at the end of each of the past six quarters,
reducing it on average by 42% from quarterly peaks.
The practice suggests the banks are carrying
more risk than is apparent to their investors or customers, who only see
the levels recorded on the companies' quarterly balance sheets.
The SEC focus comes two years after the peak of
the financial panic, which was exacerbated by high levels of borrowing
by the nation's banks.
Since then, heightened scrutiny from regulators
and investors has prompted banks to be more sensitive about showing high
debt levels.
The SEC is expected to propose rules requiring
greater disclosure from banks and other companies about their short-term
borrowings.
The agency's staff has been considering whether
banks should be required to provide more frequent disclosure of their
average borrowings, which would give a better picture of their debt
throughout a quarterly period than do period-end figures.
An SEC spokesman declined to comment.
Short-term borrowing pumps up risk-taking by
banks, allowing them to make bigger trading bets.
Currently, banks are required to disclose their
average borrowings only annually, and nonfinancial companies aren't
required to disclose their average borrowings at all.
Last month, Sen. Robert Menendez, a New Jersey
Democrat, and five other senators urged the agency to require more
disclosure so the public could see if a company tried to dress up its
quarterly borrowings.
"Rather than relying on carefully staged
quarterly and annual snapshots, investors and creditors should have
access to a complete real-life picture of a company's financial
situation," the senators wrote to SEC Chairman Mary Schapiro, citing the
Journal articles, among other things.
Ms. Schapiro, through a spokesman, declined to
comment. Mr. Menendez's office didn't return a call.
Some large banks, including Bank of America
Corp. and Citigroup Inc., frequently have lowered their levels of
repurchase agreements, a key type of short-term borrowing, at the ends
of fiscal quarters, then boosted those "repo" levels again after the
next quarter began.
The banks have said they are doing nothing
wrong, and that the fluctuations in their balance sheets reflect the
needs of their clients and market conditions.
But the practices suggest the banks are more
leveraged and carry more risk during periods when that information isn't
disclosed to the public.
At Friday's meeting, the SEC also will consider
additional guidance for companies about what they should disclose about
borrowing practices in the "Management's Discussion and Analysis"
sections of their securities filings.
In the wake of the financial crisis, the SEC's
staff has been taking a fresh look at companies' disclosures in these
"MD&A" sections about liquidity and capital resources.
In the SEC staff's view, balance-sheet
fluctuations can happen for legitimate reasons, and the important thing
is disclosing them to investors when they are material.
Concern about hidden risk-taking by banks was
heightened after a March report about the collapse of Lehman Brothers
Holdings Inc.
A bankruptcy-court examiner said Lehman had
used a repo-accounting strategy dubbed "Repo 105" to take $50 billion in
assets off its balance sheet and make its finances look healthier than
they were.
The SEC later asked major banks for data about
their repo accounting. SEC Chief Accountant James Kroeker said in May
that the commission's effort hadn't uncovered widespread inappropriate
practices.
Still, both Bank of America and Citigroup found
errors in their repo accounting that amounted to billions of dollars,
though these were relatively small in the context of their giant balance
sheets.
An investigation by the SEC's enforcement
division into Lehman's collapse is zeroing in on this Repo 105
accounting maneuver, according to people familiar with the situation.
In an April congressional hearing, Rep. Gregory
W. Meeks, a New York Democrat, asked Ms. Schapiro about the Journal's
findings regarding banks' end-of-quarter debt reductions.
"It appears investment banks are temporarily
lowering risk when they have to report results, [then] they're
leveraging up with additional risk right after," Mr. Meeks said. "So my
question is: Is that still being tolerated today by regulators,
especially in light of what took place with reference to Lehman?"
Ms. Schapiro said the commission is gathering
detailed information from large banks, "so that we don't just have them
dress up the balance sheet for quarter end and then have dramatic
increases during the course of the quarter."
Jensen Comment
One of my heroes is former Coopers partner and SEC Chief Accountant Lynn
Turner. My two heroes, Turner and Partnoy, write about how bank financial
statements should be classified under "Fiction."
The State of New York's filing against Ernst & Young ---
http://goingconcern.com/2010/12/lunchtime-reading-the-complaint-against-ernst-young/#more-23070
Bob Jensen's threads on Lehman's Repo 105/108 transactions are at
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
Frank
Partnoy and Lynn Turner contend that bank accounting is an exercise in
writing fiction:
Watch the video! (a bit slow loading)
Lynn Turner is Partnoy's co-author of the white paper "Make Markets Be
Markets"
"Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy,
Roosevelt Institute, March 2010 ---
http://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-transparency-balance-sheet-accounting
Watch the great video!
Great Speeches About the State of Accountancy
"20th Century Myths," by Lynn Turner when he was still Chief Accountant at
the SEC in 1999 ---
http://www.sec.gov/news/speech/speecharchive/1999/spch323.htm
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/theory01.htm
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
From The Wall Street Journal Accounting Weekly Review on July 19, 2012
Accounting Panel Expresses 'Regret' Over U.S. Stance
by:
Michael Rapoport
Jul 16, 2012
Click here to view the full article on WSJ.com
TOPICS: Financial Accounting Standards Board, Financial Statements,
International Accounting, International Accounting Standards Board, SEC,
Securities and Exchange Commission
SUMMARY: "The London-based authorities that oversee global
accounting rules said they "regret" that the U.S. hasn't made a stronger
move toward switching to the global system." The article covers
international reaction to the SEC issuance of a 120-page report on the
results of its project assessing the potential acceptance of IFRS financial
reports by U.S. domestic firms.
CLASSROOM APPLICATION: The article is useful to introduce the
obstacles facing global convergence in financial reporting in any financial
accounting class.
QUESTIONS:
1. (Introductory) What report has the SEC issued that this article
describes?
2. (Advanced) What has the U.S. Securities and Exchange Commission
(SEC) announced about plans to allow domestic companies to use International
Financial Reporting Standards (IFRS) in financial filings for publicly
traded firms?
3. (Introductory) What entities and individuals support a switch by
all U.S. firms to IFRS reporting requirements?
4. (Introductory) Who opposes such a rule?
5. (Advanced) What entities currently may use IFRS in their filings
to the SEC?
6. (Introductory) How has the international community reacted to
this announcement?
Reviewed By: Judy Beckman, University of Rhode Island
"Accounting Panel Expresses 'Regret' Over U.S. Stance," by: Michael Rapoport,
The Wall Street Journal, July 16, 2012 ---
http://professional.wsj.com/article/SB10001424052702303754904577528773444857872.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
The London-based authorities that oversee global
accounting rules said Sunday they "regret" that the U.S. hasn't made a
stronger move toward switching to the global system.
The International Accounting Standards Board has
been pressing the U.S. to switch from its own set of accounting rules to
International Financial Reporting Standards, or IFRS.
But the Securities and Exchange Commission's staff,
which has considered the matter for two and a half years, indicated Friday
that any decision will be delayed still further when it issued a final
report that didn't include a recommendation for what action the agency's
commissioners should take. The recommendation will come later, and possibly
not until next year.
In a statement Sunday, the IFRS Foundation, which
oversees the IASB, said that while it recognizes the SEC's right to
determine how and when IFRS should be used in the U.S., "we regret that the
staff report is not accompanied by a recommended action plan for the SEC."
Such an action plan "would be welcome," the foundation said.
The report details the challenges that a country
like the U.S. faces in switching to IFRS, but other countries have
successfully overcome similar challenges, the foundation said. The
foundation "look(s) forward to the SEC resolving the continued uncertainty
regarding the U.S.'s commitment to global accounting standards."
IFRS supporters, such as big accounting firms and
many multinational companies, say IFRS will help simplify companies'
accounting and make it easier to raise capital across national borders. But
opponents say a switch would place too great a burden on companies,
especially smaller firms that don't have operations outside the U.S.
The SEC staff's Friday report appeared to rule out
a full-blown changeover to IFRS by the U.S., saying there was too much
concern about the cost and burden such an all-out move would pose.
Instead, the report indicated that other methods
would be used if the U.S. ultimately decides to shift to the international
rules, like a compromise "endorsement" model that would gradually
incorporate IFRS into the U.S. system of rules while maintaining the U.S.'s
authority to modify or reject any international rules if it saw fit.
Jensen Comment
Since the U.S. Congress is now gridlocked on setting the federal budget and most
other proposed laws, the United Nations deeply "regrets" that the U.S. is
unwilling to pass along the authority for this legislation to the U.N.
Bob Jensen's threads on controversies in the setting of accounting
standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Looks Like a Victory for the Matching Principle (oops I'm not supposed to say
that phrase)
"Loan-Loss Snag Threatens Progress in Uniting Accounting Rules," by David
Rapoport, The Wall Street Journal, July 18, 2012 ---
http://professional.wsj.com/article/SB10000872396390444097904577535281223924156.html?mod=djkeyword&mg=reno64-wsj
Accounting authorities have hit another possible
roadblock in their efforts to bring U.S. and global accounting rules closer
together.
U.S. rule makers from the Financial Accounting
Standards Board said Wednesday that they need more time to discuss concerns
from some companies, auditors and investors about a proposed overhaul of how
banks should record loan losses and how the rules would be applied.
The FASB and its global counterpart, the
International Accounting Standards Board, previously reached a compromise
agreement on the overhaul—a key part of their effort to eliminate some of
the most important differences between U.S. and international rules.
The FASB's re-examination prompted Hans Hoogervorst,
the IASB's chairman, to say he was worried that changes to the loan-loss
compromise could prompt the entire agreement to come undone. That would put
the two boards back at square one after three years of trying to formulate
the new rules, which are intended to address problems in booking loan losses
that were spotlighted during the financial crisis.
An unraveling of the agreement would be "deeply
embarrassing," Mr. Hoogervorst said during a teleconference meeting of the
two boards. "I would really find that unacceptable."
FASB Chairman Leslie Seidman said it was
"essential" for the board to address lingering questions about the proposed
loan-loss overhaul, which may require banks to book some losses more
quickly, and she said she hoped the boards could issue formal proposals this
fall to enact the overhaul, as they have previously planned.
But the episode illustrates how far U.S. and global
authorities have to go in their long effort to unify accounting rules
world-wide. About 120 countries now use the global accounting-rule system,
known as International Financial Reporting Standards, but the U.S. still
uses its own set of rules. The two sides have long tried to bring some of
their key rules closer together, in a process known as "convergence," but
that process, which was supposed to have been concluded more than a year
ago, has hit repeated delays.
A parallel effort by the U.S. to decide whether to
switch to IFRS altogether has also been much-delayed. Last week, the
Securities and Exchange Commission's staff issued a final report in its
2½-year investigation of whether the U.S. should switch to IFRS—but the
report didn't contain a recommendation for what action the commission should
take, indicating the decision-making process could extend much longer,
possibly into next year.
Under the loan-loss compromise between the FASB and
the IASB, the two boards agreed to shift to an "expected-loss" model, under
which banks would book losses and set aside loan-loss reserves based on
future projections of losses. That would differ from the current
"incurred-loss" system, which requires evidence that a loss has actually
occurred before it can be recorded. Some critics say that system led banks
to record losses too little and too late during the financial crisis.
As part of that agreement, the FASB and the IASB
had agreed that banks would book loan losses immediately if a loan's cash
flows weren't expected to be collected within the next 12 months, and that
they would record future losses if the loan's credit quality deteriorates
and the risk of default grows strong enough. That's where the compromise
came—the FASB wanted more of a bank's potential losses recognized upfront,
while the IASB wanted more of the losses to be recognized later.
But the FASB indicated Wednesday that some of the
people it had consulted with had raised concerns about issues like whether
the new system would result in loan-loss reserves that were high enough, and
when a need to estimate future losses would kick in.
Continued in article
Bob Jensen's threads on controversies in the setting of accounting
standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Question
How can a capital gains tax lower than ordinary income tax rates be justified?
Jensen Comment
It appears that after factoring out nonsense about stimulating investments there
is only one weak and one strong justification. The weak one is the argument of
double taxation. The strong one is that when investments held for years over
long-term periods of inflation, taxing capital gains is totally unfair unless
the investments made in dear dollars having higher purchasing power are
price-level adjusted to sales amounts in cheap dollars having lower purchasing
power.
Often those debating capital gains taxation ignore the fair solution of
having no special capital gains tax rates while adjusting the gains for
fictitious gains due to inflation:
http://www.cbpp.org/cms/index.cfm?fa=view&id=3798
http://www.washingtonpost.com/blogs/ezra-klein/post/do-low-taxes-on-capital-gains-spur-growth-not-necessarily/2012/01/19/gIQAJZ4yAQ_blog.html
http://articles.businessinsider.com/2012-01-23/home/30654496_1_ordinary-income-corporate-income-tax-tax-rate
Fulbright Scholars in
Accountancy
As I scanned the list it dawned on me how much higher education in accountancy
can take great pride in diversity accomplishments (in this case based entirely
on noting the names of some of the recipients).
Check for yourself by searching on the word "accounting" at
http://www.cies.org/
Congratulations to all for achievements irrespective of race, creed, and color.
This is America at its best!
In recent correspondence Patricia Walters suggested that the FASB and IASB
are dominated by "conservative" accountants who fail in many instances to
represent the wishes of financial analysts and other users of financial
statements.
Here's an example of where she may be correct in some instances.
"FASB votes to discontinue loss contingencies project," John R.
Formica, Jr, PwC, July 9, 2012 ---
http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=THUG-8W2QXD&SecNavCode=MSRA-84YH44&ContentType=Content
. . .
Project History
In 2007, the FASB added a project to its agenda to address concerns
expressed by the users of financial statements that disclosures about loss
contingencies, particularly litigation contingencies, do not provide
adequate and timely information to assist them in assessing the likelihood,
timing, and amount of future cash outflows associated with loss
contingencies.
The FASB issued two Exposure Drafts, the first in
2008 and the second in 2010, proposing changes to the required disclosures
of loss contingencies. The changes proposed in both Exposure Drafts were
strongly opposed by non-user constituents. The opposition was due, in large
part, to the belief that the imposition of additional disclosures regarding
litigation contingencies could be prejudicial to the reporting entity.
In late 2010, the SEC gave a series of speeches and
issued a "Dear CFO" letter, which put constituents on notice that the SEC
would be focusing on the disclosure of loss contingencies.
Continued in article
Bob Jensen's threads on accounting for intangibles and contingencies ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Hi Pat,
Actually I think it's a bit more complicated than liberalism versus
conservatism, although there is certainly a a cost-benefit factor factor that
impacts standard setters. Accusing investors of not sending in supportive
Comment Letters on exposure drafts is a bit like like discovering citizens who
do not bother to vote later complaining about election outcomes. If they don't
participate in the process designed for them to have a voice in the outcomes
have they earned a right of protest?
It's a cost/benefits world in accounting standard setting, and interest
groups for the "benefits side" need to be proactive knowing full well that the
companies that pay the bill will voice their concerns on the direct costs to
them. If only four people bother to support an exposure draft it must be very
difficult for the IASB and FASB to impose a costly standard on the public.
Hoogervorst: "Cost-benefit analysis drives standards-setting,"
International Accounting Standards Board Chairman
Hans Hoogervorst says accounting standard setters are more sensitive to the
practical impact that a standard might have, especially if an analysis
reveals that the costs of a particular standard exceeds its benefits. "It's
not always clear what the perfect answer is and it is much more important to
make incremental steps towards better standards than to try to get the ideal
standard in one go because you might completely fail," he said.
Emily Chason, "Q&A: For Accounting Rule Makers Costs Are Clear, Benefits
Murky, The Wall Street Journal, July 2, 2012 ---
http://blogs.wsj.com/cfo/2012/07/02/qa-for-accounting-rule-makers-costs-are-clear-benefits-murky/?mod=wsjpro_hps_cforeport
"An Examination of Comment Letters Filed in the U.S. Financial Accounting
Standard-Setting Process by Institutional Interest Groups," by Georgia
Saemann, Abacus, Volume 35, Issue 1, pages 1–28, February 1999 ---
http://onlinelibrary.wiley.com/doi/10.1111/1467-6281.00032/abstract
With the advent of some form of IASC-type
harmonized accounting standards likely, it has been suggested that they are
likely to be based to a large extent on U.S. accounting standards
promulgated by the FASB. This study of the content of comments filed on
twenty controversial FASB accounting standards by four institutions in the
United States is timely. Those comments are assumed to represent the views
of financial-statement users, attestors and preparers: FEI, IMA, AIMR, and
AICPA. The adopted standards’ requirements are also examined in the context
of these comments to provide insights about accounting characteristics on
which the FASB has aligned with different interest groups. These
characteristics include uniformity in accounting methods, disclosure,
volatility in financial reporting, and conservatism. The results indicate
that AIMR, in representing users, is the most constant in its positions. The
two preparer organizations (FEI and IMA) took user-oriented positions on
some issues, but showed a strong tendency to oppose costly disclosures and
requirements associated with volatility. Comments from the AICPA were
diverse but the study revealed an overall bias toward user views. Overall,
the FASB aligned most closely with users and the AICPA. FASB tended to adopt
standards that led to greater uniformity but compromised on costly
disclosures and requirements associated with volatility and conservatism.
Hence, if financial analysts and investors want to support the "benefits" to
themselves they should take more advantage of the due process afforded to them
by the FASB, IASB, and other standard setting bodies in accountancy and
auditing.
The Impairment Model has still not be chiseled into a stone tablet
On July 18, the FASB and IASB (the boards) met to discuss the financial
instruments project. At the conclusion of the meeting, the FASB announced its
intent to continue discussions about several key aspects of the impairment
model, as well as consider the results of recent outreach efforts, prior to
moving forward with an exposure draft. The exposure draft is currently expected
to be released in the fourth quarter of 2012.
Ernst & Young's take on the debate ---
http://cfodirect.pwc.com/CFODirectWeb/download;jsessionid=hvVYQJJX37TLMJ1jpn77SCPXDFT96g1JCjpjWwxVQHRyP3hwv2JS!2033396048?sourcetype=contentattachment&content=THUG-8WCSS4&filename=In
brief 2012-27 -- FASB financial asset impairment.pdf
All the jobs are not going to Asia, They're going to Hal ---
http://en.wikipedia.org/wiki/2001_Space_Oddessey
"When Machines Do Your Job: Researcher Andrew McAfee says advances in
computing and artificial intelligence could create a more unequal society,"
by Antonio Regalado, MIT's Technology Review, July 11, 2012 ---
http://www.technologyreview.com/news/428429/when-machines-do-your-job/
Thank you Ramest Fernando for the heads up.
Are American workers losing their jobs to machines?
That was the question posed by
Race Against the
Machine, an influential e-book published last
October by MIT business school researchers Erik Brynjolfsson and Andrew
McAfee. The pair looked at troubling U.S. employment numbers—which
have declined since the recession of 2008-2009 even as economic output has
risen—and concluded that computer technology was
partly to blame.
Advances in hardware and software mean it's
possible to automate more white-collar jobs, and to do so more quickly than
in the past. Think of the airline staffers whose job checking in passengers
has been taken by self-service kiosks. While more productivity is a
positive, wealth is becoming more concentrated, and more middle-class
workers are getting left behind.
What does it mean to have "technological
unemployment" even amidst apparent digital plenty? Technology Review
spoke to McAfee at the Center for Digital Business, part of the MIT Sloan
School of Management, where as principal research scientist he studies
new employment trends and definitions of the workplace.
TR: What's your definition of
automation?
McAfee: The obvious definition is one fewer job
than there used to be, with the same amount of output. A tax preparer can
get automated away by software like TurboTax, and just not find work
anymore. An assembly line worker could be flat-out automated away by a robot
on the assembly line. There is a closely related phenomenon, which is the
massive increases in productivity brought on by digital technology. An
example is the legal discovery process. By one estimate we heard, one lawyer
is now as productive as 500 used to be. You might not lay off 500 lawyers,
but the next time you might hire a few people and some software to read
documents.
Where do you see automation leading to the
loss of jobs?
Others have done work showing that if you are a
"routine cognitive worker" following instructions or doing a structured
mental task, you have been under a lot of downward wage pressure for a while
now. I think that is largely a technology story. Payroll clerks, travel
agents—we don't have as many of them as we used to. We don't have as many
people working in manufacturing, even though manufacturing is a growing
industry.
What was the response you received to
Race Against the Machine?
People accepted that technology was really
accelerating and that there were going to be labor-force consequences. The
broader discussion was between optimism and pessimism. Does it feel like we
are heading into the kind of economy and society that we want, or the kind
of economy and society that we don't? A lot of people who commented said,
"Look, if these guys are anywhere near right, we are heading into an economy
that is going to be dire for a lot of people."
What does the economy that we don't want
look like?
The spread between the haves and the have-nots
continues to grow, and more importantly, the absolute standard of living of
the people at the middle and the bottom goes down. That is the economy that
I don't want to head into.
What is the optimistic view?
Erik Brynjolfsson came up with a great phrase:
"digital Athens." The Athenian citizens had lives of leisure; they got to
participate in democracy and create art. That was largely because they had
slaves to do the work. Okay, I don't want human slaves, but in a very, very
automated and digitally productive economy you don't need to work as much,
as hard, with as many people, to get the fruits of the economy. So the
optimistic version is that we finally have more hours in our week freed up
from toil and drudgery.
Do you see evidence for a digital Athens on
the street, in the real economy?
No. What we are seeing—and this was pretty much
unanticipated—is that the people at the top of the skill, wage, and income
distribution are working more hours. We have this preference for doing more
work. The people who have a lot of leisure—I think in too many cases it's
involuntary. It's unemployment or underemployment. That is not my version of
digital Athens.
Which is further advanced, the automation
of intellectual work or of physical tasks?
The automation of knowledge work is way, way
farther along. It's really hard to get computers to do things that your
four-year-old can do, like walk across the room and pick up a pen, and
recognize it as a pen. So the physical world presents a lot of challenges to
digital technologies.
But it feels to me as if we are starting to turn a
corner. The data available to help a robot is big data, and it's exploding.
The sensors have been progressing along a Moore's Law trajectory. And the
physical pieces of a robot, the actuators and so on, have gotten a lot
better too. So it seems the ingredients are all in place for the robots to
start getting into the economy.
How should businesses react to the trend
toward more automation?
I think the companies that succeed going forward
are the ones that figure out what mix of human and digital labor is going to
be the right mix. And I think that that proper mix is going to involve more,
and more types of, digital labor than we are using right now.
What is your advice to the individual, or
to the parent educating a child?
To the parent, make sure your kid's education is
geared toward things that machines appear not to be very good at. Computers
are still lousy at programming computers. Computers are still bad at
figuring out what questions need to be answered. I would encourage every kid
these days to buckle down and do a double major, one in the liberal arts and
one in the college of sciences.
Continued in article
Jensen Comment
It's interesting to read some of the many comments to this article.
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
BBC Podcasts: Michael Sandel: The Public Philosopher ---
http://www.bbc.co.uk/podcasts/series/r4sandel
Examples include the following:
- Should We Bribe People to be Healthy?
- Should a Banker be Paid More Than a Nurse?
- Should Universities Give Preference to (Economically) Poor Applicants?
Jensen Comment
There are really two issues here: Preference in terms of scholarships
versus Admission preference over higher qualified rich applicants
- Others
Topics Jensen would like to have Sandel take up
- Should a brain surgeon be paid more than a nurse
- Should a dash board mechanic (currently earning over $100 per hour) be
paid more than a nurse
- What good would paying teachers in a gang-infested ghetto ten times more
than rural teachers really accomplish?
- Why do Finland and South Korea (having low racial diversity) have such
higher ranking public schools than the U.S. public schools?
- Why does Canada (having high racial diversity) have such higher ranking
public schools than the U.S. public schools?
- Why do the low-diversity provinces Canada have higher ranking public
schools than the high-diversity province public schools?
- Does the American Dream really motivate people to work harder and invest
more time and money into high risk ventures?
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
- Why Are Denmark, Austria, and Switzerland people happier than other
people ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
- Fidel Castro complained that too many Cuban people are unmotivated to
work. What could motivate them more?
- Why does Chile have a much lower poverty rate than its South American
and Latin American neighbors?
Is the primary reason really the free market experiment?
http://en.wikipedia.org/wiki/Miracle_of_Chile
- What are the root causes of income inequality in the U.S. versus Sweden?
Will taking virtually all the wealth of the rich and giving it to the poor
make the poor more or less poor in the long run?
Lifetime Social Security and Medicare Disability Benefits (at any age) ---
http://en.wikipedia.org/wiki/Social_Security_Disability_Insurance
"85,000 Americans went on disability benefit in June (while only 80,000
jobs were added same period)," by Snejana Farberov, Daily Mail, July
7, 2012 ---
http://www.dailymail.co.uk/news/article-2170044/85-000-Americans-went-disability-benefit-June-80-000-jobs-added-period.html
Disability Fraud ---
http://en.wikipedia.org/wiki/Disability_fraud
"Social Media Gives, but Also Takes Away:: A large majority of
companies are mindful of the potential liabilities associated with using the
massively popular platforms," by Caroline McDonald, CFO.com, July 6, 2012
---
http://www3.cfo.com/article/2012/7/risk-compliance_rims-advisen-facebook-twitter-youtube-social-media-
"Use Social Media With Social Grace - Words Of Wisdom From B-School Deans,"
Forbes, July 4, 2012 ---
http://www.forbes.com/sites/mattsymonds/2012/07/04/use-social-media-with-social-grace-wisdom-for-the-mba-class-of-2012/
Bob Jensen's threads on social media are at
http://www.trinity.edu/rjensen/ListservRoles.htm
"Nearly A Third Of Private Sector Jobs Added Were Temporary," by Brett
LoGiurato, Business Insider, July 6, 2012 ---
http://www.businessinsider.com/june-jobs-report-private-sector-hiring-misses-2012-7
Question
Are you sick of reading your student's blogs?
"A Better Blogging Assignment," by Mark Sample, Chronicle of Higher
Education, July 3, 2012 ---
http://chronicle.com/blogs/profhacker/a-better-blogging-assignment/41127?cid=wc&utm_source=wc&utm_medium=en
"Teaching With Blogs, by Lanny Arvan, Inside Higher Ed, July
27, 2010 ---
http://www.insidehighered.com/views/2010/07/27/arvan
Bob Jensen's threads on blogging ---
http://www.trinity.edu/rjensen/ListservRoles.htm#Blogs
Tax Free Savings Accounts in Canada ---
http://en.wikipedia.org/wiki/Tax-Free_Savings_Account
"Where’s My Canceled Check?: A Review of the Basics," by Robert Moïse,
AICPA, July 01, 2012 ---
http://www.aicpa.org/publications/taxadviser/2012/july/pages/tpp_july-story-02.aspx
The Check Clearing for the 21st Century Act (Check
21 Act), P.L. 108-100, was signed into law on Oct. 28, 2003, and went into
effect on Oct. 28, 2004. For most consumers, this means that they now
receive scanned images of their canceled checks in bank statements rather
than the actual canceled checks; in some cases, they are not receiving even
those. However, during an IRS audit, some IRS requests for information
insist on substantiating expenditures with front-and-back copies of canceled
checks.
The Check 21 Act enables banks to handle more
checks electronically so they can process them more quickly and efficiently
(Check 21 Act, §2). Moving paper checks is costly and slow. When a paper
check is first deposited or cashed at a bank, a picture of the front and
back of the check is captured and, from that point on, the image is
transmitted electronically. With agreements between banks and their
customers, except where the banks have agreed to provide canceled checks in
their statements, the Check 21 Act permits the banks to provide either the
original check or a “substitute check” (defined below) “or, by agreement,
information relating to the original check (including data taken from the
MICR [magnetic ink character recognition] line of the original check or an
electronic image of the original check), whether with or without subsequent
delivery of the original paper check” (Check 21 Act, §3(18)). After doing
this, the bank generally is allowed to destroy the original check as
provided in its customer agreement.
Continued in article
Money ---
http://en.wikipedia.org/wiki/Money
"The Mysteries of Money," by Venkat, RibbonFarm, June 20, 2012
---
http://www.ribbonfarm.com/2012/06/20/the-mysteries-of-money/
. . .
I now see money as the implicit organizing concept
for all of my writing about social reality. Organizing along those lines, I
have broken down this sequence into posts about money itself, posts about
organizations (understood as things that move money around), posts about
markets (understood as fields of money) and finally, civilization itself
(understood as the space where money matters). Barbarian or exiled states
of being, and possible post-civilizational futures, are best understood as
the negative space of social reality. Their common salient feature is a
vastly attentuated role for money, broadly understood. These states never
quite rise above shared, communal, interpersonal realities to shared,
impersonal, social realities.
Money
-
Ancient Rivers of Money
-
Fools and their Money Metaphors
-
Time and Money: Separated at Birth?
Moving Money
-
The Eight Metaphors of Organization
-
The Lords of Strategy by Walter Kiechel
-
A Brief History of the Corporation: 1600 to 2100
Fields of Money
-
Marketing, Innovation and the Creation of Customers
-
The Milo Criterion
-
Ubiquity Illusions and the Chicken-Egg Problem
-
The Seven Dimensions of Positioning
-
Coloring the Whole Egg: Fixing Integrated Marketing
-
How to Draw and Judge Quadrant Diagrams
-
The Gollum Effect
-
Peak Attention and the Colonization of Subcultures
Life Outside Money
-
Acting Dead, Trading Up and Leaving the Middle Class
-
Can Hydras Eat Unknown-Unknowns for Lunch?
-
The Return of the Barbarian
Next week, I’ll do a wrap-up of the wrap-ups and
attempt to construct a big-picture view of what this blog is ultimately
about, and situate the two crucial keystone pieces required for making sense
of ribbonfarm. I expect a few of you can guess what those two pieces are.
They haven’t been included in any of these sequences.
A free copy of Tempo for the first person
to correctly identify the two missing pieces via a comment.
"CALIFORNIA BUDGET WOES AND CHIMERICAL PENSION BELIEFS: GASB COULD HELP IF IT
HAD THE WILL," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old
Accountants Blog, July 2, 2012 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/708#more-708
Ed Ketz writes about those "idiots in California"
"Whither Berkeley? Whither California?" by J. Edward Ketz, SmartPros, November
2009 ---
http://accounting.smartpros.com/x68185.xml
Bob Jensen's threads on the sad state of pension accounting
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"Starting to Reprogram Your Students," by Joe Hoyle, Teaching Blog,
July 1, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/07/starting-to-reprogram-your-students.html
"Starting to Reprogram Your Students - Part Two," by Joe Hoyle,
Teaching Blog, July 12, 2012 ---
http://joehoyle-teaching.blogspot.com/2012/07/starting-to-reprogram-your-students_12.html
Jensen Comment
I wonder why reprogramming students is different from reprogramming a PC that is
loaded with malicious malware. My tech experts tell me that the only solutions
to many malware infestations is to "rebuild the PC" which is tantamount to
erasing the hard drive and re-installing the operating system and desired
programs.
Sadly, we cannot reprogram a student like we can rebuild a PC. Thus,
Professor Hoyle's rebuilding efforts entails trying to work around the malware
that's already embedded in a student. That's a really tough problem for some
types of human malware.
Unemployed of the World Unite
"Why Marxism is on the rise again," by Stuart Jeffries, The
Guardian,
July 4, 2012 ---
http://www.guardian.co.uk/world/2012/jul/04/the-return-of-marxism
Down With the Wages Based on Supply and Demand
Labor Theory of Value ---
http://en.wikipedia.org/wiki/Labor_theory_of_value#Marx.27s_contribution
. . .
Marx's contribution
Contrary to popular belief, Marx does not base his
LTV on what he dismisses as "ascribing a supernatural creative power to
labor", arguing in the
Critique of the Gotha Program that:
- Labor is not the source of all wealth. Nature
is just as much a source of use values (and it is surely of such that
material wealth consists!) as labor which is itself only the
manifestation of a force of nature, human labor power.[30]
Here Marx is drawing a distinction between
exchange value (which is the subject of the LTV)
and
use value.
Marx uses the concept of "socially
necessary abstract labor-time" to introduce a
social perspective distinct from his predecessors and
neoclassical economics. Whereas most economists
start with the individual's perspective, Marx starts with the perspective of
society as a whole. "Social production" involves a complicated and
interconnected
division of labor of a wide variety of people who
depend on each other for their survival and prosperity.
"Abstract" labor refers to a characteristic of
commodity-producing
labor that is shared by all different kinds of heterogeneous (concrete)
types of labor. That is, the concept abstracts from the particular
characteristics of all of the labor and is akin to average labor.
"Socially necessary" labor refers to the quantity
required to produce a commodity "in a given state of society, under certain
social average conditions or production, with a given social average
intensity, and average skill of the labour employed."[31]
That is, the value of a product is determined more by societal standards
than by individual conditions. This explains why technological breakthroughs
lower the price of commodities and put less advanced producers out of
business. Finally, it is not labor per se, which creates value, but labor
power sold by free wage workers to capitalists. Another distinction to be
made is that between
productive and unproductive labor. Only wage
workers of productive sectors of the economy produce value.[32]
Exploitation
"The worker becomes all the poorer the more
wealth he produces, the more his production increases in power and
range. The worker becomes an ever cheaper commodity the more
commodities he creates. With the increasing value of the world of
things proceeds in direct proportion to the devaluation of the world
of men. Labor produces not only commodities; it produces itself and
the worker as a commodity -- and does so in the proportion in which
it produces commodities generally."
—
Karl Marx,
Economic and Philosophic
Manuscripts, 1844
[33]
Marx uses his LTV to derive his theory of
exploitation under capitalism.
Unlike Ricardo or the
Ricardian socialists, Marx distinguishes between
labor power and
labor. "Labor-power" is the potential or
ability of workers to work, given their muscles, brains, skills, and
capacities. It is the promise of creating value possessed by human
labor that has not yet been expended. "Labor" is the actual activity
of producing value. The profit or
surplus-value arises
when workers do more labor than is necessary to pay the cost of hiring their
labor-power.
To explain the normality of exploitation, Marx
describes
capitalism as having an institutional framework in
which a small minority (the capitalists) oligopolize the
means of production. The workers cannot survive
except by working for capitalists, and the
state preserves this
inequality of power. In normal role of force is structural, part of the
usual workings of the system. The reserve
army of
unemployed workers
continually threatens employed workers, pushing them to work hard to produce
for the capitalists.
Criticisms
Many liberal economists believe that the Marxist
labor theory of value has been "discredited".[34]
The labor theory of value predicts that profits will
be higher in labor-intensive industries than in capital-intensive
industries, and empirical data contradicts this. This is sometimes referred
to as the "Great Contradiction." Marx responds to this in his third volume
of Capital with his competition of capitals theory, a mathematical
transformation that has been
fiercely debated. Most economists today also
contest that the value of capital is limited to the "congealed labor" that
it took to build the capital when that capital can increase the productive
capability of labor much more than that[35].
Nonetheless, certain elements of the theory are
still believed to be valid, or the theory is presented in a non-Marxist
tradition.
Jensen Comment
Marx did not envision the future world of robotics and artificial intelligence
where machines are efficiently and effectively replacing more and more unskilled
as well as skilled labor. Factory workers, teachers, and even music composers
are threatened. Increasingly a machine will be able to take blood and tissue
samples for diagnostics superior to the general practitioner without computer
skills. These days a laptop computer seems to be as much a part of the body of
my physician as her eyes and ears. I ask her a challenging medical question and
she finds me an answer in minutes --- not directly from her brain's stored
knowledge but from and electronic knowledge base. Of course she has interpretive
skills of medical jargon that are Greek to me. I still need her after all.
But there are anecdotal exceptions. After one of her heavy spine surgeries my
wife had a physical therapist named Machie who came to our cottage twice each
week. Machie and his wife immigrated from Poland. Machie's wife at one time was
having terrible excruciating pains whenever she stood up, sat up, or even raised
her head. Her physicians, including neurologists from the Dartmouth's Hitchcock
Medical Center, were mystified. So Machie went on an in-depth Internet search.
He found some clues that his wife's troubles may be caused by rare and
life-threatening leakage of spinal cord fluid. He contacted her physicians and
they ordered some very non-standard tests. Sure enough that was her problem, and
the problem gratefully could be corrected. She's in very good health today and
carries on with her career as a mother and a massage therapist.
Humor July
1-31, 2012
Robert De Niro On Saturday Night
Live ---
http://www.hollywood.com/news/Robert_De_Niro_On_SNL_The_Skits_You_Missed/7738903
Video of a Typewriter Doing What
a Laptop Cannot Do ---
http://www.youtube.com/watch_popup?v=G4nX0Xrn-wo&sns=em
The Remember Song (comedy about
growing old) ---
http://www.tomrush.com./video_remember.html
Cartoon and Other Links from the
Jewish World Review
•
Archie
•
Dilbert
•
Ripleys Believe It Or Not!
•
9 to 5
•
Andy Capp
•
Bliss
•
The Born Loser
•
Bottom Liners
•
Flo & Friends
•
Frank & Ernest
•
The Grizzwells
•
Herman
•
Mallard Filmore
•
Moderately Confused
•
Momma
•
One Big Happy
•
The Other Coast
•
Prickly City
•
Shoe
•
The Wizard of Id
To this we might add Maxine ---
Click Here
https://www.google.com/search?q="Maxine"&hl=en&lr=&as_qdr=all&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=EMwBUNCWM6Ld6wHr0vTuBg&ved=0CGsQsAQ&biw=1024&bih=604
Forwarded by Auntie Bev
IT'S SO DRY IN Ohio that the
Baptists are starting to baptize by sprinkling, the Methodists are using
wet-wipes, the Presbyterians are giving rain checks, and the Catholics are
praying for the wine to turn back into water!
Forwarded by Paula
An old man and woman were married for many years, even though they hated each
other. Whenever there was a confrontation, yelling could be heard deep into the
night. The old man would shout, "When I die, I will dig my way up and out of the
grave and come back and haunt you for the rest of your life!"
Neighbors feared him. They believed he practiced magic because of the many
strange occurrences that took place in their neighborhood.
The old man liked the fact that he was feared. To everyone's relief, he died
of a heart attack when he was 98. His wife had a closed casket at the funeral.
After the burial, she went straight to the local bar and began to party as if
there was no tomorrow.
Her neighbors, concerned for her safety, asked "Aren't you afraid that he may
indeed be able to dig his way out of the grave and haunt you for the rest of
your life?"
The wife put down her drink and said, "Let him dig. I had him buried upside
down. And I know he won't ask for directions ."
Forwarded by Dr. Wolff
Alaska
More than half of the coastline of the entire United States is in Alaska .
Amazon
The Amazon rainforest produces more than 20% of the world's oxygen supply.
The Amazon River pushes so much water into the Atlantic Ocean that, more than
one hundred miles at sea off the mouth of the river, one can dip fresh water out
of the ocean. The volume of water in the Amazon river is greater than the next
eight largest rivers in the world combined and three times the flow of all
rivers in the United States ..
Antarctica
Antarctica is the only land on our planet that is not owned by any country..
Ninety percent of the world's ice covers Antarctica .. This ice also represents
seventy percent of all the fresh water in the world. As strange as it sounds,
however, Antarctica is essentially a desert; the average yearly total
precipitation is about two inches. Although covered with ice (all but 0.4% of
it, ice.), Antarctica is the driest place on the planet, with an absolute
humidity lower than the Gobi desert.
Brazil
Brazil got its name from the nut, not the other way around.
Canada
Canada has more lakes than the rest of the world combined. Canada is an
Indian word meaning ' Big Village '.
Chicago
Next to Warsaw , Chicago has the largest Polish population in the world.
Detroit
Woodward Avenue in Detroit, Michigan, carries the designation M-1, so named
because it was the first paved road anywhere.
Damascus , Syria
Damascus, Syria, was flourishing a couple of thousand years before Rome was
founded in 753 BC, making it the oldest continuously inhabited city in
existence.
Istanbul , Turkey
Istanbul, Turkey, is the only city in the world located on two continents.
Los Angeles
Los Angeles ' full name is: El Pueblo de Nuestra Senora la Reina de Los
Angeles de Porciuncula -- and can be abbreviated to 3.63% of its size: L.A.
New York City
The term 'The Big Apple' was coined by touring jazz musicians of the 1930s
who used the slang expression 'apple' for any town or city. Therefore, to play
New York City is to play the big time - The Big Apple.
There are more Irish in New York City than in Dublin , Ireland ; more
Italians in New York City than in Rome , Italy ; and more Jews in New York City
than in Tel Aviv , Israel .
Ohio
There are no natural lakes in the state of Ohio , every one is manmade.
Pitcairn Island
The smallest island with country status is Pitcairn in Polynesia , at just
1.75 sq. miles/4,53 sq. km.
Rome
The first city to reach a population of 1 million people was Rome , Italy in
133 B.C. There is a city called Rome on every continent.
Siberia
Siberia contains more than 25% of the world's forests.
S.M.O.M.
The actual smallest sovereign entity in the world is the Sovereign Military
Order of Malta (S.M.O.M). It is located in the city of Rome , Italy , has an
area of two tennis courts and, as of 2001, has a population of 80 -- 20 less
people than the Vatican .. It is a sovereign entity under international law,
just as the Vatican is.
Sahara Desert
In the Sahara Desert , there is a town named Tidikelt , Algeria , which did
not receive a drop of rain for ten years. Technically though, the driest place
on Earth is in the valleys of the Antarctic near Ross Island . There has been no
rainfall there for two million years.
Spain
Spain literally means 'the land of rabbits'.
St. Paul , Minnesota
St. Paul , Minnesota , was originally called Pig's Eye after a man named
Pierre 'Pig's Eye' Parrant who set up the first business there.
Roads
Chances that a road is unpaved: in the U.S.A. . = 1%; in Canada = ...75%
Russia
The deepest hole ever drilled by man is the Kola Superdeep Borehole, in
Russia . It reached a depth of 12,261 meters (about 40,226 feet or 7.62 miles).
It was drilled for scientific research and gave up some unexpected discoveries,
one of which was a huge deposit of hydrogen - so massive that the mud coming
from the hole was boiling with it.
United States
The Eisenhower interstate system requires that one mile in every five must be
straight. These straight sections are usable as airstrips in times of war or
other emergencies.
Waterfalls
The water of Angel Falls (the world's highest) in Venezuela drops 3,212 feet
(979 meters). They are 15 times higher than Niagara Falls .
I have always thought you should learn something new every day. Unfortunately
many of us are at that age where it will be new again tomorrow. But, give it a
shot anyway.
Forwarded by Auntie Bev
Between 18 and 22, a woman is like Africa. Half discovered, half wild,
fertile and naturally Beautiful!
Between 23 and 30, a woman is like Europe. Well developed and open to trade,
especially for someone of real value.
Between 31 and 35, a woman is like Spain, very hot, relaxed and convinced of
her own beauty.
Between 36 and 40, a woman is like Greece, gently aging but still a warm and
desirable place to visit.
Between 41 and 50, a woman is like Great Britain, with a glorious and all
conquering past.
Between 51 and 60, a woman is like Israel, has been through war, doesn't make
the same mistakes twice, takes care of business.
Between 61 and 70, a woman is like Canada, self-preserving, but open to
meeting new people.
After 70, she becomes Tibet. Wildly beautiful, with a mysterious past and the
wisdom of the ages. An adventurous spirit and a thirst for spiritual knowledge.
THE GEOGRAPHY OF A MAN
Between 1 and 80, a man is like Iran, ruled by nuts.
Forwarded by Auntie Bev
Anagrams
PRESBYTERIAN:
When you rearrange the letters:
BEST IN PRAYER
ASTRONOMER:
When you rearrange the letters:
MOON STARER
DESPERATION:
When
you rearrange the letters:
A ROPE ENDS IT
THE EYES:
When you rearrange the letters:
THEY SEE
GEORGE BUSH:
When you rearrange the letters:
HE BUGS GORE
THE MORSE CODE:
When you rearrange the letters:
HERE COME DOTS
DORMITORY:
When you rearrange the letters:
DIRTY ROOM
SLOT
MACHINES:
When you rearrange the letters:
CASH LOST IN ME
ANIMOSITY:
When you rearrange the letters:
IS NO AMITY
ELECTION RESULTS:
When you rearrange the letters:
LIES - LET'S RECOUNT
SNOOZE ALARMS:
When you rearrange the letters:
ALAS! NO MORE Z 'S
A DECIMAL POINT:
When you rearrange the letters:
I'M A DOT IN PLACE
THE EARTHQUAKES:
When you rearrange the letters:
THAT QUEER SHAKE
ELEVEN PLUS TWO:
When you rearrange the letters:
TWELVE PLUS ONE
MOTHER-IN-LAW:
When you rearrange the letters:
WOMAN HITLER
AND
FINALLY
FOR THE
GRAND FINALE:
PRESIDENT BARACK OBAMA
Jensen deleted this one
Forwarded by Auntie Bev
Little
Red Hen version 2012
"Who will help me plant my wheat?" asked the little red hen.
"Not I," said the cow.
"Not I," said the duck.
"Not I," said the pig.
"Not I," said the goose.
"Then I will do it by myself." She planted her crop and the wheat
grew and ripened.
"Who will help me reap my wheat?" asked the little red hen.
"Not I," said the duck.
"Out of my classification," said the pig.
"I'd lose my seniority," said the cow.
"I'd lose my unemployment compensation," said the goose.
"Then I will do it by myself," said the little red hen, and so she
did.
"Who will help me bake the bread?" asked the little red hen.
"That would be overtime for me," said the cow.
"I'd lose my welfare benefits," said the duck.
"I'm a dropout and never learned how," said the pig.
"If I'm to be the only helper, that's discrimination," said the
goose.
"Then I will do it by myself," said the little red hen.
She baked five loaves and held them up for all of her neighbors to
see. They wanted some and, in fact, demanded a share but the little
red hen said, "No, I shall eat all five loaves."
"Excess profits!" cried the cow. (Nancy Pelosi)
"Capitalist leech!" screamed the duck. (Barbara Boxer)
"I
demand equal rights!" yelled the goose. (Jesse Jackson)
The pig just grunted in disdain. (Harry Reid)
And they all painted 'Unfair!' picket signs and marched around and
around the little red hen, shouting obscenities.
Then the farmer (Obama) came He said to the little red hen, "You
must not be so greedy."
"But I earned the bread," said the little red hen.
"Exactly," said Barack the farmer. "That is what makes our free
enterprise system so wonderful. Anyone in the barnyard can earn as
much as he wants. But under our modern government regulations, the
productive workers must divide the fruits of their labor with those
who are lazy and idle."
And they all lived happily ever after, including the little red hen,
who smiled and clucked, "I am grateful, for now I truly understand."
But her neighbors became quite disappointed in her. She never again
baked bread because she joined the 'party' and got her bread free.
And all the Democrats smiled. 'Fairness' had been established.
Individual initiative had died but nobody noticed; perhaps no one
cared so long as there was free bread that 'the rich' were paying
for.
EPILOGUE
Bill Clinton is getting $12 million for his memoirs.
Hillary got $8 million for hers.
That's $20 million for the memories from two people, who for eight
years repeatedly testified, under oath, that they couldn't remember
anything.
IS THIS A GREAT BARNYARD OR WHAT?
Forwarded by Eileen
During a recent password audit by a company, it was found that an employee
was using the following password:
"MickeyMinniePlutoHueyLouieDeweyDonaldGoofySacramento"
When asked why she had such a long password, she rolled her eyes and said:
"Hello! It has to be at least 8 characters long and include at least one
capital.
Guess the color of her hair?
Forwarded by Gene and Joan
A young boy enters a barber shop and the barber whispers to his customer,
'This is the dumbest kid in the world. Watch while I prove it to you.' The
barber puts a dollar bill in one hand and two quarters in the other, then calls
the boy over and asks, 'Which do you want, son?'
The boy takes the quarters and leaves the dollar. 'What did I tell you?' said
the barber. 'That kid never learns!'
Later, when the customer leaves, he sees the same young boy coming out of the
ice cream store & says ; 'Hey, son! May I ask you a question? Why did you take
the quarters instead of the dollar bill?' The boy licked his cone and replied,
'Because the day I take the dollar, the game's over!'
Forwarded by Maureen
I WAS IN A BAR SATURDAY NIGHT. I HAD A FEW DRINKS....
I NOTICED TWO FAT WOMEN BY THE BAR
THEY BOTH HAD STRONG ACCENTS SO I ASKED: "HEY! ARE YOU TWO LADIES FROM
IRELAND ?"
ONE OF THEM SCREAMED "IT'S WALES YOU FRIGGIN IDIOT"
SO I IMMEDIATELY APOLOGIZED AND SAID: "SORRY ARE YOU TWO WHALES FROM IRELAND
.
THAT'S ALL I REMEMBER.....
Forwarded by Gene and Joan
Kevin had shingles. Those of us who spend much time in a doctor's office
should appreciate this! Doesn't it seem more and more that physicians are
running their practices like an assembly line? Here's what happened to Kevin:
Kevin walked into a doctor's office and the receptionist asked him what he
had. Kevin said: 'Shingles.' So she wrote down his name, address, medical
insurance number and told him to have a seat.
Fifteen minutes later a nurse's aide came out and asked Kevin what he had.
Kevin said, 'Shingles.' So she wrote down his height, weight, a complete medical
history and told Kevin to wait in the examining room.
A half hour later a nurse came in and asked Kevin what he had. Kevin said,
'Shingles.' So the nurse gave Kevin a blood test, a blood pressure test, an
electrocardiogram, and told Kevin to take off all his clothes and wait for the
doctor.
An hour later the doctor came in and found Kevin sitting patiently in the
nude and asked Kevin what he had.
Kevin said, 'Shingles.' The doctor asked, 'Where?' Kevin said, 'Outside on
the truck. Where do you want me to unload 'em??'
Forwarded by Paula
TELL
ME THIS WON'T HAPPEN TO ME
Three
sisters ages 92, 94 and
96 live in a house
together.
One night
the 96 year old draws a
bath.. She puts her foot
in and pauses...
She yells
to the other sisters,
"Was I getting in or out
of the bath?"
The 94
year old yells back, "I
don't know. I'll come up
and see."
She
starts up the stairs and
pauses "Was I going up
the stairs or down?"
The 92
year old is sitting at
the kitchen table having
tea listening to her
sisters.
She
shakes her head and
says, "I sure hope I
never get that
forgetful," she knocked
on wood.
She then
yells, "I'll come up and
help both of you as soon
as I see who's at the
door."
__________________________________
TELL ME
THIS WON'T HAPPEN TO ME
An elderly Lady called
911 on her mobile phone
to report that her car
has been broken into.
She is
hysterical as she
explains her situation
to the operator:
"They've stolen the
stereo, the steering
wheel, the brake pedal
and even the
accelerator!" she cried.
The
operator said, "Stay
calm An officer is on
the way."
A few
minutes later, the
Officer radios in.
"Disregard.." He says,
"She got in the
back-seat by mistake.."
_____________________________________
An older couple were
lying in bed one night.
The husband was falling
asleep but the wife was
in a romantic mood and
wanted to talk.
She said: "You used to
hold my hand when we
were courting."
Wearily he reached
across, held her hand
for a second and tried
to get back to sleep..
A few
moments later she said:
"Then you used to kiss
me."
Mildly irritated, he
reached across, gave her
a peck on the cheek and
settled down to sleep.
Thirty
seconds later she said:
"Then you used to bite
my Neck..."
Angrily, he threw back
the bed clothes and got
out of bed.
"Where are you going?"
she asked..
_____________________________________
DOWN AT THE
RETIREMENT CENTRE
80-year
old Bessie bursts into the rec room at the
retirement home.
She holds her clenched fist in the air and
announces,
"Anyone who can guess what's in my hand can give
me a
kiss
and a hug .
An
elderly gentleman in the rear shouts out, "An
elephant?"
Bessie
thinks a minute and says, "Close enough."
____________________________________
Two elderly ladies
had been friends for many decades.
Over the years, they had shared all kinds of activities and
adventures.
Lately, their activities had been limited to meeting a few
times a week to play cards.
One day, they were playing cards when one looked at the
other and said,
"Now don't get mad at me.. I know we've been friends for a
long time but I just can't think of your name.. I've thought
and thought, but I can't remember it. Please tell me what
your name is."
Her friend glared
at her. For at least three minutes she just stared and
glared at her.
Finally she said,
"How soon do you need to Know?"
_____________________________________
As a senior citizen was driving down the motorway, his car
phone rang.
Answering, he heard his wife's voice urgently warning him,
" Vernon , I Just heard on the news that there's a car going
the wrong way on M25. Please be careful!"
"Hell," said Vernon
, "It's not just one car.. It's hundreds of them!"
_____________________________________
|
Two elderly women were out
driving in a large car - both could barely see over the dashboard.
As they were cruising along, they came to major crossroad. The stop
light was red, but they just went on through.
The woman in the passenger seat
thought to herself "I must be losing it. I could have sworn we just went
through a red light."
After a few more minutes, they came to another major junction and the
light was red again.
Again, they went right through.
The woman in the passenger seat was almost sure that the light had been
red but was really concerned that she was losing it.
She was getting nervous. At the next junction, sure enough, the light
was red and they went on through.
So, she turned to the other woman and said,
"Mildred, did you know that we just ran through three red lights in a
row? You could have killed us both!"
Mildred turned to her and said,
"Oh! Am I driving?"
Forwarded by Paula
To help save the economy, the Government will
announce next month that the Immigration Department will start deporting
seniors (instead of illegals) in order to lower Social Security and Medicare
costs.
Older people are easier to catch and will not
remember how to get back home.
I started to cry when I thought of you. Then it
dawned on me ... oh, shoot ...
I'll see you on the bus!
Forwarded by Jim
TEN THOUGHTS TO PONDER
Number 10: Life is sexually transmitted.
Number 9: Good health is merely the slowest possible rate at which one can
die.
Number 8: Men have two emotions: Hungry and Horny. If you see him without an
erection, make him a sandwich .
Number 7: Give a person a fish and you feed them for a day. Teach a person to
use the Internet and they won't bother you for weeks, months, maybe years.
Number 6: Some people are like a Slinky - not really good for anything, but
you still can't help but smile when you shove them down the stairs.
Number 5: Health nuts are going to feel stupid someday, lying in the
hospitals, dying of nothing.
Number 4; All of us could take a lesson from the weather. It pays no
attention to criticism.
Number 3; Why does a slight tax increase cost you $800.- , and a substantial
tax cut saves you $30.- ?
Number 2; In the 60's, people took acid to make the world weird. Now the
world is weird and people take Prozac to make it normal.
And The Number 1 Thought: Life is like a jar of Jalapeno peppers-- what you
do today, might burn your ass tomorrow.
- - - and as someone recently said to me:
"Don't worry about old age-- it doesn't last that long."
Paula forwarded these quips by Maxine
1. Jim Baker and Jimmy Swaggert have written An impressive new book. It's
called ....... 'Ministers Do More Than Lay People'
2. Transvestite: A guy who likes to eat, drink And be Mary..
3. The difference between the Pope and Your boss, the Pope only expects you
To kiss his ring.
4. My mind works like lightning, One brilliant Flash and it is gone.
5. The only time the world beats a path to Your door is if you're in the
bathroom.
6. I hate sex in the movies. Tried it once. The seat folded up, the drink
spilled and That ice, well, it really chilled the mood.
7. It used to be only death and taxes Now, of course, there's Shipping and
handling, too.
8. A husband is someone who, after taking The trash out, gives the impression
that He just cleaned the whole house.
9. My next house will have no kitchen - just Vending machines and a large
trash can.
11. Definition of a teenager? God's punishment...for enjoying sex.
12. As you slide down the banister of life, may The splinters never point the
wrong way...
Forwarded by Paula
A Wish To Live Forever
I met a fairy today that said she would grant me one wish.
"I want to live forever," I said.
"Sorry," said the fairy, "I'm not allowed to grant wishes like that!"
"Fine,"I said, "then I want to die after Congress gets its head out of its
ass!"
"You're a crafty little bastard," said the fairy.
Forwarded by Maureen
The devil tells them it is
for calling back to Earth.
Putin asks to call Russia and
talks for 5 minutes.
When he is finished the devil
informs him that the cost is a million dollars, so Putin
writes him a check.
Next Queen Elizabeth calls England
and talks for 30 minutes.
When she is finished the devil
informs her that the cost is 6 million dollars, so she
writes him a check.
Finally George Bush gets his turn
and talks for 4 hours.
When he is finished the devil
informs him that the cost is $0.25.
When Putin hears this he goes
ballistic and asks the devil why Bush got to call the USA
so cheaply.
The devil smiles and replies, "
Since Obama took over , the country has gone to hell, so
it's a local call."
Humor Between July 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor073112
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 July 31, 2012 with a little help from my friends.
Bob
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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
---
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Accounting
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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
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CPA
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Free CPA Examination Review Course Courtesy of Joe Hoyle ---
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Bob
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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
Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private
Companies ---
http://www.trinity.edu/rjensen/2008Bailout.htm
Health
Care News ---
http://www.trinity.edu/rjensen/Health.htm
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/
Bob Jensen's Homepage ---
http://www.trinity.edu/rjensen/